Mortgage rates should go lower today. The Japanese Finance minister gave the Treasury market a public vote of confidence:
Japanese Finance Minister Kaoru Yosano said his government is confident about the outlook for U.S. Treasuries, signaling the second-biggest foreign holder of the securities will keep buying them amid record sales.
“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending a Group of Eight meeting of finance ministers starting today in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”
This morning's mortgage rates quotes:
Conv 5.5% (no points) 5.25% (1 point)
FHA 5.5% (no points)
VA 5.5% (.25 point)
All loan quotes assume a 740 credit score, full income documentation with acceptable debt-to-income ratios, and required down payments (20% for conventional, 3.5% for FHA, and zero-down for VA). We will charge a 1% origination fee plus a $695 processing fee.
More analysis coming.
UPDATED at NOON:
My mortgage-backed pricing service tells me that the MBS market is up about a half a point; lenders haven't repriced with lower rates yet. My guess as to why the mortgage bond market was rallying (Japan's endorsement) was, in the words of my mortgage bond gurus, merely a rumor. They think the end of the Treasury Bond auction is the reason for this rally:
MBS coupons are rallying because TSY auctions are over, dealers got the high yields they wanted, and now traders are basking in a TSY supply-less sunlight (FOR NOW). Technically, in terms of MBS, real money accounts (banks, pension funds, insurance companies) are all moving "down in coupon" as extension risk is exhausted and their portfolios have a need to adjust duration gaps. Adjust what?
Real Money accounts need to match the duration of their liabilities to the duration of assets!!! To do so they move "down in coupon" into a security that has a longer duration. These balance sheet adjustments are occurring because the yield curve has flattened out over the past 24 hours..unfortunately these positions can/would be rapidly reversed if the yield curve steepens up again.
I'm comfortable delaying locks until Monday but I remain defensive through the rest of the afternoon .
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