Another Strong Auction Moves MBS Higher in Range
Posted 10-29-2009 at 08:46 AM by VictorBurek
The rally in the fixed income markets continued yesterday helping to push MBS higher in the recent range. The price gains held to close allowing lenders to reissue rate sheets lowering consumer borrowing costs. Contributing to the price gains was weaker than expected new home sales data and another strong treasury auction that saw higher than average demand from investors. To remind readers, as the prices of MBS move higher lenders are able to pass along lower mortgage rates.
This morning the U.S. Department of Labor releases the weekly jobless claims. This data totals the number of Americans who filed for first time unemployment benefits during the prior week. Additionally, this data provides continuing claims which totals the number of Americans that continue to file for unemployment benefits due to lack of finding a new job. Higher than expected claims usually benefits the fixed income sector at the expense of stocks. If more people are unemployed, there should be less consumer spending which is bad for corporate profits.
The report indicates that more people than expected filed for claims last week moving 1,000 lower to 530,000 from last week’s 531,000 claims. Economists surveyed had expected only 525,000 claims. The continuing claims fell almost 150,000 to 5.797million. The labor market continues to show signs of weakness which will make it hard for our economy to sustain growth since our economy is driven by consumer spending. Next week, we get the official jobs numbers with the release of the nonfarm payrolls data on Friday.
The last economic report for the day is the first reading on how our economy did last quarter with the release of Gross Domestic Product. We get the initial reading today, next month we get the revised reading and the following month we get the final reading. GDP is the broadest measurement of total economic activity across every sector of our economy. Basically, it is our economy’s score card.
The report shows that our economy grew more than expected at 3.5% in quarter three. This is the first positive growth in a year. Much of the growth is being attributed to government stimulus programs. The report indicated that consumer spending had increased mainly due to increased purchases of autos thanks to the “cash-for-clunkers” program which has since ended. Through the prior 12 months, our economy has shrank 3.8% which is the worst performance in 70 years. Following this report, stocks have moved higher putting pressure on MBS to move lower.
Today at 1pm eastern, the Department of Treasury will hold their final auction of the week, offering $31billion of 7 year notes to the highest bidder. The two prior auctions this week saw well above average demand which has helped MBS move higher lowering mortgage rates. Hopefully today’s auction goes as well. Strong demand for our nation’s debt is one of many factors that have helped keep mortgage rates near historic low levels.
Early reports from fellow mortgage professionals indicate lenders rate sheets to be similar to yesterday’s. This places the par 30 year conventional rate mortgage in the 4.75% to 5.00% range for well qualified consumers. To secure a par 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 an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year fixed rate, you should expect a par rate between 4.25% to 4.50% with similar costs and qualifying.
Part of the reason for yesterday’s rally in the fixed income market was very weak housing sales data. This is very troubling as the first time homebuyer tax credit is still in effect, home prices are considerably lower and mortgage rates are near historic lows. A colleague contributes the decline to tougher underwriting and harder credit qualifying which continues to make it very difficult for consumers to get credit. What are your thoughts on underwriting and lender guidelines? Are you seeing many more conditions on loan approvals?
This morning the U.S. Department of Labor releases the weekly jobless claims. This data totals the number of Americans who filed for first time unemployment benefits during the prior week. Additionally, this data provides continuing claims which totals the number of Americans that continue to file for unemployment benefits due to lack of finding a new job. Higher than expected claims usually benefits the fixed income sector at the expense of stocks. If more people are unemployed, there should be less consumer spending which is bad for corporate profits.
The report indicates that more people than expected filed for claims last week moving 1,000 lower to 530,000 from last week’s 531,000 claims. Economists surveyed had expected only 525,000 claims. The continuing claims fell almost 150,000 to 5.797million. The labor market continues to show signs of weakness which will make it hard for our economy to sustain growth since our economy is driven by consumer spending. Next week, we get the official jobs numbers with the release of the nonfarm payrolls data on Friday.
The last economic report for the day is the first reading on how our economy did last quarter with the release of Gross Domestic Product. We get the initial reading today, next month we get the revised reading and the following month we get the final reading. GDP is the broadest measurement of total economic activity across every sector of our economy. Basically, it is our economy’s score card.
The report shows that our economy grew more than expected at 3.5% in quarter three. This is the first positive growth in a year. Much of the growth is being attributed to government stimulus programs. The report indicated that consumer spending had increased mainly due to increased purchases of autos thanks to the “cash-for-clunkers” program which has since ended. Through the prior 12 months, our economy has shrank 3.8% which is the worst performance in 70 years. Following this report, stocks have moved higher putting pressure on MBS to move lower.
Today at 1pm eastern, the Department of Treasury will hold their final auction of the week, offering $31billion of 7 year notes to the highest bidder. The two prior auctions this week saw well above average demand which has helped MBS move higher lowering mortgage rates. Hopefully today’s auction goes as well. Strong demand for our nation’s debt is one of many factors that have helped keep mortgage rates near historic low levels.
Early reports from fellow mortgage professionals indicate lenders rate sheets to be similar to yesterday’s. This places the par 30 year conventional rate mortgage in the 4.75% to 5.00% range for well qualified consumers. To secure a par 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 an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year fixed rate, you should expect a par rate between 4.25% to 4.50% with similar costs and qualifying.
Part of the reason for yesterday’s rally in the fixed income market was very weak housing sales data. This is very troubling as the first time homebuyer tax credit is still in effect, home prices are considerably lower and mortgage rates are near historic lows. A colleague contributes the decline to tougher underwriting and harder credit qualifying which continues to make it very difficult for consumers to get credit. What are your thoughts on underwriting and lender guidelines? Are you seeing many more conditions on loan approvals?
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