Mortgage Rates Bounce Around, Regain Lows, June 25, 2010
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- David Coster - MortgageLoan.com
Follow the bouncing ball
Keeping up with mortgage pricing this week could have made you queasy. Volatility was the rule as economic data and news from Asia, Europe and the US conspired to keep pricing in flux throughout the week.
During the week a number of economic reports were issued that provided mixed signals relative to the strength of the US economy. Existing and New Homes Sales reports showed historically low levels of home sale activity, while Jobless Claims data was better than expected. In general, the economic reports of the week seem to point to a growing, but weakening economy. Mortgage rates tend to go up on economic strength and down on weakness. Mixed reports gave us mixed rates for the week, though again the week ends at record low levels.
On Monday, analysts initially expected positive stock market reaction to China’s announcement last weekend that it would allow its currency to rise in value against the US dollar. This initially worked against mortgage rates but quickly reversed, as it became clear that China would not allow changes immediately. Mixed signals from Europe also helped produce a muddled week for mortgage rates. Reports out of Europe indicated continuing risks of default by Greece, yet there was a positive report on the strength of European banks and reports of planned budget cuts in Germany and Great Britain.
The big announcement on Friday was that US Senate and House negotiators had agreed on a bill providing sweeping changes in financial regulation. While having a better idea of what the new regulatory environment might look like is viewed as a positive, much uncertainty remains. The bill leaves much of the specific details of the regulation up to the individual regulators for each area within the financial services industry.
Why aren’t pricing improvements being passed on?
There was some unusual activity in the mortgage industry this week. Several times this week when prices in the mortgage-backed securities market improved, mortgage pricing improvements were not passed on to originators.
What might explain this? According to the Chief Operating Officer of a large Midwest-based mortgage broker who asked not to be identified, “Lenders appear to be holding back on positive improvements in pricing despite activity in the MBS markets that would justify it.” He adds, “Lenders, like gas stations, have always been slow to pass along positive improvements, but over the past couple of weeks they have become even slower. The reason appears to be a desire to build up reserves to cover expected repurchase requests coming from Fannie and Freddie.”
In response to the Financial Regulatory Reform legislation and as the political season approaches, many mortgage insiders believe that Fannie and Freddie will begin to pressure lenders to repurchase the “bad loans” that they originated. This could force mortgage rates up despite very attractive prices for mortgage-backed securities. We will continue to monitor this issue to see how it develops over the next few months.
Next week
Next week will start with mortgage direction being driven by outcomes of the G20 meeting in Toronto. Specifically important will be , news on how leaders within Europe plan to deal with their on-going debt crisis, as well as, any clarity that China provides on its decision to allow its currency to fluctuate in value. Economic reports of significance next week include the Chicago Purchasing Managers Index (PMI) on Wednesday, the Institute for Supply Management (ISM) Index on Thursday and the Non-Farm Payroll report on Friday.
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National Rates
| Loan Type | Today | +/- |
|---|---|---|
| 30 yr fixed | 3.72 |
|
| 15 yr fixed | 3.03 |
|
| 5/1 ARM | 2.75 |
|
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