Archive for the ‘Mortgage News Daily’ Category

Mortgage rates moved lower at their best pace in several weeks today, with the average lender making it back to levels not seen since April 12th.  The gains were bigger than normal for two reasons.  First, bond markets had improved slightly yesterday afternoon, but  not enough for lenders to adjust their rate sheet offerings for the better.  Thus, they had to play a bit of catch-up with this morning's rate sheets.  The bigger factor was the additional bond market strength seen throughout the overnight trading session and well into the domestic trading hours.

Conventional wisdom, according to the Urban Institute (UI), holds that small mortgages are riskier than large ones.  That may be one reason that only one out of four homes sold for $70,000 or less in 2015 was financed with a mortgage compared to 80 percent of those sold for $70,000 to $150,000. Sarah Strochak and Alanna McCargo, writing in UI's Urban Wire blog say there are more than 600,000 homes for sale nationwide priced under $70,000, but it is hard for buyers to arrange financing because of the perception that the buyers of these homes have worse credit profiles and their loans don't perform as well.

Rising interest rates continued to take a toll on mortgage applications during the week ended April 19. Even purchase mortgage volume fell victim to the increasing rates after rising for six consecutive weeks. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, declined by 7.3 percent on a seasonally adjusted basis from the previous week. On an unadjusted basis, the Index was down 6 percent. The Refinance Index had surged 39 percent at the end of March co-incident with the largest one week drop in mortgage rates in 10 years but has now erased most of those gains. 

When bonds make "gains," it means that bond prices are moving up.  The price of a bond is like the amount that a lender is willing to pay for the right to collect a certain amount of interest.  The more the lender is willing to pay, the lower that lender's "yield" will be.  Looked at another way, the lower your interest rate would be in the case of a lender making you a mortgage loan.  For that reason, we expect to see mortgage rates fall when bonds are making gains (mortgages are based primarily on bond prices/yields).  But in today's case, rates went a bit higher even though bonds improved.

New home sales continued on a winning streak in March, increasing for the third straight month.  The U.S. Census Bureau and the Department of Housing and Urban Development said sales of newly constructed homes were at a seasonally adjusted annual rate of 692,000 units during the month.  This is a 4.5 percent increase over the revised (from 667,000) rate of 662,000 in February and 3.0 percent higher than the March 2018 estimate of 672,000 new homes. Analysts polled by Econoday expected a pullback in March after the strong numbers earlier in the year.  They had forecast sales in the range of 630,000 to 660,000.  Their consensus was 645,000 units.

The pace of home price appreciation slowed notably in February, at least as reflected in the Federal Housing Finance Agency's (FHFA's) House Price Index (HPI).  The index, which is calculated using home sales information from mortgages sold to or guaranteed by the GSEs Fannie Mae and Freddie Mac, rose 0.3 percent from January to February and was up 4.9 percent on an annual basis.mFHFA's index stood out in January when it jumped 0.6 percent from its December level and had a 5.6 percent increase compared to January 2018.   Price indices for the month released by other entities had showed considerable slowing; most had monthly appreciation of 0.1-0.2 percent and annual changes in the 4 percent range.

As profit margins have continued to shrink, mortgage lenders have been seeking to utilize technology to reduce their production expenses which involve in part transmitting large volumes of data among several interconnected parties such as consumers, investors, service provider, and others.  In an article in the Fannie Mae Perspectives blog the company's Vice President for Digital Products, Prabhakar Bhogaraju, writes that "Businesses are increasingly leveraging digital technologies to reduce errors and costs, transact faster, and drive a richer and better customer experience. Over the past few years, technological advancements such as artificial intelligence, APIs, and document digitization have gained traction, enabling digital transformation."

Mortgage rates were higher again on Monday, but just barely.  The average lender was still in worse shape on Tuesday or Wednesday of last week when rates were the highest they'd been in about a month.  

Rates reflect demand in the bond market.  Bonds can be bought or sold for a variety of reasons, but one of the key reasons is the general levels of fear and optimism surrounding the economy.  When investors are less certain about positive economic outcomes, they tend to buy more bonds.  This results in rates moving lower.  

The question this morning was whether March's existing home sales could build on the strong numbers posted in February, an 11.8 percent increase from the prior month with a seasonally adjusted pace of 5.51 million.  It was the largest gain in more than three years. The consensus was that they would not.  The forecasters were spot on. The National Association of Realtors® (NAR) reports that sales of existing single-family homes, townhomes, condos, and cooperative apartments retreated from their February gains, with each of the four major U.S. regions falling back. The Midwest saw the largest decline although the West wasn't far behind.

For the second month in a row we find ourselves stating that Fannie Mae's forecast, while still predicting a slowdown in economic growth this year, appears overall more upbeat than in the previous month.  The April report is still predicting that growth will slow from 3.0 percent in 2018 (which is itself a revision from the 3.1 percent estimate that prevailed in March) to 2.2 percent this year.  The boost provided last year by the Tax Cuts and Jobs Act is expected to fade, and business investment and consumer spending to slow.  However, the company's economists expect residential fixed investment to recover from last year's decline.