Mortgage Rates are still holding steady near summer lows after prices of mortgage backed securities rallied to summer highs yesterday. While the appreciations in the secondary mortgage market were quite noticeable and lenders republished rate sheets for the better, we had a late day slip up which resulted in a few lenders taking back the reprices for the better. All in all mortgage rate status quo was maintained.  To remind readers, the process of generating mortgage rates begins with trading in the secondary mortgage market.  When the price of mortgage backed securities rises, lenders are able to sell loans for higher prices. These gains eventually trickle down to consumers in the form of lower mortgage rates.  When prices of mortgage backed securities fall, lenders must sell their loans for less, which increases mortgage rates.   MBS are similar to US Treasuries in that the price of the security has an inverse relationship to the yield, price goes up, yield goes down and vice versa. 

It's Thursday, that means the Department of Labor has released Jobless Claims Data. This report totals the number of people who filed for first time unemployment benefits in the prior week.  This week first time claims fell 4,000 from the prior week to 570,000. This was slightly higher than what economists had expected.   The continuing claims portion of the report, which totals the number of Americans who continue to file for benefits,  moved higher by 92,000 to 6.234 million. Continuing Claims were also higher than expected.   Stock futures fell and Treasury prices rose following this release, however, with the Employment Situation report coming tomorrow morning, the initial knee jerk reaction did not last long. Quickly thereafter both markets return to pre-data release levels.  To read more on this report, click here.

The only other report to be released today is the ISM non-manufacturing Index which measures the strength of the non-manufacturing sector of our economy.  This report is a survey of about 400 firms including mining, construction, retail, mining, etc… on the strength of their business conditions.   Readings above 50 indicate improving or expanding conditions while readings below 50 indicate contraction.  The ISM Manufacturing Index which was released earlier in the week posted the first positive reading since January 2008.   The non-manufacturing index is far less significant than its companion report on manufacturing.   The report indicates that business conditions in the non-manufacturing sector of our economy continues to contract with a 48.4 reading but shows an improvement over July’s reading. READ MORE

Today at 11:00am eastern, the U.S. Department of Treasury will announce the size of the upcoming auction next week of 3 year notes, 10 year notes and 30 year bonds.  Demand for our nation’s debt has remained very strong despite record amounts of borrowing. High demand for benchmark debt has played an important role in keeping mortgage rates low. AQ and Matt will cover this announcement on the MBS Commentary blog. 

With the Employment Situation report coming tomorrow and a long weekend ahead, it appears that lenders are being defensive with their pricing.   I have been advising my clients and readers of this blog that floating  remains very risky.  When floating you must evaluate risks and rewards.  If the data tomorrow is worse, rates can move lower, but how much lower can they go?  An .125 or a .25 lower at best?  If the data surprises and is better, how high can rates move?  There is much more room above for rates to increase than there is to move lower.  There is more to risk than there is to gain at this point, so it is time to cash in and secure your rate.   Until market participants go back to work after Labor Day we will remain defensive of the recent rates rally.

Reports from fellow mortgage professionals indicate that the par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers.    To qualify for a par interest rate you must have a FICO 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.   If you are looking to secure a FHA mortgage, the par rate today for a 30 year fixed rate is in the 5.00% to 5.25% range.   In order to secure the par FHA rate, you only need a 620 FICO score but must pay all costs including the one point.