Mortgage Rates



A very nice rally in the bond and mortgage markets yesterday on comments frm Bernanke that the US economy while improving is still questionable therefore he will continue to keep short term rates low for a considerably long period. While he won’t commit to another QE from the Fed, as long as he remains concerned about the underlying strength of the recovery, it somewhat removes the bond market fear that rates will increase as the Fed may consider tightening to end off the inflation fears that will not go away. The jobless rate remains too high and policy makers don’t rule out further options to boost growth, he said in a transcript of an interview with ABC News anchor Diane Sawyer provided by the network. The 10 yr note rate declined to 2.19% frm 2.25% on Monday, mortgage prices ended up 14/32 (.44 bp) on 30s and +9/32 (.28 bp) on 15s.

This morning at 8:30 Feb durable goods orders, expected to be up 2.8% were up 2.2%; ex transportation orders which are very volatile month to month orders increased +1.6% against forecasts of +1.0%. There was little reaction to the report in the rate markets which opened weaker this morning. The 10 yr note at 8:30 traded -7/32 at 2.21% +2 bp and the MBS 30 yr prices -4/32 (.12 bp) frm yesterday’s close. Stock indexes yesterday declined a little (DJIA -44, NASDAQ -2.22), this morning in pre-open trading the indexes were a little stronger with the DJIA +12.

European leaders seeing rising confidence that their region’s crisis is near an end. The euro area’s woes are “almost over” after a slow initial response by policy makers, Italian Prime Minister Mario Monti said in Tokyo today. German Chancellor Angela Merkel said yesterday that the crisis is ebbing and her country’s borrowing costs will probably rise as its status as a haven wanes. Make what we want on the “almost over” quote. Conclusions to Europe’s turmoil have been called prematurely before. In March 2010 the EU Pres. said the worst of Greece’s financial crisis was over and other European nations wouldn’t follow in its path. Since then, Portugal and Ireland needed bailouts.

Yesterday’s $35B 2 yr note auction was solid with strong bidding, bid/cover 3.70, indirect bidders took 34% while direct bidders took 21%. Today Treasury will auction $35B of 5 yr notes at 1:00pm.

Mortgage applications decreased 2.7% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 23, 2012. The Refinance Index decreased 4.6% from the previous week. The Refinance Index has decreased for six consecutive weeks, falling to its lowest level since December, and is 24.2% lower than its 2012 peak observed in February. The decline in the Refinance Index this week was driven largely by a 12.0% drop in government refinance activity, while conventional refinance applications fell by less, decreasing 3.4% from the previous week. The four week moving average for the seasonally adjusted Market Index is down 3.40%. The four week moving average is up 2.14% for the seasonally adjusted Purchase Index, while this average is down 4.94% for the Refinance Index. The refinance share of mortgage activity decreased to 71.9% of total applications, the lowest level since July 2011, from 73.4% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.4% from 5.6% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.23%, the highest rate since November 2011, from 4.19%, with points decreasing to 0.45 from 0.47 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.54%, the highest since rate December 2011, from 4.49%, with points increasing to 0.46 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.96% from 3.93%, with points increasing to 0.52 from 0.48 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.50%, the highest rate since December 2011, from 3.47%, with points increasing to 0.42 from 0.40 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 3.00%, the highest since rate December 2011, from 2.90%, with points decreasing to 0.42 from 0.44 (including the origination fee) for 80% loans.

The DJIA opened +6 at 9:30; the 10 yr -5/32 at 2.20% +1 bp and mortgage prices -3/32 (.09 bp) on 30s and -2/32 (.06 bp) on 15s.

We have resistance at 2.20% on the 10 yr but it will depend on the stock market performs the rest of the day. The longer outlook continues to look weak for the bond market based solely on the technical picture but at the moment we don’t put much confidence on the longer outlook. Still believe taking advantage of these rates now is appropriate for loans that need to be closed within the next two weeks.