Mortgage Rates: Multiple Reprices for Worse Reported. Borrowing Costs Up
If 4.75 was really on the table yesterday, it's not still there today.
A thinly attended Treasury auction is cited as the culprit behind rising mortgage rates today.The worst damage hit the tape in the early afternoon hours. And we never came up for air again. Reprices for the worse were reported. More than one lender repriced for the worse x 2. When a lender "reprices for the worse", their mortgage rates rise.
Rates rose regardless of two weak economic reports. This reaction is counterintuitive to how one would expect the bond market to behave following a disappointing economic update. It does however remind us of the impact seasonal trading influences can have on loan pricing. This is what we said yesterday on the subject....
The final week of the year is historically slow on Wall Street. This means the potential for interest rate volatility is high and rate watchers should be prepared for the possibility of multiple intraday reprices as well as irregular lender loan pricing strategies.
After reprices for the worse this afternoon, quoting 4.75% is no longer advisable. Although the offer is still on rate sheets, the permanent buydown costs are too expensive to warrant a float down from 4.875% to 4.75%. It would cost borrowers too much at the closing table to lock 4.75% today (breakeven recovery timeline is too long).
4.875% is "Best Execution" for very well-qualified borrowers seeking a 30 year fixed home loan. 4.75% is still Best Execution on FHA/VA 30 year fixed loans. This is as good as it gets but we still find ourselves swimming in sea of random rate quotes. The primary mortgage market is very segmented at the moment. This puts the best execution 30 year fixed mortgage rate in a range between 4.875% and 5.125% with definite chances of phantom offers (very-well qualified borrowers) as low as 4.75% and as high as 5.25%.
Important Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates on agency conforming loan amounts to very well qualified borrowers who are have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest.
For borrowers who need to lock before January 7th. 4.75% will beas good as it gets for you. I would target this offer and lock when you reach it (see disclaimer above).
For anyone who is waiting for mortgage rates to inch lower, the bond market faces a major hurdle on January 7, 2011 when the December Employment Situation Report is released. If you are currently being quoted a rate that would reduce your monthly loan payment (enough to be worth the hassle of refinancing), the intermediate term direction that mortgage rates take is largely dependent on this jobs report and revisions to the previous data. Floating into and through this economic data release is a high risk/high reward event. Which means...if weak November data is confirmed when the December report prints, the best execution 30 year fixed mortgage rate could move back down to 4.50%. However if major positive revisions are made to the November Employment Report (which was released in December), then mortgage rates would be expected to remain at current levels or even move higher.
Floaters: January 7, 2011 is a high risk/high reward event
Lockers: 4.75% is your best execution target. It's gone today but we expect to see it again before January 7, 2011.