Have Mortgage Rates Peaked?
Posted 08-11-2009 at 08:57 AM by VictorBurek
After a brutal last week were mortgage rates moved .50% higher, mortgage backed securities managed to start this week in rally mode. To remind readers, as MBS rally or move higher in price, mortgage rates move lower. Many lenders offered new rate sheets later in the day lowering consumer borrowing costs as the rally continued to close. Before we can get too excited, I must also point out that the volume of trades was very low so I can’t say that we are seeing a reversal of the recent trend of higher rates but good news is good news. In markets such as this, we must remain very defensive as sentiment can change very quickly and rates will move higher at a much quicker pace than they will move lower. Market participants are still battling with the opposing views of economic recovery is here vs we are a long way from economic growth. This clashing of views adds volatility in the market place with each economic report supporting one view or the other.
Today, the Federal Open Market Committee begins day one of their two day meeting which are held every 8 weeks. At these meetings, the Fed sets monetary policy for our country and gives market participants an outlook on the economy. Not much happens during the first day, but following the end of the second day the Fed releases the Fed statement that sets monetary policy. This statement will be scanned line by line for any hints on future monetary policy and economic outlook. More on this topic tomorrow.
The only data to be released today is from the U.S. Department of Labor with the release of second quarter Productivity and Costs. The productivity part of this report measures how efficient our labor force is at producing our nation’s goods and services while the costs reflects the labor cost to produce each unit of output. This report will indicate to market participants future inflationary pressures. The release shows that productivity and labor costs each showed a sharp improvement in the second quarter. Productivity posted a 6.4% gain beating estimates of a 5.5% gain while labor costs declined 5.8% which is more than the expected decline of 2.8%. This report shows that the labor force is producing more goods and services while earning less money which is positive for corporate profits but also indicates that future inflationary pressures are not present which is positive for MBS.
At 1pm eastern, the U.S. Department of Treasury will hold its first of three treasury auctions for the week. Today’s offering will be $37billion of 3 year notes. Since the supply is known in advance, the most important aspect will be the demand for the U.S. debt. Strong demand especially from foreign investors known as the indirect bid, can help the fixed income move higher in price which lowers the yield on Treasuries and mortgage rates. With the FOMC statement due out tomorrow, demand might be weak as market participants step back to wait for the statement. On the positive side, treasury yields have spiked recently making the present yields attractive.
I am reading and hearing much more in the news regarding the Home Valuation Code of Conduct. This legislation which came in effect on May 1st changes the way that appraisals are ordered on home purchases and refinances. Basically this law states that anyone that might earn a commission on a mortgage loan can have no contact with the appraisal company. When securing a mortgage loan, an applicant must provide the means for paying for the appraisal up front, that information is given to the lender your loan is submitted to which than picks supposedly at random one of several appraisal management companies (AMC) that they have approved. That appraisal management company then contacts the consumer to set up the appraisal time and charges the client. Many people believe that this law is having a major impact on the housing market by providing inferior reports on value. One claim is that the AMC is utilizing appraisers that are not familiar with the area the subject property is located. Another claim is that the appraiser instead of reviewing multiple comparable properties to find the best comps is choosing the 3 most recent comps so they can quickly complete the report and get back into rotation for the next order. Appraisers under this law have seen the amount of money they are compensated per appraisal drop dramatically thus the need to do as many appraisals as possible. A third claim is that the appraisals are not portable from one lender to the next. The law does state that the appraisals should be portable but the recent demise of Taylor Bean and Whitaker provides evidence that the appraisals are not portable as most lenders have stated that they will not accept an appraisal which was performed by Taylor Bean so a new appraisal must be completed costing the consumer more money. There is a bill currently in Congress that puts a moratorium on this for 18 months. I would love to hear from the many consumers that read this blog. Have you been impacted by this law? Do you agree with it?
Here is my view on HVCC. The reason for this law was due to appraisers being pressured to hit a certain value. So to remove that pressure, appraisers will now be randomly assigned. The first problem with this is that this suggests that all appraisers are equal. That is comparable to saying that all mechanics, lawyers or loan officers are equal. So, I disagree that all appraisers are equal. Remember, an appraisal is an opinion of value based on research of like homes in a neighborhood. I contest that one appraiser might spend more time and do more research to find better comparable properties than another appraiser. I am big on analogies, so let me provide my view this way. (No offense to tax attorneys, cpas, accountants) Many fraudulent tax returns have been submitted due to pressure applied on the tax preparer to take deductions that may not be fully justified. So, should we pass a law that states when a consumer wants to have their taxes prepared that they contact a 800 number and a tax preparer will be randomly assigned to their file. How would you feel if such a law were passed? Please provide you comments on this new law.
Early reports from fellow mortgage professionals are indicating that mortgage rates are improved. The par 30 year conventional rate mortgage is in the 5.125% to 5.375% range for the best qualified consumer. In order to get 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 a consumer, you can elect to pay less in fees and take a higher interest rate.
Today, the Federal Open Market Committee begins day one of their two day meeting which are held every 8 weeks. At these meetings, the Fed sets monetary policy for our country and gives market participants an outlook on the economy. Not much happens during the first day, but following the end of the second day the Fed releases the Fed statement that sets monetary policy. This statement will be scanned line by line for any hints on future monetary policy and economic outlook. More on this topic tomorrow.
The only data to be released today is from the U.S. Department of Labor with the release of second quarter Productivity and Costs. The productivity part of this report measures how efficient our labor force is at producing our nation’s goods and services while the costs reflects the labor cost to produce each unit of output. This report will indicate to market participants future inflationary pressures. The release shows that productivity and labor costs each showed a sharp improvement in the second quarter. Productivity posted a 6.4% gain beating estimates of a 5.5% gain while labor costs declined 5.8% which is more than the expected decline of 2.8%. This report shows that the labor force is producing more goods and services while earning less money which is positive for corporate profits but also indicates that future inflationary pressures are not present which is positive for MBS.
At 1pm eastern, the U.S. Department of Treasury will hold its first of three treasury auctions for the week. Today’s offering will be $37billion of 3 year notes. Since the supply is known in advance, the most important aspect will be the demand for the U.S. debt. Strong demand especially from foreign investors known as the indirect bid, can help the fixed income move higher in price which lowers the yield on Treasuries and mortgage rates. With the FOMC statement due out tomorrow, demand might be weak as market participants step back to wait for the statement. On the positive side, treasury yields have spiked recently making the present yields attractive.
I am reading and hearing much more in the news regarding the Home Valuation Code of Conduct. This legislation which came in effect on May 1st changes the way that appraisals are ordered on home purchases and refinances. Basically this law states that anyone that might earn a commission on a mortgage loan can have no contact with the appraisal company. When securing a mortgage loan, an applicant must provide the means for paying for the appraisal up front, that information is given to the lender your loan is submitted to which than picks supposedly at random one of several appraisal management companies (AMC) that they have approved. That appraisal management company then contacts the consumer to set up the appraisal time and charges the client. Many people believe that this law is having a major impact on the housing market by providing inferior reports on value. One claim is that the AMC is utilizing appraisers that are not familiar with the area the subject property is located. Another claim is that the appraiser instead of reviewing multiple comparable properties to find the best comps is choosing the 3 most recent comps so they can quickly complete the report and get back into rotation for the next order. Appraisers under this law have seen the amount of money they are compensated per appraisal drop dramatically thus the need to do as many appraisals as possible. A third claim is that the appraisals are not portable from one lender to the next. The law does state that the appraisals should be portable but the recent demise of Taylor Bean and Whitaker provides evidence that the appraisals are not portable as most lenders have stated that they will not accept an appraisal which was performed by Taylor Bean so a new appraisal must be completed costing the consumer more money. There is a bill currently in Congress that puts a moratorium on this for 18 months. I would love to hear from the many consumers that read this blog. Have you been impacted by this law? Do you agree with it?
Here is my view on HVCC. The reason for this law was due to appraisers being pressured to hit a certain value. So to remove that pressure, appraisers will now be randomly assigned. The first problem with this is that this suggests that all appraisers are equal. That is comparable to saying that all mechanics, lawyers or loan officers are equal. So, I disagree that all appraisers are equal. Remember, an appraisal is an opinion of value based on research of like homes in a neighborhood. I contest that one appraiser might spend more time and do more research to find better comparable properties than another appraiser. I am big on analogies, so let me provide my view this way. (No offense to tax attorneys, cpas, accountants) Many fraudulent tax returns have been submitted due to pressure applied on the tax preparer to take deductions that may not be fully justified. So, should we pass a law that states when a consumer wants to have their taxes prepared that they contact a 800 number and a tax preparer will be randomly assigned to their file. How would you feel if such a law were passed? Please provide you comments on this new law.
Early reports from fellow mortgage professionals are indicating that mortgage rates are improved. The par 30 year conventional rate mortgage is in the 5.125% to 5.375% range for the best qualified consumer. In order to get 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 a consumer, you can elect to pay less in fees and take a higher interest rate.
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