Mortgage Rates Rebound Following Fed's Minutes

Mortgage rates moved moderately higher this morning even with little to no movement in the bond market.  But that all changed after the Treasury Auction and the Fed’s minutes coming out.

The Fed minutes provided a more detailed account of the meetings where the Fed officially sets monetary policy.  Today's Minutes helped to ease some investors' fears about how the Fed will approach the topic of "reinvestments" later this year.  Under the reinvestment policy, any principal payments on the Fed's bond portfolio are reinvested back to the bond market in question.  In other words, if a bunch of mortgage loans are lumped into a bond owned by the Fed, the monthly payments on those loans contains a certain amount of principal and interest.  The Fed is currently taking the principal portion and buying more mortgages with it.  In the future, those amounts will reduce.  Lower buying demand for mortgages equates to higher rates.

With the Fed's reinvestment plans being a bit friendlier than expected, there is still justification for risk-tolerant borrowers to float and wait for certain overhead ceilings before being forced to lock.  Yesterday's momentum made it seem like that justification was just about to run out.  Simply put, it looked like rate momentum was shifting higher, but now that shift may be on hold.

In summary, the bonds caught a decent boost from today's Fed minutes, and several banks improved their rates this afternoon.  We still have not regained the ground lost since last week, but it was nice to post gains after two days of losses.  However, we are still "in the range", and there's no clear trend towards higher/lower rates.  Happy with your pricing?  Lock it up, and get ready for the weekend.