Lenders Keep Mortgage Rates Range Bound as Markets Bounce Around

Mortgage rates lost some ground after prices of mortgage backed securities moved lower following a stock market rebound yesterday.  To remind readers, as MBS prices appreciate, lenders are able to pass along lower mortgage rates. As MBS prices fall, lenders are forced to raise mortgage rates.

On Monday, a global equity market selloff led domestic stocks lower. Investors who sold stock market assets then reallocated their funds into risk averse (safe) markets. This was of great benefit to Treasury and MBS prices. However, yesterday as the stock market rebounded from the selloff, a portion of the "flight to safety" funding that the Treasury market received on Monday was lost. Consequently MBS prices reacted negatively and the broad majority of lenders were forced to reprice for the worse. This moved the par 30 year fixed rate up to 5.00% from 4.875%. 

In the overnight trading session Chinese stocks sold off and European markets followed suit which lead US stock futures lower. Overseas weakness resulted in another flight to safety rally in US bond markets which was ofgreat benefit to both the Treasury and MBS market again. However at the US open, the S&P quickly bounced off 880 and moved up to test a key resistance level at 990. Consequently Treasury and MBS prices moved lower. Currently we are watching the stock market for an indication of things to come for mortgage rates. If the S&P moves back above 990 and gains are held, it could mean bad news for mortgage rates.

The only economic report to be released today was the weekly Mortgage Bankers’ Association Applications index.  This report measures the weekly change in mortgage applications at major lenders.  An increasing trend in purchase applications would be a positive indicator of future economic growth since the purchase of a home will lead to other major purchases by the consumer.  In addition, a consumer would have to feel pretty good about their own personal finances and economic outlook to take the major step of buying a home. 

The report indicated that purchase applications increased by 3.9% during the week of August 14th marking the third straight gain in a row.   Many other recent reports have also indicated that housing seems to be bottoming but have not turned the corner yet.  The refinance activity also posted a healthy gain of 6.9% as mortgage rates have dipped lower.  READ MND STORY

Many economists are attributing the increase in purchase applications to the first time home buyer tax credit.   The American Recovery and Reinvestment Act of 2009 allows a tax credit of up to $8000 for qualified first time home buyers that are purchasing a primary residence.  The purchase must take place between January 1, 2009 and December 1, 2009.  You also qualify for this tax credit if you have not owned a home in the previous 3 years.   This tax credit is equal to 10% of the home’s purchase price up to a maximum of $8000.   There are income limitations to qualify.  If you are single with a adjusted gross income over $95,000 or married filing jointly with over $170,000 no need to apply.   Applying for this tax credit is easy by visiting the IRS and filling out form 5405.  If you have more questions, the IRS also provides all the details regarding this program.

If you are considering buying a new home and you qualify for the first time home buyer tax credit...time is running out.   I have spoken to some clients who want to wait to buy as they feel prices have a little more room to drop.  That may be true but you must take other items into account.    For example, today you can get a 30 year fixed rate mortgage around 5%.   By waiting you take the risk of rates increasing and if rates go up by ½ percent, the home will cost you much more in the long run with the higher rate than if you waited for the price to decline.If you have been contemplating buying a home and you have not owned one in the past 3 years remember the $8000 tax credit is scheduled to go away by December 1st of this year. 
 
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage has fallen back to the 4.875% to 5.125% range for the most qualified consumers.  If you are securing a 15 year fixed rate mortgage, you should expect a par rate between 4.375% to 4.625%.   To secure a par interest rate you must have a FICO credit score of 740 or higher (if securing a 15yr fixed you only need a 620 score), a loan to value at 80% or less and pay all the closing costs associated with the loan including one point loan origination/discount/broker fee. 


I will caution again anyone that is still floating an interest rate.  We are back to sub 5% rates and history has shown that rates do not want to remain below 5% for an extended period.   With the battle between the bulls and bears, the markets are very volatile and things can change quickly.  As always, rates move higher at a much faster pace than they move lower.    If you are within a closing window of 30 days, consider locking today.  Tomorrow brings us first time jobless claims and the treasury announcement of the upcoming supply of treasuries to be auctioned.  If jobless claims come in better than expected, the bulls will drive the stock market higher which can cause mortgage rates to move higher.  In addition, the announcement tomorrow of 2yr, 5yr and 7yr notes that will be auctioned next week is rumored to be the largest amount of debt ever offered in a single week.  This could apply pressure on Treasury and MBS prices to move lower.