Stimulus Impact on Mortgage Rates

Dear Clients and Partners:

There has been quite a lot of controversy expressed by the public regarding the stimulus package and whom among us it benefits and what precedence is being set that will leave it’s mark for many years ahead. I’ve attempted to concisely highlight and clarify recent announcement made this week that affect all of us who own homes, or are looking to purchase or refinance a home.

If you have any questions on how these announcements affect your situation on purchasing or refinancing a home, please contact me at 714-478-3153, blog me at http://tomdrasler.blogspot.com/ .or visit my website at www.TomDrasler.com.

Regards,

Tom Drasler
DRE # 01775516
HomeQuest Mortgage Corporation
25283 Cabot Road, Suite 108
Laguna Hills, CA 92653
FHA – Conventional – VA
“Serving Southern California since 1996”

Stimulus Package Loan Amounts - The Question of the Day:

Q: When will lenders begin accepting loans under the new 2009 limits?

A: Very soon. FHA just released ML 09-07 today outlining the new loan limits for 2009 under the new American Recovery Act (ARRA). Most lenders are telling us roughly two weeks from now. In the meantime, below is a link to the new Mortgagee Letter. http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-07ml.doc

New FHA/VA Minimum FICO: Most lenders are implementing a new minimum FICO of 620 for all FHA/VA loans including streamlines and no longer accepting submissions that do not meet the new FICO requirement. The typical deadline to close any existing loans with FICOs below 620 is March 5th. **Note: Higher default rates on government loans continue to be an issue so don't be surprised to see further FICO tightening from the investor community.

Events This Week:
GDP Lower
Home Sales Fell
Confidence Dropped
Manufacturing Down
Events Next Week:
Mon 3/2 ISM Manuf. Income
Tues 3/3 Pending Sales
Thur 3/5 Productivity Factory Orders
Fri 3/6 Employment

Supply Concerns Boost Mortgage Rates
All the economic news released during the week indicated that future inflation concerns should be minimal. In addition, the Fed purchased more mortgage-backed securities (MBS) than in any prior week. Despite these favorable events, however, mortgage rates rose slightly during the week. The reason is that concerns about the enormous supply of debt that the government will need to issue outweighed the other factors.
The amount of money the US Treasury will need to borrow to fund government spending seems to rise every week. Two weeks ago, it was the $787 billion Economic Stimulus Plan. Last week, the government announced the $275 billion Financial Stability Plan. This week, the Obama administration proposed a $3.6 trillion budget plan, with an estimated deficit of $1.75 trillion, which is enormous by historical standards. The Treasury will need to issue debt to borrow money to fund all of this. As the government issues more debt, the interest rate offered generally must rise to attract additional investors. Interest rates on similar investments such as MBS then move higher as well to compete for funds from investors.
Reflecting their concerns about an increase in supply, investors required higher interest rates at the large Treasury auctions during the week. The auction results showed that demand from foreign investors remained strong, which was very good news. If foreign investors should ever reduce their purchases of US bonds, then interest rates in the US would be likely to rise.


Also Notable:
January Existing Home sales fell 5% to the lowest level since 1997
Continued Jobless Claims rose above five million to a new record high
The Dow stock index dropped to the lowest level since 1997
The Fed purchased $25 billion in agency MBS during the week ending 2/26

Average 30 yr fixed rate:
Last week:
dn 0.05%
This week:
up 0.14%
Stocks (weekly):
Dow:
7,100
-200
NASDAQ:
1,380
-60


Week Ahead
The important 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. Early estimates are for a loss of over 600K jobs in February. Before the Employment Data, the ISM national manufacturing index and Personal Income will come out on Monday. Pending Home Sales, a leading indicator for the housing market, is scheduled for Tuesday. Productivity will be released on Thursday. Factory Orders, Construction Spending, and the ISM Service index will round out a busy week.

Rate Watch Advisory

This week brings us the release of six pieces of economic data for the bond market to digest along with some very important testimony from Fed Chairman Bernanke. Two of the reports are considered to be of low importance, but since we have data being posted every day of the week except for tomorrow, it is likely that we will see plenty of movement in mortgage rates the next few days. Tuesday morning brings us the first of this week's data with the release of February's Consumer Confidence Index (CCI) during late morning trading. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. Since consumer spending makes up two-thirds of the economy, related data is considered important in terms of gauging economic activity. It is expected to show a decline in confidence from 37.7 in January to 36.0 this month. A lower reading would be considered good news for bonds and mortgage rates.Mr. Bernanke will deliver the Fed's semi-annual testimony on the status of the economy late Tuesday morning. He will be speaking to the Senate Banking Committee and market participants will watch his words very closely. The Fed Chairman is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what he says during this testimony. Look for him to address the banking and housing crises specifically and their impact on the overall economy. His testimony begins at 10:00 AM ET with a prepared statement then is followed by Q & A with committee members. I am expecting to see the markets fluctuate during this session, possibly affecting mortgage rates also. January's Existing Home Sales report will be posted late Wednesday morning. This is one of the least important reports of the week, along with Thursday's New Home Sales report. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates. The Existing Home Sales report is expected to show an increase in sales but new home sales are expected to fall slightly.The only important data scheduled for release Thursday is January's Durable Goods Orders data. This data gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. A larger drop than the 2.3% that is expected would be good news for the bond market and mortgage rates. This data is quite volatile from month-to-month, so large swings are fairly normal. The first of two revisions to the 4th Quarter GDP reading is scheduled for release Friday morning. Analysts' forecasts currently call for a decline of 5.4%, indicating that the economy was weaker in the last quarter of the ye ar than initially thought. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market. The last piece of data scheduled for release this week is the University of Michigan's revision to their Index of Consumer Sentiment for February. Current forecasts show this index revising slightly higher than previously thought. The preliminary reading was 56.2 and is now expected to stand at 56.5, indicating that consumer sentiment was slightly stronger than previously thought. This index is important because it helps us measure consumer confidence that translates into consumer willingness to spend. Overall, look for plenty of movement in bond prices and mortgage rates this week. I think we will see the most movement either Tuesday or Thursday, but Friday may be fairly active also. This would be a good week to maintain contact with your mortgage professional.If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Friday's bond market has opened up sharply following early stock losses and renewed fears about the economy. The stock markets are showing early sizable losses after international markets posted large declines during overnight trading. The Dow is currently down 120 points while the Nasdaq has lost 13 points. The bond market is currently up 31/32, which will likely improve this morning's mortgage rates by approximately .375 of a discount point.The Labor Department gave us January's Consumer Price Index (CPI) this morning, saying that the overall index rose 0.3% as expected. The core data rose 0.2%, exceeding analysts' forecasts of a 0.1% increase. This means that consumer prices rose more than expected if excluding volatile food and energy prices. That is considered bad news for bonds, but the stock and economic concerns has prevented a negative reaction to this morning's news.The concerns, both here and overseas, about the global economy are contributing greatly to this morning's bond gains. We are seeing a shift to safety as investors sell stocks and move funds into bonds. While this is good news for the bond market and mortgage rates, this is sometimes only a temporary move and could lead to further volatility in trading in the coming days and weeks. If investors become more comfortable with stocks, we could see those same funds move from bonds back into stocks, driving bonds prices lower and mortgage rates higher. Still, no reason to panic. This just means we need to watch the markets closely.Next week is fairly active in terms of economic releases and relevant events. There is no important news scheduled for release Monday, but we do get important data and the semi-annual monetary policy testimony from the Fed Chairman to Congress on Tuesday. The rest of the week is scattered with relevant data releases, so look to Sunday's weekly preview for details.If I were considering finan cing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Conventional – Non-Conventional – VA - FHA

Dear Clients and Business Partners:
In an effort to address the foreclosure crisis, the Obama administration announced Wednesday, February 18th, some details about Obama’s Foreclosure –Prevention program, intended to provide incentives for lenders to ease mortgage payments for struggling borrowers. Details are still forthcoming as the final plan is still in flux.
Key Components of Obama Plan and Who it Will Help:
· Homeowners who are behind in their payments or in foreclosure proceedings
· Homeowners still current on their home loan but with a high debt-to-income ratio
· Homeowners whose mortgages are held by an investor other than Fannie Mae and Freddie Mac (Jumbo non-conforming lenders, private money lenders or portfolio lenders) that would agree to modify the loan in exchange for government subsidies
· Homeowners whose mortgages are worth between 80% and 105% of their homes’ value, which currently makes it difficult to refinance a loan
· Homeowners whose loans are either held by or guaranteed by Fannie and Freddie
· Other criteria, possibly relating to debt-to-income ratios that are still under discussion
Who Misses Out:
· People who have already lost their houses
· People with mortgages on vacation homes or investment properties

Rate Watch Advisory

Thursday's bond market has opened well into negative territory following the release of much stronger than expected economic data. The stock markets are relatively flat with the Dow and Nasdaq both down 2 points. The bond market is currently down 19/32, which will likely push this morning's mortgage rates higher by approximately .125 - .250 of a discount point.Both of today's monthly reports gave us stronger than expected results. The first and more important of the two was January's Producer Price Index (PPI) from the Labor Department. They announced a 0.8% jump in the overall reading and a 0.4% rise in the core data when they were expected to show 0.3% and 0.1% increases respectively. This means that prices paid at the producer level of the economy rose much more than expected. That is considered bad news for bonds and mortgage rates because it raises inflation concerns that make bonds less appealing to investors.The second piece of data p osted this morning was January's Leading Economic Indicators (LEI). This Conference Board report attempts to predict economic activity over the next three to six months and showed an increase of 0.4% compared to the 0.1% increase that latest forecasts were calling for. This means that the data is predicting economic activity to increase over the next few months at a faster pace than analysts had thought. This is negative news for bonds and mortgage rates.The Labor Department also posted weekly unemployment figures, showing that 627,000 new claims for benefits were filed last week. This matched the previous week's revised total but was higher than expected. The higher total of claims is good news for bonds, but since it tracks only a week's worth of claims it is not considered to be of high importance to the markets, especially with the inflation related readings being posted this morning.The Labor Department will also release January's Consumer Pr ice Index (CPI) early tomorrow morning, which measures inflationary pressures at the very important consumer level of the economy. With exception to maybe the Employment report, the CPI is the most important report that we see each month. Its results can have a huge impact on the financial markets, especially long-term securities such as mortgage-related bonds. It is expected to show a 0.3% increase in the overall index and a 0.1% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall.If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and c annot be guaranteed to be in the best interest of all/any other borrowers.

Rate Lock Advisory - Wednesday Feb. 4th




Wednesday's bond market has opened in negative territory again as investors prepare for the upcoming debt sales the Treasury announced. The stock markets are showing moderate gains with the Dow up 23 points and the Nasdaq up 25 points. The bond market is currently down 9/32, which will likely push this morning's mortgage rates slightly higher.Today's only economic news was the Institute for Supply Management's (ISM) service index. It showed a reading of 42.9 that was higher than expected, meaning the service sector was more optimistic about business conditions last month than in December. It also was a higher reading than was expected, but fortunately not enough to affect this morning's mortgage rates.There are two pieces of important data scheduled for release tomorrow. The first is December's Factory Orders data and is similar to last week's Durable Goods Orders report except this one tracks new orders for both durable and non-durable goods. Current forecasts are calling for a decline in new orders of 3.0%. A large variance from forecasts could lead to changes in mortgage pricing.The second report of the day is Productivity and Costs data for the 4th Quarter. Since a high level of productivity is thought to allow economic growth without inflationary concerns, this data can cause enough movement in the bond market to affect mortgage rates. If it varies greatly from analysts' forecasts of a 1.0% increase, we may see some movement in mortgage rates tomorrow.Also on tap for tomorrow are weekly unemployment claims from the Labor Department. With January's monthly statistics due out Friday morning, traders will be watching the data to help predict Friday's monthly numbers. Current forecasts are calling for 592,000 new claims. The larger the number the better scenario for mortgage rates.If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.