New Home Sales Dissapoint

The New Home Sales report was a bit of a dissapoint today. The market was expecting a 1.50% increase and an annual rate of 730,000 new units however the report came in lower than that. The percentage change declined -0.4% and the annual rate of new homes being built came in at 694,000 units. Not a huge dissapoint but certainly not what the market had hoped for.

The Ten Year Yield:

Anyone watchin the 10 year yield today? At one point it broke 1.60% on fears the Coronavirus would get worse and impact the global ecocomy. Mortgage experts noted that while the 10 year yield sank the Mortgage Backed Securities market finished the day unchanged.

The FNMA 3.5 coupon finished last week around 103.09 and today it finished around 103.11. Probably not the news consumers want to hear and it deffinetly puts Loan Officers in a tough spot; well at least the Loan Officers who think the 10 year yield dictates mortgage rates (it doesn’t).

What’s Next For Mortgage Rates?

I would be surprised to see any further decline in mortgage rates. I think the more likely scenario is that the market bounces from here and moves higher. Even if the Coronavirus gets worse I just don’t see Mortgage Backed Securities significantly improving in the near future. Also mortgage lenders have rates that are really low right now and business is good so they have little incentive to dramactically reduce interest rates from these current levels.

Coud we see a small move down? Sure but if you are in a position to lock in terms than don’t hesitate. The market can turn and when it does it will most likely turn quickly. Locking in a mid 3% 30 year fixed rate or a low 3% 15 year fixed doesn’t come around often so make sure you don’t lose out.

The Virus and Mortgage Rates

So is it time we all start wearing face masks when we go outside? It s seems like every news agency is reporting that the Coronavirus is spreading like wild fire and hundreds of thousands of people could be infected by the time February rolls around.

I started thinking about what are the implications for consumer mortgage rates. Is this a good thing for mortgage rates or a bad thing? If this were to spread like wild fire it could have a short term positive impact on mortgage rates. The problem is this; with mortgage rates already at multi year lows there really isn’t much room for mortgage rates to move lower.

Also most lenders very things like this as temporary and once the “crisis” is over you’ll see rates snap back quickly. It happens all the time so if you are looking to lock in something don’t get too greedy. The worse thing is to wake up one morning and see mortgage rates have moved a .25% higher because scientist believe the virus is contained.

Also most lenders offer a float down on locked rates so if you lock in and rates tank you’re protected. The lender will work with you on lowering your locked terms to bring you more in line with the market.

Long Term Is Better:

Right now longer term rates (30 year and 20 year fixed rates) are more attractive than shorter terms rates (15 year and 10 year fixed rates). It has to do with the current market environment. That being said all four of those terms are more attractive than adjustable rate mortgages right now.

In fact most 30 year fixed rates are lower than 5/1 and 7/1 ARM loans. That’s surprising to most in the industry and it will probably continue.

It's Blowing Up

Don’t look now but the budget deficit is blowing up! According to CNBC the budget deficit pushed above $1,000,000,000.00 (more dramatic if you type out the number) for the first time in seven years and it will most likely continue to move higher than that in the next few years. Our national debt continues to set record highs.

Simply put; this is bad news for consumer mortgage rates. I’m sure some of you, or maybe most of you, are saying how does the budget deficit impact mortgage rates?!?!

The Reason Why It’s Bad For Mortgage Rates:

As the US government debt expands this means the more supply of Treasury’s the US goverment will issue. The more supply means higher yields and pulls money from the Mortgage Backed Securities market. Higher yields and less money for MBS means consumer mortgage rates move higher.

How Soon Could This Push Mortgage Rates Higher?

Great question with no simple answers. It will become an issue when the market decides it is an issue. That could be next week, six months from now or six years from now. Overtime though as the government issues more debt that will help keep mortgage rates higher than they might be if the government issued less debt.

Sunday Night Mortgage Talk

I’m sure I’m the only one who finds that the least bit interesting.

So we ended last week at great levels for mortgage rates. For your A paper type loan with excellent credit, low LTV and no cash out 30 year fixed mortgage rates were below 3.625% and 15 year fixed mortgage rates were below 3.25%. Those are great levels for mortgage rates and significantly lower than where mortgage rates were at this time last year.

Quick Peek At Next Week

Friday’s Employment report was bond and consumer mortgage rate friendly so the question to ask is will we receive more bond and mortgage rate friendly news this week? Our first noteworthy report is on Tuesday, the Core CPI report. Last month the report came in at 2.3% (annual growth) and that is what the market is expecting for the December report. Also on Tuesday is the monthly CPI report and the market is expecting a 0.3% increase.

On Wednesday we have the weekly Mortgage Market Index and the Core Producer Prices index. The Mortgage Market is not something that typically moves markets but the Core Producer Prices report can.

Last month the CPP declined -0.2% and the market is expecting a 0.2% increase this time around. The annual report is expecting to show a 1.3% increase.

To finsih off the week we have the Retail Sales, Philly Fed and Import and Export Prices on Thursday. On Friday its the 1 year and 5 year Inflation Outlook. It’s going to be a busy week and a very busy Thursday and Friday.

FHA Qualification

If you are looking at applying for a new FHA home loan here is what you need to qualify for the popular loan program.

  • 620 or higher credit score
  • 3.5% down payment (or equity)
  • A Debt-To-Income under 43%

Now if you have a sub 620 credit score you still may qualify, you may even qualify if you have a DTI above 43% but you must at least provide a 3.5% down payment. There are no exceptions to the down payment guideline.

The FHA home loan program is a great way to buy that first home and it’s even good for refinancing. Make sure you work with an exprienced Loan Officer if you are considering a FHA home loan.

ISM Causes A Super Brief Push Higher

Earlier today was the ISM Non-Manufacutring PMI and it came in stronger than anticipated. The market was expecting the report to come in at 54.5 and the actual reading came in at 55.0. The higher than expected reading sparked a quick sell off that didn’t last very long. In fact ten minutes after the report bonds were generally flat.

Mortgage Rates:

Overall mortgage rates look good; especialy the 30 year and 15 year fixed rate terms. Refinance or purchase; the 30 year fixed is below 3.625% (A paper) and the 15 year fixed is below 3.125% (A paper) - and just to be clear that is not a quote :). Just general information on what the market looks like

Tomorow is the ADP Employment report and the forecast is for 160,000 jobs created. There is also the weekly Mortgage Market Index and the Consumer Credit report for November.

Iran and Consumer Mortgage Rates

So yesterday it was reported that the United States executed a drone strike against one of Iran’s top military/political figures (Qasem Soleimani) to prevent a future attack on American diplomats in the Middle East. Soleimani was killed and tensions between the United States and Iran have exploded.

The Market Reaction:

Stocks have sold off and bonds have rallied as investor fear of a prolong conflict increase. When these sort of things happen, international crisis, conflict or war, I get asked a specific question from my clients. And that question is -

How will this crisis impact mortgage rates?

It’s an excellent question without a simple answer. Earlier today I updated my site with a detailed explination on war, crisis and the impact to mortgage rates. The quick answer is there will probably be little to no movement with consumer mortgage rates. Investors in Mortgage Backed Securities view these events as temporary as do mortgage lenders. Because of that MBS rarely follow through on a signficant rally and if they do mortgage companies rarely pass along the gains to consumers.

Why?

It’s nothing personal and it’s not mortgage companies being greedy. The fact is that when the market moves lower on a short term basis and the makes a sharp reversal mortgage companies are at risk for losing money; lots of money. Especially if the Mortgage Backed Securities market moves beyond where it was prior to the event.

If this goes on for a whille; 3-4 weeks and it looks like there is no end in sight then you will probably see mortgage rate improve however that improvement might be limited.

Happy New Year

Wishing everyone the very best for 2020!

It was a great year to be in the mortgage industry and I’m looking forward to 2020. Late 2018 some were saying mortgage rates would be over 5.00% and possibly 6.00% in 2019. As we all know that didn’t happen. Once the 30 year fixed rate hit the high 4.00% - low 5.00% range in September - Ocotber 2018 the housing and mortgage industry came to a stand still. Understandably.

For so many year mortgage rates have been below 4.5% (on a 30 year fixed mortgage term) and homebuyers and homeowners were not going to move forward on an interest rate about that level.

Good Things That Happened in 2019:

This year mortgage rates moved lower, to some of the lowest levels in years, processing times improved and both Fannie Mae and Freddie Mac issued more appraisal waivers. Especially for homes that had an appraisal done in the last two years.

So What Will 2020 Bring?:

Great question! I’m hoping the Mortgage Backed Securities market remains stable. When the MBS market is stable mortgage rates are better and it’s easy to quote clients. In times of volatility it’s difficult to quote a homebuyer (or homeowner) because you don’t know if the next day that rate at those exact terms will be available. So hoping for stability in 2020!

I think we’ll see more appraisal waivers from Fannie Mae and Freddie Mac and I believe processing times will continue to improve as more lenders embrace the technology to paperless.

Thank you!:

A big thank you to all my past and current clients. With you you I would not be in business today. I cherish the opportunity to be your trusted Loan Officer and I look forward to many more years of helping homeowners achieve their dreams.

Mortgage Backed Security Surprise

That’s the title of today’s post and no it has nothing to do with getting a present from Santa. He’s real right?

Anyway what I’m talking about is the unexpected market reversal today in the Mortgage Backed Securities market. At the open things did not look good for bonds and it appeared mortgage rates might be in for a rough day; possibly week.

But then somethign happened.

The selling stopped and investors started by bonds again. Granted we’re in between Christmas and New Years which is usually marked by low trading volume and wild reversals but todays reversal was orderly almost as if it was purposeful.

Does This Mortgage Rates Are Moving Lower:

Some mortgage lenders improved their pricing in the afternoon but nothing significant. Because it’s the time between Christmas and New Years lenders will not offer much to consumers in the way of price improvements. Noticeable consumer mortgage rate improvements probably won’t happen until next week provide these gains in the Mortgage Backed Securities market hold.

What’s Up Next:

Tomorrow the markets close early for holiday but we do have an important economic report early in the morning. Consumer Confidence is the report I’m referring to and expectations are the reading will come in at 128.2 after last months reading of 125.5.

On Thursday the market reopens and we have the weekly unemployment claims report along with the weekly Mortgage Market Index. On Friday we have a very important report; the monthly ISM Manufacturing PMI report for December. This is normally a market moving report and one to keep an eye on.

Normally the BLS Employment report is on the first Friday of the month however December’s report will not come out until next week. The market is expecting 165,000 jobs created (non-farm payrollls) and an unemployment rate of 3.5%. The lesser important ADP Employment report comes out on Wednesday and the market is anticipating the report will show 150,000 jobs created.

Mortgage Loan Limits Increased In 2020

A few weeks ago both Conforming Loan Limits and FHA Loan Limits were increased. It’s welcomed news for both industry members and homeowners. The increase in limits will allow borrowers to have greater access to more home loan products and better rates. For people who own homes (or about to buy a home) in California this will be a big incentive for those that were considering loan amounts that were just above the 2019 limits but are now included in the 2020 limits.

For those that don’t know the difference:

  • Conforming Loans are associated with Fannie Mae and Freddie Mac
  • FHA Loans are typically referred to as a “government loan” since these loans are backed by the Federal goverment. FHA stands for Federal Housing Administration.

Conforming Loan Limit Increase:

Conforming loans are by far the biggest part of total mortgage volume in California and across the nation. The felxibility, low down payments and low rates make Conforming loans very attractive for most homeowners and homebuyers.

The new base loan amount limit is $510,400 and that is through out the country. So if your loan amount is at that or below you might qualify for a conforming loan. For those in “high cost” areas” that number increases to $765,600. These are for one unit properties; primary residences, secondary residences or investment properties. Two, three and four unit properties comes with higher loan limits.

FHA Loan Limit Increase:

Like Conforming Loan Limits; FHA loan limits were also increased. In 2019 the FHA loan limit was $314,827 and in 2020 it will be $331,760. In 70 high cost counties the increase goes from $726,525 to $765,600.

These higher loan limits will help increase mortgage application volume in 2020 provided mortgage rates remain stable. The most popular loan term under Conforming and FHA loan programs is the 30 year fixed rate term. A forty year term has really never been that attractive to borrower’s (nor investors). Most people who obtain a FHA loan do a 30 year fixed rate (very few do a 15 year fixed rate term).

Mortgage Rates - December 27th, 2019

Starting off the day at similar levels seen before Christmas. 30 year fixed mortgage rates are below 3.75% and 15 year fixed mortgage rates are below 3.00%. This is based on a purchase loan or a non-cash out mortgage for homebuyers and homeowners with above-average credit scores (also terms may include point and closing costs).

The application volume points to the fact that the most popular term is the 30 year fixed mortgage as the most popular fixed rate mortgage program.

It’s a slow time:

Do you know what the slowest time in the mortgage industry is? Right now! Things start to slow down early December and by the 20th application volume is minimal. Understandably most homeowners and homebuyers are focued on other things during this time (like family).

Also, mortgage lenders are short staffed between the 24th - January 2nd as some employees take a vacation. The good news is that mortgage rates are low and the market is stable post US - China trade deal.

There was a lot of concern heading into December that post trade deal agreement was going to be a very difficult time for the Mortgage Backed Securities market (MBS) and consumer mortgage rates.