What is the yield curve, and why should anyone care about it? Yes, the stock market is rallying, in part because some corporate earnings are not as bad as expected, but also because many feel that the stock market “looks ahead” into future business patterns. This is good for anyone with money left in their 401(k) stock plans, but most economists put more weight on the fixed income market’s view of the economy. And specifically changes in the steepness of the Treasury yield curve - one of the best and most consistent leading economic indicators of the economy. The curve itself charts the yields of Treasury debt versus the maturity. So short term debt, like 3 months, has a certain yield which is typically lower than that of 30-yr bonds.
But how much less? Over the past month, we have seen a rapid steepening of the Treasury yield curve, which suggests the probability of economic recovery in the second half of 2009 is quite high. But in addition to Treasury rates, one can also plot the spread of other instruments like corporate bonds or mortgage rates for a comparison, which results in a spread between the two. Corporate bond spreads, for example, have dropped significantly in the last 30 days since the demand for them has increased by investors, and corporations are taking advantage of the drop in yield spreads to sell more debt. It’s cheaper for them.
What about mortgage spreads? As everyone knows, the Fed has been buying agency mortgage-backed securities (so far they’ve bought about $370 billion), and this has dropped 30-year mortgage spreads over 10-yr Treasuries back to their historical averages. Historically, the spread between the 10-year note and 30-year fixed rate mortgages is typically about 1.25%-1.5%. In 2006 it averaged 150 basis points, in 2007, the average spread was 156 basis points, but in 2008 the average spread was 216 basis points. In January of this year the difference was 2.21%! Now the spread between a 10-yr Treasury note and a 30-yr mortgage is back down to 1.55%, which is obviously good news for mortgage originators.
California, like all states, is seeing the percentage of households that can afford to buy an entry-level home increase. According to the California Association of Realtors, the number stood at 69% in the first quarter of 2009, compared with 46% for the same period a year ago. Assuming 10% down and an average entry-level price of $213,040, the income needed was $38,090 (based on an adjustable interest rate of 4.96%). Last year a borrower needed about $65,000 of income to qualify, so this is a drop of 41%. According to CAR, the median household income in California is $61,030.The only news out today was Housing Starts and Building Permits, which unexpectedly fell to record lows in April. The Commerce Department said starts fell almost 13% to an annual rate of 458,000 units, the lowest on records dating back to January 1959. Heck, that was before I was born! New building permits, which give a sense of future home construction, dropped about 3%, the lowest since records started in January 1960. Both numbers are significantly lower than a year ago. The news this morning has served to put a damper on the stock market (“So much for that housing pick-up!), and the 10-yr yield stands at 3.24%. Mortgage prices, which, along with bonds, worsened yesterday with the rally in stocks, are roughly unchanged from Monday afternoon.
Yoland Reason
Tuesday, May 19, 2009
Sunday, April 5, 2009
April 3rd, 2009 Market Update
Friday, April 3rd Market Update
To try and build support for the new budget bill, the Secretary of the Treasury will meet with small businesses. Like General Electric, AIG and General Motors.
How ‘bout this market? Yesterday rates moved higher, and prices lower, after Factory Orders increased 1.8% in February, following a downwardly revised 3.5% drop in January, and six consecutive monthly decreases. So why wouldn’t rates come down? US stock markets continued their rally, and in fact most overseas stock markets improved. (Japan’s was helped by Toyota’s stock rallying after a bank agreed to help finance US car sales.) And it would appear that there is a change in mood about the economy: in spite of the continued bad news, investors appear to feel that the worst is behind us. Just tell that to some Detroit or Sacramento home owner! Maybe investors are just tired of sitting on piles of cash…
This morning the unemployment data came out pretty close to expected: U.S. employers cut 663,000 jobs in March, and the unemployment rate hit 8.5%, the highest since 1983 when Reagan was in office. And although February’s numbers were unrevised, January’s were changed to a loss of 741,000, the biggest decline since October 1949. Since December 2007, the U.S. economy has dropped 5.1 million jobs, with about two thirds of the losses occurring in the last five months. After the news, bond prices are down slightly, with the 10-yr yield currently sitting around 2.69% and mortgage prices a shade worse than yesterday afternoon. (Interestingly, with the high profit margins now built into mortgage pricing, in spite of the MBS market worsening yesterday, many originators decided to absorb the price hit instead of passing it along on their rate sheets in order to potentially help locks.)
Chase Correspondent announced their ability to purchase loans under the new Fannie Mae program DU Refi Plus™. This program is designed to assist borrowers that have demonstrated good pay histories on their mortgages but have been unable to refinance due to a decline in home values.
Franklin American is going along with the pack. “VA Appraisal Requirements for the Market Conditions Addendum - Effective with all appraisals dated on or after April 1, 2009, VA requires appraisers to include Fannie Mae’s Market Conditions Addendum, Form 1004MC, in all VA appraisal reports. Information and instructions on completing the addendum are available online at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf” And “in conjunction with Circular 26-09-3 dated March 27, 2009 VA has determined that a copy of the sales contract be provided to the fee appraiser immediately upon assignment or within 1 business day after the appraisal request. If the agreement of sale is amended during the process, the requester must provide the updated contract to the appraiser.”
As mentioned several times in recent weeks by me (not that I am any great prognosticator – procrastinator is more the case) Wells Fargo is keeping Wachovia’s warehouse business that will provide funding to independent mortgage bankers. Are they going to open it up to any Tom, Dick, and Harry? That is highly doubtful, and will probably focus on their best clients with proven production, high net worth, and a solid track record in selling loans to Wells. It is rumored that it will not be a captive line – meaning that unlike competitor’s lines, originators are not forced to sell a percentage of their production to Wells.
Yolanda Reason's Commentary
To try and build support for the new budget bill, the Secretary of the Treasury will meet with small businesses. Like General Electric, AIG and General Motors.
How ‘bout this market? Yesterday rates moved higher, and prices lower, after Factory Orders increased 1.8% in February, following a downwardly revised 3.5% drop in January, and six consecutive monthly decreases. So why wouldn’t rates come down? US stock markets continued their rally, and in fact most overseas stock markets improved. (Japan’s was helped by Toyota’s stock rallying after a bank agreed to help finance US car sales.) And it would appear that there is a change in mood about the economy: in spite of the continued bad news, investors appear to feel that the worst is behind us. Just tell that to some Detroit or Sacramento home owner! Maybe investors are just tired of sitting on piles of cash…
This morning the unemployment data came out pretty close to expected: U.S. employers cut 663,000 jobs in March, and the unemployment rate hit 8.5%, the highest since 1983 when Reagan was in office. And although February’s numbers were unrevised, January’s were changed to a loss of 741,000, the biggest decline since October 1949. Since December 2007, the U.S. economy has dropped 5.1 million jobs, with about two thirds of the losses occurring in the last five months. After the news, bond prices are down slightly, with the 10-yr yield currently sitting around 2.69% and mortgage prices a shade worse than yesterday afternoon. (Interestingly, with the high profit margins now built into mortgage pricing, in spite of the MBS market worsening yesterday, many originators decided to absorb the price hit instead of passing it along on their rate sheets in order to potentially help locks.)
Chase Correspondent announced their ability to purchase loans under the new Fannie Mae program DU Refi Plus™. This program is designed to assist borrowers that have demonstrated good pay histories on their mortgages but have been unable to refinance due to a decline in home values.
Franklin American is going along with the pack. “VA Appraisal Requirements for the Market Conditions Addendum - Effective with all appraisals dated on or after April 1, 2009, VA requires appraisers to include Fannie Mae’s Market Conditions Addendum, Form 1004MC, in all VA appraisal reports. Information and instructions on completing the addendum are available online at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf” And “in conjunction with Circular 26-09-3 dated March 27, 2009 VA has determined that a copy of the sales contract be provided to the fee appraiser immediately upon assignment or within 1 business day after the appraisal request. If the agreement of sale is amended during the process, the requester must provide the updated contract to the appraiser.”
As mentioned several times in recent weeks by me (not that I am any great prognosticator – procrastinator is more the case) Wells Fargo is keeping Wachovia’s warehouse business that will provide funding to independent mortgage bankers. Are they going to open it up to any Tom, Dick, and Harry? That is highly doubtful, and will probably focus on their best clients with proven production, high net worth, and a solid track record in selling loans to Wells. It is rumored that it will not be a captive line – meaning that unlike competitor’s lines, originators are not forced to sell a percentage of their production to Wells.
Yolanda Reason's Commentary
Market Update
TUESDAY NEW'S March 31st
The former Treasury secretary, Henry Paulson, is writing a book about his role in the Bush administration during the economic crisis. Oddly, the book starts on Chapter 11.
It is the last day of the month. Not only are Ops departments everywhere scrambling to fund loans while they keep an eye on warehouse constraints, but management teams are wondering what April and May will bring. Lock volumes continue to be strong everywhere, and successful companies have made it clear to their agents or brokers that limiting fall out is critical. Whether this involves charging a fee to lock, or only locking after the appraisal comes in, or the loan is approved, etc., pull through seems to be increasing – much to the relief of investors.
As Wells Fargo has made known, they will be continuing, for the most part, Wachovia’s warehouse business. Will BofA continue Countrywide’s? Stay tuned – there are many companies that are hoping so. Of course, if Freddie and Fannie enter the warehouse business, will they be viewed as direct competition for smaller warehouse banks? The regulator of Fannie Mae and Freddie Mac is examining that business channel, both as a way of further stabilizing the market but also as a potential profit center. Existing warehouse banks are strained given the amount of refinancing that is occurring in the market (look for originations in 2009 to be about $3 trillion), and are focused on helping existing clients rather than adding new business. Obviously big banks do not require warehouse funds (remember? They get them from your deposits). Last week the Mortgage Bankers Association asked banking regulators to cut the capital requirement on warehouse lines of credit by as much as 80% to alleviate the funding crisis facing non-depositories that we explained was causing delays and major back-ups in closing loans. That would certainly help.
As a sign of the times, Chicago is now the first city in the US to be served by two insolvent newspapers: the Sun-Times Media Group, parent of the Chicago Sun-Times newspaper, filed for bankruptcy protection. They hired Rothschild Inc to try to sell some of its assets, which include 59 newspapers and their websites. "Unfortunately, this deteriorating economic climate, coupled with a significant, pending IRS tax liability dating back to previous management, has led us to today's difficult action," said Sun-Times’ interim Chief Executive. Chicago’s Tribune Co, is in the midst of a bankruptcy restructuring due to declining revenue.
GMAC’s Correspondent group followed the FHA’s suggested, “reducing the LTV for cash-out refinance transactions to 85% loan-to-value (LTV). This reduction is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.”
Franklin American “under the Economic Stimulus Act of 2008 (ESA) or those previously established for 2009 under the Housing and Economic Recovery Act of 2008 (HERA) and Mortgagee Letter 2009-07 dated February 24, 2009, is pleased to announce we will accept the 2009 revised FHA loan limits effective with Registrations and Locks on and after April 1, 2009. The maximum base loan amount may not exceed the lesser of the Statutory Mortgage Loan Limit as published by HUD for the county in which the property is located OR $417,000 for a 1-unit property. Loan amounts > $417,000 are considered FHA Jumbo product which will now allow a maximum loan amount calculation of the Statutory Mortgage Loan Limit OR $729,750 for a 1-unit property (see the FHA Jumbo Addendum to the FHA Product
Description for 2-unit requirements); previously this limit was set at $625,500.”
On the Wall Street side, it appears that Cantor Fitzgerald is staffing up. On the origination side, AmeriCU Mortgage (who focuses on providing mortgage services to credit unions nationwide, but guilty of capitalizing letters in the middle of their name) has established an operations center in Milwaukee, WI. The story I read said that, “AmeriCU received approval from the Department of Financial Institutions on March 18, and immediately began operations. Within 72 hours, the company hired 45 staff members…”
Making things tough on any broker or agent out there, Lennar Corp, the nation’s largest builder by revenue, is offering a fixed rate of 3.625% "for life," which it says is its lowest ever. The special is "on select homes", closings must occur by April 30, and the loan amount can't exceed $417, 000, according to the terms listed on its Web site. The minimum credit score is 700. Still, just as newspaper headlines raving about 4.5% mortgages influence potential borrower behavior, so might this…
Although our stock market was hit hard yesterday, and stocks overnight were down, this morning they may see a little bounce. Bonds, including mortgage-backed securities, benefited yesterday with the yield on the 10-yr dipping into the 2.60’s although this morning we are back to the low 2.70’s on the 10-yr and mortgage prices are about unchanged. As anticipated, the Fed purchase of $2.5 billion of Treasury securities helped, with the purchases mainly in maturities 20-30 years out. (The Fed will conduct 2 more buybacks in the middle of this week.) For economic news we have the S&P/Case Shiller index, the Chicago Purchasing Manager’s Survey, and Consumer Confidence.
Yolanda Reason's commentary
The former Treasury secretary, Henry Paulson, is writing a book about his role in the Bush administration during the economic crisis. Oddly, the book starts on Chapter 11.
It is the last day of the month. Not only are Ops departments everywhere scrambling to fund loans while they keep an eye on warehouse constraints, but management teams are wondering what April and May will bring. Lock volumes continue to be strong everywhere, and successful companies have made it clear to their agents or brokers that limiting fall out is critical. Whether this involves charging a fee to lock, or only locking after the appraisal comes in, or the loan is approved, etc., pull through seems to be increasing – much to the relief of investors.
As Wells Fargo has made known, they will be continuing, for the most part, Wachovia’s warehouse business. Will BofA continue Countrywide’s? Stay tuned – there are many companies that are hoping so. Of course, if Freddie and Fannie enter the warehouse business, will they be viewed as direct competition for smaller warehouse banks? The regulator of Fannie Mae and Freddie Mac is examining that business channel, both as a way of further stabilizing the market but also as a potential profit center. Existing warehouse banks are strained given the amount of refinancing that is occurring in the market (look for originations in 2009 to be about $3 trillion), and are focused on helping existing clients rather than adding new business. Obviously big banks do not require warehouse funds (remember? They get them from your deposits). Last week the Mortgage Bankers Association asked banking regulators to cut the capital requirement on warehouse lines of credit by as much as 80% to alleviate the funding crisis facing non-depositories that we explained was causing delays and major back-ups in closing loans. That would certainly help.
As a sign of the times, Chicago is now the first city in the US to be served by two insolvent newspapers: the Sun-Times Media Group, parent of the Chicago Sun-Times newspaper, filed for bankruptcy protection. They hired Rothschild Inc to try to sell some of its assets, which include 59 newspapers and their websites. "Unfortunately, this deteriorating economic climate, coupled with a significant, pending IRS tax liability dating back to previous management, has led us to today's difficult action," said Sun-Times’ interim Chief Executive. Chicago’s Tribune Co, is in the midst of a bankruptcy restructuring due to declining revenue.
GMAC’s Correspondent group followed the FHA’s suggested, “reducing the LTV for cash-out refinance transactions to 85% loan-to-value (LTV). This reduction is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.”
Franklin American “under the Economic Stimulus Act of 2008 (ESA) or those previously established for 2009 under the Housing and Economic Recovery Act of 2008 (HERA) and Mortgagee Letter 2009-07 dated February 24, 2009, is pleased to announce we will accept the 2009 revised FHA loan limits effective with Registrations and Locks on and after April 1, 2009. The maximum base loan amount may not exceed the lesser of the Statutory Mortgage Loan Limit as published by HUD for the county in which the property is located OR $417,000 for a 1-unit property. Loan amounts > $417,000 are considered FHA Jumbo product which will now allow a maximum loan amount calculation of the Statutory Mortgage Loan Limit OR $729,750 for a 1-unit property (see the FHA Jumbo Addendum to the FHA Product
Description for 2-unit requirements); previously this limit was set at $625,500.”
On the Wall Street side, it appears that Cantor Fitzgerald is staffing up. On the origination side, AmeriCU Mortgage (who focuses on providing mortgage services to credit unions nationwide, but guilty of capitalizing letters in the middle of their name) has established an operations center in Milwaukee, WI. The story I read said that, “AmeriCU received approval from the Department of Financial Institutions on March 18, and immediately began operations. Within 72 hours, the company hired 45 staff members…”
Making things tough on any broker or agent out there, Lennar Corp, the nation’s largest builder by revenue, is offering a fixed rate of 3.625% "for life," which it says is its lowest ever. The special is "on select homes", closings must occur by April 30, and the loan amount can't exceed $417, 000, according to the terms listed on its Web site. The minimum credit score is 700. Still, just as newspaper headlines raving about 4.5% mortgages influence potential borrower behavior, so might this…
Although our stock market was hit hard yesterday, and stocks overnight were down, this morning they may see a little bounce. Bonds, including mortgage-backed securities, benefited yesterday with the yield on the 10-yr dipping into the 2.60’s although this morning we are back to the low 2.70’s on the 10-yr and mortgage prices are about unchanged. As anticipated, the Fed purchase of $2.5 billion of Treasury securities helped, with the purchases mainly in maturities 20-30 years out. (The Fed will conduct 2 more buybacks in the middle of this week.) For economic news we have the S&P/Case Shiller index, the Chicago Purchasing Manager’s Survey, and Consumer Confidence.
Yolanda Reason's commentary
Economy Update
To try and build support for the new budget bill, the Secretary of the Treasury will meet with small businesses. Like General Electric, AIG and General Motors.
How ‘bout this market? Yesterday rates moved higher, and prices lower, after Factory Orders increased 1.8% in February, following a downwardly revised 3.5% drop in January, and six consecutive monthly decreases. So why wouldn’t rates come down? US stock markets continued their rally, and in fact most overseas stock markets improved. (Japan’s was helped by Toyota’s stock rallying after a bank agreed to help finance US car sales.) And it would appear that there is a change in mood about the economy: in spite of the continued bad news, investors appear to feel that the worst is behind us. Just tell that to some Detroit or Sacramento home owner! Maybe investors are just tired of sitting on piles of cash…
This morning the unemployment data came out pretty close to expected: U.S. employers cut 663,000 jobs in March, and the unemployment rate hit 8.5%, the highest since 1983 when Reagan was in office. And although February’s numbers were unrevised, January’s were changed to a loss of 741,000, the biggest decline since October 1949. Since December 2007, the U.S. economy has dropped 5.1 million jobs, with about two thirds of the losses occurring in the last five months. After the news, bond prices are down slightly, with the 10-yr yield currently sitting around 2.69% and mortgage prices a shade worse than yesterday afternoon. (Interestingly, with the high profit margins now built into mortgage pricing, in spite of the MBS market worsening yesterday, many originators decided to absorb the price hit instead of passing it along on their rate sheets in order to potentially help locks.)
Chase Correspondent announced their ability to purchase loans under the new Fannie Mae program DU Refi Plus™. This program is designed to assist borrowers that have demonstrated good pay histories on their mortgages but have been unable to refinance due to a decline in home values.
Franklin American is going along with the pack. “VA Appraisal Requirements for the Market Conditions Addendum - Effective with all appraisals dated on or after April 1, 2009, VA requires appraisers to include Fannie Mae’s Market Conditions Addendum, Form 1004MC, in all VA appraisal reports. Information and instructions on completing the addendum are available online at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf” And “in conjunction with Circular 26-09-3 dated March 27, 2009 VA has determined that a copy of the sales contract be provided to the fee appraiser immediately upon assignment or within 1 business day after the appraisal request. If the agreement of sale is amended during the process, the requester must provide the updated contract to the appraiser.”
As mentioned several times in recent weeks by me (not that I am any great prognosticator – procrastinator is more the case) Wells Fargo is keeping Wachovia’s warehouse business that will provide funding to independent mortgage bankers. Are they going to open it up to any Tom, Dick, and Harry? That is highly doubtful, and will probably focus on their best clients with proven production, high net worth, and a solid track record in selling loans to Wells. It is rumored that it will not be a captive line – meaning that unlike competitor’s lines, originators are not forced to sell a percentage of their production to Wells.
How ‘bout this market? Yesterday rates moved higher, and prices lower, after Factory Orders increased 1.8% in February, following a downwardly revised 3.5% drop in January, and six consecutive monthly decreases. So why wouldn’t rates come down? US stock markets continued their rally, and in fact most overseas stock markets improved. (Japan’s was helped by Toyota’s stock rallying after a bank agreed to help finance US car sales.) And it would appear that there is a change in mood about the economy: in spite of the continued bad news, investors appear to feel that the worst is behind us. Just tell that to some Detroit or Sacramento home owner! Maybe investors are just tired of sitting on piles of cash…
This morning the unemployment data came out pretty close to expected: U.S. employers cut 663,000 jobs in March, and the unemployment rate hit 8.5%, the highest since 1983 when Reagan was in office. And although February’s numbers were unrevised, January’s were changed to a loss of 741,000, the biggest decline since October 1949. Since December 2007, the U.S. economy has dropped 5.1 million jobs, with about two thirds of the losses occurring in the last five months. After the news, bond prices are down slightly, with the 10-yr yield currently sitting around 2.69% and mortgage prices a shade worse than yesterday afternoon. (Interestingly, with the high profit margins now built into mortgage pricing, in spite of the MBS market worsening yesterday, many originators decided to absorb the price hit instead of passing it along on their rate sheets in order to potentially help locks.)
Chase Correspondent announced their ability to purchase loans under the new Fannie Mae program DU Refi Plus™. This program is designed to assist borrowers that have demonstrated good pay histories on their mortgages but have been unable to refinance due to a decline in home values.
Franklin American is going along with the pack. “VA Appraisal Requirements for the Market Conditions Addendum - Effective with all appraisals dated on or after April 1, 2009, VA requires appraisers to include Fannie Mae’s Market Conditions Addendum, Form 1004MC, in all VA appraisal reports. Information and instructions on completing the addendum are available online at: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf” And “in conjunction with Circular 26-09-3 dated March 27, 2009 VA has determined that a copy of the sales contract be provided to the fee appraiser immediately upon assignment or within 1 business day after the appraisal request. If the agreement of sale is amended during the process, the requester must provide the updated contract to the appraiser.”
As mentioned several times in recent weeks by me (not that I am any great prognosticator – procrastinator is more the case) Wells Fargo is keeping Wachovia’s warehouse business that will provide funding to independent mortgage bankers. Are they going to open it up to any Tom, Dick, and Harry? That is highly doubtful, and will probably focus on their best clients with proven production, high net worth, and a solid track record in selling loans to Wells. It is rumored that it will not be a captive line – meaning that unlike competitor’s lines, originators are not forced to sell a percentage of their production to Wells.
Thursday, February 12, 2009
No Cost Loans Wave Good-bye!!
Say Goodbye to No Cost Loans… If you haven't already figured this out its time to change your strategy and start educating borrowers about the benefits of paying points and their own fees and refinancing into the lowest interest rate of their lifetime. Yes MAYBE rates will be better but I would not bet on it. Why not take advantage of a big payment and rate reduction NOW. Why gamble and possibly lose the opportunity.
No Cost loans used to be the best strategy but not in today's market. The lenders are no longer offering enough YSP at competitive rates for it to make sense any more, plus as long as your borrower isn't planning on selling their home in the next 2-3 years then paying their cost makes more sense over the long run and will save them thousands of real dollars. Add to the fact that every time you put someone into an artificially high rate at no cost you risk an early pay off and risk having to pay the YSP back to the lender…..food for thought.
No Cost loans used to be the best strategy but not in today's market. The lenders are no longer offering enough YSP at competitive rates for it to make sense any more, plus as long as your borrower isn't planning on selling their home in the next 2-3 years then paying their cost makes more sense over the long run and will save them thousands of real dollars. Add to the fact that every time you put someone into an artificially high rate at no cost you risk an early pay off and risk having to pay the YSP back to the lender…..food for thought.
Saturday, February 7, 2009
Mortgage Update
Great News for Your Super Jumbo Clients!
The Loan Source has new products for "Super Jumbo" loans up to 2 million for primary residence, second homes and non-owner occupied. Fico’s need to be at 700 or better, and the loan-to-values (LTV) are 80% at 1 million; 75% at 1.5 million; and 70% on 2 million for primary residence. All loan amounts mentioned are for an 80% cumulative loan-to-values (CLTV).
Our rates are going to be unbeatable, in the 5’s and 6’s for Arm products, and in the 7’s for 30 year fixed. If you have any questions, please give me a call.
Make it a great day!
Celeste
Thursday’s Mortgage Update
The FBI now says that 80% of the crime in the U.S. is being carried out by ruthless gangs... But enough about Citigroup, Bank of America and Goldman Sachs.
Topic of the day: Pricing. Many loan officers are still looking at tying economic news to the bond yield and then in turn tying bond yield to interest rates. Besides the base securities market, it is important for agents to remember that other factors need to be considered. SRP values (what these lenders actually get paid for these loans), guaranty fees charged by Freddie & Fannie, and the spread between best efforts and mandatory execution (we lock on a best efforts basis and the lenders – at least the ones wearing the big boy pants – sell on a mandatory basis) contribute toward an all-in price. For example, the servicing released premiums that the servicers are willing to pay are a key difference between Wells, Citi, Chase, GMAC, CW, etc. The agencies control the guarantee/guarantor fees, and "in the old days" there were large differences in ‘g-fees’ for lenders of different sizes. These differences, measured in basis points, have been reduced, but still the risk associated with a smaller lender is greater than that of a large lender, and the fees will be different. Lastly, the difference between best efforts and mandatory pricing has moved out past 1 point, or 100 basis points, versus the historical average of around .250. This is due to the volatility of the market, along with increased fall out of best efforts locks.
So what is happening with the Fed trying to spot mortgage rates, in the face of market forces? Ever since the magical 4.5% mortgage was "targeted", rates have moved up, and we now find ourselves above 6% with one point back to the broker. It would appear that successful agents are "re-educating" their borrowers to move files off their desks, and telling them, "You’re going to be in the house a while, so pay 1-2 points in order to get back down near 5% for a 30-yr fixed rate mortgage."
Rates have not been good lately for anyone waiting to lock. (Have the borrower pony up a point and get it over with!) No one is arguing that the economy is weak, so what is holding rates up? Increased borrowing by the federal government to fund stimulus packages has helped drive underlying Treasury yields, and to some extent mortgage rates, higher. And no one knows what will happen when the music stops, i.e., when the Fed stops buying MBS’s after June, will investors be interested? With this on its collective mind, the market has the 10-yr currently at 2.90% and mortgage prices are a shade better from yesterday afternoon.
FNMA released DU 7.1, hoped to streamline the underwriting process for existing Fannie Mae loans. The primary interest has been in Fannie’s move to waive the reappraisal requirement for some borrowers seeking to refinance loans that are already with Fannie. It is not viewed as looser underwriting guidelines, but instead as a way for brokers to use a more automated appraisal system in DU. For existing Fannie loans, DU will use HPA data to estimate home values, and if the borrower fits current underwriting guidelines then the appraisal will likely be waived. But why rely on someone else’s interpretation – see for yourself: https://www.efanniemae.com/sf/guides/duguides/pdf/current/rndodu71aprupd.pdf
The Loan Source has new products for "Super Jumbo" loans up to 2 million for primary residence, second homes and non-owner occupied. Fico’s need to be at 700 or better, and the loan-to-values (LTV) are 80% at 1 million; 75% at 1.5 million; and 70% on 2 million for primary residence. All loan amounts mentioned are for an 80% cumulative loan-to-values (CLTV).
Our rates are going to be unbeatable, in the 5’s and 6’s for Arm products, and in the 7’s for 30 year fixed. If you have any questions, please give me a call.
Make it a great day!
Celeste
Thursday’s Mortgage Update
The FBI now says that 80% of the crime in the U.S. is being carried out by ruthless gangs... But enough about Citigroup, Bank of America and Goldman Sachs.
Topic of the day: Pricing. Many loan officers are still looking at tying economic news to the bond yield and then in turn tying bond yield to interest rates. Besides the base securities market, it is important for agents to remember that other factors need to be considered. SRP values (what these lenders actually get paid for these loans), guaranty fees charged by Freddie & Fannie, and the spread between best efforts and mandatory execution (we lock on a best efforts basis and the lenders – at least the ones wearing the big boy pants – sell on a mandatory basis) contribute toward an all-in price. For example, the servicing released premiums that the servicers are willing to pay are a key difference between Wells, Citi, Chase, GMAC, CW, etc. The agencies control the guarantee/guarantor fees, and "in the old days" there were large differences in ‘g-fees’ for lenders of different sizes. These differences, measured in basis points, have been reduced, but still the risk associated with a smaller lender is greater than that of a large lender, and the fees will be different. Lastly, the difference between best efforts and mandatory pricing has moved out past 1 point, or 100 basis points, versus the historical average of around .250. This is due to the volatility of the market, along with increased fall out of best efforts locks.
So what is happening with the Fed trying to spot mortgage rates, in the face of market forces? Ever since the magical 4.5% mortgage was "targeted", rates have moved up, and we now find ourselves above 6% with one point back to the broker. It would appear that successful agents are "re-educating" their borrowers to move files off their desks, and telling them, "You’re going to be in the house a while, so pay 1-2 points in order to get back down near 5% for a 30-yr fixed rate mortgage."
Rates have not been good lately for anyone waiting to lock. (Have the borrower pony up a point and get it over with!) No one is arguing that the economy is weak, so what is holding rates up? Increased borrowing by the federal government to fund stimulus packages has helped drive underlying Treasury yields, and to some extent mortgage rates, higher. And no one knows what will happen when the music stops, i.e., when the Fed stops buying MBS’s after June, will investors be interested? With this on its collective mind, the market has the 10-yr currently at 2.90% and mortgage prices are a shade better from yesterday afternoon.
FNMA released DU 7.1, hoped to streamline the underwriting process for existing Fannie Mae loans. The primary interest has been in Fannie’s move to waive the reappraisal requirement for some borrowers seeking to refinance loans that are already with Fannie. It is not viewed as looser underwriting guidelines, but instead as a way for brokers to use a more automated appraisal system in DU. For existing Fannie loans, DU will use HPA data to estimate home values, and if the borrower fits current underwriting guidelines then the appraisal will likely be waived. But why rely on someone else’s interpretation – see for yourself: https://www.efanniemae.com/sf/guides/duguides/pdf/current/rndodu71aprupd.pdf
Subscribe to:
Posts (Atom)
