Mortgage rates have been under fire lately as a streak of positive economic data has forced benchmark Treasury yields higher resulting in lower mortgage-backed security prices. These MBS price depreciations have forced lenders to increase mortgage rates. This continued yesterday with another round of "better than expected" economic data. Improved Pending Home Sales and growth in the non-manufacturing sector of our economy pushed the 10 year Treasury note yield up to an eight month high, which consequently led MBS prices to their lowest levels of 2010. However, in the final hour of trading, both benchmark Treasury yields MBS prices managed to regain a portion of their losses.
The economic calendar was empty today but we did have two events that had the potential to affect mortgage rates.
At 1pm, the Department of Treasury announced the results of the $40 billion of 3 year note auction. After three poor auctions two weeks ago, which pressured mortgage rates higher, investors showed up to buy today! This helped MBS prices improve after the auction. READ ABOUT THE AUCTION RESULTS
At 2pm, the Federal Reserve released the minutes of the most recent Federal Open Market Committee meeting. The FOMC determines our nation’s monetary policy. Much of the information from the minutes is already known, but market participants will still review them for any hints at future monetary policy and the Fed's outlook on the economy. We did learn that the Fed still believes inflation will be contained as a weak labor market will keep consumer demand from growing rapidly. HERE IS THE RECAP
Reports from fellow mortgage professionals indicate lender rate sheets to be slightly improved over yesterday. The par 30 year fixed rate mortgage is in the 5.00% to 5.25% range for well qualified consumers. To secure a par interest rate on a conventional loan 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. If you are seeking a government loan such as FHA, you should also expect par in the 5.00% to 5.25% range with lower FICO score requirements but higher fees.
In regard to the higher fees on FHA loans…
Yesterday the upfront mortgage insurance premium that FHA charges was increased for all borrowers. Prior to April 5th, home buyers seeking a FHA loan had to pay an upfront fee of 1.75% of the loan amount. On a $200,000 loan that fee is $3500. Starting yesterday, FHA has increased that fee to 2.25%. Now on a $200,000 loan that fee has increased to $4500. Government programs definitely help consumers with lower FICO scores and smaller down payments to qualify for the best rates but they do come at a large expense.
If you have been following my blog, here is what I recommended on Tuesday(3/30) of last week:
“I favor locking over floating at this point. There are just too many unknowns to deal with in the near term. The Fed stops buying MBS tomorrow, more Treasury debt supply is announced on Thursday, and then we get the all important Employment Situation Report on Friday. When the Fed stops buying MBS, the largest supporter of low mortgage rates will be removed from the market. While we do anticipate investor demand to remain strong, it may take some time for the secondary mortgage market to get comfortable without the Federal Reserve.”
If you followed my advice, you secured a great rate as mortgage rates started to rise on Wednesday. Since Thursday, I have recommended to float since the damage was already done. I said it was a risky strategy to float through the Employment Situation report, but I felt the risk of floating was worth it. Since advising floating, benchmark yields continued to rise but I feel a ceiling may have been hit late yesterday.
Treasury yields did move lower today and MBS prices rose which has allowed lenders to offer better pricing. With that said, I continue to favor floating. Yields have risen considerably in a short time period and appear ripe for a correction… but that will depend on upcoming data and the auctions this week. I do feel it is worth the risk to see what develops.