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Mortgage rates Steady to Slightly Lower

Mortgage rates moved just barely lower in most cases today, though some lenders were unchanged or slightly higher.  It was a slow start to the week as far it concerns the financial markets that underlie rate movements.  There were no significant economic reports and markets generally moved in unison based on geopolitical headlines (i.e. stock prices and rates moved higher and lower together). 

With the limited movement, 4.125% remains the most prevalently-quoted conforming 30yr fixed rate for top tier scenarios.  Any changes in quotes over the weekend would only affect the closing costs, and even then, they'd be minimal.  This also means that rates are staying well-inside a narrow range over the past two months, though they're nearer the lower end of that range at the moment.  While further improvement can't ever be ruled out, the last few times rates have been this low have all been good opportunities to lock.

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Home Prices to Level Off and Reverse Course Within 2 Years – Analysts

Two Bank of America Merrill Lynch (BAML) analysts are defending what they call their big high conviction views for what should happen in the housing world over the next two years.    Chris Flanagan and Gregory Fitter, ABS and MBS strategists say that their views are not mainstream but that recent data has corroborated their theories. 

The two contend that home price increases will continue to moderate from the skyrocket trajectory they were on in late 2012 and early 2013 will peak in mid-2016.  Second, as unemployment continues to ease, the yield curve will continue to flatten (longer term rates getting lower while shorter term rates get higher, relative to each other) and the spread between two year and 10 year treasury yields should be at zero by the time home prices peak.  The long end of the curve will remain at surprising low yields, fostered by a soft housing market and low inflation.

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Mortgage Rates Hold Steady Despite Market Weakness

Mortgage rates managed to hold their ground today.  Some lenders were even in slightly better shape, though there was no change on average.  That's somewhat interesting considering the bond markets that most directly affect rates were in slightly weaker shape today.  In short, market movement pointed to higher rates.  So how did they manage to hold steady?

Today's somewhat counterintuitive strength is really the story of yesterday's completely understandable hesitation.  Yesterday was driven by several unexpected and relatively shocking headlines.  While it's not uncommon for bond markets to respond to such events, it's just as likely that the trading levels will bounce back a bit after the first phase of the reaction.  Whether that happens sooner or later, lenders don't perceive such events as having a lasting impact on the bond prices that dictate their rates.

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New Housing Normal; Pent-up Supply and Demand

While he has written about some of the elements in the past, Mark Fleming neatly summed up the current state of housing's supply and demand constraints in the latest edition of CoreLogic's Market Pulse.  That issue, the company's chief economist said, is one of the factors underlying the current faltering housing recovery and contributing to what he calls the new housing normal.

First there is a pent-up supply of housing - that is homes that might be but aren't available for sale.  The shadow inventory, homes in the process of foreclosure (some definitions include homes with the potential of foreclosure) has worried economists since the start of the foreclosure crisis.  While the fear has been that these homes, once they become bank owned, might overwhelm the market they have instead come on the market at a fairly measured pace as foreclosure time-lines stretched into years and have provided a source of low-cost homes for both first-time buyers and investors.  The inventory is now becoming concentrated in a few judicial foreclosure states and REO (bank-owned homes) are available for sale.

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Small Lenders Increased Selling Directly to GSEs a Double-Edged Sword

The Federal Housing Finance Agency's Office of Inspector General (FHFA OIG) has released an evaluation of Fannie Mae's and Freddie Mac's (the GSEs) increased recent level of purchases of loans from small banks, credit unions, and non-bank mortgage companies.  Such purchases, OIG said, presents both potential benefits and certain risks.  

Historically the GSEs have purchased loans from large commercial banks and other financial companies that acted as loan aggregators by purchasing mortgages originated by smaller lenders and bundling them with their own loans for sale.  The aggregation system offered several benefits to participants:

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Mortgage Rates Appreciably Lower After Geopolitical Headlines

Mortgage rates moved more decisively lower today, though not for any stable or happy reasons.  Such is often the case with interest rates.  As economic conditions worsen or as terrible events around the world fuel demand for bonds, prices of those bonds rise, causing rates to drop.  This was the case today for US Treasuries as geopolitical events rocked markets.  Mortgage-backed-securities (the bonds most directly responsible for mortgage rates) tend to move in the same direction as Treasuries.  Today was no different, but with geopolitical headlines moving markets, Treasuries get more of the benefit because they're a more readily available "safe-haven" asset.

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Foreclosures hit Important Milestone; Concerning Trends in Some States

It has been a long eight years, but foreclosure activity appears to have returned to levels last seen before the housing downturn was born in 2006.  RealtyTrac said today that the 2 percent decrease in the various types of foreclosure filings in June brought overall activity down to the lowest it has been since July of that year.  The company released its Midyear Foreclosure Market Report which contains data on both June foreclosure filings and those that occurred during the first half of 2014.

June filings, including default notices, scheduled auctions, and bank repossessions or completed foreclosures, were filed on a total of 107,194 properties, down 2 percent from May and 16 percent from June 2013.  For the first half of the year there were 613,874 filings, a decrease of 19 percent from the last half of 2013 and 23 percent from the first six months of that year.  Filings at mid-year equate to one filing for every 214 housing units in the U.S.

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Housing Starts Fall Enough to Break 3yr Trend of Improvement

All three residential construction indicators fell in June according to the U.S. Census Bureau and the Department of Housing and Urban Development.  Housing permits and housing starts were down for the second month in a row and completions, which increased in May, also fell.

Permits for residential construction were issued as a seasonally adjusted annual rate of 963,000 units, a decrease of 4.2 percent from the May rate of 1,005,000.  The May rate was revised upward from the 991,000 pace originally reported.  June permitting was 2.7 percent higher than the June 2013 rate of 938,000.

Permits for single family units were issued at a rate of 631,000, 2.6 percent higher than in May and up 0.6 percent from the 627,000 rate a year earlier.   The May number was revised to 615,000 from 619,000.  Permits for units in buildings with 5 or more were issued at an annual rate of 301,000 compared to 363,000 in May.

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Mortgage Rates Unchanged to Slightly Higher

Mortgage rates were just barely higher today on average.  The movement was so small that several lenders were actually unchanged or slightly better.  This is consistent with an ongoing trend of incredibly small day-to-day changes in rates.  The range has been narrow enough to keep the most prevalently quoted top-tier rate between 4.125% and 4.25% for conforming, 30yr fixed loans.  The market is currently fairly well split between the two depending on the lender and scenario.

Economic data is historically one of the most important considerations for interest rates.  Stronger data tends to push rates higher and vice versa.  Although the impact is diminished in the current era of narrow ranges, the connection is still observable on most occasions. 

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Smarting over Fines, Chase will Reduce FHA Lending

JP Morgan Chase appears to be questioning the wisdom of remaining an FHA lender.   The company's Chairman and CEO, Jamie Dimon, made critical comments about the FHA program during a conference call on Tuesday accompanying release of its 2nd quarter financial report. 

In February, Chase reached a settlement with FHA and the Department of Justice in the amount of $614 million.  The government claimed that the bank had improperly approved FHA-insured loans that did not meet the agency's underwriting standards.

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