Mortgage Rates Holding at New Lows
Posted 08-12-2010 at 07:53 AM by VictorBurek
Despite a large sell off in stocks, mortgage rates held stable yesterday at new all time lows. The economic data was bond friendly but an auction of 10 year treasury notes was only met with so so demand. A few lenders who issued pricing early did give a small reprice for the better but the vast majority of lender left rate sheets unchanged.
We have only one economic data print this morning… Weekly Jobless Claims.
Released by the Department of Labor, this report provides three timely metrics on the health of the labor market:
Here are the results:
At 1pm, the Department of Treasury will announce the results of today’s auction of $16billion of 30 year bonds. If demand is strong, rates should hold steady but if demand is weak rates will be pressured higher. Strong demand for our nation’s debt is one of several factors that have attributed to record low mortgage rates. Additionally, bad economic news here and abroad has created a “flight to safety” bid by market participants.
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 money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
Lender rate sheets are similar to what we had yesterday. The par 30 year rate mortgage remains in the 4.25% to 4.50% range with several lenders offering 4.125%... but that rate will cost extra. To qualify for a par interest rate, you must have a FICO score which is not subject to risk based adjustments. A consumer with a FICO score of 700 would have to pay an additional .75 points to get the same rate as a consumer with a 740 FICO. If your FICO score is under 680 and you have a loan to value over 80%, you should consider a FHA loan which offers similar rates as conventional loans with lower FICO score requirements but higher closing costs.
With stocks poised for another bad day, I see little chance of rates rising. If you can tolerate the risk, lets float for the day. If you are closing within the next 15 days, you should go ahead and lock as the chance of rates moving lower is also minimal and 15 day locks offer the best pricing.
We have only one economic data print this morning… Weekly Jobless Claims.
Released by the Department of Labor, this report provides three timely metrics on the health of the labor market:
- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits
Here are the results:
- Initial Jobless Claims: +2000 to 484,000 vs. estimates for a read of 465,000. Prior week’s data was revised worse to show 3,000 more claims. This is the highest number of initial claims since February of this year. WORSE THAN EXPECTED
- Continued Claims: -118,000 to 4.45 million vs. estimates for a read of 4.53 million. BETTER THAN EXPECTED
- Extended and Emergency Benefits: +1.34million to 5.28million. The large jump in Extended and Emergency Claims is attributed to unemployed Americans whose eligibility was restored when Congress passed legislation to extend emergency benefits beyond the current 99 month period. So many unemployed folks who saw their benefits disappear can now start collecting again
At 1pm, the Department of Treasury will announce the results of today’s auction of $16billion of 30 year bonds. If demand is strong, rates should hold steady but if demand is weak rates will be pressured higher. Strong demand for our nation’s debt is one of several factors that have attributed to record low mortgage rates. Additionally, bad economic news here and abroad has created a “flight to safety” bid by market participants.
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 money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
Lender rate sheets are similar to what we had yesterday. The par 30 year rate mortgage remains in the 4.25% to 4.50% range with several lenders offering 4.125%... but that rate will cost extra. To qualify for a par interest rate, you must have a FICO score which is not subject to risk based adjustments. A consumer with a FICO score of 700 would have to pay an additional .75 points to get the same rate as a consumer with a 740 FICO. If your FICO score is under 680 and you have a loan to value over 80%, you should consider a FHA loan which offers similar rates as conventional loans with lower FICO score requirements but higher closing costs.
With stocks poised for another bad day, I see little chance of rates rising. If you can tolerate the risk, lets float for the day. If you are closing within the next 15 days, you should go ahead and lock as the chance of rates moving lower is also minimal and 15 day locks offer the best pricing.
Total Comments 1
Comments
-
MBS are moving lower... really no reason but they are.. Lenders in a position that they may reprice worse. if you are locking today, you better hurry.Posted 08-12-2010 at 08:47 AM by VictorBurek
