Ryan's Rate Commentary

  • 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. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.

    Rates Currently Trending: HIGHER
    Mortgage rates are trending slightly higher so far today. Last week the MBS market worsened by -36bps. This was enough to move rates or fees higher last week. We saw moderate rate volatility through the week..

    This Week's Rate Forecast: HIGHER
    Three Things: These are the three areas that have the greatest ability to move rates this week. 1) Coronavirus, 2) The Fed and 3) Treasury Dump

    1) Coronavirus: The stock market(s) and media outlets are going wild over a COVID 19 vaccine based on news that a trial of 8 people went well. If all three phases go well, the vaccine won't likely be ready until 2021. But the bond market is once again focused on the real stories that impact the global macroeconomy. Primarily, we are watching the world for areas that were hit by the pandemic earlier than the US and appear to be tailing off in terms of new cases/deaths.

    2) The Fed:
    The Federal Reserve Bank of NY will continue its "taper" of MBS and purchase even less this week. They are dropping their Uniform MBS purchases down from last week's $3.25B each day down to $2.97B of daily purchases this week. Keep in mind that the $2.97B will be evenly split among 2.5, 3.0, and 3.5 coupons, which means only approximately $990M will be used to purchase the rate-setting 2.50 coupon. We will hear from Fed Chair Powell again (3rd time in 7 days), and get the Minutes from the last FOMC meeting.

    3) Treasury Dump:
    The US Treasury will issue a new animal that will compete for the same food source as our MBS and is in direct competition as they revive the 20 year Treasury Bond on Wednesday.

    Honorable Mention:
    Nearly 4 million homeowners are in some type of mortgage forbearance plan - representing 7.54% of all mortgages, delinquencies are set to eclipse the great recession, which peaked at 10%.

    This Week's Potential Volatility: AVERAGE
    Rates continue to trade in a very tight range with a slight bias toward higher rates. With the reduction of the Treasury purchases, the likelihood is that rates will trail higher. However, rates have remained in a very tight channel for six weeks, and we don't see anything that will likely push them dramatically out of the current range.

    Bottom Line:
    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.

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