Tuesday, February 14, 2012
Monday, February 6, 2012
Condo buyers are having a hard time obtaining FHA mortgages
Condo buyers are having a hard time obtaining FHA mortgages, and often it's down to the building's financial status, not the borrower's. Since February 2010, the FHA have required that the whole building be deemed financially viable rather than just the single units, which has resulted in a proliferation of rejected buildings, a headache for condo sellers who rely on the FHA stamp of approval as a marketing mechanism, impeding the housing market's recovery. FHA regulations now dictate that buildings must be 50% owner-occupied, that no more than 10% of the units are owned by one entity, that no more than 15% of the units are 30 days past due on their monthly assessments, and that at least 10% of the association budget be set aside for capital expenditures and deferred maintenance. The general consensus in the housing industry is that, given consumer demand for FHA-backed mortgages, the regulation is short-sighted.
Sunday, February 5, 2012
Ending Housing Discrimination Against LGBT Americans
On Saturday, I was proud to speak before the 24th National Gay and Lesbian Task Force “Creating Change” Conference, where I announced the publication of a new Equal Access to Housing Rules that says clearly and unequivocally that Lesbian, Gay, Bisexual and Transgender (LGBT) individuals and couples have the right to live where they choose.
The need for this rule is clear, particularly when it comes to housing. According to one recent report, not only are 40 percent of homeless youth LGBT, half of them report experiencing homelessness as a result of their gender identity or expression. Even more troubling, the majority of them report harassment, difficulty, or even sexual assault when trying to access homeless shelters. That’s not just wrong – it’s not who we are as Americans. And as the Injustice at Every Turn report put out by the Task Force and the National Center for Transgender Equality last year found, these challenges are all too common.
That’s why HUD is working to ensure that our housing programs are open to all – the rule will open access to housing for LGBT individuals and families in four important ways:
First, an equal access provision making clear that housing that is financed or insured by HUD must be made available without regard to actual or perceived sexual orientation, gender identity, or marital status.
Second, by prohibiting owners and operators of HUD-funded housing, or housing whose financing we insure, from inquiring about an applicant’s sexual orientation or gender identity or denying housing on that basis.
Third, the new rule makes clear that the term “family” includes LGBT individuals and couples as eligible beneficiaries of HUD’s public housing and voucher programs – programs that collectively serve 5.5 million people.
Finally, the rule makes clear that sexual orientation and gender identity should not and cannot be part of any lending decision when it comes to getting an FHA-insured mortgage. Particularly with FHA playing an elevated role in the housing market today, this represents a critical step in ensuring that LGBT Americans have fair access to the dream of responsible, sustainable homeownership.
Of course, publishing HUD’s new rule won’t be the end of the process. HUD and its fair housing partners will work to provide guidance and training, to ensure that communities across the country are following the rules.
It’s clear that as critical as this new rule is, this work is just beginning. But with the rule’s publication, the Obama Administration is reaffirming that the state of our union is strongest when everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. And by ensuring that all Americans have the opportunity to live where they choose, raise their families, and contribute to their communities, that’s the commitment I was so proud to represent on Saturday.
The need for this rule is clear, particularly when it comes to housing. According to one recent report, not only are 40 percent of homeless youth LGBT, half of them report experiencing homelessness as a result of their gender identity or expression. Even more troubling, the majority of them report harassment, difficulty, or even sexual assault when trying to access homeless shelters. That’s not just wrong – it’s not who we are as Americans. And as the Injustice at Every Turn report put out by the Task Force and the National Center for Transgender Equality last year found, these challenges are all too common.
That’s why HUD is working to ensure that our housing programs are open to all – the rule will open access to housing for LGBT individuals and families in four important ways:
First, an equal access provision making clear that housing that is financed or insured by HUD must be made available without regard to actual or perceived sexual orientation, gender identity, or marital status.
Second, by prohibiting owners and operators of HUD-funded housing, or housing whose financing we insure, from inquiring about an applicant’s sexual orientation or gender identity or denying housing on that basis.
Third, the new rule makes clear that the term “family” includes LGBT individuals and couples as eligible beneficiaries of HUD’s public housing and voucher programs – programs that collectively serve 5.5 million people.
Finally, the rule makes clear that sexual orientation and gender identity should not and cannot be part of any lending decision when it comes to getting an FHA-insured mortgage. Particularly with FHA playing an elevated role in the housing market today, this represents a critical step in ensuring that LGBT Americans have fair access to the dream of responsible, sustainable homeownership.
Of course, publishing HUD’s new rule won’t be the end of the process. HUD and its fair housing partners will work to provide guidance and training, to ensure that communities across the country are following the rules.
It’s clear that as critical as this new rule is, this work is just beginning. But with the rule’s publication, the Obama Administration is reaffirming that the state of our union is strongest when everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. And by ensuring that all Americans have the opportunity to live where they choose, raise their families, and contribute to their communities, that’s the commitment I was so proud to represent on Saturday.
short sale transactions, whether a buyer can be charged to compensate either the sale negotiator or the broker.
The California Department of Real Estate (DRE) is constantly asked, regarding short sale transactions, whether a buyer can be charged to compensate either the sale negotiator or the broker. As of July 2011, California state law prohibits the charging of additional fees in exchange for the written consent of the sale. Under the Real Estate Law, short sale fees may still be charged, but, to maintain a certain level of transparency, the negotiator must be properly licensed under California law, and there must be full written disclosure to all parties involved, including the short sale and originating lenders. The compensation fees must be disclosed in the purchase agreements, escrow instructions, and HUD 1 statement. Any "special fees" charged must be authorized by the DRE via an advance fee contract; Additionally, the Real Estate Settlement Procedures Act (RESPA) requires these fees to correspond to an actual service performed-in other words, the buyer must be getting work done for any money paid. Any "junk" or "special" fees and they'll be on you like a ton of bricks.
Tuesday, January 24, 2012
No, the Fed Does NOT ‘Print Money’
The Fed starts a two-day meeting Tuesday. And while Ben Bernanke isn't expected to change rates, a lot is on the line.
You probably have a sense the Fed is super important and powerful, but here's something you probably don't know: The Fed doesn't print money.
Yes, that's right. Despite all the chatter on the campaign trail (hello, Ron Paul) and on cable TV, the Fed is actually not in the business of printing money.
In America, the actual, physical printing presses are owned and operated by the Treasury Department...not the Fed.
A lot of people are confused about this. That's probably because the Fed does control the money supply. But "money supply' is not the same as actual physical dollars — and yet another reason why economics is known as "the dismal science".
The money supply equals the amount of physical cash plus the amount of credit circulating throughout the economy, which is where the Fed comes in a very big way.
Think of the Fed as a bank — but just for other banks. The Fed lends money to banks, which determines the rate which banks charge the rest of us for everything from car loans to mortgages to credit card rates and pretty much every other loan you can think of (and some fees only a banker can dream up.)
By setting the rate banks can borrow from the Fed, non-ironically called "the discount rate", the Fed helps determine whether rates are high or low for the rest of us. And those rates help determine whether people want to borrow money or not.
In addition to the discount rate, there's the fed funds rate, which is the rate you usually hear people talking about when it comes to the Fed. The fed funds rate is the rate banks charge to other banks for overnight loans, which is common practice in the world of high finance. Technically, the Fed sets a 'target' fed funds rate, and currently it's between 0% and 0.25%, where it's been since December 2008.
Another way the Fed controls the money supply — again, which is different than the actual amount of dollars in circulation — is via its "open market operations", through which it buys and sells bonds in the open market. If you've read news stories about the Fed buying Treasuries to help boost the economy, that's an example of 'open market operations' in action and is an example of "quantitative easing" or QE, which is not to be confused with a ship.
When it buys bonds, the money supply increases because the banks exchange their bonds for cash and then have more money -- aka liquidity -- to lend to businesses or individuals. The opposite occurs when the Fed sells bonds to the banks, who typically can't refuse any offer from the Fed.
In addition, the Fed controls the money supply by raising or lowering "reserve requirements," which is the amount of money banks are required to keep "on reserve" at the Fed, sort of like a rainy-day fund for the banking system. Raise those requirements and banks have less money for other stuff -- like lending; the opposite is true when the Fed lowers reserve requirements...or keeps them low as has been its recent practice.
For more detail on how this all works, see the Fed's comic book: The Story of the Federal Reserve System.
So while the Fed doesn't technically (or actually) print physical dollars, it has an enormous impact in the amount of money and credit in our economy. The real scandal is the banks pretty much have to do what the Fed wants, which makes Ben Bernanke the equivalent of a "Godfather" figure in the world of high finance.
I re--published the article, article originally written By Aaron Task | Daily Ticker
You probably have a sense the Fed is super important and powerful, but here's something you probably don't know: The Fed doesn't print money.
Yes, that's right. Despite all the chatter on the campaign trail (hello, Ron Paul) and on cable TV, the Fed is actually not in the business of printing money.
In America, the actual, physical printing presses are owned and operated by the Treasury Department...not the Fed.
A lot of people are confused about this. That's probably because the Fed does control the money supply. But "money supply' is not the same as actual physical dollars — and yet another reason why economics is known as "the dismal science".
The money supply equals the amount of physical cash plus the amount of credit circulating throughout the economy, which is where the Fed comes in a very big way.
Think of the Fed as a bank — but just for other banks. The Fed lends money to banks, which determines the rate which banks charge the rest of us for everything from car loans to mortgages to credit card rates and pretty much every other loan you can think of (and some fees only a banker can dream up.)
By setting the rate banks can borrow from the Fed, non-ironically called "the discount rate", the Fed helps determine whether rates are high or low for the rest of us. And those rates help determine whether people want to borrow money or not.
In addition to the discount rate, there's the fed funds rate, which is the rate you usually hear people talking about when it comes to the Fed. The fed funds rate is the rate banks charge to other banks for overnight loans, which is common practice in the world of high finance. Technically, the Fed sets a 'target' fed funds rate, and currently it's between 0% and 0.25%, where it's been since December 2008.
Another way the Fed controls the money supply — again, which is different than the actual amount of dollars in circulation — is via its "open market operations", through which it buys and sells bonds in the open market. If you've read news stories about the Fed buying Treasuries to help boost the economy, that's an example of 'open market operations' in action and is an example of "quantitative easing" or QE, which is not to be confused with a ship.
When it buys bonds, the money supply increases because the banks exchange their bonds for cash and then have more money -- aka liquidity -- to lend to businesses or individuals. The opposite occurs when the Fed sells bonds to the banks, who typically can't refuse any offer from the Fed.
In addition, the Fed controls the money supply by raising or lowering "reserve requirements," which is the amount of money banks are required to keep "on reserve" at the Fed, sort of like a rainy-day fund for the banking system. Raise those requirements and banks have less money for other stuff -- like lending; the opposite is true when the Fed lowers reserve requirements...or keeps them low as has been its recent practice.
For more detail on how this all works, see the Fed's comic book: The Story of the Federal Reserve System.
So while the Fed doesn't technically (or actually) print physical dollars, it has an enormous impact in the amount of money and credit in our economy. The real scandal is the banks pretty much have to do what the Fed wants, which makes Ben Bernanke the equivalent of a "Godfather" figure in the world of high finance.
I re--published the article, article originally written By Aaron Task | Daily Ticker
Thursday, January 12, 2012
Unemployment Forbearance program- Help from Fannie Mae
Under FHFA's guidance, Fannie Mae is introducing an Unemployment Forbearance program that provides servicers the flexibility to assist borrowers who have a financial hardship due to unemployment. Read all about them at Forbearance.
Friday, January 6, 2012
Freddie Mac Updates
Freddie Mac sent word that effective for Freddie Mac settlement dates on or after January 5, 2012, "we are eliminating the minimum Indicator Score requirement of 620 for Relief Refinance Mortgages - Same Servicer with LTV ratios less than or equal to 80 percent, provided the principal and interest payment does not increase by more than 20 percent, and eliminating the minimum Indicator Score requirement of 620 for Relief Refinance Mortgages - Same Servicer with LTV ratios less than or equal to 80 percent, provided the principal and interest payment does not increase by more than 20 percent. Effective for Freddie Mac settlement dates on or after January 5, 2012, we are eliminating the maximum total LTV (TLTV) and Home Equity Line of Credit TLTV (HTLTV) ratio requirement of 105 percent for Freddie Mac Relief Refinance Mortgages - Same Servicer and Relief Refinance Mortgages - Open Access with LTV ratios of less than or equal to 80 percent." It is best to read the full bulletin at SteadyFreddie.
Tuesday, December 27, 2011
FHA's temporary waiver of the anti-flipping regulations may be extended to Decemeber 31, 2012
FHA lenders had reason for cheer and mirth at the end of last week. "In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting FHA Commissioner Carol Galante will extend FHA's temporary waiver of the anti-flipping regulations." With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days, but this rule is waived through December 31, 2012, unless otherwise extended or withdrawn by FHA. "All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. The Waiver continues to be limited to sales meeting the following conditions: All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value. The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. For FHA technical support, please contact the FHA Resource Center."
Monday, October 24, 2011
Bill Proposed to Allow Homeowners to Dip Into 401K for Mortgage Payments
Two Georgia lawmakers have proposed a bill to allow people to use a part of their 401K in order to help pay their mortgage, according to a recent article in the San Francisco Chronicle. This would be a withdrawal from a 401K retirement savings without penalty.
Currently, there is a 10% penalty for withdrawing from a 401K prematurely. In addition, that money would be taxed as any withdrawn early is considered income. This bill would allow homeowners to avoid these fees.
Sen. Johnny Isakson (R-Georgia) and Rep. Tom Graves (R-Georgia) have introduced this bill, called the Hardship Outlays to protect Mortgagee Equity (HOME) Act, in hopes that people who have saved for retirement can use that money to avoid foreclosure.
The bill would allow withdrawal of up to $50,000 or half of the 401K, whichever is smaller. The income tax would still apply, but there would be no 10% penalty. What do you think about this idea, and would you withdraw from retirement savings to help pay your mortgage if it was passed?
Can Baby Boomers Boost the Market?
Baby Boomers – those between the ages of 47 to 65 – are in the best position to buy real estate that they’ve been in in years, according to a spokesperson for the National Association of Realtors, and could help revive the real estate market.
According to the Housing Affordability Index, affordability is at an all-time high, and many baby-boomers already have solid home equity to rely on.
The spokesperson said in an AOL Real Estate article that “the roadblock is really with first-time buyers… and many of them are being thwarted by credit issues.”
The article cites two major reasons that the baby boomer generation may boost the real estate market: that home equity, and a desire for ease of living factored into their real estate purchases.
A survey done by Met Life Mature Market Institute and National Association of Home Builders showed that 61% of those moving in to a 55+ community cited room layout as a decision-maker, as did 62% of those not moving into such a community, but in non-age-restricted communities. The vast majority of the generation falls in the second category, but the percentages are almost identical.
Room layout and the ease of living asks are not shared as a top priority with younger and first-time
buyers.
For more information on how the baby boomer generation may impact the real estate market, read the full article here.
Top Five Tips to Increase Your Home’s Appraisal Value
The importance of the appraisal in a real estate transaction can’t be overestimated. An appraisal can completely kill a deal if it does not turn out well.
The Wall Street Journal recently posted an article with tips on upping your homes value during an appraisal, and here are some of our top picks:
1. Spruce up the house
While a couple of dishes in the sink won’t make a difference, there are quick fixes that do. Overgrown landscaping should be trimmed, and things like marks on walls and stained carpets should be cleaned. These affect the home’s overall value in appraisal, according to the WSJ.
2. Curb appeal matters
Take the time to mow the lawn, trim the hedges, and pull out any weeds. A nice-looking yard is not only a great first impression, but it can offset any nearby foreclosed properties.
3. Note the neighborhood improvements
Location, location, location! Make note of any changes to the neighborhood that are positive, such as a new playground or a Whole Foods nearby.
4. Keep the $500 rule in mind
According to the WSJ, appraisers often value a home in $500 increments. This means that if there is a repair over $500 that can or ought to be made, do it, or it could count against the property’s value.
5. Maintain a list of all updates to home
All updates, major and minor, to the home should be listed. “Itemize each update with the approximate date and approximate cost,” recommends Matthew George, the chief appraiser of Eagle Appraisals Inc. Remember to include things the appraiser might not notice, such as insulation and roof updates.
This Week’s Market Commentary
This week brings us the release of seven economic reports and two relevant Treasury auctions for the bond market to digest. There is nothing of importance scheduled for release today, but we do have something to watch every other day.
The data ranges from low importance to extremely important so some reports will have a much bigger impact on trading than others. We also need to keep an eye on the stock markets as they have been heavily influential on bond market direction recently. In other words, there is a pretty good chance of seeing noticeable movement in mortgage rates several days this week, especially if the major stock indexes rally or post sizable losses.
October’s Consumer Confidence Index (CCI) is the first release of the week and Tuesday’s only news. This Conference Board index will be released at 10:00 AM ET. It gives us a measurement of consumer willingness to spend and is expected to show a small increase in confidence from last month’s 45.4 reading.
That would mean that consumers felt a little better about their own financial situations than last month, indicating they are slightly more likely to make large purchases in the near future. As long as the reading doesn’t exceed the forecasted 46.0, we will likely see the bond market react favorably to this report. This data is watched closely because consumer spending makes up two-thirds of the U.S. economy.
Early Wednesday morning, the Commerce Department will post Durable Goods Orders for September. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. Analysts are currently calling for a decline in new orders of approximately 1.0%. If we see an unexpected increase in orders, mortgage rates will probably rise as bond prices fall. A weaker than expected reading should be good news for the bond market and mortgage rates, but this data can be quite volatile from month to month and is difficult to forecast. Therefore, a small variance from forecasts likely will have little impact on bond trading or mortgage pricing.
Also Wednesday is the release of September’s New Home Sales at 10:00 AM ET. This data covers the remaining 15% of home sales that last week’s Existing Home Sales report didn’t include and is this week’s least important data. It is expected to show an increase in sales of newly constructed homes, but regardless of its results I am not expecting it to have a significant impact on mortgage rates Wednesday.
Thursday’s only monthly or quarterly data is not only the most important report of the week, but also the most important we see regularly. The preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) will be released early Thursday morning. The GDP is considered to be the benchmark measurement of economic growth because it is the sum of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Thursday’s release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 2.2% in the GDP, which would mean that the economy grew at a noticeably quicker pace than the 2nd quarter’s 1.3%. If this report does show a much smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a larger than expected rise could lead to a rally in stocks, bond selling and a sizable increase in mortgage pricing Thursday.
There are three reports scheduled for release Friday that may affect mortgage rates. The first comes at 8:30 AM ET when September’s Personal Income and Outlays report will be posted. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.3% increase in income and a 0.6% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.
The second report of the day is the 3rd Quarter Employment Cost Index (ECI), also at 8:30 AM ET. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.6%. A smaller than expected increase would be good news for mortgage rates.
The week’s last report comes just before 10:00 AM ET Friday when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index remaining nearly unchanged from the preliminary reading of 57.5. This report is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. As with Tuesday’s CCI release, the lower the reading, the better the news for mortgage shoppers.
This week also has Treasury auctions scheduled each day except Friday. The only two that are likely to influence mortgage rates are Wednesday’s 5-year and Thursday’s 7-year Note sales. If those sales are met with a strong demand, particularly Thursday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor interest may create selling in the broader bond market and lead to upward revisions to mortgage rates.
Overall, it will likely be an active week for the markets and mortgage rates. I believe that the single most important day will probably end up being Thursday with the extremely important GDP release in the morning and the 7-year Treasury Note auction in the afternoon, but Friday has three reports scheduled so it is expected to be active also. Today is likely to be the least important day, but we still could see some movement in rates as the markets prepare for the upcoming week. Accordingly, I strongly recommend maintaining contact with your mortgage professional this week, especially if still floating an interest rate.
Monday, September 19, 2011
This Week’s Market Commentary
This week brings us the release of only three monthly reports that are relevant to mortgage rates in addition to another FOMC meeting. None of the economic reports are considered to be of high importance. In fact, all of them are thought to be low or moderately important to the financial markets.
This should help limit the possibility of significant changes to mortgage rates most days this week, with exception to the FOMC meeting results.
There is nothing of concern scheduled for release tomorrow, so look for the stock markets to be the biggest influence on bond trading and mortgage rates. If the stock markets extend last week’s streak of gains, we may see pressure in the bond market and small upward changes to mortgage pricing tomorrow. However, if the week starts off with a weak opening in stocks, bonds and mortgage borrowers should benefit.
August’s Housing Starts will kick-off the week’s data early Tuesday morning. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a decline in new home starts between July and August. I believe we need to see a significant surprise in this data for it to have a noticeable impact on mortgage rates Tuesday.
August’s Existing Home Sales report will be released late Wednesday morning. The National Association of Realtors posts this data, giving us an indication of housing sector strength by tracking home resales. It is expected to show a small increase from July’s sales, however, this data probably will be neutral towards mortgage pricing unless its results vary greatly from forecasts. Market traders will likely be more focused on the afternoon activities.
The FOMC meeting begins Tuesday and is a two-day meeting. Mr. Bernanke and friends will adjourn at 2:15 PM ET Wednesday. There is no chance of seeing any type of change to key short-term interest rates. However, the post-meeting statement could very well lead to volatility during afternoon trading as investors dissect it in an effort to find when the Fed’s next move may come.
Market participants are anxiously waiting to hear what the Fed has in mind to help stimulate economic activity. Many feel that there isn’t much that they can do at this point to quickly boost economic growth. This was originally scheduled to be a single day meeting, but was extended to a two-day meeting to allow more time for them to discuss their options. Needless to say, it will be an interesting afternoon Wednesday when the post-meeting statement is read.
The Conference Board will post its Leading Economic Indicators (LEI) for August late Thursday morning. The LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.1% rise, meaning that it is predicting a slight increase in economic activity over the next several months. A larger than expected increase would be considered negative news for bonds and could lead to a minor increase in mortgage rates Thursday.
Overall, there really isn’t a specific report that stands out as the most important of the week. The most important day is Wednesday with the housing data and the FOMC meeting, but I don’t believe any of this week’s economic data has the potential to move the markets or mortgage rates heavily. However, we still may see some changes in rates day-to-day, especially if the stock markets move significantly higher or lower. If still floating an interest rate, continued contact with your mortgage professional is recommended, especially the middle part of the week.
Monday, September 12, 2011
This Week’s Market Commentary
This week brings us the release of five relevant economic reports that may influence mortgage rates in addition to two Treasury auctions. A couple of these reports are considered to be highly important to the financial and mortgage markets, meaning that we may see significant changes to rates this week. There is a very good chance of seeing noticeable changes in rates at least one day, if not several days.
The week’s first event is a 10-year Treasury Note auction Tuesday, which will be followed by a 30-year Bond auction Wednesday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating interest in longer-term securities such as mortgage-related bonds still exists, the earlier losses are usually recovered after the results are announced. The results of the sales will be posted at 1:00 PM ET each day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading Tuesday and Wednesday.
The important economic data starts Wednesday morning when August’s Retail Sales report and Producer Price Index (PPI) will both be posted early morning. The sales report will give us a very important measurement of consumer spending, which is extremely relevant to the markets because it makes up two-thirds of the U.S. economy. Current forecasts are calling for a 0.2% increase in sales. Analysts are also calling for a 0.3% rise in sales if more volatile auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate economic growth.
One of the week’s two important inflation readings is the second report scheduled for release Wednesday morning. The Labor Department will post August’s Producer Price Index (PPI), giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices.
Analysts are predicting no change in the overall index, and a rise of 0.2% in the core data. Stronger than expected readings could fuel inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices and higher mortgage rates.
Thursday also has two reports scheduled, but one is much more important than the other. The first is August’s Consumer Price Index (CPI) during early morning hours. The CPI is one of the most important reports we see each month. It is considered to be a key indicator of inflation at the consumer level of the economy. As with its’ sister PPI report, there are two readings in the report- the overall index and the core data reading. Current forecasts show a 0.2% increase in the overall reading and a 0.2% rise in the core data reading. As with the PPI, a larger increase in the core data would likely lead to higher mortgage rates Thursday.
August’s Industrial Production data will be posted mid-morning Thursday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important but could help change mortgage rates if there is a significant difference between forecasts and the actual reading. Analysts are expecting to see little change from July’s level of output. A sizable increase could lead to higher mortgage rates, while a weaker than expected figure would indicate a still softening manufacturing sector and would be considered good news for bonds and mortgage rates. However, the CPI is the key data of the day and will likely influence mortgage pricing much more than the production data will.
The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can impact the financial markets. It is expected to show a reading of 56.3, which would mean confidence rose from August’s level. That would be considered bad news for bonds and mortgage rates because strengthening consumer spending fuels economic growth.
Overall, I think we need to label Wednesday or Thursday as the most important day of the week with the Retail Sales and CPI reports being released respectively. However, Tuesday’s 10-year Treasury Note auction also has the potential to heavily influence bond trading and mortgage rates. Today will probably end up being the calmest day for mortgage rates, but we still may see minor changes if the stock markets show much movement.
Monday, August 8, 2011
This Week’s Market Commentary
This week brings us the release of four relevant economic reports in addition to another FOMC meeting and two relevant Treasury auctions. With all of the volatility in the markets of the past two weeks, it is difficult to say whether this will be an active week for mortgage rates. Under normal circumstances, it would be. But it is hard to label any week as active if comparing to the previous two.
The first economic data of the week is Employee Productivity and Costs data for the second quarter that will be released Tuesday morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don’t see this being a big mover of mortgage pricing, but since it is the only data of the day it may influence rates slightly during morning trading. Analysts are currently expecting to see a decline in productivity of 0.6% and a 2.2% jump in labor costs. A stronger than expected productivity reading and a smaller than expected increase in costs could help improve bonds, leading to lower mortgage rates Tuesday.
The FOMC meeting is a single-day event that will be held Tuesday and will adjourn at 2:15 PM ET. It is expected to yield no change to key interest rates. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Look for the statement to lead to volatility during afternoon trading if it hints at what the Fed’s next move may be and when it will come. Market participants will be looking for any indication of a move to help boost economic activity. If the statement does not give us new information, mortgage rates will probably move little after its release.
There is no important economic data on the calendar for Wednesday. June’s Trade Balance report will be released early Thursday morning. It gives us the size of the U.S. trade deficit but is the week’s least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $48.0 billion deficit, but it will take a wide variance to directly influence mortgage pricing.
Friday has the remaining two pieces of economic data, one of which is highly important to the markets and mortgage rates. July’s Retail Sales data is that report. This data is very important to the financial markets and mortgage rates because it helps us measure consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, potentially further slowing the economic recovery. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.5%.
The last report of the day will come from the University of Michigan, who will release their Index of Consumer Sentiment for August at 9:55 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. By theory, a drop in confidence should boost bond prices, but this data is considered moderately important and carries much less significance than the Retail Sales report does. Analysts are expecting to see a reading of 62.5, which would be a decline from July’s revised reading.
Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.
Overall, it is difficult to label one particular day as the most important. Friday’s sales data is the most important economic report, but Tuesday’s FOMC meeting has the potential to cause plenty of movement in the markets and mortgage pricing also. Tomorrow will also be interesting, especially considering the size of the sell-off in bonds Friday. I would not be surprised to see that negative tone extend into tomorrow’s bond trading and mortgage rates. I suspect the FOMC meeting will not have as much of an influence on mortgage rates as one may expect, but the markets can react wildly to a single word or omission of a word in the statement, so we need to be cautious. This is certainly another week that continuous contact with your mortgage professional is highly recommended if you are still floating an interest rate.
Tuesday, August 2, 2011
This Week’s Market Commentary
There are four relevant reports scheduled for release this week that are likely to affect mortgage pricing, but it may end up being news out of Washington that may have the biggest impact on the markets and mortgage rates. As of this evening, there appears to be much more progress being made on the debt ceiling issue than we have seen yet. There actually have been rumors of an agreement in general between the House and Senate, which could mean a finished deal by Tuesday’s default deadline is possible.
The stock markets took a beating last week, even before the surprisingly weak GDP reading Friday morning. The potential for a default on our debt and the credit downgrade that would have followed was expected to have a huge negative impact on our economy. That led to stock selling most of the week, and support in the bond market, although we did see softness in bonds at times also. The big day for bonds came Friday after the 2nd Quarter GDP reading fell well short of forecasts and a significant downward revision to the 1st Quarter reading fueled a sizable rally in bonds that gained momentum during afternoon trading. The yield on the benchmark 10-year Treasury Note fell below 3.80%, causing many lenders to revise rates even lower late Friday.
Friday’s rally caught us off guard a bit. That is one way of describing it. Another is to use the word unjustified. We certainly got bond-friendly news out of the GDP report, but I think we saw more flight-to-safety buying than long-term buying due to weak economic conditions. That is evident by the afternoon surge in bonds Friday that pushed yields below recent levels. The flight-to-safety is a bonus for mortgage shoppers closing in the very near future, but extremely problematic for borrowers that need a couple weeks or months before they go to closing. Time and time again (duplicate that many more times), we see gains from several trading sessions of flight-to-safety buying unwind in a single day of trading. In other words, rates can give back last week’s gains, and some, much quicker than they were able to capture them as soon as stocks appear ready to head higher. A resolution to the debt ceiling issue is definitely a strong enough event to do this. If the threat of a credit downgrade and default dissolves, I would not be surprised to see a couple hundred point gain in the Dow over a single, maybe two, trading sessions. That would likely cause most of the flight-to-safety funds to shift away from bonds and back into stocks. And a noticeable upward move in mortgage rates.
In addition to the debt ceiling topic, we do have a couple of extremely important economic reports for the markets to digest. The first important release is the Institute for Supply Management’s (ISM) manufacturing index for July late tomorrow morning. This index measures manufacturer sentiment by surveying trade executives about business conditions during the month and is considered to be of fairly high importance to the markets. A reading above 50.0 means that more surveyed executives felt that business improved last month than those who said it had worsened.
Wednesday morning brings us the release of June’s Factory Orders data at 10:00 AM ET. It helps us measure manufacturing sector strength by tracking orders for both durable and non-durable goods during the month of June. It is similar to last week’s Durable Goods Orders report that tracks orders for big-ticket items only. Since a significant portion of the data was released last week, this report likely will not have as big of an impact on the markets as last week’s did. Analysts are expecting to see a decline in new orders of approximately 1.0%. A larger than expected drop would be considered good news for bonds and mortgage pricing.
There is no relevant monthly or quarterly economic news scheduled for release Thursday, but Friday is a different story. The most important piece of data this week and arguably each month is the monthly Employment report. This report gives us the U.S. unemployment rate, number of jobs added or lost during the month and the average hourly earnings reading for July. The ideal situation for the bond market is rising unemployment, a sizable loss of jobs and little change in earnings.
While the preliminary reading to the GDP is arguably the single most important report in general, it is posted quarterly rather than monthly like the Employment report. Friday’s report is expected to show that the unemployment rate slipped 0.1% to 9.1% last month while approximately 78,000 jobs were added to the economy. The unemployment rate probably will not be much of a factor unless it moved much more than the 0.1% that is expected. However, due to the importance of these readings, we will most likely see quite a bit of volatility in the markets and mortgage pricing Friday morning if they vary from forecasts.
Overall, I am expecting to see another extremely active week for mortgage rates. I think that the most important day is tomorrow due to the debt ceiling crisis coming to a head and the ISM index being posted. Friday is also a key day with the monthly Employment report being released. We may see some pressure in bonds mid to late week ahead of Friday’s employment numbers (assuming Washington puts the debt ceiling issue to bed), but we also need to watch the stock markets for significant moves that can influence bond trading. We are getting key economic data during a period of great uncertainty about our economy with a major national crisis climaxing at the same time. If still floating an interest rate, I would definitely maintain constant contact with my mortgage professional. And hold on tight, it’s going to be quite an interesting week!
Wednesday, July 27, 2011
Low Mortgage Rates Make it a Good Time to Buy
With mortgage rates at a 30 year historic low, the Wall Street Journal is suggesting now is the best time to buy. Ken Rosen of the U.C. Berkeley Fischer Center for Real Estate said that mortgage rates will be much higher five years from now, and to take advantage of the current low rates.
The Wall Street Journal video below elaborates:
http://online.wsj.com/video/time-to-buy-housing-recovery-is-under-way/52EDA9A3-4F24-4600-A369-B32AF30C37D0.html
The Wall Street Journal video below elaborates:
http://online.wsj.com/video/time-to-buy-housing-recovery-is-under-way/52EDA9A3-4F24-4600-A369-B32AF30C37D0.html
FHA Loans VS Conforming Loans
The FHA is insuring a greater percentage of loans than during any time in recent history. In 2006, it insured roughly 5 percent of the purchase mortgage market. Today, it insures one-quarter. "Going FHA" is more common than ever before -- but is it better?
The answer -- like most things in mortgage -- depends on your circumstance.
Like its conforming counterpart, an FHA-insured mortgage is available as a fixed-rate loan and as an adjustable-rate one. Payments are made monthly and come without prepayment penalties.
That's where the similarities end, however, and decision-making begins. For homeowners and buyers , FHA mortgages carry a different set rules as compared to conforming loans through Fannie Mae or Freddie Mac that can render them more -- or less -- attractive for financing.
For example:
- FHA mortgages can be assumed by a subsequent buyer. Conforming loans may not.
- FHA mortgages require mortgage insurance, regardless of downpayment. Conforming loans do not.
- FHA mortgages do not have loan-level pricing adjustment. Conforming loans do.
And, lastly, FHA mortgages are priced differently from conforming ones. Since 2005, the average FHA mortgage rate has been below the average conforming mortgage rate more than 50% of the time, meaning that an FHA mortgage's principal + interest payment is lower than a comparable Fannie/Freddie loan.
Today, conforming mortgage rates are lower.
So, which is better -- FHA loans or conforming ones? Like most things in mortgage, it depends. FHA-insured loans can be big money-savers or money-wasters. To find out which is best for you, ask your loan officer for today's market interest rates and study the results.
With less than 20% equity, the answer is often clear.
Tuesday, July 26, 2011
Markets
How do the budget crisis and a potential government shut down impact mortgage banking? One should remember that since 1976 there have been 17 shut downs, with the 1995/96 shutdown of 21 days the longest in modern history. If on August 2nd there is no budget deal, then we should see number 18. Oddly enough, the last shutdown occurred precisely when Italy and peripheral Europe were going through their last major crisis of confidence. If there is no deal in the early part of this week, the Treasury will issue a statement to the market and outline it's directive to the Fed as to the priority of payments and it will outline an alternative auction structure for Treasury notes and bonds . Most other governments never shut down as parties bicker over spending - in fact Belgium hasn't even had a government since 2010 and there has been no shutdown. The world will not end and the US government will eventually keep on spending, with the financial markets hoping for growth to cure the US debt problems combined with some spending cuts.
But markets (stocks, bonds, whatever) don't like uncertainty, and certainly would not like a downgrade of the United States. One can expect this uncertainty to continue to weigh on risky assets in the short-term - like the stock market. There is the potential that banks could see higher capital requirements for mortgage securities. (Currently, Ginnies are a zero risk weighting, while conventionals are 20%.) Banks may not rush to sell MBS's, but their appetite for the product could drop. Central banks could sell, or reduce their future purchases of, mortgages in a downgrade scenario. But from a cash flow perspective, few experts expect Ginnie, Fannie, or Freddie cash flows to be affected. But they could be downgraded if US government debt is downgraded, and this would lead to higher mortgage rates.
When will the housing market return to normal, per the SF Fed? "If the foreclosure inventory is worked off at this rate and house prices change as described above, then housing starts are predicted to return to normal levels by the beginning of 2014." Fed
Under the "what else can happen" category, Fannie downgraded its housing predictions for this year. Fannie's economists believe that mortgage interest rates will move up just slightly over the year to finish at 4.7% and rise again in 2012 to an average of 5%. Total mortgage originations in 2011 will decline to $1.07 trillion from $1.51 trillion in 2010 (about 30%) and decline further still next year to $999 billion. Single family mortgage debt will fall an additional 2.6 percent from $10.54 trillion to $10.26 trillion. Home prices are expected to decline further this year and next. The median price in 2010 for a new home was $221,800. This year it is expected to be $216,900 and in 2012 $214,100. Existing homes are expected to sell for a median price of $165,600 this year and $163,700 next, compared to $173,000 in 2010.
Many in the industry wonder why the rating agencies seem to have escaped a good portion of the blame for mis-rating countless securities and helping to cause the credit crisis. It is a complex question, but some rating agencies are working to solve it. Kroll Bond Ratings, for example, recently published an "Investor Bill of Rights" for bond investors. "Article l: Kroll Bond Ratings will make its research reports, including criteria and analysis, supporting its published, non-subscriber ratings available to every fixed income investor without charge. Article II: Kroll Bond Ratings will make its transaction analyses available on its website in a timely manner and will provide a forum to respond to investor questions. Article III: All ratings and analyses will be clear, transparent and usable for investors, thereby avoiding rating conclusions derived from a 'black box.' Article IV: Kroll Bond Ratings will confirm that its analysis includes appropriate and professional due diligence as part of the rating process. Article V: All ratings will be subject to ongoing review throughout the life of the security or entity to ensure that the rating is accurate." For more information go to KrollBondRatings .
Looking at the markets, current coupon MBS prices ended Monday where they began: down/worse by about .250, and the 10-yr T-note was down about .375 to a yield of 3.00%. There were no economic releases, which is just as well since the focus is on Republicans and Democrats who continue to talk at and blame each other for the debt ceiling impasse with no resolution yet in sight. Tradeweb reported below normal volume at 84% of the 30-day average.
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