Mortgage Rates: Best Execution Moves Higher

A 7-week mortgage rates range was finally broken last Thursday and Friday. The directional move was not consumer friendly. “Best Execution” home loan borrowing costs have risen.

On the surface, a higher “Best Execution” conventional 30 year fixed mortgage rate was triggered by the release of the Employment Situation Report, which told us the unemployment rate declined to 9.00% in January.  But we know that report was filled with weather related noise, statistical adjustments, and survey description distortions. READ MORE… Employment Situation Report: WHAT A HEADACHE!

When taking a more technical approach on the distribution of blame, we might say stored energy was released from a coiling bond market as indicated by a “Bear Flag” pattern in benchmark 10 year Treasury notes. If you’re interested in that explanation. READ MORERange Exhaustion Cured. Result Not Originator Friendly

The resulting impact, MG tore the band-aid off on Friday by stating the following:  “Way worse, very very fast. That damage has been done.” HERE IS A CHART illustrating the jump.

This leaves the “Best Execution” conventional 30 year fixed mortgage rate split between 5.125% and 5.25%. If you meet the requirements outlined in the disclaimer below, you should be able to execute a loan commitment at 5.25% with lender credits. 5.125% is on the board as well but is mixed in terms of whether or not it’s worth paying points at the closing table. We would generally advise the permanent floatdown if you plan to live in your house for longer than 5 years. 5.00% is still out there as well but will definitely require points.  Ask your originator to run a breakeven analysis on any origination points they might require for the permanent float down.

On FHA/VA 30 year fixed “Best Execution” is priced between 4.875% and 5.00% with the same comments above re: the split and closing cost credits. 15 year fixed conventional loans are best priced between 4.25% and 4.375%. Five year ARMS at 3.625-3.75%.

The primary mortgage market is very segmented at the moment because of a pending shift in the production mortgage-backed security coupon in the secondary mortgage market. Some lenders have already shifted while others are taking their time.

“Bext Execution” is the most efficient combination of note rate and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their “breakeven analysis” on your permanent rate buydown costs.

Important Mortgage Rate Disclaimer
: The “Best Execution” loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the “perfect borrower” category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. “No point” loan doesn’t mean “no cost” loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don’t forget the intense fiscal frisking that comes along with the underwriting process.

HERE is an economic and events calendar for the week ahead.

“Best Execution” mortgage rates and home loan closing costs are very sensitive to rising benchmark Treasury yields and falling MBS prices at the moment. We do expect borrowing costs to rise before a sustainable recovery rally is considered in the secondary mortgage market. We anticipate the first real chance for notable improvements will be seen on Thursday.

What MUST be considered BEFORE one thinks about capitalizing on a rates recovery?

1. WHAT DO YOU NEED? Rates might not recover as much as you want/need.
2. WHEN DO YOU NEED IT BY? Rates might not recover as fast as you want/need.
3. HOW DO YOU HANDLE STRESS? Are you ready for MORE VOLATILITY in the bond market.

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