Mortgage Rates Modestly Higher as Risks Increase

Mortgage rates moved higher today but at a gentler pace than yesterday.  In fact, underlying markets managed to hold fairly close to unchanged levels.  Today's rate sheet weakness instead reflects yesterday afternoon's market weakness.  It wasn't enough for many negative reprices yesterday, so lenders simply adjusted this morning's rates sheets to account for it.  Looked at another way, lenders were getting caught up with weakness that wasn't quite severe enough to warrant mid-day reprices yesterday.

The deterioration puts 4.0% back in the driver's seat as the most prevalently-quoted conforming 30yr fixed rate for top tier borrowers.  3.875% is still very close.

Yesterday, we discussed the fact that further losses were at least an equal possibility and that it didn't make much sense to bet against the prevailing momentum until it's clearly run its course.  Today's relative flatness in MBS markets (the "mortgage-backed-securities" that most directly affect mortgage rates) shouldn't be taken as a sign of subsiding momentum.  Rather, it's more of an abstention.  Of these 3 days at the end of the week, each is more important than the last.  That means the reaction to those events should be smaller than it otherwise would be until markets have had a chance to see them all.  This is still an environment where risk outweighs reward (largely because we can't yet rule out the risk that rates will move higher for the rest of the month).

Loan Originator Perspective

"This week has brought a little selling and rising rates, to this point, as expected. Selling has not continued today, which likely implies that the next 2 days of data are going to weigh significantly on our direction moving forward through the end of the year. If you are risk adverse, lock, as there is too much risk for higher rates as we sit near the lows of the year. " -Brent Borcherding, brentborcherding.com

"If you missed last weeks drop in rates don't feel bad, 99% of people were not around to take advantage on Friday. This week brought real traders back into the equation and rates back closer to the recent range, although it is looking quite promising at the moment that we may be hitting a ceiling here. Tomorrows European Central Bank announcement will hold considerable weight, but Fridays all important employment situation report will set the table for interest rates for the balance of the year (most likely).  Rates are still relatively low here, and loans closing within this month should lock. I am of the strong opinion that interest rates will continue lower from here, but these levels floating creates too much risk, as the immediate reward will only be seen in closing costs, rather than to the actual rate you obtain." -Constantine Floropoulos, Quontic Bank

"Mortgage Rates seem to be in a tight range waiting for some direction. We may get that direction over the next 2 days with the ECB Rate decision tomorrow and the Jobs Report following on Friday. This scenario tends to influence my bias towards locking short term closings to remove the risk and protect pricing from moving to the worst part of the range by your closing. If your closing date is more than 30 days away floating may be safe for now but stay tuned." -Hugh W. Page, Mortgage Banker, Seacoast Bank

Today's Best-Execution Rates

• 30YR FIXED - 4.0
  
• FHA/VA - 3.25-3.5
  
• 15 YEAR FIXED -  3.125
  
• 5 YEAR ARMS -  3.0 - 3.50% depending on the lender

Ongoing Lock/Float Considerations

• The hallmark of 2014 has been a narrow range in rates.  Too many market participants bet on rates going higher in 2014, and markets punished that imbalance with a paradoxical move lower.
  
  
• European markets helped that process along and continue to play a prominent role in keeping US rates lower than they otherwise might be.  

• For most of the Summer and early Fall months, rates held a narrow range of 4.125% -4.25% (essentially where the 2014 rate recovery has bottomed out) and finally broke to a 3.875%-4.0% range in mid-October.  After correcting back to 4.125% briefly, November saw a calm, supportive trend that helped establish a ceiling.  From there, rates trickled back down into the high 3's by the end of the month.
  
  
• As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).