What’s this guy talking about? He’s constantly tweeting about “bps” and “Mortgage Bonds”…plus…minus…Treasury Auctions…Jobs Report…can someone tell me what it all means???
David Angres: I’m glad you asked…
Let’s back up for a moment and give you some history. David Angres is the head of the Mortgage Compare Team (MCT). The team consists of three mortgage professionals that originate loans, provide advice and guidance, and have developed a mission for themselves to use social media to “level the playing field” for consumers. MCT accomplishes this mission by providing Rate and Fee Transparency through blogging, tweeting and the like.
To creat transparency, MCT details a daily Mortgage Scenario on this blog, tweets Rate Trends on Twitter, and invites all comers to ask questions, compare rates and initiate a dialogue by submitting a Mortgage Compare Request Form found in the right column of the blog.
On to Rate Trends Tweets…
MCT gathers and monitors data thoughout the day on variables influencing interest rates and uses this information to guide clients on when to lock rate. Rate Trend Tweets are a paraphrasing of MCT’s current short-term stance on locking or floating. We say “short-term” because the market is dynamic and information is flowing in all the time. There are also other individual considerations for each borrower that affect our guidance. For example:
- Borrower is 35 days away from a purchase closing and the market is getting worse. MCT’s short-term guidance is to Lock Rate, but this client might benefit by waiting for a 30-day lock instead of a 45-day lock (if we locked today, a 45-day lock would be required in order to encompass the closing date 35 days away). Rate Locks are typically offered at 15 days, 30 days, 45 days, et cetera. The longer the lock period; the higher the rate. In this case, we’d likely keep our finger on the Lock trigger, but continue to Float even though our guidance stance is to Lock.
- Client has chosen a 5-yr Adjustable Rate Mortgage (ARMSs) and is floating rate. Mortgage Bond Market is getting worse, but ARMs are more resilient to movements in the market than Fixed Rate loans. MCT’s general stance is Lock Rate, but our clients with ARMs are given a wider berth on negative movements than clients with Fixed Rate loans which can deteriorate quickly.
Some mortgage industry participants take the position that everyone should just lock rate immediately and accept whatever the market offers on the day the borrower engages in the loan process. This method works fine for some borrowers with very low risk tolerances, but really it mostly benefits the Loan Officer who doesn’t want the workload of monitoring the market, analyzing trends, and making sensitive recommendations to their customers. And, frankly, most Loan Officers are simply incapable of providing this service.
At MCT, we believe in actively managing our customers’ rate lock timing to maximize savings – minimize monthly payments.
“Actively managing” means consulting with borrowers to determine their risk tolerances, possessing the knowledge and experience to understand the Interest Rate Market, and watching the Mortgage Bond Market every day, all day. We consider the amount of time needed to complete the transaction and then typically make decisions from day-to-day on whether we recommend locking. So when David is tweeting that our position is “Float” or “Lock”, that is our short-term position on where the market is heading and the risk of movement – good or bad. Nobody has a crystal ball for the long-term trend for interest rates. There are simply too many variables in the complex global economy.
Some Definitions…
- Mortgage Bond Market – Fannie Mae and Freddie Mac take all the loans that are delievered to them and turn them into Mortgage-Backed Securities (MBS) which are bonds backed by pools of residential mortgages. These securities are then actively traded in the Mortgage Bond Market. The movements in the market directly affect the pricing available on new mortgages.
- bps – bps is an abbreviation for “basis points’. One basis point is 1/100th of one percent. Basis points are used to quantify changes in the price of MBS from the previous day’s closing price. It is important to point out that bond prices move inversely to interest rates. So when we tweet that Mortgage Bonds are +25, that means that the price of the bond is increasing and there is a downward movement in interest rates.
- Jobs Report – this report tells us the net gain or loss of jobs in the U.S. We watch this report very carefully as it tends to be a market-mover.
- Inflation Data (or CPI) – CPI stand for “Consumer Price Index”. Inflation/CPI data tell us how much relative buying power our dollar has in the U.S. Bonds hate inflation because it erodes the value of future fixed dollars that a bondholder will receive in the future. So low inflation is good for mortgage rates.
- Treasury Auctions – The U.S. Government needs lots of money to run two wars, stimulate a bad economy, pay for social services, et cetera. One of the sources of this money is Income Taxes. Another source is periodically issuing Treasury Notes & Bonds. When the Treasury issues these bonds, they are flooding the bond market with new supply and this negatively impact Mortgage Bonds as investors have new options to consider.
That’s the story. Rate Trend Tweets are meant to help consumers stay in touch with movements in the Mortgage Bond Market and stay more connected and informed during what amounts to the biggest financial decision in most peoples’ lives – their mortgage.
We encourage you to leave a Comment or Question or contact us directly.