From the perspective of those of us who watch mortgage interest rates on a daily basis, it is fascinating to follow the trends and events that governments, financial institutions and individuals track as they trade in the bond markets. The results of these investments, in turn, shape the direction of interest rates that consumers receive when they seek to get a home loan. In 2015, we have certainly had no shortage of both news and events. Up until this summer, most eyes were squarely focused on the Federal Reserve and the statement that they released on June 17. Would the Fed signal a timeline for interest rate hikes? Would they change their language and lead the markets to think that the present “zero interest rate policy” could last beyond this year? All of this was essentially addressed in a way that reinforced the status quo. That is, most bets for the timing of a rate increase remained intact and the Fed’s take on employment and inflation, the two fundamentals used to drive their monetary policy, were entirely in line with what the market expected.
And then came Greece.
In early July, and in a manifestation of something that had long been in the works, Greece missed its payment of $1.7 billion to the International Monetary Fund. Essentially, Greece has been borrowing to pay its bills, and those lending the money are now in the difficult position of determining what to do with a nation that may be facing the very real prospect of not being able generate the revenue necessary to service its debt. Along with this dilemma, the notion of a Greek exit from the Euro, cleverly dubbed the “Grexit,” would undoubtedly send ripple effects of an unprecedented nature through the European economies. The net result of Greece’s actions and inactions were to cause a “flight to quality.” That is, investors and governments from around the globe retreated to the US bond markets, where returns are lower, but safer. This reminded the mortgage markets that while all eyes had been on the Fed, and rates that had been climbing to 9-month highs, a new drama of Greek proportions was unfolding — one that could potentially send rates lower in the near term and possibly even foil the Fed’s intent to gradually lift its foot off of the brakes and begin to return rates in the US to more historically normal levels.
As we see it, the Federal Reserve’s already complicated task is made increasingly intricate by the situation in Greece. Already, Managing Director of the International Monetary Fund, Christine Lagarde, has suggested that the Fed not raise rates until at least 2016. There are other international voices that contend that developing countries who have borrowed heavily in US dollars to fuel their growth (and in turn became consumers of US and European goods and services) may have increased difficulty repaying if interest rates rise in the near term and before many world economies have attained greater momentum.
All of the above reinforces what we, in the mortgage industry, already know. Rates remain very good, yet they will always be subject to change. Sure, there are a lot of market forces that have the potential to bring rates down, but for the time being, we must accept the potential for rates to move lower is tempered heavily by the risks that they could move higher — either gradually, as the Fed would prefer to see it, or suddenly, as an international event might prompt without warning.
As home buyers and as homeowners in the United States, the second half of 2015 may prove to be a pivotal time for financing options. If you are looking to purchase or refinance, it simply cannot hurt to get a perspective on what is available right now. In other words, we have our own unique flight to quality, and today’s rates represent that opportunity. Call us today for more information.
RPM-Pearl of Wisdom
What is the difference between Recurring and Non-Recurring closing costs?
When a potential buyer looks at their estimated closing statement they may be taken aback by the final funds due at close thinking that they only have to come in with the 10 or 20% their putting down plus whatever the lender fees may be. This is not the case.. They will be required to come in with both “Recurring” and Non-Recurring” closing costs in addition to any funds being used for a down payment. It is important to understand what the difference between these two items.
What are “Recurring” closing costs?
While these costs are collected at closing and called “closing costs,” they are NOT “fees.” These costs will continue or be repeated after the escrow closes as a cost of maintaining the property, encumbrances on the property such as real estate mortgage interest, or taxes.
Examples of Recurring Closing costs are:
- ◦ Basic Home Owners Insurance Premium
- ◦ Additional Home owners Premiums for Fire/Flood/Earthquake Insurance
- ◦ Homeowner’s Association Dues
- ◦ Real Property Taxes
- ◦ Interest on the New Loan
What are “Non-Recurring” closing costs?
Non- Recurring closing costs are charged ONE TIME ONLY as an expense of closing the transaction most often referred to as “fees.” These items do not recur and are specific to this single transaction. These too must be collected at close along with any recurring closing costs and down payment.
Examples of Non-Recurring Closing costs are:
Title Company Expenses such as:
- ◦ Title Insurance Premiums
- ◦ Recording Fees
- ◦ Endorsements to Title Policies
- ◦ Sub-Escrow Fee which may be due Title Company
- ◦ Reconveyance Fees
- ◦ Documentary Transfer Tax
- ◦ Escrow Fees
- ◦ Notary Fees
- ◦ Messenger Fees
In the case of a refinance:
- ◦ Fees Associated With Making an Existing Loan Payoff
- ◦ Transfer or Document Fees to a Homeowner’s Association
Lender’s Costs such as:
- ◦ Appraisal
- ◦ Credit Report
- ◦ Loan Origination
- ◦ Loan Processing
- ◦ Document Fees
- ◦ Tax Service Contract
In the case of a sale:
- ◦ Real Estate Broker Commissions
- ◦ Fees for Property Disclosures or City Reports
- ◦ Transaction Coordinator Fee
- ◦ Home Warranty Premium
This week’s noteworthy news:
GDP Revised Up to 3.9% Growth in 3Q; Gains in Past Two Quarters Best Six-Month Stretch Since Late 2003. Personal consumption expenditures were recast up to a 2.2% gain from a 1.8% initial estimate. Spending on residential building and improvements advanced at a 2.7% pace in the third quarter, also stronger than first estimated.
S&P/Case-Shiller index of property values increased 4.9% from September 2013, the smallest gain since October 2012, after rising 5.6% in the year ended in August. All 20 cities in the index showed a year-over-year gain, led by a 10.3% rise in Miami and a 9.1% increase in Las Vegas. Cleveland showed the smallest year-over-year increase, with prices rising 0.8%. The year-over-year gauge, based on records dating back to 2001, is a better indicator of trends in prices than the month-to-month data, the group has said. “With the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better,” said David Blitzer, chairman of the S&P index committee.
FHFA Index Shows Mortgage Interest Rates Increase in October. The National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders index was 4.11% for loans closed in late October, up 5bp from 4.06% in September. The average interest rate on all mortgage loans was 4.11%, up 4bps from 4.07 in September. The average interest rate on conventional, 30-year, fixed-rate mortgages of $417,000 or less was 4.31%, a decrease from 4.33 in September. The effective interest rate on all mortgage loans was 4.27% in October, up 5bp from 4.22% in September. The average loan amount for all loans was $285,000 in October, up $4,000 from $281,000 in September.
FHFA House Price Index Rises for 13th Consecutive Quarter. Latest Monthly House Price Index Shows Sign of Possible Slowing. Home prices rose 0.9% in the third quarter of 2014. The HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Compared with last year, house prices rose 4.5% from the third quarter of 2013 to the third quarter of 2014. “Easing interest rates and modestly improving labor market conditions helped to drive up prices in the third quarter,” said FHFA Principal Economist Andrew Leventis. “The price increases were relatively small in most areas, however, and are consistent with the type of market deceleration that other housing market statistics have shown in recent periods.”
The Conference Board Consumer Confidence Index Declines, with the Index now at 88.7 in November, down from 94.1 in October. The Present Situation Index declined from 94.4 to 91.3, while the Expectations Index decreased sharply to 87.0 from 93.8 in October. The Director of Economic Indicators at The Conference Board said: “Consumer confidence retreated in November, primarily due to reduced optimism in the short-term outlook. Consumers were somewhat less positive about current business conditions and the present state of the job market; moreover, their optimism in the short-term outlook in both areas has waned. However, income expectations were virtually unchanged and gas prices remain low, which should help boost holiday sales.”
Treasuries Seen Attractive as Yield Near 2-Month High Versus G-7. The 10yr UST is up 3/32 in price to yield 2.29% as of 11AM, and FNMA 3.0% are up 1/32, 3.5% up 1/32, and 4.0% are down 1/32. The US will auction $35 billion of 5yr UST securities and $13 billion of two-year floating-rate debt today.
this week there is much to discuss as the markets are abuzz with the news of the recent drop in mortgage rates. At present we are seeing the Jumbo(loan amount over 625,500.00) 30 year fixed loan coming in at 4.125% which is on par with rate conforming (less than 417k) loans are yielding. We also learned that investors lending on FHA owns are loosening up guidelines and many of them are excepting 620 as the minimum qualifying credit score which used to be 640. This is an example of further loosening of stringent underwriting guidelines. Following the FED’s meeting yesterday markets rallied but couldn’t home on to their gains. The FED is not said to move interest rates until mid 2015.
This week’s noteworthy news:
Job Openings in U.S. Increase to Highest Level in 13 Years.
With numbers up from July, and the highest level since January 2001, there were 4.8 million job openings on the last business day of August. The hires rate (3.3%) was down and the separations rate (3.2%) was little changed in August.
Treasury 3-Year Notes Advance Before U.S. Sells $27 Billion.
The 10 year UST is now up 12/32 in price to yield 2.37% as of 12:15 PM, and FNMA 3.0% are up 7+/32, 3.5% +7/32, and 4.0% +4+/32.
Homebuilders Offer Freebies as Booming U.S. Markets Cool.
New-home sales have been uneven nationwide, dropping in June before rising in July and August. The federal government is reducing its share of the mortgage market to lure back private capital, and cut FHA loan sizes in 652 high-cost U.S. counties in January. “We were having a nice robust recovery and then that happened,” said Buddy Satterfield, president of the Arizona division for Shea Homes.
What Will Regulators Target Next.
At a mortgage conference last week, top enforcement officials from the Department of Justice, Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency said they have ramped up investigations of the mortgage space. Steven Rosenbaum, Chief of Housing and Civil Enforcement in the DOJ’s Civil Rights Division said, “We do not regulate you. We do not supervise you. We do sue you”. In addition, several attendees said they expected the agencies to focus on fair lending scrutiny of their portfolios, but were still struck by certain regulators’ sometimes aggressive tone.
MBS Day Ahead: Still Slow From a Calendar Standpoint; Still Waiting on Techs and Stocks.
After an exceptionally busy week last week and with very little on the calendar of scheduled events, this is an understandably slow week for bond markets. As far as market movers are concerned, all we have on the schedule are the Treasury auctions, starting with today’s 3yr, and Wednesday’s FOMC Minutes.
Jobs and housing, housing and jobs what comes first the chicken or the egg? Most industry professionals and economists alike will tell you that jobs come first. Solid income within a demographic boosts consumer confidence and household formation occurs hence consumers spend money on homes. When a home is purchased more jobs are created for those involved whether in the real estate, construction or ancillary industries. The good news is that this week we learned that jobless claims have fallen to an 8 year low to 284,000 which means that employment in the U.S. is on the rise.
Why then in the same breath of news have we learned that there were fewer new home sales in the U.S. in June than in may showing “possible”(according to the media) signs of a struggling housing recovery? First one must understand that the U.S. housing numbers are for just that, the entire U.S. as a whole, and while sales in Los Angeles county were also down last month median home prices were still up 1.8% overall from May and up 11.6% since June 2013 . The drop in New home sales in Los Angeles sales could be from any number of things such as a lack of new home inventory or lack of speculator interest. The general sentiment is that speculators(real estate investors/individuals who purchase property for a short period of time in order to turn a profit) have begun to focus elsewhere and markets are beginning to normalize. As this happens homes prices should find a comfortable place to rest closer to the median price trend line going forward. Remember, the median price trend line can only “truly” adjust upwards once wages have increased…there’s the chicken again…or was the egg?…
****It is also important to consider the source when reading your news… that while New home sales(This measure comprised of new sales contracts, not closings and is established by builders and loosely routed in future inventory. It is NOT a hard fact supported with hard data supplied by the National Association of Realtors) were slightly down. The National Association of Realtors (NAR) reported a 2.6 percent month-over-month rise in existing-home sales(actual contract closings proven with facts on actual closings) last month to a seasonally adjusted annual rate of 5.04 million. May sales were revised slightly upward to a rate of 4.91 million.**** to read more on the difference between Existing home Sales and New home sales, please click here: http://www.zillow.com/wikipages/Existing-Home-Sales-Report-vs-the-New-Home-Sales/ *****
This week’s noteworthy news:
Standards are Tighter, Sure. But is It Really That Hard to Get A Mortgage? It has become a common refrain: “It’s too hard to get a mortgage.” But is it true?
New Homes Sales fall 8.1% in June to 406,000, falling in every region of the country, led by a 20% decline in the Northeast. The dropoffs elsewhere were 1.9% in the West, 8.2% in the Midwest and 9.5% in the South. Despite recent signs of a pickup in the housing market after a rough winter, the pace of its recovery has not quickened as much as economists expected.
Jobless Claims Unexpectedly Drop to Eight-Year Low, Falling by 19,000 to 284,000 in the week ended July 19. The four-week average of jobless claims, considered a less volatile measure than the weekly figure, decreased to 302,000, the lowest since May 2007, from 309,250 in the prior week. Continuing claims declined by 8,000 to 2.5 million in the week ended July 12, the fewest since June 2007. The unemployment rate among people eligible for benefits held at 1.9 %.
Ginnie Mae Set To Launch Electronic Issuer Application Process — Government Corporation Brings Transparency to the Application System “We want to do everything that we can to ensure that our process is smooth, efficient and responsive for all parties,” said Ginnie Mae President Ted Tozer. “This includes creating a more efficient application process, becoming more responsive to applicant concerns and helping prospective Issuers clearly understand our issuer eligibility criteria and what it means to become a participant in our program.” “This new process, which will also allow applicants to check their application status online, will make the process more transparent,” Ted Tozer said. Beginning September 1, 2014, applicants will be required to file applications for Ginnie Mae Issuer approval electronically via Ginnie Mae’s new Application Connection.
MBA Fly-In Urges Uniform SAFE Act Loan Originator Requirements. More than a dozen MBA members, including members of the Task Force, visited with the Consumer Financial Protection Bureau, the Conference of State Bank Supervisors and members of Congress to urge changes to the Secure and Fair Enforcement of Licensing Act and other regulations that would provide uniform testing standards for all mortgage loan officers.
IMF Cuts U.S. 2014 Growth Forecast to 1.7% The International Monetary Fund revised its growth outlook for the U.S. economy for the second time in two months after a first-quarter contraction turned out to be worse than the fund originally forecast.
What’s happening in the markets:
For starters this week we have old reliable, The FED, continuing their purchase of mortgage backed securities at a rate of about $2 billion a day.
Initial Jobless Claims shocked markets and came in lower than expected and New Home Sales, expected to be low at 5% came in lower at 8%. For numbers the 10 tear treasury closed on Friday at 2.46% and on todays news has closed up at 2.51% on the yield with mortgage prices slightly worse than Friday’s close.
As always thank you for your continued support through the consistent referral of you new and existing clientele for refinance, purchase loan prequalification and cross qualification of buyers submitting offers on your listings.
I look forward to supporting each of your businesses this coming week!
Your trusted mortgage professional,