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Think The Fed Cut Mortgage Rates? Think Again

September 18,2019
by admin

Here is exactly what yesterday’s Fed rate cut did to mortgage rates: ABSOLUTELY NOTHING! No Fed rate cut (or hike) will EVER do ANYTHING directly to mortgage rates because the Fed doesn’t set mortgage rates.

Don’t let the caps-lock fool you into thinking I’m some angry guy with a keyboard who’s simply ranting for some self-serving purpose. Of all the people you’ll talk to today and of all the articles you’ll read on this topic, you should trust me the most. I don’t say that lightly or very comfortably, for that matter. It sounds terribly cocky, but in this case, it’s also terribly honest.

For more than a decade, if markets are open and mortgage companies are quoting rates, I’ve religiously been tracking trends, patterns and plain old boring statistics. I use actual wholesale rate sheets from multiple lenders every day to synthesize an average mortgage rate that consistently outperforms survey-based mortgage rate data. In short, if you could only talk to one person to get a highly authoritative take on mortgage rate movement, I’m your guy.

There’s no catch. I won’t do your loan for you and I have nothing to gain from you believing me. I don’t care if you tweet this or share it or print it up and use it to build a fire. This is purely a public service announcement for what I see as one of the most misunderstood events in the rates market. That said, you SHOULD share it profusely unless you want your friends to continue sounding dumb and wasting time when they try to talk about day-to-day mortgage rate movement. You’re about to be a lot smarter than that…

If you’re comfortable simply believing one simple thesis without a bunch of boring explanation, here you go: “While mortgage rates are influenced by the Fed’s policy changes in the bigger picture and over longer time-frames, they are absolutely not tied to the Fed’s decision to cut rates. When the Fed hikes or cuts its policy rate, mortgage rates can and frequently DO move in the opposite direction (or not at all).”

If you need more info underlying that thesis, take a look at one or both of the articles I wrote over the past 2 days:

No, The Fed Rate Cut Won’t Affect Mortgage Rates

HIGHER Mortgage Rates Despite Fed Rate CUT. Here’s Why

For those who don’t click the link and who conclude I’m missing a very important connection between the Fed and mortgage rates, you should really visit one of the links! Long story short, I’m aware of the connections, and I’ve spent a great deal of time and energy educating readers on them. I intentionally avoided doing that in this article in order to add emphasis and decrease the potential sedative effects associated with reading financial market jargon.

MBS RECAP: Indecisive, Sideways Trading After Fed Day

September 18,2019
by admin

Relative to the expectation for yesterday’s Fed events to cause volatility, the movement we’ve seen in the bond market has been fairly pitiful in response. Seriously folks… I can’t think of a bigger gap between they hype and the outcome with respect to Fed days. Today was merely “The Anticlimax: Part 2.”

In the overnight session, yields respected the exact some highs as the previous overnight session. During domestic hours, bonds rallied just enough to get close to yesterday’s best levels before retreating to something almost perfectly between the two.

This is a classic, albeit miniature, consolidation pattern. It could signal a measure of equilibrium between buyers and sellers at current levels, but more likely, it’s simply a sign of indecision and apathy after the Fed failed to provide inspiration to retest the levels seen after last week’s ECB announcement.

Tomorrow’s data calendar won’t be much help when it comes to basing trading decisions on economic data (it’s empty). There will be a few Fed speakers throughout the day, but whether they offer anything new or different beyond yesterday’s Fed info deluge remains to be seen.

MBS Day Ahead: Bonds Set to Battle Potentially Important Level

September 18,2019
by admin

In the day just passed, the bond market finally got a chance to sink its teeth into the much-anticipated Fed announcement/forecasts/press conference. Traders were hoping to get a read on whether the Fed rate cut cycle is being treated like a fine-tuning adjustment or the beginning of a sustained shift. Of course there was no way for the Fed to know that, let alone communicate it. As we expected, Powell basically said “it depends.” Bonds were a bit let down by that, and the somewhat more hawkish Fed funds forecasts. Yields retreated from their anticipatory lows of roughly 1.75%, but nonetheless managed to stay in positive territory on the day.

In the day ahead, bonds will battle with the same 1.75% level after an overnight rally. 1.75% or thereabouts has come into play several times since the big rally at the beginning of august. Most of the activity around those levels has come in higher volume. This is one of those times when technical analysis–even if only with respect to “pivot points”–is most useful. Simply put, yesterday was highly charged and 1.75% (technically 1.744%) was the best we could manage. Yields then went higher after the key event, so it stands to reason that a move back below 1.75% would be significant.

20190909 open

2018’s Home Sales Slump Now Fully Erased

September 18,2019
by admin

While the increase wasn’t as strong as in July, last month’s existing home sales posted a second straight month of gains and, as previously, the National Association of Realtors® (NAR) credited falling interest rates. Sales of previously owned single-family houses, townhouses, condominiums, and cooperative apartments were up 1.3 percent compared to July when sales rose 2.5 percent. The seasonally adjusted annual rate of 5.49 million units was 2.6 percent higher than the August 2018 pace of 5.35 million. The increase was felt in three of the four major regions while the West continues to demonstrate some weakness.

The month’s results were better than predicted. Analysts polled by Econoday had expected them to come in at an annual rate of 5.30 to 5.42 million with a consensus of 5.38 million.

Single-family home sales rose from 4.84 million in July to 4.90 million in August, a 1.2 percent gain and 2.9 percent above the August 2018 rate. Existing condo sales rose 1.7 percent from July to 590,000 annual units, largely unchanged from the previous August.

Lawrence Yun, NAR’s chief economist, said, “As expected, buyers are finding it hard to resist the current rates. The desire to take advantage of these promising conditions is leading more buyers to the market.”

The median existing home price for all housing types in August was $278,200, up 4.7 percent from the median a year earlier of $265,600. It was the 90th straight month of year-over-year gains. The median existing single-family home price also rose 4.7 percent to $280,700. Condo prices were up 5.2 percent to a median of $257,600 in August.

“Sales are up, but inventory numbers remain low and are thereby pushing up home prices,” said Yun. “Homebuilders need to ramp up new housing, as the failure to increase construction will put home prices in danger of increasing at a faster pace than income.”

Inventory fell in August, down from 1.90 million available homes to 1.86 million and 2.6 percent fewer homes than a year earlier. Unsold inventory is at a 4.1-month supply at the current sales pace, down from 4.2 months in July and from the 4.3-month figure recorded in August 2018. Properties typically remained on the market for 31 days in August, up from 29 days in both July and the prior August. Forty-nine percent of homes sold in August were on the market for less than a month.

Yun criticized the quarter point cut in the Fed Funds rate made by the Federal Reserve on Wednesday. “[The Fed] should have been bolder and made a deeper rate cut, given current low inflation rates,” he said. “The housing sector has been broadly underperforming but there is huge upward potential there that will help our overall economy grow.”

First-time buyers were responsible for 31 percent of sales in August, the same as a year and investors and second home buyers accounted for 14 percent, up from 11 percent in July. All-cash sales accounted for 19 percent of transactions in August, about equal to July and moderately below August 2018. Distressed sales remained negligible, representing 2 percent of August sales, a 1-point decline from a year earlier.

“Rates continue to be historically low, which is extremely beneficial for everyone buying or selling a home,” said NAR President John Smaby. “The new [FHA] condominium loan policies, as well as other reforms NAR is pursuing within our housing finance system, will allow even more families and individuals in this country to reach the American Dream of homeownership.”

There were month-over-month increases in existing home sales in the Northeast, Midwest, and South and sales in all four regions bested their 2018 numbers. Sales in the Northeast increased 7.6 percent from July to an annual rate of 710,000 units, 1.4 percent higher than in August 2018. The median price fell 0.3 percent on an annual basis to $303,500.

Existing-home sales grew 3.1 percent in the Midwest to an annual rate of 1.31 million, topping sales from a year earlier by 2.3 percent. The median price jumped 6.6 percent to $220,000.

In the South there was a gain of 0.9 percent in sales to a rate of 2.33 million and sales were 3.6 percent higher year-over-year. The median price of $240,300 was a 5.4 percent annual increase.

While sales remained 1.8 percent higher on an annual basis, the West was an outlier in August. Existing home sales declined 3.4 percent to 1.14 million. Prices, however, continued their strong appreciation, rising 5.7 percent to $415,900.

Fannie Mae Turns Bullish on Construction, Best Levels Since May

September 18,2019
by admin

Fannie Mae says consumer spending will continue to support the economy. The company’s Economic Summary for September cites increases in auto and retail sales, real disposable personal income, and real personal consumption expenditures (PCE) as evidence of that strength. In the monthly report, written before release of the very strong census data on August’s residential construction, they also say that the recovery in new single-family construction spending suggests that residential fixed investment may be slightly stronger this quarter than they previously expected.



As a result of these two factors, the economists upped their forecast for growth in real gross domestic product (GDP) by one-tenth of a percent in the third quarter but revised their view of nonresidential fixed investment to a negative number. They now project top-line GDP growth in 2019 at 2.2 percent and have downgraded the full year estimate for next by one-tenth to 1.6 percent.

The risks to the forecast include confusion in the U.K. over the never-ending Brexit issue and renewed evidence that the U.S. manufacturing sector may be dragged into the global slowdown. There are also indications that the resilience of consumer spending may be starting to wear thin, with weak growth in employment and a sharp turn downward in consumer sentiment.

Fannie Mae is growing bullish on housing and says the third quarter started off in line with their earlier expectations. Existing home sales rose to 5.42 million annualized units in July, a 2.5 percent increase and the second highest rate of sales since April 2018. New single-family and multifamily residential construction spending had the best month since May with a 0.9 percent uptick and retail sales at home improvement stores, a proxy for home remodeling spending, moved higher. These positive developments suggest a modest rebound in residential fixed investment in the third quarter, which would end six consecutive quarters of declines.

Uncertainty over U.S.-China trade tensions and financial market volatility are problems for homebuying sentiment, but Fannie’s economists see the continued growth in employment, solid wage gains, and the low mortgage rates as supporting housing demand. The Fannie Mae Home Purchase Sentiment Index (HPSI) inched up in August to 93.8, a new survey high, suggesting continued buying interest on the part of consumers.

As the report was written, the 30-year fixed mortgage rate was 3.49 percent, the lowest weekly level since October 2016 and only 18 basis points above the rate trough of the expansion in 2012. The decline in rates means fewer homeowners have mortgages with rates lower than those prevailing and could be freeing more to both list their existing homes and buy another.

The authors add that their survey data does not suggest enough of a shift in the existing home supply to alleviate overall supply constraints. Inventories of existing homes, which had increased on an annual basis for ten months, fell in July for the second time in as many months. The 1.6 percent decline brought the inventory down to its lowest point since Fannie Mae first tracked it.

July’s pending sales almost completely erased the June gain so a pullback in existing home sales in probable in both August and September. Further, the average number of purchase mortgage applications posted the largest decline in August since February, suggesting a weakening sales pace in September and early October. The lack of listings has prevented home sales from responding to lower interest rates as strongly as they have in the past and given the weak response, Fannie has revised its existing sales forecast down slightly; 2019 sales will be 0.3 percent lower than last year’s levels.

The lack of inventory should, however, support new construction. The economists expect single-family housing starts to move modestly upward through the remainder of the year, even as builders continue to face labor and land constraints. New home sales will also rise, but not as fast as starts. The year-to-date sales have allowed home builders to draw down the excess inventory that had built up at the end of last year. In coming months homebuilders will have to rely more heavily on starts to fulfill sales demand, and sales will be increasingly limited by the pace of construction.

The authors appear pleased that builders seem increasingly focused on entry-level products. The median square footage of new single-family construction fell 4.3 percent in the second quarter to the lowest level since 2011. This should aid affordability, especially for first-time homebuyers. But building smaller homes has a downside; it is more labor intensive per dollar of construction. Combined with the shortage of construction labor, residential fixed investment has not boosted the overall economy in recent quarters. “Given the supply and demand fundamentals, the decline in mortgage rates has been a price accelerator exacerbating the affordability challenge for entry-level buyers,” the report says.

Fannie Mae has updated its estimate of for single-family (1- to 4-unit properties) mortgage originations for 2017 and 2018 in its regular benchmarking to the Home Mortgage Disclosure Act (HMDA) data. Their higher estimated purchase originations for the two years resulted in an upwardly revised path for purchase originations in 2019 and 2020 as well. The benchmarking also resulted in higher refinance originations in 2017 and 2018, with the refinance share of total originations unchanged at 36 percent in 2017 and revised upward by 1 percentage point in 2018 to 30 percent.

The decline in the mortgage rate forecast since last month led to an upward revision in the refinance origination forecasts for both 2019 and 2020. The new projection is for total originations to rise by 11.6 percent from 2018 to $1.97 trillion in 2019, with a refinance share of 35 percent. The following year total originations are expected to decline by 6.8 percent from this year to $1.84 trillion as projected declines in refinance activity outpace essentially flat purchase activity, with the refinance share dropping to 31 percent.

Originator, Servicing, Correspondent Products; Why Extensions Cost Money

September 18,2019
by admin

The residential lending industry continues to evolve. Lenders are coming and going, moving in and out of business channels. (The latest example being Union Bank, as UBOC is rumored to be in the process of reducing its overall approved broker client base and focusing on deposit relationships). And lenders still report full pipelines but cautiousness in hiring Ops staff. Winter is coming. How many loans do processors process in a month? Or underwriters underwrite? Are there economies of scale at big banks versus independent mortgage banks Here’s a write-up on some stats. Loan officers know that the customer is king, and that there are other measures besides DTI that determine a sound borrower. Goldman Sachs and other major banks are experimenting with alternative metrics to decide whether to loan to a customer. Instead of relying on financial history, lenders are using metrics such as shopping habits and whether phone bills are paid on time. Even magazine subscriptions!


Lender Products and Services

Citibank, N.A. continues to innovate as it looks to serve its expanding Correspondent customer base. Effective September 1, all Mandatory trades have the benefit of a 2-way pair off feature. Citi’s 2-Way Pair Off Program allows customers to be reimbursed the change in the value of their commitment in the event the market is lower (in price) at time of pair off. “Given TBA margining practices, Citi’s 2-Way Pair Off Program can be another tool in your tool belt to help manage your margin call risk. This feature will be available for all trades including bid tape and AOT. Learn more about this and other programs Citi has to offer by contacting our National Client Services Team at 800-967-2205 or for new seller consideration complete our Prospective Mortgage Correspondent Questionnaire.”

Wouldn’t it be great if you brought servicing under your own roof so you could control the customer experience? We get it. We’ve all asked ourselves this question. Things like this always sound good, but as this TMS CAREspondent blogputs it, it’s always better if you don’t own the boat, but have a friend who owns the boat and takes you out on it. No muss, no fuss. Learn how bringing servicing under your own roof can be quite the unexpected headache, along with the answer you’re actually looking for when it comes to achieving the best customer experience.

Matic, provider of homeowners insurance tools for mortgage lenders, has launched two new solutions to round out its suite of originator products: Insurance Estimator and LOTools.

Insurance Estimator is a first-of-its-kind product that provides lenders an automated way to predict HOI for Loan Estimates, mortgage & affordability calculators, and other financial tools at the earliest points in the loan life cycle. LOTools is an out-of-the box solution (no setup required) that lets individual loan officers and their teams obtain instant HOI quotes by entering just five data points. LO Tools returns real quotes from one of Matic’s 26 carriers in under 60 seconds for use on Loan Estimates, and LO’s can choose to connect their borrower to Matic to finalize the policy. Email Shelly Madick with inquiries about these new solutions or about Matic’s LOS and POS modules, which are revolutionizing HOI for today’s lenders.

LoanScorecard has more than doubled its non-QM client base in 2019, and its customer list reads like the ‘who’s who of non-QM lenders.’ The advanced technology is powering the eligibility portals used by leading wholesalers and providing operational efficiencies for their correspondent channel by delivering automated underwriting findings reports for non-QM and non-agency loans with the same ease and instant decisioning found in the agency AUS platforms. So whether you’re already in the space or looking to enter the non-QM market, learn how LoanScorecard can enhance broker and lender connectivity and confidence, and increase underwriting accuracy and efficiency. Contact LoanScorecard’s Director of Business Development Raj Parekh for more information.


Capital Markets

For MLOs who locked their borrowers at the lows, I continue to be asked about why extending a rate lock, if even for a few days for something beyond the control of the borrower, costs money. A good answer came a while back from James Hedvall, Director of Capital Markets of Mann Mortgage. “The cost to extend a best efforts lock reflects the cost incurred by Secondary Marketing to move the corresponding hedge to reflect the new closing date. It’s an easier concept to understand if you acknowledge the inequity of hedging a mortgage pipeline: best efforts locks, which may or may not close, are given for FREE to Loan Officers, then hedged with mandatory security instruments. When a lock extension is granted, the hedge needs to reflect the change in delivery dates.

“For example, when a loan comes in with a 45-day lock, your hedge model will pull from your LOS the estimated closing date, to best execute that loan for delivery into the secondary markets. In the process it determines what month security needs to be sold to off-set the 45+ days of interest rate exposure that loan will incur. If that 45-day lock was taken out September 1st, with an October 15th estimated funding, a November security would probably be sold as the hedge instrument; a ‘only 7 days’ extension might just mean that loan now best executes into a December commitment, meaning you now must buy-back your November coverage, and sell a December security to match the new closing date. This ‘roll,’ from a front month security, to a back month has a transactional cost. Much of the fee charged to extend a loan with your secondary group reflects this cost.” Thanks James!

It was just a couple weeks ago that slowing global growth, the inverted yield curve, and U.S./China trade tensions were driving talk of an upcoming recession. Since that time, we have seen economic data come in above market expectations and the U.S. 10-year Treasury rise 41 bps since reaching a low of 1.46%. The consumer has shrugged off much of the negative economic talk as August retail sales rose 0.4 percent and July’s gain was revised upwards to 0.8 percent. While not quite as strong as the second quarter, these numbers have lifted analysts’ expectations for third quarter GDP. Meanwhile, core consumer price increases have warmed, increasing to a 2.4% annualized rate in August and pushing the 3-month annualized rate to a 13-year high. The rise in core goods suggests that producers are passing through tariff costs to the consumer. Despite the warming inflation picture, solid consumer spending and a stock market near a record high, a Fed rate cut was widely expected this week. Fed president Powell has recently stated that there is no playbook for the current market conditions and seems to be content with giving the Fed room to maneuver as the global economic outlook remains uncertain.

Yup, as anticipated, the Federal Reserve announced yesterday that it will cut the fed funds rate range by 25 basis points to 1.75-2.00 percent. In addition, the Fed voted to lower the interest rate paid on excess reserves (IOER) to 1.80 percent, or 20 basis points below the top of the range for the fed funds rate, which should help balance the fed funds market’s recent volatility. The tone of the policy announcement was mostly positive. The Fed noted that labor market conditions remain strong, overall economic activity is increasing and household spending has been rising at a strong pace. On the downside, business fixed investment and exports have weakened. Inflation continues to run below the Fed’s near-2-percent symmetrical target.

The FOMC voted 7-3 in favor of the decision, with St. Louis Fed President Bullard, voting for a 50-bps cut. Meanwhile, Boston Fed President Rosengren and Kansas City Fed President George, voted in favor of keeping the fed funds rate range unchanged. The Fed’s dot plot showed that seven out of 17 Fed officials expect that another rate cut will be made in 2019, though the median projection does not point to any more rate cuts in 2019 or 2020. Remember, the dot plot does not show where the chairman is on the plot, nor does it show who is a voting member of the FOMC and who is not.

The economic projections released by the Fed were little changed from June, with data showing a slight increase in the median forecast for real GDP growth (Q4/Q4) in 2019, from 2.1 percent in June, to 2.2 percent yesterday. The year-end unemployment rate forecast for 2019 also edged up, from 3.6 percent in June, to 3.7 percent. Core inflation expectations for year-end 2019 remained the same as in June, at a 1.8 percent increase.

During his press conference, Chairman Powell downplayed the recent strain on the repo market, indicating that the Fed will use its toolkit to keep overnight rates in the expected range. Fed Chairman Powell did acknowledge that “organic balance sheet growth” may be resumed earlier than anticipated. Under relentless public pressure from President Donald Trump, who alternatively pleads with, admonishes or insults him, Fed Chair Jerome Powell said “moderate” policy moves such as Wednesday’s interest rate cut should be sufficient to sustain the U.S. expansion. Right on cue, President Trump released a Tweet criticizing the Fed’s move as inadequate.

The curve flattened as a result, including the 10-year closing -3 bps to 1.79 percent (the 2-year rate was UNCH), impressive considering the Fed actually cut the more market relevant rates (RRP and IOER) by 30 bps to 1.70 percent and 1.80 percent, respectively, versus 25 bps in the fed funds corridor, which should also support general collateral rates (which more closely tracks IOER) with the RRP now paying even less than funds.

MBA SVP and fabled Chief Economist Dr. Mike Fratantoni weighed in, saying “Although the financial markets fully anticipated today’s Federal Reserve decision to lower their target for the Fed Funds rate, the level of uncertainty in respect to the global and domestic economy and future monetary policy has been quite high. This is why there’s been a wild swing in mortgage rates over the past month. Yesterday’s news does little to reduce uncertainty. The trade war with China, and now conflict in the Middle East, certainly add to the overall uneasiness. While it is not surprising that FOMC voters cannot agree on the outlook for monetary policy, as indicated by the three dissenting votes today, the disagreement itself also adds to the uncertainty. Looking ahead, we expect that the recent refinance wave from homeowners, spurred by the drop in mortgage rates in August, will tail off as the year progresses. For the purchase market, significantly lower mortgage rates compared to last year, coupled with a still strong job market, should continue to support homebuyer demand.”

Let’s turn to today. Chair Powell in his press conference sought to downplay this week’s liquidity squeeze, of a kind not seen since the Great Recession, though others haven’t been so sanguine, as a third round of repurchases is planned for today. Following yesterday’s Fed events, today brings several central bank decisions, the BoJ, SNB and Norges Bank. A busy U.S. calendar today includes Weekly Initial Claims, Continuing Claims, Q2 Current Account Balance, and the September Philadelphia Fed Survey, before August Existing Home Sales and August Leading Indicators. In between the two Treasury auctions today, the NY Fed will purchase up to $481 million GNII 3 percent ($358 million) and 3.5 percent ($123 million). Gotta catch a plane, so don’t have a read yet on rates.

Jobs

ClearEdge Lending continues to grow at a rapid pace in the Northwest with a new full-service branch office in Walnut Creek, CA. The company is looking for experienced Account Executives to join its team who will continue to help expand the company’s Non-QM presence. ClearEdge’s aggressive rates& products, technology, and 20+ years of Non-QM expertise aids the originator at the point-of-sale by focusing on simplicity and speed. As both the lender and end investor, this enables ClearEdge to make quick credit decisions and provide brokers with excellent team support. Those interested in taking their career to the next level and grow in an exciting market with ClearEdge Lending should email Rouvaun Walker, VP of Sales. He is seeking AE’s in Northern California, Oregon, Washington, Utah and Colorado.

“Summer 2019 at Caliber Home Loans, Inc. has been one for the record books! We’ve broken our own sales records not once, but TWICE. We had an amazing month in July, funding over $6 billion, and in August we broke our own record by funding $7 billion overall. Such strong mid-year performance can be attributed to proprietary technology, streamlined operations and talented producers. Caliber is a modern mortgage lender that’s breaking its own sales records and providing products for today’s borrowers. We have no plans of slowing down and are excited to carry this strong momentum to the end of the year and beyond. We’re stronger than ever and we want you to join us. To learn more, visit our website or email SVP of Recruiting, Jeremy DeRosa.”



HIGHER Mortgage Rates Despite Fed Rate CUT. Here’s Why

September 18,2019
by admin

One of the greatest potential sources of confusion for prospective mortgage borrowers is the relationship between the Fed and mortgage rates. While the Fed’s policy changes absolutely have a big impact on all sorts of interest rates (including mortgages), a drop in the Fed’s policy rate DOES NOT result in lower mortgage rates. In fact, the OPPOSITE was true today.

The main reason for confusion is the fact that there’s a huge difference from an investment standpoint between a rate that governs the shortest-term transactions (The Fed Funds Rate applies to loans that last for 1 day or less) and a rate that can remain in effect for up to 30 years in the case of mortgages. Even if we use the average life span of a 30yr fixed mortgage, we’re still talking about 5-10 years depending on the broader market landscape. You may have heard about the “inverted yield curve?” That’s a reference to vastly different behavior between longer and shorter term rates, and it stands as evidence of the different sets of concerns that apply to each side of the duration spectrum. The differences are only more pronounced when we take the shorter end of the spectrum all the way down to the “overnight” level (Fed Funds Rate) and all the way up to the duration of the average mortgage loan.

Beyond the fact that a mortgage rate is very simply a different animal than the Fed Funds Rate, there’s also the matter of frequency of movement. The Fed only meets to potentially change rates 8 times a year. Mortgage rates change every day–sometimes more than once. And the bond markets that underlie mortgage rates change thousands of times per day. That means the mortgage market can easily and quickly get into position for any expected move from the Fed. In today’s case, where the rate cut was seen as highly likely, any effect that the Fed Funds Rate could ever have on mortgage rates was already priced-in weeks ago.

But let’s say the first two points don’t quite convince you. The third is irrefutable. The Fed doesn’t just take the stage, cut rates, and go home. They release a ton of other info and hold a press conference to discuss their present and future policy decisions. The rates market (for mortgages, Treasuries, and everything else) is tremendously interested in all that “other stuff.” Today, particularly, there was a set of updated forecasts for future rate movements. These were a bit less market-friendly than the average investor expected. In addition, market participants interpreted Powell’s press conference as being a bit less friendly than expected.

Long story short: there are multiple reasons for mortgage rates to go their own way regardless of the Fed rate cut. In today’s case, mortgage rates were roughly unchanged from yesterday. Interestingly enough, they were actually a bit lower this morning, but many lenders raised rates in the afternoon due to the modest disillusionment with the Fed announcement (not the rate cut part, mind you… no one cared about that anyway… at least not anymore).


Loan Originator Perspective

Bonds’ morning gains evaporated following the Fed announcement and Chairman Powell press conference. Today may have marked our lowest rates for a while, those floating should ask for current pricing (if able to) this PM and assess their situation. I am locking most October closings early in the process. – Ted Rood, Senior Originator


Today’s Most Prevalent Rates

  • 30YR FIXED -3.875%
  • FHA/VA – 3.5%
  • 15 YEAR FIXED – 3.375-3.5%
  • 5 YEAR ARMS – 3.25-3.75% depending on the lender



Ongoing Lock/Float Considerations

  • 2019 has been the best year for mortgage rates since 2011. Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections and as of September, it looks like such a correction is underway

  • Fed policy and the US/China trade war have been key players. Major updates on either front could cause a volatile reaction in rates

  • The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.
  • 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: What Fed Day? This One Was a Dud

September 18,2019
by admin

As far as Fed days go–especially the kind where we get updated economic projections–today’s example was pretty damn uneventful. These things happen from time to time, but this wasn’t exactly a day where a “dud” announcement was seen as being very likely. Markets were hungry for clarification on the Fed’s rate outlook as well as any response to the short-term funding market woes of the past few days.

I could weave a bit of a tale for you about how the market moved in a big way ahead of the announcement due to expectations for certain changes/inclusions and how it simply unwound that movement when it didn’t get what it was looking for, but that would be giving too much credit. It’s true that expectations ramped up a bit for a slightly friendlier Fed than we got, but longer-term yields had only barely dipped their toes back in August’s post-NFP range at today’s very best levels. In other words, it wasn’t exactly a huge lead-off.

Heading back the other way was just as average with bond ending almost perfectly unchanged (unless we’re talking about 2yr Treasuries, which were a bit more upset at the Fed’s rate hike outlook). Powell couldn’t have been more matter-of-fact. The Fed doesn’t see a recession coming (they’d never say so anyway), nor do they see anything other than a simple little miscalculation of liquidity behind yesterday’s repo rate drama. Move along. Nothing to see here. They’ll hike/cut/ease/tighten if they need to based on evolving market conditions. While that’s exactly in line with what I said they’d say, I never imagined bonds would be this flat in response. The icing on the cake? Today’s volume was the lightest in the past 6 trading days!

Housing Permits and Starts Hit Highest Levels in a Year

September 17,2019
by admin

August turns out to have been among the year’s strongest periods for residential construction. While analysts had expected builders to shake off some of the lethargy that has dogged the industry for most of the year, increasing at least the rate of housing starts. However results exceeded expectations across the board and the rates of permitting and starts were the highest in a year. On a regional basis, numbers for the Northeast and Midwest more than compensated for some softening in the West.

The U.S. Census Bureau and Department of Housing and Urban Development reported that permits were issued during the month at a seasonally adjusted annual rate of 1,419,000. This is a 7.7 percent increase from the revised rate of 1,317,000 in July and 12.0 percent higher than the permitting pace in August 2018 of 1,267,000. Permits in July were initially reported at a rate of 1,336,000.

Analysts polled by Econoday had looked for permits to slip slightly to 1,300,000. The range of estimates was from 1,274,000 to 1,336,000.

Permits for building single-family housing were issued at an annual rate of 866,000, a 4.5 percent gain from the revised 829,000 units (from 838,000) in July. Single-family permits were up 4.5 percent from a year earlier as well. Multifamily permits rose 14.9 percent for the month and 27.3 percent on an annual basis to a rate of 509,000 units.

On a non-adjusted basis there were 127,000 permits issued during the month compared to 118,800 in July. Single-family permits totaled 78,100 compared to 78,200. For the year-to-date (YTD) there have been 900,600 permits issued, 574,800 of them for single-family units. This represents declines of 1.1 percent and 4.1 percent respectively from the permits issued during the first eight months of 2018. Multifamily permits are 4.2 percent higher than during the same period last year.

Housing starts jumped 12.3 percent in August, reaching a seasonally adjusted annual rate of 1,364,000. The rate of starts in July was revised higher as well, from 1,191,000 to 1,215,000. This moved starts 6.6 percent higher than in August 2018 when the rate was 1,279,000 units.

Starts were well above the highest estimates from Econoday’s analysts. They forecast 1,209,000 to 1,275,000 units during the month with a consensus of 1,251,000.

Single-family starts were up 4.4 percent to a rate of 919,000 compared to 880,000 in July. July’s single-family starts were originally estimated at 876,000. The August number is 3.4 percent higher than in August 2018. Multifamily starts were up 30.9 percent for the month and 13.7 percent on an annual basis to 424,000 units.

Construction was started on 121,100 housing units in August on a non-adjusted basis compared to 115,500 the previous month. Single family starts totaled 82,500 units, down from 84,900 in July. On a YTD basis, total starts are down 1.8 percent compared to last year and single-family starts are down 2.7 percent. There have been 851,600 total starts, 598,100 for single-family units. Multifamily starts are 0.4 percent higher than during the first eight months of 2018, a total of 244,600.

While completions, as a trailing indicator, don’t get a lot of attention, but they too had a good month. The rate of completions rose 2.4 percent from July to 1,294,000 and were 5.0 percent higher than a year earlier. The July rate was revised from 1,250,000 to 1,264,000. Single-family completions rose 37 percent to 945,000 and are slightly (0.6 percent) higher than last August. Multifamily completions are running at an annual rate of 338,000, an 0.9 percent dip from July.

There were 120,600 units completed during the month on a non-adjusted basis, 84,800 of which were single-family homes. The comparable numbers in July were 109,500 and 75,800. YTD completions are up 4.1 percent to 824,900 and there have been 581,500 single-family homes completed, a 5.7 percent gain over the same period in 2018.

At the end of the reporting period there were an estimated 1,144,000 residential units in some stage of construction, 517,000 of which were single-family units. There was an additional backlog of 166,000 permits that had been issued but under which construction had not begun. An estimate 83,000 were for single-family homes.

Permits in the Northeast jumped 26.9 percent from the issue rate in July and were up 37.3 percent year-over-year. Starts were also up strongly, by 30.5 percent and 25.3 percent from the two earlier periods. Completions rose 39.0 percent from July and were 62.2 percent higher than a year earlier.

The Midwest posted a 14.5 percent increase in its permit rate for the month but is down 1.6 percent on an annual basis. Starts jumped 15.4 percent and 12.3 percent for the month and year. Completions dipped by 2.0 percent and 3.4 percent respectively.

Permits were up 11.0 percent in the South compared to July and 14.4 percent higher than in August 2018. Starts were 14.9 percent higher than in July and up 8.1 percent on an annual basis. Completions fell by 5.9 percent from the July rate and 3.8 percent from August 2018.

Permitting fell by 7.8 percent in the West but is still 6.4 percent higher than a year earlier. Starts were unchanged from the prior month and were down 4.8 percent compared to a year earlier. There was an improving rate of completions in the region – they were 11.0 percent higher than in July and up 13.3 percent from August 2018.

Higher Mortgage Rates Didn’t Deter Purchase Loan Activity

September 17,2019
by admin

There was a jump in purchase mortgage applications during the week ended September 14 even as interest rates moved higher. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of applications volume, ticked down 0.1 percent on a seasonally adjusted basis, as the increase in its Purchase Index offset a significant decline in refinance activity. The Index was up 10 percent on an unadjusted basis, bouncing back from a 9 percent decline the prior week which was shortened by the Labor Day holiday.

The Purchase Index increased 6 percent on a seasonally adjusted basis, posting its third consecutive week of gains. The unadjusted index was 16 percent higher than the week before and up 15 percent compared to the same week in 2018. The average loan for a purchase mortgage was $327,400.

Applications for refinancing eased back, its index reflected a 4.0 percent decline from the prior week. But given the surge in refinancing earlier in the year, the Refinancing Index is still 148 percent higher than at the same time in 2018. The share of total applications that were for refinancing also retreated, decreasing to 57.9 percent from 60.0 percent the previous week.

Refi Index vs 30yr Fixed

Purchase Index vs 30yr Fixed

“The jump in U.S. Treasury rates at the end of last week caused mortgage rates to increase across the board, with the 30-year fixed-rate mortgage climbing to 4.01 percent – the highest in seven weeks,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Refinancing activity dropped as a result, driven solely by conventional refinances.”

Added Kan, “The purchase index increased for the third straight week to the highest reading since July. Additionally, the average loan amount on purchase applications increased to its highest level since June. This is a likely a sign that the underlying demand for buying a home remains strong, despite some of the recent volatility we have seen.”

The FHA share of total applications increased to 10.9 percent from 9.3 percent the prior week and the VA share rose to 12.7 percent from 11.9 percent. The USDA share of total applications was 0.5 percent.

Interest rates for all loan types rose on both a contract and an effective basis. The average contract interest rate for 30-year fixed-rate mortgages (FRM) at or below the conforming loan limit of $484,350 increased to 4.01 percent from 3.82 percent, with points decreasing to 0.37 from 0.44.

Jumbo FRM, loans with balances higher than the conforming loan limit, had an average rate of 4.01 percent with 0.29 point. The previous week the rate was 3.84 percent, with 0.34 point.

The rate for 30-year FRM backed by the FHA increased to 3.89 percent from 3.76 percent. Points ticked down to 0.30 from 0.31.

Fifteen-year FRM had an average rate of 3.42 percent, up 14 basis point from the week ended September 6. Points decreased to 0.36 from 0.47.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 3.54 percent from 3.42 percent, with points decreasing to 0.29 from 0.40. The adjustable-rate mortgage (ARM) share of activity fell to 5.0 percent of the total from 5.6 percent.

MBA’s Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.