Mortgage Rates : Changing Faster Than You Can Shop Them

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Mortgage rates are changing almost to quick to time. Forget mortgage rate shopping. Start mortgage rate locking.

Mortgage Rates Come From MBS Pricing

Mortgage rates don’t come from thin air. They’re based on the “going price” of mortgage-backed securities. And similar to most financial instruments, MBS pricing is subject to the supply and demand of the underlying asset.

In this case, the asset is the mortgage-backed bond itself.

Demand for mortgage bonds has a different set of drivers than demand for a given stock issuance. Whereas stocks tend to benefit from an expanding economy, mortgage bonds tend to suffer. Among other reasons, this is because mortgage bonds are repaid in U.S. dollars and economic growth can be inflationary.

Inflation devalues the dollar, and by association, the value of MBS repayments.

Inflation Does Not Exist In A Vacuum

Understanding inflation’s role to mortgage markets can be confusing.  Especially because there’s a lot of print with some variation of “Where there’s inflation, there’s rising mortgage rates”. This is not entirely true.

Inflation does not exist in a vacuum.

When inflation is present in the U.S. economy, there’s other bond market-altering forces at play, too. For example, an inflation-hit U.S. dollar leads to higher commodity prices because most commodities are priced in dollars. This, in turn, increases the cost of business output around the world, which retards growth.

When the world’s economies slow, investors seek shelter in “safe” securities. Ironically, this class include mortgage-backed bonds.

The extra demand sparked by inflation helps to offset the price hits caused by inflation.

Strange, strange stuff.

Mortgage Pricing : 4 Rates Sheets Per Day

Mortgage rates are as volatile as they’ve been all year.

After the Federal Reserve announced its 0b QE2 program to support bonds, markets caught whiff of pending inflation. The concern sparked a major MBS sell-off that drive rates from all-time lows to a 10-week high in just 5 days.

And it’s not just that rates are moving — it’s how fast they’re moving.

Comparing average daily price changes in the MBS market:

• January 1 – November 8, 2010 : 26 basis points per day
• The last 5 days of trading : 60 basis points per day

Mortgage lenders are issuing up to 4 rate sheets per day now. That means that the price quote you took in the morning is likely expired by noon. It expires two more times during the course of the day, too.

If The Refi Boom Is Over, You’ll Want To Be Committed

Protect yourself from mortgage rate volatility. Low rates may be done for good, so get that rate lock in place.

1. with the basics of what you’re trying to do. No novels — just some bullet points.
2. Wait for my reply — I’ll have some follow-up questions for you.
3. Next, I’ll get you pricing for your comparison shopping

If you like the rate, I’ll lock it for you and we’ll start working toward closing. That’s it!

Expect me to reply to your initial email within about an hour, during business hours.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.