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.

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.

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.

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.

Rate update: Mortgage rates face pressure to rise again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Mortgage rates face pressure to rise again
May 232017

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

By G. Steven Bray

There’s nothing like a little political hysteria to get the bond market rallying. Last week’s impeachment headlines dropped mortgage rates to the lows for the year. Of course, as the silliness faded into reality, rates edged back up. Where they go from here depends on several factors.

First and foremost is Washington drama. If additional leaks reignite last week’s panic, rates could rally further; however, with the appointment of the special counsel, I think that source of inspiration has been muted.

Recent economic data, especially inflation data, has been rate friendly. Notably, the core consumer price index in Apr fell below 2% again, which is the Fed’s stated target. That may reduce the urgency of the Fed to raise short term interest rates.

Overseas headlines, like the terror attack in the UK, can create momentum for lower rates, but based on recent experience, it would take an extreme headline to break the market’s focus on our final factor.

That factor is expectations for the Trump agenda. Markets seem once again to be focused on the prospects for tax and regulatory reform. In particular, equity markets are banking on a lower corporate tax rate, and if Congress is able to make headway on this issue, the “risk off” trade should pressure rates back up into the range they’ve occupied most of this year.

Rate update: Rates riding the range again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates riding the range again
May 092017

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

By G. Steven Bray

Interest rates continue to drift slowly higher as the Xanax kicks in on the markets. The French election outcome provided confidence the European Union won’t take any more hits in the short term, and the health care vote in Congress eased concerns about the Trump agenda. Rates have returned to their post-election range looking for a source of inspiration.

A possible source is the Federal Reserve. Fed governors, through public speeches, have signaled more hikes of short-term rates are likely this year, and an increasingly loud chorus is suggesting the Fed will start to unwind its monstrous bond portfolio. I think the former is pretty much baked into current rates, but the latter could shoot rates higher.

A countervailing force may be recent economic data that showed inflation, particularly wage inflation, is subsiding again. The jobs report last week bested expectations, but the wage data suggests the jobs added may be lower paying ones. While I don’t expect the Fed will see this data as a reason to hold back rate hikes, this may give it pause concerning its bond portfolio, and words of caution may creep back into the Fed’s vocabulary. While I doubt this would be enough to spark another bond rally, these factors could contain rates within their current range.

Rate update: Happy juice flows; Rates rise

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Happy juice flows; Rates rise
Apr 242017

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By G. Steven Bray

Investors seem to have found their swagger again. After spending a couple weeks fretting over the many uncertainties in the world, and as a result pushing bond yields lower, they’re casting their fears aside and back on the happy juice. The inspirations for this change in sentiment seem to be the outcome of the French election and expectations for a Trump tax plan.

Interestingly, the French election results were as expected: the establishment candidate bested the “scary” nationalist candidate Le Pen by a couple points, and they will meet in a runoff election in a couple weeks. What seems to have quelled fears is that Le Pen didn’t outperform pre-election polls, and those polls predict a drubbing for her in the runoff. The EU is safe again – for now.

I’m not sure that would have been enough to turn market sentiment if it wasn’t for the Trump talk. Investors had started therapy sessions over the failed advance of the Trump agenda, but the depression lifted last Fri when Trump promised details of his tax reform plan this week. Never mind that it faces a still divided Republican House. Tax cuts are like crack for investors causing them to ignore the difficult week ahead culminating with a potential government shutdown.

While I think we could see some further pressure on interest rates for the next few weeks, the crystal ball beyond that period is cloudy. Recent US economic data has been surprisingly weak, especially inflation data, and it’s still unclear whether Congress can find consensus. Balance that against central bankers’ urge to normalize monetary policy. The resulting mixed picture leaves rates without much direction and subject to headline abuse.

LLC-financed rental homes won’t prevent use of Fannie loan

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on LLC-financed rental homes won’t prevent use of Fannie loan
Apr 172017

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

By G. Steven Bray

One of the more frustrating loan guidelines encountered by rental property owners is the limit on the number of financed properties. Fannie Mae limits the number to 10 – 4 for best-rate financing. While Fannie hasn’t changed that guideline, it has changed which properties count towards it. Previously, properties financed through an LLC counted towards the limit. Now, if the borrower financed the property through an LLC so that the borrower is not personally liable on the mortgage, Fannie excludes the property from the total.

This should be a nice change for investors who use multiple financing tools to manage their properties. Investors often use shorter-term bank loans to finance the initial acquisition of a property, and bank portfolio loans often will allow a seasoned LLC to sign the note. Now, if the investor wants to roll a property into long-term, lower-rate, conventional financing, those short-term loans won’t get in the way.

Keep in mind that financed primary residences and vacation homes still count towards the total. Also keep in mind that some lenders will count a spouse’s financed properties towards the total even if the spouse isn’t on the new loan. Finally, remember that the limit only includes one-to-four-unit residential properties. Anything else, including land, commercial properties, and timeshares, do not count towards the total.

Rate update: News headlines will push rates lower

 Interest Rates, Residential Mortgage  Comments Off on Rate update: News headlines will push rates lower
Apr 122017

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

By G. Steven Bray

Investors abhor uncertainty, and last week certainly provided plenty of it. Will the response to the Syrian gas attacks lead to more US involvement in that country’s civil war? How are the Russians and Iranians going to react? Are North Korea’s threats more than chest-thumping? What’s the US carrier group doing in the Sea of Japan?

When investors see uncertainty, they tend to buy safe assets, and US government bonds are among the safest. Lots of bond buyers leads to lower bond rates, and because the US government backs most US mortgages, we also get lower mortgage rates – in fact, the lowest rates of the year.

So, are we seeing a sea change with rates heading lower, or will they bounce higher again. The chances for still lower rates are real, but that probably depends on continued headlines to churn investor sentiment. The President set markets on fire again today with comments suggesting the dollar is too strong.

Rates rose after the election largely because of expectations for the Trump agenda. While markets seem to have realized the agenda will take time to implement, positive movement on policies such as health care and tax reform could keep some pressure on rates.

More concerning for those wanting lower rates is the voices of the Federal Reserve. The Fed has a huge portfolio of mortgage bonds, and it replenishes that portfolio by buying more bonds with the money from paid-off mortgages. Fed governors have been talking about reducing the portfolio. Pundits are convinced mortgage rates will have to rise to find bond buyers to replace the Fed, and the market will start pricing in those higher rates long before the Fed pulls the trigger.

Rate update: Politics, inflation, and mortgage rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Politics, inflation, and mortgage rates
Apr 042017

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

By G. Steven Bray

Mortgage rates pulled back a little last week as markets came to terms with political realities. However, volatility remains as the path forward for Trump’s policies remains very unclear.

While we may not get political clarity this week, economic data could trump that concern and set the direction for short term rate movement. Last week’s inflation data, the Personal Consumption Expenditures index, came in slightly hotter than expected, and wage inflation seems to be building. This week is a jobs report week, which gives us another read on wage inflation this Fri.

A maybe more anticipated event this week is the release Wed of the minutes from the last Fed meeting. The Fed has indicated these minutes will include a new forecasting format. It seems the panic surrounding potential rate hikes has subsided, but I’m sure markets will scrutinize the new charts for hints that the panic was justified.

The week is full of other economic reports, and we also have the ongoing political gymnastics in Washington and overseas. I think it’s most likely this will result in push-me/pull-me action on rates this week. However, if any one of them suggests unexpected political certainty, economic strength, or inflationary pressures, it could move rates quickly higher.