Virtually all of the modest upward pressure on mortgage interest rates this morning has been created by overnight news that Euro-zone leaders agreed to bend their aid rules to shore up the banks and bring down the borrowing costs of financially crippled members like Italy and Spain.

The immediate “knee-jerk” reaction by some credit market participants was to reverse some of their outstanding “flight-to-quality” positions by selling Treasury debt obligations and agency eligible mortgage-backed securities in the mistaken belief (in my opinion) that today’s agreement is a sign the financial leadership in the euro-zone is adopting a more flexible approach to solving its two-year old debt crisis.

In my judgment, today’s agreement represents nothing but one more poorly disguised attempt to buy extra time for the underlying fiscal repair efforts together with structural reforms to show results. As I write, the details of the agreement have not been fully disclosed to the public – and the devil is always in the details. If, as in the past 20 summits since the crisis erupted in early 2010, the structure of today’s strategy is deemed by credit market participants to have too many holes in it to have any lasting effectiveness – the flow of global capital will quickly return to the relative safe haven of U.S. dollar denominated assets like Treasury debt obligations and agency eligible mortgage-backed securities. If so, the foundation for generally steady mortgage interest rates here at home will remain firmly in place.

In other news of the day — the Bureau of Economic Analysis reported this morning consumer spending slipped 0.1% last month – the first decline in this measure in 11 months. The decline in spending was almost completely related to goods while service spending growth remained healthy. The decline in spending was a direct consequence of continued weak income growth — which managed to muster an anemic 0.2% gain in May. Inflation pressures at the consumer level remain very benign – the “core” (excluding volatile food and energy prices) rate of the personal consumption expenditure index rose a barely perceptible 0.1% during the reporting period. The numbers fell within shouting distance of market expectations rendering the whole thing of little, to no consequence with respect to interest rate movement in today’s mortgage market trading action.

Looking ahead to the coming holiday shortened week – Monday’s June Institute of Supply Management Manufacturing Index, Tuesday’s May Factory Orders figures, Thursday’s weekly jobless claims number and June ISM Service Sector Index will all be sharply overshadowed by the release of the June Nonfarm Payroll data on Friday morning. Current rates almost fully reflect mortgage investors’ expectation that the headline June Nonfarm Payroll figure will post a puny 90,000 net new job gain number. The national jobless rate is expected to remain unchanged at 8.2%. Only in the highly unlikely event June Nonfarm Payrolls were to exceed 110,000 and/or the national jobless rate posted a reading of 8.1% or less will mortgage investors likely respond by pushing interest rates notably higher.

Mortgage Rates as of Friday June 29, 2012 ( purchase transactions )

30 day rate locks, subject to credit score and loan to value edits


30 year fixed 3.375% 0% origination fee

3.25% .75 origination fee


30 year fixed rate 3.50% .875% origination fee( 30 day lock )(*LTV and credit score could impact this quote)

15 year fixed rate 2.875%

5/1 ARM 2.375%

7/1 ARM 2.75%

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