Prices of mortgage backed securities held to a tight range yesterday, closing the day in essentially the same place they opened. The lack of volatility in MBS prices allowed lenders to keep mortgage rates near five month lows. Yesterday's main event, besides weakness in the dollar and record high gold prices, was the Treasury Department auction of $39billion 3 year notes. Auction demand could be described as below average, but not weak enough to warrant a rise in rates. Strong demand for our nation’s debt is one of the main factors helping to keep mortgage rates near historic lows.
The data calendar is thin today. This morning the Mortgage Bankers’ Association released their weekly applications index. This data tracks the weekly change in the number of applications at major lenders for mortgages. Last week’s report came in surprising low, applications for both refinances and purchase loans dropping significantly. Today’s report showed a large increase in new applications. The overall application activity index jumped 16.4%. The purchase index increased by 13.2% and the refinance activity moved higher by 18.2%. .
Increased application activity may increase the time it takes for lenders to process and approve loans. If you are hoping to take advantage of the first time home buyer tax credit, which expires at the end of next month, increased turn times may delay your closing beyond that date, which disqualifies you from use of the credit. I encourage anyone looking to take advantage of this tax credit to get your application submitted even if you haven’t found a property yet. Some lenders will still underwrite your loan with a “to be determined” address. This will speed up the approval process once you find a home. There is a possibility that this tax credit will be extended, but as it is right now it is set to expire at the end of next month. The clock is ticking.
At 1pm eastern, the U.S. Department of Treasury auctioned $20billion 10 year notes. This auction is more relevant to MBS values than yesterday’s 3 year note auction as the average life of a new mortgage loan is much closer to 10 years than 3. As always with Treasury auctions, market participants look at the demand to gauge its success. Strong demand, especially from foreign accounts, has kept treasury yields low which contribute to low mortgage rates. Matt and AQ covered the auction MBS Commentary blog.
Reports from fellow mortgage professionals indicate that par 30 year conventional mortgage rates are holding in the 4.625% to 4.875% range for well qualified consumers. To secure a par 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 an estimated one point loan origination/discount/broker fee. There are a couple lenders offering rates at 4.5% for consumers with exceptionally high FICO scores and lower loan to values. If you are seeking to access equity in your home, you should expect either a higher interest rate or additional fees due to the loan level price adjusters that were added by Fannie Mae and Freddie Mac last year.
As I have been saying in recent posts, floating remains risky. This is not a lock alert but I am continuing to advise my clients to lock in now and take advantage of the great rates being offered. I am continuing this stance as you have more to risk by floating than you can gain meaning rates could move a little lower but there is more room above leading to higher rates.
