Mortgage Rates Improve as Stocks Tumble
Posted 04-28-2010 at 07:59 AM by VictorBurek
News from across the pond regarding Greece and Portugal being downgraded led to a flight to safety rally. This is when investors sell stocks in favor of the relative safety of the fixed income sector. Leading the gains was the benchmark 10 year treasury note which fell from an opening yield of 3.80 to under 3.70. Mortgage backed securities improved just over a half a point which allowed all lender to reprice for the better with several lenders offering multiple price improvements.
Early this morning the Mortgage Bankers Association released their weekly mortgage applications index. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. This is a lower tier report and generally has very little impact on the markets.
Last week’s report indicated a large rebound in both purchase and refinance activity following a very disappointing report over the Easter holiday. Purchase applications posted a 10.1% increase while the refinance activity rose 15.8% during the week of April 16th. The recent dip in mortgage rates contributed to the increase in refinances.
Today’s release indicated a continuing trend with purchase applications increasing +7.4% as home buyers rush to beat the deadline of the expiration of the home buyer tax credit. However, the refinance activity declined -8.8%.
If you are hoping to take advantage of the up to $8000 tax credit for first time home buyers or the up to $6500 for repeat buyers, you better hurry. To qualify, you must be under contract by April 30 and your loan must close by June 30. It appears that there is no chance of this government stimulus to be extended.
At 1pm eastern, the Department of Treasury will announce the results of today’s $42billion 5 year note auction. Yesterday’s 2yr auction was average but with the flight to safety rally in full affect, the results didn’t impact the markets. Today’s 5 year auction is more relevant to mortgages as the life of a mortgage is much closer to 5 years than it is to 2 years. Strong demand for our nation’s debt can help mortgage rates hold onto recent gains, but weak demand will pressure rates higher.
The most impactful event today will be the Federal Open Market Committee’s Policy Statement at 2:15pm. At the conclusion of the 2 day meeting where our nation’s monetary policy is set, the FOMC releases a statement where they announce any changes to the Fed Fund Rate and give an outlook on the economy. There is very little chance of a change to the current Fed Fund rate of 0 to .25%; however, market participants will scour the statement for any hint of future monetary policy and the Fed’s outlook on our economy. The Fed has stated they intend to keep the Fed Fund rate at current levels for an “extend period”. Any changes to that verbiage could cause mortgage rates to rise later today. I do feel today’s statement will paint a rosy picture of future economic growth which doesn’t favor low mortgage rates.
Reports from fellow mortgage professionals indicate lender rates sheets to be slightly worse than the last ones we received last night due to early morning weakness in the bond market. The par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% range for well qualified consumers. There are a few lenders offering 4.75%. To secure a par interest rate on a conventional 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 including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower FICO score requirements.
I favor locking all loans closing within the next 30 days following the success strategy of “lock the price highs, float the price lows”. MBS are currently at the top of a range that has held firm for quite some time. The news regarding Europe could help us break above this range which could lead to lower mortgage rates but we must learn from recent history which has shown market participants to be reluctant to move MBS prices higher. Already this morning, the fixed income sector is moving lower as our stock market looks to move higher after yesterday’s sell off.
Early this morning the Mortgage Bankers Association released their weekly mortgage applications index. The MBA survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. This is a lower tier report and generally has very little impact on the markets.
Last week’s report indicated a large rebound in both purchase and refinance activity following a very disappointing report over the Easter holiday. Purchase applications posted a 10.1% increase while the refinance activity rose 15.8% during the week of April 16th. The recent dip in mortgage rates contributed to the increase in refinances.
Today’s release indicated a continuing trend with purchase applications increasing +7.4% as home buyers rush to beat the deadline of the expiration of the home buyer tax credit. However, the refinance activity declined -8.8%.
If you are hoping to take advantage of the up to $8000 tax credit for first time home buyers or the up to $6500 for repeat buyers, you better hurry. To qualify, you must be under contract by April 30 and your loan must close by June 30. It appears that there is no chance of this government stimulus to be extended.
At 1pm eastern, the Department of Treasury will announce the results of today’s $42billion 5 year note auction. Yesterday’s 2yr auction was average but with the flight to safety rally in full affect, the results didn’t impact the markets. Today’s 5 year auction is more relevant to mortgages as the life of a mortgage is much closer to 5 years than it is to 2 years. Strong demand for our nation’s debt can help mortgage rates hold onto recent gains, but weak demand will pressure rates higher.
The most impactful event today will be the Federal Open Market Committee’s Policy Statement at 2:15pm. At the conclusion of the 2 day meeting where our nation’s monetary policy is set, the FOMC releases a statement where they announce any changes to the Fed Fund Rate and give an outlook on the economy. There is very little chance of a change to the current Fed Fund rate of 0 to .25%; however, market participants will scour the statement for any hint of future monetary policy and the Fed’s outlook on our economy. The Fed has stated they intend to keep the Fed Fund rate at current levels for an “extend period”. Any changes to that verbiage could cause mortgage rates to rise later today. I do feel today’s statement will paint a rosy picture of future economic growth which doesn’t favor low mortgage rates.
Reports from fellow mortgage professionals indicate lender rates sheets to be slightly worse than the last ones we received last night due to early morning weakness in the bond market. The par 30 year conventional rate mortgage is holding in the 4.875% to 5.125% range for well qualified consumers. There are a few lenders offering 4.75%. To secure a par interest rate on a conventional 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 including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower FICO score requirements.
I favor locking all loans closing within the next 30 days following the success strategy of “lock the price highs, float the price lows”. MBS are currently at the top of a range that has held firm for quite some time. The news regarding Europe could help us break above this range which could lead to lower mortgage rates but we must learn from recent history which has shown market participants to be reluctant to move MBS prices higher. Already this morning, the fixed income sector is moving lower as our stock market looks to move higher after yesterday’s sell off.
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