Rates Can Go Up?

March 20th, 2012

Interest rates are up, not a substantial amount, but enough to remind everyone that interest rates can go up as well as down. Rates are up about .25% to .375%, depending on the loan product and some other variables. While I find that insignificant, a homeowner who wanted to refinance to a Conforming 15 Year Fixed Rate at 3.125% who is now being quoted 3.5% is astonished. First, most of us forgot that rates can go up, we thought they only had one trajectory….down. Second, when the 15 Year Fixed Rate was at 3.125%, the client was hoping for 2.875%! And if rates got to 2.875%, people would hope for a little more. The financial psyche of we humans is fascinating, the deals we get are never good enough! We always want more.

One of the best gauges to watch to track interest rates is the 10 Year Treasury Bond. Interest rates do not track the 10 Year Bond tick for tick, but it is a good gauge. And mortgage interest rates are not as low as the 10 Year Treasury Bond, but it is a good gauge of the direction of rates. On March 1st 2012 the 10 Year Treasury Bond stood at 2.03%, which was up from its low of 1.8% to 1.9%, which was the range for much of January and February of this year. On March 14th it was 2.29%. On March 19th it was 2.39%.

This blog is a reminder that rates can go up, and also not to get greedy. Look at the chart in this blog, any interest rate you get within a half percent to one percent of the current bottom is still a very historical low. Don’t try and be a market timer, and don’t shop around too much. You may find a 1/8% difference in rates between lenders, the real difference is in the execution. Rates are great, even if they go up a lot from here.

And below are some internal market update emails we get, which may give you an idea of what has been going on. MBS means mortgage backed securities. And when those are negative (indicated by a minus sign, that means interest rates are going up):

TODAY: Unfavorable repricing is a risk again. MBS are down -5/32 (FNMA 30 yr 3.5 at 101.20), at least 8/32 below morning levels. Investors continue to reduce their expectations for additional Fed MBS purchases (QE3).

March 19th: MBS prices are down -16/32 (FNMA 30-yr 3.5 at 101.28), at least 13/32 below morning low levels, but up from a low of -22/32. Unfavorable repricing took place. No major economic news came out today, and the stock market was little changed. So what happened to MBS? Investors had pushed MBS prices up to record levels over recent months for several reasons. Two primary reasons were safety and high expectations that the Fed would announce another major MBS purchase program (QE3) to boost the economy. Both of those reasons have been slowly disappearing, however, and last week’s Fed statement marked the turning point in the momentum. Investors are less concerned that the problems in Europe will spread to the rest of the world, making investors more willing to hold riskier assets. In addition, stronger economic data has reduced the need for further Fed easing. In short, the extreme economic conditions which caused drastic actions by the Fed appear to be easing, so investors are retur  ning to a more normal portfolio allocation, meaning a smaller percentage of bonds. The Dow is down 20 points. Tomorrow, Housing Starts will be released at 8:30 et.  The March NAHB Housing Market Confidence index was unchanged from February, holding steady at the highest level since June 2007.

March 19th: All Investors have repriced two and three times today. It appears we have a window right now to lock if you want to. If any locks were rejected or you were having issues getting pricing, you should be able to lock/price now if you want to.  This is barring any more volatility of course.

March 19th: Unfavorable repricing may be a risk again. MBS are down -8/32 (FNMA 30 yr 3.5 at 102.05), about 11/32 below early morning levels, and about 5/32 below late morning levels.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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