Stubborn Rates Move Higher
Posted 08-04-2009 at 08:27 AM by VictorBurek
Following better than expected economic data on manufacturing here and abroad, mortgage backed securities sold off on Monday giving back all the gains they enjoyed from Friday’s rally. This moved the par 30 year fixed rate mortgage back over 5% after hitting 4.875% on Friday. Once again, after rates break the 5% level they do not remain there very long thus the reason why we alerted readers on Friday to lock in and take advantage of the recent gains. Lenders that issued rate sheets prior to the ISM data at 10am, did reprice for the worse after MBS fell to the lowest levels of the day. Afterwards, MBS moved sideways in a tight range and did manage to close slightly higher than the lows of the day.
We do have some data this morning that will affect the flow of investor money. The U.S. Department of Commerce released the monthly Personal Income and Outlays report. This data set tracks the monthly change in personal income which represents the income that households receive from all sources and personal spending. As part of this report we do get a measure on inflation with the Personal Consumption Expenditure (PCE) which is the Federal Reserves’ favorite gauge for inflation and measures the monthly change in the price of a basket of goods and services. Last month’s report indicated a surge in personal income of 1.4% but it was due to one time payments under the Obama’s Administration American Recovery and Reinvestment Act of 2009. If income is rising, that is a positive sign of economic growth since consumers will have more money available to spend in the economy. Following last month’s surge, personal income is expected to post a decline of 1.1%. Consumer spending is expected to post a .3% increase matching last month’s increase. Some recent economic reports have indicated that our economy is appearing to be near bottom and rebounding; however, consumer spending is one report that is yet to show much improvement. Lastly, the PCE index is expected to post a monthly rise in consumer prices of .2% following last month’s .1% increase. At the present time, inflation is not a worry as all inflation reports have shown inflation to be in check.
The report has indicated that personal income fell more than expected at 1.3% while spending increased more than expected at .4%. On a year over year basis, income is down 3.4% and spending is down 2.2%. On the inflation front, the core PCE index came in right on expectations at .2% making the year over year reading 1.5% well within the Fed’s comfort zone for inflation and providing further evidence that inflation is not an immediate concern. The increase in consumer spending is once again being attributed to the surge in gasoline prices. Today’s report shows that Americans are making less but spending more due to rising prices. Following the release of this report, MBS have moved slightly higher on the day.
The last piece of economic data today is a reading on home sales with the release by the National Association of Realtors’ (NAR) of the Pending Home sales index. A pending home sale is one in which a contract has been signed but the loan has not closed. With tougher underwriting conditions, and home valuation code of conduct (new method of ordering appraisals) many more sales are not closing. Since many economists believe that our economy will not recover until housing stabilizes this report is carrying more weight than in past times. Not only does this report provide a gauge on demand for housing but also economic momentum. When a consumer purchases a home, that leads to many other purchases which helps to drive the overall economy. Last month’s reading came in pretty much unchanged from the prior month indicating that housing demand is neither picking up or deteriorating. The release has indicated that pending home sales for the month of June posted a month over month increase of 3.6% beating expectations. The four prior months each came in slightly better but this is the first noticeable improvement but we must remember a pending home sale does not equal an actual closed sale as was pointed out by the NAR President Charles McMillan. Immediately following the release, MBS have given back all of their early morning gains and have fallen lower than the lowest levels seen yesterday as investors have more ammo to support the green shoots theory of a quick economic recovery.
Early reports from fellow mortgage professionals are indicating that lenders’ rate sheets are slightly better than yesterday. The par 30 year conventional rate mortgage remains in the 5.00% to 5.25% range for the best 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. As always, you can elect to pay less in fees but your interest rate will be bumped higher. To remind readers securing a mortgage rate is like buying anything else, the more you pay the better the rate.
I do receive quite a few good faith estimates from readers asking me to review to make sure they are getting a fair offer. First, GFE’s are 2 to 3 pages in length which contain numbered lines from 100 to 1400. The most important part you want to check to make sure the offer you are getting is competitive is the 800 lines. Typically in this section will be the cost of the appraisal, credit report and lender fees. You will also find in this section any other fees that are going to the loan officer helping you with the transaction. Typical fees that would go to the loan officer include loan origination, processing, broker fee and application fee. These are the fees you need to check on to see how competitive your offer is when shopping interest rates. A very typical good faith estimate will show 1 point loan origination, a processing fee of $500 and lender fees of around $900 (this varies from lender to lender). If the quote you received does not include these fees than you are being premium priced. This means you are getting a higher than par rate so that the loan officer/lender can make money on the back side and pay those fees for you.
We do have some data this morning that will affect the flow of investor money. The U.S. Department of Commerce released the monthly Personal Income and Outlays report. This data set tracks the monthly change in personal income which represents the income that households receive from all sources and personal spending. As part of this report we do get a measure on inflation with the Personal Consumption Expenditure (PCE) which is the Federal Reserves’ favorite gauge for inflation and measures the monthly change in the price of a basket of goods and services. Last month’s report indicated a surge in personal income of 1.4% but it was due to one time payments under the Obama’s Administration American Recovery and Reinvestment Act of 2009. If income is rising, that is a positive sign of economic growth since consumers will have more money available to spend in the economy. Following last month’s surge, personal income is expected to post a decline of 1.1%. Consumer spending is expected to post a .3% increase matching last month’s increase. Some recent economic reports have indicated that our economy is appearing to be near bottom and rebounding; however, consumer spending is one report that is yet to show much improvement. Lastly, the PCE index is expected to post a monthly rise in consumer prices of .2% following last month’s .1% increase. At the present time, inflation is not a worry as all inflation reports have shown inflation to be in check.
The report has indicated that personal income fell more than expected at 1.3% while spending increased more than expected at .4%. On a year over year basis, income is down 3.4% and spending is down 2.2%. On the inflation front, the core PCE index came in right on expectations at .2% making the year over year reading 1.5% well within the Fed’s comfort zone for inflation and providing further evidence that inflation is not an immediate concern. The increase in consumer spending is once again being attributed to the surge in gasoline prices. Today’s report shows that Americans are making less but spending more due to rising prices. Following the release of this report, MBS have moved slightly higher on the day.
The last piece of economic data today is a reading on home sales with the release by the National Association of Realtors’ (NAR) of the Pending Home sales index. A pending home sale is one in which a contract has been signed but the loan has not closed. With tougher underwriting conditions, and home valuation code of conduct (new method of ordering appraisals) many more sales are not closing. Since many economists believe that our economy will not recover until housing stabilizes this report is carrying more weight than in past times. Not only does this report provide a gauge on demand for housing but also economic momentum. When a consumer purchases a home, that leads to many other purchases which helps to drive the overall economy. Last month’s reading came in pretty much unchanged from the prior month indicating that housing demand is neither picking up or deteriorating. The release has indicated that pending home sales for the month of June posted a month over month increase of 3.6% beating expectations. The four prior months each came in slightly better but this is the first noticeable improvement but we must remember a pending home sale does not equal an actual closed sale as was pointed out by the NAR President Charles McMillan. Immediately following the release, MBS have given back all of their early morning gains and have fallen lower than the lowest levels seen yesterday as investors have more ammo to support the green shoots theory of a quick economic recovery.
Early reports from fellow mortgage professionals are indicating that lenders’ rate sheets are slightly better than yesterday. The par 30 year conventional rate mortgage remains in the 5.00% to 5.25% range for the best 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. As always, you can elect to pay less in fees but your interest rate will be bumped higher. To remind readers securing a mortgage rate is like buying anything else, the more you pay the better the rate.
I do receive quite a few good faith estimates from readers asking me to review to make sure they are getting a fair offer. First, GFE’s are 2 to 3 pages in length which contain numbered lines from 100 to 1400. The most important part you want to check to make sure the offer you are getting is competitive is the 800 lines. Typically in this section will be the cost of the appraisal, credit report and lender fees. You will also find in this section any other fees that are going to the loan officer helping you with the transaction. Typical fees that would go to the loan officer include loan origination, processing, broker fee and application fee. These are the fees you need to check on to see how competitive your offer is when shopping interest rates. A very typical good faith estimate will show 1 point loan origination, a processing fee of $500 and lender fees of around $900 (this varies from lender to lender). If the quote you received does not include these fees than you are being premium priced. This means you are getting a higher than par rate so that the loan officer/lender can make money on the back side and pay those fees for you.
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