Mortgage News Daily: 2010

Thursday, December 16, 2010

Charting the Rapid Rise in Mortgage Rates - Mortgage News Daily

Mortgage rates shot higher this week. The new "best execution" par 30 year fixed mortgage rate has jumped firmly up to 4.75%.

We have offered several different explanations for rapidly rising rates. In the end it comes down to a confluence of factors that have been greatly exaggerated by apathetic investor attitudes as we head into year-end on Wall Street

To illustrate the speed and scope of this spike I have created a mortgage rate chart using my loan pricing model. On this graph you will see four different colored lines. Each line represents a different 30 year fixed mortgage note rate. The numbers on the right vertical axis represent origination closing costs as a percentage of your loan amount. Also notice the dark black horizontal line at 0.00. If the note rate graph is below the 0.00% marker, then the consumer should be expecting closing cost help from their lender in the form of a lender credit toward third party fees. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown fees. These cost estimates were generated using average loan pricing quotes from the five major mortgage lenders.

As an example, 4.00% note rates would cost a borrower almost 5 discount/origination points at the closing table, as a percentage of their loan amount. This is clearly not advisable nor is it attainable. A more relevant example is the 4.75% note rate. A very well-qualified consumer should be able to close on a 30 year fixed mortgage at 4.75% with no additional originator compensation related closing costs. 4.75% is basically at the 0.00% line though, so on average most consumers should not be expecting much closing cost assistance (third party fees) at 4.75%.

Important Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates on agency conforming loan amounts to borrowers who are 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 recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest)".

Mortgage Rates Take A Beating - Mortgage News Daily

Yesterday we took a moment to rejoice the reversal of Friday's mortgage rate degredation, but left it with the following statement...

"I know that all sounds encouraging and might even draw a "sigh of relief", but we are still hesitant to get excited about positive progress in mortgage rates. A greater than normal amount of uncertainty is governing the global economic investing environment. Couple that with what is traditionally a "hard to read" time of year (year end on Wall Street), and it makes sense to say if you're floating your loan on a closing deadline you should meet with your loan originator to indentify an acceptable payment range and coordinate a short term loan pricing/buydown target based on your specific scenario."

In other words, be defensive! In fact, "Defensive Outlook in Place" found its way into the headline of last night's post. Well, we didn't think it would get this bad but the bond market tanked today and mortgage rates rose again. Multiple reprices for the worse were reported. Yes folks... It CONTINUES to be a very wild and very bumpy ride for rate watchers. Large-scale fluctuations are now the norm.

The generally accepted culprit of today's rout is twofold, beginning with an Irish budget cut and intensifying with a Congressional compromise on extending both the Bush era tax cuts and unemployment benefits. Tax cut extensions lifted the stock market right out of the gate (and hurt bonds) while news that Ireland was close to confirming austerity measures was an early motivator of interest rate weakness in U.S. benchmarks (stole demand from Treasuries).

When all was said and done, prices of loan production MBS coupons (which guide lender rate sheets) had fallen over a full point! To bring that number into reality, this basically means that in order to get the same rate today as was available yesterday, it would cost an additional 1% of your loan amount, or for example, another $2500 of closing costs on a $250,000 loan. But when the market is falling as fast as it was today, lenders tend to adjust loan pricing "on the come," effectively taking it away a bit more aggressively than a purely mathematical adjustment based on MBS prices. So not only did we have weakness out of the gate, but most lenders repriced for the worse in the middle of the day and again this afternoon.

And so it is that even the best qualified borrowers find themselves looking at something around 4.75% on a 30yr fixed loan. 4.625 is not out of reach but the buydown is unattractive at most lenders. As always, these figures assume a 740+ credit score with 20% down (or equity based on appraised value), and an otherwise blemish free loan file (no LLPA's) with nominal closing costs (lender/broker compensation in a tight range around 1% of the loan balance).

Today's advice is the same as yesterday. Volatility and uncertainty remain ways of life. We are NOT in a position yet to say we've reached some important support levels that should allow mortgage rates to recover. Things can get worse before they get better, and judging by what we've seen in recent weeks, will probably do a little bit of both in rapid succession. For those who must pull the trigger in December, get safe and get out with a liveable payment. All others are at the whim of a market that makes no promises as to when or if it will see improved loan pricing.

Monday, December 6, 2010

Mortgage Rates Mostly Unchanged

Lenders were hesitant to pass along loan pricing improvements yesterday but made up for it today with broad based reductions in consumer borrowing costs. Unfortunately the secondary market did not cooperate and many lenders were forced to reprice for the worse before the day was done. The good news is, even after reprices for the worse, mortgage rates still moved slightly lower today. The bad news is, even when you ignore the reprices for the worse, 4.375% is as good as it gets for the majority of borrowers in the primary mortgage market.

A clear line has been drawn in the sand that lenders refuse to cross. That line runs between 4.25% and 4.375%. 4.375% is out there for the taking, 4.25% is not. Well actually, some aggressive lenders are quoting 4.25% to well-qualified consumers, but the buydown structure of that note rate continues to be too expensive for most borrowers. For example, a 4.25% buydown at one of the major lenders costs 1.007 points. On a 250,000 loan that buydown would add $2,517.50 in closing costs to the borrower's bottom line(1.007% of the loan amount). The monthly savings when floating down from 4.375% to 4.25% on a 250,000 loan is $18.36. Thus it would take the borrower 137 months to recover the points they paid at closing to float down to 4.25%. That's 11.4 years. That is an expensive buydown!

The line in the sand between 4.25% and 4.375% is a factor of what MBS coupons are trading in the secondary mortgage market. If lenders are going to offer 30-year fixed rate quotes at or below 4.25% again, we really need to 3.50 MBS coupons trade. In order for that to happen we'll need to see benchmark Treasuries make substantial positive progress. The last time 3.50 MBS coupons were trading in the secondary mortgage market, the 10 year Treasury note yield was about 25bps lower in the 2.50% range. At this point, barring a global financial system meltdown, it seems highly unlikely that 3.50 MBS coupons will trade before the Employment Situation Report is released on Friday.

That means, if you're floating, you'll have wait it out until Friday morning to see if a continued recovery rally is in the cards for mortgage rates. The problem with waiting it out, floating through Friday is a risky move because mortgage rates could rise from here...

Remember what happened last month following the October Employment Situation Report? Just two days after the FOMC announced QEII (bonds rallied for only one day which pushed mortgage rates to new record lows), the bond market erased record low mortgage rates when the labor market was reported in better shape than economists expected. That leaves us in a difficult position.

Recently optimistic economic reports are my main cause for concern in regard to a sustained move higher in mortgage rates, but we did witness some encouraging behavior today. 2 of 3 economic releases were not bond market friendly, yet events in Europe related to their debt crisis overwhelmed investor optimism and helped the bond market retain recent positive progress(flight to safety). This was a hint that the "QEII Cleansing Process" has been more about technical trading considerations (too many long positions) vs. a shift in fundamental economic outlooks. That theory will be put to the test in the day's ahead though. We will get plenty of opportunities to judge the market's sensitivity to new data with the main event scheduled for Friday morning (Employment Situation Report).

If the Employment Situation Report is better than economist forecasts, consumers should expect the best 30 year fixed mortgage rates to move up to a range between 4.375% and 4.750%. Within that range, 4.375% would become an unattractive floatdown option and borrower best execution would likely rise to 4.625%.

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Mortgage Rates Spike as Stocks Rally. Teetering on Shift in Par Note Rate

The same problem that plagued mortgage rates in recent days where 3.5 MBS coupons were not trading in enough volume to allow lenders the opportunity to push rates below 4.25% is now at risk of causing a similar move in 4.0 MBS, which could make 4.75% the new normal in the primary mortgage market.

In the overseas trading session, positive developments in the ongoing European sovereign debt crisis soothed markets and led investors to reallocate funds into stocks. When the U.S. trading day got underway, positive econ data solidified those overnight gains and added a bit more momentum to stocks. We refer to this as "the risk trade being on". We would like to call special attention to the fact that the majority of bond market weakness was priced in overnight, not after U.S. economic data.

The run toward riskier assets was not a positive development for the bond market. 4.0 MBS prices fell to their lowest levels in over 6 months! Although the situation is bleak in the short term, the benchmark 10yr treasury note yield rose before stopping exactly at 2.96, the same level previously discussed as the outer limit our protective range. We mention the 10yr treasury here not because mortgage rates are directly linked to it, but rather as a barometer for overall sentiment surrounding the bond market. In that sense, it's a better guage than MBS, and the fact that, despite taking a beating, it remains respectful of it's recent range at least offers the possibility of recovery from here.

As AQ mentioned yesterday, it is now up to economic data to either serve as the nail in the proverbial coffin, and it has a real chance to do so between now on Friday with the release of Non-Farm Payrolls. Even though tomorrow's data could certainly cause markets to "lead off" in one direction or another, whatever happens on Friday will need to confirm that shift if it is to be a lasting one. Conversely, if rates worsen tomorrow and NFP is weaker than expected, we would likely see rates recover to somewhere within the recent range.

But as far as your decisions regarding mortgage rates are concerned, what actually happens is of secondary importance to what COULD happen in the short term.

What "could" happen is 4.75% might become the lowest rate on the board come Friday, thus, from that perspective, now is not a time to be playing the market. At least not for anyone who does not have the time to wait for our broader economic assumptions (segmented recovery, low inflation, weak labor market) come to fruition and lead rates lower again.

Bottom line: while the door is open for some long-term/strategic optimism for rates, the short-term/tactical strategies should favor damage-mitigation, defensiveness, and a conservative approach to locking in loan pricing. Once NFP hits on Friday, we'll know a lot more about how things COULD go and hopefully even a bit more about how they probably will go. And "go" they must because even remaining at current levels in the bond market would very quickly result in a lack of volume in 4.0 MBS which would all but guarantee the best rates available being in the high 4's. For today at least, even after heavy losses, we're still somewhere in between.

Today was a bad day overall. The best conventional/FHA/VA 30 year fixed mortgage rates have risen to a range between 4.375% and 4.750% for well-qualified borrowers. The best conventional/FHA/VA 15 year fixed mortgage rates are in a range between 3.500% and 3.875%. Best execution on a 30-year fixed loan for a well-qualified, no LLPA borrower is 4.50%.

The pressure is clearly on, but considering that the 2.75 to 2.96 range in 10 year treasuries was outlined weeks ago and that we still haven't moved outside that range suggests that the market has not found sufficient cause to do so. Today's trading says that the market believes that cause is arriving soon, and it's most reasonable manifestation will be Friday's NFP.

Plain and Simple: Floating at this point is basically making a bet that NFP will be weaker than expected, or a statement that you have a few months to wait before needing to pull the trigger. (February potentially)

Mortgage Rates at Crossroads Ahead of Employment Situation Report

Tomorrow the Bureau of Labor Statistics will release the Employment Situation Report. This is the single most influential monthly dataset shared with the market. It carries the potential to shift investment perspectives and realign outlooks.

It could be way better than expected and 30 year fixed mortgage rates could go into the 5's by the end of the day. It could be way worse than expected and rates might take reasonable steps back toward 4.25%. It could do either of those things and rates could be relatively unchanged. Or it could do either of those things and paradoxical opposite reactions could occur. The point here is that tomorrow is definitely NOT about how NFP prints compared to how economists expect it to print. It is all about how the market receives it and whether or not there are any other major news events being digested at the time (Europe is a continuing theme that comes to mind).

Would we take that reaction to be a sign of things to come in 2011? Or just temporary indigestion over positive economic data that is bound to have counterpoints come out in the near future? Ultimately, one has to decide how high rates can go before they'd no longer be able to pull the trigger on a refinance or purchase. It's very important for you to calculate just how many DOLLARS PER MONTH you'd save if a rate went from 4.5 down to 4.25. So given your loan amount, you'd then know what every .25% in rate would save you in dollars. The bigger your loan amount, the more sensitive your payment is to changing interest rates.

yesterday, we said it is now up to NFP to either serve as the nail in the proverbial coffin or to help mortgage rates stabilize and move lower. While the door is open for some long-term/strategic optimism, the short-term/tactical strategist should favor damage-mitigation, defensiveness, and a conservative approach to locking in loan pricing. Once NFP hits tomorrow , we'll know a lot more about how things COULD go and hopefully even a bit more about how they probably will go.

The best conventional/FHA/VA 30 year fixed mortgage rates have risen to a range between 4.375% and 4.750% for well-qualified borrowers. The best conventional/FHA/VA 15 year fixed mortgage rates are in a range between 3.625% and 4.00%. Best execution on a 30-year fixed loan for a well-qualified, no LLPA borrower is 4.50%.

Mortgage Rates Ready to Tackle Busy Schedule in Days Ahead

Product: Today Last Week Product: Today Last Week

It's gonna be a big week for mortgage rates, the bond market, and the entire economy. The economic calendar in the week ahead is busy and there are many events to be discussed. . The schedule includes key manufacturing and construction surveys, consumer confidence and home prices indexes, and concludes with Friday’s Employment Situation Report. Scattered in between we'll get four QEII open market operations, two MBS reinvestment TSY buybacks, and plenty of political debate.

The Week Ahead: Economic Calendar Packed with Influential Events

MBS historically gain a little more or lose a little less than their Treasury counterparts during this week, so any stability in the bond market as a whole could be a positive for mortgage rates. But by Friday, we'll be gearing up for a potentially large move in borrowing costs following the release of the Employment Situation Report, which is generally viewed as the single most important piece of economic data released to the market on a monthly basis.

Between now and then, there's one overarching certainty regarding markets: uncertainty. That's the theme of the QE2 cleansing process about which we've made so much mention. It has been a volatile tug of war between bulls and bears, and just when it seems like one has gained the upper hand, the other strikes back. This has resulted in a very bumpy ride for consumers seeking low mortgage rates, and to make matters worse, lenders tend to raise rates faster than they lower them, which has been obvious lately.

The biggest enemy for consumer rates in the day's ahead is not the choppy movements themselves, but rather the UNCERTAINTY about how long we'll be in limbo and which direction we'll go from here. During this time, it makes sense to EXPECT volatile movements in between the recent high and low rates seen this month. As long as uncertainty persists, bond traders are reluctant to move enough of their money down into the MBS coupon levels that would ultimately result in lenders being able to go much below 4.25% rates on 30yr fixed loans. (3.5 coupons. READ MORE).

The best conventional/FHA/VA 30 year fixed mortgage rates remain in range between 4.250% and 4.50% for well-qualified borrowers. The best conventional/FHA/VA 15 year fixed mortgage rates are in a range between 3.500% and 3.875%.Best execution on a 30-year fixed loan for a well-qualified, no LLPA borrower is 4.50%. These consumers could possibly be quoted 4.25% at 1+1 but buydowns aren't worth the extra closing costs. For example, a 4.25% buydown at one of the major lenders costs 1.007 points. On a 250,000 loan that buydown would add $2,517.50 to closing costs (1.007% of the loan amount). The monthly savings when floating down from 4.375% to 4.25% on a 250,000 loan is $18.36. Thus it would take the borrower 137 months to recover the points they paid at closing to float down to 4.25%. That's 11.4 years. That is an expensive buydown! We really need to 3.5s to trade again or 4.25% won't be worth it to borrowers.

Important Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates on agency conforming loan amounts to borrowers who are 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 recordation + escrows (things like upfront MIP (if required), property taxes, homeowners insurance, accrued interest)".

Bottom line: uncertainty has rates on hold, and we may experience quite a bit of volatility in the short term. Holding out for the stability that could afford the markets lower rates could be a longer term game than you have time for. If that's the case, about the best that can be done in the short term is to take advantage of the "dips" in rates before they "rip" back up to recent highs. We expect to see some dips in the day's ahead but respect the increased amount of uncertainty in the marketplace.

Rate this Post Filed under: mortgage rates, Mortgage Rate Outlook, mortgage rate prediction, home loan rates

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Sunday, December 5, 2010

Patience Pays Off For Mortgage Rate Watchers

The Federal Reserve birthed QEII yesterday as expected, but the bond market's initial reaction was not float boat friendly and a shock wave of panic rolled through the primary mortgage market.

In the hours that followed the 2:15 FOMC statement release, loan originators and borrowers alike watched in horror as benchmark Treasury yields spiked and mortgage-backed securities prices plummeted. Some lenders repriced for the worse and pushed mortgage rates higher while others simply shut down their commitment desks, blocking consumers from locking their interest rate. (dramatic right? haha)

After weeks of build-up, our world seemed to be falling apart right before our very eyes. It got so bad that I received about 500 angry emails from readers who "trusted me" and were now "screwed".

MY RESPONSE TO EACH AND EVERY READER: DO...NOT...PANIC!

Well...Patience paid off today for those who didn't pull the trigger prematurely.

Mortgage-backed securities rallied to record price highs today and mortgage rates leaped lower in an aggressive manner as lenders passed along the loan pricing love. And my stereo system was cranked up all day in celebration...

The best conforming 30 year fixed mortgage rates have moved back down to a range between 3.875% and 4.25%. 3.75% is phantom but I've received more than a dozen emails from borrowers who locked in a 30 year fixed loan at 3.75% today. Read "phantom"as believing in the existence of 3.75% but not having scientific proof. 4.25% is widely quoted with no closing costs while 3.875% still carries an expensive closing cost price tag.

The best conforming 15 year fixed mortgage rates have moved down to a range between 3.250% and 3.625% (this market is more segmented than 30s). 3.25% is "phantom" while 3.625% is a no closing cost quote.

I can't endorse an ARM with 30 year rates so low today. If you do think an ARM is right for you I hope you're paying very close attention to the index your ARM is tied to and you fully understand how it behaves relative to the broader bond market. Clearly an ARM requires a little more financial literacy.

(IMPORTANT: ASK YOUR LOAN ORIGINATOR TO RUN A BREAK EVEN ANALYSIS ON THE POINTS YOU'RE PAYING TO FLOAT DOWN YOUR MORTGAGE RATE!!!)

Mortgage Rate Disclaimer: Loan originators will only be able to offer these rates to borrowers who have perfect credit profiles and enough equity in their home to qualify for a refinance. 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 risky. (Investment properties and second homes are a riskier investment )

BORROWERS BEWARE: There were scattered reports of repricing for the worse today. This gives me the opportunity to revisit the "capacity constraint" issue that surrounds mortgage rates, especially at retail lenders. Basically what you need to know is when the primary mortgage market is buzzing with activity, some lenders may actually reprice for the worse (increase mortgage rates) for no apparent reason. This is generally a function of their shop reaching operational capacity. In an effort to slow loan production and reduce pressure on the processing/underwriting/closing staff, the lock desk will pre-emptively increase mortgage rates. This can occur at anytime but there is a warning sign that might help you avoid being a victim of a "capacity constraint" reprice for the worse. When loan processing turn times begin to grow longer, it's a hint of loan pricing pain to come. Your loan originator should be paying close attention this though, my point is to alert you to the potential for it to occur when the refinance market heats up. This is not a baloney explanation, your LO isn't "yanking your chain" if they use it.

Ok so the rally we enjoyed today was another step in the right direction. Our outlook seems to be playing out perfectly but we're not quite there yet because mortgage rates below 4.00% are not yet offered on a widespread basis with an acceptable closing cost structure (5 year breakeven on points paid is acceptable in my opinion). So there is still work to be done and a decision to be made for many float boaters. With that in mind here are my thoughts on locking and floating in the two week's ahead.

I still feel that 3.75% will be as good as it gets for 30 year conforming loans. This theory is based on a lack of liquidity in the FNCL 3.0 TBA MBS market. 3.0 MBS coupons are generally backed by loans with mortgage rates between 3.25% and 3.875%. Yeh what a mouthful I know. What that means is there haven't been many buyers or sellers of 3.0 MBS coupons in the secondary mortgage market. 3.0s don't exist. There is no market! Heck I've barely seen any 3.0 options trade. Sorry I am getting way ahead of myself here but you get the point. Without 3.0 MBS, mortgage rates won't dip below 3.75%.

If you're already being quoted a rate near the low end of the above discussed "best rate ranges", it makes sense to lock, especially if you're approaching a "clear to close" from underwriting. We're playing a range here and there is a risky event ahead that carries the potential to increase volatility in mortgage rates: THE EMPLOYMENT SITUATION REPORT. Yeh it's so important that it's worthy of all capital letters and bold print.

The Employment Situation Report prints tomorrow morning at 8:30am eastern. This data is the most influential report released to the market on a monthly basis. It shapes investment strategies and shifts trader perspective. I am still confident that mortgage rates will eventually extend their rally, but I have to warn you, the float boat might take on some water if the report is better than expected. This means you cannot panic if we experience a short term spike in mortgage rates in the aftermath.

Plain and Simple: This is a high risk event. If the labor market is in better shape than expected, the initial knee jerk reaction will not be favorable to float boaters. I am however confident that this sell off will eventually abate and mortgage rates will resume their move downward. If the data fails to match expectations, hello broad based mortgage rate offers below 4.00%.

Wednesday, November 24, 2010

Mortgage Rate Recovery Rally Extends

Mortgage rates have actually been making a corrective run over the past three days. This little bounce has contributed a great deal toward shifting technical momentum in a floatboater friendly direction (from very bearish). And even though we witnessed some weakness in the primary mortgage market late this afternoon, MBS prices have nearly recovered from the sell off that gained steam last Monday, which totally pushed 4.125% quotes underwater. MBS prices today closed just a touch higher than last week's best levels, and the trading range has been much more stable this week! This positive progress is especially encouraging to see during a holiday shortened work week because investor attention is generally distracted and the trading environment is illiquid. This can make it easier for day traders to dominate the directional movements of interest rates.

The chart below of the last few weeks illustrates declining price volatility and the beginnings of an MBS recovery rally. Remember: the following chart is not mortgage rates but MBS prices. Thus, the higher the line, the lower the rates (in general).

As you can see, quite stable compared to 11/17, and at a higher average price. Besides the underlying positional movements we're watching on our trading screens, this is why we'd consider today one of the best days for confirmation of the QEII cleansing process washing out of the bond market. It's certainly not a closed case and it definitely doesn't mean the rally will extend. More time is needed to determine if rates are going to dip below 4.25% again, but so far, so good. If the market continues to display similarly mild volatility and a clearer range is established, longer term outlooks could again come into play with respect to hunting for that ideal mortgage rate. For now, we're still in an environment where changes could play out quickly. Things are looking better but we'll need confirmation of this move next week and after the Employment Situation Report, which will be released next Friday. Still in a waiting game....

The best conventional/FHA/VA 30 year fixed mortgage rates remain in the 4.25% to 4.50% range for well-qualified borrowers. 4.25% is looking more attractive on a permament buydown basis but the permanent buydown still takes over 5 years to recover in payment. The best conventional/FHA/VA 15 year fixed mortgage rates are still in a range between 3.500% and 3.875%.

SHORT TERMERS BEWARE: If MBS prices move lower tomorrow, loan pricing will take a bigger hit than usual because most lenders decided not to reprice for the worse this afternoon when MBS fell from recent price highs.

Mortgage Rates Make Positive Progress

Monday's trading of mortgage backed securities (MBS), which most closely dictate loan pricing offered by lenders, brought welcome changes in the scope and severity of the volatility we highlighted last week.

When volatility is high, MBS prices fluctuate rapidly, moving from the highest parts of their trading range to the lowest in a matter of hours or sometimes minutes! The charts we provided last week clearly illustrated this phenomenon as prices bounced up and down very much like a pinball between two bumpers.

There is some debate, even among the savviest of pros, as to the cause of the volatility and the way in which it is likely to play out, but at least there is a fairly short list of likely suspects. Here are a few factors driving the markets last week, this week, and in the weeks to come:

The much discussed 2nd round of the Fed's Quantitative easing (QEII) purchases of US Treasuries saw it's first full week of purchases. The fact that it was announced several weeks before buying actually began (and foreseen even earlier) led some to suggest that beneficial effects that mortgage rates would likely see from QEII had already been occurring before purchases began, and that once the purchasing did actually began, rather than simply confirm the previous trading (speculative), the INDECISION surrounding the ongoing fate of the program combined with several of the separate economic considerations from this list, was more than enough to panic the markets a bit, thus causing rates to rise rather rapidly. That started a bouncy cycle of "yeah but's." Rather than being resolved with a clear winner in that tug of war, rate volatility merely MODERATED as the week wore on, but the rapid back-and-forth nature of movements did not.Employment is a hot topic. The most recent non-farm-payrolls report presented a challenge to interest rates as growth in the labor market is generally bad for bonds yields and MBS prices. The next NFP report is right around the corner on 12/3.Ireland has been in the throes of the same genre of sovereign debt drama that plagued Greece earlier in the year, which helped drive mortgage rates to record lows all summer. Because the debt situation in any Euro-zone country has necessary impacts on the Euro currency, it tends to send shock waves throughout the financial world. The relative uncertainty surrounding the situation, whether or not it was ultimately good or bad for US bond prices, certainly didn't help the volatility. The US awoke this morning to find an Ireland that had agreed to an IMF/ECB bailout, and sizable improvements in bond prices all around the world ensued.Other economic data. Pretty standard-issue stuff here. Various scheduled economic reports always have the ability to impact mortgage bond prices by indirectly suggesting that the money that's in play in the marketplace is shifted around based on the specific suggestions of the report. This is why NFP is listed as a consideration as it is generally considered the most important economic report of the month, in addition to the employment situation being a topic of focus at the Fed and beyond. The remainder of economic reports can have an impact as well, but they get lumped in to their own bullet point next to the granduer of the mighty NFP report!Month End - There are a few factors, too complex to explain in detail here, that tend to have a marginal benefit to MBS prices leading up to the last day of the month, as well as NFP (which can occur soon into the following month as it will on 12/5).
Year End Approaches - The end of the year can bring bank balance sheet considerations for the largest movers of MBS money which can in turn, end up having a marginal effect on loan pricing.
More QEII buying - Markets will be watching the amounts the fed is choosing to invest in which sectors of the bond market for clues as to the changing shape of the yield curve.
More Auctions - Treasury Auctions Specifically... We've already taken down the 2yr note auction that occurred today (and that helped MBS stay in a decent trading range), and there are auctions tomorrow and Wednesday as well before the thanksgiving holiday and the traditionally slow and boring Friday that follows. If reality deviates too much from expectations, MBS prices can move fairly rapidly in either direction as they keep pace with treasuries that might be moving in either direction. There will be no bond auctions next week, this should be supportive of lower mortgage rates.
FOMC Minutes - Perhaps our best clues about the longer term strategic outlook on interest rate policy can be gleaned from an in-depth reading of the minutes from the Fed's most recent policy meeting, which are available tomorrow. NOTE: this is NOT one of those days where the prime rate might change (which would be more like the votey-torchy part of Survivor whereas the meeting minutes are more like the snippet with the credits after the show where we get to see how everyone voted and why... In essence, it's a window into why the Fed is doing what they're doing and they're thinking that might inform future policy)

PHEW! That's alot. But don't worry... It's not there in order to be memorized, but rather to highlight that there are several important factors pushing and pulling on both sides of the bond market--factors that are likely to continue to make volatility a risk. HERE is the full economic calendar for the week ahead.

All we know at this point is the "so far so good" type of cliche. We were beginning to entertain the first potential signs of a "cleansing process" in the bond market which would wash out the recent upward momentum in rates to a sufficient extent that the highest rates seen early last week might hold on to be the highest rates seen by the end of the week. This was indeed the case (but not without a few close calls).

We noted then, that we would need to see those same levies hold into this week and beyond before we could increase the level of certainty or probability that we'd seen the worst rates (for a while anyway). Once again, with today's decent gains in MBS and treasuries, we're still in that "so far so good" territory.

Here's a look at a chart that includes the volatility from last week and shows you just how narrow the trading range has been recently (narrow AND better than last week's range as it has "broken out" of the upper red line which had been guiding it lower)

But as you might imagine from a purely logical standpoint, we'd all like to see that squiggly little green line make some definite movement back above it's previous highs before we'd hope to recapture any more of the goodness in rate sheets earlier in the month. At least we can say, indeed, that we've taken another step toward confirmation of the QEII cleansing process, but be aware that that's all we can be sure of at this point.

Plain and Simple: the risks of floating remain high in the day's ahead but we're building a case for a recovery rally.

The best conventional/FHA/VA 30 year fixed mortgage rates remain in the 4.25% to 4.50% range for well-qualified borrowers. The best conventional/FHA/VA 15 year fixed mortgage rates are in a range between 3.500% and 3.875%.