Market Commentary for the Week of October 28th

 

This week brings us the release of six economic reports and two relevant Treasury auctions for the bond market to digest in addition to another FOMC meeting. Most of the data is set for the first half of the week, so we could see plenty of movement in rates the first couple days. The data scheduled this week ranges from moderately to extremely important, so some reports will have a much bigger impact on trading than others. We also need to keep an eye on the stock markets as they can be heavily influential on bond market direction and mortgage rates.

The week kicks off Monday with the release of a moderately important manufacturing report. September’s Industrial Production report will be posted at 9:15 AM ET Monday, giving us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.3% increase in production output, indicating minor growth in the sector. Good news for the bond market and mortgage rates would be a decline in this data.

There are three reports scheduled for release Tuesday, two of which are very important to the financial and mortgage markets. The first is September’s Retail Sales report at 8:30 AM ET that measures consumer spending. This data is very important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Therefore, any related data is watched closely. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop Tuesday morning. However, stronger than expected sales would fuel optimism about the economy and would likely lead to a stock rally that hurts bonds prices and pushes mortgage rates higher. Current forecasts are calling for a 0.1% decline in retail-level sales, meaning consumers spent a little less last month than they did in August. Good news for the bond market and mortgage pricing would be a larger decline in sales.

September’s Producer Price Index (PPI) is the second key report of the day, also at 8:30 AM ET. This is one of the two very important inflation readings we get each month. The index measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.2% increase in the overall index and a 0.1% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could raise concerns in the bond market about future inflation, leading to higher mortgage rates Tuesday. However, weaker than expected readings should result in bond market strength and lower mortgage pricing.

October’s Consumer Confidence Index (CCI) is Tuesday’s last report. This Conference Board index will be released at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a drop in confidence from last month’s 79.7 reading. That would mean that consumers felt a worse about their own financial and employment situations than last month, indicating they are less likely to make large purchases in the near future. That would be good news for the bond market because consumer spending makes up a significant part of our economy. As long as the reading doesn’t exceed the forecasted 74.1, we will likely see the bond market react favorably to this report.

Wednesday’s only economic data is also very important to the bond market. September’s Consumer Price Index (CPI) will be released at 8:30 AM ET Wednesday. It measures inflationary pressures at the very important consumer level of the economy and is one of the most important reports that the bond market gets each month. Analysts are expecting to see a rise of 0.1% in the overall index and an increase of 0.1% in the core data reading. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond’s future fixed interest payments, so when inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.

This week’s FOMC meeting is a two-day meeting that begins Tuesday and adjourns Wednesday afternoon. There really is no possibility of the Fed changing key short-term interest rates this week. But market participants will be looking at the post-meeting statement for any indication of a change in Fed sentiment or possibly further development on tapering of their current bond buying program. Possible effects the government shutdown had on the economy will also be of interest to the markets. The meeting will adjourn at 2:00 PM ET Wednesday, so look for any reaction to the statement to come during afternoon hours.

There is no major economic news set for release Thursday, but there is a highly influential report scheduled for late Friday morning. That will come from the Institute for Supply Management (ISM), who will post their manufacturing index for October at 10:00 AM ET. This index measures manufacturer sentiment, which is important because it gives us an indication of manufacturing sector strength or weakness. It is considered to be one of the more important reports we see each month, partly because it is the first report every month that tracks the preceding month’s activity. Friday’s release is expected to show a reading of 55.0, indicating that manufacturer sentiment slipped from September’s level of 56.2. This means fewer surveyed business executives felt business improved during the month than in September, hinting at manufacturing sector weakness. A smaller than expected reading would be good news for bonds and mortgage rates, especially if it drops below the benchmark 50.0.

This week also has Treasury auctions scheduled the first three days. The only two that have the potential to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand from investors, particularly Wednesday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor interest may create selling in the broader bond market and lead to upward revisions to mortgage rates.

Overall, it appears Tuesday or Wednesday could be the most active day for mortgage rates and Thursday will probably be the lightest. The importance of Friday’s sole report makes it likely to be an active day also, although I suspect the most movement will take place the middle days. With data or other events relevant to mortgage rates scheduled four of the five days, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

Mortgage News Roundup

 

The big news this week are the lawsuits against BofA and J.P. Morgan Chase. We’ll also look at 5 things you’re doing that are hurting you financially. Home prices are on the rise again, and we’ll talk about how Blackstone Funding group managed to create the largest single-family rental business in the U.S.

Jury: BofA liable for Countrywide mortgage fraud

The big news across all the financial media is that BofA committed fraud when they sold sub-prime mortgages to Fannie Mae and Freddie Mac in a program they called The Hustle. The mortgages were originally acquired from when BofA purchased and merged with Countrywide.

The jury also found that Rebecca Mairone, a former Countrywide Financial Corp. executive, was liable for fraud for her role in leading the Hustle loan-processing program.

The trial lasted approximately one month. Investors are also currently suing J.P. Morgan for $5.75 billion.

5 Things You’re Doing That Could Make Your Life Hell

Credit.com posted a useful list on Yahoo Finance of 5 things you’re doing that could be negatively affecting your credit score.

1. Oversharing on Social Networking Sites – those quizzes could be a way for the bad guys to get your personal information like mother’s maiden name, your first school, your first pet’s name, etc. Also you should be careful of sharing information like your birthday and when you’re gone on vacation.
2. Joining Accounts With ‘The One’ – when you combine your accounts with someone else, you’re dinged equally for late or missing payments.
3. Focusing on Credit Only When You Need to Use it - you need to build, nurture, manage and protect your credit portfolio regularly & not pull it off every few years.
4. Clicking on a Link in an Email From the IRS – Usually, it’s a phish (a false email used to get you to provide personal information). The IRS communicates through good old fashioned snail mail.
5. Spilling the Beans Over the Phone – just because someone calls and says they’re from your credit card company doesn’t mean they really are. These scammers ask for your credit card number…and since they called, shouldn’t they be telling you what it is? For your safety, tell them you’ll call them back, and then use the 1-800 number of the back of your credit card to verify.

Home Prices Rise for 19th Straight Month; Pace Decelerating

Home prices posted a 19^th consecutive monthly gain in August the Federal Housing Finance Agency (FHFA) said on Wednesday. FHFA’s purchase only Home Price Index (HPI) rose 0.3 percent on a seasonally adjusted basis from July but the 1.0 percent increase previously reported for July was revised down to 0.8 percent.

The FHFA index is calculated using home sales price information from mortgages sold to or guaranteed by the government sponsored enterprises Fannie Mae and Freddie May.

Blackstone Funding Largest U.S. Single-Family Rentals

Blackstone Group LP spent $7.5 billion acquiring 40,000 houses over the last two years creating the largest single-family rental business in the U.S. The private-equity firm is now planning to sell bonds backed by lease payments.

Blackstone Group created their Invitation Homes division in April 2012 to buy and renovate properties to lease, is double the size of American Homes 4 Rent which is the next in line.

The properties are located in states such as California, Arizona, Florida and Nevada where the number of foreclosures was quite high.

Market Commentary for the Week of October 21st

 

This week brings us the release of five economic reports that may influence mortgage rates, one of which is arguably the single most important monthly report for the markets. There is data set for release four of the five days, so we can expect to see movement in rates multiple days this week. We are also into corporate earnings season, which can heavily influence stock trading and indirectly bond trading. If earnings reports start to indicate a general consensus of weaker earnings than analysts were expecting, stocks should go into selling mode and bonds could benefit as investors seek the safety of government and mortgage bonds.

The National Association of Realtors will start the week’s activities with the release September’s Existing Home Sales data late tomorrow morning. This report gives us an indication of housing sector strength and mortgage credit demand by tracking home resales. I don’t see it having much of an influence on the bond market or mortgage rates, but a reading that varies greatly from analysts’ forecasts could lead to a slight change in mortgage pricing. It is expected to show a decline in sales from August to September, meaning the housing sector softened. That would be favorable news for the bond market since a weakening housing sector makes a broader economic recovery less likely and allows bonds to remain appealing to investors.

The Labor Department will post September’s Employment report early Tuesday morning, rescheduled from earlier this month due to the government shutdown. This extremely important report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be key readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.

If this report gives us weaker than expected readings, bond prices should move higher and we should see lower mortgage rates Tuesday. Although, it is worth noting that the accuracy of the data is likely to be questioned as a result of the shutdown. However, stronger than forecasted readings would be bad news for the bond market and mortgage rates. Analysts are expecting to see the unemployment rate remain at 7.3%, an increase of 183,000 new jobs from August’s level and a 0.2% increase in earnings.

There is nothing of importance set for release Wednesday and Thursday has only a minor housing report scheduled. That would be September’s New Home Sales at 10:00 AM ET. This data covers the small percentage of home sales that Monday’s Existing Home Sales report didn’t include. It is expected to show an increase in sales of newly constructed homes, but regardless of its results I am not expecting it to have a significant impact on mortgage rates Thursday.

Friday has two pieces of economic data that could affect mortgage rates. The Commerce Department will post Durable Goods Orders for September at 8:30 AM ET. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. Analysts are currently calling for an increase in new orders of approximately 3.5%. If we see a much larger increase in orders, mortgage rates will probably rise as bond prices fall. On the other hand, a significantly weaker than expected reading should be good news for the bond market and mortgage rates, but this data can be quite volatile from month to month and is difficult to forecast. Therefore, a small variance from forecasts likely will have little impact on Friday’s bond trading or mortgage pricing.

The week’s last report comes just before 10:00 AM ET Friday when the University of Michigan updates their Index of Consumer Sentiment for this month. This report is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. If consumers are more confident in their own financial and employment situations, they are more apt to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watch closely. Current forecasts show this index falling from the preliminary reading of 75.2 to 74.5, meaning confidence was not as strong this month as previously thought. That would be good news for mortgage rates.

Overall, Tuesday is the most important day of the week with the almighty Employment report now scheduled. None of the other data set for release is considered key or market-moving, but most of the reports can still affect mortgage rates if they show a noticeable variance from forecasts. Wednesday should be the calmest day unless something unexpected happens. However, stock movement can drive bond trading and impact mortgage rates any day, so please proceed cautiously if still floating an interest rate. Maintaining contact with your mortgage professional would be prudent this week.

Mortgage News Roundup

 

We hope you’re having a great week and that you have plans to go visit a pumpkin patch this weekend.

This week, we’ll look at what your homeowner’s insurance doesn’t cover with trick-or-treaters, look into why mortgage application rates are flat, and suspect that will change because mortgage lenders are easing up the credit score standards.

Flat Mortgage Applications

Reuter’s is reporting that US mortgage applications are near flat as demand decreases. When you dig into the article, their experts state that refinancing is up, but because it’s only 0.3% for the week ending October 11 and that’s down from the 1.3% from the week ending October 4th.

The refinancing index gained 3.3 percent after recently hitting the lowest level since June 2009. In contrast, the gauge of loan requests for home purchases, a leading indicator of home sales, fell 4.8 percent.

Their analysts blamed the instability of the government shutdown for the reason.

Mortgage lenders ease credit score standards

Mortgage Watch, a Wall Street Journal based website, announced that home buyers no longer need perfect credit to obtain a loan. After the housing bubble burst, mortgage lenders increased the requirements for obtaining home loans.

The average credit score among borrowers who received a mortgage in September was 732, down from a peak of 750 a year prior, according to new data released today by Ellie Mae, which provides mortgage lenders with loan origination systems. That’s also the lowest average credit score since the company started tracking this data in August 2011.
To be sure, the bar to getting a mortgage remains high. Applicants who were denied a mortgage in September had an average FICO score of 696, according to Ellie Mae—a score that’s relatively stellar by most counts. FICO scores range from 300 to 850. Before the recession it was common for borrowers with credit scores in the 600 range and below to get mortgages.
Ellie Mae’s data comes from lenders that input mortgage applicants’ information in its software, which processes applications. The data represents 20% to 30% of all mortgage applications in the country.

So if you don’t have perfect credit and are looking at buying a home, find a reputable mortgage broker and review your situation. If you have a home loan and don’t have perfect credit, it will be easier to refinance. Talk to a mortgage broker to find the best plan for your situation.

What Is Your Risk At Halloween?

Fox Business ran an article on what risks are involved on Halloween and what could or might not be covered by your homeowner’s insurance policy.
The risks are:

• Passing Out Candy – Unfortunately, sometimes people slip and fall or somehow get injured on your property. And you are responsible for that. The good news is that your insurance should cover any slips, trips or falls that take place outside your home. Your insurance should also cover your defense if it went to trial.
• Hosting a Haunted House – Any injuries would be covered if it’s free. If you charge to go in, you would be considered running a business and your insurance would not cover it.
• Vandalism and Stolen Objects – While you could file a claim, you would have to decide if it’s really worth it to pursue an insurance claim for stolen decorations, as it may hurt you in the end if a larger issue occurs down the road. If you have a history of a lot of little claims, it may raise your rates or leave you open to being dropped.

As with all things, please talk to your insurance agent specifically about your situation and concerning your own policy.

So, have you started decorating for Halloween yet?

Market Commentary for the Week of October 14th

 

This week had a handful of economic reports for us to follow that are relevant to mortgage rates, but it will be more of the same as the past two weeks with no resolution yet in Washington. There were five monthly reports scheduled this week that we normally would need to be concerned with. However, due to the shutdown we are likely to only get two of them.

The bond market will be closed Monday in observance of the Columbus Day holiday as will most banks, so there will not be an update to this report Monday. The stock markets will be open for trading though. This means that the lenders that are open for business will likely not be issuing new rates Monday, opting to use Friday’s pricing or not accepting new rate locks. The bond market will reopen for regular trading Tuesday morning. It is worth noting though that due to weakness in bonds late Friday, we can expect to see an increase of approximately .250 of a discount point when new rates are posted unless your lender revised pricing higher already Friday afternoon.

What we will see this week in terms of monthly economic news, assuming that nothing changes in Washington, is the Federal Reserve’s Beige Book report Wednesday afternoon and September’s Leading Economic Indicators (LEI) Friday morning. The Federal Reserve is self-funded and therefore not affected by the government shutdown and the LEI comes from a non-governmental business research group that is based in New York.

The Beige Book will be posted at 2:00 PM ET Wednesday, which is named simply after the color of its cover. This report details economic conditions throughout the U.S. by Fed region and is relied upon heavily by the Federal Reserve when determining monetary policy at their FOMC meetings. If it reveals stronger or noticeably weaker signs of economic growth from the last release, we could see bond prices move and mortgage rates revise Wednesday afternoon. Signs of stronger growth would be negative for rates while much weaker conditions than the previous release would be favorable for the bond market and mortgage shoppers.

September’s LEI will be released by the Conference Board at 10:00 AM ET Friday morning. This index attempts to measure future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.6% from August’s reading. This would indicate that economic activity is likely to increase over the next couple of months. That would be relatively bad news for the bond market and mortgage rates, but this report is considered to be only moderately important. Therefore, a small increase would not be of much concern to the bond and mortgage markets. Ideally, we would like to see a decline.

The reports that are delayed are September’s Consumer Price Index (CPI), Housing Starts and Industrial Production. The CPI measures inflation at the consumer level of the economy, so it is considered very important to the bond market and will be missed. The other two releases are generally considered to be moderately important to the bond and mortgage markets but still can affect mortgage rates if they show significant surprises.

Overall, this holiday-shortened week will still likely bring multiple days of noticeable movement in rates. Besides the minimal economic data to drive trading, we can also expect any rumors or progress regarding the shutdown or upcoming debt ceiling deadline to also influence the financial markets and mortgage rates. I currently believe there is much more risk by floating an interest rate than potential reward if closing in the near future. Therefore, please proceed cautiously if still floating a rate and maintain contact with your mortgage professional.

Market Commentary for the Week of October 7th

 

This week has four pieces of economic data scheduled that was expected to influence mortgage rates in addition to a couple Treasury auctions and the minutes from the most recent FOMC meeting. However, with a resolution to the stalemate in Washington nowhere in sight yet, we likely won’t see most of the week’s economic data. That will leave bond traders to rely on other factors for bond direction and mortgage rate movement.

The relevant economic reports that are scheduled for release but are unlikely to be posted are August’s Goods and Services Trade Balance on Tuesday and Friday’s release of September’s Retails Sales report and Producer Price Index (PPI). Tuesday’s report is not considered to be of high importance to the markets, so it won’t be missed. However, Friday’s data is considered to be key readings of consumer spending and producer level inflation that could have been market-movers.

What we will see this week are the minutes from the most recent FOMC meeting, which was the one that the Fed opted to delay the much-anticipated tapering of their bond purchases. We also will get last week’s unemployment numbers Thursday morning and the University of Michigan’s Index of Consumer Sentiment late Friday morning. The results of these will be magnified because the government shutdown has significantly limited the release of the economic data that was scheduled since the first of the month.

The last FOMC meeting minutes will be posted Wednesday afternoon. These may be a major mover of the markets or could be a non-factor, depending on what they say. However, with little else being posted this week they will likely be more influential than usual. The keys will be concerns over the economy, inflation and the Fed’s next monetary policy move. If Fed members were concerned about the economy continuing to grow, we may see the bond market move higher and mortgage rates lower Wednesday afternoon. It will be interesting to see how much debate and disagreement amongst members took place during the meeting, particularly about tapering QE3. They will be posted at 2:00 PM ET, so any reaction will come during afternoon trading.

Also Wednesday is the first of two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.

The last event of the week is October’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. Rising confidence indicates consumers feel better about their own financial and employment situations, meaning they are more apt to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related date is watched closely. Good news for the bond market would be a sizable decline in consumer confidence. It is expected to show a reading of 74.5, down from September’s final reading of 77.5.

Overall, I see Wednesday as the key day of the week, although the most movement in the markets and mortgage pricing will probably take place during afternoon hours. We should see more movement in rates Thursday and Friday also even though the reports of those days usually don’t draw high levels of attention. It is the inability to get the key data that is raising the stature of those reports. This could change if something unexpected happens, such as a compromise in Washington D.C. Since that does not appear to be likely in the immediate future, we are left with the reduced activity calendar this week. Still, we can see a fairly significant move in rates if it appears progress is being made in Congress, so please proceed cautiously if still floating an interest rate and closing in the near future.

Mortgage News Roundup

 

We hope that you are all doing well and enjoying the first week of October.

Initially, the news outlets were reporting that FHA-backed mortgages would be halted during the shutdown. However, HUD announced that mortgage applications would continue to be processed.

Loans backed by the FHA and the Veteran’s Administration, as well as rural development loans backed by the United States Department of Agriculture, accounted for 45% of all mortgages used to purchase homes issued in 2012, according to the Federal Reserve. The FHA alone insures about 60,000 loans a month.

Fannie Mae and Freddie Mac have already stated that their operations would be unaffected by a shutdown because they pay for their operations out of the fees collected from the lenders.

“There will be a limited number of exempted FHA staff available to underwrite and approve single family home loans,” said Jereon Brown, Deputy Assistant Secretary for Public Affairs. “The underwriting and approval process will definitely be slower than normal.”

Claim Lost Down Payment as a Capital Loss?

Fox Business had an interesting question & answer on whether a down payment on a business property could be written off as a capital loss.

Turns out it can’t but, it could be written off on your personal income taxes.

Even though you never closed on the business property, the Internal Revenue Service will allow you to treat the loss in the same manner as if you had.
You can claim this $15,000 loss on your Form 1040 using Form 4797, Sales of Business Property, specifically on Page 1, Part II, line 10.

7 Loans You Thought Had Disappeared

Yahoo Finance published an article on seven mortgages that have gone extinct and then offered commentary from mortgage officers on why that might be so.

1. Stated income mortgages are primarily used by self-employed as to what they expect their income to be. These loans were widely blamed for enabling many borrowers to get into mortgages they couldn’t afford. They’re called stated income because no proof of the borrower’s income is required.
2. No money down mortgages are almost impossible for most people to get. However, they’re not completely gone. You can still get one through the VA if you’re a qualifying veteran or active-duty member of the military. Also, borrowers with low-to-moderate incomes may be able to get a USDA Rural Development loan with no money down to buy a modest home in a rural area or small community.
3. Interest only loans started drying up when property values started dropping thus preventing people from refinancing. They’re still used today with new construction.
4. Negative amortization loans would allow you to get even deeper in debt paying less than the interest amount. These have definitely gone the way of the dodo bird.
5. ARMs are actually one of the most traditional mortgages around. In fact, in many countries they’re the main type of home loan. They’re called “adjustable rate” because they start out at one interest rate for a certain period of time, say 5 to 7 years, then adjust to a new rate based on current market conditions. They dried up because fixed rate mortgage interest rates dropped below 4%.
6. Teaser rates were a lot like ARMs but would start at a very low rate and then quickly jump to a much higher rate. With falling property values and fixed interest rates, these loans aren’t useful for bringing in new business.
7. Balloon mortgages tend to offer lower rates than comparable fixed-rate mortgages and for the same reason – the lender doesn’t have to worry about being saddled with a low-rate mortgage long-term if rates rise in the future. They’ve also fallen out of popularity for the same reason as ARMs but are still available.

If you have questions about new loans or refinancing, contact a reputable loan officer and they will be able to explain in detail what is best for your particular situation.