Mortgage Rates Lender-Dependent After Fed Announcement

By: Matthew Graham •

Mortgage rates were unchanged today, despite the potential for volatility surround the Fed's rate announcement.  No one expected the Fed to hike rates at this meeting, but there was a risk they could shake things up via the release of their updated forecasts or during Fed Chair Yellen's press conference.  As it turned out, all of the above was "rate-friendly," at least as far as bond markets are concerned.

Mortgage rates are primarily driven by trading levels in MBS (mortgage-backed-securities), which tend to follow slightly less dramatic versions of the same path seen in US Treasuries--especially the 10yr.  To be sure, today's Fed events were of great benefit to Treasuries, and moderate benefit to MBS, but there are  some caveats by the time we consider actual rates on lender rate sheets.  Reason being, those rates are WORSE, in many cases.  

 See Rates from Lenders in Your Area

The biggest caveat is yesterday's market movement.  Bonds were consistently weaker after hitting the best levels in several years in the morning.  But many mortgage lenders held-off raising rates yesterday.  This meant today started at a disadvantage in cases where lenders didn't raise rates yesterday.  Today's best moments just barely made it to yesterday morning's territory, and that was only after the Fed news hit.  

Bottom line: we started out weaker (read: slightly higher rates) versus yesterday and a handful of lenders revised rates lower this afternoon, bringing them back in line with yesterday morning.  If markets don't move overnight, most lenders would be back in line with yesterday morning's levels.

Loan Originator Perspective

"Post FOMC announcement, bonds have continued to add onto recent gains.   Brexit concerns remain which should help prevent any big sell off between now and voting later this month.  I am a bit concerned that we may not be able to add to these gains, so I think it would be wise to consider locking today, especially if you are within 15 days of funding.  All other loans I would float overnight to see if these gains can continue and to allow time for lenders to pass along the improvements."  -Victor Burek, Churchill Mortgage

"Big day today as the Federal Reserve chairwoman helped bonds further confirm the recent rally to fresh annual lows. It's getting to the point where we will undoubtedly see an organic reversal on sheer trading of these bonds, and profits will be booked. This doesn't mean rates will just go higher and higher and higher, it simply means that rates are due for a breather before they commit any further. I think locking in at these levels is a winners move, floating past this point is only beneficial for those who are anticipating closing in +45 days. We are at the point of the "trying to catch a falling knife" theory." -Constantine Floropoulos, VP, The Federal Savings Bank


Today's Best-Execution Rates

  • 30YR FIXED - 3.5-3.625%
  • FHA/VA - 3.25%-3.5%
  • 15 YEAR FIXED - 3.00%
  • 5 YEAR ARMS -  2.75 - 3.25% depending on the lender


Ongoing Lock/Float Considerations

  • Markets are primarily concerned with the timing of the Fed's second rate hike (after they first hiked in December 2015)
  • After bottoming out fairly close to all-time lows in February, rates have been in an increasingly narrow range just above all-time lows  

  • Fed hike expectations come and go, creating volatility within that low, narrow range.  Things won't get serious until we actually break out of that range.
     
  • After fears increased that the Fed would hike in June, the current flavor of the month is that they'll hold off until at least July.  This has helped rates move back toward the lower end of that long term range.  These have historically been good locking opportunities in 2016 (because rates tend to rise back toward the higher end of the range shortly after hitting the lower end).  That trend won't continue forever, but until it is broken, it provides a useful way to know how advantageous current rates are, relative to other recent offerings.
     
  • 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, conventional 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).