Mortgage Rates: Waiting for New Guidance


A scary setback early in the week had us on the edge of our seats but home loan
borrowing costs managed to recover thanks to a “flight to safety” in the bond market. This helped mortgage rates end the week near the same levels they closed at last Friday.

A “flight to safety” happens when investors are nervous about owning
risky assets like stocks, but do not want to miss out on earning a
return on their funds, so they allocate their money into risk-free
government guaranteed U.S Treasury debt to provide a safe-haven and an
investment return. As benchmark Treasury yields fall on “flight to
safety” buyer demand, prices of mortgage-backed securities move higher
in unison. This allows lenders to reprice their rate sheets for the
better and gives originators an opportunity to offer fence-sitting
borrowers lower mortgage rates or more competitive closing costs.

In the chart of Consumer Rate Quotes below, if the line is moving up, closing costs are rising.  If the line is moving lower, costs are
getting cheaper. Sideways mortgage rate behavior followed by an abrupt drop followed
by another spell of mostly sideways activity can be seen when looking closer at the chart . More recently however a slight uptrend is noticeable, this is the “scary setback” we referenced above. Costs have however corrected from that slight spike.   Loan pricing is not as aggressive as it was on June 3rd (best day to
lock all year so far), but we’re getting closer to those levels again…

The chart above
compares the average origination costs (as a percentage of loan amount)
for several available mortgage note rates as quoted by the five major
lenders. Each line represents a different 30 year fixed mortgage note
rate.  The numbers on the right vertical axis are the origination
closing costs, as a percentage of your loan amount, that a borrower
would be required to pay in order to close on that note rate. If the
note rate graph line is below the 0.00% marker, the consumer may
potentially receive closing cost help from their lender in the form of a
lender credits. If the note rate line is above the 0.00% marker, the
consumer should expect to pay additional points at the closing table to
cover permanent buydown costs and origination fees. PLEASE SEE OUR


Execution” conventional 30-year fixed mortgage rate is 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:  This recovery rally is encouraging from a
big picture perspective as it keeps the door open for our longer-term
bullish mortgage rate bias to extend deeper into the summer
months. Still, short-term scenarios should take caution. The
past few days provide a perfect example of how quickly unfriendly
corrections can occur in the mortgage market. Hopefully these back-ups
illustrate why we normally urge defensive short-term stances, even as
improve.  We may have dodged a bullet, but we’re not out of the
woods yet. More bouts of volatility are very possible.

CURRENT 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. We say that because the timing of such a move is “at any
moment”. And until it happens, 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 three
days ago 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 this week, 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.

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






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