Mortgage Rates Start to Rebound
Posted 01-05-2010 at 08:49 AM by VictorBurek
Over the last couple weeks of December, the prices of mortgage backed securities and treasuries both moved considerably lower without much reason. As the prices fell, lenders were forced to offer higher consumer borrowing costs. This is common at year end when most decision makers are on vacation leaving the trading desks to the second team. As we stated, there was a very good chance that we would see a rebound once the new year began. Yesterday, MBS did manage to move higher recapturing some of the losses. There were a few lenders that repriced for the better. For the price gains to continue, it will be dependent upon the upcoming economic data but after a month of losses it was nice to see some price gains.
There are two economic reports that hit the news wires this morning. First, the U.S. Department of Commerce released their Factory Orders report which represents the dollar level of new orders for both durable and non-durable goods. This report does have a two month lag, so today’s report is for the month of November. If orders are increasing, that would indicate that factories will be busier in the months ahead as the work to fill the orders. Busier factories could lead to additional jobs which is good for the overall economy and the equities markets. October’s report indicated factory orders increasing 0.6% and economists surveyed expect November’s orders to post another increase of 0.5%. The report indicated factory orders improved much more than expected at 1.1% and October’s report was revised higher to a 0.8% increase.
The second release came from the National Association of Realtors with the Pending Home Sales Index. A pending sale is one in which a contract has been signed but the loan is yet to close. This index is a leading indicator of housing activity thus market participants track this data for a gauge of housing demand. If pending sales are moving higher, it should lead to more consumer spending as the new home owner’s buy items to fill the home. This report is similar to the Factory Orders report in that it also has a two month lag so today’s data is for the month of November. The report showed pending home sales declining much more than expected. Economists had expected a decline from the prior month of 2.00% but the actual decline was 16.0%!!! This is the biggest monthly drop in history and first monthly decline since January 2009.
Reports from fellow mortgage professionals do indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage has fallen back to the 4.875% to 5.125% range for well qualified consumers. 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 an estimated one point loan origination/discount/broker fee. You may elect to pay less in closing costs but you will have to accept a higher interest rate.
Following the release of the economic data, mbs are moving higher thus I will recommend that you cautiously float for now. If the price gains continue, we could see better pricing later today. We still have several other key economic reports this week which will affect the flow of investor money. We get a sneak peek into the employment situation with the ADP numbers tomorrow. If the employment numbers are better, these recent gains could quickly disappear. If you are floating a rate, evaluate your position at close and if you like the rate and can't afford a higher rate than lock.
There are two economic reports that hit the news wires this morning. First, the U.S. Department of Commerce released their Factory Orders report which represents the dollar level of new orders for both durable and non-durable goods. This report does have a two month lag, so today’s report is for the month of November. If orders are increasing, that would indicate that factories will be busier in the months ahead as the work to fill the orders. Busier factories could lead to additional jobs which is good for the overall economy and the equities markets. October’s report indicated factory orders increasing 0.6% and economists surveyed expect November’s orders to post another increase of 0.5%. The report indicated factory orders improved much more than expected at 1.1% and October’s report was revised higher to a 0.8% increase.
The second release came from the National Association of Realtors with the Pending Home Sales Index. A pending sale is one in which a contract has been signed but the loan is yet to close. This index is a leading indicator of housing activity thus market participants track this data for a gauge of housing demand. If pending sales are moving higher, it should lead to more consumer spending as the new home owner’s buy items to fill the home. This report is similar to the Factory Orders report in that it also has a two month lag so today’s data is for the month of November. The report showed pending home sales declining much more than expected. Economists had expected a decline from the prior month of 2.00% but the actual decline was 16.0%!!! This is the biggest monthly drop in history and first monthly decline since January 2009.
Reports from fellow mortgage professionals do indicate lender rate sheets to be improved from yesterday. The par 30 year conventional rate mortgage has fallen back to the 4.875% to 5.125% range for well qualified consumers. 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 an estimated one point loan origination/discount/broker fee. You may elect to pay less in closing costs but you will have to accept a higher interest rate.
Following the release of the economic data, mbs are moving higher thus I will recommend that you cautiously float for now. If the price gains continue, we could see better pricing later today. We still have several other key economic reports this week which will affect the flow of investor money. We get a sneak peek into the employment situation with the ADP numbers tomorrow. If the employment numbers are better, these recent gains could quickly disappear. If you are floating a rate, evaluate your position at close and if you like the rate and can't afford a higher rate than lock.
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