Mortgage Rates Come Under Pressure
Posted 12-02-2009 at 08:40 AM by VictorBurek
After closing at all time highs on Monday, the prices of mortgage backed securities have come under pressure and moved considerably lower yesterday. The sell off led to all lenders repricing for the worse with some repricing multiple times as the losses continued all the way into close. That pressure is continuing this morning as MBS have opened even lower.
The data this morning started with the Mortgage Bankers’ Associations applications index which tracks the weekly change in the number of mortgage applications at major lenders. An increasing trend for both would be positive for the economy and stock market. More home purchase applications should equate to more home purchases which tends to increase demand for furniture, flooring, etc.. as home buyers buy items to furnish the new home. Higher refinance activity is also positive for the economy as home owners refinance to lower rates and lower payments freeing up cash which can be spent into the economy. For the holiday shortened week of November 27th, the index showed purchase applications increasing 4.1% and the refinance activity increasing 1.7%. Historic low mortgage rates helped contribute to the continued increase in refinance activity while low home prices and government stimulus for home buyers continues to help the housing market recover.
Also out this morning is a preview of the jobs sector with the release of the ADP Employment report. This data comes out on the Wednesday before the official government report on the number of jobs lost or created and the unemployment rate. Historically speaking, the data from ADP has varied greatly from the official report but it is gaining more credibility as its accuracy has been improving. One big difference between the ADP numbers and the official government report is that ADP does not take into account government hiring, only the private sector.
The ADP report indicated that U.S. companies cut 169,000 jobs last month topping economists estimates of only a loss of 150,000 jobs. This is the lowest number of jobs lost since July of 2008. Friday’s much more important Employment Situation report is expected to show only a loss of 100,000 jobs and the unemployment rate holding steady at 10.2%.
Later today we get the release of the Beige book which is a report on economic conditions that is used at the FOMC meetings where our nation’s monetary policy is set. Much of the information is already known, but market participants will still review so they can see for themselves one of the items the Fed officials use to determine monetary policy. This report is produced and released about two weeks before the FOMC meetings which occur approximately every six weeks.
Early reports from fellow mortgage professionals indicate lender rate sheets to be worse this morning. The par 30 year conventional rate mortgage has risen to the 4.625% to 4.875% range for well qualified consumers. To qualify for a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect a par rate in the 4.125% to 4.375% range with similar fees.
MBS have moved back into the range. Hopefully you took my advice and your loan is locked. If you have not locked as of yet you can probably float for now; however, if Friday’s Employment Situation report comes in on or better than expected, rates could worsen very quickly. Despite worse pricing today as compared to yesterday and the day before, rates are still fantastic. Yes, rates might move .125% lower but they could move much higher so much more risk in floating of higher rates than of rates going lower. My advice is float at your own risk. The safe call is to take advantage of the rates today, lock and move on.
The data this morning started with the Mortgage Bankers’ Associations applications index which tracks the weekly change in the number of mortgage applications at major lenders. An increasing trend for both would be positive for the economy and stock market. More home purchase applications should equate to more home purchases which tends to increase demand for furniture, flooring, etc.. as home buyers buy items to furnish the new home. Higher refinance activity is also positive for the economy as home owners refinance to lower rates and lower payments freeing up cash which can be spent into the economy. For the holiday shortened week of November 27th, the index showed purchase applications increasing 4.1% and the refinance activity increasing 1.7%. Historic low mortgage rates helped contribute to the continued increase in refinance activity while low home prices and government stimulus for home buyers continues to help the housing market recover.
Also out this morning is a preview of the jobs sector with the release of the ADP Employment report. This data comes out on the Wednesday before the official government report on the number of jobs lost or created and the unemployment rate. Historically speaking, the data from ADP has varied greatly from the official report but it is gaining more credibility as its accuracy has been improving. One big difference between the ADP numbers and the official government report is that ADP does not take into account government hiring, only the private sector.
The ADP report indicated that U.S. companies cut 169,000 jobs last month topping economists estimates of only a loss of 150,000 jobs. This is the lowest number of jobs lost since July of 2008. Friday’s much more important Employment Situation report is expected to show only a loss of 100,000 jobs and the unemployment rate holding steady at 10.2%.
Later today we get the release of the Beige book which is a report on economic conditions that is used at the FOMC meetings where our nation’s monetary policy is set. Much of the information is already known, but market participants will still review so they can see for themselves one of the items the Fed officials use to determine monetary policy. This report is produced and released about two weeks before the FOMC meetings which occur approximately every six weeks.
Early reports from fellow mortgage professionals indicate lender rate sheets to be worse this morning. The par 30 year conventional rate mortgage has risen to the 4.625% to 4.875% range for well qualified consumers. To qualify for a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect a par rate in the 4.125% to 4.375% range with similar fees.
MBS have moved back into the range. Hopefully you took my advice and your loan is locked. If you have not locked as of yet you can probably float for now; however, if Friday’s Employment Situation report comes in on or better than expected, rates could worsen very quickly. Despite worse pricing today as compared to yesterday and the day before, rates are still fantastic. Yes, rates might move .125% lower but they could move much higher so much more risk in floating of higher rates than of rates going lower. My advice is float at your own risk. The safe call is to take advantage of the rates today, lock and move on.
Total Comments 0
