Mortgage Rates Stuck in Holding Pattern. Two Steps Forward, Two Back

Mortgage rates have been stuck in a back and forth battle all week. We started the new year with improvements which carried over into Tuesday only to see positive momentum fizzle out yesterday morning after the St. Louis Federal Reserve released a paper titled:INFLATION MAY BE THE NEXT DRAGON TO SLAY. The bond market was not a fan of this commentary as inflation is one of the main enemies of mortgage rates. Benchmark Treasury yields ticked higher and mortgage backed security prices fell after the research hit news wires. Plummeting MBS prices then forced lenders to reprice for the worse. Since that sell off, all of the progress made in the first half of the week has been lost. If you are interested AQ wrote a Plain and Simple explanation of the events that unfolded. READ MORE

This was not unexpected ahead of tomorrow's release of the Employment Situation Report (Non-Farm Payrolls). Typically the rates market goes into a holding pattern ahead of major data releases...this week has been no different. Yesterday I referred to the recent trend as "two steps forwards, two steps back"....this phrase sums it up pretty well for mortgage rates. After much commotion we are no better or no worse from where we ended 2009.I do however remind of the CROSSROADS mortgage rates are at. READ MORE

While the marketplace is indeed stuck in a holding pattern, they are still functioning and we do have some economic data to discuss today: JOBLESS CLAIMS

This report totals the number of Americans who filed for first time unemployment benefits in the prior week.  Included within this report are two other measures, continuing jobless claims and extended benefits.  Continuing claims totals the number of Americans who continue to file for benefits because they can't land a J.O.B.  The extended benefits portion of the release totals the number of Americans who’ve used up their traditional benefits and are now collecting extended payments (this program was created in 2009). Recent reports have shown initial and continuing claims to be in downward trend while those receiving extended benefits have continued to rise.   Economists surveyed prior to the release expected initial claims to rise from last week’s first reported 432,000 claims to 447,000 claims for the week ending January 2. 

The release indicated that jobless claims rose 1,000 to 434,000, a better than expected report. The prior week’s claims were however revised higher to 433,000.  Continuing claims also fell more than expected to 4.802 million.   Today’s report also showed those receiving extended benefits rose by 165,000 to 5.44 million indicating that many are still having a difficult time finding a new job. The mortgage market actually improved after this data, which is not what most would have expected, however I must remind of the previously discussed "holding pattern" the market is in ahead of tomorrow's Non-Farm Payrolls report. To keep it simple, the rates market is stuck in a range, after yesterday's sell off, rates were at the upper extreme of that range. In order to keep that range intact, trader's ignored this morning's data. REMEMBER: HOLDING PATTERN

Reports from fellow mortgage professionals indicate lender rate sheets are worse today.  The par 30 year conventional mortgage rate does however remain in the 4.875% to 5.125% range for well qualified consumers...it will however cost more to get that rate.  To secure the par interest rate you must have a FICO credit score of 740 or higher, a loan to value of 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 upfront costs, but you will have to accept a higher interest rate. 

On my Monday blog I posted some questions one of which was do you think the Fed will end its MBS purchase program as they have stated or will they extend it.   To remind readers, the Fed announced last year that they will buy up to $1.25trillion of MBS to support the housing recovery and to help keep mortgage rates low.   The program is expected to end after the first quarter of this year.  Many fear when the fed stops buying MBS, mortgage rates will move higher which will cause many not to buy a new home.   Additionally, the higher rates will prevent many homeowners from refinancing to lower rates and lower payments which will not allow for increased consumer spending.   Since our economy is driven by consumer spending, when homeowners can refinance to lower rates and lower payments, they have additionally funds which can be spent which would help our economy recover from the worst recession since the Great Depression.   We have been getting some reports that the FOMC is considering extending the program for fear if they do not the housing sector will not recover.   Please give me your thoughts on this topic.  

Do you feel the MBS buying program should be extended or should government involvement in the markets end?  To read more on this, check out the MND STORY.

I am sticking with my lock recommendation ahead of tomorrow's major economic event. The market is expecting 8,000 job losses in December...but there are whispers that more jobs might have been created in December than lost. If this is the case, mortgage rates will move over 5.00% again.