Posts Tagged ‘mortgage’

A scary setback early in the week had us on the edge of our seats but home loan borrowing costs managed to recover thanks to a "flight to safety" in the bond market. This helped mortgage rates end the week near the same levels they closed at last Friday.

A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven and an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.

In the chart of Consumer Rate Quotes below, if the line is moving up, closing costs are rising.  If the line is moving lower, costs are getting cheaper. Sideways mortgage rate behavior followed by an abrupt drop followed by another spell of mostly sideways activity can be seen when looking closer at the chart . More recently however a slight uptrend is noticeable, this is the "scary setback" we referenced above. Costs have however corrected from that slight spike.   Loan pricing is not as aggressive as it was on June 3rd (best day to lock all year so far), but we're getting closer to those levels again...

The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate.  The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Some lenders may be quoting 4.50% with increased closing costs in the form of origination fees. Some lenders may also be quoting 4.375%, but those offers will definitely carry additional closing costs.  These costs could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:  This recovery rally is encouraging from a big picture perspective as it keeps the door open for our longer-term bullish mortgage rate bias to extend deeper into the summer months. Still, short-term scenarios should take caution. The past few days provide a perfect example of how quickly unfriendly corrections can occur in the mortgage market. Hopefully these back-ups illustrate why we normally urge defensive short-term stances, even as rates improve.  We may have dodged a bullet, but we're not out of the woods yet. More bouts of volatility are very possible.

CURRENT GUIDANCE:  There's a weird feeling in the air. Stocks are teetering on a major technical breakdown and bonds smell fear but are waiting for new guidance to be offered. If stocks fail to mount a recovery rally in the near future, we could be looking at another leg lower in Best Execution mortgage rates. While this "feeling" ties together well with our long-term outlook, it's still speculative in nature. We say that because the timing of such a move is "at any moment". And until it happens, stocks are gonna put up a fight. This "scratching and clawing" in equities implies the potential for loan pricing volatility remains high. Remember, it was only three days ago when Best Execution Mortgage Rates were teetering on a shift higher because stocks had put together a decent intraday rally effort. We may have dodged a bullet this week, but we're not out of the woods yet. The past few days provide a perfect example of how quickly unfriendly fluctuations can occur in the mortgage market.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process

After experiencing a scary setback earlier in the week, home loan borrowing costs improved again today as a "flight to safety" continued to benefit bond yields.

A "flight to safety" happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven and an investment return. As benchmark Treasury yields fall on "flight to safety" buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.

Loan pricing is not as aggressive as it was on June 3rd (best day to lock all year so far), but we're getting closer to those levels again.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Some lenders may be quoting 4.50% with increased closing costs in the form of origination fees. Some lenders may also be quoting 4.375%, but those offers will definitely carry additional closing costs.  These costs could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:  Today's recovery rally is encouraging from a big picture perspective as it keeps the door open for our longer-term bullish mortgage rate bias to extend deeper into the summer months. Still, short-term scenarios should take caution. The past few days provide a perfect example of how quickly unfriendly corrections can occur in the mortgage market. Hopefully these back-ups illustrate why we normally urge defensive short-term stances, even as rates improve.  We may have dodged a bullet today, but we're not out of the woods yet. More bouts of volatility are very possible.

CURRENT GUIDANCE:  There's a weird feeling in the air. Stocks are teetering on a major breakdown and bonds smell fear. If stocks fail to mount a recovery rally in the near future, we could be looking at another leg lower in Best Execution mortgage rates. While this "feeling" ties together well with our long-term outlook, it's still speculative in nature. We say that because the timing of such a move is "at any moment". And until it happens, stocks are gonna put up a fight, as proven by a modest recovery bounce today, which bonds mostly ignored. This "scratching and clawing" in equities implies the potential for further loan pricing volatility remains high. Remember, it was only two days ago when Best Execution Mortgage Rates were teetering on a shift higher because stocks put together a decent intraday rally effort. We may have dodged a bullet yesterday, but we're not out of the woods yet. The past few days provide a perfect example of how quickly unfriendly corrections can occur in the mortgage market. That makes the following guidance extra important....

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.

Home loan borrowing costs took a beating yesterday. The bond market's behavior was so unfriendly that Best Execution mortgage rates nearly shifted higher as a result. The main motivation behind this unfavorable directional display was a significant rally in stocks.  Although this market event didn't break any long-term positive trends, it was certainly scary enough to make one question the strength of those positive trends. Fortunately that skeptical stress was relieved today. Stocks erased all of yesterday's gains and the bond market recovered all its losses. Lenders repriced rate sheets for the better and home loan borrowing costs corrected. Best Execution mortgage rates didn't rise. Bullet dodged!

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is still 4.50%. Some lenders may be quoting 4.50% with increased closing costs in the form of origination fees.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:   No sooner has the wall been torn down than the big bad financial markets are trying to scare lenders into building it back up.  Certainly, anything can happen, and while it's possible that rates move right back to the higher levels seen before "The Wall" came down,  the current level of weakness is consistent with past examples of the "short-term corrections" we've warned against.  The past few days provide an example of how quickly these corrections can happen and hopefully illustrate why we normally urge defensive stances even as rates improve.  There's an exceptional amount of risk involved in banking on continuation of the longer term rally, but recent weakness in rates hasn't ruled it out.   Still, short-term scenarios beware.  It's not uncommon for these "breathers" to last a few weeks.

CURRENT GUIDANCE:  Today's recovery rally is encouraging from a big picture perspective as it keeps the door open for our longer-term bullish mortgage rate bias to extend deeper into the summer months. Still, short-term scenarios should take caution. The past few days provide a perfect example of how quickly unfriendly corrections can occur in the mortgage market. Hopefully these back-ups illustrate why we normally urge defensive short-term stances, even as rates improve.  We may have dodged a bullet today, but we're not out of the woods yet. More bouts of volatility are very possible.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.

The trend of increasing home loan borrowing costs that began last Thursday continued today. Best-Execution mortgage rates are on the verge of shifting higher as a result.

We'd still describe this current weakness as the longer term rates rally taking a "breather" after two months of strong improvements.  Perhaps it's more appropriate to say that the term "breather" still applies given the periodic pull-backs normally seen during extended rallies.  Although recent losses don't necessarily break the longer term positive trends, it's certainly enough to make one question those positive trends.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is still 4.50%, but only barely. Some lenders may be quoting 4.50% with increased closing costs in the form of origination fees.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

PREVIOUS GUIDANCE:   With  "The Wall" now torn down a path has been paved for mortgage rates to continue on the path toward more improvements. An extended rally will not come without setbacks though. Short-term corrections are possible.  That means borrowers working on a shorter lock/float timeline should remain defensive of their current quotes. While the rally has indeed stalled, we still feel that intermediate to longer-term scenarios are justified in floating.  But we caution, with the politics of money and banking taking center stage into the summer months, your main goal is to protect new, lower rate quotes from unexpected market fluctuations. Stay-tuned for further developments....

CURRENT GUIDANCE:  No sooner has the wall been torn down than the big bad financial markets are trying to scare lenders into building it back up.  Certainly, anything can happen, and while it's possible that rates move right back to the higher levels seen before "The Wall" came down,  the current level of weakness is consistent with past examples of the "short-term corrections" we've warned against.  The past few days provide an example of how quickly these corrections can happen and hopefully illustrate why we normally urge defensive stances even as rates improve.  There's an exceptional amount of risk involved in banking on continuation of the longer term rally, but recent weakness in rates hasn't ruled it out.   Still, short-term scenarios beware.  It's not uncommon for these "breathers" to last a few weeks.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might ot rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.

After finally managing to topple "The Wall", the mortgage rate rally stalled and went sideways last week.

We'd describe this pause as mortgage rates taking a "breather" in the wake of a 2-month rally. The sideways shuffle seen last week serves as a reminder of the threats faced by home loan borrowers when floating a loan on a short-term timeline. The market doesn't always act the way you'd expect it to and rallies don't last forever. Investors always end up finding a way to question positive progress, and that generally leads to an unfriendly directional reaction.

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Aggressive 4.375% quotes are still being reported but will  involve increased closing costs in the form of origination fees.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

THE WEEK AHEAD: The week ahead offers key data on second-quarter industrial production, retail sales, inflation, the housing market, consumer sentiment, and manufacturing. It also presents an opportunity to question the positive progress we've made over the past two-months. As illustrated by the sideways behavior of mortgage rates last week, bond investors are already acting nervous about the end of the Federal Reserve's "Quantitative Easing" program (just a few weeks away now). Adding anxious sentiment is the potential for the U.S. to briefly default on its debt if Congress fails to raise the debt ceiling. From that perspective we feel it's going to take another round of poor economic data this week to confirm our longer-term bullish mortgage rates bias.

GUIDANCE:   With  "The Wall" now torn down a path has been paved for mortgage rates to continue on the path toward more improvements. An extended rally will not come without setbacks though. Short-term corrections are possible.  That means borrowers working on a shorter lock/float timeline should remain defensive of their current quotes. While the rally has indeed stalled, we still feel that intermediate to longer-term scenarios are justified in floating.  But we caution, with the politics of money and banking taking center stage into the summer months, your main goal is to protect new, lower rate quotes from unexpected market fluctuations. Stay-tuned for further developments....

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might ot rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

----------------------------

"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.

Federal Deposit Insurance Corporation Chair Sheila Bair recently took issue with the "Qualified Residential Mortgage" rule in a wide ranging interview conducted by New York Times editor Andrew Ross Sorkin at the Council on Foreign Relations seminar last Thursday. This was surprising feedback from Bair, a Bush appointee whose term of office ends on July 8, as she has been one of the stronger voices pushing back against anti-regulation forces. 

The Dodd-Frank financial reform act requires the originator of a residential mortgage to retain at least a 5 percent interest in that mortgage when selling it into the secondary market, a provision commonly referred to as "skin in the game."  Loans backed by FHA, VA, USDA, Fannie Mae and Freddie Mac will however be exempt from risk retention regs. For non-agency loans to meet the QRM definition and avoid being subject to risk retention regs, they must have down payments of 20% or more and a DTI of 28%/36% or less.  MORE DETAILS

Bair said that requiring securitizers to keep a 5 percent slice of loan packages "can do a lot to tame underwriting standards in a way that we regulators don't have to get into micromanaging what the standards are." However, the industry pushed the QRM exception into the bill so regulators now must define the new gold standard in mortgages "and these are just such great standards...we're just so sure against default that nobody would really need to retain any risk."  Now there is a huge push back, she said, because people think that this is going to become the new normal, "and I think people are right to the extent that it is going to create two-tiered pricing for securitized loans."

"So the risk retention loans will probably be some incrementally higher.  It's more like 10 or 15 basis points, not some of the other numbers that people are throwing around.  If we could just get rid of it it'd be fine with me, just making sure everybody keeps 5 percent, I would love that; that statute has this direction."

It is unclear whether Bair's comments reflect a growing opinion among regulators to forego QRM definitions and simply apply the 5 percent rule to all securitized loans including those backed by government agencies,  but we do know there has been a push-back from consumer advocates and politicians on the issue: FULL STORY

Bair commented on a number of other FDIC-related issues concerning  the economic downturn as well as the recovery.  Besides risk retention regulations, here are a few of the areas she touched upon in the discussion with Sorkin and the audience Q&A that followed.

Housing

"I think it's up to Congress to decide how much they want government involved in mortgage finance. I do think there's a difference between subsidizing mortgage finance and supporting home ownership.  And so I think they need to look at policies that actually promote home ownership; not a lot of leverage with people who own houses."

She suggested an FDIC model for supporting secondary mortgage finance; a government-run agency that charges premiums for this and prefunds a reserve to take losses if the loans go bad rather than a hybrid model of a private-sector entity with a government backstop.  "If I was going to continue a U.S. government presence, I would continue it (in housing for low and moderate income people) before I would continue it anyplace."

The foreclosure process, she said, is becoming dysfunctional.  There is an overhang of delinquencies and inventory and increasing litigation that will also be slowing things down.  Early on, she said, she had suggested a two part process; for retroactive problems there would be a bank-funded pool to provide a nominal settlement to waive claims and a process for those who were wrongfully foreclosed and going forward a streamlined modification that would write down loans below appraised value, give homeowners a year to perform before refinancing them with a bit of equity or they would agree to turn in their keys.  Something dramatic must be done rather than the current incremental fixes. Instead, she said, she sees modifications becoming more and more complicated.

She is quite angry with the servicers. "We saw this coming for years. We talked about ramping up their staff, putting assistance in place for workout, but it wasn't done. Now we have poor quality servicing plus litigation and issues around poor documentation.

Elizabeth Warren

While Bair didn't exactly throw Elizabeth Warren, the person designated to establish the new Consumer Financial Protection Bureau, under the bus, she didn't provide much support for her appointment as permanent CFPB Director.  It is critical there be a presidentially appointed and Senate-confirmed head, Bair said she hopes that the administration and the Senate "come together and for this and other jobs "find quality people to serve."

Sorkin quoted William Cohen's suggestion that it was Warren's duty as a citizen of this country to get out of the way; that there was no way to move the agency forward with her in the mix.   Bair responded, "Elizabeth is a very talented person who had a wonderful career prior to this and there's a lot of wonderful things she can do, and there are -- you know, there's a good reservoir of candidates out there, but I think it's important for the president to make a decision on this and to move forward and engage the Senate and hopefully in a way that can move these nominees to confirmation, because at this point it's looking like they're all going to get bogged down and I think that's a very difficult situation for the country right now."

Accountability

Asked about the need for accountability for what happened in the financial industry prior to the collapse, Bair said, "We obviously can't put people in jail. We are certainly being very vigorous in suing directors and officers who we feel did not exercise the appropriate duty of care in running their banks; try to recoup some of the losses we suffered as part of the failed banks."  "Instead of just going after the (D&O) insurance proceeds; I think you need to have some pain be felt by people.  So I think you can -- you know, can have financial pain without sending somebody to jail, and maybe it's appropriate that some people should go to jail too."

I think at the origination level I think there was a lot of fraud going on, and I think the question is how much of it begs -- are there larger financial institutions funding this stuff, did they know about it and it was just a matter of looking the other way, not having appropriate controls or did they actually know about that."

Banking Regulation

Early in the discussion, Sorkin asked Bair about CitiBank CEO Jamie Dimon's recent remark that most of the bad actors and the exotic derivatives are gone; standards are higher, banks have more liquidity and capital, boards and regulators are tougher and more regulations are coming. The cumulative effects of regulation are the reason banks aren't lending and unemployment hasn't gotten better.

Bair responded that we need to be careful to ensure that regulations are efficient, understandable, and present the desired outcomes "But on basic things, obvious things like higher capital standards, I say full speed ahead and the higher the better."

A lot of research, she said, challenges that notion that higher capital requirements have much impact on lending.  "Lending is really just another way of funding your balance sheet, and it's more expensive than debt. But it can influence losses in a crisis. And then you have financial institutions, especially large ones, that are too highly leveraged. If you get into a crisis, they don't have that loss absorption capability, so they have to quickly reduce their balance sheet to maintain solvency, and that's what we saw during the crisis."

Now there is better regulation, higher capital standards, rules that prevent regulatory arbitrage.  There will always be cycles, she said, but we can help ensure these are normal cycles not economic cataclysm.

Too Big to Fail

Sorkin asked if regulations to prevent too big to fail will work or will create risk, and lead to political favor trading.

Bair said she did worry about the government's will to use the new tools, but not about favoritism.  FDIC has always had resolution authority for member banks and has tools to resolve banks and get the assets back into the private sector quickly; rules that don't allow favoritism.  Under Title II of Dodd-Frank that resolution authority now applies outside of insured banks

She said that large complex entities, especially those with multinational operations, will be difficult but not impossible to resolve. Banks are fundamentally too big if they cannot demonstrate that they can be resolved, than they are too big and need to be downsized now.  Unless those large banks think that FDIC and the Fed is serious about using that authority, we won't get credible resolution plans; we'll get "nice paper exercises to sit on the coffee table somewhere".

Bair said the FDIC could have easily resolved Lehman Brothers under the new rules.  There were ready buyers who had done due diligence, there was a lot of time for planning.  It might not, she said, have even gotten to resolution - the FDIC's authority provides strong incentives for bank management and bank boards to right their own ship. 

After tearing down "The Wall" last Friday, the mortgage rate rally stalled and went sideways this week.

We'd describe this pause as mortgage rates taking a "breather" in the wake of a 2-month rally.  If you're looking for a deeper explanation, read THIS POST on "auction concessions". The sideways shuffle seen over the past five days serves as a reminder of the threats faced by home loan borrowers when floating a loan on a short-term timeline. The market doesn't always act the way you'd expect it to and rallies don't last forever, investors always end up finding a way to question positive progress, and that generally leads to an unfriendly directional reaction.

Sideways mortgage rate behavior followed by an abrupt drop followed by another spell of mostly sideways movement is apparent in the updated chart of Consumer Rate Quotes below. If the line is moving up, origination costs are rising.  If the line is moving lower, costs are getting cheaper. The rapid decline in costs which occurred last Wednesday was the second stage of "The Wall" coming down. Last Friday "The Wall" completely crumbled. And then Consumer Rate Quotes barely budged this week. Still, mortgage rates haven't been this aggressive since November....

The chart above compares the average origination costs (as a percentage of loan amount) for several available mortgage note rates as quoted by the five major lenders. Each line represents a different 30 year fixed mortgage note rate.  The numbers on the right vertical axis are the origination closing costs, as a percentage of your loan amount, that a borrower would be required to pay in order to close on that note rate. If the note rate graph line is below the 0.00% marker, the consumer may potentially receive closing cost help from their lender in the form of a lender credits. If the note rate line is above the 0.00% marker, the consumer should expect to pay additional points at the closing table to cover permanent buydown costs and origination fees. PLEASE SEE OUR MORTGAGE RATE DISCLAIMER BELOW

CURRENT MARKET: The "Best Execution" conventional 30-year fixed mortgage rate is 4.50%. Aggressive 4.375% quotes are still being reported but will  involve increased closing costs in the form of origination fees.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed "Best Execution"  is 4.25%.  15 year fixed conventional loans are best priced at 3.75%. Five year ARMs are best priced at 3.125% but the ARM market is more stratified and there is more variation in what will be "Best-Execution" depending on your individual scenario. 

GUIDANCE:   With  "The Wall" now torn down a path has been paved for mortgage rates to continue on the path toward more improvements. An extended rally will not come without setbacks though. Short-term corrections are to be expected along the way.  That means borrowers working on a shorter lock/float timeline should remain defensive. That point was proven this week. Your main goal is to protect new, lower rate quotes from short-term market fluctuations.  The overall bullish trend is still very much in tact though.  Intermediate to longer-term scenarios are more than justified in floating.

What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might ot rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

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"Best Execution" is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the points you paid at closing (discount) vs. the monthly savings of permanently buying down your mortgage rate by 0.125%.  When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask you originator to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.

Important Mortgage Rate Disclaimer: The "Best Execution" loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive. "No point" loan doesn't mean "no cost" loan. The best 30 year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process.