Mortgage Rates Improve and an Update on HVCC
Posted 08-25-2009 at 08:43 AM by VictorBurek
After some early morning selling pressure yesterday, prices of mortgage backed securities managed to regain much of the losses they suffered on Friday. It appears that news of the New York Fed purchasing more than expected US Treasuries caused the mid day rally. If you can recall, the Fed announced earlier this year that they would purchase up to $300billion in US Treasuries which is set to be phased out in October. Most lenders did offer better pricing as the rally held to close.
The data calendar picks up today with the release of several bits of economic data which can have an impact on the markets. Probably the highest impacting event today will be the Treasury Department’s auction of $42billion of 2 year notes at 1pm eastern. When our government does not have the cash to pay for spending, they borrow the money by selling US debt or treasuries. Since the supply of the offering is known in advance, the most crucial aspect of the auction will be the demand. The bid to cover ratio lets market participants know how many people bid for each note. For example, a bid to cover ratio of 2.50 means that for each note offered, 2.5 people bid to purchase the note. The higher the bid to cover, the more overall demand which is positive for the fixed income sector. We also get a read on the demand from foreign investors known as the indirect bid. If the indirect bid is 40%, that would mean that 40% of the total offering was purchased by foreign investors. Strong demand from the indirect bid is also crucial for a successful auction and can help to lower mortgage rates.
This morning we receive two data sets on home prices. Rising home values would be a positive for the equities market as many home owners are reluctant to spend money while the value of their home is declining. In addition, rising home values encourage more construction which leads to more jobs, more consumer spending, etc… Most economists believe that until home prices firm up, it will be extremely difficult for our economy to recover.
First out is the S&P Case Shiller Home Price Index which tracks monthly changes in the value of residential real estate in 20 metropolitan regions. Recent reports from S&P Case Shiller have shown home price declines easing dramatically with some areas showing signs of appreciation. The report shows that home value declines continue to ease at a slower pace than what was expected. Year over year, home prices fell 15.4% marking the smallest decline since April 2008. Last month’s report indicated a year over year decline of 17%. Dallas posted the smallest year over year decline at 2.2% while Las Vegas posted the largest decline at 32%. Month over month, the report shows that home prices climbed 1.4% from May which is the second consecutive gain in a row and 18 of the 20 regions posted month over month gains.
The second report on home prices comes from the Federal Housing Finance Agency with their version of the Home Price Index. This report is similar to the S&P Case Shiller report but uses data provided by Fannie Mae and Freddie Mac. Last month’s report showed a monthly gain of 0.9% and expectations call for another gain in home prices of 0.4%. This report shows a month over month increase of 0.5% and a year over year decline of -5.0%.
The final report on the day is the Consumer Confidence report which lets market participants know how the consumer is feeling. An optimistic consumer is more likely to spend which is a positive for the stock market, while a pessimistic consumer is more likely to save which benefits the fixed income sector. From March to May, the report showed that the consumer was feeling better about their own personal finances and future expectations for the economy, but the last two reports have indicated a reversal of that trend. High unemployment appears to be the main cause of the shift in consumer attitudes. The report shows that consumer confidence for August jumps much higher than expected. Surprisingly this much better than expected reading on the consumer has had no effect on the markets.
I have spoken in the past on the topic of Home Valuation Code of Conduct. This legislation which came in affect on May 1st of this year, changes the way that appraisals are ordered for any loan that is to be delivered to Fannie Mae or Freddie Mac. As a consumer, you can no longer decide who appraises your home if you wish to secure a conventional mortgage. With the passing of this law, you are required to provide the lender up front, information for how you intend to pay for the appraisal. The lender than picks one of several Appraisal Management Companies that they have preapproved to complete the appraisal. Once the AMC is selected, they contact the consumer to arrange the appraisal by randomly picking an appraiser that is supposed to be familiar with the subject property’s area. This law did not apply FHA loans. In a very positive sign, the commissioner for FHA announced yesterday that they do not intend to apply HVCC to any FHA loans. In his statement he says that FHA is aware of the problems that HVCC is causing. This is a huge positive for the consumer as HVCC has negatively impacted many consumers with subpar appraisals on properties.
If you have any stories on HVCC please share them in the comments section. Here is a great one from a fellow mortgage professional. This loan officer placed the order with the lender following the rules of HVCC. The consumer was contacted and paid for the appraisal. About a week or so later, the appraisal was sent to the lender. It turns out that the appraiser appraised the home next to the subject property!! To make matters even worse, it took a couple weeks to get the issued resolved. Another example of the low quality of HVCC appraisals comes from one of my clients. We had submitted the loan to Taylor Bean but due to their demise, we transferred the loan to another bank who would accept appraisals ordered through HVCC protocol. We were contacted by that bank yesterday with them saying that they are denying the loan due to the appraisal. The lender informed us that the quality of the appraisal that was performed was well below their standards and unacceptable.
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage has once again dipped into the 4.875% to 5.125% range for the best qualified consumer. In order to secure a par interest rate you must pay all closing costs including one point loan origination/discount/broker fee, have a FICO credit score of 740 or higher and a loan to value at 80% or less. You can always elect to pay less in closing costs and secure a higher rate or you can pay additional discount points and buy a lower interest rate.
The data calendar picks up today with the release of several bits of economic data which can have an impact on the markets. Probably the highest impacting event today will be the Treasury Department’s auction of $42billion of 2 year notes at 1pm eastern. When our government does not have the cash to pay for spending, they borrow the money by selling US debt or treasuries. Since the supply of the offering is known in advance, the most crucial aspect of the auction will be the demand. The bid to cover ratio lets market participants know how many people bid for each note. For example, a bid to cover ratio of 2.50 means that for each note offered, 2.5 people bid to purchase the note. The higher the bid to cover, the more overall demand which is positive for the fixed income sector. We also get a read on the demand from foreign investors known as the indirect bid. If the indirect bid is 40%, that would mean that 40% of the total offering was purchased by foreign investors. Strong demand from the indirect bid is also crucial for a successful auction and can help to lower mortgage rates.
This morning we receive two data sets on home prices. Rising home values would be a positive for the equities market as many home owners are reluctant to spend money while the value of their home is declining. In addition, rising home values encourage more construction which leads to more jobs, more consumer spending, etc… Most economists believe that until home prices firm up, it will be extremely difficult for our economy to recover.
First out is the S&P Case Shiller Home Price Index which tracks monthly changes in the value of residential real estate in 20 metropolitan regions. Recent reports from S&P Case Shiller have shown home price declines easing dramatically with some areas showing signs of appreciation. The report shows that home value declines continue to ease at a slower pace than what was expected. Year over year, home prices fell 15.4% marking the smallest decline since April 2008. Last month’s report indicated a year over year decline of 17%. Dallas posted the smallest year over year decline at 2.2% while Las Vegas posted the largest decline at 32%. Month over month, the report shows that home prices climbed 1.4% from May which is the second consecutive gain in a row and 18 of the 20 regions posted month over month gains.
The second report on home prices comes from the Federal Housing Finance Agency with their version of the Home Price Index. This report is similar to the S&P Case Shiller report but uses data provided by Fannie Mae and Freddie Mac. Last month’s report showed a monthly gain of 0.9% and expectations call for another gain in home prices of 0.4%. This report shows a month over month increase of 0.5% and a year over year decline of -5.0%.
The final report on the day is the Consumer Confidence report which lets market participants know how the consumer is feeling. An optimistic consumer is more likely to spend which is a positive for the stock market, while a pessimistic consumer is more likely to save which benefits the fixed income sector. From March to May, the report showed that the consumer was feeling better about their own personal finances and future expectations for the economy, but the last two reports have indicated a reversal of that trend. High unemployment appears to be the main cause of the shift in consumer attitudes. The report shows that consumer confidence for August jumps much higher than expected. Surprisingly this much better than expected reading on the consumer has had no effect on the markets.
I have spoken in the past on the topic of Home Valuation Code of Conduct. This legislation which came in affect on May 1st of this year, changes the way that appraisals are ordered for any loan that is to be delivered to Fannie Mae or Freddie Mac. As a consumer, you can no longer decide who appraises your home if you wish to secure a conventional mortgage. With the passing of this law, you are required to provide the lender up front, information for how you intend to pay for the appraisal. The lender than picks one of several Appraisal Management Companies that they have preapproved to complete the appraisal. Once the AMC is selected, they contact the consumer to arrange the appraisal by randomly picking an appraiser that is supposed to be familiar with the subject property’s area. This law did not apply FHA loans. In a very positive sign, the commissioner for FHA announced yesterday that they do not intend to apply HVCC to any FHA loans. In his statement he says that FHA is aware of the problems that HVCC is causing. This is a huge positive for the consumer as HVCC has negatively impacted many consumers with subpar appraisals on properties.
If you have any stories on HVCC please share them in the comments section. Here is a great one from a fellow mortgage professional. This loan officer placed the order with the lender following the rules of HVCC. The consumer was contacted and paid for the appraisal. About a week or so later, the appraisal was sent to the lender. It turns out that the appraiser appraised the home next to the subject property!! To make matters even worse, it took a couple weeks to get the issued resolved. Another example of the low quality of HVCC appraisals comes from one of my clients. We had submitted the loan to Taylor Bean but due to their demise, we transferred the loan to another bank who would accept appraisals ordered through HVCC protocol. We were contacted by that bank yesterday with them saying that they are denying the loan due to the appraisal. The lender informed us that the quality of the appraisal that was performed was well below their standards and unacceptable.
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage has once again dipped into the 4.875% to 5.125% range for the best qualified consumer. In order to secure a par interest rate you must pay all closing costs including one point loan origination/discount/broker fee, have a FICO credit score of 740 or higher and a loan to value at 80% or less. You can always elect to pay less in closing costs and secure a higher rate or you can pay additional discount points and buy a lower interest rate.
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