Mortgage Rates: Volatility Leaves Lenders Defensive

Interest Rates

Home loan borrowing costs continue to hover near the best levels we’ve seen all year. Activity in the secondary mortgage market is getting more and more restless though as investors await an update from the Federal Reserve tomorrow and new developments in the Greek debt crisis. Intraday volatility has picked up as a result. This is important because lenders tend to price loans more defensively when volatility is a problem.

CURRENT MARKET: The “Best Execution” conventional 30-year
fixed mortgage rate is still 4.50%. Some lenders may be quoting 4.50% with increased
closing costs in the form of origination fees. Some lenders may also be quoting
4.375%, but those offers will definitely carry additional closing costs. 
These costs could be worth it to applicants who plan to keep their new mortgage
outstanding for long enough to breakeven on the extra upfront costs.  On
FHA/VA 30 year fixed “Best Execution”  is 4.25%.  15 year
fixed conventional loans are best priced at 3.75%. Five year ARMs are best
priced at 3.125% but the ARM market is more stratified and there is more
variation in what will be “Best-Execution” depending on your
individual scenario. 

PREVIOUS GUIDANCE:  There’s a weird feeling in the air. Stocks
are teetering on a major technical breakdown and bonds smell fear but are
waiting for new guidance to be offered. If stocks fail to mount a recovery
rally in the near future, we could be looking at another leg lower in Best
Execution mortgage rates. While this “feeling” ties together well
with our long-term outlook, it’s still speculative in nature and largely driven
by headline news. We say that because the timing of such news headlines, 
positive or negative,   is “at any moment”. And until it
the market is given new information, stocks are gonna put up a fight. This
“scratching and clawing” in equities implies the potential for loan
pricing volatility remains high. Remember, it was only last week when Best
Execution Mortgage Rates were teetering on a shift higher because stocks had
put together a decent intraday rally effort. We may have dodged a bullet, but
we’re not out of the woods yet. The past few days provide a perfect example of
how quickly unfriendly fluctuations can occur in the mortgage market.

CURRENT GUIDANCE:  “Volatility” in and of itself doesn’t
mean rates are more likely to get directionally better or worse, but it does mean
lenders are more anxious about the potential for larger intraday loan pricing swings. This creates a defensive environment where rate sheets fluctuate in a wider range of offers.  If you can’t
afford (or don’t want to afford) to risk what could be a meaningful increase in
closing costs or even a .125% shift higher in rate, we’re always in favor of protecting current offers, especially when rates are near their best levels in recent memory
and high-risk, high-impact economic events are less than 24 hours away.  If you float through today into tomorrow, you’re basically accepting any short-term rate/cost adjustments that take place following the market’s
reaction to those events. ECON CALENDAR

What MUST be considered BEFORE one thinks about capitalizing on a rates

   1. WHAT DO YOU NEED? Rates might not rally as much as you
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough


“Best Execution” is the most cost efficient combination of
note rate offered and points paid at closing. This note rate is determined
based on the time it takes to recover the points you paid at closing (discount)
vs. the monthly savings of permanently buying down your mortgage rate by
0.125%.  When deciding on whether or not to pay points, the borrower must
have an idea of how long they intend to keep their mortgage. For more info, ask
you originator to explain the findings of their “breakeven analysis”
on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer
: The “Best Execution” loan
pricing quotes shared above are generally seen as the more aggressive side of
the primary mortgage market. Loan originators will only be able to offer these
rates on conforming loan amounts to very well-qualified borrowers who have a
middle FICO score over 740 and enough equity in their home to qualify for a
refinance or a large enough savings to cover their down payment and closing
costs. If the terms of your loan trigger any risk-based loan level pricing
adjustments (LLPAs), your rate quote will be higher. If you do not fall into
the “perfect borrower” category, make sure you ask your loan
originator for an explanation of the characteristics that make your loan more
expensive. “No point” loan doesn’t mean “no cost” loan. The
best 30 year fixed conventional/FHA/VA mortgage rates still include closing
costs such as: third party fees + title charges + transfer and recording. Don’t
forget the fiscal frisking that comes along with the underwriting process

Leave a Reply