Monday, June 29, 2009
With major economic data, a Fed meeting, and large Treasury auctions on the schedule, last week was a busy week for mortgage markets. In the end, it was the Treasury auctions which had the greatest impact on rates. Much of the rise in interest rates we have seen over the last month was due to concern about the enormous supply of debt the government needs to issue to pay for all the stimulus programs. The question has been whether investors would require significantly higher yields to continue purchasing bonds. Strong demand from both domestic and foreign investors at these auctions eased those concerns for now and helped pushed mortgage rates lower last week.
As expected, on Wednesday the Fed made no change to the Fed Funds rate. Although investor expectations varied widely regarding the Fed's statement, the good news is that the statement revealed no significant shifts in policy. In particular, there was no change in the timing or the quantity of future MBS and Treasury purchases. In addition, the statement contained no discussion about exit strategies to eventually unwind Fed stimulus programs. Overall, the Fed simply held the course, and mortgage rates were nearly unchanged after the news.
In the housing sector, May Existing Home Sales rose 2.4%. It was the first time since September 2005 that Existing Home Sales increased for two months in a row. The inventory of unsold homes declined to a 9.6-month supply from a 10.1-month supply in April. A NAR survey revealed that 29% of sales were to first-time home buyers, helped by the $8,000 tax credit, low mortgage rates, and favorable affordability levels.
Federal Tax Credit Growing from $8000 to $15,000?
There has been a lot of talk about the proposed $15,000 federal tax credit but since we have not been able to confirm any details, we decided to call Johnny Isakson's office directly. One of our loan officers called and spoke to one of his aides and was told that the proposal was on hold until it could be attached to another bill as an amendment. The aide said that support was strong from both sides of the aisle and they expected it to pass easily. Hopefully, they'll find another bill to attach it to soon! This may come together in the end but it sure doesn't seem like its going to be anytime soon. In the meantime, the $8000 federal tax credit seems to be working! As we talk with people in the industry, it is clear that purchase business has certainly picked up and much of that is first-time home buyer business.
A Quick Lending Tip for Each Major Type of Loan
Conforming: The minimum down payment in metro-Atlanta area is 10%. If a borrower is putting between 10-20% down, they will need to pay PMI and their debt ratio will be limited to 41%. FHA: The minimum down payment is 3.5% but there is more flexibility with debt ratios as they are often allowed into the mid 40's. VA: The original 100% loan program is again THE best 100% loan program. If your buyer is a veteran and doesn't want to put much money down, VA is the way to go. There is no PMI at all. Instead a 2.15% "VA Funding Fee" is added to the sales price and, thus, financed into the loan. Jumbo: The gap on Jumbo rates has closed to only about 1% more than Conforming resulting in Jumbo programs once again being a viable alternative. But if sales price is in the low $600k's or less, the best way to structure the financing is by maxing out the first at the $417k Conforming limit and then tacking on a 2nd mortgage for the difference. 2nd mortgages are much more difficult to get these days but there are still some out there and available! This technique is called a Jumbo Blend and although there are many hurdles to make it over with this approach, it usually is the best way to go when you compare payments. Rate UpdateIt was a good week for rates:
Looking Ahead This week, the ever 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 about 370K jobs in June. Before the Employment data, the Chicago PMI and ISM National Manufacturing Indexes will come out on Tuesday and Wednesday. Pending Home Sales, a leading indicator for the housing market, will be released on Wednesday. Consumer Confidence, Construction Spending, and Factory Orders will round out the schedule. Mortgage markets will be closed on Friday ahead of the July 4th holiday.
The information contained herein is believed to be accurate, however no representation or warranties are written or implied. All Rights Reserved.
Monday, June 8, 2009
RATES CONTINUE TO SOAR
Investors have been concerned for quite a while about the coming supply of new debt needed to pay for all the government stimulus programs. On top of that, the economic outlook has been improving sooner than expected. The combination of these two potentially inflationary developments pushed mortgage rates higher during the week.
The economic surprise last week came from the Employment report. Although the economy lost -345K jobs in May, it was far fewer than the consensus estimate for a loss of -525K jobs. The Unemployment Rate jumped to 9.4% from 8.9% in April. A surge in people entering the labor force was responsible for the unexpected increase in the Unemployment Rate. The labor market is typically one of the last areas to show improvement during an economic rebound, so signs of a turnaround are particularly significant.
Fed Chief Bernanke supported the notion that the recession would end this year. In testimony before Congress last week, Bernanke stated that he still expects the economy to move higher later this year, although it may take a while for growth to return to average levels. He looked ahead to measures needed once the economic crisis has passed, such as containing the budget deficit and reducing government control of markets. At this point, most investors believe that the Fed is not inclined to expand the mortgage-backed security (MBS) purchase program beyond its current level of $1.25 trillion, unless economic growth falls short of the Fed's outlook.
More evidence that the economy may be rebounding came from last week's housing data. April Pending Home Sales rose for the third consecutive month, increasing 7% from March. Pending Home Sales are a leading indicator, meaning that future New and Existing Home Sales reports may show increases.
This week, the most significant economic data will be the Retail Sales report on Thursday. Retail Sales account for about 70% of economic activity. In addition, the Trade Balance and the Fed's Beige Book will be released on Wednesday. Import Prices and Consumer Sentiment will come out on Friday. There will be large Treasury auctions on Tuesday, Wednesday, and Thursday as well.
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