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Stocks Rally After Fed Meeting

Stocks Rally After Fed Meeting
Following Wednesday’s release of the FOMC statement and Fed Chair Yellen’s press conference, there was a big rally in the stock market. The reaction in bond markets was fairly muted, however, and mortgage rates ended the week a little higher.
The Fed statement included some change in language but Yellen emphasized that it did not “signify any change” in Fed policy as indicated in prior statements. The phrase “considerable period” remained in the statement, and the term “patient” was added to describe the Fed’s approach in adjusting monetary policy. The forecasts from Fed officials for the fed funds rate at the end of 2015 and 2016 were lowered a little from their forecasts at the September meeting. According to Yellen, the Fed is unlikely to start raising the fed funds rate for “at least the next couple of meetings”. All of this suggests that most Fed officials expect to begin raising the fed funds rate next year, but that the pace of rate hikes likely will be a little slower than previously thought.
 

Following the Fed meeting, stock prices posted strong gains, with the Dow adding roughly 550 points since that time. Equity investors were pleased that there is little risk of fed funds rate hikes any time soon. The reaction in mortgage rates was much smaller, however, and negative.

So why did the mortgage market respond this way? Until recently, the reaction to Fed meetings was generally either favorable or unfavorable for both stocks and mortgage rates. The difference is that this meeting had nothing to do with the Fed’s quantitative easing (QE) program, which essentially ended in October. QE involved actual purchases of mortgage-backed securities (MBS), so any indication of a change in the expected level of future MBS purchases had a very direct effect on MBS prices and mortgage rates. This meeting was focused on the outlook for changes in the fed funds rate, which has no such direct effect.
Next week, Existing Home Sales will be released on Monday. Tuesday will be packed ahead of the holiday with Durable Orders, New Home Sales, Core PCE inflation, Personal Income, Consumer Sentiment, and revisions to third quarter GDP. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday. Mortgage markets will close early on Wednesday and will be closed on Thursday for Christmas.
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Policy Change in China

Policy Change in China
The primary influence on mortgage rates this week was a reduction in the outlook for global economic growth, mainly due to a policy change in China. Stronger than expected US Retail Sales data offset some of the improvement, however. Mortgage rates ended the week lower, near the best levels of the year.
On Monday, Chinese officials unexpectedly announced a ban on a type of risky lending. This will make financial markets in China safer, but it also is expected to slow their economy. Slower growth in China reduces expectations for future inflation globally, which is positive for US mortgage rates.
Consumers have received a welcome gift this year in the form of lower gas prices. With extra money in their pockets, people increased spending during November by far more than expected. The November Retail Sales report released this week showed a big rise in nearly every area. Retail Sales account for nearly 70% of US economic activity, and this surprising data caused economists to raise their forecasts for fourth quarter Gross Domestic Product (GDP).
Oil prices are now more than 40% below the levels seen in June. For mortgage rates, it’s hard to determine whether this will be a net positive or a net negative. One effect of lower oil prices is to increase economic activity, as seen in the Retail Sales report, and this leads to higher inflation. On the other hand, the price of gas and many other products will be lower. The net effect on inflation of these two offsetting influences will determine the impact lower oil prices will have on mortgage rates.
Next week, the big story will be Wednesday’s Fed meeting. Investors will be looking for hints about the timing of the first fed funds rate hike. Before that, Industrial Production will be released on Monday. Housing Starts will come out on Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Wednesday. CPI looks at the price change for finished goods which are sold to consumers. The NAHB Housing Survey and Philly Fed will round out the schedule.
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US Strong, Japan Not So Much

US Strong, Japan Not So Much
This week, economic data outside the US had a greater influence on mortgage rates than relatively strong domestic data. Economic growth around the world continued to fall short, and this helped mortgage rates end the week a little lower.
A big miss this week was reported in Japan. Third quarter Japanese GDP declined at an annualized rate of 1.6%, while investors had been expecting positive growth of more than 2.0%. This follows recent reports showing a slowdown in China and practically no growth in Europe.
A big question for investors and Fed officials is how large an effect this will have on the US, which has been on track for sustained GDP growth above 3.0%. Foreign trade makes up less than 15% of US economic activity, compared to 50% in Germany and 25% in China, which will limit the impact somewhat. For mortgage rates, slower global economic growth is generally positive, since it helps keep prices for goods and services low.
This week was full of measures of the strength in the US housing market. The data showed continuing improvement, especially in the single-family housing market. Existing Home Sales rose to the highest level of the year. Both existing home sales and the inventory of existing homes for sale were higher than one year ago.
Single-family Housing Starts also are at the highest level of the year, while Building Permits rose to the highest level since June 2008. Finally, the NAHB Housing Index showed that home builders are very confident about both current and future market conditions. These reports are leading indicators of future activity, which bodes well for the housing market in coming months.
Next week, revisions to third quarter GDP will be released on Tuesday. The bulk of next week’s data will come out on Wednesday ahead of the holiday. The packed list will include Durable Orders, Personal Income, Core PCE inflation, Chicago PMI Manufacturing, New Home Sales, and Pending Home Sales. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday. Mortgage markets will be closed on Thursday and will close early on Friday in observance of Thanksgiving.
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Job Openings Remain High

Job Openings Remain High
The economic news this week contained few surprises. The major data, the US Retail Sales report and third quarter Eurozone Gross Domestic Product (GDP), came in very close to expectations. As a result, mortgage rates ended the week with little change.
One other US report released this week has been gaining in prominence since Fed Chair Yellen said that she watches it closely as a labor market indicator. This report, called JOLTS, measures job openings and labor turnover rates. The data showed that job openings in September remained near the 13-year high reached in August.
Another component of the report measures the rate at which employees voluntarily leave their jobs, and this “quit rate” rose from 1.8% to 2.0%, which was the highest level since April 2008. A higher quit rate is viewed as a sign of a stronger labor market, since employees generally are less likely to quit a job if they are not reasonably confident that they can get a new job. Taken together, the strong readings for job openings and quit rates point to continued improvement in the labor market.
The situation in Ukraine has faded from the headlines in recent weeks, but attention returned to the area this week. Officials from Ukraine claimed that Russia has been sending an increasing number of tanks and other military supplies into Ukraine, contributing to greater violence in the regions controlled by the rebels. Russian officials have continued to deny doing this. As outside observers seek to discover more information, this latest news has had little lasting influence on mortgage markets so far, but it serves as a reminder that geopolitical concerns could become a factor at any time. If the conflict in Ukraine escalates, it could cause investors to shift to safer assets, which would be favorable for bonds and interest rates. Conversely, an easing of tensions would have the opposite effect.
Next week, the most highly anticipated economic release will be the FOMC Minutes from the October 29 Fed meeting. These detailed Minutes provide additional insight into the debate between Fed officials. In addition, the Producer Price Index (PPI), which focuses on the increase in prices of “intermediate” goods used by companies to produce finished products, will come out on Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for finished goods which are sold to consumers. The NAHB Housing index, Housing Starts, and Existing Home Sales also are on the schedule for next week.
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Job Gains Remain Strong

Job Gains Remain Strong
The main story this week was the important monthly Employment report, which showed that wage inflation remains low. The European Central Bank (ECB) made no change in policy and had little impact on US markets. After a quiet four days, Friday’s Employment data caused mortgage rates to improve and end the week a little lower.
Against a consensus forecast of 235K, the economy added 214K jobs in October. Revisions to prior months added 31K jobs. The economy has added an average of about 220K jobs per month so far this year, which is the fastest pace in over ten years. The Unemployment Rate declined to 5.8%, the lowest level since July 2008.
Average Hourly Earnings, an indication of wage increases, were just 2.0% higher than one year ago. Bottom line, the job gains were roughly in line with expectations, but the low level of wage inflation was favorable for mortgage rates.
The results of this week’s elections were largely as expected with the Republicans gaining control of the Senate and adding to their majority in the House. There was little immediate market reaction. So, will a Congress lead by the GOP mean that changes are coming for the mortgage market? The general belief is that there will be no significant changes any time soon, and probably not before the next Presidential election. The continuing conservatorship of Fannie Mae and Freddie Mac is the biggest industry issue Congress needs to address, but the complexity of any substantive reform and the significance of Fannie and Freddie to the housing market make this a very difficult issue.
Next week will be a light one for economic events. The JOLTS report, measuring job openings and labor turnover rates, will come out on Thursday. Retail Sales, which account for roughly 70% of economic activity, will be released on Friday. There will be Treasury auctions on Monday, Wednesday, and Thursday. Mortgage markets will be closed on Tuesday in observance of Veterans Day.
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Mortgage Markets Calmer

Mortgage Markets Calmer
After a couple of highly volatile weeks, there were few price swings in mortgage rates this week. With no major surprises in the economic data and little new information from central bank officials, mortgage rates ended nearly unchanged from last week.
One reason that mortgage rates remain near the best levels of the year is low inflation. The Consumer Price Index (CPI) report released this week, the most widely followed monthly inflation indicator, was just 1.7% higher than one year ago. This was well below the Fed’s target level of 2.0%. A separate indicator, the PCE price index, which is also closely watched by Fed officials has revealed even lower levels of inflation. There is little pressure on the Fed to tighten monetary policy with inflation at these levels.
The housing market data released this week showed improvement. Existing Home Sales posted a modest increase in September to the best levels of the year, while inventories of existing homes for sale dropped a bit. September New Home Sales saw a slight increase from downwardly revised August levels, bringing them to the highs for the year as well.
The big story next week will be the Fed meeting on Wednesday. Investors are seeking information about the timing of the first fed funds rate hike. Before the meeting, Pending Home Sales will be released on Monday. Durable Orders will come out on Tuesday. On Thursday, third quarter Gross Domestic Product (GDP), the broadest measure of economic growth, will be released. Core PCE inflation will come out on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
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Week Marked by Volatility

Week Marked by Volatility

It was a volatile week in the financial markets and wild swings in stock prices caused equally wild swings in MBS prices and mortgage rates.  The net result was favorable for mortgage rates, which ended the week marginally lower once again, and they now stand at their lowest level since June 2013.
Concern about economic weakness in Europe, China, and other markets around the world has been the primary driver of the recent volatility. Investors fear that the weakness overseas will ultimately slow economic growth in the US.
The Retail Sales report released this week may have been an indication that the concern is justified.  After several months of steady improvement, Retail Sales in September declined.  With investors expecting an increase of .3%, Retail Sales ex-auto actually fell .2% from August.
Adding to the concerns and uncertainty about the pace of economic activity is the Ebola scare.  Even though the number of reported cases in the US is miniscule, the impact on the economy could be significant if the fear of contracting the virus alters the travel and buying habits of the general public. It has already affected airline stocks, which saw their prices plunge this week.
Market volatility will likely continue, in the near term at least, as investors deal with these same issues. The economic calendar is light next week.  Existing Home Sales will be released on Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Wednesday. CPI looks at the price change for finished goods that are sold to consumers. New Home Sales will be released on Friday.

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Dovish Minutes Help Mortgage Rates

Dovish Minutes Help Mortgage Rates
In a light week for economic data, dovish comments from the Fed and weakness in global stock markets were favorable for mortgage rates. After frequent wide swings during the week, mortgage rates ended near the lowest levels of the year.
Looking for information about the timing of the first fed funds rate hike, investors were surprised on Wednesday by the dovish tone in the Minutes from the September 17 Fed meeting. In the Minutes, Fed officials highlighted multiple downside risks to their economic growth and inflation goals. Officials noted that weak growth in other countries could slow growth in the US. In addition, they discussed the impact of the recently increased strength of the US dollar relative to other currencies. A stronger dollar reduces US exports, which slows economic growth, and it decreases the cost of imports, which reduces inflationary pressures. These factors favor keeping the fed funds rate near zero for a longer period of time.
This emphasis on the dollar and foreign markets was a shift in focus for the Fed. In previous meetings, Fed officials guided investors that the performance of the labor market would primarily determine the timing of rate hikes, and the pace of improvement in the labor market has picked up this year.
The JOLTS report released this week, a favorite indicator of Fed Chair Yellen, showed that job openings have climbed to the highest level since 2001, up around 25% from the start of the year. There are now just two unemployed workers for each available job, down from a high of nearly seven in 2009. The improving JOLTS data, the strong job gains this year, and the decline in the Unemployment Rate to 5.9% had caused some investors to move forward their expectations for the timing of the first fed funds rate hike. The Minutes effectively squashed this speculation, resulting in an improvement in mortgage rates.
Next week, Retail Sales and PPI will be released on Wednesday. Retail Sales account for about 70% of economic activity. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products. Industrial Production, Philly Fed Manufacturing, and the NAHB Housing Index will come out on Thursday. Housing Starts and Consumer Sentiment will be released on Friday. Mortgage markets will be closed on Monday in observance of Columbus Day.
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Big Events Ahead

Sandwiched between weeks containing the highest level of significant economic events, investors took a breather this week. In addition, the economic data released this week contained few surprises. As a result, mortgage rates ended the week with little change.

Between last week’s Fed meeting and next week’s European Central Bank (ECB) meeting and US Employment report, investors have a great deal of information to digest. This week’s news, however, contained little to cause investors to shift their outlook for the performance of the economy. Durable Orders, Jobless Claims, and revisions to second quarter GDP all came in very close to the consensus forecasts. While there were several volatile sessions during the week, the increases offset the decreases.
The housing data released this week continued to be encouraging. August New Home Sales jumped 18% from July to the highest level since May 2008. Existing Home Sales, which include roughly 90% of the market, did decline slightly in August, but this followed four straight months of gains. With mortgage rates remaining relatively low, home sales are near the highest levels of the year.
Next week, there will be a European Central Bank (ECB) meeting on Thursday. The policy announcement from the ECB likely will have an influence on US mortgage rates. In the US, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, Pending Home Sales, Core PCE inflation, and Personal Income will be released on Monday. ISM Manufacturing and ADP Employment Change will come out on Wednesday. ISM Services, Construction Spending, Chicago PMI Manufacturing, and Consumer Confidence will round out a busy schedule.

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Fed Statement Little Changed

Investors were focused almost exclusively on the Fed meeting this week. Shifting expectations about future Fed policy guidance caused a good deal of volatility during the week. The Fed statement contained no major changes, however, and mortgage rates ended the week with little change.
Ahead of Wednesday’s Fed meeting, investors debated about whether the Fed statement would include significant changes in language in one or two areas, but these changes were not made. Fed officials kept the language saying that the fed funds rate will remain near zero for a “considerable time” after the end of the bond purchase program. Fed officials also continued to describe the labor market as containing “significant underutilization”. As expected, the Fed will decrease its purchases of Treasuries and mortgage-backed securities (MBS) by another $10 billion per month to $15 billion and Fed officials expect to conclude the purchases next month.
The headlines for the Housing Starts report released this week pointed out that August Housing Starts declined 14% from July. To keep it in perspective, the drop in August follows an increase of 23% (after revisions) in July to the highest level since November 2007. In addition, the monthly volatility has been almost entirely due to multi-family units.
Single-family housing starts have been much more stable this year, with the seasonally adjusted annual rate showing modest improvement since the beginning of the year. Also released this week, the September NAHB Housing Index showed that home builder confidence increased to the highest level since November 2005.
Next week, Existing Home Sales will be released on Monday, and New Home Sales will come out on Wednesday. Durable Orders, an important indicator of economic activity, will be released on Thursday. Revisions to second quarter GDP will come out on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

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European Weakness Drives Rates

European Weakness Drives Rates

The US economic data released this week struggled to elicit a reaction in the market. Instead, investors focused on increased expectations for asset purchases by the European Central Bank (ECB). This news was favorable for US mortgage rates, which ended near the lowest levels of the year.
The ECB has a reputation for being tougher on inflation than the Fed, and monetary policy has been tighter in the euro zone than in the US. Recent comments suggest that the ECB is headed in the opposite direction, though. While an improving US economy has caused the Fed to wind down its bond purchase program, ECB officials have expressed growing support to implement an asset purchase program to counter weak euro zone economic growth. Investors have added European bonds to their portfolios ahead of this expected added demand from the ECB, pushing their yields lower. This has made global bond yields in other regions relatively more attractive, including US mortgage-backed securities (MBS). The extra demand for MBS has helped push down mortgage rates.
Recent data on the US housing market has been mixed. The Existing Home Sales report released last week showed nice improvement, while this week’s New Home Sales data revealed a slight decline. The July Pending Home Sales report, which is a leading indicator of future activity, rose to 105.9, the highest level since September 2013. The National Association of Realtors (NAR), which issues the report, defines a reading of 100 as an “average level of contract activity”.
Looking ahead, there will be a summit on Saturday between EU officials and Ukrainian officials. This may lead to additional sanctions against Russia. In the US, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, ISM Manufacturing will be released on Tuesday. The ADP Employment Change will come out on Wednesday. Productivity and ISM Services will be released on Thursday. Mortgage markets will be closed on Monday in observance of Labor Day.

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Ukraine and Global Growth Concerns: News for the week ending August 15th, 2014

Ukraine and Global Growth Concerns

An escalation in the conflict in Ukraine was favorable for mortgage rates this week. Concern about the pace of global economic growth also was positive for mortgage rates, which ended the week near the lowest levels of the year.
Investors remain very sensitive to geopolitical events. This was evident on Friday when news services reported that Ukrainians destroyed part of an armed Russian convoy which had crossed the border into Ukraine. A shift to safer assets quickly took place, causing stocks to decline and increasing the demand for bonds, including mortgage-backed securities (MBS). This added demand for MBS pushed mortgage rates lower.
One concern about the conflict in Ukraine is that it will reduce the level of economic activity in Europe. Euro zone second quarter GDP data released this week revealed very weak growth. Sanctions imposed on Russia are adding to the burden, and any additional sanctions would create an even larger obstacle for the economies in the region to overcome.
In the US, the economic news showed that some parts of the economy are slowing as well. The biggest report was Retail Sales, which account for roughly 70% of US economic activity. During the end of the first quarter, Retail Sales showed a nice bounce back from depressed levels due to unusually severe winter weather. The momentum did not continue, though. For the last several months, the gains in Retail Sales have been diminishing, and the July data showed no increase from June. Slower economic growth reduces future inflationary pressures, which is positive for mortgage rates.
Next week, investors will continue to closely monitor the situation in Ukraine. In the US, the Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Tuesday. CPI looks at the price change for finished goods which are sold to consumers. Housing Starts also will be released on Tuesday. The FOMC Minutes from the July 30 Fed meeting will be released on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. Existing Home Sales and Philly Fed will come out on Thursday.

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Millions To Get Break in New Credit Score Calculation

Millions to get break in new credit score calculation

By Gregory Karp, Tribune reporter
FICO formula changing to ease impact of some bad debts
Old medical debt will have less impact on credit scores in new FICO formula
Millions of Americans to get break in new credit score calculation

The formula for calculating the most widely used credit score will soon change to lessen the impact of bad medical debts and old accounts that are paid off.

FICO, which creates the most-used credit scores, said this week its new model offers “a more nuanced way to assess consumer collection information.” It ignores paid collection agency accounts and differentiates medical from non-medical collection accounts.

The effect will be that medical debt turned over to collection agencies will have a lower impact on FICO’s brand of three-digit credit scores. The company claims 90 percent of U.S. lenders use the FICO brand score.

The median FICO score for consumers whose only major black credit marks are unpaid medical debts is expected to increase by 25 points, according to FICO.

Credit scores attempt to predict the probability a borrower will pay back a loan and pay bills, such as a wireless phone bill. They are important because consumers with the best credit scores also get the best loan interest rates, on credit cards, mortgages and auto loans, for example. Those with poor scores might not be able to get a loan at all. Credit scores can also affect auto insurance rates.

Credit scores attempt to summarize in a single number information contained in consumer credit reports from credit bureaus, such as TransUnion, Experian and Equifax. The reports, but not the scores, are available free once a year at annualcreditreport.com.

The Consumer Financial Protection Bureau in May released a research report claiming consumers credit scores may be overly penalized for medical debt that goes into collections.

“Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs. Those costs should not be compounded by overly penalizing a consumer’s credit score,” CFPB Director Richard Cordray said at the time. “Given the role that credit scores play in consumers’ lives, it’s important that they predict the creditworthiness of a consumer as precisely as possible.”

The new FICO score, dubbed, FICO Score 9,also attempts to better assess the creditworthiness of consumers with limited credit history, called thin files, FICO said. They might include young people with short credit histories or people who prefer to use cash instead of credit.

The new FICO score will be available to U.S. lenders starting this fall, FICO said.

Copyright © 2014, Chicago Tribune

Mortgage closing costs soar more than 20% in some states:

By Les Christie

Mortgage closing costs soar more than 20% in some states

Lenders spending more manpower on loans and passing extra costs on to borrowers

UPDATED 2:30 PM CDT Aug 04, 2014
Homes neighborhood

NEW YORK (CNNMoney) —Homebuyers are still landing great rates on mortgages. But thanks to tighter lending regulations, they are paying a lot more when it comes time to close on the loan.

Nationwide, the average cost of closing on a $200,000 loan with a 20 percent down payment hit $2,539 in June, a 6 percent increase from a year earlier, according to Bankrate.com.

Homebuyers in Texas are paying far more than that, however, with average closing costs of $3,046 for a $200,000 loan. That’s up 23 percent compared with a year earlier.

In Wisconsin, buyers saw an even bigger hike: They’re now paying an average of $2,706, a 28 percent increase, according to Bankrate’s data.

Since the mortgage meltdown, federal regulators have implemented new guidelines to make mortgage borrowing safer. Lenders are now required to check a borrower’s credit history, make sure they don’t carry excessive debt and that they earn enough income to make their payments.

As a result, lenders now spend more time and manpower on each loan — and they pass that extra cost on to borrowers.

John Walsh, owner of Total Mortgage, said his company has had to add several services to make sure their loans comply with the new rules. Among them: a fraud check, an automated valuation model and a late credit pull, which is made right before closing.

Bankrate broke down closing costs into two categories. The first, lender origination fees, increased 9 percent year-over-year to an average of $1,877, Bankrate found. Meanwhile, third-party fees for appraisals, credit reports and other services, remained relatively flat an average of $662.

Bankrate did not include other closing costs in its analysis — such as title search and insurance, taxes, property insurance, association fees, interest and other prepaid items, all of which remain relatively unaffected by the new regulations.

Polyana da Costa, a senior mortgage analyst at Bankrate, said the lenders she has spoken with don’t anticipate lowering their fees.

  • Copyright 2014 by CNN NewSource. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

GDP and Labor Market Data: News for the week ending August 1st, 2014

GDP and Labor Market Data

In a packed week, the two big economic reports were the main drivers of mortgage rates. The outperformance of the GDP data relative to expectations outweighed the small miss in the Employment report, causing mortgage rates to end the week a little higher. This week’s Fed meeting contained no surprises and had little impact.
Investors expected that the economy had bounced back during the second quarter from weather related weakness in the first quarter, but they were still caught by surprise by the strength of Wednesday’s GDP report. The first reading for second quarter GDP, the broadest measure of economic growth, showed an increase of 4.0%, far above the consensus of 3.0%. In addition, revisions to the first quarter results caused improvement from -2.9% to -2.1%. Second quarter recovery was seen in nearly every area, including the key components of Consumer Spending and Business Investment. The GDP report was great news for the economy, but faster growth raises future inflationary pressures, which is negative for mortgage rates.
Friday’s Employment report also showed continued improvement, but it fell slightly short of investor expectations. Against a consensus forecast of 230K, the economy added 209K jobs in July. The Unemployment Rate increased from 6.1% to 6.2%. Average Hourly Earnings, a proxy for wage growth, came in below the consensus. Bottom line, the sixth straight month of job gains above 200K was also great news for the economy, but because investors had anticipated even stronger results, mortgage rated declined following the news.
The economic calendar will be very light next week. ISM Services and Factory Orders will be released on Tuesday. The Trade Balance and Productivity will come out later in the week. None of these reports are generally market movers. Investors likely will be more focused on events outside the US. The number of potential trouble spots around the world has increased. Growth fears in Europe, conflicts in Ukraine and the Middle East, banking troubles in Portugal, and a debt default in Argentina all could influence US mortgage rates.

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Existing Home Sales Improve: News for the week ending July 25, 2014

Existing Home Sales Improve

The conflicts in Ukraine and the Middle East had little impact on markets this week, while the economic data was slightly stronger than expected overall. As a result, mortgage rates ended the week a little higher.
The housing data released this week contained mixed news. Fortunately, the good news came from Existing Home Sales, which cover roughly 90% of the housing market. June Existing Home Sales rose 3% from May to the highest level since October 2013, marking the third straight month of increases. Also, the inventory of existing homes for sale rose to the highest level since August 2012.
Less encouraging, June New Home Sales, accounting for the remaining 10% of the market, declined 8% from May, and the May results were revised sharply lower. These figures are frequently volatile from month to month. New homes inventories increased as well to the highest level since October 2011. To summarize, the bulk of the housing market showed continued improvement, and the tight supply of homes for sale in some markets may be showing signs of easing.
While Fed officials have recently downplayed the risk of higher inflation, many investors are not quite so certain. The inflation data released on Tuesday eased some concerns, but just slightly. The June Consumer Price Index (CPI), one of the most widely watched inflation indicators, increased at a 2.1% annual rate. Core CPI, which excludes the volatile food and energy components, was 1.9% higher than one year ago. With CPI holding steady close to the Fed’s stated target level of 2.0%, investors will be keeping an eye out for signs of rising inflation which could pressure the Fed to tighten monetary policy.
Next week, investors will be watching both geopolitical events around the world and major economic news in the US. The next Fed meeting will take place on Wednesday. The first reading for second quarter GDP, the broadest measure of economic growth, also will come out on Wednesday. The important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Core PCE inflation, ISM Manufacturing, Pending Home Sales, and many other reports will round out a very busy week. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday.

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Global Concerns Affect Rates: News for the week ending July 11, 2014

Global Concerns Affect Rates

Unexpected events outside the US had the greatest influence on mortgage rates this week. Violence in the Middle East and economic concerns about Europe caused investors to shift to safer assets, helping mortgage rates. Bond friendly comments from the Fed added to the improvement, and mortgage rates ended the week lower.
During periods of uncertainty, investors commonly reduce the risk in their portfolios. Generally, they shift from riskier assets such as stocks to relatively safer assets such as gold or US guaranteed bonds, including mortgage-backed securities (MBS). Added demand for MBS helped mortgage rates to improve this week as investors were confronted with concerns on two fronts. Violence in Israel caused tensions in the Middle East to increase. In addition, there were signs that the largest bank in Portugal may default on its debt. This caused investors to question the level of reserves held by the banks in Europe and the outlook for economic growth in the region.
The news from the Fed this week also was favorable for mortgage rates. There were no big surprises in the FOMC Minutes from the June 18 Fed Meeting and no new guidance on the timing of the first fed funds rate hike. The positive news for mortgage rates came as the Fed provided a little more detail on its plans for its mortgage-backed securities (MBS) portfolio.
The Fed’s portfolio has been growing at a scheduled pace as the Fed has been reinvesting principal payments received and adding new MBS. The Minutes indicated that the purchases of new MBS will end in October as expected. After that time, the Fed plans to continue to reinvest principal payments received, which will hold the size of its portfolio steady, at least until the first fed funds rate hike. Principal payments have been averaging $16 billion per month, so investors were pleased that the reinvestment will continue for quite a while, as the added demand for MBS helps keep mortgage rates low.
Next week, investors will continue to monitor events in Europe and the Middle East. The biggest US economic report will be Retail Sales, which will be released on Tuesday. Retail Sales account for about 70% of economic activity. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Wednesday. Industrial Production and NAHB Housing also will be released on Wednesday. Housing Starts and Philly Fed will round out the schedule on Thursday.

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Job Gains Surge: News for the week ending July 03, 2014

The big story this week was that job gains in June were significantly higher than expected. Since faster economic growth adds to future inflationary pressures, though, this was negative for mortgage rates, which ended the week higher.

Against a consensus forecast of 210K, the economy added 288K jobs in June, and the figures for April and May were revised higher as well. This was the fifth straight month of job gains above 200K which has not occurred since the late 1990s. The Unemployment Rate declined from 6.3% to 6.1%, the lowest level since September 2008. Average Hourly Earnings, a proxy for wage growth, were 2.0% higher than one year ago. This was a solid report nearly across the board.
Given the surprising strength of recent job gains, the increase in mortgage rates could have been larger. One significant factor in the jobs data has remained favorable for mortgage rates, however. The 2.0% annual rate of wage gains is relatively low by historical standards and creates little concern for future inflation. Fed Chair Yellen has described wage inflation as one of the important indicators of when the Fed needs to raise the fed funds rate. If the pace of wage gains were to increase, then Fed officials would face more pressure to tighten monetary policy.
Next week, the JOLTS report, which measures job openings and labor turnover rates, will come out on Tuesday. The FOMC Minutes from the June 18 Fed meeting will be released on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

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Mortgage Rates Improve Further

It was a light week for economic data, and investors mainly focused on the central banks of the US and Europe. Comments from Fed and ECB officials remained favorable for bonds, and mortgage rates moved down a little during the week, to the lowest levels of the year.

At the beginning of the year, the consensus outlook was for a moderate pace of economic growth in the US and for mortgage rates to slowly climb higher. Despite a weather-related slowdown over the winter, the growth outlook appears to be on target, yet mortgage rates have moved lower this year.
There are several factors which have contributed to the decline in mortgage rates this year. One reason is that inflation has remained low. The major indicators, such as the Consumer Price Index (CPI) and the PCE index, show that core inflation is well below the Fed’s target level of 2.0%, and it is expected to remain low in coming months. Expectations for future inflation are a major factor in setting mortgage rates.
The conflict in Ukraine is also favorable for mortgage rates. During periods of uncertainty, investors typically shift to relatively safer assets, increasing the demand for mortgage-backed securities (MBS). Another influence has been the expectation that the European Central Bank (ECB) will begin a bond purchase program similar to the one used by the Fed over the last few years. The expected added demand for bonds from the ECB has pushed down rates around the world.
Next week, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for finished goods which are sold to consumers. Housing Starts will be released on Friday. Industrial Production, Philly Fed, and Consumer Sentiment will round out the schedule.

Job Gains Surge

The major economic data released this week continued to show an even better than expected bounce back from a weather-related slowdown during the winter. Despite the economic strength, though, there were few signs of inflationary pressures, helping mortgage rates end the week lower, near the best levels of the year.

The economy added 288K jobs in April, far more than expected, and the largest monthly increase since January 2012. Average job gains over the last three months were a healthy 238K, up from 167K over the prior three months.
The Unemployment Rate unexpectedly dropped from 6.7% to 6.3%, the lowest level since September 2008. Looking below the surface, though, a large part of the decline in the Unemployment Rate was due to people leaving the labor force. Average Hourly Earnings, a proxy for wage growth, were flat, limiting the upward pressure on inflation.
The impact of unusually severe winter weather appears to have taken an even bigger bite out of economic activity during the first three months of this year than what had been expected. The initial reading for first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was just 0.1%, down from 2.6% during the fourth quarter. This report often receives large revisions, though, as more data is collected.
Next week, ISM Services will be released on Monday. The JOLTS report, measuring job openings and labor turnover, will come out on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. A meeting of the European Central Bank (ECB) on Thursday also may influence US markets. The ECB is considering a bond purchase program similar to the one in the US that is currently being wound down.

Job Gains on Target

This week, all eyes were on Friday’s key monthly Employment report. Adding to the focus, Fed Chair Janet Yellen emphasized on Monday that future Fed policy will primarily be determined by the performance of the labor market. The jobs data was right in line with expectations, and mortgage rates ended the week a little lower.
After a rough start to the year, partly due to unusually severe winter weather, job growth has returned to the levels expected by most economists and the Fed. The economy added 192K jobs in March, and upward revisions to the data from the prior two months added another 37K jobs. Anticipating even stronger data, which would be more inflationary, investors had pushed mortgage rates a little higher earlier in the week. After the report was released, mortgage rates completely reversed those increases.
The biggest surprise in the jobs data may have been the surge in the labor force. The Unemployment Rate remained unchanged at 6.7%, above the consensus of 6.6%, but the flat reading was due to an unexpectedly large number of people entering the labor force. The Unemployment Rate measures the percentage of people who want a job but are unable to find one. Growth in the labor force is a sign of an improving labor market.
Next week, the JOLTS report, measuring job openings and labor turnover rates, will be released on Tuesday. The FOMC Minutes from the March 19 Fed meeting will come out on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Friday. Import Prices and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
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Future Inflation

It was a very quiet week for mortgage rates. There were few surprises in the economic data. Talk of easing by the European Central Bank (ECB) was positive for US mortgage rates, helping rates end the week a little lower.
Mortgage rates are primarily set based on expectations for future inflation. The Fed has an inflation target of 2.0%. Most economists think that inflation rates well above or well below this level could have negative consequences for the economy. Recent readings for core inflation have been holding steady, below 2.0%. The Core PCE price index released this week revealed that core inflation was just 1.1% over the past year. Last week’s widely followed Core Consumer Price Index (CPI) showed an annual rate of 1.6%.
The majority view on the Fed, though, is that inflation in the US will gradually climb due to an improving economy and a tighter labor market. To prevent inflation from rising too far, the Fed is on track to end its bond purchase program later this year, and Fed Chair Yellen has indicated that the first fed funds rate hike is expected to take place next year.
The situation in Europe is very different. The economic recovery has been much weaker there. Recent inflation readings have been low and appear to be heading even lower. Traditionally, the ECB is known as a stricter inflation fighter than the Fed, meaning that it is more reluctant to add stimulus. Given current economic conditions, though, officials across the euro zone have suggested that the ECB may cut rates or begin to buy bonds to help stimulate the economy and increase inflation. Increased expectations for additional ECB stimulus helped push bond yields lower around the world, including US mortgage-backed securities (MBS).
There will be some big economic events in both the US and Europe next week. A key report on inflation in the euro zone will come out on Monday. The next ECB meeting will take place on Thursday. Given the wide range of investor expectations, the ECB decision could have an impact on US mortgage rates. In the US, the important monthly Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, ISM Manufacturing, Construction Spending, ADP Employment, and ISM Services will be watched by investors.
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Ukraine and China

Tensions in Ukraine flared up again this week, causing investors to shift assets from stocks to the relative safety of bonds. Weaker than expected economic data in China also favored bonds over stocks, while the US economic data was roughly neutral. As a result, mortgage rates ended the week lower.
The most significant US economic report released this week, Retail Sales, contained some good news and some bad news. On the positive side, the results for February were stronger than expected. Unfortunately, the figures for January were revised lower.
Overall, this left the data over the two-month period a little weaker than expected. Given the offsetting effects of the solid headline number and the downward revisions, combined with weather related distortions, the report caused no change in the economic outlook and had little impact on mortgage rates.
There was a lot of talk in the mortgage industry this week about a proposal out of the Senate Banking Committee that would replace Fannie Mae and Freddie Mac. Together Fannie and Freddie purchase or insure the majority of fixed-rate mortgages, so any changes to their structure would have enormous implications for mortgage lending. In the proposal, a new government entity would take over many of the functions of Fannie and Freddie, while some of the default risk would be shifted to private insurers. Both political parties support a reduction in the risk to taxpayers, but beyond that opinions vary widely about the appropriate role of government in the housing market. As a result, this proposal is viewed as a starting point for a long political debate, and the implementation of major reform of Fannie and Freddie is projected by most experts to be many years away.
The biggest upcoming event may be an important vote in Ukraine’s Crimean region on Sunday. If Crimea votes to secede from Ukraine, investors will be concerned that it could lead to an escalation in the tensions between Russia and the US / Europe. In the US, the next Fed meeting will take place on Wednesday. Investors expect the Fed to proceed with another cut in its bond purchase program. Industrial Production will be released on Monday. Core CPI inflation and Housing Starts will come out on Tuesday. Existing Home Sales and Philly Fed will be released on Thursday.
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Integrated Mortgage Disclosures – Exploring the New World

On November 20, 2013, the Consumer Financial Protection Bureau released its final rule on the “Know Before You Owe” mortgage disclosure forms. These forms are designed to improve consumer understanding of the mortgage process, allow consumers to comparison shop mortgage terms, and prevent surprises at the closing table. The new forms, and the rules on their use and timing, impact every step of the mortgage lending process.This program is designed to give an overview of the “Know Before You Owe” rule and help real estate professionals prepare their staffs and systems to implement these new requirements.
The program includes:

  • Dodd-Frank and the informed consumer;
  • Creation, Authority and Funding of the CFPB;
  • “Know Before You Owe” program and design of the disclosures;
  • The Final Rule and Implementation Schedule;
  • The new forms – What is new and what just has been moved;
  • The Loan Estimate – helping consumers compare offers;
  • The Closing Disclosure – giving consumers time to understand the transaction;
  • New Roles for the Closing Attorneys, Loan Processors and Title Companies; and
  • Retooling our systems – Software, workflow and scheduling.