To Lock or Not to Lock? That is the question!!!!!

Quick Advice Dashboard

< 15 Days:

CAUTIOUSLY FLOAT

15-30 Days:

CAUTIOUSLY FLOAT

30+ Days:

CAUTIOUSLY FLOAT

Market Commentary:

Yesterday proved to be a brutal day for pricing, extremely volatile as Fed Chair Janet Yellen left the door wide open for a Fed rate hike as soon as March. This morning strong economic data giving bonds a kick in the pants, so even though yesterday saw mortgage bonds recover a lot of the early losses by the end of the day, we're now back to those worst levels from yesterday. Mortgage bonds are at 101.75 (-25bps), and the 10yr is at 2.52%. Lots of info in today's commentary (and I do advise you to actually read it, it's important), but as always the summary is at the end.

Some important stuff that we need to recap happened yesterday. The focus was all on Fed Chair Janet Yellen, in her first day of two days testifying before Congress. There were two things that were talked about that are important - the first was that Yellen, who is extremely dovish (hesitant to raise rates), said that it would be "unwise" for the Fed to wait too long to raise rates as economic growth continues and inflation rises. This was BAD for mortgage rates/pricing, because it opens the door wide open for a March rate hike. The second thing we need to talk about is the Fed's balance sheet and holdings of MBS (mortgage backed securities). The Fed continues to reinvest their money in buying mortgage bonds, and that is helping to keep rates low. There is concern (and comments from other Fed members) that the Fed needs to reduce those holdings. When that happens, less demand will drive down prices - meaning rates go up. However, Yellen made it sound like we have a while before we have to worry about that, as she basically told the Senate Banking Committee that the Fed's focus was on raising interest rates to keep the economy on balance, and not reduce its holding of bonds.

For those that may be a bit confused by that statement, remember that the Fed only controls the fed funds rate, NOT mortgage rates. Mortgage rates will be affected by the Feds decisions on the fed funds rate, but is much more affected by the pricing of mortgage bonds. If you have any questions about this, post them in our OriginatorSuccess Roundtable Facebook group and I'll answer them. :) (https://www.facebook.com/groups/originatorsuccessroundtable/)

Today, mortgage bonds taking some early hits as consumer prices posted their largest gain in nearly four years. Retail sales rose more than expected, which points to a strong consumer demand and a vibrant and growing economy. For mortgage pricing though, the killer is just how strong this data was, how far above economists expectations. The kneejerk reaction was bad for pricing, but we have a habit of seeing things self correct through the day and that could happen here. If we had seen weakness in this data, we could have seen the beginning of a bounce for mortgage pricing/rates. However, since it's 180° from what we wanted to see, its basically another nail in the coffin for pricing.

Fed Chair Janet Yellen speaks again today, this time to the House Financial Services Committee (yesterday was to the Senate), but its not likely to be anywere near the market mover that yesterday was. This time everyone already knows Yellen's feelings, her prepared statement is already out there (and that's what moved markets), and the market moving questions were already asked and answered. Much less of a concern at this point, bottom line.

So, let's talk about where we go from here... Hopefully you locked up anything closing in less than 30 days before yesterday's reprices. If not, and you floated into today, it's not looking good. Mortgage pricing is at the high point of the range we've seen over the last month, and quite a bit higher than we saw on the 9th (less than a week ago). I'm concerned that bonds will start to price in more for the potential of a Fed rate hike in March, although you can't seem to do anything lately to take the steam out of stocks. Here's how it breaks down by category...

For loans closing in less than 15 days, we can start the day cautiously floating, but if we don't see any sign of improvement then we may want to throw in the towel and lock. All of the losses are happening before the first rate sheet of the day, so by waiting till tomorrow we may lose even more ground. However, if we can see signs of a bounce today, we can hold out hope. Bonds and pricing are at the edge of the range we've seen hold before, and we could rebound a bit from here. It's a crapshoot though, so go in eyes wide open, and only continue to float if we get indication that things may improve.

For loans closing in 15-30 days that are not yet locked, I'm cautiously floating and watching if the 10yr Treasury breaks the 2.56% mark and if mortgage bonds drop below 101.60. I'm holding out hope that we see a bounce, but even if we do I don't think we see much energy behind it. But I think we can see a rally at some point back to at least 102.30, and those 70 bps means about .500 better pricing on the rate sheet on average. However, if we continue to worsen today, it could signal more worsening to come and we may have to throw in the towel.

For loans closing in 30+ days, definitely cautiously float for now, and only think about locking if our hand is forced with further worsening today. Otherwise we have time to hold out for a bounce, but like I said above, even a bounce isn't going to bring that much of an improvement.

Summary/bottom line - we're at a critical point today, and while bonds are becoming oversold (which usually results in a correction at some point), we are skating along the edge. If we worsen from here, we likely continue to slip down the slope quite a bit further and there's no point in floating. Until we get that indication though, I advice cautiously floating AS LONG AS YOU CAN HANDLE THE RISK.

For our daily Lock Float Alert, Surefire works with J. 'Hammer' Helmer of OriginatorSuccess?, an industry veteran who lives and breathes the rate economy.

Hammer's view on rates is from an Originator's point of view, seeing each loan as a real person with an agnostic desire to save money or improve their rate situation - not as a potentially biased hedge fund or lending institution.

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