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FHA Premium Cut not about the GSEs

Julian Castro, Secretary of Housing and Urban said today that the reduction of FHA annual premiums has nothing to do with competition from Fannie Mae and Freddie Mac.  The 50 basis point reduction in annual mortgage premiums announced by Castro earlier this month, is effective for loans with case numbers issued starting today.

Castro told a panel on CNBC’s Squawk Box that the rollback is about maintaining a balance between keeping FHA’s Mutual Mortgage Insurance fund strong and fulfilling FHA’s traditional mission of providing homeownership opportunities for first time homebuyers and middle class families

 

 

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Mortgage Rates Move Back toward Long-Term Lows

Mortgage rates were modestly lower today, and are now getting back in line with levels not seen in more than 20 months.  Only the last 3 days of last week were any better.  That said, the amount of improvement in the mortgage market pales in comparison to other parts of the bond market that are normally much more correlated.  For instance, 10yr Treasury yields moved 0.08% lower today.  Average mortgage rates barely managed half that. 

In general, the broader bond market is insanely volatile and insanely illiquid right now.  lliquidity refers not to an absence of volume, but to small numbers of buyers and sellers interested in transacting at any given price.  The buying and selling of bonds (which includes the mortgage-backed securities) moves rates higher and lower.  The more buyers and sellers there are, the easier it is for markets to hone in on a price and manage volatility.  The secondary mortgage market thrives on liquidity and price stability.  The more volatile bond markets are, and the harder it is to find a buyer or seller, the less valuable mortgage-backed-securities become relative to other, less tempermental investments.

 

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Strengthening Economy Expected to “Drag” Housing Along

Fannie Mae's economists expect the economy to strengthen in 2015 and that will "drag" housing into a better cycle this year.  The company's forecast for the year includes a moderate acceleration of economic growth, "driven by strengthening private domestic demand, especially consumer spending, amid continued low gasoline prices, firming labor market conditions, rising household net worth through both financial and housing wealth, improving consumer and business confidence, and reduced fiscal headwinds."  They project growth will accelerate from their estimate of 2.6 percent in 2014 to 3.1 percent in 2015.  This stronger climate "should lead to improving income prospects, underpinning a higher rate of household formation in 2015."

 

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2015 Housing Opportunities might be Short-Lived

There is certainly no dearth of economic and housing forecasts afoot in the land.  Freddie Mac starts out its current U.S. Economic & Housing Market Outlook by comparing this January with last.  Back then, we are reminded, "interest rates were rising, growth was sluggish, and disruptive weather from a polar vortex reduced economic growth in the first quarter by about one percent." 

Today mortgage rates are down, jobs are up, and failing oil prices are providing a big boost to individuals and the economy.   The question Frank E. Nothaft and Leonard Kiefer, Freddie Mac's chief and deputy chief economist ask is "whether or not households and businesses will be able to seize these opportunities and make the most of them."  The two point out that many of these opportunities may be, as television pitchmen say, available for a limited time only.

 

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Existing Home Sales End Year on Higher Note

Existing home sales yo-yoed again in December.  The National Association of Realtors® (NAR) said total sales of existing homes, including single family residences, condominiums, and co-ops were estimated at a seasonally adjusted annual rate of 5.04 million, a 2.4 percent increase from November rate of 4.92 million. November's sales had fallen off a 5.25 million pace in October, the best month for sales in over a year.  NAR said December's sales represented the sixth time in seven months that sales have exceeded 5 million units and NAR noted that the increase came despite a tightening of inventory in December.  

December sales were up 3.5 percent from the pace in December 2013.  This was the third straight month that existing home sales were higher than year earlier levels.

 

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Six Economists Reach Similar Conclusions on 2015 Housing Outlook

Optimism about the housing market has been a  "misplaced notion"for the last seven years according to Wells Fargo Senior Economist Mark Vitner, But 2015, he says, could be the year.

Vitner was one of six economists making predictions for the housing market in 2015 for RealtyTrac's January issue of HousingNewsReport, Five of the economists were interviewed by the web magazine staff while Vitner made his forecast in for the regular "My Take" feature of the publication.   While each of the six had a slightly different take, there was largely a consensus on both the past and the future.

Most, like Vitner, said that 2014 had not lived up to expectations.  Lawrence Yun, Chief Economist for the National Association of Realtors® (NAR) said that neither housing starts nor home sales met expectations "despite amazingly and surprisingly low mortgage rates."  He blamed tight credit for both mortgages and home construction as obstacles to a faster recovery.  Mark Zandi, Chief Economist for Moody's Analytics said that the economy's performance struck to its script during the year but the housing recovery fell short with higher mortgages rates at the beginning of the year while tight mortgage credit weighed on single family housing demand. 

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Wells Kickback Scheme Involved More Than 100 LOs, Garnered Multiple Warnings

Wells Fargo and JPMorgan Chase along with a former Wells Fargo employee and his wife are the subjects of consent orders filed by the Maryland Attorney General and the Consumer Financial Protection Bureau (CFPB).  The orders ask for close to $37 million in civil penalties and consumer redress, by far the bulk of the moneys coming from Wells Fargo.

In announcing the orders, filed Thursday in federal court, CFPB said that they had taken action against the group because of an illegal marketing services kickback scheme they are alleged to have engaged in with Genuine Title.  The Maryland-based title company, which went out of business in April 2014, had provided the banks' loan officers with cash and services in return for which the loan officers agreed to increase the title company's business by referring homebuyers to them for closing services.  The services provided by Genuine were described by CFPB as including "purchasing, analyzing, and providing data on consumers and creating letters with the banks' logos that the company had printed, folded, stuffed into envelopes, and mailed."

 

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Mortgage Rates Hold Perfectly Steady Despite Massive Underlying Volatility

Mortgage rates didn't budge today.  That's impressive considering the amount of volatility in financial markets leading up to and following the European Central Bank (ECB) announcement.  Markets widely expected the ECB to announce a new quantitative easing package today.  That's indeed what happened, but when it comes to European monetary policy, things are never as cut and dry as they are for other central banks that aren't trying to balance the needs and laws of 19 separate countries against the economic realities and legal constraints of the broader Eurozone.

If this sounds complex, that's because it is.  And that makes for wide-ranging reactions in financial markets.  Not only that, but financial markets have this well-known habit of trading in advance of actual events based on expectations and even rumors.  Today's ECB news had plenty of both.  Consequently, global bond markets (which eventually trickle down to affect specific areas of domestic bond markets, including mortgage rates) were all over the place for most of the day.

 

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Rates Consolidate as Markets Prepare for Big News

Mortgage rates moved moderately higher on average today.  Recently high volatility in financial markets continues driving stratified pricing strategies.  That's a long way of saying that different lenders are adjusting rates by different amounts, and sometimes even in different directions.  For instance, a few lenders actually offered improved rates today for some scenarios while other lenders were much higher.  The net effect was an increased prevalence of 3.75% among conforming 30yr fixed rate quotes for top tier scenarios.  3.625% remains the most common, but today's closing costs would be higher than yesterday's.

Much of today's volatility had to do with unexpected headlines concerning global central banks.  In general, the market's focus is on the European Central Bank (ECB) as it's expected to announce a quantitative easing package tomorrow morning.  Potential details of that program were leaked this morning.  This made for the initial spike in market volatility.  It was exacerbated by another surprise from the Bank of Canada, which announced a rate cut not even 30 minutes after the ECB leak.

 

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Residential Construction Tepid in December but Gained Ground in 2014

December's numbers for residential construction were mixed when compared to November, but all were better than the monthly figures the previous December.  Year-end figures, also released today by the Census Bureau and the Department of Housing and Urban Development show permitting, housing starts, and completions all performed better in 2014 than in 2013.   

Permits for privately owned housing units were issued in December at a seasonally adjusted annual rate of 1,032,000 units.  This was a -1.9 percent change from the upwardly revised (from 1,035,000) November rate of 1,052,000 units.  Permits in December were up 1.0 percent from the December 2013 estimate of 1,022,000.

 

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