Market Tests Our Lock/Float Strategy; FTHB Tax Credit Getting Bad Press
Mortgage rates are moving higher this morning as prices of mortgage backed securities have been led lower. To remind readers, as the price of MBS move higher lenders can offer lower mortgage rates and as the price of MBS moves lower, lenders are pressured to offer higher interest rates.
The only data to hit news wires this morning was another read on the housing sector. The National Association of Realtors(NAR) released their Existing Home Sales report which totals the number of existing homes, not newly built, in which a sale closed in the prior month. Last month home sales declined after four months of gains, posting a month over month fall of 2.7% to an annualized pace of 5.10 million sales. This report was troubling since mortgage rates have held near historic lows and the government has been doing their best to stimulate home sales. The only positive from last month’s report was a decline in the supply of homes available for sale, to 8.5 months, the lowest level in almost three years. Economists surveyed prior to this month's report expected home sales to rebound in September to an annualized pace of 5.35 million sales.
The report shows that Existing Home sales for September came in much higher than expected, posting a monthly increase of 9.4% to an annualized pace of 5.57million sales. It appears many consumers are rushing to beat the deadline for the First Time Home Buyer tax credit. To add more good news, it is also reported that the inventory of existing home sales moved lower to a 7.8 month supply which is the lowest level since March 2007.
Reports from fellow mortgage professionals indicate lender rate sheets are slightly worse than investor pricing yesterday. The par rate for a conventional 30 year fixed rate mortgage remains in 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. As always, you can elect to pay less in fees and secure a higher interest rate or pay additional fees to buy a lower rate.
We have been offerring lock/float guidance based on the range benchmark Treasuries and MBS have kept to for the past three months. Lock when prices are near the high side of the price range, float when prices are testing the low side of the range. This strategy has worked out quite well for me and my clients. At the moment we are at the low side of the price range, which means we favor floating over locking. Although there are risks that the price support found at the low side of the range could fail, which would push mortgage rates higher, we will stand by our strategy and advise that floating is recommended right now. We will continue to base guidance on the range until the range is no longer in tact.
The first time home buyer tax credit is still set to expire at the end of next month. If you are planning on taking advantage of this government stimulus, the clock is ticking. The media has been reporting that fraud is rampant with this government program with reports of kids under 18 years old who have applied for the credit and received a check from the IRS. Some reports are indicating that upwards of 100,000 claims are fraudulent! Check out the story on Mortgage News Daily's Around The Web news channel. The bad press might make it difficult for Congress to pass an extension of this program.
What is your opinion? Do you feel this program will be extended or not? Why do you feel that way?