Jonathan Burdick

Senior Loan Consultant, NMLS #1045837 – Fairway Independent Mortgage Corp.

Jonathan Burdick

Rates dropping slightly today

Mortgage rates moved tentatively lower today.  The pace was only slightly better than yesterday when it was all but undetectable.  To those expecting more improvement based on trading levels in the bond markets that drive rates, it might seem a bit frustrating.  Understandably though, lenders tend to err on the side of caution ahead of an extended holiday weekend.

But, why be tentative due to extended weekends?  In other words, what is it about the long weekend that makes mortgage rates a bit higher than they would normally be?  There are a few reasons, but one of the easiest to understand is the fact that markets can move more over a 3-day weekend, all other things being equal.  The greater the potential volatility, the greater the cost to protect against it.  That cost is passed on directly in the form of slightly higher rates.

The average lender is still quoting conventional 30yr fixed rates of 4.0% on top tier scenarios.  The rate itself hasn’t changed this week, meaning recent improvements have been in the form of slightly lower closing costs.  A few lenders are at 3.875% and fewer still are at 4.125%.

Loan Originator Perspective

“Mortgage Rates improved slightly today. While I’m not ready to predict lower rates are immediately ahead in the coming week, I do think there is an opportunity to take a risk in floating to see if rates do in fact drop. The reason is that there at least appears to be some comfortability by investors with rates at these levels and further increase isn’t as likely as it was over the past 2 weeks.” –Brent Borcherding,

“Weak economic data has helped bonds rally today. With tomorrow being a shortened trading day ahead of a 3 day weekend, i think your choice is to either lock today, or wait until Tuesday. I find lenders tend to be more conservative with pricing heading into a holiday weekend. If you do want to lock today, i would hold off until as late as possible as some lenders have already improved their pricing from this mornings rate sheets. Tomorrow we do get inflation data which if hotter than expected would indicate a rate hike from the FOMC sooner rather than later. If you plan to float, hope the data tomorrow morning comes in lower than expected. ” -Victor Burek, Open Mortgage

“Rates improved modestly today, but only enough to get us near Monday’s closing levels. While we’ll take the gains, at this point the movement isn’t enough to get too excited about. We’re still about 100 bps (1% of loan size) under late April’s pricing, and need market sentiment to shift. With tomorrow’s early close for the Memorial Day weekend, secondary desks often get conservative. Today looks like the time to lock in my opinion.” –Ted Rood, Senior Originator

Today’s Best-Execution Rates

  • 30YR FIXED – 4.00%
  • FHA/VA – 3.75
  • 15 YEAR FIXED – 3.125-3.25
  • 5 YEAR ARMS –  2.75 – 3.25% depending on the lender

Ongoing Lock/Float Considerations

  • 2015 began with a strong move to the lowest rates seen since May 2013.  The catalyst was Europe and the introduction of European quantitative easing.
  • It’s a highly uncertain time for global financial markets.  On the one hand, some believe we’re in the midst of a race among world central banks to devalue currencies and lower interest rates.  Others believe that the global economy is turning a corner and rates will grind higher.  That had been creating a lot of volatility, which made for uncertain fluctuations from day to day.  But those periods of volatility have been interspersed by utter indecision where rates are effectively drifting sideways with no conviction and no desire to get off the fence.
  • With European QE having now begun, we’re on high alert for a big picture bounce in European economic data, sentiment, growth, and rates.  The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher.   Those risks are being compounded by speculation about the Federal Reserve raising rates by the end of 2015.
  • We’re in the middle of the 2nd big, ugly bounce so far this year and once again forced to confront the possibility that this will be a big-picture, long-lasting correction.  Until such a thing can be ruled out, Locking makes far more sense.
  • As always, please keep in mind that the rates discussed generally refer to what we’ve termedbest-execution(that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also ‘bang-for-the-buck.’  Generally speaking, our best-execution rate tends to connote no origination or discount points–though this can vary–and tends to predict Freddie Mac’s weekly survey with high accuracy.  It’s safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie’s once-a-week polling method). 

Purchase Loans Now Outpacing Refis

Purchase Loans Now Outpacing Refis

Purchase loans continued to increase as a percentage of loan originations in April.  Ellie Mae’s Origination Insight Report for the month put the purchase share of all closed loans at 52 percent, a 6 percentage point jump from March and the first time in 2015 that more than half of loans were originated for that purpose.

Seventy-two percent of FHA loans were for purchasing, also a 6 point month-over-month increase but significantly lower than the 80+ percent share of its loans that went for purchasing every month from May 2014 through January 2015.  Fifty-eight percent of conventional loans were originated for purchasing and 68 percent of VA loans.

Of all loans originated in April 64 percent were conventional, 24 percent FHA, 9 percent VA and 3 percent were classified as “other.”

Ellie Mae noted that the percentage of FHA refinances that had a greater than 95 percent loan-to-value (LTV) ratio dipped from 41.6 percent in March to 38.1 percent.  The company did not comment as to whether this may be related to the new 97 percent LTV loans offered by Fannie Mae and more recently by Freddie Mac but the share of high LTV conventional loans did rise month-over-month from 4.3 to 5.2 percent.

The company said that the number of days required to close a loan in April were the most since January 2014, likely due to higher than expected origination volume.  It took an average of 45 days to close a loan with refinances averaging 48 days and purchase loans 43 days.

The closing rate for all loans was 65.2 percent, exceeding 65 percent for the first time since Ellie Mae began tracking that information in August 2011.


Borrowers inching back into Cash-Out Refinancing

Borrowers inching back into Cash-Out Refinancing

Apr 30 2015, 2:53PM

The first quarter of 2015 was the third in a row that more than half of the refinances funded through Freddie Mac were cash out transactions.   The company said that 27 percent of its refinancing loans were cash out compared to 27 and 28 percent in the third and fourth quarters of 2014 respectively.  In the first quarter of last year cash-outs represented 17 percent of the total.

The net dollars of home equity withdrawn in the quarter during refinance of conventional prime-credit home mortgages was estimated at $7.7 billion, down slightly from the fourth quarter.  This pales in comparison to the $84 billion in equity withdrawn in the second quarter of 2006, a year when 89 percent of refinancing was cash out.

Thirty-four percent of all refinancing borrowers and 36 percent of borrowers who utilized the Home Affordable Refinance Program (HARP) shortened the term of their loan.   HARP offers an incentive to borrowers to rebuild equity in this manner and Freddie Mac said during the past four quarters more than one-third of HARP borrowers had done so.

Borrowers who refinanced during the first quarter shaved an average of 1.2 percentage points off of their interest rate; an average reduction of about 24 percent or a $2,500 savings over 12 months on a $200,000 loan.  HARP borrowers reduced their rate by an average of 1.8 point saving about $3,500 in the first year or $290 per month.

The vast majority of refinancing was into fixed-rate loans, 95 percent of the total.  Seventy-six percent of those refinancing from hybrid adjustable rate mortgages (ARMs) chose a fixed rate while only 3 percent went from a fixed rate to an ARM

HARP loans are intended for borrowers who have negative or minimal equity in their homes, but for properties securing non-HARP refinances the property value was up 5 percent from the time of the old loan placement and the closing of the new loan, (4th quarter 2014 data).  Loan refinanced in the first quarter had a median age of 5.6 years, down from 6.8 years in the fourth quarter of 2014.

Len Kiefer, Freddie Mac deputy chief economist, said, “Many homeowners took advantage of low mortgage rates by refinancing in the first quarter of 2015. Relatively younger loans refinanced as the median age of a refinanced loan declined to 5.6 years, down from 6.8 years in the prior quarter. Refinance borrowers are primarily looking to reduce payments and pay down principal faster. We estimate that borrowers who refinanced in the first quarter will save on net more than $1.4 billion in interest payments over the first 12 months of their new loan. Nearly a third of borrowers who refinanced shortened their loan term.”

Reference Mortgage News Daily