Mortgage Rates were generally unchanged today, keeping them near their recent and all-time lows.  Lately, mortgage rates have been holding increasingly steady despite fluctuations in US Treasuries.  That's mostly been a frustration for rate watchers who've seen Treasuries creep lower while mortgage rates have not.  But the tables turned today as Treasuries moved back in the other direction while the underlying MBS markets ("mortgage backed securities" which most directly influence mortgage rates) held relatively steady.

This keeps the Conventional 30yr Fixed Best-Execution Rate at 3.875% (read more about Best-Execution calculations). Some of the most aggressive lenders in the marketplace are getting close to offering competitive scenarios at 3.75% for the most ideally situated borrowers, but in general, there will continue to be diminishing returns for buying rates down under 3.875% until things change in the Secondary Mortgage Market.

We explained more about what that change entails in recent discussions about MBS and the structure of the secondary mortgage market.  Here's a clip from yesterday's commentary:

3.875% is the lowest rate that fits into the most popular MBS bucket (more on buckets HERE).  The next bucket lower is, by comparison, scary, untested, unproven, dangerous, unknown, and risky as far as investors are concerned.  Just like you pay more for limited-edition-type items, it's more expensive to get a mortgage that's produced in lower quantities.   

The diminishing returns under 3.875% can change over time, but the process isn't a fast one, nor was it fast the last time the secondary market moved down to congregate at the next lower "bucket."  Last time, the move was from 4.0% buckets to 3.5%, and just happened in the last 6 months.  The next move down (to 3.0% buckets) would be more gradual and might not fully happen at all unless broader bond markets hold at current levels.

It's tough to confidently assume that bond markets will be able to hold current levels because European turmoil is a key factor in getting rates as low as they are.  Thus it's tough for investors to assume that it's a good idea to move down to a lower MBS bucket, making it tough for rates to move decidedly lower than they are right now.

Another consideration in the phenomenon of rates having an increasingly tough time moving lower from current levels is that lenders can use their rate sheets to pace the influx of new applications.  If they're busy, they can raise rates simply to catch their breath.  One Senior Loan Officer from a large regional bank spoke with us on the condition of anonymity, saying "While purchase mortgage transactions are not being impacted, capacity issues are cramping rates at regional banks. Rate throttling to control production is pushing refinance rates back to the 4.0 to 4.125%."

Loan Originator Perspective

Jason York, Vice President of VA Operations at Prime Mortgage Lending, Inc

For those customers that are within 30 days of their closing, and are content with their rate, I am leaning towards locking most of the time. If someone is outside of that timeframe, or hasn't gotten all of their docs in, then I tend to hold off until we are within 30 days or at least have everything submitted.

Constantine Floropoulos, Quontic Bank, VP, Sr. Loan Officer

Feels like the last few days have confirmed that the market is not ready for a leg down in best execution rates, regardless of what consumers and originators may want, the market is saying NO!

Alan Craft, Loan officer at Integrity Home Loan of Central Florida

I see no reason not to lock in right now.  Rates are at all time lows.  I feel it is very unlikely that rates can go lower from here.

Curt Sandfort, President of Premier Home Loans

At these prices, I am recommending that we lock clients upon receipt of signed application. Even though that means paying for longer lock periods, IMO, it is well worth it.

Today's BEST-EXECUTION Rates 

• 30YR FIXED -  3.875%
• FHA/VA -3.75%
• 15 YEAR FIXED -  3.125-3.25%
• 5 YEAR ARMS -  2.625-3. 25% depending on the lender

Ongoing Lock/Float Considerations 

• Rates and costs continue to operate near all time best levels
• Current levels have experienced increasing resistance in improving much from here
• Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating
• But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.
• (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).