BLOG: What Happened to Mortgage Rates in the Last Two Weeks?!

So just when you thought mortgage rates are at historic lows and you decide to go forward with a purchase or re-fi, you get some bad news from your loan officer or lender.

What in the world happened?

Good news happened.

The Federal Open Market Committee (FOMC) announced March 13 that labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance.  

But there was also bad news. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Still, longer-term inflation expectations have remained stable. 

What is good news for the economy is not necessarily good news for mortgage rates.

Earlier this year, as I posted on previous blogs, the FOMC announced that it would not raise interest rates until 2014, so we are already confident that this would not happen. However, the announcement on March 13 acted as a type of clue that investors look for. This announcement sent investors flocking to stocks. When this happens, bonds, and especially mortgage-backed securities (MBS) – the best mortgage interest rate indicator – suffer and mortgage rates go up. 

Ouch! The actual impact to interest rates was over 100 basis points, or just about over .25 percent percent difference to a 30-year-fixed mortgage rate. 

That is high enough to be noticeable and make a payment difference, of course.

Most mortgage brokers were left with loan applications for borrowers who are expecting lower interest rates or with locked loans that are now on a serious rush to fund before the rate locks expire (your lender normally locks the interest rate of your mortgage loan prior to funding.  This gives enough time for the loan to be processed and funded before the rate lock expires). 

Last week, the expectation was for the rates to come down again.  But instead it was a strange market, in which investors flocked to both stocks and bonds. Both markets had tons of cash flow, so there was confusion and insecurity with mortgage rates. 

Some lenders read the bond market improving and posted lower rates but not by a full .25% percent to erase the bump of March 13. Yet others decided that this market was still deteriorating and posted even higher interest rates. 

What is a loan officer to do? Lock the interest rate for your loan or wait until the rates come down again?  I don’t know either.

But that is not "my final answer.” Interest rates react to investors being cautious (investing in bonds) or optimistic (investing in stocks). So the question really is, “Will there continue to be positive enough world news to continue to feel optimistic about our investments?”

I would like to say, Yes! But unfortunately that would mean higher mortgage rates. So like any good banker, I will continue to be pessimistic about the world economic outlook and world news in hopes for lower mortgage interest rates. 

Don’t forget that I also expect the HARP II program to spark up another mortgage loan refinance boom this spring and summer. But this will only happen if rates remain low.

Nationwide rates as posted last Fridayhttp://www.mortgagenewsdaily.com/consumer_rates/

• 30YR FIXED -  4.0-4.125 percent
• FHA/VA -3.75 percent
• 15 YEAR FIXED -  3.375 percent, returning to 3.25 percent
• 5 YEAR ARMS -  2.625-3.25 percent, depending on the lender

Happy Mortgage Hunting!