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Posts Tagged ‘Federal Reserve’

Mortgage Standards Stop Tightening; Lending Soon To Loosen?

Posted by jleonetti on August 8th, 2012 No Comments

Fed Senior Loan Officer SurveyAs another signal of an improving U.S. economy, the nation’s biggest banks have started to loosen mortgage lending guidelines.

As reported by the Federal Reserve, last quarter, no “big banks” reported stricter mortgage standards as compared to the quarter prior and “modest fractions” of banks reported easier mortgage standards. 

The data comes from the Fed’s quarterly Senior Loan Officer Survey, a questionnaire sent to 64 domestic banks and 23 U.S. branches of foreign banks. The survey is meant to gauge, among other things, direct demand for consumer loans and banks’ willingness to meet this demand.

Not surprisingly, as mortgage rates fell to all-time lows last quarter, nearly all responding banks reported an increase in demand for prime residential mortgages where “prime residential mortgage” is defined as a mortgage for an applicant whose credit scores are high; whose payment history is unblemished; and, whose debt-to-income ratios are low.

Consumers were eager to buy homes and/or refinance them last quarter and 6% of the nation’s big banks said their credit standards “eased somewhat” during that time frame. The remaining 94% of big banks said standards were left unchanged.

The ease of getting approved for a home loan, however, is relative.

As compared to 5 years ago, home buyers and rate shoppers face a distinctly more challenging mortgage environment. Not only are today’s minimum FICO score requirements higher by up to 100 points, depending on the loan product, applicants face new income scrutiny and must also demonstrate a more clear capacity to make repayments.

Tougher lending standards are among the reasons why the national home ownership rate is at its lowest point since 1997. It is harder to get mortgage-approved today as compared to late-last decade.

For those who apply and succeed, the reward is access to the lowest mortgage rates in a lifetime. Mortgage rates throughout delaware continue to push home affordability to all-time highs.

If you’ve been shopping for a home, or planning to refinance, with mortgage rates low, it’s a good time to commit. 

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What’s Ahead For Mortgage Rates This Week : July 30, 2012

Posted by jleonetti on July 30th, 2012 No Comments

ECB meets ThursdayMortgage markets booked major losses last week after European leaders spoke of their determination to preserve the European Union. Mortgage rates jumped Thursday and Friday as investors sold positions of relative safety, including bonds, and moved their money into stock markets.

Mortgage rates closed the week at a 14-day high and, if not for last week’s GDP figures, conforming mortgage rates in delaware would likely have closed even higher.

The Commerce Department said GDP slipped to +1.5% last quarter, down from +2.0% from January-March. The slowdown suggests that the U.S. economy may not meet analyst’s 2012 projections, and gives the market hope that the Federal Reserve will add new stimulus at its scheduled, 2-day meeting this week.

The Fed meeting is just one of the story lines affecting mortgage rates this week. For rate shoppers nationwide, it will be a risky week to float a rate.

For a brief run-down of the events of the week :

  • Wednesday afternoon, the Federal Open Market Committee adjourns. Wall Street believes that the economy has slowed enough to justify new market stimulus. It’s unclear whether the Federal Reserve agrees. If new stimulus is added, and if the package is sufficiently large, mortgage rates should drop. Otherwise, mortgage rates should rise.
  • Thursday, the European Central Bank meets, after which the ECB is expected to announce an aid package for Spain, and a general plan to hold the European Union together. If the plan is well-received by markets, mortgage rates will rise. If the plan is panned, mortgage rates will fall.
  • Friday, the Bureau of Labor Statistics releases its July Non-Farm Payrolls report. Economists expect 100,000 jobs created in July. If the actual figure falls short, mortgage rates should fall.

It’s important to understand that each of these three events represents major risk to rate shoppers. Mortgage rates will be volatile this week, and that volatility is expected to continue until mid-September, at minimum.

If you’re shopping for a mortgage, therefore, the longer you wait to lock, the bigger your mortgage rate risk. Especially with rates at all-time lows; rates have been falling for so many weeks, there’s a lot of ground to cover on the way back up. 

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What’s Ahead For Mortgage Rates This Week : July 16, 2012

Posted by jleonetti on July 16th, 2012 No Comments

Retail SalesMortgage markets improved last week on slowing economic growth worldwide and investor thirst for “safe” investments.

China’s economy posted to its weakest growth since 2009 and economic activity in the Eurozone continued to sag. Both events resulted in a broad-based sell-off of equities and non-U.S. bonds. Mortgage bonds benefited from last week’s flight-to-quality as bond pricing moved higher.

When mortgage bond prices rise, mortgage rates fall.

According to Freddie Mac, the average 30-year fixed rate mortgage rate is now down to 3.56% nationwide for borrowers willing to pay 0.7 discount points plus a full set of closing costs. The 15-year fixed rate mortgage fell to 2.86%, on average.

Both mortgage rates are all-time records, rewarding today’s home buyers and mortgage rate shoppers. The principal + interest mortgage payment on a $200,000 mortgage is now just $904.80 per month.

Low rates may not last forever.

One reason why low rates may not last is that, also last week, the Federal Reserve released the minutes from its June 2012 meeting. In it, the Fed appeared more ready to add new market stimulus than Wall Street had expected. The market’s initial reaction was to push mortgage rates higher because new stimulus would encourage risk-taking among traders, and invite inflation.

This week will see the release of a number of key data points for the U.S. economy :

  • Monday : Retail Sales
  • Tuesday : Consumer Price Index
  • Wednesday : Housing Starts
  • Thursday : Existing Home Sales; Initial Jobless Claims

If any of these reports show better-than-expected results, mortgage rates are expected to rise. In addition, Federal Reserve Chairman Ben Bernanke begins a 2-day congressional testimony beginning Tuesday. The chairman’s words can move mortgage markets.

Mortgage rates remain at historical loans. If you have not yet locked a mortgage rate, talk to your loan officer soon.

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Mortgage Guidelines Resume Tightening Nationwide

Posted by jleonetti on May 1st, 2012 No Comments

Senior Loan Officer SurveyDespite an improving U.S. economy, the nation’s banks remain cautious about what they will lend, and to whom.

Last quarter, by a margin of 3-to-2, more banks tightened residential mortgage lending standards for “prime borrowers” than did loosen them.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio. The insight comes from the Federal Reserve’s quarterly survey of its member banks.

Last quarter, of the 54 responding banks :

  • 0 banks tightened mortgage guidelines considerably
  • 3 banks tightened mortgage guidelines somewhat
  • 49 banks left guidelines basically unchanged
  • 2 banks eased mortgage guidelines somewhat
  • 0 banks eased mortgage guidelines considerably

By contrast, in the quarter prior, not a single surveyed bank reported tighter residential mortgage guidelines. The period from January-March was a step backwards, therefore, for the fledgling U.S. housing market.

Overall, getting approved for a mortgage is tougher than it used to be. Banks enforce higher minimum credit score standards; ask for larger downpayment/equity positions; and require higher monthly income relative to monthly debt obligations.

It’s one reason why the homeownership rate is at its lowest point since 1997.

Another reason why homeownership rates may be down is that prospective home buyers believe the hurdles of today’s mortgage approval process may be impassably high. That’s untrue.

There are many U.S. homeowners and renters that were approved for a home loan last quarter — prime borrowers or otherwise. Some had excellent credit, some had modest credit. Some had high income, some had moderate income. Many, however, took advantage of low-downpayment mortgage options such as the FHA’s 3.5% downpayment program, and the VA’s 100% mortgage program for military veterans.

Despite a general tightening in mortgage standards, loans are still available and banks remain eager to lend.

It is harder to get approved today as compared to 5 years ago, but for those that try and succeed, the reward is access to the lowest mortgage rates in a lifetime. Mortgage rates throughout pennsylavania continue to push home affordability to all-time highs.

If you’re in the market to buy a new a home or refinance one, your timing is excellent.

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The Fed Starts A 2-Day Meeting Today. Make A Strategy.

Posted by jleonetti on April 24th, 2012 No Comments

Fed Funds Rate vs Mortgage Rates 1990-2012

The Federal Open Market Committee begins a 2-day meeting today in the nation’s capitol. It’s the group’s third of 8 scheduled meetings this year. Mortgage rates are expected to change upon the Fed’s adjournment.

Led by Chairman Ben Bernanke, the FOMC is a 12-person, Federal Reserve sub-committee. The FOMC is the group within the Fed which votes on U.S. monetary policy. “Making monetary policy” can mean a lot of things, and the action for which the FOMC is most well-known is its setting of the Fed Funds Funds.

The Fed Funds Rate is the overnight interest rate at which banks borrow money from each other. It’s one of many interest rates set by the Fed.

However, one series of interest rates not set by the Fed is mortgage rates. Instead, mortgage rates are based on the prices of mortgage-backed bonds and bonds are bought and sold on Wall Street.

There is little historical correlation between the Fed Funds Rate and the common, 30-year fixed rate mortgage rate.

As the chart at top shows, since 1990, the Fed Funds Rate and the 30-year fixed rate mortgage rate have followed different paths. Sometimes, they’ve moved in the same direction. Sometimes, they’ve moved in opposite directions. 

They’ve been separated by as much as 5.29 percent at times, and have been as near to each other as 0.52 percent.

Today, that spread is roughly 3.65 percent. It’s expected to change beginning 12:30 PM ET Wednesday. That’s when the FOMC will adjourn from its meeting and release its public statement to the markets.

The FOMC is expected to announce no change in the Fed Funds Rate, holding the benchmark rate within in its current target range of 0.000-0.250%. However, how mortgage rates respond will depend on the verbiage of the FOMC statement. 

In general, if the Fed acknowledges that the U.S. economy as in expansion; growing from job growth and consumer spending, mortgage rates are expected to rise. If the Fed shows concern about domestic and global economic growth, mortgage rates are expected to fall. 

Any time that mortgage markets are expected to move, a safe play is to stop shopping your rate and start locking it. Today may be one of those times.

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What’s Ahead For Mortgage Rates This Week : March 12, 2012

Posted by jleonetti on March 12th, 2012 No Comments

FOMC meeting this weekMortgage markets were mostly unchanged last week despite a series of positive developments. In addition to Greece successfully reaching a deal with its private creditors, the U.S. economy turned out strong reports — most notably with respect to Non-Farm Payrolls.

In February, the U.S. economy added 227,000 new net jobs and the figures from December and January were revised higher by an additional 61,000. It marked the 16th straight month of job gains nationwide.

The Unemployment Rate held unchanged at 8.3%.

Conforming mortgage rates in new jersey improved slightly last week and mortgage rates continue to hover near all-time lows.

According to Freddie Mac, the average 30-year fixed rate mortgage nationwide is now 3.88% for mortgage applicants willing to pay 0.8 discount points and a full set of closing costs.

1 discount is equal to 1 percent of your loan size.

Freddie Mac also reported the 15-year fixed rate mortgage at its lowest level in history. The average 15-year fixed rate mortgage fell to 3.13% with an accompanying 0.8 discount points. This is more a full percent lower as compared to March 2011.

This week’s big event is the Federal Open Market Committee’s second scheduled meeting of the year. Whenever the FOMC meets, mortgage rates can change in a hurry.

The FOMC is a subcommittee within the Federal Reserve, the U.S. government’s monetary-policy making group. Since 2008, the Federal Reserve has held its benchmark Fed Funds Rate near 0.000%. It’s not expected to raise that rate Tuesday. However, just because the Fed Funds Rate won’t change, that doesn’t mean mortgage rates won’t.

This is because the Fed doesn’t set mortgage rates, but it does influence them. Market will read the Fed’s post-FOMC press release Tuesday for hints of new policy or economic growth. If the statement shows more optimism for the economy than expected, mortgage rates are expected to rise. 

Conversely, if the Fed shows pessimism for the U.S. economy, rates are expected to fall.

Other economic events this week include the releases of Retail Sales, Producer Price Index, and Consumer Price Index; plus three high-profile treasury auctions.

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Banks Start To Loosen Up In Underwriting

Posted by jleonetti on February 3rd, 2012 No Comments

FOMC senior loan officer survey 2011 Q4

After a half-decade of tightening mortgage guidelines, banks are starting to “loosen up”.

The Federal Reserve conducts a quarterly survey of its member banks and, last quarter, not a single responding bank reported having tightened its mortgage guidelines for prime borrowers.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

53 banks responded to the Fed’s survey and none said that mortgage guidelines “tightened considerably” or “tightened somewhat” between September and December 2011; 50 said that guidelines remained “basicaly unchanged”; 3 said that guidelines “eased somewhat”.

Mortgage applicants sometimes remark that the mortgage approval process can be challenging. Last quarter’s Fed survey hints that looser standards are coming. 

Not since before the recession have banks lowered mortgage approval standards like this and it bodes well for this year’s  housing market. Real estate agents report that 1 in 3 home sale contracts fail with “declined mortgage applications” as a leading cause.

Looser mortgage lending standards should mean more home loan approvals for buyers, and fewer contract cancellations. This can spur the housing market forward.

Make note, though. “Looser standards” should not be confused with ”irresponsible standards”. It remains more difficult to meet bank standards as compared to 5 years. Today’s underwriters are more conservative with respect to household income, overall assets and credit scores. 

Even as compared to one year ago:

  • Minimum credit score requirements are higher
  • Downpayment/equity requirements are larger
  • Maximum allowable debt-to-income ratios are lower

For buyers and refinancing households gaining approval, though, the reward is the lowest mortgage rates in a lifetime. Mortgage rates in pennsylavania continue to fall, helping home affordability reach new highs.

If you’re in the market to buy a new home or refinance one, your timing is excellent.

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What’s Ahead For Mortgage Rates This Week : January 9, 2012

Posted by jleonetti on January 9th, 2012 No Comments

Retail Sales 2009-2011Mortgage markets improved last week, pushing mortgage rates in new jersey lower for the second straight week. Conforming fixed and adjustable-rate mortgage cut new, all-time lows, and FHA mortgage rates did the same.

In a holiday-shortened trading week, stronger-than-expected U.S. economic data and ongoing weakness within Europe drove investors into the U.S. mortgage-backed bond market. When demand for bonds is high, mortgage rates improve.

The Refi Boom continues.

Since beginning their descent last February, mortgage rates have shed 114 basis points en route to reaching 3.91%, the current, “average”, 30-year fixed rate mortgage rate nationwide and a new all-time low, according to Freddie Mac and its mortgage market survey. If you’re among today’s home buyers or would-be refinancers, on a $200,000 mortgage, the 1.14% rate drop represents a monthly mortgage payment savings of $135 — $1,623 per year.

Larger loans save more, smaller loans save less.

This week, with little economic news set for release, mortgage rates are expected to take their cue from the 8 Federal Reserve members scheduled to speak in public, and from whatever news may bubble up from the Eurozone.

The Federal Reserve said it will communicate its vision for the U.S. economic more openly and more often so Wall Street will be watching the Fed members’ speeches this week, in search of clues about the Fed’s 2012 roadmap.

For example, there has been speculation that a new round of stimulus would be introduced at the Fed’s next meeting later this month. If, after listening to this week’s speeches, investors sense it will happen, mortgage rates may be susceptible to an increase.

We’ll also be watching the Retail Sales report this week, due Thursday. Retail Sales are a reflection on consumer spending and consumer spending accounts for roughly 70% of the U.S. economy. If Retail Sales make gains, it may spark stock market gains at the expense of mortgage bonds.

This, too, would result in higher mortgage rates.

You can’t time the mortgage market, but with mortgage rates this low, it’s hard to go wrong. Talk with your loan officer to get a live rate quote.

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What’s Ahead For Mortgage Rates This Week : December 12, 2011

Posted by jleonetti on December 12th, 2011 No Comments

Federal Reserve meets this weekMortgage markets were mostly unchanged for the 6th consecutive week last week as Wall Street’s uncertainty regarding the future of U.S. and global economies remain.

Mortgage bonds made gains made through the early part of the week, which caused mortgage rates in delaware to drop Monday through Wednesday afternoon. Those gains were erased, however, as 23 of 27 Euro leaders reached agreement on fiscal coordination and budget planning, sparking optimism for the future of the Eurozone, in general.

Mortgage rates rose Thursday and Friday.

This week, the momentum may continue. The main story we’ll be watching is the Federal Open Market Committee’s Tuesday meeting — its 8th scheduled meeting of the year and its last until 2012. 

When the Fed meets, mortgage rates are often volatile.

At its meeting, the FOMC is expected to vote the Fed Funds Rate unchanged within its current range near zero percent. However, it won’t be the Fed’s vote on the Fed Funds Rate that changes markets. Wall Street is keyed in to two other elements, instead.

The first element is the verbiage of the FOMC’s press release to markets. Issued upon adjournment, the FOMC’s press release identifies strengths and weaknesses in the U.S. economy, and offers an outlook for the future plus potential threats. The “tone” of the press release can change how mortgage bonds trade.

If the Fed describes an economy in recovery with few threat to growth, mortgage rates are likely to rise post-FOMC. By contrast, if the Fed says the economy has slowed, mortgage rates should fall.

The second element on which Wall Street is focused is the likelihood of new, Fed-led economic stimulus. Should the Federal Reserve modify existing support programs, or introduce new ones, mortgage rates are sure to shift. Unfortunately, we can’t know in which direction — it will depend on the size of the program and its expected impact on the U.S. economy.

The Fed adjourns Tuesday at 2:15 PM ET.

Beyond the Fed, there is other rate-moving news, too, including Tuesday’s Retail Sales report, Thursday’s Producer Price Index, and Friday’s Consumer Price Index. Each has the capacity to change mortgage rates so if you’re floating a mortgage rate, it may be a good time to lock one in. 

Freddie Mac reports the average 30-year fixed rate mortgage at 3.99% with 0.7 discount points, plus closing costs.

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What’s Ahead For Mortgage Rates This Week : December 5, 2011

Posted by jleonetti on December 5th, 2011 No Comments

Non-farm payrolls Dec 2009 - Nov 2011Mortgage markets made little change last week for the fifth time in as many weeks.

As Wall Street watched both the Eurozone and the U.S. regain their respective footing, expectations for a new Fed-led stimulus increased, which prevented mortgage rates from rising.

According to Freddie Mac, the average 30-year fixed rate conforming mortgage rose just 2 basis points last week to 4.00% nationwide with an accompanying 0.7 discount points. 

1 discount point is equal to 1 percent of your loan size.

For every $100,000 borrowed at 4.00 percent, therefore, today’s pennsylavania mortgage applicant should expect to pay $700 in “points”. Mortgage rates for “zero-point loans” are higher than Freddie Mac’s published, average value.

This week, with few economic releases set for release, last week’s big stories should carry over into the current one — the biggest of which was a worldwide, coordinated central bank effort to increase system liquidity.

The European Central Bank, Bank of England and U.S. Federal Reserve were joined by the central banks of Japan, Canada and Switzerland in the effort. Stock markets rallied on the news.

Another of last week’s big stories was the sharp drop in the U.S. Unemployment Rate.

After hovering near nine percent since April, the Unemployment Rate broke out of range, dropping to to 8.6% in November. This is the lowest national Unemployment Rate since March 2009, a milestone achieved via the combination of new jobs created (+192,000 in November with revisions) plus a smaller U.S. workforce.

The U.S. economy has added 1.9 million jobs in the last 14 months.

Lastly, last week’s New Home Sales and Pending Home Sales Index releases support the growing belief that the U.S. housing market is in recovery. Both reports showed strong growth for October, corroborating what home builders have been saying — the housing market is improving and buyer ranks are growing.

Home supplies are lower in many U.S. markets.

This week, rate shoppers should be on alert. Market momentum changes quickly, and rates are currently anchored by the expectation of new Federal Reserve stimulus. The Fed meets December 13, 2011. As that date approaches, expectations could change, causing rates to rise.

Mortgage rates remain near all-time lows. It’s a good time to lock a rate with your lender.

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