Bottom of Range Holding and the Week Ahead
A well defined range has been established with the prices of mortgage backed securities. This range has held true for the last few weeks and on Friday, MBS did close at the bottom of the range. Whenever you have a well defined trading range, it is wise to lock at the highs and float the lows meaning when MBS approach the top of the range it is a lock indicator and when MBS are near the bottom it is a float indicator. So far this morning, the range is holding as the markets await some kind of guidance.
The week ahead does bring us some significant economic reports to digest, but no reports are being released today. The bottom of the current range will be tested this week with the looming supply of treasury debt coming to market. We have $44billion of 2 year notes coming Tuesday, $41billion of 5 year notes on Wednesday and $31billion of 7 year notes on Thursday. These auctions will be pressuring fixed income prices lower to attract buyers which can lead to higher interest rates. If the auctions are received well with strong demand, MBS could benefit which will lower mortgage rates. However, if the demand is below average, rates will move higher.
Tomorrow we get a reading on how the consumer is feeling with the Consumer Confidence report. Since our market is driven by consumer spending, market participants want to know how the consumer is feeling. An optimistic consumer is more likely to spend money, while a pessimistic consumer is more likely to save. Last month’s report showed confidence slipping as consumers became more worried about the jobs outlook. Economists surveyed are expecting a small improvement with this month’s survey.
Wednesday we get another reading on the strength of the housing sector with New Home Sales which are expected to post another monthly increase. Additionally, we get the Durable Goods Orders report which reflects new orders placed with manufactures or immediate and future delivery of factory goods. Basically, this report shows us how busy factories will be in the months ahead as they work to fill the orders. Last month’s report showed a large drop in orders but economists surveyed are expecting a rebound with this month’s report. Since this report is forward looking, it has the potential to move the markets.
Thursday brings us the weekly jobless claims and first reading of Gross Domestic Product for the third quarter. Jobless claims are expected to post an improvement following last week’s disappointing rise in claims. The GDP report is the initial reading for quarter 3 and is expected to post the first positive growth since the second quarter of 2008 with a 3.0% reading.
The week concludes with the busiest day of data releases on Friday. Of highest impact will be the release of the Personal Income and Outlays report which shows market participants how much money the consumer is making and spending on a monthly basis. Income is expected to come in flat while spending is expected to post a -.5% reading following last month’s 1.3% rise. Stocks benefit when consumers are making more and spending more while the fixed income sector improves with lower income and spending. Additionally, we get another reading on the consumer with the University of Michigan’s Consumer Sentiment survey and a reading on the strength of business conditions with the release of the Chicago PMI survey.
Early reports from fellow mortgage professionals indicate lender rate sheets to be similar to Friday’s. The par 30 year conventional rate mortgage continues to hold in the 4.875% to 5.125% range for well qualified consumers. In order to secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee. If you are seeking a 15 year fixed term, you should expect a par rate in the 4.375% to 4.625% range with similar qualifications.
MBS have fallen through support outside of the current trading range. Trading outside the range does not mean it has been broken. For the range to be broken it must close outside that range. Once a range is broken, it can lead to a quick and severe sell off. Floating at this point is rather risky.
If you are a mortgage or real estate professional, you are no doubt aware of the Home Valuation Code of Conduct. This legislation has dramatically changed the way that appraisals are ordered by no longer allowing the loan originator to order the appraisal rather the lender does through a Appraisal Management Company that they have approved. A bill has passed committee in Congress that will end this law. The bill still has to be passed by the House of Representative, the Senate and signed by our President before this law goes away.
In my opinion, HVCC went too far and is negatively impacting the housing market. Due to this law, appraisal costs have increased, turn times from the ordering to actually getting the appraisal has dramatically increased which has caused increased costs to the consumer due to lock extensions, and the quality of appraisals have been reduced by the use of appraisers not familiar with the subject properties area.
What is your opinion on HVCC? Also, if HVCC law is rescinded do you think lenders will still require that loan originators use the HVCC process?
The week ahead does bring us some significant economic reports to digest, but no reports are being released today. The bottom of the current range will be tested this week with the looming supply of treasury debt coming to market. We have $44billion of 2 year notes coming Tuesday, $41billion of 5 year notes on Wednesday and $31billion of 7 year notes on Thursday. These auctions will be pressuring fixed income prices lower to attract buyers which can lead to higher interest rates. If the auctions are received well with strong demand, MBS could benefit which will lower mortgage rates. However, if the demand is below average, rates will move higher.
Tomorrow we get a reading on how the consumer is feeling with the Consumer Confidence report. Since our market is driven by consumer spending, market participants want to know how the consumer is feeling. An optimistic consumer is more likely to spend money, while a pessimistic consumer is more likely to save. Last month’s report showed confidence slipping as consumers became more worried about the jobs outlook. Economists surveyed are expecting a small improvement with this month’s survey.
Wednesday we get another reading on the strength of the housing sector with New Home Sales which are expected to post another monthly increase. Additionally, we get the Durable Goods Orders report which reflects new orders placed with manufactures or immediate and future delivery of factory goods. Basically, this report shows us how busy factories will be in the months ahead as they work to fill the orders. Last month’s report showed a large drop in orders but economists surveyed are expecting a rebound with this month’s report. Since this report is forward looking, it has the potential to move the markets.
Thursday brings us the weekly jobless claims and first reading of Gross Domestic Product for the third quarter. Jobless claims are expected to post an improvement following last week’s disappointing rise in claims. The GDP report is the initial reading for quarter 3 and is expected to post the first positive growth since the second quarter of 2008 with a 3.0% reading.
The week concludes with the busiest day of data releases on Friday. Of highest impact will be the release of the Personal Income and Outlays report which shows market participants how much money the consumer is making and spending on a monthly basis. Income is expected to come in flat while spending is expected to post a -.5% reading following last month’s 1.3% rise. Stocks benefit when consumers are making more and spending more while the fixed income sector improves with lower income and spending. Additionally, we get another reading on the consumer with the University of Michigan’s Consumer Sentiment survey and a reading on the strength of business conditions with the release of the Chicago PMI survey.
Early reports from fellow mortgage professionals indicate lender rate sheets to be similar to Friday’s. The par 30 year conventional rate mortgage continues to hold in the 4.875% to 5.125% range for well qualified consumers. In order to secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee. If you are seeking a 15 year fixed term, you should expect a par rate in the 4.375% to 4.625% range with similar qualifications.
MBS have fallen through support outside of the current trading range. Trading outside the range does not mean it has been broken. For the range to be broken it must close outside that range. Once a range is broken, it can lead to a quick and severe sell off. Floating at this point is rather risky.
If you are a mortgage or real estate professional, you are no doubt aware of the Home Valuation Code of Conduct. This legislation has dramatically changed the way that appraisals are ordered by no longer allowing the loan originator to order the appraisal rather the lender does through a Appraisal Management Company that they have approved. A bill has passed committee in Congress that will end this law. The bill still has to be passed by the House of Representative, the Senate and signed by our President before this law goes away.
In my opinion, HVCC went too far and is negatively impacting the housing market. Due to this law, appraisal costs have increased, turn times from the ordering to actually getting the appraisal has dramatically increased which has caused increased costs to the consumer due to lock extensions, and the quality of appraisals have been reduced by the use of appraisers not familiar with the subject properties area.
What is your opinion on HVCC? Also, if HVCC law is rescinded do you think lenders will still require that loan originators use the HVCC process?
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