Friday 12/12…Mortgage Rates - Volatile Morning
Yesterday mortgage backed securities traded up, then down to close up about 8 ticks or a .25 in discount. We saw the best rates of the year yesterday, but with all the volatility lenders pricing was all over the place. Even though we had a positive close, meaning mbs were up on the day, some lenders still repriced to the worse. This might be a way for them to slow down the number of loans being submitted to them. Remember, this year has been a very bad year for banks, they have cut back on staff to save money. With the huge influx of loans that they are seeing, they are trying to slow things down. Like in any business, if you are swamped with business, you don’t have to be as price competitive. Hopefully lenders will hire underwriters to help the process as we are already seeing lenders take much longer to approve loans. In normal times, haven’t seen those in a while, lenders would underwrite a loan in 24 to 48 hours. That time is already increasing to 3 to 6 days, so expect your loan to take longer to close.
This morning mbs have traded anywhere from about even from yesterday to down 14 ticks. It is a very volatile morning and will be interesting to see how lenders price their rate sheets. I feel we will see slightly worse pricing today due to negative sentiment following the failed auto bailout last night and hedging due to the weekend. We did get several key economic reports and all in all they were pretty friendly to mbs. First we got the core producer price index, this report measures inflation on the producer level but excludes food and energy. Economists where expecting a .1% increase and that is exactly what we got. Second, the overall producer price index was expected to fall -2.0% but fell even further by -2.2%. These reports continue to show that inflation is not an issue so expect a rate cut from the fed at the next meeting. Next we got retail sales. Overall retail sales where expected to show a decline of -2.0% but the number was slightly better at -1.8%. Retail sales excluding auto sales were down -1.6% compared to expectations of a -1.8% drop. All in all the data hasn’t had much effect on mbs pricing. We still get the release of consumer sentiment in about an hour but don’t expect it to have much effect on us today.
In times like these, if you plan to float do so with caution. It could very well pay off to float, but how much lower of an interest rate do you think you will get. I will fall back to a bird in hand is worth more then 2 in the bush. If you can lock your rate today in the very low 5’s to upper 4’s, you might want to take advantage of it. This would remove all risk from the equation and you may sleep better. Short termers, loans closing this month, definitely lock. Longer term closings are welcome to continue to float but do not be surprise if we take a step back. Sometimes you must retreat before you can move forward again.
As I have been typing this update, mbs continue to move in big steps from up 2 ticks to down 13 ticks and the market has only been open for a little over an hour. One thing is for certain, expect volatility.