THE BASIS POINT

WeeklyBasis 11/26/07: Rate Locks Are Data Dependent

 

Fixed and ARM mortgage rates opened this week up about .125% following an extremely volatile holiday-shortened trading week. Rates were up and down about .25% every other day. This is a significant swing for a given week, let alone single trading days. This week looks to be more of the same as investors battle over how to interpret economic data. Today, early signs of a strong holiday shopping season were not enough to assuage investors concern about a Fed liquidity infusion to preemptively help banks stave off cash shortages as year-end approaches, and Countrywide’s disproportionately large use of credit line funds from the Atlanta Federal Home Loan Bank, one of the 12 federally-backed mortgage banks. This all caused mortgage-backed bonds to touch on 2-year highs during the trading day before ending the day with only modest gains that translate into mortgage rates that are .125% lower tomorrow.

The battle over how to interpret data continues tomorrow. Will lower consumer confidence fuel bonds and bring rates down, or will markets realize that bonds are overbought ahead of the December 11 Fed meeting and rates will rise? The likely scenario is that they cancel each other out, at least for tomorrow. Then on Thursday, we’ve got Ben Bernanke making public comments, a GDP inflation report and new home sales. Plus another personal consumption inflation report Friday.

As you all have seen, I can usually make reliable rate projections, but volatility is simply too great to make longer-term calls. So for now, I know the daily and weekly data well enough, and it’s more of a trader’s environment. Rate lock strategy with my clients is based on each individual escrow period and my ability to hedge locks based on client profiles. Bottom line: rates remain at very favorable levels.

Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.125% (6.265% APR)
5/1 ARM: 6.125% (6.265% APR)
7/1 ARM: 6.25% (6.4% APR)

Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.875% (7.015% APR)
5/1 ARM: 6.125% (6.265% APR)
7/1 ARM: 6.25% (6.4% APR)

 

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