Mortgage Rates Hold at Two Month Lows
Posted 08-21-2009 at 08:43 AM by VictorBurek
Mortgage rates continue to be range bound but are holding near two month lows. Despite some selling pressure in the morning yesterday, mortgage backed securities managed to move higher to close near the best levels since early July. A few lenders did pass along better pricing as MBS improved from the lows of the morning.
Of late recently I have been using the term range bound quite often. To help you better understand what I mean is look at the room you are in right now. You have a ceiling over your head and a floor beneath your feet. Range bound implies that the movement of the security, in this case MBS, is staying between the ceiling and floor. You can move very easy in that zone but if you want to go through the ceiling that requires more effort. Currently, MBS are at the top of this zone which implies that it will be easier for them to move lower which increases mortgage rates than to continue the upward trend. In addition, the more time they attempt to move higher and fail, the more likely the trend will reverse.
The only economic report to be released today comes from the National Association of Realtors(NAR). Each month they release the Existing Home sales report which totals the number of existing homes, not new construction, in which a sale closed during the month based on a annualized pace. Recent reports have indicated the beginnings of a housing recovery with the last three Existing Home sales reports coming in better than the prior month. Economists surveyed are expecting this trend to continue to an annualized pace of 5.00million from last month’s 4.89million pace. At the height of the housing boom, existing home sales were on an annualized pace of over 7 milllion! An increasing trend in home sales is a positive indicator of future economic growth as it leads to other major purchases such as appliances, flooring, cabinetry, etc…
The report shows that home resales in July came in much higher than expected posting a month over month increase of 7.2%. This moves the annualized pace of existing home sale up from 4.89million in June to 5.24million in July. This is the highest level seen since 2007! Immediately following the release, MBS have moved considerably lower giving back all the gains achieved over the last couple days. It appears that the first time home buyer tax credit, low interest rates and low home prices are helping to stabilize the housing sector.
Also today, Federal Reserve Chairman Ben Bernanke will be giving a speech in Wyoming regarding the Year of the Crisis. Anytime he speaks, market participants will listen in for any hints at future economic policy and his views on the overall economy. He might also give hints on how the Fed intends to withdraw the trillions of dollars they have injected into the economy to stave off a depression.
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers. In order to secure 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 one point loan origination/discount/broker fee.
I will continue to caution you on floating. Over the weekend many events can take place that can have a dramatic impact on mortgage rates. In addition, MBS are at the high end of the current trading zone and appear unable to move any higher. This increases the chances of a reversal which appears to be happening since the release of the existing home sales report. I have pointed out many times that rates move higher much quicker than they move lower. A couple months ago when we were at these levels, many consumers continued to float in the hopes rates would continue to move lower. They missed that opportunity when MBS reversed course in mid July taking mortgage rates into the low 5% range.
On a side note, a recent survey of senior loan officers with major banks have indicated that lender guidelines are getting tougher and tougher. I would like to hear from you on this subject. If you are a consumer, have you tried to apply and have been denied? If you are a mortgage professional, what is your opinion on the current underwriting standards of lenders? In my opinion, the pendulum has swung way too far making qualifying too difficult. Granted, it was way too easy from 2004 to 2006 but I feel the standards of underwriting have gone too far. And some of the conditions being asked for seem rather ridiculous.
Of late recently I have been using the term range bound quite often. To help you better understand what I mean is look at the room you are in right now. You have a ceiling over your head and a floor beneath your feet. Range bound implies that the movement of the security, in this case MBS, is staying between the ceiling and floor. You can move very easy in that zone but if you want to go through the ceiling that requires more effort. Currently, MBS are at the top of this zone which implies that it will be easier for them to move lower which increases mortgage rates than to continue the upward trend. In addition, the more time they attempt to move higher and fail, the more likely the trend will reverse.
The only economic report to be released today comes from the National Association of Realtors(NAR). Each month they release the Existing Home sales report which totals the number of existing homes, not new construction, in which a sale closed during the month based on a annualized pace. Recent reports have indicated the beginnings of a housing recovery with the last three Existing Home sales reports coming in better than the prior month. Economists surveyed are expecting this trend to continue to an annualized pace of 5.00million from last month’s 4.89million pace. At the height of the housing boom, existing home sales were on an annualized pace of over 7 milllion! An increasing trend in home sales is a positive indicator of future economic growth as it leads to other major purchases such as appliances, flooring, cabinetry, etc…
The report shows that home resales in July came in much higher than expected posting a month over month increase of 7.2%. This moves the annualized pace of existing home sale up from 4.89million in June to 5.24million in July. This is the highest level seen since 2007! Immediately following the release, MBS have moved considerably lower giving back all the gains achieved over the last couple days. It appears that the first time home buyer tax credit, low interest rates and low home prices are helping to stabilize the housing sector.
Also today, Federal Reserve Chairman Ben Bernanke will be giving a speech in Wyoming regarding the Year of the Crisis. Anytime he speaks, market participants will listen in for any hints at future economic policy and his views on the overall economy. He might also give hints on how the Fed intends to withdraw the trillions of dollars they have injected into the economy to stave off a depression.
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for the best qualified consumers. In order to secure 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 one point loan origination/discount/broker fee.
I will continue to caution you on floating. Over the weekend many events can take place that can have a dramatic impact on mortgage rates. In addition, MBS are at the high end of the current trading zone and appear unable to move any higher. This increases the chances of a reversal which appears to be happening since the release of the existing home sales report. I have pointed out many times that rates move higher much quicker than they move lower. A couple months ago when we were at these levels, many consumers continued to float in the hopes rates would continue to move lower. They missed that opportunity when MBS reversed course in mid July taking mortgage rates into the low 5% range.
On a side note, a recent survey of senior loan officers with major banks have indicated that lender guidelines are getting tougher and tougher. I would like to hear from you on this subject. If you are a consumer, have you tried to apply and have been denied? If you are a mortgage professional, what is your opinion on the current underwriting standards of lenders? In my opinion, the pendulum has swung way too far making qualifying too difficult. Granted, it was way too easy from 2004 to 2006 but I feel the standards of underwriting have gone too far. And some of the conditions being asked for seem rather ridiculous.
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