Mortgage Rates Basically at Best Levels Since 2016


BY: MATTHEW GRAHAMJan 30 2020, 3:11PM

Mortgage rates improved again today as the market continued to react to updates on the coronavirus outbreak.  For top tier scenarios, the average lender is now offering rates not seen since 2016, with the slight exception of a few hours during the beginning of September 2019.  Even then, today’s rates at least match Sept 2019’s rates on average.  In other words, today is tied for the lowest levels in more than 3 years.

To reiterate yesterday’s message: the persistent availability of such low rates depends on a few factors.  The biggest among those at the moment is the evolution of the coronavirus outbreak.  It’s definitely been responsible for the quick bump toward this week’s low levels, but the trade-off is that rates should experience quick upward pressure as soon as epidemiologists can confirm light at the end of the tunnel.  

There’s some risk that we’re already seeing the first potential turning point this afternoon as the World Health Organization officially declared coronavirus to be a public health emergency.  That sounds like a bad thing, but it actually signals an intensification of efforts and resources to contain the virus.  The market reacted accordingly with bonds weakening (weaker bonds imply upward pressure on rates).  Fortunately, the weakness hasn’t spilled over from US Treasuries to mortgage rates yet, but that may not be the case tomorrow.  At the very least, risks of a bounce are elevated relative to where they have been so far this week.


Loan Originator Perspective

Bond yields neared last September’s multi-year lows today, as Wuhan virus concerns continued to inform trading.  My pricing is best it’s been since September, and I took the opportunity to lock several loans.  We “may” improve from here, but feels like we’ve seen the bulk of any imminent improvement.  Risk averse clients should look hard at locking, if within 45 days of closing.  – Ted Rood, Senior Originator


Today’s Most Prevalent Rates For Top Tier Scenarios 

  • 30YR FIXED – 3.5 -3.625%
  • FHA/VA – 3.25 – 3.75%
  • 15 YEAR FIXED – 3.25 – 3.375% 
  • 5 YEAR ARMS –  3.25-3.75% depending on the lender


Ongoing Lock/Float Considerations 

  • 2019 was the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections 

  • Fed policy and the US/China trade war have been key players.  Major updates on either front could cause a volatile reaction in rates.  

  • The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.  

  • In addition to the economic data and the trade war, other factors can certainly emerge and cause rate volatility for better or worse (Wuhan Virus, for example)
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

How Low Can We Go?

By: Mathew Graham Jan 30 2020
With the Fed out of the way, coronavirus cases still growing rapidly, and no major correction seen in the bond market, the question on everyone’s minds is: how low can we go?
While the answer may not depend entirely on the evolution of the coronavirus news, that’s definitely the biggest and most reliable source of bond market motivation at the moment. In other words, the answer ALMOST entirely depends on coronavirus.
In that regard, we’ve seen bonds begin to slow their roll compared to the initial, panicked move that began the week. Overnight low yields of 1.553 are the lowest we’ve seen in months, but they represent a fairly small improvement from the 1.579 and 1.570 lows of the past two days respectively.
They also leave us just microscopically above the 1.55% technical level. That’s not to say it can’t be broken, only that it hasn’t. After that, 1.50 and 1.44 would be the next two levels standing in the way between us and multi-year lows in Treasury yields.
Needless to say, based on the chart above, the big risk is that we’re unable to break 1.50%. That would make the current rally look like the 2nd major dip in yields that got stopped out at “higher lows” (the first being in October). That would add to the sense that bonds found bottom in 2019 and are just waiting for enough motivation to move higher.
The counterpoint to that risk is that bonds will actually need motivation to move higher! The Fed is clearly not hiking rates until inflation picks WAY up and they’re definitely buying more bonds based on where Powell says they want the balance sheet. In other words, higher rates aren’t a foregone conclusion. Granted, a resolution to the coronavirus drama will definitely push rates higher, but we’ll likely need to see a meaningful improvement in economic data at home and abroad for 10yr yields to be very comfortable moving up and over 2%.

FHA Loans Becoming More Popular as Market Recovers

BY: JANN SWANSONJan 30 2020, 11:45AM

In the throes of the housing crisis, it sometimes seemed as though FHA was the only way to finance a home purchase, especially for those with less than stellar credit or unable to come up with a large downpayment. The government sponsored insurance program has always been, quite intentionally, a countercyclical lender and when money was flowing freely during the housing boom, FHA lending shrunk to near nothing. Subprime lenders took over its market share, offering lower underwriting standards and teaser interest rates. In 2006, FHA loans had only a 4.5 percent share of the purchase finance market.

Then the crash hit, subprime lenders disappeared, and FHA’s market share soared. The agency insured 34.5 percent of the purchase market in 2010. The share is now only half that, 16.9 percent in the third quarter of 2019, but its share of a subset of purchase mortgages appears to be growing again.

The National Association of Home Builders (NAHB) has looked at Census Bureau data on the financing of new home purchases and found that FHA’s role in that market is strengthening. The share of new homes purchased with FHA financing in the fourth quarter of 2017 hit a recent low of around 11 percent at a time when its share of all purchase loans was 17.71 percent. Since then the new home portion has been growing fairly steadily and reached 18.4 percent in the fourth quarter of last year.This was an increase of 2.9 percent of sales in the third quarter, a 5.7-point gain year-over-year and the largest share since 2012. Of a total of 152,000 new home purchases, 28,000 had FHA financing.

The new home share enjoyed by other loan products have not had this level of growth, especially relative to their overall market shares. According to Ellie Mae, the FHA share of all loans in the fourth quarter was about 16.5 percent. Conventional loans accounted for 71.1% of new home sales in the fourth quarter of 2019, a 1.5 percentage point increase from Q3 2019 while their share of all originations seems permanently stuck in the low 70 percent range. 

At the same time, cash purchases of new homes and those financed by the VA shrunk. The VA share dipped 1.8 point to 5.9 percent, its smallest share since the first quarter of 2018. VA loans overall accounted for 8 to 11 percent of all originations throughout 2019. Cash purchases declined by 2.5 points to 4.6 percent, the smallest portion since the first quarter of 2017. 

NAHB says different sources of financing also serve distinct market segments, In the second quarter of last year the median sales price of a new home was $324,500. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $345,700, $236,100, $332,200, and $287,800, respectively.

Drop in Rates May Still Have Room to Go

Bonds were looking like they were forming a possible Island Reversal pattern. Now they look like they are threatening to gap higher in the next few days. 163.00 is the critical level to break. If that holds, Island Reversal pattern goes back into play. If not rates could easily drop further up to .25 basis points.

Coronavirus Fear, Dovish Fed Remarks, Drives Rates Lower

BY: MATTHEW GRAHAMLowest Rates Since September 2019 (Almost 2016) Jan 29 2020

Mortgage rates regained their footing today, moving back to long-term lows after pausing to move slightly higher yesterday.  The definition of “long-term” depends on the lender in question.  Most lenders were offering just slightly better terms in September 2019, but only for a few days.  For several other lenders, you’d have to go back to September 2016 to see anything lower.  Either way, we’re talking about the best rates in a long time and a range that’s better defined as “mid 3’s” than the previously applicable “sub 4%.”

Today’s improvement coincided with a policy announcement and press conference from the Fed.  These events are widely regarded as capable of motivating big changes in rates, but that’s not exactly what’s going on here.  In the current case, it’s just as accurate to say that rates have been falling for other reasons and had merely circled the wagons to take a break from that movement as they waited to see what the Fed had to say.  When the Fed’s message did no harm to the bond market, rates were free to go about their business (of moving back toward long-term lows).

The persistent availability of such low rates depends on a few factors.  The biggest among those at the moment is the evolution of the coronavirus outbreak.  It’s definitely been responsible for the quick bump toward this week’s low levels, but the trade-off is that rates should experience quick upward pressure as soon as epidemiologists can confirm light at the end of the tunnel.  There are competing theories on when that might be, ranging from only a few days to more than a few weeks.  


Loan Originator Perspective

As soon as virus fears subside rates should go up.  I feel this dip in rates is very temporary so I’m locking everything at application.  – Jason Anker, Loan Officer


Today’s Most Prevalent Rates For Top Tier Scenarios 

  • 30YR FIXED – 3.5 -3.625%
  • FHA/VA – 3.25 – 3.75%
  • 15 YEAR FIXED – 3.25 – 3.375% 
  • 5 YEAR ARMS –  3.25-3.75% depending on the lender


Ongoing Lock/Float Considerations 

  • 2019 was the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections 

  • Fed policy and the US/China trade war have been key players.  Major updates on either front could cause a volatile reaction in rates.  

  • The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.  

  • In addition to the economic data and the trade war, other factors can certainly emerge and cause rate volatility for better or worse (Wuhan Virus, for example)
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

Mortgage Rates Edge Higher From Long Term Lows by Mathew Graham

Mortgage rates were steady to slightly higher today, leaving the average lender just a hair above the lowest rates in months, and still very close to the lowest rates in more than 3 years. The coronavirus outbreak is still a relevant consideration for financial markets, including interest rates, but traders took today to consolidate their recent positions. 

In other words, the recently prevailing trends experienced a bit of a correction.  Stocks rose moderately after falling sharply over the past 2 days.  Treasury yields did the same.  Mortgage rates moved a bit higher in some cases, but because they’re not directly tied to Treasuries, they fared better by comparison.  The trade-off was that mortgage rates didn’t fall as much as Treasury yields over the past 2 business days.

If the virus situation continues to get worse before it gets better, rates could certainly go even lower.  That’s impressive considering the average lender is very close to their lowest rate offerings since the middle of 2016.  But as soon as the fear begins to be replaced by optimism (i.e. containment of the virus becomes a probability), interest rates may snap back quickly to moderately higher levels.


Loan Originator Perspective

My pricing regressed slightly from Monday’s, as durable goods and consumer confidence data largely met projections.  With Wuhan Virus concerns largely priced into rates, and pricing near multi-year lows, seems like a good time to lock loans closing within 45 days, at least for risk averse borrowers. – Ted Rood, Senior Originator


Today’s Most Prevalent Rates For Top Tier Scenarios 

  • 30YR FIXED – 3.5 -3.625%
  • FHA/VA – 3.25 – 3.75%
  • 15 YEAR FIXED – 3.25 – 3.375% 
  • 5 YEAR ARMS –  3.25-3.75% depending on the lender


Ongoing Lock/Float Considerations 

  • 2019 was the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections 

  • Fed policy and the US/China trade war have been key players.  Major updates on either front could cause a volatile reaction in rates.  

  • The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.  

  • In addition to the economic data and the trade war, other factors can certainly emerge and cause rate volatility for better or worse (Wuhan Virus, for example)

FICO Changes To Dramatically Affect Credit Scores In Effort To Reduce Defaults

by Tyler DurdenTue, 01/28/2020

Fair Isaac, the company behind FICO credit scores, announced the rollout of a new scoring method that will dramatically shift credit scores for millions of Americans in either direction.

In a nutshell – ‘FICO Score 10 Suite’ is supposedly better at identifying potential deadbeats from those who can pay, and claims to be able to reduce defaults by as much as 10% among new credit cards, and nine percent on new auto loans.

Around 40 million people with already ‘high’ scores (above 680) are likely to see their credit rise, while those with scores at or below 600 could see a dramatic drop. 

00:18 / 09:35

According to Fair Isaac, around 110 million people will see their scores swing an average of 20 points in either direction.

“Consumers that have been managing their credit well … paying bills on time, keeping their balances in check are likely going to see a gain in score,” said Dave Shellenberger, VP of product management scores.

The changes come as consumers are accumulating record levels of debt that has worried some economists but has shown no sign of slowing amid a strong economy. Consumers are putting more on their credit cards and taking out more personal loans. Personal loan balances over $30,000 have jumped 15 percent in the past five years, Experian recently  found. –Washington Post

That said, according to WalletHub, delinquency rates are in much better shape than they were a decade ago, with 6% of consumers late on a payment in 2019 vs. around 15% in 2009. Meanwhile, the average FICO score went from bottoming out at 686 in October of 2009 to an average of 706 in September of 2019.

As we noted in October, FICO has been talking about recalculating credit scores for some time now. According to the Wall Street Journal, anyone with “at least several hundred dollars” in their bank account and who don’t overdraw are also likely to see their scores rise. Specifically, anybody with an average balance of $400 in their bank accounts without an overdraft history over the last three months would likely get a boost. 

And with non-revolving debt such as student and auto loans recently rising by $14.9 billion, identifying potential deadbeats is more important than ever.

Interest Rates Press Lower. Mortgage Rates grudgingly follow.


Coronavirus Panic Sends 10 Year Note Higher

Michael Seery – Seery Futures – Mon Jan 27, 8:10AM CST 

10 Year Note Futures—The 10 year note in the March contract is trading higher for the 3rd consecutive session up another 16 ticks at 130 /25 as there is sheer panic of the Coronavirus spreading throughout the world sending the stock market down nearly 500 points as money flows are going into the bond sector at this time.

I have been recommending a bullish position from around the 129/17 level and if you took that trade continue to place the stop loss under the 2 week low standing at 128/25 as the yield currently stands at 162 % and looks to head even lower in my opinion.

The one major concern I have is that there is a price gap that was created today as who knows how severe this virus is going to be longer term, but in the short-term it certainly is a bullish fundamental factor for higher prices and lower yields with the next major level of resistance all the way at the 132 area as there is still room to run.

The 10-year note is trading above its 20 and 100 day moving average telling you that the trend is to the upside as prices have now hit a 3 1/2 month high as I have very few trade recommendations at the current time.