Best-Execution Mortgage Rates

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Mortgage rates vary from time to time in the market. These variations allow some lenders to improve while others improve even more. It is very unfortunate to some lenders who were left unchanged.  All of these movements or the “ups and drops” continue to happen even though some interest rate benchmarks were very apparent in strong areas.

It is very rare to have differences in mortgage rates. But then, this can occur for various reasons. The level of improvement in the year 2015 is one of those reasons for having such differences. This improvement already started in the later months of the year 2014 and is still in progress on a daily basis in the year 2015. Investors are forced to reconsider the value they assign to mortgage-backed-securities because of the strong winning streak. Refinancing the recently originated loans means that there has been a huge drop that occurred.

Those refinanced loans will then turn out to be less valuable. Such loans are also not expected to stay longer in the flatter market. Another reason for having these differences is volatility in the market. There will be greater chances for the mortgage-backed-securities prices to move when the volatility is higher. To be more specific, this means that zero volatility will result to no market movement.

With the movements happening in the market, mortgage lenders need to observe and account for them because high volatility may occur in either direction. Moreover, higher volatility would also be costly for lenders. As a result, there would be higher rates which are relative to what other lenders are doing in the bond market.

The most prominent 30-year fixed rate quotes that stay at 3.625% is caused by the mixed underperformance in the market. This rate is based not only on the outright price, but also on “bang-for-the-buck.”  With regards to the root causes of volatility, the leading candidate is the Thursday announcement from the European Central Bank (ECB). In terms of locking and floating, the risks and rewards are elevated. However, this volatility limits the reward potential in a short span of time.

According to Senior Loan Originator Ted Rood, there are just very little happenings in the rate markets today because when MBS improves in the morning, they will drop early in the afternoon. As a result, majority of the lenders stayed with their morning rate sheets. Moreover, they floated with caution if they chose to float.

Quontic Bank Representative Constantine Floropoulos waited for a bounce and he got it. It may not be as big as the recent movements, but it could be good enough since they were not expecting anything. As the market rates may change unexpectedly, he favors floating if you are attempting to obtain a better rate.

Mortgage Bonds improved, according to Branch Manager Manny Gomes of the Norcom Mortgage, but a lot of lenders did not reflect these changes on their rate sheets. Some lenders even had worse pricing compared to last Friday. It is very apparent that there would be a big impact to the movements in the market brought about by Thursday’s ECB decision. He also advised that it may not be a bad idea to lock in ahead of the decision due to the potential market swings.

At present, best-execution rates include 20-year fixed rate at 3.625%, FHA/VA at 3.25%, 15-year fixed rate at 3.0% and 5-year ARMS at 3.0% to 3.50%, depending on the lender.
There are some considerations on the ongoing lock or float. The year 2015 began with a strong move to the lowest rates, the first time since May 2013. Europe continues to be the catalyst in the market today.

European bond yields are observed to be lower in the year 2014. As a result, Europe, as expected by many, plays a noticeable role in keeping US rates to be lower compared to their rates. Most lenders predicted that Europe will continue to slide in the early quadrant of the year 2015 until their central bank engages in US-style quantitative easing.

It would be very difficult to predict when Europe will turn a corner. Chances are, higher rates run the risk of developing into a longer term rise, even if these risks continue to vary in terms of probability. With this, the people who should float are those clients with longer term time horizons. Through the years, clients who must close by a certain date or who cannot afford to lose any ground on rates should lock even though the longer term trend has been in their favor.

The rates discussed are termed best-execution rates. The best-execution rate means no origination or no discount points though there would be some variations. As a result, lots of people will favor this because this would lead to a good prediction with a higher accuracy in Freddie Mac’s weekly survey.

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