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Mortgage Rates Recover Slightly

Mortgage rates moved slightly lower today after hitting the highest levels in more than 4 months yesterday.  There were no significant economic events providing guidance today.  This actually makes the strength more meaningful as the absence of big-ticket events left bond markets to their own devices.  In that sense, the rally was more of a conscious choice. 

Rate quotes fell back in line with those seen on Monday.  Most borrowers will see the changes in the form of closing costs as the move wasn't big enough to affect rates themselves.  4.25% remains to most prevalently quoted conforming 30yr fixed rate for top tier scenarios.

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Lenders Expect Easing in both Mortgage Demand, Credit Standards

In its latest Mortgage Lender Sentiment Survey Fannie Mae detected an interesting switch in attitudes and opinions in two areas.  The third-quarter survey, the third since Fannie Mae originated the series last March, found that large lenders expect to see their underwriting standards ease over the next three months.  Perhaps not coincidentally, the share of lenders of lenders, regardless of the size of the institutions they represent, who expect the demand for purchase mortgages to go up over the next three months dropped by 26 to 33 percentage points depending on the mortgage type. 

The largest decline in expectations was for GSE-eligible loans where the percentage of respondents expecting borrower demand to increase fell from 54 percent in the second quarter to 21 percent.  The other categories fared only marginally better.  Expectations of increasing demand for non-GSE eligible loans were reported by 53 percent of participants in the second quarter but only 27 percent in the third.  Only 16 percent looked for increased demand in government loans compared to 42 percent the previous quarter.

 

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Mortgage Rates Edge Up to 4-Month Highs

Mortgage rates only moved slightly higher today for most lenders.  Some lenders were unchanged from yesterday, but on average, rates inched up to match their highest levels since May 1st.  There was no significant underlying market movement, which is interesting considering yesterday's Fed Announcement was expected to do more to stir up the action.  Instead, the mortgage-backed-securities (MBS) that underlie mortgage rates simply held flat today after losing only a moderate amount of ground yesterday.

While we technically moved from "1.5 month highs" to "4.5 month highs," it's important to note the two were separated by a mere 0.01% in terms of effective interest rate.  The actual rate quotes going out today would be the same as yesterday in most cases, but with marginally higher closing costs.  4.25% remains the most prevalent conforming 30yr fixed rate for top tier borrowers.

 

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FHFA Criticized for Process Leading to Repurchase Changes

The Federal Housing Finance Agency's (FHFA) Office of the Inspector General (OIG) has released an audit critical of the FHFA for decision making leading to changes in the Representation and Warranty Framework for Fannie Mae and Freddie Mac, the government sponsored enterprises (GSEs) under FHFA conservatorship.  Those changes were a component of FHFA's Contract Harmonization Project initiated in June 2011 to improve the GSEs' contracts and contracting processes with its seller servicers. 

As a result of discussions between FHFA and the GSEs the Agency determined that contract harmonization was necessary and appropriate and on January 19, 2012 directed the GSEs to align their contracts in eight areas, two of which were priorities with 180 day deadlines: 1) Consistent and precise benchmarks and measurable standards for repurchase requests and other penalties for non-performance and 2) Consistent timelines and collection standards for fees and penalties.  The first priority initiated the process of changing the GSEs' representation and warranty framework which was implemented on January 1, 2013.

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Plummeting Housing Starts Data Not as Scary as it Looks

Housing starts 'plummeted' in August the Census Bureau said today, falling 14.4 percent from the revised seasonally adjusted annual rate of 1,117,000 units in July to 956,000 units.  The abrupt change, however was driven by a 31.5 percent decline in initial construction of buildings containing 5 or more units.  Single-family construction starts were down only 2.4 percent.  Not only that, but last month's numbers were revised significantly higher.

The August New Residential Construction report, jointly issued by Census in conjunction with the Department of Housing and Urban Development, revised the July housing starts upward from the original 1,093,000 annual pace reported last month, already a 15.7 percent increase over June.  Despite the decrease in starts in August, the seasonally adjusted number was still 8.0 percent higher than the rate of 885,000 units reported in August 2013.

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Mortgage Rates at 1.5 Month Highs After Fed

Mortgage rates moved higher at a moderate pace today after the Fed reiterated their intentions regarding the gradual tightening of monetary policy.  That policy has been one of the key factors in historically low mortgage rates.  While the Fed didn't make any surprising moves, they did confirm some market fears.  Ultimately the market movement wasn't very big compared to what it might have been.  As such, it was a pretty fair reflection of the Fed announcement.

The bigger question is what markets will do from here.  Today's weakness brings rates to 1.5 month highs officially, but they might as well be in line with Monday or Tuesday's levels. 

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Builder Confidence at near Nine Year High

A four point jump in September has taken the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) to its highest reading since November of 2005.  The increase, the fourth in as many months, elevated the composite measure of builder confidence in the market for new homes to 59.

The HMI is derived from responses new home builders give to a monthly survey which NAHB has conducted for 30 years.  Builders are asked for their perceptions of current single-family home sales and their expectations for those sales over the next six months ranked as "good," "fair" or "poor."  The survey also asks them to gauge current buyer traffic as "high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted composite index, the HMI.  Scores over 50 for the HMI or any of its components indicates that more builders view conditions as good than poor.

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Mortgage Applications Rebound, Offsets Labor Day Losses

The week ended September 12 saw the losses in application volume which occurred during the previous week which was shortened by the Labor Day holiday mostly reversed.  Mortgage application volume increased in most categories by nearly the same percentages as they had fallen during the week ended September 5. 

The Mortgage Bankers Association said that its Market Composite Index, a measure of mortgage application volume increased 7.9 percent from the previous week's seasonally adjusted index which had included an adjustment for the holiday.  On an unadjusted basis the Index increased by 19 percent, offsetting the 17 percent decline the previous week.

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Housing Market Implications of Millennials Moving Out

As the U.S. economy improves and adds jobs, younger Americans-millennials-are slowly starting to move out from their parents' basements, where a record number of them have been living for the past few years. They're not buying homes as much as they are renting them, but how much and where is crucial to know in order to understand where the housing recovery is headed.

Over the past year, all the growth in net household formations has been among renters, according to the U.S. Census. For those 35 years old and younger, their home ownership rate has fallen from 44 percent to 36 percent over the past decade, which is why construction of multi-family apartments is at the highest level in a quarter-century this year.

 

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Mortgage Rates Improve Modestly Before Important Fed Announcement

Mortgage rates experienced their first genuine improvement of the month today.  The gains were nothing if not very small, but they ended an uncommonly long 11 business day streak of sideways to higher rates. 4.25% remains as the most prevalent conforming 30yr fixed rate for top tier scenarios with the day-over-day changes being limited to closing costs.

Essentially, the losing streak of the past 2 weeks was the market's way of getting into position for tomorrow's big announcement from the Fed.  Market participants have been concerned that the Fed could change their verbiage in such a way as to suggest an earlier eventual rate hike.

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