Mortgage Rates Holding Steady, Watching Treasury Auction
Yesterday, mortgage backed securities had another very boring day, trading in a pretty tight range, more than likely a result of Fed buying. After the treasury auction, which saw very poor results, MBS followed treasuries to lower and there were reports of a lender or two repricing for the worse. As the day progressed MBS moved off their lows and closed at about the same level that they opened. So far this morning MBS are at unchanged from yesterday's close which should result in very similar rate sheets this morning. I suspect par 30 year fixed rate mortgage will remain anywhere from 4.625% to 4.875% depending on the lender.
Today we did get the release of some economic reports. First, we got jobless claims. Economists were expecting 650,000 filings for unemployment insurance; however the actual number came in slightly higher at 652,000. The continuing claims came in at a new record high of 5.56 million Americans out of work and still receiving unemployment insurance. Higher unemployment allows companies to keep payroll costs lower which prevents wage based inflation. If unemployment is very low, how would a company attract new employees and keep current employees? They would have to offer higher compensation. If companies must pay employees more money, the higher expense is passed onto the consumer resulting in wage based inflation. So, higher unemployment keeps inflation down, and as I have stated before the biggest enemy to mortgage rates is inflation.
Next, we got the release of final 4th quarter Gross Domestic Product(GDP). Economists were expecting a contraction of -6.6% but the number came in slightly better at -6.3% which is still worse than last month’s preliminary reading of -6.2%.
We also have another round of treasury auctions, this time an auction of $24billlion of 7 year treasury notes. Hopefully this auction is received better than yesterday’s auction. Poor results will push treasury yields higher and will apply pressure on MBS to follow (as MBS yields move higher, so do mortgage rates).
Also today, Secretary of Treasury Tim Geithner will be speaking to the House Financial Services Committee on overhauling financial regulations. Investors will be listening to what he has to offer and his testimony can move the markets. We are also getting some speeches by several Fed governors regarding monetary policy. Investors will be listening in for any clues regarding upcoming Fed monetary policy and their outlook on inflation. Currently, the Fed is not concerned about inflation. Some economists agree with the Fed while others think we are heading to hyper-inflation in the future due to massive government spending. I guess we will have to wait and see.
A big concern for anyone looking to buy or refinance a home is lenders turn times. Turn times is the length of time it takes a lender to underwrite a loan that was submitted to them. Lenders used to have turn times of anywhere from 24 to 72 hours, but with the huge volume of loans being originated that time has increased dramatically. Turn times at most lenders are currently 1 to 4 weeks, with one lender at 6 weeks!!!! You must make sure that you allow for this extended time especially if you are buying a new home that must close on a specific date. Most lenders have been hiring new underwriters to help ease this time frame and get it back to more normal levels. If you are locking a loan, make sure the length of the lock allows enough time for your loan to close and fund. Your loan officer should be able to give you the turn time at the lender your loan is placed with to allow for an appropriate lock.
Early reports from fellow mortgage professionals are showing today’s rate sheets to be slightly worse than yesterdays. Lenders have come out today anywhere from .125 to .25 worse in discount. That means if a rate was costing 1 point yesterday, that same rate today would cost 1.125 to 1.25 points. As I have been typing this update, treasuries and MBS have both started to move higher in price which results in lower yields. Currently, MBS are up just under .125 in discount which is not enough to encourage a reprice for the better but we are heading in the right direction. A successful Treasury auction at 1pm eastern would help this trend to continue.