Final Market Commentary for 2013

This holiday-shortened week has only two monthly economic reports scheduled for release that are relevant to mortgage rates. One of those two is considered to be highly important to the bond and mortgage markets. There is nothing of importance Monday, but every other day does have at least one event scheduled that could have an impact on the financial markets and mortgage rates.

The Conference Board will post their Consumer Confidence Index (CCI) for December late Tuesday morning. This is a fairly important release because it measures consumer willingness to spend. If consumers are more confident about their personal financial and employment situations, they are more apt to make large purchases. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely by market participants and can affect mortgage rate direction. Current forecasts are calling for a large increase in confidence from November’s reading of 70.4. Analysts are expecting Tuesday’s release to show a reading of 77.1, meaning consumers felt much better about their own financial situation than they did in November. The lower the reading, the better the news it is for bonds and mortgage pricing.

The bond market will close at 2:00 PM ET Tuesday ahead of the New Year’s Day holiday, but the stock markets are scheduled to be open for a full day of trading. All banks and major U.S. financial markets will be closed Wednesday for the holiday and will reopen Thursday morning for regular hours. As a result of the holiday schedule, we should see lighter than normal trading a couple days. However, I don’t believe it will be as thin as we saw last week. That should help prevent larger moves in bonds on days with little or no news to justify the move like we saw last week.

After the holiday, the Institute for Supply Management (ISM) will post their manufacturing index for December late Thursday morning. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. That indicates manufacturing sector strength rather than contraction. Analysts are currently expecting to see a 56.9 reading in this month’s release, meaning that sentiment softened from November’s 57.3. A smaller reading will be good news for the bond market and mortgage shoppers, while a higher than expected reading could lead to higher mortgage rates Thursday morning as it would point towards stronger economic growth.

Also worth noting are a handful of Fed member speaking engagements all scheduled for Friday afternoon, including one by Chairman Bernanke. None of them are considered to be highly important or likely to be market-moving, but whenever they speak publicly, particularly the Fed Chairman, their words have the potential to influence the markets. There are five set for Friday with the first scheduled for 12:45 PM ET and the last at 5:00 PM ET. Chairman Bernanke is expected to speak in Philadelphia at 2:30 PM ET. This means any reaction to their speeches will come during afternoon trading.

Overall, I am expecting to see Thursday be the most active day for mortgage rates, although Tuesday morning could also be fairly busy as the year comes to an end. It is difficult to label any day as the calmest because even Monday that doesn’t have anything scheduled to be posted, could also be relatively busy following last week’s light holiday trading. The benchmark 10-year Treasury Note yield closed the week at 3.00% Friday, which is above the previous key level of 2.95%. Due to last week’s extremely light trading volume, I am not too concerned about it closing at that level. However, I am looking for it to move back below nearly immediately or we could be in for a sizable upward move in mortgage rates very soon. Therefore, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

Market Commentary for the Week of Christmas

This week brings us the release of four pieces of monthly economic data that are considered relevant to mortgage rates. It is a holiday-shortened week with the financial markets closing early Tuesday and remaining closed Wednesday in observance of Christmas. None of the week’s data is considered key, but some of it does carry enough importance to affect mortgage pricing. All of the important reports come the first part of the week, so we should see the most movement before the holiday.

The first report of the week is November’s Personal Income and Outlays data at 8:30 AM ET Monday. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up over two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.5% increase in income and a 0.5% increase in spending. If this report reveals weaker than expected readings, we should see the bond market improve and mortgage rates drop slightly Monday morning. We already have an improvement of approximately .125 – .250 of a discount point waiting if your lender did not revise lower Friday afternoon. So even a miss in this data likely will not be enough for rates to come in higher than Friday’s morning pricing.

Monday also has the revised University of Michigan Index of Consumer Sentiment for December just before 10:00 AM ET. Current forecasts are calling for an upward revision from the preliminary reading of 82.5. This is a fairly important index because rising consumer confidence indicates that consumers feel better about their own financial and employment situations, meaning they be more apt to make large purchases in the near future. A reading above the 83.3 that is forecast would be negative for bonds and mortgage rates while a large decline would be favorable.

The remaining two monthly reports are set for release Tuesday morning. November’s Durable Goods Orders is the first at 8:30 AM ET. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years such as appliances, airplanes and electronics. Analysts are expecting the report to show a 2.2% rise in new orders. A decline in new orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should drive mortgage rates lower. However, a much larger jump in orders could lead to mortgage rates moving higher early Tuesday morning. This data is known to be quite volatile from month-to-month though, so it is not unusual to see large headline numbers on this report.

November’s New Home Sales data is the second report of the day and the final monthly report we need to watch this week. It will give us a measurement of housing sector strength and mortgage credit demand. It is the sister report of last week’s Existing Home Sales report, but covers a much smaller portion of the housing market than that one did. A weakening housing sector is considered good news for the bond market and mortgage rates because broader economic growth is less likely in the immediate future. Since bonds tend to thrive in weaker economic conditions, a large decline would be considered favorable for bond prices and mortgage rates. Current forecasts are calling for a decline in sales of newly constructed homes. Ideally, we would like to see a large drop in sales.

Overall, I believe we saw an important move in bonds Friday morning that could be a good sign for mortgage shoppers. As predicted, the 10-year Treasury Note yield finally hit 2.95% Friday before moving away and closing at 2.89%. It appeared that the 2.90 – 2.95% levels were important in predicting mortgage rate direction and needed to be hit before we could expect a noticeable downward move in yields and rates. With the next two weeks including trading holidays, we cannot necessarily rely on movement some of those days to be an accurate reflection of longer-term trends. However, we will be watching trading closely for any sign of concern that would alter that prediction. Stay tuned for further updates on rate direction.

Mortgage News Roundup - Will New Rules Make It Harder to Get a Mortgage?

 

This week’s FOMC meeting has adjourned with no changes to key short-term interest rates, as expected. However, it did bring an announcement of the first reduction in the Fed’s current bond buying program. They announced that the current pace of $85 billion in monthly purchases of government and mortgage debt would be reduced by $10 billion starting next month. This move wasn’t exactly expected at this meeting, but didn’t surprise some traders and market analysts. It was bound to come sooner or later and it turns out sooner was today.

U.S. Mortgage Applications Volume Falls 5.5% in Last Week

The average number of mortgage applications fell 5.5% on a seasonally adjusted basis as interest rates generally increased compared to the previous week, the Mortgage Bankers Association said Wednesday.

“Both purchase and refinance applications fell as interest rates increased going into today’s Federal Open Market Committee meeting,” said Mike Fratantoni, MBA’s vice president of research and economics.

How to Negotiate Repairs After a Home Inspection

Most people believe the real estate “deal” is negotiated and completed at the signing of the contract. By that point, the counteroffers have been made and the back and forth has happened, so it’s easy to assume that the deal will go on auto-pilot until closing.

The reality, though, is that in many cases, the deal-making and negotiations only start at the contract signing. Even in more competitive real estate markets, negotiations still happen once in escrow.
Zillow’s blog has these areas for you to consider when ti comes to negotiation:

• Ask for a credit for the work to be done: Think long term. If you’re going to remodel a bathroom anyway, or if you know someone who can do the repair, ask for a credit and do the work yourself
• Keep your cards close to your chest: Whatever you say in front of the seller’s real estate agent will get back to the seller.

A word of caution: You should never complete the original contract assuming that you can negotiate more as a result of the property inspections

Will new rules make it harder to get a mortgage?

We’ve mentioned before how important it is to talk to a reputable loan officer before the end of the year because obtaining a mortgage may be harder to get, at least in the early months of 2014.

“You’ve heard all the stories about how difficult it is to get a mortgage and all the documentation required — there’s going to be a lot more of the same,” said Ron Haynie, senior vice president of the Independent and Community Bankers Association.

A lot of new mortgage regulations will take effect between Jan. 10 and Jan. 20, 2014. The most noteworthy of these for borrowers is the ability-to-repay rule and the qualified mortgage (QM) rule, which together establish new standards and practices for mortgages that lenders must follow.

Bob Davis, vice president of the American Bankers Association, estimates that 20% of people who could obtain a mortgage in 2013 will not be able to get one in 2014.

The QM Rule prohibit a number of mortgages that were generally bad for consumers, including “balloon,” interest-only and negatively amortizing loans. The new rule also limits the “points” to 3.
So call a reputable loan officer if you’re thinking about getting a new loan or refinancing. Talk with them about your situation and your goals. They are dedicated to following the markets and all of the loans being offered.

Market Commentary for the Week of December 16th

This week has nine monthly or quarterly economic reports scheduled for release in addition to some key Fed events and a couple of Treasury auctions that could potentially affect mortgage rates. There is data set for release every day of the week, but the more important events will take or be posted the middle days. Still, with the majority of the days having multiple reports or events scheduled, there is a good chance of seeing plenty of movement in mortgage pricing this week.

The week opens with revised 3rd Quarter Productivity numbers at 8:30 AM ET Monday. This index is expected to show an upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn’t necessarily bad for the bond market. It’s the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate of 2.8%, up from the previous estimate of 1.9%. The higher the reading, the better the news it is for the bond market.

Next up is November’s Industrial Production report mid-morning Monday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.4% increase in output, indicating modest manufacturing growth. A smaller than expected rise would be good news for bonds, while a stronger reading may result in slightly higher mortgage pricing.

November’s Consumer Price Index (CPI) will be released at 8:30 AM ET Tuesday. It is similar to last Friday’s Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the economy. Current forecasts call for an increase of 0.1% in both the overall and core data readings. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond’s future fixed interest payments, making them less appealing to investors. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.

Wednesday’s only economic report is Housing Starts, but we will get three months worth of it. Due to the government shutdown in October and problems collecting data last month, we will see results for September, October and November at 8:30 AM ET Wednesday. This data isn’t known to be highly influential on bonds or mortgage pricing. It does give us an indication of housing sector strength by tracking new home groundbreakings, so it is worth watching. All three months are expected to show increases, indicating strength in the new home portion of the housing sector. Slowing starts would be favorable for the bond market, although a wide variance is likely needed for the data to cause noticeable movement in the markets or mortgage rates.

Wednesday also has some significant FOMC events that can be highly influential on the financial and mortgage markets. The two-day FOMC meeting that began Tuesday will adjourn at 2:00 PM ET Wednesday. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting, but traders and analysts are anxious to get the Fed’s current economic forecasts and any word of a potential reduction in the Fed’s current bond buying program. Also worth noting is that the meeting is ending earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference hosted by Fed Chairman Bernanke. The meeting will adjourn at 2:00 PM, forecasts will be posted at 2:00 PM and the press conference will begin at 2:30 PM. It is fairly safe to assume that all of that will lead to afternoon volatility in the markets and mortgage rates Wednesday.

Thursday has two monthly reports scheduled for 10:00 AM ET that we will be watching. The first is November’s Existing Home Sales figures from the National Association of Realtors, giving us a measurement of housing sector strength and mortgage credit demand. It is expected to show a decline in sales, indicating a slowing housing sector. A sizable decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes broader economic growth more difficult. But unless the actual readings vary greatly from forecasts, the results will probably have little or no impact on mortgage rates.

The Conference Board will also release their Leading Economic Indicators (LEI) for the month of November late Thursday morning. This release attempts to measure or predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning that it predicts economic growth over the next several months. This probably will not have much influence on bond prices or affect mortgage rates unless it shows a much stronger reading than the 0.6% rise that is forecasted. The weaker the reading, the better the news it is for bonds and mortgage pricing.

Friday has the remaining report with the final revision to the 3rd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. I don’t think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month’s first revision showed that the economy expanded at a 3.6% annual pace during the quarter and this month’s final revision is expected to show no change from that level. A revision higher than the 3.6% rate that is expected would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, I don’t think it will have much of an impact on Friday’s mortgage rates.

In addition to this week’s economic data and Fed events, we also have Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Wednesday’s 5-year and Thursday’s 7-year Note sales. If those sales are met with a strong demand, particularly Thursday’s auction, bond prices may rise enough to lead to improvements in mortgage rates shortly after the results are posted. They will be announced at 11:30 am Wednesday and 1:00 PM Thursday. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates Wednesday and/or Thursday.

Overall, Wednesday is the key day of the week due to the afternoon Fed schedule. Tuesday’s data is also key to the bond market, but I think we will see the most volatility in the markets and mortgage rates Wednesday. Despite the GDP reading, I believe Friday is the best candidate for calmest day. Generally speaking, this is probably going to be a pretty active week for the bond and mortgage markets. It is likely that I will remain very cautious towards rates until the benchmark 10-year Treasury Note yield breaks above 2.90% (currently at 2.87%) for more than a few minutes to see if that truly is a strong resistance level or if it will continue to rise past. Therefore, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future as we are getting very close to that threshold.

Mortgage News Roundup - Estate Tax in 2014

 

Some interest rates are going up, others are holding steady and a few more are going down. It’s quite the volatile week.Today we’ll look at four things you need to know in 2014 for estate tax planning,

 

Estate Tax in 2014: 4 Things You Need to Know

The Motley Fool is reporting that no matter how much you earn or are worth, you should look into planning your estate carefully. In 2014, there will be four main things you should be aware of with estate taxes:

1. Higher exclusions will apply to the estate tax in 2014. Congress agreed to set the level at which estate taxes kick in at $5.25 million, avoiding expiring provisions that would have sent the exclusion down to just over $1 million. And one of the biggest improvements in the estate-tax laws is that the exclusion amount was set to adjust with inflation.
2. What’s included can surprise you. The biggest surprise for many people is that life insurance proceeds are often included in taxable estates even if the benefits go directly to beneficiaries rather than passing through the estate’s probate proceedings. So talk with a professional.
3. It’s easier for married couples to preserve their full estate tax benefits.Another good thing to come out of the recent legislation is that couples no longer have to worry about losing part of their joint exclusion amount in the event of their untimely death.
4. State limits for estate tax in 2014 can differ markedly from federal limits. Many states also charge estate taxes, and some of them have much lower limits at which their taxes apply.

End of mortgage-fix break could mean big tax bills

CNN ran a story about how a tax break for people struggling with mortgage payments ends on January 1, 2014.

If a mortgage holder was able to get some of the debt forgiven by having some principle forgiven, they weren’t taxed on it thanks to when Congress passed the Mortgage Foreclosure Debt Forgiveness Act in 2007. Unfortunately, that law is set to expire at year’s end, and the forgiven debt will now be taxed as income.

Consumer advocates consider the tax unfair: “The money being taxed was ‘phantom income’ that existed only on paper,” said Elyse Cherry, CEO of Boston Community Capital, a non-profit, neighborhood stabilization group.

It will also damage foreclosure-prevention efforts, said Cherry. Many at-risk homeowners could not participate in programs if a big tax bill accompanies the fix.

If you’re thinking of making updates to your mortgage, or getting a new one, now is the time to talk to your mortgage loan officer and see what you can lock down before December 31 when a lot more changes will happen.

Nine Tips for New Homeowners

 

You’ve closed escrow and have the keys to your first home. Your starter home or your dream home. It’s yours. But if you’ve never owned a home before, there may be some gaps in your knowledge.

So today we’re going to review ten tips for things you new homeowners should know.

Go Meet Your Neighbors

Sure, in the olden days, as soon as you put up your curtains, neighbors would bring over cookies. Unfortunately, everyone’s really busy these days and may intend to stop by, but don’t always make the time. So don’t be afraid to go over and introduce yourself. You could write a letter with your contact information and an open invitation to get together to say hello.

Your neighbors are vital for understanding known problems and safety issues in the neighborhood. Plus, it’s good to build that friendship so you can look out for one another.

Save for unexpected problems

A new water heater could cost $5000. Plumbing repairs could be $1000. And even if you have warranties, generally you have to pay out of pocket and get reimbursed. So it always pays to have a special account for unexpected problems that pop up along the way.

Form an inspection habit

We remind you regularly what maintenance you should do on your home in Spring and Fall. It’s important to follow through. Look into creating a spreadsheet of tasks and noting the last time you did it.

Buy a bunch of furnace filters and replace them regularly. If you bought a new house, chances are you don’t need to replace them right away. But if you bought a used home, who knows when the last time was that they were replaced.

Review your appliances and figure out how many more years you can get out of them. Then monitor them occasionally to see how well they’re still working.

Take advantage of tax credits

Get in touch with a good tax accountant to better understand how you can write off your points and mortgage interest.

Start keeping records

Keep records of when you purchased appliances, how long their warranties are, if you get free maintenance and when you need to phone to get the service. Keep records of repair work. Keep your contracts for services. You never know when it will come in handy.

Review your insurance

You may need to increase your auto insurance, or obtain life insurance because of your new asset.

Install programmable thermostats

Save money right off the bat by keeping the HVAC turned off when no one is home.

Mark any cracks in the foundation with dated masking tape

Don’t forget to use permanent ink on the tape. You could also mark the area with masking tape and put a date on it and a number, and then keep a spreadsheet with the number, date and approximate size of the crack.

Plant shade trees near your house

They will grow and provide much needed shade during the hot months. Plus, it gives you a sense of settling into your own home.

And even if you’re not a homeowner, you can start using any of these tips today.

What’s your favorite tip for a new homeowner?

Market Commentary for the Week of December 9th

 

This week has only two pieces of monthly economic data scheduled for release in addition to a couple of Treasury auctions that have the potential to influence mortgage rates. Both of the economic releases are considered highly important though and the Treasury auctions are the more important set of auctions we regularly deal with, so despite the lack of a busy calendar we still should see noticeable movement in rates this week.

Monday has no relevant economic data scheduled, but does have several afternoon speaking engagements by Federal Reserve members. The topics of a couple of the speeches are related to the economy, so analysts and traders will be watching them for any surprises or tidbits that could alter forecasts of what future moves the Fed may make and when they will be made. Often these appearances are non-factors because they are related to banking rules or other boring topics. Since some of Monday’s look to be directly related to current and future economic conditions, we could see one or more of them affect afternoon trading and mortgage pricing.

There are Treasury auctions scheduled for several days this week, but the two we need to watch are the 10-year Note sale Wednesday and the 30-year Bond sale Thursday. Wednesday’s auction is the more important one and will likely have a bigger influence on mortgage rates. Results of the sales will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, particularly international buyers, we should see strength in the broader bond market and improvements to mortgage pricing during afternoon hours those days. On the other hand, a weak interest in the auctions could lead to upward revisions to mortgage rates.

November’s Retail Sales report is scheduled for release Thursday at 8:30 AM ET. This report will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher Thursday. Current forecasts are calling for an increase of 0.6% in November’s sales.

The second and final relevant report of the week will be November’s Producer Price Index (PPI) early Friday morning. It measures inflationary pressures at the producer level of the economy. 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, giving a more stable reading for analysts to consider. If Friday’s release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond well and mortgage rates could fall. Current forecasts are showing a 0.1% decline in the overall index and a 0.1% rise in the core data.

Overall, I suspect Thursday will be the most active day of the week with the consumer spending data and 30-year Bond auction, but Friday’s data can also cause movement in rates. The calmest day will likely be Tuesday. It will probably be a calmer week than last week in terms of mortgage rate movement although we still should see rate changes multiple days. The benchmark 10-year Treasury yield closed the week at 2.88% after touching 2.92% immediately after November’s stronger than forecasted Employment report was posted. I believe this week will help determine if that yield will break above 2.90% again or retreat towards 2.62%. Since mortgage rates tend to follow bond yields, the latter would be preferred by mortgage shoppers. Because the 2.92% on Friday was momentarily, I am hesitant to rely on it as a basis in switching to Float recommendations. Therefore, I am maintaining the conservative stance towards locking or floating an interest rate for the time being.

Mortgage News Roundup - Qualified Mortgage Update

 

Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, sank 12.8 percent in the week ended November 29, even with adjustments for the Thanksgiving holiday weekend.

That is the fifth straight week applications have dropped.

In today’s post, we’ll look at the idea of refinancing without changing the remaining time left on the loan, and how mortgage offerings may start to change in 2014.

Mortgage Refinancing Without Resetting the Clock

Have you wanted to refinance but you’ve already paid a number of years down and don’t really want to have a 30 year mortgage again? Some mortgage lenders are now offering refinancing options that lower the interest rate while keeping the remainder of the term intact.

From AOL’s Real Estate Blog:

The original loan amount taken out in January 2009 is for $300,000 on a 30-year fixed-rate mortgage, with a 5.5 percent current balance of $282,000 and a mortgage payment of $1,703.37. The new loan on a 30-year mortgage at 4.375 percent on same principal balance of $282,000 means a new mortgage payment of $1,407.98. That’s a savings potential of $296 per month on a new 30-year mortgage. 

A prudent consumer will stand to benefit by taking out the new 30-year mortgage over one full percentage point lower in interest in exchange for the savings just shy of $300 per month. By making the $1,703 monthly payment, rather than the payment of $1,407.98 that would actually be due each month, the loan would be paid off in 21.3 years instead of the current 26 years remaining with the higher interest rate. Moreover, this homeowner could always revert back to the lower monthly payment in case of financial hardship. As long as the same payment that was being made on the previous loan is made on the new loan that contains a lower monthly payment, the loan can be paid off much sooner.

Talk with your loan officer to understand the interest rates so you can compare apples to apples.

AOL listed some helpful tips for your refinance. Here are three of them:

• Verify that the total new loan amount is lower than your original balance (unless you’re cashing out or increasing the amount of the loan)
• The interest rate should be the same or lower than the rate on the loan currently being paid off.
• If pmi exists on the loan being paid off and the new loan contains a higher interest rate, the removal of the mortgage insurance greatly offsets even a slightly higher interest rate on the new refinance.

New mortgage rules may mean less choice

Beginning Jan. 10, banks have to ensure that monthly mortgage payments are affordable defined by the Dodd Frank law passed in 2010. The failure to do so carries strict penalties. Many small lenders may drop out of the business of providing mortgages due to the increased regulation and the overhead it carries.

Lenders will need to carefully determine that borrowers have the ability to repay their loans. Banks can no longer lend to anyone whose total debt payments would exceed 43% of their income. Lenders must carefully check pay statements, bank records, tax returns and other documents provided by the borrower.

Banks will need to:

1. Update their their underwriting policies and procedures
2. Change their technology
3. Retrain staff

Some analysts feel that small banks are overstating the problem and shouldn’t have any difficulties staying competitive even with the new regulations.

Contact a reputable loan officer before 2014 to understand what you may be eligible for and how the changes may impact you if you choose to wait. The loan officers are diligent in staying on top of regulations and market offerings to help you get the best options for your situation.

Market Commentary for the Week of December 2nd

 

This week is packed with economic data with 10 pieces set for release, including two that are considered to be highly important to the markets and mortgage rates. November’s manufacturing index from the Institute for Supply Management (ISM) reports were released. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. The ISM report came in higher than expectations at 57.3, higher than the expected 55.5, triggering a sell-off in the bond market.

There is nothing of importance scheduled for Today, but tomorrow has three reports starting with October’s Goods and Services Trade Balance at 8:30 AM ET. This report gives us the size of the U.S. trade deficit, but it is considered to be of low importance to mortgage rates. It is actually the week’s least important monthly report. It is expected to show a $40.5 billion trade deficit, which would be a decline from September. Unless it varies greatly from forecasts, I don’t expect this data to affect mortgage pricing tomorrow.

Next on tap is two months’ worth of new home sales data from the Commerce Department. At 10:00 AM ET Wednesday we will get September’s and October’s New Home Sales reports that will give us an indication of housing sector strength. September’s data was delayed during the government shutdown, so we will get both reports this week. This data is not considered to be highly important because new home sales make up only a small portion of all home sold in the U.S. Analysts are expecting to see an increase in September’s sales but a decline in October’s sales. Ideally, bond traders prefer to see declining sales as it would point towards weakness in the housing sector. However, unless there is a significant surprise in the results, the data will probably have only a modest impact on Wednesday’s mortgage rates.

Also tomorrow, the Federal Reserve will release their Beige Book at 2:00 PM ET. This report, which is named simply after the color of its cover, details economic conditions by Fed region. That information is relied upon heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any noticeable changes from the last update. More times than not though, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.

The first of two revisions to the 3rd Quarter Gross Domestic Product (GDP) will be posted early Thursday morning. It is expected to show an upward revision from last month’s preliminary reading of a 2.8% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. Current forecasts call for a 3.0% rate of growth, meaning that there was a little more economic activity during the third quarter than previously thought. This would be bad news for mortgage rates because solid economic growth makes long-term securities such as mortgage-related bonds less appealing to investors. A modest increase shouldn’t be too detrimental to rates since it is expected. On the other hand, a sizable revision upward or downward could significantly influence the financial and mortgage markets.

October’s Factory Orders will be posted late Thursday morning. This report is similar to the Durable Goods Orders report that was released last week, except this one includes manufacturing orders for both durable and non-durable goods. This data usually isn’t a major influence on bond trading, but it does carry enough importance to impact mortgage rates if it shows a sizable variance from forecasts. Analysts are expecting to see a 1.0% decline in new orders. The larger decline, the better the news for bond prices and mortgage rates because it would signal manufacturing sector weakness. If we do see a much larger drop in new orders, the bond market could thrive, improving mortgage rates Thursday morning.

The biggest news of the week comes Friday morning when the Labor Department posts November’s Employment figures. This is arguably the most important monthly report we see, so its impact on the markets and mortgage rates is often significant. It is comprised of many statistics and readings, but the most watched ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for a 0.1% decline in the unemployment rate to 7.2% while 185,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.2%. An ideal scenario for mortgage shoppers would be a higher unemployment rate than October’s 7.3%, a smaller increase in payrolls (or a decline) and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see the stock markets fall, bond prices rise and mortgage rates move much lower Friday. However, stronger than expected readings would likely fuel a stock rally and bond sell-off that would lead to higher mortgage rates.

October’s Personal Income and Outlays data is scheduled for early Friday morning also. This data measures consumers’ ability to spend and their current spending habits. This is important because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show that income rose 0.3% and that spending increased 0.3%. Weaker than expected readings would mean consumers had less money to spend and were spending less than thought. That would be theoretically favorable news for bonds and mortgage pricing, although the Employment data will be the focus of Friday’s morning trading.

The final report of the week is the release of December’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the economy, any related data is watched closely. Friday’s release is expected to show a reading of 75.4, which would be a small rise from last month’s final reading of 75.1. A large decline in confidence would be considered good news for the bond market and mortgage rates.

Overall, look for Friday to be the most active day of the week but we should see noticeable movement in rates Monday also. And in between those days there is plenty of data being posted that may move mortgage rates. The best candidate for calmest day is Tuesday with nothing in terms of relevant economic data set for release. With so much on tap this week, there is plenty of opportunity to see large swings in the major market indexes and mortgage rates. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.