Mortgage rates didn't make much progress in either direction yesterday despite some bond market friendly economic data and a successful Treasury note auction. Mortgage backed securities traded in a tight range which prevented most lenders from passing along improved mortgage rates.

The economic calendar started this morning with weekly Jobless Claims. This report provides three measures of the labor market:

1. Initial Jobless Claims:  totals the number of Americans who filed for first time unemployment benefits
2. Continued Claims:  totals the number of Americans who continue to file for benefits due to an inability to find a new job
3. Extended Benefits:  totals the number of Americans who have exhausted their traditional benefits and are now receiving emergency benefits

While an increase in jobless claims is bad for the economy, weak economic data generally helps mortgage rates move lower. Higher rates of unemployment reduce income levels and strain consumer spending. Less spending erodes corporate profits and forces investors to sell stocks. When investors sell stocks they usually look to re-allocate funds into safe assets like U.S Treasuries. When Treasury yields fall mortgage rates usually follow. 

Last week, jobless claims rose by 31,000 to 473,000. This was much worse than expected.  The same thing happened this morning, initial jobless claims increased by 22,000 to 496,000. The consensus forecast called for 455,000 new claims. Much worse than predicted!  Continued claims rose by 6,000 to 4.62 million while he number of Americans receiving extended benefits declined by 318,000 to 5.5million.

Released at the same time was Durable Goods Orders data.  This release measures new orders at U.S. factories for products that are expected to last at least three years such as computers, appliances, electronics, etc…  Basically, this report tells economists how busy factories will be in the months ahead as they rush to meet the new orders.   The report indicated durable orders improved more than expected.  New orders for January increased 3.0%, economists had forecast an increase of 1.5%.  Last month’s number was revised higher from the originally reported 0.3% rise to a increase of 1.9%.  When excluding transportation orders, durable goods orders declined 0.6 when expectations were for a 1.0% improvement. 

At 1pm the Treasury Department released the results of their final auction of the week, $32billion7 year notes were offered.  The 2 year note auction on Tuesday went well while yesterday's 5 year auction saw average demand. Strong demand for US Treasuries has played a big role in keeping mortgage rates low in 2010.  Today's auction did go well however mortgage-backed security prices did not really react to the results.

Reports from fellow mortgage professionals indicate lender rate sheets to be improved from yesterday.  The par 30 year conventional rate mortgage has moved back into the 4.75% to 5.00% range for well qualified consumers.  To qualify for a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  You may elect to pay less in fees, but you will have to accept a higher interest rate.  If you are seeking a 15 year term, you should expect par in the 4.25% to 4.50% range with similar costs but lower credit score requirements. 

Improvements over the course of the week have led mortgage rates back toward the lows of 2010.  While floating is really tempting, if I only had one loan to float, I would lock it. If I had 10 in my pipeline, I would float 3 and lock 7. I am still not convinced lenders will offer mortgage rates below 4.75% in 2010. No change in the long term, we still expect mortgage rates to rise as the Fed exits the mortgage market. They have used up 96% of funding, one month to go. READ MORE