Mortgage rates moved moderately higher on average today.  Recently high volatility in financial markets continues driving stratified pricing strategies.  That's a long way of saying that different lenders are adjusting rates by different amounts, and sometimes even in different directions.  For instance, a few lenders actually offered improved rates today for some scenarios while other lenders were much higher.  The net effect was an increased prevalence of 3.75% among conforming 30yr fixed rate quotes for top tier scenarios.  3.625% remains the most common, but today's closing costs would be higher than yesterday's.

Much of today's volatility had to do with unexpected headlines concerning global central banks.  In general, the market's focus is on the European Central Bank (ECB) as it's expected to announce a quantitative easing package tomorrow morning.  Potential details of that program were leaked this morning.  This made for the initial spike in market volatility.  It was exacerbated by another surprise from the Bank of Canada, which announced a rate cut not even 30 minutes after the ECB leak.

The implication of this big-picture volatility continues to be that there is more risk and reward for locking and floating when it comes to mortgage rates in the US.  As we discussed yesterday, the elevated level of volatility acts to limit the reward side of that equation--something we've seen on several recent occasions where broader bond markets suggest lower rates, yet mortgages fail to follow.  We should know a lot more about how the bigger-picture is shaping up tomorrow after markets begin digesting the ECB news.

Loan Originator Perspective

"This morning lenders worsened rate sheets much more than was justified probably due to the big news that is expected tomorrow from the ECB. On that front, we got a rumor this morning that the ECB will do QE of 50b euros per month, somewhat lower than most economists had estimated. On that rumor, rates were pressured higher and many lenders worsened rate sheets even further. At this point, I would think the damage has been done and rates could hold here or rally after the announcement tomorrow morning. Sell the rumor, buy the news. The biggest fear would be if the ECB announces a larger QE program. All that said, it is very risky to float." -Victor Burek, Open Mortgage

"We saw today how much just a rumor could shake up the financial markets here and abroad. Tomorrow is the official announcement and confirmation of the rumor and/or changes to the supposedly leaked ECB decision will certainly create another wild ride tomorrow. If your loan closing is outside of 30 days and you have risk tolerance, considering floating is understandable. If you are closing within 30 days and are happy with your rate/fee structure which is not too far off the best rate/fee structures we have seen in 20 months or so, lock and remove all concerns of the potential negative momentum we could see with the ECB's official release tomorrow. " -Steve Chizmadia, Mortgage Consultant, American Capital Home Loans

"Tomorrow brings so much uncertainty that the only way to avoid volatility with 100% certainty is to lock today. That said, we've sold off fairly significantly over the last 5 days which CAN mean markets are positioning for a move lower. Big gamble to bank on that; however." -Brent Borcherding, brentborcherding.com

"We had an unfortunate move in rates today due to premature data leaking into the markets in connection with tomorrow's all important announcement from European central bankers in connection with Europe's QE. I am sticking to my guns here and I am floating into the weakness. Loan closing within 10-15 days should have been locked in. If not, your loan officer is an idiot, and look for a bounce back tomorrow to lock in at. I am a firm believer we will see a new historic low for interest rates before this rally turns. I just hope it stays available long enough for people to capitalize on." -Constantine Floropoulos, Quontic Bank

"Rates started the day for the most part unchanged but did deteriorate during the day. Tomorrow brings being news with the ECB announcement. Should the ECB fail to provide the stimulus the market is looking for we could see rates increase. If the ECB pleases the market we could get back the lost ground from this week and challenge the 2015 low in rates and even possibly hit new lows. There is certainly risk in floating and the risk is higher than normal. If you do not mind risk and can handle the consequences of the risk feel free to float. If you are risk adverse you should lock your rate TODAY!" -Manny Gomes, Branch Manager Norcom Mortgage

Today's Best-Execution Rates

• 30YR FIXED - 3.625-3.75
  
• FHA/VA - 3.25
  
• 15 YEAR FIXED -  3.0-3.125
  
• 5 YEAR ARMS -  3.0 - 3.50% depending on the lender

Ongoing Lock/Float Considerations

• 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst has been and continues to be Europe.
  
  
• European bond yields trended constantly lower in 2014, thus playing a prominent role in keeping US rates lower than they otherwise might be.  Many feel that Europe will continue to slide until their central bank engages in US-style quantitative easing.  Some see this happening in early 2015.  In any event, we're looking for a turn in Europe, first and foremost, before worrying about the longer-term trend in bond markets being at serious risk of reversing.
  

• It's impossible to know when Europe will turn a corner, and even then it's only the sort of thing we'll be able to observe in hindsight.  That means every head-fake toward higher rates runs the risk of developing into a longer term rise, even if those risks vary greatly in terms of probability.  Clients with longer term time horizons and who otherwise don't mind losing some ground in exchange for the chance at locking even lower rates are the only ones who should float.  Clients who must close by a certain date or who can't afford to lose any ground on rates should generally be locking even though the longer term trend has been in their favor for over a year now.
  
  
• As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.'  Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy.  It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).