Rate update: Stay cautious, my friend

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Stay cautious, my friend
Jun 282017

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

By G. Steven Bray

Mortgage rates remain near their lows for the year and still are looking for a source of inspiration. That inspiration could lead rates lower or higher, so let’s look at the possibilities.

We have two main foci at this point: economic data and central bank chatter. Recent US economic data, except for housing data, has been surprisingly weak. Particularly interesting for bond markets has been inflation data, which once again is below the Fed’s target of 2% and has been trending down. The Fed’s favored measure, the PCE index, is released this Fri. If it confirms the decline, rates could improve.

Next Fri, we get another jobs report. The last two have been a bit stinky. Another month of sub-par job growth really could rattle markets and rally rates further.

Our other focus is central bankers. Federal Reserve governors finally are acknowledging declining inflation, but so far the official line is that this is a temporary phenomenon. As such, only a few governors are suggesting the Fed should pause its rate-hike plan, which is keeping some upward pressure on rates. It didn’t help that yesterday the head of the European Central Bank (ECB) said he believes the inflation dip is transitory, and he expects inflation to accelerate.

I still recommend that you stay cautious if you’re floating your rate. I think it would take less inspiration for rates to move higher.

Congress offers relief from financial regulations – Part 2

 Regulations  Comments Off on Congress offers relief from financial regulations – Part 2
Jun 232017

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

By G. Steven Bray

Yesterday, we reviewed how the Financial Choice Act, recently passed by the House, would affect banking regulations. Today, we’re going to look at how it would change the Consumer Financial Protection Bureau.

The bill would have three major effects:

– It would change the name of the bureau to the Consumer Law Enforcement Agency and change its mission to enforcing existing consumer financial regulations rather than creating new ones. In this sense, it would function more like other independent federal agencies.

– It would allow Congressional oversight through the appropriations process.

– It would change the leadership from a single, unaccountable director to one who serves at the pleasure of the President.

Democrats seem most exercised about this provision as they view the current untouchable director as a way to maintain their preferred regulatory scheme across presidential administrations.

As I said yesterday, the bill’s fate in the Senate seems dim, but three additional developments offer hope to those favoring change:

– A Congressional Budget Office analysis indicates the Choice Act will reduce the deficit by $33 billion, which makes it possible Republicans could use the reconciliation process to pass reforms with only 51 Senate votes.

– Second, the courts seem poised to decide that the CFPB current structure is unconstitutional, but the final decision still may be a couple years away.

– Finally, it seems likely the CFPB’s current director will resign to run for governor of OH, which would allow President Trump to appoint a reformer to the position.

Congress offers relief from financial regulations – Part 1

 Regulations  Comments Off on Congress offers relief from financial regulations – Part 1
Jun 222017

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

By G. Steven Bray

President Trump came to office promising to cut regulations that are stifling job growth, and one of his top targets was the Obama-era Dodd-Frank Act that put tough regulations on consumer lending and created the Consumer Financial Protection Bureau (CFPB).

Congressional Republicans recently offered an assist by passing the Financial Choice Act that repeals major aspects of Dodd-Frank. Based on a Congressional Budget Office analysis, the bill offers regulatory relief to community banks and credit unions in exchange for greater capitalization, which should make them safer. Larger banks are unlikely to meet the capital requirements needed for relief.

Large banks do like provisions of the bill that would streamline and reduce the frequency of exams and that would repeal the Volker Rule. The bill also would classify some loans banks hold in portfolio as “qualified mortgages,” which could loosen up bank lending a bit.

Democrats unanimously oppose the bill, but most of their statements so far have been fear-mongering claims that the bill’s passage will lead to another financial crisis. Given the opposition, the bill’s prospects in the Senate are dim for now. Senate Banking Comm Chair Crapo said the Choice Act is a good starting point, but he will craft his own bill with input from Senate Democrats. However, those favoring major change can be cheered by the fact that the Choice Act stakes out a very strong starting point.

Tomorrow, we’ll dig into how the bill changes the Consumer Financial Protection Bureau.

Rate update: Be defensive after rate rally

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Be defensive after rate rally
Jun 192017

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

By G. Steven Bray

The Federal Reserve gave us an unexpected surprise last week by announcing details of its balance sheet reduction plan. The Fed has been the main buyer of mortgage bonds, and the concern is that when the Fed curtails its buying, the law of supply and demand will push mortgage rates higher. Even though the Fed didn’t give a start date for the plan, markets are anticipatory, and the news immediately put pressure on rates.

And that probably would have been the news of the day if not the morning’s economic data. Continuing a recent trend, the two reports, inflation and retail sales, both were weaker than expected. The inflation number was particularly disconcerting given that managing inflation is one of the Fed’s mandates. Core inflation dropped again to 1.7%, falling farther from the Fed’s 2% target.

As a result, interest rates were in rally mode by the time of the Fed announcement. The announcement stemmed the rally, but the damage could have been worse. The Fed merely paid lip service to recent economic data and didn’t change its rate hike outlook at all. Despite this, rates held onto most of their gains.

Unfortunately, this leaves us without a sense of direction for rates. This week’s economic calendar is fairly quiet, and if you’re floating your interest rate, I think it makes sense to be defensive. Rates could fall further, but that probably requires an unexpected headline in the short term. If you want to float, choose a bail-out point and keep an eye on rates.

TX home equity loans on the ballot in Nov

 Owner-occupied, Regulations, Residential Mortgage  Comments Off on TX home equity loans on the ballot in Nov
Jun 142017

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

By G. Steven Bray

Texans will have a chance to vote this fall on important changes to lending rules for home equity loans. The changes will allow those with lower-valued homes and rural homes to gain access to their home equity.

Texas has strong homestead protections that are written into the state constitution. Thus, changes to rules governing home equity require voter approval.

Currently, fees associated with a home equity loan are capped at 3% of the loan amount. While a cap on fees sounds great, it doesn’t take into account that certain fees, such as the appraisal and survey fees, don’t vary by loan size. This has prevented many homeowners of lower-valued homes from accessing their equity because the fees would exceed the cap. The new rules cap the fees at 2% but exclude fees associated with the appraisal, survey, and title policy.

The new rules also will allow owners of homes on agricultural land to apply for home equity loans. While this is a favorable development, it will be interesting to see which lenders will be interested in these loans. I suspect conventional lenders will shy away because the loans will be difficult to package with other home equity loans.

A final change will particularly benefit homeowners who used higher-rate, home equity second mortgages for things like remodeling their homes. Previously, a home equity loan only could be refinanced with another home equity loan. The change allows the homeowner to refinance their first and second mortgages into a new conventional loan that is free from the home equity restrictions.

Click here for more information about the amendment.

Rate update: Will this be the last Fed rate hike?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will this be the last Fed rate hike?
Jun 132017

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

By G. Steven Bray

This could be a busy week for bond markets. The marquee event is the Federal Reserve meeting. The Fed announces the results of the meeting Wed afternoon followed by Fed head Yellen’s news conference. While a rate hike seems a near certainty, it’s unlikely to have much effect on longer-term rates, like mortgage rates. Markets priced in the rate hike a while ago. Instead, markets are interested in what the Fed thinks about the state of the economy and how it plans to shrink its massive bond portfolio. Markets may react to any changes to the Fed’s rate hike outlook. If the outlook is less aggressive, I expect the rate rally to resume. Markets don’t expect the Fed to provide more details about unwinding its portfolio, and any variation from expectations could make rates jump.

Other than the Fed meeting, this week is full of important economic reports. Two of the biggest reports, the consumer price index and retail sales, will be released Wed morning before the Fed announcement. It’s likely markets will mostly ignore the reports in favor of waiting for the Fed. That gives the Fed announcement and press conference that much more potential oomph. If the reports differ greatly from expectations, consistent sentiment from the Fed could give the market extra momentum in the same direction.

Rate update: Fed meeting may break rate momentum

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Fed meeting may break rate momentum
Jun 072017

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

By G. Steven Bray

Last Fri’s weak jobs report sent rates tumbling to their lowest levels of the year. It wasn’t just that the May number missed expectations by about a third, but the reports for the prior two months were revised lower by 66k jobs. First quarter job growth averaged a meager 121k per month.

Investors are weighing whether this is just another economic soft patch or if the economy has turned. While other economic data has been mixed for many months, respectable job growth has buoyed consumer and business sentiment. The concern is that weaker job growth could cause consumers to pull back making economic weakness a self-fulfilling prophecy.

With this as a backdrop, let’s look at the other factors affecting rates in the next couple weeks. This Thurs is a trifecta of potentially rate-moving events. First, we have the British elections. A surprise result could be unsettling for markets, but I think the chances of that are small. We also have the European Central Bank meeting. An announcement that the ECB will tighten monetary policy could push rates higher, but that doesn’t seem likely. Finally, we have the Comey testimony before the Senate. The media frenzy surrounding the investigation still has markets on edge. If the testimony is a dud, look for some of the recent momentum towards lower rates to dissipate.

However, probably a more important event is next week’s Fed meeting. It’s rather certain the Fed will raise short term rates once again, but markets are more interested in what the Fed says about recent economic data, especially weak inflation data, and its plans to reduce the size of its bond holdings. If the Fed ignores recent weakness, it could pressure rates higher. Between now and then, I really don’t expect rates to move a lot. Investors are unlikely to take extreme positions until they hear what the Fed says.