Sep 212017

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By G. Steven Bray

Fannie Mae and Freddie Mac for a while now have allowed some borrowers who refinance their mortgages to forego an appraisal. Each has internal, computer-based valuation models, and if they feel sufficiently confident in a homeowner’s estimated value, they will accept it in lieu of an appraised value.

This month, both Fannie and Freddie announced they will start waiving appraisal requirements for some purchase transactions. The change could save a homebuyer $500 and shorten the mortgage process by a week or two.

Neither has released its formula for deciding when to offer the waiver; however, it’s expected that most waivers will go to homebuyers making large down payments, and that waivers will be offered on only 5% to 10% of transactions. Your mortgage lender will notify you of the waiver option after plugging your transaction into Fannie’s or Freddie’s computer-based underwriting system.

Even if you receive a waiver offer, you still can choose to get an appraisal. I suspect a significant number of homebuyers will waive the waiver and order an appraisal to make sure they’re not paying too much for their homes.

Sep 202017

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By G. Steven Bray

The Federal Housing Finance Agency (FHFA) announced that it’s extending the Home Affordable Refinance Program, or HARP, through next year. The program was set to expire at the end of Sep. FHFA estimates more than 143k homeowners still could benefit from the program.

HARP was created to allow homeowners to refinance to lower interest rates regardless of their financial situation as long as they were current on their mortgage payments. Of the myriad rescue programs adopted by the Feds during the depths of the financial crisis, it was one of the safest because a homeowner willing to make a mortgage payment at a higher interest rate is quite likely to continue doing so at a lower rate.

Remember that HARP only applies to mortgages owned by Fannie Mae and Freddie Mac and closed before June 2009. You can determine whether Fannie or Freddie owns your mortgage by visiting their Web sites, links to which are the end of my blog.

Fannie Mae: Click here
Freddie Mac: Click here

Sep 192017

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By G. Steven Bray

All eyes are on the Federal Reserve again this week as it meets to discuss monetary policy. The Fed isn’t expected to change interest rates at this meeting; however, markets do expect it to announce when it will start reducing its massive portfolio of Treasury and mortgage bonds.

The Fed already has broadcast the details of the plan, which actually won’t result in the Fed selling any bonds. Instead, it will buy less, allowing run off to slowly reduce the portfolio over time. Less Fed buying could put a little upward pressure on rates in the coming months; however, given that markets have known the plan’s details for a while, I suspect current bond prices already reflect that.

I think it’s more likely reduced Fed buying will weaken its shock-absorber effect. Positive news, such as higher wages or world peace, normally lessens the demand for bonds, but the Fed has been there for most of the past decade to pick up the slack. Without the Fed, rates may bounce a little higher on such news.

I think markets will pay more attention to the Fed’s post-meeting rate projections and Fed head Yellen’s press conference. Last week’s inflation report, which showed the first uptick in a while, gave the Fed a little cover if it chooses to raise rates again this year. I’m sure markets will be very interested to know what Yellen and the other governors think about the prospects for inflation going forward. Should the Fed drop its recent concern over persistently low inflation, rates could jump.

Sep 122017

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By G. Steven Bray

Mortgage rates bounced off their low for the year last week. While the bounce reflects a relaxation of the uncertainties we’ve discussed, the broader trend for rates still is favorable.

First, let’s look at the reasons for the bounce.

– Congress kicked the can down the road on funding the government and the debt ceiling. While calling this a legislative success would be an insult to failure, it may allow Congress to focus on tax reform, which in a roundabout way pressures rates higher.

– Irma, while still a damaging storm wasn’t the disaster weather guys and gals were predicting last week. The storm’s damage undoubtedly will be counted in billions of dollars, but markets are breathing a sigh of relief that it wasn’t worse.

– North Korea surprisingly decided to celebrate Founder’s Day without fireworks. After the recent nuclear test, the world seemed convinced the Koreans would shoot another ICBM into the Pacific on Sat. When that didn’t occur, the world exhaled.

So, fear and uncertainty are waning. That leaves our focus for the moment on inflation and the Federal Reserve. We get the Consumer Price Index this week. While it’s not the Fed’s preferred measure of inflation, it’s got street cred. Expectations are the report will show a continued absence of inflationary pressures.

That may factor into the Fed’s decisions at its meeting next week. Analysts aren’t expecting a rate hike, but they do expect the Fed to announce a start date for reducing its balance sheet. Markets, however, will probably focus more on the after meeting statements. If the statements suggest a more cautious Fed, rates could improve. Alternatively, if the statements suggest full-steam-ahead, they could end our summer rate rally.

Sep 052017

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By G. Steven Bray

Mortgage rates continue at their lows for the year, and it has some market watchers scratching their heads. The economy continues to chug along at a reasonable clip, and central bankers are dialing back stimulus programs, signaling they think the growth is self-sustaining. This should give rates a lift.

Instead, we have a confluence of news and events that has markets increasingly on edge. For weeks now we’ve had US political uncertainty. Congress is back from vacation, and it has a huge to-do list for Sep, including preventing a government shutdown. Given its inability to get any major legislation passed this year, markets are understandably nervous, and legislative sausage-grinding will keep them that way.

North Korea hit the headlines again this week. The intractable nature of that situation and the more strident attitude of the Trump administration will help bond purchases, keeping downward pressure on rates.

Harvey and now Irma are unsettling factors. While they shouldn’t derail the economy, the storms impart an emotional cost that leaves everyone feeling a little more vulnerable.

The fear is that the persistence of these factors could erode consumer and business confidence, leading to a weaker economy. That would lead to lower rates, but for an unwelcome reason.

The one scheduled event this week is the European Central Bank meeting. The ECB is expected to discuss curtailing its stimulus program at the meeting, and an announcement to that effect could pressure rates a little. However, it may have a hard time overcoming the factors pushing the other way.

Flood insurance program dies if Congress doesn’t act

 Residential Mortgage  Comments Off on Flood insurance program dies if Congress doesn’t act
Aug 312017

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By G. Steven Bray

Among the many items Congress must address when it returns from summer vacation is the National Flood Insurance Program, or NFIP, which is set to expire on Sep 30.

Homeowners with a mortgage who live in a flood plain are required to carry flood insurance. The NFIP, created by Congress in 1968, provides this coverage for about 5 million policyholders.

Unfortunately, NFIP is in the hole to the US Treasury to the tune of $24.6 billion, and under the current terms of the program, it’s likely to remain insolvent as flood insurance premiums do not reflect the costs of the program.

In 2012, Congress reformed the program to address this problem by requiring NFIP to raise premiums to reflect true risk of loss. It grandfathered existing policies, but required risk-based pricing on change of ownership. That set off immediate wailing in flood-prone areas as full risk rates were 500 or more percent higher than the grandfathered rates. Congress quickly rolled back the requirement and with it the chance for NFIP to crawl out of its financial hole.

The House has passed legislation to reauthorize and reform the program, and industry groups say it’s on the right track as:

– It will continue to allow NFIP coverage of new homes in the 100-year flood plain;

– It will continue grandfathering of existing policies;

– And it will set the floor for premium rate increases to 6.5%.

Interestingly, the bill seems to reinstate the requirement that grandfathered rates end when a property changes hands. Reports are surfacing that this already is impacting real estate sales in coastal areas.

Rate update: The end of vacation season could stir interest rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: The end of vacation season could stir interest rates
Aug 292017

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By G. Steven Bray

With one week before Labor Day, we could be at the end of the summer slumber for interest rates. Typically, we’d expect market activity to increase with an end to the vacation season. However, this year, that natural increase is augmented by expectations for central bank announcements.

First up is the European Central Bank, which meets next week. Unlike the Federal Reserve, the ECB still has its money pumping spigot in full geyser mode. With European economies showing signs of life, expectations are that the ECB will begin to reduce the flow. When that happened in the US a few years ago, interest rates spiked for a few months. White ECB actions mainly affect European rates, we’d see some spillover effect in the US.

The Fed meets in the middle of the month, and markets expect it will announce the beginning of its balance sheet reduction plan. While the mechanics of the plan are known, some analysts think markets aren’t pricing in an imminent start point. If that’s true, and the Fed begins the taper right away, rates could bounce higher.

But this week’s economic data could temper all that potential excitement. This is a jobs report week, and we get the PCE data, the Fed’s preferred measure of inflation. If both are weak, especially the inflation data, rates could improve, not only because of the data, but because of its potential influence on the Fed’s tapering plans.

Aug 282017

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By G. Steven Bray

Former Federal Reserve Chair Alan Greenspan has a warning. Interest rates are much too low, and he thinks they’re likely to move higher and quickly.

In a CNBC interview, Greenspan said he thinks the bond market is experiencing a bubble with long-term rates abnormally low. The low rates are the result of Fed taking short-term rates to near zero during the financial crisis and keeping them there for years.

The Fed has hiked short-term rates 4 times since then, but long-term rates remain near record lows. Analysts cite many reasons for this including political and economic uncertainty and, most importantly, persistently low inflation.

Greenspan says he doesn’t know when rates will start to rise, but he thinks it will be soon, and once they start rising, he thinks they will rise rapidly, which could put the rest of the economy at risk.

Rate update: Eclipse lulls market to sleep

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Eclipse lulls market to sleep
Aug 222017

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By G. Steven Bray

Mortgage rates remain in a very narrow range near the lows for the year. Part of the reason for that is the usual summer doldrums. Another reason is the mixed messages coming from politics and economic reports.

On the political front, the Trump agenda, the prospects for which caused the Trump Bump after the election, has yet to gain much traction in Washington. Congress returns from its summer recess soon to face an enormous plate of unfinished business. With Congressional Republicans bickering with other Republicans, the White House dissing Congress, and Democrats just saying no to everything, concern about a government shutdown has legs. I don’t think the market is really trading this yet, but I suspect it’s an anchor that will keep rates from rising much in the near term.

On the economic front, most recent reports show continued, stable growth. However, inflation, which is one of the Fed’s mandates, has fallen by about a third this year. The Fed’s target is 2%, and we’re well below that level now. While low inflation seems like positive, the risk is that inflation turns negative. Japan is the poster child for how deflation can sap a country’s economy.

The one potential market mover this week is the Fed’s annual Jackson Hole symposium. In the past, the event has provided some surprises when Fed governors were more candid with their thoughts about monetary policy. However, the Fed’s current plan seems pretty set: start reducing the balance sheet in Sep and one more rate hike in Dec – maybe. The European Central Bank head also will attend this year, but it was reported that he won’t answer any questions about the ECB’s future actions.

So, absent a truly unexpected headline, the market may just stay asleep. We have two weeks until Congress returns from recess.

Rate update: All eyes on inflation data

 Interest Rates, Residential Mortgage  Comments Off on Rate update: All eyes on inflation data
Aug 092017

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By G. Steven Bray

Last week’s stronger than expected jobs report had a minimal effect on interest rates, leaving them smack-dab in the middle of their recent range. Markets still are waiting for something to motivate them.

The most important motivator these days seems to be inflation data, and we have a couple measures reported this week. The one that probably will garner the most interest is the consumer price index, or CPI, this Fri. While this isn’t the Fed’s favored inflation measure, it has street cred and is widely watched by market participants.

If markets anticipate another weak inflation report, we could see rates lead off slightly lower on Thurs. However, if the report on Fri shows an uptick in inflation, rates could rise very quickly. Given that I think you could lose a lot more ground with a strong report than you could gain with a weak report, the risks of floating probably outweigh the gains.

The other motivator we’ve discussed is political uncertainty, and it’s certainly not going away. It acts as a background anchor on rates, but that could change as we get closer to Sep. Already, we’re seeing dramatic media headlines about the dangers of the fiscal cliff and a government shutdown. The drama only will increase, which means the effect on interest rates could increase, especially if Congress doesn’t start making progress when it returns from recess.