Mortgage Rates Stop Bleeding, Rate Sheets Slightly Improved

Mortgage backed securities opened lower in price yesterday morning which forced lenders to worsen rate sheets. As the day progressed, MBS held steady to close just above opening levels. The lack of price volatility allowed lenders to hold rates unchanged on the day. After many days in a row of worsening mortgage rates, we opened this morning to slightly improved rate sheets.

Our lone economic report was weekly Jobless Claims. From the Department of Labor, this report tracks the number of Americans that filed for first time unemployment benefits in the prior week. Since our economy is driven by consumer spending, higher jobless claims indicates consumers will have less money to spend which is bad for corporate profits and stocks but generally helpful in keeping interest rates low. This report gives us three measures of unemployment claims:

- 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 collecting extended and emergency benefits which can last as long as 99 weeks

Here are the results:

- Initial Jobless Claims: -21,000 to 434,000 vs estimates of 453,000. Prior week revised worse to show an additional 3,000 claims. This is the lowest level in three months!
- Continued Claims: -122,000 to 4.356million vs. estimates for a print of 4.40million. This is the fewest continued claims since November 2008.
- Extended and Emergency Benefits: -414,100 to 4.66million

At 1pm, the Department of Treasury will announce the results of today’s auction of $29billion of 7 year notes. The prior two auctions this week were met with above average demand when compared to the prior 10 auction of similar securities. If today’s auction is met with the same demand, mortgage rates should be able to at least hold ground. However, if demand falls, rates will be pressured higher later today.

Lender rate sheets are improved this morning thanks to early morning gains with MBS. The par 30 year conventional rate mortgage remains in the 4.125% to 4.375% range for well qualified consumers. If you are seeking a 15 year term, you should expect a par interest rate in the 3.50% to 3.75% range. To qualify for a par interest rate, your credit profile would have to be not subjected to Loan Level Price Adjusters(LLPA). Consumers with FICO scores over 740 and loan to values under 80% are not subjected to LLPA’s. If you have lower FICO scores you should expect to pay additional costs or will have to accept a higher interest rate.

I favor floating all loans today. MBS are seeing some demand this morning which could lead to better pricing later today. Additionally, if you have been floating, you are doing so in hopes of the Fed announcing a second round of Quantitative Easing around the November 3 FOMC policy meeting which could help move mortgage rates back to the record lows we saw a few weeks back.