Mortgage News Roundup

 

It’s been an interesting week with interest rates slowly creeping up, refinancing numbers continuing down, and JP Morgan settling with the Department of Justice.

Mortgage Applications in U.S. Retreated for Third Straight Week

Has refinancing bottomed out? Bloomberg is reporting that mortgage applications have decreased to a two month low.

The Mortgage Bankers Association’s index fell 2.3 percent in the period ending Nov. 15 after a 1.8 percent loss compared to the week prior. The group’s purchases measure increased 5.8% to the highest since September. However, the refinancing gauge dropped 6.5% to the lowest since mid-September.

Reuters is reporting that the Fed has announced it would begin to slow its policy of buying $85 billion per month in Treasuries and mortgage-backed securities when economic growth meets its targets. Strong data recently has reinforced concerns that the tapering could come soon. Previously, it was expected that those accommodating monetary policies would last into 2014.

JP Morgan Settles With Government

The JP Morgan mortgage settlement was announced this week with a whopping $13 billion made up of $7 billion in civil securities settlements, $2 billion for “a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA),” and $4 billion is “in the form of relief to aid consumers harmed by the unlawful conduct of JPMorgan, Bear Stearns and Washington Mutual.”

This is the largest settlement in U.S. history. JP Morgan, the nation’s largest bank, admitted to knowingly peddling the toxic securities that helped lead to the housing bubble and the worst financial meltdown since the Great Depression.

It was unclear yet how the $4-billion relief program would be apportioned to struggling homeowners, but that it would distributed over the next four years. Government officials said California would receive a large share as the state was hit hard by 1 million foreclosures.

Half of the program is intended to go toward writing down the balance of mortgages and waiving certain payments on home loans. Most of that would be achieved through outright forgiveness of first-mortgage debt.

The remaining $2 billion is to be allocated for various other uses, including aid to help low-income people buy homes, reduction of the interest rate on mortgages and efforts to reduce blight in neighborhoods most affected by foreclosures.

California’s public pension plans will also get some cash. The California Public Employees’ Retirement System will receive $221.6 million, while the California State Teachers’ Retirement System will receive $19.5 million. Smaller state-run pension plans will receive lesser amounts.
Yahoo! Finance posted a blog pondering if the punishment was a good idea or if it would make the economy worse:

Specifically, Whalen says the combination of the Fed’s ultra-low interest rates and a much more stringent regulatory environment are going to have a “chilling effect on credit creation.” (While the Fed’s zero-interest rate policy was initially good for banks, it is hurting all ‘savers,’ including banks, who are being forced to sit on higher levels of capital, he notes. “The cheap funding actually enhanced net interest margin, but the point where the ‘net’ benefit for banks went negative has long since passed.”)
That, in turn, will hurt economic growth and limit job creation, he says, creating a cruel circle of irony.

If you have any questions on mortgage interest rates, applications or refinancing, please contact a reputable loan officer who diligently studies the market trends to find the best answers for you and your situation.

Market Commentary for the Week of November 18th

This week has five economic reports scheduled for release that are relevant to mortgage rates in addition to the minutes from last month’s FOMC meeting. A couple of the reports are considered highly important to the markets, meaning we could see noticeable movement in rates more than one day. There is nothing scheduled to be posted Monday or Friday, so the middle part of the week will likely be the most active.

The 3rd Quarter Employment Cost Index (ECI) will be released at 8:30 AM ET Tuesday. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week. Therefore, it will likely take a large variance from forecasts for this report of have a noticeable influence on mortgage pricing.

Wednesday has four events scheduled that we need to watch, including two of the week’s more important economic reports. The Commerce Department will give us October’s Retail Sales figures early Wednesday morning. This data measures consumer level or retail spending. It is considered extremely important to the markets because it makes up over two-thirds of the U.S. economy. It is expected to show a 0.1% increase in retail-level spending, meaning consumers spent just a bit more last month than they did in September. A larger increase in spending would be considered negative news for bonds because rising spending fuels economic growth and raises inflation concerns in the bond market. If Wednesday’s report reveals a decline in spending that indicates consumers spent less than thought, bonds should react favorably, pushing mortgage rates lower. If it shows an unexpected increase, mortgage rates will likely move higher.

The second report of the morning will be the release of October’s Consumer Price Index (CPI) from the Labor Department, which is one of the two key inflation readings on tap this week. The CPI measures inflationary pressures at the consumer level of the economy and is one of the most important reports the bond market sees each month. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the consumer level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see no change in the overall reading and a 0.2% increase in the core data.

October’s Existing Home Sales data will be posted by the National Association of Realtors late Wednesday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking home resales in the U.S. This report is expected to show a small decline in sales, meaning the housing sector weakened slightly last month. That would be good news for the bond market and mortgage pricing, but unless it shows a significant surprise, it will likely not have a major impact on mortgage rates.

Also worth noting is the release of the minutes from the last FOMC meeting Wednesday afternoon. Traders will be looking for any indication of the Fed’s next move regarding monetary policy or potential tapering of their current bond purchases. They will be released at 2:00 PM ET, so any reaction will come during afternoon trading. This release is one of those that may cause some volatility in the markets after they are posted, or could be a non-factor. If they show anything surprising, we may see some movement in rates Wednesday afternoon, but it is more likely there will be little reaction.

Thursday’s only monthly report is October’s Producer Price Index (PPI) at 8:30 AM ET. This index is similar to Wednesday’s CPI, except it measures inflationary pressures at the manufacturing level of the economy. The overall reading is expected to show a 0.2% decline from September’s level while the core data is expected to rise 0.1%. Weaker than expected readings would be good news for bonds and mortgage rates, while larger than forecasted increases could lead to higher mortgage rates Thursday morning.

Overall, I am expecting Wednesday to be the most active day for mortgage rates with three economic reports and the FOMC minutes set for release, but Thursday could be a little volatile also. The calmest day will probably be Monday while Friday should be a close second unless something unexpected transpires. The yield on the benchmark 10-year Treasury note closed last week just above 2.70%, which appears to be somewhat of a support level for the market. That means there is more of a possibility of it moving higher than breaking below and since mortgage rates tend to follow bond yields we could see higher mortgage rates before getting much of an improvement. Therefore, I strongly recommend proceeding cautiously if still floating an interest rate and closing in the near future.

Market Commentary for the Week of November 4th

 

This week has seven economic reports scheduled for release that may have an impact on mortgage rates. The most important data is scheduled later in the week, but there is data or speeches from Fed members set for every day making it likely that we will see an active week for mortgage rates with a good possibility of intra-day revisions multiple days.

Monday kicks off the week’s schedule with the release of two months of Factory Orders data. We will get results for August and September instead of the traditional single month due to delays caused by the government shutdown. This report is similar to last week’s Durable Goods Orders release except it includes orders for both durable and non-durable goods. It is expected to show a 0.3% rise in August and a 1.8% increase in new orders in September. I don’t believe that August’s data will have much of an impact on Monday’s mortgage rates. This report is normally considered to be only moderately important and August data is a couple months old now. Basically, smaller than forecasted increases would be good news for the bond market and mortgage rates while bigger increases would be bad news and could contribute to higher mortgage pricing since it would indicate economic strength.

There is nothing of relevance scheduled for release Tuesday and Wednesday’s sole report is not considered to be highly important. Wednesday’s data will come from the Conference Board, who will post their Leading Economic Indicators (LEI) for September at 10:00 AM ET. This report attempts to predict economic activity over the next three to six months. It is expected to show a 0.6% rise, indicating that the overall economy is likely to grow in the immediate future. Good news for the bond and mortgage markets will be a much smaller increase than forecasts. However, this data is not known to be highly influential on rates, so it will likely take a large variance from forecasts for it to affect Wednesday’s mortgage pricing.

Thursday starts the big news for the week. The preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) will be released at 8:30 AM ET Thursday morning. The GDP is considered to be the benchmark measurement of economic growth because it is the total of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Thursday’s release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 1.9% in the GDP, which would mean that the economy grew at a noticeably slower pace than the 2nd quarter’s 2.5% rate. If this report shows a much smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a larger than expected rise could lead to a rally in stocks, bond selling and a sizable increase in mortgage pricing Thursday morning.

The first of Friday’s three reports is another key release with the Labor Department posting October’s Employment data. It is arguably the single most important monthly report since it is comprised of many statistics and readings, including the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for the unemployment rate to move higher by 0.1% to 7.3%, an increase in payrolls of approximately 100,000 and a 0.2% increase in average earnings. Weaker than expected readings should renew concerns about the labor market and rally bonds enough to improve mortgage rates, especially if the stock markets react poorly to the news. On the other hand, if the report indicates employment sector strength, especially after the government shutdown, we could see mortgage rates spike noticeably higher Friday morning.

September’s Personal Income and Outlays report will also be posted early Friday morning. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.2% increase in income and a 0.2% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing, but the Employment report will take center stage Friday morning.

The week’s economic calendar closes late Friday morning when November’s preliminary reading of the University of Michigan’s Index of Consumer Sentiment is posted. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to show a reading of 75.3, up from October’s final reading of 73.2. That would be considered negative news for bonds because rising sentiment means consumers are more optimistic about their own financial situations and are more likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. The lower the reading, the better the news it is for mortgage shoppers.

There are also quite a few speaking engagements by Fed members this week that are worth watching, including Chairman Bernanke. The topics of some of these speeches, which are scheduled each day this week, appear to be directly related to the economy and monetary policy. This means that their words will be watched closely by market participants and can be highly influential on the financial and mortgage markets.

Overall, I believe the most important days of the week for mortgage rates are Thursday and Friday. This is when we will likely see the most movement in rates due to the importance of the data those days. Tuesday appears to be the best candidate for lightest day with nothing scheduled, but we should be alert each day for unexpected news or swings in trading that could cause mortgage rates to jump. The benchmark 10-year Treasury Note yield closed at 2.62% Friday, which could mean there is more room for it to rise before coming down if it does not fall below 2.60% right away. Therefore, please proceed cautiously if still floating an interest rate and closing in the next month or so.

Mortgage News Roundup

 

In today’s mortgage news roundup, we look at another bank that had to settle lawsuits, the idea of test-driving a home before you buy, and more reasons to buy or refinance before 2014 hits.

Ally settles U.S. regulators’ mortgage securities claims

Residential Capital LLC, the former mortgage unit of Ally Bank, has agreed to settle lawsuits by two U.S. regulators over alleged misstatements about its residential mortgage-backed securities.

Residential Capital is under Chapter 11 Bankruptcy protection right now, and will have their bankruptcy exit plan reviewed in a hearing on November 19th.

Alfred Pollard, general counsel for FHFA, said in a statement that details will be released after the end of the current fiscal quarter, as both sides continue to hash out final terms. Ally was one of 18 financial institutions sued by the FHFA in 2011. FHFA targeted companies that they felt made false or misleading statements relating to some $200 billion in residential mortgage-backed securities bought by Fannie Mae or Freddie Mac. FHFA is the conservator organization for Fannie Mae and Freddie Mac.

David Barr, a spokesman for the FDIC, said that agency’s settlement was worth $55.3 million, and resolves four lawsuits against Ally related to mortgage-backed securities.

Quirky Trend Could Save You From Buying The Wrong House.

Try before you buy works well with automobiles, but what about houses?

There is a new trend that allows serious potential home buyers to spend some time alone in the property without the pressure of anyone else. It allows the buyer to pretend that they are living there. You suddenly see things that you might not have just doing a walk through. You could pretend to cook and discover that you don’t like the way the oven door opens into the doorway.

Or that you thought you’d enjoy living next to a park, but weren’t expecting the crush of cars with people who exercise at 5:30am or 6:30pm.

Mortgage refinancing projected to plunge in 2014 as rates rise

Is this the end of bargain mortgage rates?

Home lending will fall by a third next year as interest rates rise, a mortgage industry group says in a new forecast.

The Mortgage Bankers Assn. said Tuesday that it expects to see $1.19 trillion in new mortgages written during 2014, down 32% from $1.75 trillion this year.

Jay Brinkmann, the group’s chief economist, said all-cash home purchases by bargain-hunting investors – a huge driver of home sales the past few years – are expected to taper off next year.

He also expects mortgage rates to rise above 5% in 2014 and to increase further to 5.3% by the end of 2015.

As we’ve reported in prior posts, now is the time to get a mortgage…new or refinance. Contact your local mortgage broker and discuss your goals and current situation to find the best solution for you.