Mortgage Rates Drop Quickly After Jobs Data

Mortgage Rates Drop Quickly After Jobs Data

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Oct 22 2013, 

Mortgage rates fell abruptly today, after the long-awaited Employment Situation Report painted a bleaker-than-expected picture for labor markets.  The report was originally scheduled for October 4th, but was delayed due to the shutdown.  Conforming 30yr Fixed rates (best-execution) moved down to 4.125% for many borrowers depending on the scenario, though some lenders remain at 4.25%.  
To say that financial markets had been eagerly anticipating the release of this data is an understatement.  Apart from a brief spat of volatility leading into and away from the debt ceiling deal, the absence of this jobs report has been the driving force for rates markets--acting to prevent any convicted movement in either direction.
As those barriers were lowered today, and as the report spoke to ongoing labor market weakness, bond markets improved significantly, including MBS, the "mortgage-backed-securities" that most directly influence rate sheets.  When MBS prices improve, rates fall--all things being equal.
Weak economic data historically pushes rates lower and today is no exception, but that's not the whole story.  The ancillary effect of today's data is that it further confirms that the Fed is likely to hold off on reducing its purchases of MBS and Treasuries.  These purchases have helped to keep rates lower than they otherwise would be, and the threat of those purchases decreasing dealt a serious blow to rates markets in the summer months. 

Fannie Mae Changes Coming in November – Conforming Loan Update

This past Spring, a number of FHA guideline changes and increased costs went into effect that has made FHA  less attractive to buyers and has pushed them to higher 5% minimum down conforming options from Fannie and Freddie. For your convenience and quick review I have summarized these changes below. In addition, coming this November are additional changes, but this time, Fannie Mae is doing the tightening.

Many borrowers are now considering non-agency portfolio residential mortgage options instead of traditional Fannie Freddie products. Since your typical retail bank has limited mortgage offerings, borrowers are seeking out alternatives.  HomeQuest Mortgage Corporation, offers several portfolio and non-agency lending options for homebuyers, such as 10% down Jumbo loans to $750,000 with NO Mortgage Insurance required. And the best part, borrowers don’t have to work an impersonal bureaucratic bank. Borrowers can work with an experienced professional who provides personalized service, a broad choice of mortgage lending solutions and a support team with over 60 years combined experience to provide a stress free residential financing experience. Call Tom Drasler today at 714-478-3153 to learn more and experience the difference!

On November 16, Fannie Mae will implement scheduled changes to its automated underwriting system (DU or "Desktop Underwriter").  DU is used by lenders to approve loans, and several of the changes will make it harder for some borrowers to qualify.  These include tougher debt calculations for Adjustable rate loans; a complete removal of interest-only options; a maximum loan term of 30yrs (instead of 40), and stricter requirements for down payments, increasing the minimum amount from 3% to 5% of the loan balance.

FHA (buyers' primary low down payment financing option) raised its monthly and upfront fees this spring, and also made borrowers' monthly mortgage insurance premium (MIP) effective for the life of most loans.  This vastly increased lifetime costs for FHA borrowers. 

After those changes, the upfront MIP added to an FHA borrowers' loan on a $200,000 purchase is now $3,377.50 compared to no upfront cost for conventional loans.  As a result, FHA loans have become far less desirable for borrowers who qualify for other options.  

With costs rising so much for FHA financing, the 3% down Fannie Mae loan program has been a popular alternative.  A 700 score buyer currently pays $202.08 monthly for mortgage insurance (PMI), on a $200,000 purchase versus $201.04 monthly MIP on an FHA loan.  The cost of PMI varies with credit scores for conforming loans (unlike FHA).  Another important difference is that the PMI cost is removed when buyers reach 22% equity, a significant advantage over FHA loans.   

Effective with loans submitted to DU after 11/16, buyers will need 5% minimum down payment versus the current 3%. While increased down payments could deter some buyers, there are still significant Fannie Mae advantages over FHA:  they have no upfront mortgage insurance costs, and 5% down Fannie loans also have lower PMI costs than either FHA or current 3% down loans  ($136.17 monthly for a $200,000 purchase buyer with 700 scores).  Buyers can also utilize gifts from family members for their entire down payment on Fannie Mae loans (as with FHA).   

While specific lenders have varying guidelines (some require buyers provide their own down payments), for borrowers meeting Fannie Mae's guidelines, 5% down loans continue to be enjoy substantial advantages over FHA loans.  Buyers wanting to utilize Fannie's 97% program will need to be under contract by early November so their lenders can run the current version of DU prior to the update on Nov 16.

Weekly Mortgage Interest Report

Weekly Mortgage Interest Rate Report  —  October 11, 2013

Tom Drasler Home Mortgage Consultant - NMLS #297791 Direct (714) 478-3153 Send me an email     |   Visit my website HomeQuest Mortgage Corporation 25283 Cabot Road, Suite 108 - Laguna Hills, CA 92653

Data Provided by Freddie Mac's Primary Mortgage Market Survey®  Week ending on 10/10/2013 Interest Rate Fees & Points Margin  30 Year Fixed Rate 4.23 % 0.7 N/A  15 Year Fixed Rate 3.31 % 0.7 N/A  5/1-Year Adjustable Rate 3.05 % 0.4 2.74  1 Year Adjustable Rate 2.64 % 0.4 2.77 For up-to-the-minute local mortgage interest rate information, contact:  Tom Drasler at Direct (714) 478-3153  Week ending on 10/3/2013 Interest Rate Fees & Points Margin  30 Year Fixed Rate 4.22 % 0.7 N/A  15 Year Fixed Rate 3.29 % 0.7 N/A  5/1-Year Adjustable Rate 3.03 % 0.6 2.74  1 Year Adjustable Rate 2.63 % 0.4 2.77 This is not intended as an advertisement of interest rates as defined by Regulation Z, Section 226.24. Data is provided by Freddie Mac's Primary Mortgage Market Survey (PMMS) and is provided for informational purposes only. The financial and other information contained herein speaks only as of the date posted herein. Freddie Mac, and/or the sender of this information, is not responsible for business decisions made based on the reported results of the PMMS. In general, the data presented were calculated from information collected Monday through Wednesday of the same week that the PMMS is released and may not reflect mortgage rates, fees or points currently available. Average fees and points are provided to reflect the total upfront cost of obtaining a mortgage. Borrowers may still pay closing costs which are not included in the survey. Rates stay about the same "Mortgage rates were little changed amid the federal debt impasse in Washington, D.C. and a light week of economic data releases. Of the few releases, the private sector added an estimated 166,000 jobs in September, which were fewer than the market consensus and followed a downward revision of 17,000 workers in August, according to the ADP Research Institute. The Institute for Supply Management reported a greater slowing in growth in the nonmanufacturing industry in September than the market consensus forecast." – Frank Nothaft, vice president and chief economist, Freddie Mac

This is not a commitment to lend or extend credit. Restrictions may apply. Information and/or data is subject to change without notice. All loans are subject to credit approval. Not all loans or products are available in all states. This is not a commitment to lend or extend credit. Restrictions may apply. Information and/or data is subject to change without notice. All loans are subject to credit approval. Not all loans or products are available in all states. HomeQuest Mortgage Corporation is licensed with the California department of real estate, broker license number 0122091.

Why Have Mortgage Interest Rates Been Declining Recently?

Focus is on Congress
The lack of progress in Congress on reaching an agreement on the budget and the debt ceiling was the focus for investors this week. The resulting uncertainty caused investors to shift to safer assets, which helped mortgage rates end the week lower.
After a week filled with market moving comments from Congressional leaders, the Republicans and the Democrats still appear to be far apart on bills for next year's budget and for raising the debt ceiling. If no deal is reached, some government functions may soon lose their funding. It is difficult to predict the degree to which this would impact the economy, but it likely would slow growth. Investors reacted to the uncertainty by selling riskier assets such as stocks and purchasing relatively safer assets including mortgage-backed securities (MBS). Since mortgage rates are mostly determined by MBS prices, rates improved.
Overshadowed by the impasse in Washington, the housing data released this week continued to show solid results. August New Home Sales rose 8% from July and were 13% higher than one year ago. August Pending Home Sales declined a little from July, but they were still 6% higher than one year ago. The Case-Shiller 20-city home price index was 12.4% higher than one year ago, which was the largest increase since February 2006. 

Should you get the biggest loan you can before rates rise further?

Borrowing to the Max for a Home

Q. I am planning on buying a condominium and I can afford to pay as much as half of it with cash. But with mortgage rates going up nearly every week, should I get the largest loan that I can qualify for now? I know I won't be able to borrow at these relatively low rates much longer.

A. There are two schools of thought on borrowing.

One says that you should use as much "OPM"—other people's money—as you can in a purchase, since it frees up your own cash for other investments.

This camp especially encourages you to leverage your primary residence, since you get a tax deduction for mortgage interest paid. But your savings over time will depend on your income level and whether or not you itemize.

I think this strategy of taking out a bigger loan only makes sense if you have enough financial discipline to save the cash you'd otherwise spend on housing, and can find alternative investments that reliably give you better returns than you'd spend on mortgage interest, factoring in the tax break.

Most people don't have this sort of discipline and good luck with their investments.

So I agree with San Ramon, Calif., certified financial planner Kirk Dobson, who says that the advice he gives all of his clients is to "live below their means and keep untouchable cash reserves."

These reserves should be enough to cover at least six months of living expenses, plus a few thousand extra to cover the unexpected curveballs that life throws at everyone, like the news that your air conditioner is failing or your daughter needs braces.

Mr. Dobson says that you should look for a loan that you can afford comfortably after you've socked away these reserves—not the maximum loan that you get.

Reversal in California's Sales; Prices Slip

Huge Reversal in California's Sales; Prices Slip

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Sep 16 2013, 8:36AM

Between a slight decrease this month and a massive negative revision to the previous month, the California real estate market turned on a dime according to San Diego based DataQuick's release of August sales figures and revised numbers for July.  The firm reported that sales were down 1.9 percent in August to 42,546 units from revised sales of 43,381 in July.

The July revision is significant.  When data was originally released last month those sales had been reported at 48,118 units, 7,091 units more than in June, a phenomenal one month gain of 17.3 percent.  The revised increase of 2,354 units, while still a healthy bounce of 5.7 percent is no longer in the realm of stratospheric.
August sales figures were 3.1 percent higher than sales in August 2012 (41,280) and were the highest for any August since 2006 when 51,054 homes were sold.  DataQuick said since it began keeping records in 1988 sales in August have averaged 47,849 units; August 2013 sales estimates were 11.1 percent below that average.
The median price paid for a home in California last month was $361,000, down 0.6 percent from $363,000 in July and up 28.5 percent from $281,000 in August 2012.  While August was the 18^th month in which the median sale price rose on an annual basis, the amount of that increase eased slightly from the 29.2 percent growth rate from July 2012 to July 2013.  The peak median price in California was reached in the spring of 2007 at $484,000 and the he post-peak trough was $221,000 in April 2009.
Of the existing homes sold last month, 7.8 percent were properties that had been foreclosed on during the past year and 13.2 percent were short sales.  Foreclosure sales had an 8.3 share in July and a 20.0 percent share in August 2012 and had peaked at 58.8 percent of sales in February 2009.  Short sales were down from a 14.4 percent in July and 26.4 percent a year earlier.
DataQuick said that indicators of market distress continue to decline. Foreclosure activity remains well below year-ago and peak levels reached several years ago. Financing with multiple mortgages is low, while down payment sizes are stable.

http://www.mortgagenewsdaily.com/09162013_california_real_estate.asp

Top 5 Mortgage Scams to Avoid - ABC News

Top 5 Mortgage Scams to Avoid - ABC News