Home loan borrowing costs took a beating yesterday. The bond market's behavior was so unfriendly that Best Execution mortgage rates nearly shifted higher as a result. The main motivation behind this unfavorable directional display was a significant rally in stocks. Although this market event didn't break any long-term positive trends, it was certainly scary enough to make one question the strength of those positive trends. Fortunately that skeptical stress was relieved today. Stocks erased all of yesterday's gains and the bond market recovered all its losses. Lenders repriced rate sheets for the better and home loan borrowing costs corrected. Best Execution mortgage rates didn't rise. Bullet dodged! CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is still 4.50%. Some lenders may be quoting 4.50% with increased closing costs in the form of origination fees. This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs. On FHA/VA 30 year fixed "Best Execution" is 4.25%. 15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. CURRENT GUIDANCE: Today's recovery rally is encouraging from a big picture perspective as it keeps the door open for our longer-term bullish mortgage rate bias to extend deeper into the summer months. Still, short-term scenarios should take caution. The past few days provide a perfect example of how quickly unfriendly corrections can occur in the mortgage market. Hopefully these back-ups illustrate why we normally urge defensive short-term stances, even as rates improve. We may have dodged a bullet today, but we're not out of the woods yet. More bouts of volatility are very possible.

Looking for the culprit of today's major market spike around 11:30am? The Eurodebt crisis continues to raise concerns. At the same time stocks broke their lows of the day to embark on a vertical sell-off, Moody's warned that it may downgrade three Portuguese bank subsidiaries in Brazil citing funding concerns. The banks were already placed on review last week with today's warning constituting an intermediate measure before an official downgrade. That potential downgrade of Brazilian banks would effectively act as a downgrade of Portugal itself, or at the very least spark fears of such a downgrade. Reason being: today's warning cites "funding concerns," and the banks are funded by Portugal. But Portugal is not the exclusive cause of today's big moves. The market was already a bit nauseous after attempting to digest earlier news that Euro-Zone finance ministers failed to reach an agreement over how to force private creditors to contribute to a second bailout for Greece. Additional Greece drama is ongoing with the Prime Minister offering to step down earlier today. At the time the Portugal news hit, European Peripheral stock averages were already down over 3%. The backdrop of Greece's fiscal woes provided a perfect environment for the Portugal news to act as the proverbial straw. No camels here though. Today's broken back is that of the S&P Index (among other stock averages) falling to it's lowest level of 2011 with a brief exception occurring on the the worst day of the market's response to the Japanese earthquake and tsunami. At 2.986, 10yr yields are smack dab in the center of June's trading range. The only cause for concern here is that these levels, so far, have not proven to be sustainable without the European periphery driving a portion of the Flight-To-Safety. Fannie Mae 4.0 coupon MBS are up just over half a point on the day now at 100-22, right in line with last week's closing levels.

Widespread reprices for the better are likely as the bond market just gained recovery rally momentum thanks to widespread weakness in stocks. The Fannie Mae 4.0 MBS coupon is now +18/32 at 100-23 and the 10-year note yield is 11.5 bps lower at 2.983%. The S&P is currently -1.36% at 1272.25 and rapidly approaching a test of long-term support at 1270. This totally reverses yesterday's bond market sell-off.

Against the backdrop of stock markets that are just slightly rallying from opening losses around 0.8%, MBS and Treasuries are doing a good job of holding their gains. Fannie Mae 4.0 MBS are 8/32nds up on the day at 100-13 and 4.5 coupons are up 6/32nds at 103-23. Prospects for reprices for the better are a bit uncertain due to the steep movement earlier in the morning. The earlier a lender released an initial rate sheet, the more possible reprices for the better become. Fore instance, 4.0 coupons came in the door at 100-06, making the current levels at 100-13 seem like enough for reprices if sustained. But 100-10 corresponds to a busier swath of rate sheet release time, making something around 3-5 ticks higher than current levels a more probable reprice target. Underlying benchmarks are in some important territory at the moment with 10yr yields having just broken into the 3.4's. 3.055 is a dividing line between late May's low yields and the highest yields seen in June until yesterday. In fact, yesterday's sell-off moved 10yr yields directly to 3.055 before beginning to trade in a more two-way direction (still worsening of course, but at least with some variation in the chart lines). The moral of the story is that current levels in 10's have acted as sort of a line in the sand (pivot point/inflection point/etc...). Hitting the 3pm close under 3.055 would be positive, and more so the higher the volume.