Mortgage Rates: Still on a Ledge. Still Defensive
We watched defensively last week as mortgage rates teetered on a ledge. We were searching for an indication that "snowball selling" had been avoided before offering a new directional guidance. No sign was shared by the secondary market but we did manage to back a bit further away from the mortgage rate ledge before heading into the weekend.
Snowball selling in the secondary mortgage market forces lenders to reprice their rate sheets for the worse. At first the impact is only higher closing costs, but as the snowballing gains momentum and reprices for the worse get bigger and bigger...the "Best Execution" 30-year fixed mortgage rate spikes higher.
Mortgage rates face a condensed calendar of influential events in the week ahead. Planned topics of debate include: inflation, the President's 2012 Budget Proposal, consumer spending, the strength of the manufacturing sector, more on GSE reform, housing construction metrics, and the minutes of the Federal Reserve's most recent FOMC meeting. Also on the market's radar in the week ahead are several Federal Reserve speakers who will share updated economic progress reports. Oh and to make it more fun, most of this action is jammed into a three day period between Tuesday and Thursday. The secondary mortgage market's reaction to these scheduled events should help provide new directional guidance for mortgage rate watchers. SEE THE FULL CALENDAR
This is where we left you on Friday....
CURRENT MARKET*: The "Best Execution" conventional 30 year fixed mortgage rate is STILL split between 5.125% and 5.25%. If you meet the requirements outlined in the disclaimer below, you should still be able to execute a loan commitment at 5.25% with lender credits. 5.125% is still available but not in every market across the country. The upfront cost of permanently buying down the rate from 5.125% may not be worth it to every applicant. We would generally advise the permanent floatdown if you plan to live in your house and pay your new mortgage for longer than the next 5 years. 5.00% is still out there as well but will require origination points paid at the closing table. Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is priced between 4.875% and 5.00% with the same comments above re: the split and closing cost credits. 15 year fixed conventional loans are best priced between 4.25% and 4.375%. Five year ARMS at 3.625-3.75%.
PREVIOUS GUIDANCE: Snowballing selling is still a risk, but you will have two or three days to make a lock decision if rates do start to tick higher again. Don't get comfortable. Pay extra close attention to the market because we're definitely still on a ledge.
CURRENT GUIDANCE: Reprices for the better were reported today but were not significant enough to allow for an improvement in the "Best Execution" 30-year fixed mortgage rate. This is a positive development for fence sitters but not positive enough to support a change in guidance. Mortgage rates are still teetering on a ledge. We're still defensive of any positive progress. SAY NO TO SNOWBALLING!
LEARN MORE: WHY IS SNOWBALL SELLING BAD FOR MORTGAGE RATES?
What MUST be considered BEFORE one thinks about capitalizing on a rates recovery?
1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the secondary mortgage market.
"Bext Execution" is the most efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%. When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buydown costs.
Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who 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 recording. Don't forget the intense fiscal frisking that comes along with the underwriting process.
*The primary mortgage market is still very segmented at the moment because of a pending shift in the production mortgage-backed security coupon in the secondary mortgage market.