Mortgage Rates: Are We Witnessing a Loan Pricing War?
Call me crazy but I think we've been witnessing a lender price war in the primary mortgage market.
Yesterday we talked about lenders "buying the market". (HERE is an explanation of "buying the market"). I originally described this behavior as "mixed", some lenders were better while others were worse, but then I looked back at my rate tracking spreadsheet and noticed a rotating pattern of aggressive pricing strategies. Of the majors, Wells and GMAC were buying the market last month, Chase and Bank of America had their moment in the sun, and right now I believe Citi might be trying to buy the market.
It's almost like they've been taking turns....
It makes sense though. Certain lenders have significantly longer loan processing turn times than others, some lenders are priced super aggressive while others seem content to linger toward the high side of the recent rates range. And yesterday we noticed mortgage loan pricing was insulated/less sensitive to the movements of MBS prices in the secondary market. The same thing happened today! MBS prices rallied and most lenders didn't reprice for the better, only a handful did. (Leaves room for improvement in the AM if related markets cooperate)
This means the "best executed" lock/float strategies have been a factor of identifying what lender is "buying the market" at the time of application or upon receipt of useful appraisal, as opposed to pacing the ups and downs of MBS prices and related markets. In general, direct lenders and mortgage brokers are nimble enough to access a wide range of investors at the same time. (Defend yourselves Retail!)
This might be over-analyzing the primary mortgage market for consumers, but I've been publishing screenshots of my rate tracking spreadsheet over on MBS Commentary. I think they might be better used on this channel.
What you see below is a day over day comparison of two separate mortgage rate metrics. For now I want to focus solely on the "Pricing Δ" column. This data shows the day over day change in the price mortgage investors are willing to pay to purchase your loan from a lender. Each note rate has a price. The pricing below assumes the borrower's rate quote is locked in for 30 days.
A RED number means they investor is willing to pay less for your loan. A BLACK number means investors are willing to pay more for your loan. These day over day price changes correspond to the discount points a consumer is charged. When pricing declines, lenders increase consumer borrowing costs. When pricing rallies, lenders reduce consumer borrowing costs (they're usually slower to give than to take though).
You'll notice that lenders reduced loan pricing today. Don't worry, 4.375% on a conventional 30 year fixed loan is still attainable, it's just going to cost you about 0.25% to 0.35% (of your loan amount) more (in discount points). The higher up your note rate is, the less sensitive your borrowing costs are to these day over day changes.
Although consumer borrowing costs (closing costs) might've moved marginally higher over the past week, lifetime low rates are still available.
The best advice I can offer consumers is: Make sure you ask your loan originator as many questions as it takes for you to totally understand the terms of your loan and rate lock. If your lender informs you that your rate will be higher because your credit score is below 720, ask why. Don't be shy to request a breakeven timeline on the discount and origination points you're being charged. Make sure you're not missing out on a cheap permanent buydown (ask your lender!).
And if you do lock your loan, don't abandon your loan officer if another lender comes along and offers to cut your application fees in half. I'm not saying you shouldn't shop your mortgage rate, just make sure you give first dibs to the originator whose been working hard for you. (They have to work hard in this environment)
What do you think? Keep the loan pricing comparison on Rate Watch or move it back over to MBS Commentary?