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FHA Loan Limits Increased

The Federal Housing Administration (FHA) has now joined the Federal Housing Finance Agency in raising the dollar limits for loans that qualify for FHA guarantees.  Last week FHFA raised limits for Fannie Mae and Freddie Mac loans to 424.100, a number which forms a basis for some of the FHA changes.

The new limits, which will be effective for loans with case numbers assigned on or after January 1, will constitute a slight increase in 2,948 U.S. counties; limits will remain at 2016 levels in 286 counties.

In so-called high cost areas, the national "ceiling" will increase to $636,150 from $625,000.  The "floor" will increase to $275,665 from $271,050.  The loan limit ceiling is 150 percent of the national conforming limit ($424,100) while the floor is set at 65 percent.  The floor applies to those areas where 115 percent of the median home price is less than 65 percent of the national conforming loan limit. Any areas where the loan limit exceeds the "floor" is considered a high cost area.

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Mortgage Rates Surge Above 2-Year Highs

Mortgage rates spiked abruptly today, bringing them to the highest levels in well over 2 years.  The average lender is now quoting conventional 30yr fixed rates of 4.25% on top tier scenarios with more than a few already up to 4.375%.  You'd have to go back to the summer of 2014 to see a similar mortgage rate landscape.  

(NOTE: Freddie Mac's widely-cited primary mortgage market survey, released today, showed a 0.05% increase week-over-week.  That increase is actually fairly close to the true week-over-week increase, but only if you're using last Wednesday or Friday as your baseline.  Freddie's baseline was Mon/Tue--shorter than normal due to the holiday week.  Additionally, Freddie's survey doesn't capture today's rate spike, which was roughly 0.10%.  The bottom line is that many borrowers will be seeing rates that are .125-0.25% higher this week versus the beginning of last week.  By my calculations, if rates didn't change at all in the coming week, Freddie's next survey would likely be 0.08% higher.) 

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Residential Spending Leads Lackluster Construction Report

Construction spending rose only slightly in October, with residential construction coming in stronger than most other sectors.  The Census Bureau said overall spending during the month was at a seasonally adjusted annual rate of $1.172 trillion, up 0.5 percent from September.  The September total, originally reported as down by 0.4 percent was revised upward and is now unchanged from August at $1.167 trillion. Spending was higher than in October 2015 by 3.4 percent.

Analysts polled by Econoday were expecting an increase of 0.6%.  Estimates ranged from 0.4 to 0.8 percent.

Private sector spending was at a seasonally adjusted rate of $885.9 billion, a 0.2 percent increase and up 4.7 percent from a year earlier.  Most private sector construction categories fell in August, only residential, transportation, and communication spending posted increases from the previous month.

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Mortgage Rates Moderately Higher

Mortgage rates rose moderately today, bringing them roughly back in line with Monday's levels.  For the record, that leaves us in slightly better shape than last week, which saw the highest rates in more than a year.  Today's bond market weakness was driven primarily by the much-anticipated OPEC deal.  What is the OPEC deal and why is it impacting mortgage rates?  

The OPEC deal essentially serves as an agreement among OPEC countries to limit oil production.  The goal is to push oil prices higher.  Higher oil prices imply higher inflation, and inflation is an enemy to low interest rates.  With this logic, it would be easy to assume that rates would move higher any time oil prices moved higher, but that's definitely not the case.  Today's OPEC deal did more damage by influencing long-term inflation fears.  After all, if OPEC countries are willing to come to agreements like this, bond markets (which drive mortgage rates) need to account for the threat of general upward pressure on prices (due to higher fuel costs), all other things being equal.  

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Mortgage Activity Will Be Crushed By Rising Rates -Freddie Mac

Interest rates are, quite naturally, the focus of Freddie Mac's November Outlook.  The company's Economic & Housing Research Group looked at the potential impact of the interest rate surge since the election and what it called "the near certainty" that the Federal Reserve's Open Market Committee (FOMC) will raise the fed funds rate at its December meeting.

Over two weeks post-election the 10 -year Treasury note surged by over 50 basis points, closing at 2.35 percent on November 18.  The increase was driven by higher than expected inflation and anticipation of the FOMC move -the probability of which the futures market was putting at 92 percent.

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Will Trump’s New Appointee End GSE Conservatorship?

President-elect Donald J. Trump may have just handed Freddie Mac and Fannie Mae a "get out of jail free" card.

Trump has picked Steven Mnuchin to be Secretary of the Treasury.  Among his first pronouncements to the press was that the two government sponsored enterprises (GSEs), which have been in federal conservatorship since 2008, should no longer be owned by the government.

Stock in the two companies immediately soared (although that is a relative term for assets that have been virtually worthless for over eight years).  Within hours Fannie Mae's stock rose 32 percent and Freddie Mac's by 31 percent to $4.04 and $3.99 respectively.

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Pending Home Sales Rise (Sort of) to 4-Month Highs

Pending home Sales eked out a 0.1 percent gain in October.  The National Association of Realtors® said its Pending Home Sales Index (PHSI) barely managed a second straight month of gains, rising to 110.0 from a downwardly revised 109.9 in September (the previous reading was 110.0, which would have made today's reading "unchanged," officially).  Even though NAR's chief economist Lawrence Yun called the increase "minuscule," it still pushed the index to its highest level since July.  The index was also 1.8 percent higher than In October 2015 when it stood at 108.1.

The PHSI is a forward-looking indicator based on contracts for home purchases.  Those signed contracts are generally expected to become closed transactions within two months.

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No Surprise: Rate Spike Torpedos Refi Apps

Thanksgiving wreaked the usual holiday-related damage on the Mortgage Bankers Association's report of mortgage activity during the week ended November 25.  The company's Market Composite Index, a measure of application volume, fell by 9.4 percent on a seasonally adjusted basis compared to results for the week ended November 18.  On an unadjusted basis, the Index was down 38 percent.  The week's results included an adjustment to account for the holiday.

The Refinance Index fell 16 percent and only 55.1 percent of all applications were for refinancing.  That was a decline from 58.2 percent during the previous week, and the lowest share since June.

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Mortgage Rates Lowest in a Week

Mortgage rates continued lower today.  While the pace of improvement was slightly slower, it was enough to get the average lender rate sheet back to levels seen last Tuesday.  That makes this the first time since before the election that rates haven't been significantly higher week-over-week.  It's also the first time in more than a month where rates have moved lower 2 days in a row.  Normally, such accomplishments would be no big deal, but when we're backing down from the highest rates in more than a year, every little bit helps.  

Today's improvements translated to a little more unity among lenders.  Whereas more than a few were still quoting conventional 30yr fixed rates of 4.25% on top tier scenarios yesterday, most are now back down to the 4.0%-4.125% range.  From a strategy standpoint, there are 2 ways to approach the current environment.  On one hand, you could count yourself lucky to finally be seeing a week-over-week improvement and lock accordingly.  

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Freddie Mac Names eNote Vendors

Freddie Mac has certified six companies as meeting its requirements for creating, signing, and storing eNotes, i.e. electronic promissory notes.  The company said it took this step to expedite and streamline the mortgage process by encouraging the use of digital documents.

Four companies have completed Freddie Mac's full approval process, meeting the technical requirements to create, sign and / or store eNotes.  They are Digital Delivery, eSign Systems, Fiserv, and Pavaso.  Two additional companies -- DocMagic and eOriginal -- have provisional approvals as they go through the full review process.

Freddie Mac said it has been actively purchasing eMortgages from sellers and servicers since 2005 and regularly accepts many electronic documents used in initial disclosures and electronic closings, such as loan applications and IRS forms.  Sellers do not need special approvals to use these documents if their procedures conform with those in Freddie Mac's Seller/Servicer Guide.  However, the eNote is unique.

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