Rate update: Waiting for the snake oil

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Waiting for the snake oil
Feb 292016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates hardly budged last week. This consolidation trend is a nice breather for folks who haven’t locked their mortgage rate, but it will end, and that end may come in the next couple weeks.

Remember that we’ve been saying non-existent inflation and weakening global growth are fueling low interest rates. Last week, a couple economic data points indicated inflation may be rearing its head. This week, we get the jobs report and several other important economic reports. Analysts are predicting just south of 200k jobs created last month. A much higher number typically would unnerve rate markets.

However, times are not typical. While the US economy hobbles along, the rest of the world is in the dumps. But this hasn’t changed in the last couple months, so why aren’t rates and stock prices still falling? I think it’s blind hope. Central banks from Japan to China to Europe have promised to create ever more stimulus programs to prop up their sagging economies. Even though none of the previous programs has salved the wounds, there’s no shortage of snake oil.

To that end, the European Central Bank meets next week. Markets may wait to break their current trend until they see what magic its wand wields. If it’s not satisfying, the market swoon may begin again.

Are DPA programs an endangered species?

 Loan Programs, Residential Mortgage  Comments Off on Are DPA programs an endangered species?
Feb 232016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The government is having fits of schizophrenia again. On the one hand, it’s easing loan standards to promote homeownership. On the other hand, it wants to eliminate a popular down payment assistance program.

A number of down payment assistance (DPA) programs, including the state’s My First Texas Home program, use so-called premium pricing to fund them, and the HUD Inspector General has raised concerns about it. The programs grant a homebuyer down payment funds in exchange for an above-market interest rate. The higher rate makes the loan more attractive to investors, and they pay a premium for it, and that premium is what is used to fund the grant.

For FHA loans, federal loan guidelines seem to prohibit such a practice. The IG’s office wrote, “The funds derived from a premium priced mortgage may never be used to pay any portion of the borrower’s down payment.” However, a recent memorandum by HUD’s General Counsel contradicts that saying HUD changed its standards in 2013 and no longer prohibits the practice.

At this point, HUD is studying the issue, leaving the programs in limbo. Many lenders are refusing to participate in the programs until HUD takes its meds.

Rate update: Will the fear return?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will the fear return?
Feb 222016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The end of Feb tends to be good for interest rates, but I’m feeling a little cautious at the moment. Rates this year have been following stock and oil prices down based primarily on fears about the global economy.

However that sentiment seems to have waned in the last week or so. Stock markets have responded with sizeable gains, and oil prices have stabilized a bit. Interest rates are off their recent lows, but they’ve refused to follow stock prices higher – so far. While I don’t think rates are in a hurry to head higher, the change in sentiment has arrested our downtrend.

Interestingly, most economic data still suggests a weakening picture. However, one report last week caught my attention. Inflation at both the producer and consumer levels ticked up last month. While the increase was fractional, and one month does not make a trend, inflation is the enemy of low interest rates. Markets barely reacted to the report, but it bears watching.

That aside, if you’re floating your interest rate, any down day for rates this week may be a good opportunity to lock. I think the risks outweigh the rewards at the moment.

Mortgages prefer sunshine

 Homebuyer Tips, Loan Guidelines  Comments Off on Mortgages prefer sunshine
Feb 212016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I’m not sure what to make of this, but I felt I needed to share. Check the weather forecast before you apply for a mortgage. Mortgage approval rates are higher when it’s sunny.

That’s the result of a study by the Cleveland Federal Reserve. It studied data from 1998 to 2010 and found that sunny days boosted approval rates by almost 1% while overcast days reduced approval rates by almost 1.5%. That may seem insignificant until you consider that the extra credit provided on a sunny day is about $150 million. Now, it seems significant.

But the result for gloomy days has a silver lining. It turns out sunny-day borrowers aren’t as financially responsible. Loans approved on sunny days have significantly higher default rates. Maybe that’s explains bankers’ penchant for golf.

USDA makes qualifying for a mortgage a little easier

 Loan Guidelines, Owner-occupied, Residential Mortgage  Comments Off on USDA makes qualifying for a mortgage a little easier
Feb 202016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

USDA offers one of the few no-money-down loans, but its credit restrictions have disqualified some first-time homebuyers who don’t have established credit histories. USDA required a loan applicant to have at least 3 credit accounts with a 12 month or longer payment history.

That changed last week. USDA dropped the number of required accounts to 2, which makes it a little easier.

For homebuyers who don’t use traditional credit that appears on a credit report, USDA still allows the use of non-traditional credit accounts to achieve the required 2. Non-traditional credit includes rent, utility, and insurance payments.

However, good payment histories on non-traditional accounts cannot be used to replace accounts that appears on your credit report. In other words, if your credit score is low because of negative items on your credit report, USDA won’t ignore these items just because you have good payment history for rent and utilities.

Rate update: Recession fears fuel mortgage rate rally

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Recession fears fuel mortgage rate rally
Feb 082016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates continued their magical ride last week, and it looks like the ride may continue for a while. Fear of a weakening economy continues to fuel the ride.

We may get a little more insight into whether those fears are justified this week. First up is Fed Head Janet Yellen who testifies before Congress on Wed and Thurs. Markets are pricing-in less than a 50% chance of another Fed rate hike this year. That’s very different from the Fed’s own indications of steadily rising rates. While the Fed’s decisions don’t control mortgage rates, we assume they are based on the Fed’s opinion of the strength of the economy. If Yellen suggests the Fed will hit the pause button, that will speak volumes to markets.

The other interesting information this week is the retail sales report on Fri. Consumer spending, while not terribly strong during this recovery, has been strong enough to provide for mediocre growth. However, much of that spending has been for automobiles and health care. Higher auto sales have been driven by subprime auto lending, which hit a 10y high last fall. Obamacare has caused health outlays to surge. Markets are watching for more broad-based retail sales growth. The absence of it lends support to the narrative of a weakening economy.

Rate update: Take advantage of the bond rally

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Take advantage of the bond rally
Feb 022016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates continue to please, dropping to their lowest levels in over 6 months last week. The drop came courtesy of the Bank of Japan, which surprised markets by introducing a negative interest rate policy on Fri. Interest rates worldwide improved immediately.

The next two weeks could determine whether the downward trend continues, but the outcome may be counterintuitive.

Markets are pricing about a 35% chance the Federal Reserve hikes short-term rates again at its Mar meeting. While Fed rate hikes don’t directly affect mortgage rates, they should be in response to the Fed’s perception of the strength of the economy. And a stronger economy typically leads to higher mortgage rates.

Overseas data so far this week continues to suggest a slowing global economy, but in the US the data is mixed. The jobs report on Fri caps a heavy week of US economic data. While last month’s jobs number was surprisingly large, 40% of the new jobs went to 16-to-19 year-olds. I think chances are this month’s report will be disappointing.

That should be good for mortgage rates. However, if it squashes the Fed’s lust for rate hikes, it just might stop our rally, at least temporarily. Fed Head Yellen testifies before Congress next week. If she suggests the Fed is going to hit the pause button, stock markets should rally. Some of that money that has been flowing into bonds and pushing rates down is likely to reverse direction. That doesn’t necessarily mean higher rates, but it does remove one source of demand for bonds.