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MBS RECAP: Stocks Lose, Rates Recover on Tax Bill Fears

December 13,2017
by admin

Bonds began the day in weaker territory partly due to a correction from yesterday’s strong run in the afternoon, and partly due to stronger economic data in Europe. Domestic economic data was stronger too, with Retail Sales coming in at 0.8 versus a median forecast of 0.3. The previous reading was also revised up to 0.5 from 0.2.

In the past, bonds might have cared more about that sort of data, but at present, there are bigger fish to fry. After yesterday’s scheduled detour for inflation and the Fed (2 things that were expected to move markets despite NOT being “the tax bill”), it was back to focusing on the tax bill today.

Senators Lee and Rubio threatened to vote “no” on the tax bill unless certain changes were made regarding child tax credit refunds. The release of that news marked an obvious shift in the tone of trading for stocks, and–to a lesser extent–bond yields. Both moved lower together heading into the afternoon. Stocks ended up closing much lower on the day whereas bonds were merely able to get back in line with yesterday’s stronger levels.

Mortgage Rates Hold On to Lower Levels After Tax Bill Doubts

December 13,2017
by admin

Mortgage ratesheld on to yesterday’s gains in most cases. Some lenders were even in slightly better shape today, but not enough to have an effect on anything beyond the upfront costs associated with any given rate quote. Rates themselves would be right in line with yesterday’s.

That’s not a bad thing considering yesterday afternoon brought effective rates near their lowest levels of the month. In this case, lower “effective rates” refer to lower upfront closing costs (or higher lender credits) for the prevailing top tier conventional 30yr fixed rates of 4.0%.

Bond markets (which underlie interest rate movement) continued to pay more attention to policy developments than the economic data that traditionally has an impact. In today’s case, it was news that a few Republican senators may not vote for the tax bill unless certain changes are made. That resulted in stocks and bond yields both moving lower in the afternoon. Lower bond yields coincide with lower mortgage rates. As a result, many lenders were able to release positive rate sheet revisions this afternoon.


Loan Originator Perspective

Bond markets recouped opening losses by mid-day today, as details on tax reform continued to dominate news. It feels like reform (in some version) will pass, hopefully markets have had ample time to price in any inflationary effects. I still don’t see a massive upside to floating here, feels like a bet on unlikely propositions (tax reform failure/massive international discord/sudden DC drama). I’m locking loans within 30 days of closing -Ted Rood, Senior Originator


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.0%
  • FHA/VA – 3.75%
  • 15 YEAR FIXED – 3.375%
  • 5 YEAR ARMS – 2.75 – 3.25% depending on the lender



Ongoing Lock/Float Considerations

  • 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016.

  • While rates remain low in absolute terms, they’ve moved higher in a more threatening way heading into the 4th quarter, relative to the stability and improvement seen earlier in 2017

  • The default stance for now is that this trend toward higher rates has the potential to continue. It will take more than a few great days here and there for that outlook to change.

  • For weeks, this bullet point had warned about recent stability inviting a bigger dose of volatility. That volatility is now here. As such, locking is generally the better choice until the volatility is clearly dying down.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

Automated Appraisals Don’t Paint the Whole Picture

December 13,2017
by admin

The use of Automated Valuation Models (AVM) is expected to expand following the announced plans of the Fannie Mae and Freddie Mac to waive the requirement for a professional appraisal on qualified purchase loans where the loan-to-value (LTV) ratio is at or below 80 percent. Fannie Mae had previously allowed this waiver only for refinancing, while Freddie will now allow automated evaluation tools for both purchase and refinancing loans when working with its Loan Advisor Suite.

CoreLogic’s Principal Economists Yanling Mayer, writing in the company’s Insights Blog, says these changes come as the industry is hearing of shortages of certified and licensed appraisers, especially in rural areas. But there is still controversy. The Appraisal Institute has raised safety and soundness concerns over eliminating the appraisal requirement and is seeking a legislative rollback and federal banking regulations for real estate transactions generally treat automated appraisal methods as a due diligence tool rather than as the primary valuation.

Mayer says, from the perspective of economics, a clash between proponents of the two methods seems inevitable, “as advanced analytics and big data technology have expanded collateral evaluation capabilities. These alternatives today are often powered by large databases that can capture information on a given property as well as transaction records in and around the property in consideration.

While not attempting any conclusions about the accuracy of the valuations, CoreLogic looked at the impact of automated evaluation on the LTV ratios of purchase loans. These ratios are determined by the lower of contract purchase price or the appraised value.

Traditional appraisals rarely come in below the contracted price, she puts the incidence at about 10 percent of loan applications and a Fannie Mae study put it at less than 4 percent of funded loans. Consequently, LTV is typically unaffected by the appraisal.

Quite the opposite is the case with AVMs. CoreLogic analyzed a 190,000-unit sample of single family homes financed between July 2016 and June 2017 with a traditional appraisal but for which a CoreLogic AVM value was also available. The date of the AVM was not identical to that of the appraisal, but did not vary by more than 3.5 months.

Figure 1 shows 31.6 percent of the appraisal values were exactly at the contract price while 58.6 percent were slightly higher. This left only 10 percent of the properties appraised below the proposed purchase price. Thus, for the majority of the homes, the purchase price effectively determined the origination LTV.

In Figure 2, the AVM values are also shown relative to the purchase price. Those values were lower in 54.6 percent of the cases and higher only 45.4 percent of the time. The AVM were more symmetrically distributed around the purchase price, but with “thicker tails” (larger percentages as outliers from the contract price, especially on the low end), and thus greater uncertainty in the valuation. For the five out of nine properties with an AVM value below the purchase price, the LTV ratios for these loans would be higher had the AVM valuations been used instead of a traditional appraisal.

Mayer concludes that since an AVM has odds of 55 to 45 of coming in lower than the purchase price, while the odds of this happening for a traditional appraisal is 10 to 90. Therefore, increased AVM usage will increase the underwriting LTV on a greater number of loans. The “fatter tail” of the distribution below the contract price also means that upward adjustment will more often be larger than for a traditional appraisal.

May says that while the debate will probably go on about the relative accuracy of the two valuation methods as well as their usefulness in predicting default risk and loan performance, everyone has to agree that reliable information is needed about collateral risk in both loans and portfolios in order to make informed underwriting and investment decisions.

MBS Day Ahead: Big Directional Moves All About Keeping Things SIdeways

December 13,2017
by admin

Volume swelled during the first 3 days of the week, culminating in yesterday’s CPI/Fed combo and a fairly large move lower in rates. That’s what we can observe about the short-term.

If we’re looking at longer-term trends, however, yesterday’s big directional move was all about keeping things sideways. The yields seen just before the CPI data were right in line with the highest since late October. The upper boundary of the consolidation trend was clearly being pushed and the rally that followed the data and the Fed clearly pushed back.

2017-12-14 open

As the chart suggests, this makes the sideways momentum even stronger. At this point it’s bordering on uncanny. If something other than “time” or the tax bill will challenge this sideways range, it has yet to present itself.

Today brings Retail Sales as the only top tier economic data. Given the current aloofness regarding econ data, it’s not likely that this report alone can engender enough momentum to challenge either side of the trend. There’s also the ECB (European Central Bank) press conference beginning shortly. Sometimes these will contain market moving clues, but just as often they run the risk of putting traders back to sleep.

Tax News; State-Level Changes; Jumbo/Non-Conforming Updates; Dot Plot Primer

December 13,2017
by admin

There‚Äôs a lot of airport travel coming up. It is best to stay cool, calm, and collected. Unfortunately, something else that is cool, and calm, is the entry level market for homes. Thousands of housing stats are spit out every year, and here’s another one: Zillow finds about 270,000 fewer homes are sold each year compared to 2006, owing to the rentals. Put another way, the number of single-family homes that are rented out grew by 5 million between 2006 and early 2017. (For perspective, Michigan has 4.6 million units total.)

Jumbo, Non-conforming, and High Balance Updates

Plaza has a Solutions Program that offers a solution for your borrowers with DTI > 43%, self-employed borrowers with difficult income to document, or for transactions that do not fit standard Agency or Jumbo guidelines.

Sellers are reminded that to be eligible for purchase by AmeriHome, loans in the Core Jumbo program must be locked on or before the Note date.

Ditech is increasing the 2018 conforming loan limits in alignment to Federal Housing Financing Agency (FHFA) Fannie Mae and Freddie Mac. Due to the change in the eligibility on loan limits, it will be removing the 1.000 LLPA for conforming high balance and super conforming 1-unit products effective Monday, December 4, 2017.

Mountain West Financial is now offering HomeReady High Balance programs. This includes High Balance 30-year, 20-year, 15-year, 10-year, 10/1 ARM, 7/1 ARM and 5/1 ARM. The product matrices and pricing engine are updated with these changes.


Taxes?

Remember a while back when Treasury Secretary Mnuchin, in his prepared statement before the House Financial Services Committee, said that housing finance reform remains a priority for the Administration saying the current system is not sustainable and leaves taxpayers at risk? He added that the issue is being studied with conversations between public and private stakeholders “in advance of providing recommendations.” How’s that working out?

The latest news has the tax bill expand a proposed $10,000 cap for state and local property tax deductions to include income tax. It was also expected to limit the mortgage interest deduction (MID) to home loans of no more than $750,000. That agreement would allow taxpayers to choose a property tax deduction along with either an income or sales tax deduction, with a $10,000 limit. The issue has been a major snag throughout the tax fight, with Republican lawmakers from the Northeast clamoring for the property tax deduction and those from California insisting on the income tax write-off. Republican leaders originally wanted to abolish the entire state and local tax deduction.

Mountain West Financial spread the word that due to the Proposed Federal Tax Reform, there is uncertainty of the future of the Mortgage Credit Certificate (“MCC”) programs which provide benefits to first-time homebuyers by increasing affordability through a federal tax credit. Unfortunately, the current version of the House Bill includes elimination of the MCC program, and currently reflects an effective date of December 31, 2017. As the legislative process moves forward, it is unclear what the ultimate impact the tax reform efforts will have on MCCs. Given these uncertainties, both TDHCA and CalHFA have already issued their direction to lenders and we suspect other MCC offering agencies may as well.

Wells Fargo Funding expanded its documentation requirements as of December 5th for self-employed borrowers on conventional Conforming Prior Approval Loans to require only the first two pages and the applicable self-employment schedule(s) of the borrower’s most recent individual tax return, instead of the borrower’s entire tax return.

Royal Pacific Funding will no longer require W2 transcripts when all qualifying income is made up exclusively of wage earner (W2) income.


State News

Effective November 6, 2017, the state of Maryland has amended regulation .08 under COMAR 09.03.12, Foreclosure Procedures for Residential Property. The amendment provides a model form to be used to expedite foreclosure proceedings for vacant and abandoned properties. The purpose of the form is to notify borrowers of their right to contest a finding that a property is vacant.

Texas approved a proposed constitutional amendment that includes, but is not limited to, establishing a lower amount for expenses to borrowers and removing certain financing expense limitations for a Home Equity Loan (HEL), authorizing certain lenders to make HELs; changing certain options for the refinancing of HELs; amending the threshold for advances on an HEL; and expanding HELs to loans on agricultural homestead properties. These changes in Senate Joint Resolution 60 are effective on January 1, 2018.


Capital Markets

Blame a weak core Consumer Price Index number before the Fed even announced its decision, but the 10-year note yield fell to 2.35% and agency MBS prices rallied Wednesday. Yes, the Fed decided to increase the fed funds rate range to 1.25 – 1.50 percent. The FOMC stated that economic activity has been rising in the fourth quarter and that core inflation remained below their 2 percent threshold. Its economic projections now estimate real GDP growth for 2018 will be 2.5 percent, up from the September projection of 2.1 percent. BJ Necel had some thoughts on the rally: “Bond prices rallied due to the Fed’s continued stance on inflation remaining low, as well as 3 expected rate hikes for 2018. Considering the dual mandate of fostering employment and controlling inflation, we have the employment, but not inflation. I think the market reacted to the inflation outlook and dot plots.”

To sum it up, the US Federal Reserve has voted 7-2 to increase its benchmark interest rate by one-quarter of a percentage point to a range of 1.25% to 1.5%. The central bank stood by a forecast of three rate increases in 2018 but omitted from its post-meeting statement previous language of expectation the labor market will strengthen.

Yes, the FOMC released a new dot plot (page down once or twice), which showed three potential rate hikes in 2018. This plot was similar to September’s, which also expected three hikes in the upcoming year. Four times a year, Federal Reserve policymakers at the Federal Open Market Committee submit their projections about where short-term interest rates are headed. The results are the central bank’s so-called dot plot: a visual representation of how many members think rates will hit a given level over the short, medium and longer run.

Today four central banks – Swiss National Bank, Norges Bank (Norway), Bank of England, and European Central Bank – released monetary policy decisions. The Bank of China raised its rates slightly. Comments around inflation and quantitative easing will be watched. This morning we’ve already had the usual Thursday jobless claims (-11k to 225k), Retail Sales (core +.8% in November, stronger than expected, overall +1%), and import prices (+.7%). We begin the day with the 10-year at 2.37% and agency MBS prices worse .125-.250 versus last night’s close.


Jobs and Promotions

Sierra Pacific Mortgage is proud to announce that the company’s Chief Operating Officer, Gary Clark, has been elected to the Residential Board of Governors (RESBOG) at the Mortgage Bankers Association (MBA). RESBOG is a committee of industry leaders who set the priority of issues for the MBA in the coming year. As one of 31 voting members of RESBOG, Clark will help shape the MBA’s position on various issues that will impact the mortgage industry. The MBA is a respected and trusted organization whose opinion is highly valued. Their reputation as a fact-based organization, whose thoughtfulness and strategic prowess precedes them, and they are often called upon to testify before congress when addressing various housing issues. The MBA represents One Voice, One Vision, One Resource. Congratulations Gary.

Alpha Mortgage is growing! We seek to create a corporate culture that fosters and rewards excellence, encourages creative thinking and respects diversity – an environment where team members are engaged, supportive of one another and enthusiastic about serving our customers. Alpha Mortgage Corporation is seeking senior EXPERIENCED Mortgage Loan Officers with proven track records of sales for several locations in NC including Wilmington, Asheville, Jacksonville. Candidates must be an NC Licensed Mortgage Loan Officer with NMLS. Also, Myrtle Beach, SC for SC Licensed Loan Officers! The Loan Officer will be responsible for discussing client’s needs, recommending the best loan products, helping customers put together a complete loan package and working with the underwriting team throughout the loan process while adhering to all mortgage compliance laws and regulations. The Loan Officer acts as a liaison between clients and Alpha Mortgage and will help qualified applicants acquire loans in a timely manner.

Community banks and credit unions, listen up. If you have a Fannie Mae or Freddie Mac servicing portfolio between $10M and $250M in size and are potentially interested in selling as part of your strategic plan, an established national bank owned mortgage company is continuing to acquire these servicing portfolios and would love to hear from you. They do not solicit or cross sell the borrowers for any other banking product or service and have already completed a significant number of these transactions. If you are interested, email me to forward your note; specify opportunity, please.

For those companies using Dovenmuehle as their subservicer, Richey May & Co., a public accounting and advisory firm recognized as a leader in the mortgage industry, will again be conducting their annual subservicer oversight review to assist lenders with their monitoring and oversight responsibilities. Their on-site review at Dovenmuehle’s facility is scheduled for January 30 and 31. Richey May’s review is performed on behalf of multiple clients at the same time, thereby sharing expenses and creating cost savings that are passed on to participating clients. Please contact Kurt Blohm to learn more about this comprehensive oversight review program. Richey May has also released its latest whitepaper, “Mortgage Subservicer Oversight: Understanding Your Selection and Oversight Responsibilities,” which provides guidance on selecting a subservicer, as well as recommendations regarding the timing and frequency of oversight procedures.

GSF Mortgage Corp. has recently launched its Single Close Construction Program for FHA, VA, and USDA construction lending. Since its launch, GSF has approved more than 60 builders to offer its products. This low down-payment construction option is a great alternative in markets that are strapped for inventory. GSF Mortgage is one of the few lenders in the country offering new construction lending for the 100% LTV USDA product. If you are a branch manager, loan originator or processor with construction lending experience or would like to offer construction lending products please, reach out to Rich Obermeier at (262) 957-8901.

Wells Fargo laid off about 60 employees in its mortgage division, mostly in its QC area due to process changes.

We wish George Karousos well. He resigned as president of Village Bank Mortgage, a post he took earlier this year.

Companies being fined for mortgage issues is not limited to those in the United States. In Australia Westpac has committed to pay a total of $11 million in compensation to customers who held one of 13,000 owner-occupier, interest-only home loans affected by a mortgage processing error.

Downpayments at Record Highs as Home Prices Rise

December 13,2017
by admin

Homebuyers ponied up the highest downpayments on record to purchase homes in the third quarter of 2017. ATTOM Data Solutions’ (formerly RealtyTrac) Residential Property Loan Origination Report says that the median down payment for a single-family home or condo purchased with financing during the quarter rose to $20,000 from $18,162 in the second quarter of this year. In the third quarter of last year the median was $14,400. The most recent number is the highest in ATTOMs records which date back to 2000.

The $20,000 downpayment represents 7.6 percent of the median sales price during the quarter of $263,000. The percentage amount was also a recent high, up from 7.1 percent the previous quarter and 6.1 percent in the third quarter of 2016. It was the highest downpayment percentage since the third quarter of 2013.

ATTOM Senior Vice president Daren Blomquist says, “Buying a home has become a full-contact sport in many markets across the country, and buyers with the beefiest down payments – not to mention all-cash buyers – are often able to muscle out those with scrawnier savings. Despite the increasingly competitive nature of homebuying, the number of residential property purchase loans nationwide increased to a 10-year high in the third quarter.”

The median downpayment exceeded $50,000 in 12 of the 99 statistical areas included in the report. The four highest amounts were all paid in California markets, with San Jose on top at $247,00 followed by San Francisco at $170,000, Los Angeles ($118,000) and Oxnard ($105,000). The fifth city on the list was Boulder, Colorado, with a median downpayment just under $100K.

The report confirmed an expected downturn in refinancing originations in the third quarter, but purchase loans and home equity lines of credit (HELOC) originations rose. There were just under 2.4 million 1-4 family mortgage loans written during the period, an increase of 17 percent from the prior quarter but 5 percent fewer from the same quarter last year. Of the total, about 1.1 million were purchase loans, an increase of 8 percent and 7 percent from the two earlier periods, and the highest number since the third quarter of 2007.

Purchase mortgage originations rose by the largest percentage in Raleigh, North Carolina, a 55 percent increase. New York City, Roanoke, Honolulu, and Little Rock all posted gains of 34 to 39 percent. Fifty-eight metro areas saw purchase originations fall, with Atlanta declining 15 percent, Houston down 10 percent and both Boston and Detroit falling 7 percent.

Also, refinance loans fell 19 percent from the third quarter of 2016, to 981,773 but that was an improvement of 28 percent from Q2.

Just under 400,000 HELOCS were originated, a gain of 19 percent quarter-over-quarter and 12 percent on an annual basis. The quarter’s originations represented a nine-year high.

Among other financing trends noted in the report was a slight uptick in the number of purchase originations that involved multiple, non-married co-borrowers. Those loans were up from 22.8 percent in the second quarter and 21.1 percent a year earlier to 23.4 percent.

The share of loans backed by the Federal Housing Administration (FHA) declined from 13.6 percent of all loans originated in the second quarter and 13.2 percent in Q3 2016 to 12.9 percent. VA loans accounted for 6.6 percent of originations compared to 6.5 percent and 7.5 percent in the two earlier periods.

ATTOM derived its loan origination report from publicly recorded mortgages and deeds of trust collected in more than 1,700 counties accounting for more than 87 percent of the U.S. population. Data was gathered for single family homes, condos, town homes and multi-family properties of two to four units for this report.

Mortgage Rates Quickly Lower After Inflation Data and Fed

December 13,2017
by admin

Mortgage ratesfell fairly quickly this afternoon following the Federal Reserves updated economic projections. While it is indeed true that the Fed “raised rates” this afternoon, there are two reasons that doesn’t matter.

First of all, the rate the Fed adjusts (aptly named, the Fed Funds Rate), governs only the shortest-time frames (overnight loans among big banks). Although its effects radiate to longer-term debt like mortgages, the two are far from joined at the hip. Short term rates often move one direction while long term rates move another.

More importantly, EVERYONE responsible for trading the bonds that govern interest rates (and I do mean every last person without a single exception) was well aware that the Fed would be hiking rates today. No Fed rate hike has been better telegraphed during this cycle.

When bond traders know what’s going to happen in the future, they’ll trade accordingly as soon as possible. That means rates had long since adjusted to today’s rate hike–so much so that the hike itself was a non-event. Again, it was the update economic projections that helped rates move lower this afternoon. Fed Chair Yellen’s press conference played a major role as well.

Even before the Fed news came out, a weaker reading on an important inflation report helped bond markets get into positive territory on the day. The net effect of the Fed and the economic data was a moderately quick move back to last week’s low rates.


Loan Originator Perspective

Bonds are rallying following the Fed announcement today and weaker inflation data. As of 4pm eastern, only a few lenders have passed along any of the gains. So, i favor floating overnight and evaluate pricing tomorrow. Hopefully this rally can continue, -Victor Burek, Churchill Mortgage


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.0%
  • FHA/VA – 3.75%
  • 15 YEAR FIXED – 3.375%
  • 5 YEAR ARMS – 2.75 – 3.25% depending on the lender



Ongoing Lock/Float Considerations

  • 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016.

  • While rates remain low in absolute terms, they’ve moved higher in a more threatening way heading into the 4th quarter, relative to the stability and improvement seen earlier in 2017

  • The default stance for now is that this trend toward higher rates has the potential to continue. It will take more than a few great days here and there for that outlook to change.

  • For weeks, this bullet point had warned about recent stability inviting a bigger dose of volatility. That volatility is now here. As such, locking is generally the better choice until the volatility is clearly dying down.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

MBS RECAP: Bonds Cheer Weak Inflation Data and Fed Forecasts

December 13,2017
by admin

Heading into the day, we knew we were looking at 2 key market movers in the form of the CPI data and the afternoon’s Fed festivities (which include an announcement, economic projections, and a Yellen press conference).

The morning’s inflation data got the party started with Core annual CPI coming in at 1.7 again. This was notable it had just ticked up to 1.8 for the first time in 6 months when it was last reported a month ago. The move up to 1.8 looked like the start of a bounce back toward 2%. Today’s regression reminds markets of inflation’s intractability.

Bonds looked ready for the inflation data to tell a different story as rates were pushing against their recent ceiling. The weaker data led to an immediate surge back into the safety of the prevailing range. From there, we waited for the Fed.

As expected, the announcement itself was unimportant. The rate hike has long since been baked into bond markets and it was the forecasts that got the attention at 2pm. While the average Fed forecast was very slightly higher (for the Fed Funds Rate), the median Fed member didn’t change for the 2018 or 2019 time frames. There was noticeably less “migration” (movement of dots toward higher rates) on the Fed’s dot plot compared to September.

The dots were good for another rally in bonds. It wasn’t as big as the CPI-driven rally, but it had friends–namely, Janet Yellen. Yellen took her farewell opportunity to “let loose” (as much as she can, anyway) on a few topics that she might have phrased differently earlier in her tenure. Specifically, she noted that stock valuations were “high” even though she didn’t say that was a problem. She also pointed out that her colleagues had considered the probable impact of the tax bill in drafting their forecasts. That’s a bigger deal than it might seem because it means the fairly tepid Fed rate hike forecasts were potentially more aggressive than they otherwise would be in the absence of the tax bill.

10yr yields ended the day down more than 5bps and Fannie 3.5 MBS rose nearly 3/8ths of a point . Most of the gains came after the Fed, but at least half of the movement was attributable to CPI (the initial movement merely helped us get back into positive territory after morning weakness).

Mortgage Rates Slightly Higher Ahead of Fed

December 12,2017
by admin

Mortgage rates moved modestly higher for the 4th straight business day today. Last Wednesday saw the best levels in a month with some lenders in the best shape since early September. The recent move higher brings rates back into the higher part of the prevailing range.

If that all sounds somewhat dramatic, it’s not. The “prevailing range” is so narrow that it barely bears mentioning. In fact, quite a few loan scenarios would be quoted the same “note rate” on any day in the past several months. Why, then, are we talking about rates “moving?” Technically, it’s the “effective rate” that’s moving because lenders use upfront costs to make finer adjustments to the cost of financing.

In other words, if two people are quoted 4.0%, and everything about the quotes is the same except for a $200 difference in lender fees, the person who paid $200 less upfront technically has the lower rate, even though their payments will be the same.

While the prevailing range has been narrow, there are never any guarantees it will stay that way. Tomorrow brings a few threats to the recent stability, for better or worse. There is important inflation data in the morning. A weaker reading could help rates start the day lower, but a stronger reading could lead to a challenge of the recent upper boundaries. Then the Fed Announcement is released in the afternoon, along with an updated set of Fed forecasts. Markets already know the Fed is going to hike rates, but the Fed’s future rate hike outlook is the more important info this time around.


Loan Originator Perspective

The trend is not our friend right now. There is solid support just over head of current levels which will hopefully prevent rates from moving any higher. With the Fed on tap tomorrow, it is highly risky to float. A rate hike is priced in but investors will be looking at the dot plot to gain insight on future hikes. If it shows fewer hikes than expected, we could see a nice rally tomorrow, but if it is more aggressive rates could move higher quickly. Not much to gain, but a lot to lose by floating so locking is the way to go here. -Victor Burek, Churchill Mortgage


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.0%
  • FHA/VA – 3.75%
  • 15 YEAR FIXED – 3.375%
  • 5 YEAR ARMS – 2.75 – 3.25% depending on the lender



Ongoing Lock/Float Considerations

  • 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016.

  • While rates remain low in absolute terms, they’ve moved higher in a more threatening way heading into the 4th quarter, relative to the stability and improvement seen earlier in 2017

  • The default stance for now is that this trend toward higher rates has the potential to continue. It will take more than a few great days here and there for that outlook to change.

  • For weeks, this bullet point had warned about recent stability inviting a bigger dose of volatility. That volatility is now here. As such, locking is generally the better choice until the volatility is clearly dying down.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

MBS RECAP: Key Technical Ceiling Holds Firm After Auction

December 12,2017
by admin

It was a pretty straightforward day for bond markets, which CONTINUE to operate in an exceptionally narrow, sideways range. That’s been the case for close to 3 months now. As such, with yields approaching the ceiling today, a breakout would have been big news, and we haven’t quite gotten to the headlines and events that constitute “big news.”

All that to say that bonds didn’t do anything too surprising by maintaining the range today. Still, to see it happen in real time, it looked like our salvation depended upon the 30yr bond auction. Heading into the auction 10yr yields were pushing the key technical ceilings near 2.42%. After stronger auction results were released, bonds immediately found their footing, and managed to avoid returning to the higher levels.

On the other hand, bonds certainly weren’t eager to stampede back toward stronger levels–a fact that likely reflects the risky events on the calendar for tomorrow. These include the morning’s Consumer Price Index and the afternoon’s Fed Announcement (specifically the economic projections released at the same time–2pm). We’ll discuss these in greater detail in tomorrow’s Day Ahead.