Mortgage Rates Maintain Status Quo
Mortgage rates haven't moved much this week as prices of mortgage backed securities continue to bounce around a range. Yesterday's highlight was the Treasury Department's successful 5 year note auction. Demand for the record tying $39 billion issuance was above average, allowing the rates sector to maintain their recent range heading into the close.
This morning the U.S. Department of Commerce reported that GDP was expected to fall 1.00% in the second quarter of 2009, this is no change to their initial GDP reading. GDP is an all encompassing measure of our country’s economic output. The initial estimate of 2Q GDP indicated that our economy shrank by 1.0%. Economists surveyed were expecting today's revision to show that our economy shrank more than initially reported. Since this report is backward looking and close to expectations, it is not having an impact on rates.To read more, click here.
The U.S. Department of Labor reported on weekly jobless claims this morning. This report totals the number of Americans that filed for first time unemployment benefits in the prior week. As part of this report we get continuing claims data which measures the number of Americans that continue to file for benefits due to lack of finding a new job. Recent reports have shown that the level of claims is easing, but are still stubbornly high. Today's release was 570,000 new claims, 10,000 less than last week's revised 580,000. The continuing claims dropped 19,000 to 6.13 million from 6.24 million last week. The positive news on the continuing claims front can be attributed to benefits expiring rather than people finding jobs. To read more, click here.
At 1pm eastern time, the Department of Treasury will conduct its final auction of the week with $28billion of 7 year notes being offered. 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. Matt and AQ will cover this on the MBS Commentary blog once the auction is complete.
Reports from fellow mortgage professionals indicate that the par 30 year fixed conventional mortgage rate remains in the 4.875% to 5.125% range for well qualified consumers. 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/discountbroker 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 institituted by Fannie Mae and Freddie Mac. These igher fees apply to any conventional 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 those who are floating their interest rate. MBS remain at the top of a trading range and have been unable to move any higher. 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, eventually moving lower causing mortgage rates to spike higher. At this point, even though stocks STILL appear to be on the verge of a selloff, you have more to lose than to gain by floating.