Mortgage Rates Steady and the Week Ahead
Posted 12-14-2009 at 08:15 AM by VictorBurek
Last week ended on a positive note for mortgage rate watchers. After a lower opening for mortgage backed securities, they managed to move higher as bargain buyers stepped in to buy at the lows. The price gains resulted in many lenders repricing for the better. After hitting an all time price high for MBS on November 30th, the first two weeks of December erased all the price gains taking us back to the same levels from the beginning of November. To remind readers, as the price of MBS move higher, lenders can offer lower mortgage rates.
Today we have no economic data hitting the wires but the week ahead does have some high impacting events taking place.
Tomorrow we get a few economic reports. First will be a reading on inflation with the Producer Price Index. Higher inflation will lead to higher mortgage rates, so let’s hope the data continues to point to no inflation. We also get a couple readings on the strength of manufacturing with the Empire State Manufacturing Survey and Industrial Production. In addition to the data, we also get the beginning of the Federal Open Market Committee’s two day meeting. The Fed meets eight times a year to set our nation’s monetary policy and give an outlook on future economic growth. The Feds main job is to set monetary policy to foster healthy economic growth while keeping inflation in check.
Wednesday brings us a much more important reading on inflation with the Consumer Price Index. Tuesday’s PPI measures inflation on the producer level while Wednesday’s CPI measures on inflation on the consumer level. We also get two readings on housing with the release of the weekly Mortgage Bankers’ Associations Application Index and Housing Starts. Of most importance will be the release of the Fed Statement. At the conclusion of the two day Fed meeting, they release a statement setting our nation’s monetary policy and provides an outlook on the economy. It is widely accepted that they will maintain the current Fed Fund rate but some expect some changes in the economic outlook they provide. If the Fed sees a much improved economy, it could lead to monetary policy tightening sooner rather than later which means mortgage rates move higher.
Thursday brings us the weekly jobless claims which is expected to show a decline in the number of Americans filing for first time unemployment benefits from the prior week. In addition, we get the Philly Fed Survey which gives us a measure on the strength of business conditions in the Philly region and Leading Indicators.
The week wraps up with a data less day on Friday.
Early reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. 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 an estimated one point loan origination/discount/broker fee. You may elect to pay less in fees but you will have to accept a higher interest rate.
Over the weekend, Fannie Mae and Freddie Mac have tightened lending guidelines with the release of DU 8.0. Here is a summary of the changes:
- Minimum FICO score is now 620.
- Maximum Debt to Income(DTI) of 45% with exceptions to 50%. DTI is the ratio of your income to total monthly obligations. If gross income is $5000 per month and total debt obligations are $2000 per month, your DTI is 2000/5000 or 40%.
- Chapter 7 Bankruptcy must be discharged for at least 4 years.
- Chapter 13 Bankruptcy must be filed for at least 4 years and discharged for at least 2 years or dismissed for at least 4 years.
- Foreclosure greater than 5 years but less than 7 years requires a 680 FICO and a 90% maximum loan to value.
- Reserves are calculated at 70% for stocks, bonds and mutual funds(used to be 100%) while 401k’s are now calculated at 60%. If you have $100,000 in your 401k account, the lender reduces to show only $60,000 in reserves.
- 2 Units loan to value has been reduced to 75%.
Today we have no economic data hitting the wires but the week ahead does have some high impacting events taking place.
Tomorrow we get a few economic reports. First will be a reading on inflation with the Producer Price Index. Higher inflation will lead to higher mortgage rates, so let’s hope the data continues to point to no inflation. We also get a couple readings on the strength of manufacturing with the Empire State Manufacturing Survey and Industrial Production. In addition to the data, we also get the beginning of the Federal Open Market Committee’s two day meeting. The Fed meets eight times a year to set our nation’s monetary policy and give an outlook on future economic growth. The Feds main job is to set monetary policy to foster healthy economic growth while keeping inflation in check.
Wednesday brings us a much more important reading on inflation with the Consumer Price Index. Tuesday’s PPI measures inflation on the producer level while Wednesday’s CPI measures on inflation on the consumer level. We also get two readings on housing with the release of the weekly Mortgage Bankers’ Associations Application Index and Housing Starts. Of most importance will be the release of the Fed Statement. At the conclusion of the two day Fed meeting, they release a statement setting our nation’s monetary policy and provides an outlook on the economy. It is widely accepted that they will maintain the current Fed Fund rate but some expect some changes in the economic outlook they provide. If the Fed sees a much improved economy, it could lead to monetary policy tightening sooner rather than later which means mortgage rates move higher.
Thursday brings us the weekly jobless claims which is expected to show a decline in the number of Americans filing for first time unemployment benefits from the prior week. In addition, we get the Philly Fed Survey which gives us a measure on the strength of business conditions in the Philly region and Leading Indicators.
The week wraps up with a data less day on Friday.
Early reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage remains in the 4.75% to 5.00% range for well qualified consumers. 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 an estimated one point loan origination/discount/broker fee. You may elect to pay less in fees but you will have to accept a higher interest rate.
Over the weekend, Fannie Mae and Freddie Mac have tightened lending guidelines with the release of DU 8.0. Here is a summary of the changes:
- Minimum FICO score is now 620.
- Maximum Debt to Income(DTI) of 45% with exceptions to 50%. DTI is the ratio of your income to total monthly obligations. If gross income is $5000 per month and total debt obligations are $2000 per month, your DTI is 2000/5000 or 40%.
- Chapter 7 Bankruptcy must be discharged for at least 4 years.
- Chapter 13 Bankruptcy must be filed for at least 4 years and discharged for at least 2 years or dismissed for at least 4 years.
- Foreclosure greater than 5 years but less than 7 years requires a 680 FICO and a 90% maximum loan to value.
- Reserves are calculated at 70% for stocks, bonds and mutual funds(used to be 100%) while 401k’s are now calculated at 60%. If you have $100,000 in your 401k account, the lender reduces to show only $60,000 in reserves.
- 2 Units loan to value has been reduced to 75%.
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