Mortgage Rates Sideways Ahead of FOMC Meeting
Prices of mortgage backed securities(MBS), that help determine mortgage rates, moved a few basis points higher yesterday, albeit in very light volume with very little volatility. In total since Friday, MBS prices have improved by .25 basis point. Although most lenders remain reserved ahead of tomorrow's 2:15 FOMC announcement, there were a few lenders who passed along better pricing. Leading the way for MBS was a rally in the treasury market. The benchmark 10 year treasury note yield closed down 6 basis points to 3.68.
Today is the first day of the Federal Open Market Committee’s(FOMC) 2 day meeting which culminates with their statement at 2:15 tomorrow. Day one is pretty much a non event as market participants only get a glimpse of policy makers parading into the Federal Reserve building in DC. The Fed is widely expected to keep the Fed fund rate at its current level, therefore the more important aspect of the meeting will be the wording of the statement and any unexpected announcements. What are your thoughts on what the Fed will say? Will they announce increased buying of treasuries or MBS? I suspect that they will not announce any further increases to the already announced levels of treasury and MBS buying, but I do think they will carefully word their statement to let market participants know that they intend to keep the fed funds rate at current levels for the foreseeable future. Some have speculated that the Fed will start to increase the Fed fund rate by year’s end due to a rebounding economy. Others, myself included, believe that the economy is not on the road to recovery as weakness in housing persists.
This morning the National Association of Realtors(NAR) released the Existing Home Sales report. This data set totals the number of existing homes, which are homes that are not new construction, that have sold on an annualized pace. April’s report showed a slight improvement coming in at 4.680 million and expectations for May is an increase to 4.85 million. To give you a perspective of the decline in housing, at the height of the housing boom in 2006, existing home sales was on an annualized pace of 6.70 million. The release has indicated an improvement but fell short of expectations coming in at 4.77 million which is a 2.4% increase versus estimates of a 2.6% increase.
The chief economists for the NAR, Lawrence Yun, attributed the increase to the $8000 tax credit but he also cautioned that the implementation of the Home Valuation Code of Conduct(HVCC) is negatively impacting the housing recovery. We totally agree with his opinion on the HVCC which has dramatically changed the process of having one’s home appraised. The intended purpose of HVCC is to improve the quality of appraisals, but it is having the opposite effect. What is your opinion of HVCC? What nightmare stories do you have?
The big event of the day will be the first of 3 treasury auctions for the week. At 1pm, the Treasury Department will auction $40billion of 2 year treasury notes. The added supply will apply pressure on treasury yields to rise to attract buyers. Whenever we have a treasury auction we look to the demand (and high yield) to gauge the success or failure. To benefit mortgage rates, we want very strong demand especially from foreign(aka indirect) bidders. The MBS Commentary blog will have complete coverage of this event with posts prior to and following.
So far this morning, MBS are holding right at closing levels from yesterday. Early reports from fellow mortgage professionals are indicating the par 30 year fixed rate mortgage to be relatively unchanged from yesterday. The best qualified consumers should be able to get a 30 year fixed rate mortgage in the 5.25% to 5.50% range. To qualify, you must have a FICO credit score 740 or higher, a loan to value at 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.
If you would like to track MBS pricing, you can do that on Mortgage News Daily Mortgage Rates page.