THIS WEEK'S MORTGAGE RATE SUMMARY
HOW RATES MOVE:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.
RATES CURRENTLY TRENDING: NEUTRAL
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -77bps. This was enough to move rates higher last week. We finally saw rate volatility ease last week.
THIS WEEK'S RATE FORECAST: NEUTRAL
Three Things: These are the three areas that have the greatest ability to move rate markets this week. 1) Coronavirus, 2) The Fed and 3) Stimulus
1) Coronavirus: The headlines will continue to be the driving force this week.
2) The Fed: We will get the Minutes from their Last FOMC meeting, which didn't really happen - it was more or less a perpetual Fed meeting with Fed action of some form every day. Two weeks ago, the Federal Reserve Bank purchased $50B of MBS, and it was heavily weighted towards the 2.5 and 3.0 coupons. But last week, that was dropped to $40B, and the benchmark 2.5 and 3.0 coupons were only purchased in the morning and not throughout the day like the previous week. This week, the Fed will move back to multiple purchases of those coupons at different time periods during the day.
3) CARES Act / More relief: The huge CARE Act has yet to get any real traction with those $1,200 (plus 500 per child) have yet to hit anyone's checking account and won't for at least another week - even longer for those that need a check instead of direct deposit. And the PPP loans, while $38B has been committed, have not gone (And will not go) to the small businesses that need them. The major banks (BofA, JPMorgan, Wells, etc.) are insisting on a prior lending (not just banking) relationship with the small business and are underwriting for risk as opposed to the Act, which states that credit and income of the company should not be taken into consideration. Basically, the businesses that would otherwise already get approved for some type of financing are merely getting a better rate. The small mom and pop restaurants, etc. are getting no help. That leaves the door wide open for the fourth round of stimulus/relief, and details about that proposal will get the attention of bond traders.
THIS WEEK'S POTENTIAL VOLATILITY: AVERAGE
Rate volatility was at an extreme level for a few weeks, but starting last Tuesday, things have settled down dramatically. Look for rates to move sideways on moderate volatility. Of course, any news on the coronavirus can impact markets dramatically.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.