Mortgage Rates Briefly Improve
Posted 07-29-2009 at 07:55 AM by VictorBurek
The theme for the week of a roller coaster ride continues as mortgage backed securities managed an impressive rally early on yesterday before giving back most of the gains be day’s end. Most lenders passed along better rate sheets just before noon eastern, just to take back the gains a couple hours later bringing mortgage rates back to opening levels. A weaker than expected consumer confidence report helped to spark the rally, while a less than stellar treasury auction which saw weak demand from indirect bids triggered the decline. We do get another round of auctions today and tomorrow so be prepared for the bumpy ride to continue.
We do have some economic data today that will move investor money in the markets. First out this morning is the weekly Mortgage Bankers’ Association application index which tracks the weekly change in mortgage applications at major lenders. An increasing trend is a positive sign for the economy as more home purchases leads to other major purchases which is good for the overall economy. Recent home sales data has hinted at a bottoming in home prices but this report is yet to show signs of improvement. Week over week, the purchase activity was unchanged while the refinance activity posted a 11% decline. Historically, this report is not a major market mover but does give market participants a gauge into housing demand and overall economic momentum. Many economists believe that until housing starts to stabilize and show signs of improving it will be very difficult for our economy to rebound.
The U.S. Department of Commerce has released the monthly Durable Goods orders report. This report shows the month over month change in new orders place with domestic manufacturers for factory hard goods. Market participants track this report as a gauge into how busy factories will be in the months ahead. An increasing trend in orders is a positive sign of economic momentum which leads to higher corporate profits. The MBS market prefers slow steady growth which produces less inflationary pressures and thus tends to rally when durable goods orders are weak. Last month’s report came in unexpectedly strong at a month over month revised increase of 1.3%(was 1.8%) which followed April’s 1.4% rise. Expectations for June call for a 0.5% decline. The report has indicated a much larger decline than expected at -2.5% which is the largest monthly decline since January of this year. On a year over year basis, durable goods orders are down a whopping 26.8%! Not all the news from this report is negative for the economy. When excluding transportation orders, the report has indicated a month over month rise of 1.1%, following last month’s 0.8% gain, showing signs of the recession is easing. Following the release, MBS have moved higher on the day improving on the modest gains we enjoyed from yesterday.
At 1pm eastern, the U.S. Department of Treasury will auction $39billion of 5 year notes. Since the supply is known in advance, the most important aspect will be the demand for the securities. A successful auction will have a high bid to cover ratio and strong demand from indirect bids. Yesterday’s weak 2 year note auction resulted in MBS giving back most of the early morning gains. Today is starting very similar to yesterday in that a bad economic report is leading to early morning gains in MBS so let’s hope that today’s auction is met with better demand.
I have received many emails from readers regarding the length of time lenders are taking to underwrite and approve loan applications. In times past, lenders would underwrite a loan in 24 to 48 hours but recently those times have increased dramatically. Some lenders turn times had increased to weeks with one lender currently taking over 40 days! Since the beginning of the year, lenders have been increasing staff to handle the massive amount of refinances and loan modifications and just now we are starting to see turn times come back to normal levels. Most lenders today are underwriting and sending out conditional approvals in under 4 days. Make sure you consult with your mortgage professional on the turn times at the lender your loan is submitted. Some lenders are still very back logged and taking much longer than normal to approve your loan so you need to make sure you lock your rate with enough time to allow for any delay. Also, slowing down the process is the new HVCC regulation which we discussed on Monday and the upcoming changes to the Truth in Lending Act I discussed yesterday. What are you experiencing for turn times at lenders?
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 5.00% to 5.25% range for the best qualified consumers. In order to qualify for a par 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 1 point loan origination/discount/broker fee. If you fall outside that criteria you can either choose to take a higher interest rate or pay additional fees to secure the par rate. If you are accessing home equity, your rate will be slightly higher or you will have to pay additional fees due to the Loan Level Price Adjusters initiated by Fannie Mae and Freddie Mac.
We do have some economic data today that will move investor money in the markets. First out this morning is the weekly Mortgage Bankers’ Association application index which tracks the weekly change in mortgage applications at major lenders. An increasing trend is a positive sign for the economy as more home purchases leads to other major purchases which is good for the overall economy. Recent home sales data has hinted at a bottoming in home prices but this report is yet to show signs of improvement. Week over week, the purchase activity was unchanged while the refinance activity posted a 11% decline. Historically, this report is not a major market mover but does give market participants a gauge into housing demand and overall economic momentum. Many economists believe that until housing starts to stabilize and show signs of improving it will be very difficult for our economy to rebound.
The U.S. Department of Commerce has released the monthly Durable Goods orders report. This report shows the month over month change in new orders place with domestic manufacturers for factory hard goods. Market participants track this report as a gauge into how busy factories will be in the months ahead. An increasing trend in orders is a positive sign of economic momentum which leads to higher corporate profits. The MBS market prefers slow steady growth which produces less inflationary pressures and thus tends to rally when durable goods orders are weak. Last month’s report came in unexpectedly strong at a month over month revised increase of 1.3%(was 1.8%) which followed April’s 1.4% rise. Expectations for June call for a 0.5% decline. The report has indicated a much larger decline than expected at -2.5% which is the largest monthly decline since January of this year. On a year over year basis, durable goods orders are down a whopping 26.8%! Not all the news from this report is negative for the economy. When excluding transportation orders, the report has indicated a month over month rise of 1.1%, following last month’s 0.8% gain, showing signs of the recession is easing. Following the release, MBS have moved higher on the day improving on the modest gains we enjoyed from yesterday.
At 1pm eastern, the U.S. Department of Treasury will auction $39billion of 5 year notes. Since the supply is known in advance, the most important aspect will be the demand for the securities. A successful auction will have a high bid to cover ratio and strong demand from indirect bids. Yesterday’s weak 2 year note auction resulted in MBS giving back most of the early morning gains. Today is starting very similar to yesterday in that a bad economic report is leading to early morning gains in MBS so let’s hope that today’s auction is met with better demand.
I have received many emails from readers regarding the length of time lenders are taking to underwrite and approve loan applications. In times past, lenders would underwrite a loan in 24 to 48 hours but recently those times have increased dramatically. Some lenders turn times had increased to weeks with one lender currently taking over 40 days! Since the beginning of the year, lenders have been increasing staff to handle the massive amount of refinances and loan modifications and just now we are starting to see turn times come back to normal levels. Most lenders today are underwriting and sending out conditional approvals in under 4 days. Make sure you consult with your mortgage professional on the turn times at the lender your loan is submitted. Some lenders are still very back logged and taking much longer than normal to approve your loan so you need to make sure you lock your rate with enough time to allow for any delay. Also, slowing down the process is the new HVCC regulation which we discussed on Monday and the upcoming changes to the Truth in Lending Act I discussed yesterday. What are you experiencing for turn times at lenders?
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 5.00% to 5.25% range for the best qualified consumers. In order to qualify for a par 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 1 point loan origination/discount/broker fee. If you fall outside that criteria you can either choose to take a higher interest rate or pay additional fees to secure the par rate. If you are accessing home equity, your rate will be slightly higher or you will have to pay additional fees due to the Loan Level Price Adjusters initiated by Fannie Mae and Freddie Mac.
Total Comments 2
Comments
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Another 5 star blog IMO. I'm mad at my wife(sort of). We were offered a 5.25% FHA on Wednesday and Thursday last week and I kind of wanted to lock and she wasn't sure. By the time we came to agreement Monday morning it was gone and back up to 5.375%. Now I'm watching and waiting like crazy hoping that it goes back down, but I know I run the risk of it going up too.
Love the blogs though. I posted a thread like a week ago asking for things to look out for and this stuff is exactly what I was wanting. Thanks for taking time out of your day to inform the uninformed! Looking forward to the next entry.Posted 07-29-2009 at 09:03 PM by BBall Coach
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Thanks again. For rates to move back lower we need the stock market to move lower. Within the next couple months, i suspect the dow will drop 10% to 20% from current levels. The recent dow rally is due to many companies posting better than expected earnings, but those earnings were not due to increased demand but cost cutting. That does not bode well for future earnings.Posted 07-30-2009 at 08:11 AM by VictorBurek
