Thursday 1/15… Economic Data is In

We got the release today of several economic reports.  First of all we got jobless claims, economists where expecting 500k, but the number came is worse at 524k.  If you can recall, higher unemployment leads to less wage based inflation which is a positive for mortgage backed securities.  Next we got producer price index which is a measure of inflation on the producer level.  Economist’s where expecting a -1.9% reading, and the number came in right at expectations.  The core rate which strips out food and energy came in slightly worse at a 0.2% increase month over month.  All in all these reports are favorable for fixed income investments such as mortgage backed securities, but it appears that traders do not care much about these reports as mbs are basically even on the day.  We did have a brief sell off after these reports came out, but have since turned back and are currently even with yesterdays close.  

Yesterday was a very uneventful day, with mbs trading in a very narrow range closing where they opened and it appears that we are headed for the same outcome today.  With the Federal Reserve buying mbs, it is preventing them from selling off in any sizable way and has created a very strong floor of support which should prevent mortgage rates from increasing.  As far as locking, in my opinion you are clear to float but if your loan is ready to close, then go ahead and lock.  However, if you can lock at a sub 5% rate, it would be a wise move to go ahead and lock.  How can anyone complain if they lock a 30 year mortgage at 4.75% today but find out next month that they are at 4.5%?  It appears that rates will be moving sideways for some time as lenders are still swamped with business and they are having problems keeping up with the submissions.  Underwriting time with some lenders is up to almost 2 weeks when in normal times it is a day or two.  Just started to get rate sheets this morning and par rates are about the same as yesterday depending on the lender.   As a lender gets caught up on the current loans, they will probably pass along better rates but once they get swamped again they will raise them back to current levels to ease submissions.  We refer to this as pipeline management.  As always, take into account your risk tolerance when it comes to floating.   It is better to lock your rate when you should have floated then it is to float your rate when you should have locked.   

I will get back to you later if conditions warrant.