In what was a volatile week, prices of mortgage backed securities moved progressively lower which unfortunately forced lenders to raise the par 30 year fixed mortgage rate from 4.875% up to 5.375% by week's end.
Fundamentally one can blame the perception of an economic recovery or better yet as we like to say...an avoidance of the worst case scenario, specifically depression. While stocks went sideways most of the week in anticipation of the release of the Employment Situation report on Friday, Treasury and MBS priced in the possibility that the data would be "better than expected". When the big day came and those speculative theories were confirmed, Treasuries and MBS continued to sell off and all lenders published the highest mortgage rates of the week. However, as the day progressed, MBS managed to recapture about half the losses which allowed some lenders to offer better pricing later in the day. In the week ahead the marketplace will be working with a clean slate. Stocks have returned to pre-October 2008 levels and the market is now looking for further proof that a recovery is indeed underway.
This week brings us several key pieces of data that will offer up guidance on the extent to which the economy has stabilized. Here is the Economic Calendar for the The Week Ahead.
Other Events of Interest...
Tuesday
1:00pm: The Treasury Department will auction $37 billion 3 year notes. Although there have been more reactions from the announcement of debt auctions, anytime the Treasury attempts to raise money can have an effect on mortgage rates. If demand is not high at this auction, mortgage rates may tick higher. If demand is strong, it signals a healthy appetite for risk averse assets, which is a positive for mortgage backed securities and mortgage rates.
The Federal Open Market Committee begins their two day meeting on monetary policy.
Wednesday
7:00am: Weekly Mortgage Bankers Association applications index is released. This index tracks the weekly change in applications at major lenders. As mortgage rates rose last week, we do not expect this index to indicate that borrowers are activley seeking new mortgage loans. However it would be a positive to see the number of purchase applications increase as the supply of homes on the market needs to dwindle if the economy is to efficiently recover.
1:00pm: The Treasury Department will auction $23billion in 10 year notes. The added supply of debt on the market will apply pressure on both treasury yields and mortgage rates to move higher. Strong demand for the securities can help MBS to improve but weak demand will almost certainly cause mortgage rates to continue the recent trend of moving higher.
2:00pm: The Fed will release their FOMC statement which will be scrutinized line by line by market participants for any hint at future monetary policy and their economic outlook. This statement provides market participatns with an outlook on economic conditions and sets the Fed funds rate. It is widely accepted that they will maintain status quo of the current rate between 0 to .25%.
Thursday
1:00pm: In the last auction of the week the Treasury Department will offer up $15 billion 30 year bonds. With US benchmark yields near summer highs and whispers of deflation still on the minds of many market participants, we are hopeful this auction goes well and mortgage rates tick lower after the results are released.
This week is all about confirmation of "better than expected" economic outlooks...or as we say an avoidance of the worst case scenario. Stocks are looking for reason to move higher with a conscious eye on profit taking while Treasuries and MBS will battle more debt on the market (auctions) and the possibility that attention on stock indices may lower demand for risk averse assets.
So far this morning, MBS prices are posting modest gains. This is allowing lenders to offer better pricing today than we saw on Friday. Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 5.25% to 5.5% range for well qualified consumers. In order to qualify 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 one point loan origination/discount/broker fee.
Have the new TIL amendments effected your loan process yet?