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Mortgage Rates Return to November Lows

Mortgage rates improved today following weaker economic data in Europe.  That data fueled demand in bond markets overnight, pulling US Treasury yields back to yesterday's lowest levels.  The mortgage-backed-securities (MBS) that dictate loan pricing take heavy cues from that movement in broader bond markets.  The trick is for the daytime hours to cooperate. 

In other words, overnight gains in bond markets (meaning "lower rates") will only materialize into lower mortgage rates if those gains hold for a few hours in the morning.  That's often up to the economic data calendar, and today was no exception.  While the first round of data didn't do much to threaten bond markets, the 10am data caused quite a bit of volatility.  While it did end the good times for today, markets held on to enough of the gains for lenders to avoid issuing 'negative reprices' (where mortgage lenders raise rates in the middle of the day). 

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Major Updates on Mortgage Market’s Future from FHFA’s Watt

Melvin L. Watt, Director of the Federal Housing Finance Agency (FHFA) told the Senate Banking Committee today that Freddie Mac and Fannie Mae (the GSEs) will soon announce they will begin purchasing loans with downpayments of 3 or 5 percent, similar to those offered by FHA.  Watt made the announcement in remarks prepared to update to the Committee on the GSEs and the Federal Home Loan Banks for which FHFA is regulator.  The agency also serves as conservator of the two government sponsored enterprises.   

Watt summarized the financial performance of the GSEs as significantly improved since the conservatorship began in 2008.  While both entities have posted profits every quarter since the beginning of 2012 he said that some of the increased performance relates to one-time or transitory items, such as the reversal of each GSE's deferred tax asset valuation allowance, legal settlements, and the release of loss reserves associated with rising house prices. Other portions of the improvement are attributable to such factors as strengthened underwriting practices and increased guarantee fees.

 

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Big News for Existing Home Sales: 1st Annual Gain of 2014

If October sales of existing homes are an indication 2014 may come to a better conclusion than has been expected.  The National Association of Realtors® (NAR) said today that sales of single-family homes, townhomes, condominiums, and co-ops in October were at their highest level since September 2013 and, for the first time in a year, exceeded sales a year earlier.

Existing home sales rose 1.5 percent in October to a seasonally adjusted annual rate of 5.26 million in October, the highest since the same figure was reached in September 2013, from an upwardly revised rate of 5.18 million in September, the second consecutive month-over-month increase.   October's sales were also 2.5 percent higher than in October 2013. 

 

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Mortgage Rates Were Higher Even Before the Fed

Mortgage rates moved moderately higher today, bringing them back in line with some of last week's offerings but certainly not outside the recent range.  Today's biggest risk in terms of market movement had been the afternoon's FOMC Minutes (the more thorough recap of discussion at the Fed's policy setting meeting at the end of October).  As it happened, the biggest market movement was seen overnight in response to European economic data, leaving the Fed Minutes to merely cause some inconsequential afternoon volatility.

The bond markets that underlie mortgage rates were weaker right out of the gate this morning, resulting in higher rates to start the day.  4.0% remains the most prevalently-quoted conforming 30yr fixed rate for top tier borrowers, but 4.125% is also a contender after this morning's weakness.  While financial markets did experience a bit of volatility following the Fed Minutes, it wasn't enough to prompt lenders to revise rate sheets in the afternoon.

 

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Western States Drive Surge in Building Permits

October was a mixed month for new residential construction data.  More permits were issued than in September but housing starts and completions were both down.  September numbers for permits and housing starts were upgraded slightly from original estimates while the completions number was revised down.

Permits for construction of privately owned housing units were issued at a seasonally adjusted annual rate of 1.080,000.  This was an increase of 4.8 percent from the revised (from 1,018,000) September estimate of 1,031,000 permits and 1.2 percent higher than the October 2013 rate of 1,067,000.

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Holiday Adjustments Skew Mortgage Applications

The week ended November 14 was a lackluster one for mortgage activity.  Mortgage applications during the week, as measured by the Mortgage Bankers Association's (MBA's) Market Composite Index increased 4.9 percent on a seasonally adjusted basis but on an unadjusted basis applications were down 7 percent.  The higher number included an adjustment to account for the Veterans' Day holiday which occurred mid-week.

Applications for refinancing fell from 63 percent of all mortgage applications to a 61 percent share.  The Refinance Index increased 1 percent from the week ended November 7.

 

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Mortgage Rates Inch to Another 3-Week Low

Mortgage rates barely budged today, but moved in the right direction on average.  Several lenders were actually slightly higher in rate, but most lenders improved.  This technically brings rates to another 3-week low, and the best levels since October 24th.  Again though, this isn't necessarily true for every individual lender due to the narrow overall range and small day-to-day movement. Adjusting for changes in closing costs, conforming 30yr fixed rates only made it 0.01% lower today with the benefit of rounding.  The most prevalent quote for top tier borrowers is 4.0%, followed by 4.125%.  In isolated cases, some borrowers are seeing 3.875% again.

 

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Builders Credit Consumers for Increased Optimism

New home builders regained some of the confidence in the market they had displayed in September after wavering significantly in October.  The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), a measure of builder attitudes about the current and prospective market for newly built single-family homes, rose four points to 58 this month after falling five points from September to October.

The HMI is compiled from responses to a monthly survey NAHB conducts among its new home builder members.  The survey asks for their perceptions about current single family home sales and their expectations for sales over the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

 

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Mortgage Rates Continue to New November Lows

Mortgage rates moved moderately lower again today, setting another new low for the month of November.  That said, the movement has been primarily restricted to the upfront costs associated with the same old rates.  In other words, the most prevalent contract rates remain 4.0% or 4.125% for top tier borrowers, but the upfront costs for those rates are a bit lower than they were on Friday.

The bond markets that dictate mortgage rate movement were almost perfectly flat today after some volatility in the morning.  While we didn't end up seeing a meaningful attempt to get to stronger levels, simply holding Friday's ground is a positive change.  It contributes to a trend that is currently more sideways and supportive compared to the trend in the second half of October which was characterized by slow, steady weakness.

 

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Good News for Housing and Consumers From FHA

Despite dire predictions from many quarters the Federal Housing Administration's (FHA's) Mutual Mortgage Insurance Fund (MMIF) has returned to solvency.  And it did it a full three years ahead of the best estimates back in 2012.  The Department of Housing and Urban Development (HUD) said on Monday that the Fund has gained nearly $6 billion in value over the last year and now stands at $4.8 billion with a capital ratio of .41 percent.  One year ago that ratio was a negative .11 percent.

HUD made the financial announcement as it released its annual report to Congress.  An independent actuarial report shows that the fund has gone from a negative value to a growth of $21 billion within the last two years.

In September 2013 FHA had to draw $1.7 billion against its borrowing authority from the Treasury Department, the first time in its 79 year history it had required such support.  The draw came after the MMI failed to maintain its congressionally mandated capital-to-loan ratio of 2.0 percent for three consecutive years and an independent audit estimated it would not return to that ratio until 2017.  It now appears that it will reach 2.0 percent sometime in FY 2016 after regaining an additional $15.1 billion in value over the remainder of this fiscal year.  As late as December 2013 there were many who predicted the agency would have to return to Treasury to request more support.

 

 

HUD credited the improved financial picture to an aggressive set of policy actions.  Delinquency rates in the agency's portfolio of guaranteed loans has dropped by 14 percent and recovery rates improved by 16 percent since last year.  Since the housing crisis began FHA has made significant changes to underwriting standards, loss mitigation policies, and recovery strategies and has raised insurance premiums. 

"This year's report shows that the fundamentals of the Fund are strong," said HUD Secretary Julian Castro. "Over the past five years, FHA has taken a number of prudent actions to restore the Fund's fiscal health. This is positive news for the economy and the millions of American families that count on FHA."

 "Improving the performance of the Fund by $21 billion in two years is good news for the housing market," said Acting FHA Commissioner Biniam Gebre. "FHA will continue to focus on meeting its mission of creating responsible access, investing in our economy and preserving pathways to the middle class. We remain dedicated to giving more hard-working responsible families the chance to buy a home and not a returning to the days of reckless lending that caused so much pain for middle-class families and the economy."

David H. Stevens, President and CEO of the Mortgage Bankers Association (MBA), said following the release of the report that the continued improvement in the value of the MMI Fund was good news for taxpayers and the program, as almost all of the vital metrics, including delinquencies, foreclosures, and recoveries on property disposition, continue to improve.

"Maintaining this trend will require FHA to continue its ongoing work to improve transparency and certainty around its loan quality assessment methodology, as well as to re-examine mortgage insurance premiums, both the amount and the structure. Premiums are currently at an all time high, and FHA needs to find the right balance so it can meet its mission and further grow its reserves by sustainably increasing volumes without being adversely selected should only the highest risk borrowers be willing to pay the high premiums," Stevens said.

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