WeeklyBasis 4/2/10: Rates Up .25%, Lock Bias Continues. FHA Insurance Hiked .5%

Rates are net up .25% in the past 2 weeks, with rates up even higher on certain trading days. This WeeklyBasis report’s rate lock bias for the past two weeks continues into next week. Below is a recap of why rates have moved up and why they might continue up next week. Also remember that FHA up-front mortgage insurance increases from 1.75% to 2.25% as of Monday, April 5—all FHA mortgage shoppers should obtain revised quotes.

Rate Factors Last Week
The key rate factor 3/22 to 3/26 was Treasury auctions causing mortgage bonds to sell off. Key rate factors 3/29 to 4/2 were two jobs reports interpreted as signs of economic improvement. ADP, a private payroll company with data on 22m workers, showed 23k jobs lost and the official Bureau of Labor Statistics jobs showed 162k new jobs in March.

When bond prices decrease in selloffs, rates rise. And for the past 15 months, when optimistic data cause a bond selloff, the Fed bought mortgage bonds to offset selling and keep rates steady. But they completed their $1.25t MBS buying program March 31, so rate markets are unquestionably more volatile as a result.

Rate Factors This Week
Next week the biggest factors affecting rates will be three Fed speeches Wednesday and new bond supply coming on the market Tuesday, Wednesday, and Thursday.

Fed chair Ben Bernanke’s speech will likely be his consistent low-inflation message. NY Fed president William Dudley’s speech may touch on market implications of the Fed’s $1.25t MBS portfolio, since he oversaw the MBS buying program (if they start selling soon, rates would rise). And markets parse every word of Kansas City Fed president Thomas Hoenig’s speeches because he’s been the only FOMC member voting to hike rates at the last 2 Fed meetings.

As for auctions: $82b in new Treasury auctions of 3yr, 10yr, and 30yr issues. Mortgage bonds could suffer if the market doesn’t like this new supply, especially 10yr and 30yr issues—this is likely because again, Fed buying isn’t there anymore to offset any bearish MBS sentiment.

CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 5.125% (5.24% APR)
FHA 30 Year: 5% (5.14% APR)
5/1 ARM: 3.5% (3.62% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT
30 Year: 5.25% (5.37% APR)
FHA 30 Year: 5% (5.14% APR)
5/1 ARM: 4.0% (4.12% APR)

JUMBO RATES ($729,751 – $2,00,000) – 1 POINT
30 Year: 5.75% (5.87% APR)
5/1 ARM: 4.625% (4.74% APR)