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Home loan borrowing costs moved incrementally higher this week. There is reason to be concerned about this directional drift....

Although today's increased costs are not out of line with the rest of the week, the broader bond market is potentially undergoing a technical shift. It hasn't been noticeable from a primary mortgage market perspective because borrowing costs have slowly drifted higher with little motivation over the past week, but thin margins are adding up and we're getting more nervous about a technical shift in the secondary market that could lead to an unfriendly jump in "Best Execution" mortgage rates.

Plain and Simple: Mortgage rates have been drifting sort of listlessly in the wrong direction for the past week. Trading technicals suggest "listless" may now be changing to "purposeful."

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.875% after falling to 4.75% briefly last Wednesday (not universally, but in some cases). For those looking to permanently buy down their rate to 4.75%, this quote carries higher closing costs. The upfront fee to permanently buy down your rate to 4.75% is not worth it to every applicant, we would generally only advise the permanent floatdown if you plan to keep your new mortgage outstanding for longer than the next 10 years. Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees. On FHA/VA 30 year fixed "Best Execution" is back to 4.75%. 15 year fixed conventional loans are best priced at 4.125%. Five year ARMS are best priced at 3.50%, but there is much more stratification in this sector with higher or lower rates making equally as much sense depending on the lender and on the amount of time you intend to keep the loan.

In December, closing costs rose rapidly. Mortgage rates did improve from those levels, but then moved sideways for 7-weeks. And then the range broke following the January Employment Situation Report and consumer rate quotes rose back to their December highs.Borrowing costs have steadily improved afterward before running into a wall near the lows of the year. Since then borrowing costs have slowly drifted higher.

PREVIOUS GUIDANCE: No change to our recent stance that favors locking for short term/sensitive outlooks and allows for longer term/less urgent outlooks to wait for an additional recovery in mortgage rates. Tomorrow should be a busier session than today as it contains even more economic data. The bond market that indirectly affects mortgage rates moved to the edge of its recent range today, meaning it is now closer to a shift higher in interest rates. We don't want to freak anyone out because Best-Ex mortgage rates have some cushion to work with, but we do caution, if you are being quoted a below "CURRENT MARKET" mortgage rate...you are in danger of losing that quote if this "directional drift" heads much further in the wrong direction. Our concerns are technical in nature.

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