Mortgage Rates: Participation Up, Rates Down

By: Matthew Graham • Tue, Aug 30 2011, 4:34 PM

We spoke of yesterday as "the first time in a long time that a short term float strategy seems to make any sort of sense" saying that "due to the insane lack of market participation today, you may see a brief improvement in rate sheets." As folks returned from holidays overseas and got their power turned back on after Irene, participation picked up in the markets and Mortgage Rates improved, basically right back to Friday afternoon's levels

CURRENT MARKET*: The BestExecution 30-year fixed mortgage rate has moved down to 4.125%. Several lenders are willing to offer lower rates, but those quotes carry with them additional closing costs. On FHA/VA 30 year fixed BestExecution has improved back to 4.000%. Deals can be structured with lower rates, but again, you'll pay more for those, so make sure you assess the time it takes to break-even on the extra expense. 15 year fixed conventional loans are best priced at 3.625%. Five year ARMs are still best priced at 3.250%. ARMs seem to have bottomed out.

See Rates from Lenders in Your Area

A note on the greater-than-normal variation in rate offerings between lenders. There is an increased amount of variety in what individual lenders are now quoting as their BestExecution rates. This is a factor of price volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business gets more expensive for lenders (hedging costs go up). Those added costs are usually passed down to consumers via extra margin in rate sheets. Additionally, the recent rates rally makes lenders busy enough that some control their inbound volume by raising rates regardless of the secondary mortgage market in order to discourage new applications/locks.

GUIDANCE: With rates falling back to Friday's levels, the ongoing guidance from recent posts is back in full effect. In short, locking in here still makes lots of sense for lots of scenarios considering our overall nearness to all-time lows and the fact that it's more frustrating to miss out on a refi opportunity in the low 4's altogether than to miss out on an opportunity in the high 3's but still lock in the low 4's. Friday remains high risk owing the the Employment Situation Report, so if you're not locked up by Thursday, you're at the whim of Friday's jobs data.

Refi Roadmap: A Locked Rate Isn't a Closed Loan <-- must read

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*Best Execution is the most cost 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 buy down 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 30year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process

CAUTION: MND guidance is speculative in nature. We don't have a crystal ball, we can't predict the future, we can only share our outlook. Making the following considerations extra important........................

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?