Inflation Worries Increase Borrowing Costs
Posted 01-07-2010 at 08:06 AM by VictorBurek
Following two days of gains, mortgage rates took a small step backward yesterday after a tapebomb from the St. Louis Federal Reserve bank. The news release sparked inflation fears among market participants who quickly sold their fixed income investments which includes treasuries and mortgage backed securities pushing yields higher. Adding more anxiety to traders was the improvement in the services sector of our economy, the ISM non-manufacturing index moved from contracting in November to expansion in December, and the employment data which is due out tomorrow. Most lenders did reprice for the worse as the price losses occurred after lenders had issued morning rate sheets.
The only economic data released today was the weekly jobless claims. This report totals the number of Americans that filed for first time unemployment benefits in the prior week. Included within this report are two other measures, continuing claims and extended benefits. Continuing claims totals the number of Americans that continue to file for benefits due to a lack of finding a job. The extended benefits totals the number of Americans who’ve used up their traditional benefits and are now collecting extended payments under recent government stimulus. Recent reports have shown initial and continuing claims decreasing while those receiving extended benefits have continued to rise. Economists surveyed prior to the release expected initial claims to rise from last week’s first reported 432,000 claims to 440,000 claims for the week ending January 2.
The release indicated that jobless claims rose less than expected to 434,000 while the prior week’s claims were revised higher to 433,000. The continuing claims also fell more than expected to 4.80 million. Today’s report also showed those receiving extended benefits rose by 165,000 to 5.44 million indicating that many are still having a difficult time finding a new job. The trend with initial jobless claims continues to move lower adding further confirmation of an economic recovery which is pressuring rates higher this morning.
Adding additional pressure on the fixed income markets today is the announcement later today from the Department of Treasury of the size of the next debt offering occurring next week. It is expected that they will announce further government borrowing with a supply of $40billion of 3 year notes, $21billion of 10 year notes and $13billion of 30 year bonds.
Reports from fellow mortgage professionals indicate higher consumer borrowing costs this morning. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers. To secure the par interest rate you must have a FICO credit score of 740 or higher, a loan to value of 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. You may elect to pay less in upfront costs, but you will have to accept a higher interest rate.
On my Monday blog I posted some questions one of which was do you think the Fed will end its MBS purchase program as they have stated or will they extend it. To remind readers, the Fed announced last year that they will buy up to $1.25trillion of MBS to support the housing recovery and to help keep mortgage rates low. The program is expected to end after the first quarter of this year. Many fear when the fed stops buying MBS, mortgage rates will move higher which will cause many not to buy a new home. Additionally, the higher rates will prevent many homeowners from refinancing to lower rates and lower payments which will not allow for increased consumer spending. Since our economy is driven by consumer spending, when homeowners can refinance to lower rates and lower payments, they have additionally funds which can be spent which would help our economy recover from the worst recession since the Great Depression. We have been getting some reports that the FOMC is considering extending the program for fear if they do not the housing sector will not recover. Please give me your thoughts on this topic. Do you feel the MBS buying program should be extended or should government involvement in the markets end?
Floating remains risky ahead of the Employment Situation Report due out tomorrow morning at 8:30am. If you feel the numbers will be worse than expected, floating could pay off. If you are wrong and the numbers are better than expected, rates will move higher. So float at your own risk.
The only economic data released today was the weekly jobless claims. This report totals the number of Americans that filed for first time unemployment benefits in the prior week. Included within this report are two other measures, continuing claims and extended benefits. Continuing claims totals the number of Americans that continue to file for benefits due to a lack of finding a job. The extended benefits totals the number of Americans who’ve used up their traditional benefits and are now collecting extended payments under recent government stimulus. Recent reports have shown initial and continuing claims decreasing while those receiving extended benefits have continued to rise. Economists surveyed prior to the release expected initial claims to rise from last week’s first reported 432,000 claims to 440,000 claims for the week ending January 2.
The release indicated that jobless claims rose less than expected to 434,000 while the prior week’s claims were revised higher to 433,000. The continuing claims also fell more than expected to 4.80 million. Today’s report also showed those receiving extended benefits rose by 165,000 to 5.44 million indicating that many are still having a difficult time finding a new job. The trend with initial jobless claims continues to move lower adding further confirmation of an economic recovery which is pressuring rates higher this morning.
Adding additional pressure on the fixed income markets today is the announcement later today from the Department of Treasury of the size of the next debt offering occurring next week. It is expected that they will announce further government borrowing with a supply of $40billion of 3 year notes, $21billion of 10 year notes and $13billion of 30 year bonds.
Reports from fellow mortgage professionals indicate higher consumer borrowing costs this morning. The par 30 year conventional rate mortgage remains in the 4.875% to 5.125% range for well qualified consumers. To secure the par interest rate you must have a FICO credit score of 740 or higher, a loan to value of 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. You may elect to pay less in upfront costs, but you will have to accept a higher interest rate.
On my Monday blog I posted some questions one of which was do you think the Fed will end its MBS purchase program as they have stated or will they extend it. To remind readers, the Fed announced last year that they will buy up to $1.25trillion of MBS to support the housing recovery and to help keep mortgage rates low. The program is expected to end after the first quarter of this year. Many fear when the fed stops buying MBS, mortgage rates will move higher which will cause many not to buy a new home. Additionally, the higher rates will prevent many homeowners from refinancing to lower rates and lower payments which will not allow for increased consumer spending. Since our economy is driven by consumer spending, when homeowners can refinance to lower rates and lower payments, they have additionally funds which can be spent which would help our economy recover from the worst recession since the Great Depression. We have been getting some reports that the FOMC is considering extending the program for fear if they do not the housing sector will not recover. Please give me your thoughts on this topic. Do you feel the MBS buying program should be extended or should government involvement in the markets end?
Floating remains risky ahead of the Employment Situation Report due out tomorrow morning at 8:30am. If you feel the numbers will be worse than expected, floating could pay off. If you are wrong and the numbers are better than expected, rates will move higher. So float at your own risk.
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