Mortgage Rates Hold Steady Under 5%
Posted 08-27-2009 at 08:16 AM by VictorBurek
The prices of mortgage backed securities held relatively stable yesterday, trading in a tight range with typical low summer volume. Of note, the Treasury Department did successfully auction $39billion of 5 year notes with above average demand. Usually with a strong auction you see MBS move higher in price, but this did not occur yesterday. MBS remain at the top of the recent trading range with no apparent motivation by market participants to drive them higher in price which reduces mortgage rates. The longer they remain at the top of this range without breaking through, the more likely the next move will be lower which increases mortgage rates. This has been a consistent pattern over the last few months.
We do have three note worthy events taking place today which will determine the direction of the markets. First out is the first revisions to second quarter Gross Domestic Product(GDP). GDP is an all encompassing measure of economic activity and represents the total value of our country’s production. The initial estimate of GDP for the second quarter showed that our economy shrank by 1.0% and economists surveyed are expecting the first revisions to GDP to show that our economy shrank more than first reported. The U.S. Department of Commerce reports that revised GDP for the second quarter showed that the economy contracted at 1.0% matching last month’s advanced reading. Since this report is backwards looking and close to expectations, it is not having an impact on the markets. Market participants are much more concerned with looking forward than looking back.
The U.S. Department of Labor reports the weekly jobless claims this morning. This report totals the number of Americans that filed for first time unemployment benefits during the prior week. As part of this report we get the continuing claims which measures the number of Americans that continue to file for benefits due to lack of finding a new job. Recent reports have shown the level of claims easing but remain stubbornly high. The report indicates that first time claims came in higher than expected but fell 10,000 to 570,000 from a revised 580,000 last week. The continuing claims dropped a whopping 119,000 to 6.13 million from 6.24 million last week. The positive news on the continuing claims is being attributed more to people losing their benefits rather than finding a job.
At 1pm eastern time, the Department of Treasury will conduct its final auction of the week with $28billion of 7 year notes being offered to the highest bidder. Yesterday’s 5 year note auction did garner better demand than the previous 5 year auction of similar size in July. As always with Treasury auctions, the size of the offering is known in advance so the key component for a successful auction is the demand. High demand for US debt especially from foreign investors helps to keep mortgage rates low.
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 consumer. In order to secure a par interest rate on a 30 year fixed rate mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs associated with the loan including one point loan origination/discount/broker fee. If you are looking to secure a 15 year fixed rate mortgage you should expect a par rate of 4.375% to 4.625%. To qualify for a par 15 year fixed rate mortgage you only need a FICO credit score of 620, a loan to value at 80% or less and pay all closing costs including one point.
If you are attempting to access any equity from your home, you should expect your mortgage rate to be higher by about .25% or you can pay additional fees to buy the rate lower. The higher rates on equity loans are due to the Loan Level Price Adjustment fees that were initiated by Fannie Mae and Freddie Mac last year. These higher fees apply to any term loan you choose from a adjustable rate to a 30 year fixed rate. For example, a consumer with a 740 credit score cashing out to 80% of the homes appraised value has to pay an additional fee of .50 on top of the other costs to secure a par rate. If the consumer has a 650 credit score, that fee sky rockets to 2.25 pts. (2.25 points on a $200,000 mortgage is an additional $4500 in fees!) These new LLPA fees make it even more important to make sure your FICO credit score is as high as possible. The best rates and lowest fees go to consumers with 740 and higher scores. If you would like to review these fees, you can check them out on Fannie Mae's website by clicking here.
I will continue to caution you on floating your interest rate. MBS remain at the top of a trading zone and appear to be unable to move any higher which would result in lower mortgage rates. Over the last few months we have seen the same pattern develop over and over. Mortgage rates move to 4.875%, test the top of the trading range, but then move lower causing mortgage rates to spike higher quickly. At this point, you have more to lose than to gain by floating.
We do have three note worthy events taking place today which will determine the direction of the markets. First out is the first revisions to second quarter Gross Domestic Product(GDP). GDP is an all encompassing measure of economic activity and represents the total value of our country’s production. The initial estimate of GDP for the second quarter showed that our economy shrank by 1.0% and economists surveyed are expecting the first revisions to GDP to show that our economy shrank more than first reported. The U.S. Department of Commerce reports that revised GDP for the second quarter showed that the economy contracted at 1.0% matching last month’s advanced reading. Since this report is backwards looking and close to expectations, it is not having an impact on the markets. Market participants are much more concerned with looking forward than looking back.
The U.S. Department of Labor reports the weekly jobless claims this morning. This report totals the number of Americans that filed for first time unemployment benefits during the prior week. As part of this report we get the continuing claims which measures the number of Americans that continue to file for benefits due to lack of finding a new job. Recent reports have shown the level of claims easing but remain stubbornly high. The report indicates that first time claims came in higher than expected but fell 10,000 to 570,000 from a revised 580,000 last week. The continuing claims dropped a whopping 119,000 to 6.13 million from 6.24 million last week. The positive news on the continuing claims is being attributed more to people losing their benefits rather than finding a job.
At 1pm eastern time, the Department of Treasury will conduct its final auction of the week with $28billion of 7 year notes being offered to the highest bidder. Yesterday’s 5 year note auction did garner better demand than the previous 5 year auction of similar size in July. As always with Treasury auctions, the size of the offering is known in advance so the key component for a successful auction is the demand. High demand for US debt especially from foreign investors helps to keep mortgage rates low.
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 consumer. In order to secure a par interest rate on a 30 year fixed rate mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs associated with the loan including one point loan origination/discount/broker fee. If you are looking to secure a 15 year fixed rate mortgage you should expect a par rate of 4.375% to 4.625%. To qualify for a par 15 year fixed rate mortgage you only need a FICO credit score of 620, a loan to value at 80% or less and pay all closing costs including one point.
If you are attempting to access any equity from your home, you should expect your mortgage rate to be higher by about .25% or you can pay additional fees to buy the rate lower. The higher rates on equity loans are due to the Loan Level Price Adjustment fees that were initiated by Fannie Mae and Freddie Mac last year. These higher fees apply to any term loan you choose from a adjustable rate to a 30 year fixed rate. For example, a consumer with a 740 credit score cashing out to 80% of the homes appraised value has to pay an additional fee of .50 on top of the other costs to secure a par rate. If the consumer has a 650 credit score, that fee sky rockets to 2.25 pts. (2.25 points on a $200,000 mortgage is an additional $4500 in fees!) These new LLPA fees make it even more important to make sure your FICO credit score is as high as possible. The best rates and lowest fees go to consumers with 740 and higher scores. If you would like to review these fees, you can check them out on Fannie Mae's website by clicking here.
I will continue to caution you on floating your interest rate. MBS remain at the top of a trading zone and appear to be unable to move any higher which would result in lower mortgage rates. Over the last few months we have seen the same pattern develop over and over. Mortgage rates move to 4.875%, test the top of the trading range, but then move lower causing mortgage rates to spike higher quickly. At this point, you have more to lose than to gain by floating.
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