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
 

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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
 

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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.

Rate update: Health care’s doom could be homebuyers’ gain

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Health care’s doom could be homebuyers’ gain
Mar 292017
 

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

By G. Steven Bray

The bond market is a little nervous. Since the election last fall, bond yields have been on a tear, assuming that the new administration would push through policies that would make the economy soar or at least push up inflation.

Last week’s health care bill fiasco was like electro-shock treatment. Markets realized that campaign fantasies are not equivalent to Washington realities, and it may take a significant amount of time for the proposed policies, in particular tax reform and government spending increases, to come to fruition.

The market reaction so far this week has followed the headlines. Monday, rates fell as investors fretted. Tuesday, rates rose as it seemed like the health care bill might rise again like a phoenix. On the whole, I do sense an at least a temporary return of cautious sentiment. Talking heads are discussing the difficulty of passing a tax reform bill, and an impasse there would be the ultimate disappointment to markets.

Floating your interest rate could be a reasonable plan this week, but be prepared to lock if rates start drifting higher again. The week is full of speeches by Federal Reserve governors, and any one of them could drop a bomb about rate hikes that upsets markets. In addition, Friday brings the Personal Consumption Expenditures index, one of the Fed’s favorite inflation metrics. A hot inflation reading could overcome cautious sentiment very quickly.

Fannie sweetens HomeReady mortgage program

 Loan Programs, Residential Mortgage  Comments Off on Fannie sweetens HomeReady mortgage program
Mar 272017
 

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By G. Steven Bray

In an effort to encourage homeownership for lower-income consumers, Fannie Mae has expanded its HomeReady loan program. The program allows as little as 3% down payment and sweetens the interest rate for those who qualify.

The program has income limits in most areas, and until recently the limit was 80% of median income in many areas. Fannie raised the limit to 100% of an area’s median income, and in special low-income census tracts, the program has no income limit.

Fannie also changed the program to allow borrowers to own another home. This may be appealing for those who currently own a home and don’t want to wait for it to sell before closing on their new home.

The program is attractive for a couple reasons:

– First, the program allows for a higher debt ratio, up to 50% of a borrower’s income. In addition, the income of a roommate or significant other can be considered for qualifying even if that person is not on the loan.

– Second, Fannie absorbs some of the risk premium usually associated with low down payment loans. Fannie requires a lower mortgage insurance rate and allows a lower interest rate than is usually associated with these loans.

HomeReady borrowers are required to complete a homebuyer education course, and one naturally wonders whether that compensates for the lower risk premium assigned by Fannie. Time will tell whether the default rate on these loans justifies the favorable treatment.

Rate update: Health care bill to decide fate of mortgage rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Health care bill to decide fate of mortgage rates
Mar 222017
 

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

By G. Steven Bray

As we’ve discussed many times, when the Federal Reserve hikes short term interest rates, it doesn’t necessarily mean mortgage rates are going up. Such was the case again last week. The Fed hiked the federal funds rate by a quarter-point last Wed, and mortgage rates have improved every day since.

Markets really weren’t interested in the rate hike itself as the Fed had telegraphed that for weeks. They were interested in the “dot plot” – the Fed governors’ predictions of future rate hikes. Those predictions were much tamer than markets had expected, apparently meaning the Fed doesn’t see the economy revving up as much as investors had speculated. This let the air out of the bond market balloon, and rates relaxed back into their recent, familiar range.

Another factor pressuring rates this year has been speculation about the effects of the Trump agenda on the economy. Exuberance would inadequately describe the reaction of investors to the various policy prescriptives. However, as the first and highly anticipated action, health care reform, stumbled this week, rates slid further.

The House is scheduled to vote tomorrow on the health care bill. If the bill fails or the vote is delayed, I look for rates to make further gains, possibly setting new lows for the year. Alternatively, if Ryan is able to pull the bill across the finish line, rates could bounce quickly higher.

Rate update: Look out for the Fed

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Look out for the Fed
Mar 062017
 

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By G. Steven Bray

Interest rates moved back to the high end of their recent range last week, but this time they may not be moving lower real soon. The move higher was in reaction to statements from Fed governors that suggest it’s all but certain the Fed will hike short-term rates at its meeting next week.

As we’ve discussed in the past, the Fed sets very short-term rates, and just because those rates rise doesn’t mean longer-term rates, like mortgage rates, will rise. However, when the Fed hikes rates, it creates some momentum that filters up the rate curve, at least temporarily. In addition, a rate hike suggests the Fed thinks the economy continues to recover, which supports higher rates.

Once we get out of the shadow of the Fed meeting, mortgage rates are more likely to return focus to the prospects for inflation and geopolitical uncertainties for inspiration. Recent inflation data, while still tame, has ticked up just a tad. If inflation measures maintain a positive slope, nervous investors could push rates up quickly.

With respect to the latter source of inspiration, the French presidential election is just around the corner, and the disrupter candidate Le Pen leads in recent polls. A Le Pen victory in the first round of balloting could give markets temporary heartburn, which should be positive for rates.

I have one wildcard this week. The Fed has a huge portfolio of mortgage bonds. While the Fed isn’t adding to this portfolio anymore, it is using the proceeds from mortgages that pay off to purchase new ones to the tune of about $8 billion a week. When the Fed stops these reinvestments, the concern is it will take higher interest rates to clear the market. Any hint of a timeline for this tapering emanating from the Fed meeting could push rates up.

Rate update: Will President’s speech move interest rates?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will President’s speech move interest rates?
Feb 272017
 

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

By G. Steven Bray

Interest rates equaled their lows for the year on Fri and promptly bounced the other way today, staying inside the narrow range they’ve traced all year.

Rates continue to defy the maxim that they should move in the same direction as equity prices. It’s the “risk on” trade. Stock market indices continue to hit record highs, but rates haven’t budged this year. So, what gives?

While stock market investors are trading on the prospects for lower taxes and more government spending, bond traders are hedging. Uncertainties abound. When will Pres Trump’s infrastructure spending plan come into play? What are the details of the tax plan? Will the Fed raise interest rates too fast and choke growth? In Europe, we have upcoming elections, and leading candidates generally want to upset the status quo. China’s economy seems to have moved back from the cliff, but it’s not clear whether it’s found stable ground.

It’s a busy week for economic reports. The biggest could be the Personal Consumption Expenditures report (the Fed’s preferred measure of inflation), which is released Wed. Wed is doubly important because it’s the first trading day after Trump’s speech to Congress at which he’s expected to lay out some details of his plans. I really think equity markets will find a way to view the details as an excuse to continue the current rally. As we’ve seen, that doesn’t mean rates will rise, but it makes it harder for them to break below last week’s lows.

Oh, no! Trump dismantling consumer protection

 Regulations  Comments Off on Oh, no! Trump dismantling consumer protection
Feb 202017
 

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By G. Steven Bray

Despite the hysterical headlines that President Trump was dismantling consumer financial protections by executive order, the truth is much less exciting.

Trump has called Dodd-Frank, the recession-era law that created the current regulatory structure, a disaster and pledged major reforms. Earlier this month, he ordered his financial team to review the law and develop a plan to overhaul it. This starts a likely many-month process to modify Dodd-Frank and other financial regulations that are stifling lending and driving community banks out of business.

While Trump conceivably could rewrite or reverse some financial regulations once his appointees take charge at various federal agencies, he cannot change statutory rules, such as those enacted through Dodd-Frank, without Congressional action.

Unfortunately for those hoping for quick action, that appears unlikely. While the House already is moving legislation to rewrite the law, Senate Republicans need help from Democrats. Senate Banking Comm Chair Mike Crapo says, “The climate right now in the Senate is as toxic as I’ve ever seen it.” Crapo hopes he can get some Democratic support for changes that will promote lending by easing rules for smaller and community banks.

The eventual changes could be significant, but the pace of change will allow for serious consideration and certainty doesn’t justify the silly headlines.

Credit bureaus may boost your credit score

 Credit Scoring  Comments Off on Credit bureaus may boost your credit score
Feb 152017
 

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By G. Steven Bray

The three national credit bureaus (TransUnion, Equifax, and Experian) announced that they will change the way they collect public record data. These are items like judgments and tax liens that appear on your credit report. The change is due to concerns the bureaus have with the accuracy of the data. Specifically, the bureaus will:

– require public records to have minimum identifying information including a person’s name, address, and SSN and/or date of birth; and
– require public records to be collected and updated at more frequent intervals.

So, why should you care? The bureaus have analyzed the potential effects of this change and have concluded that:

– approximately 96% of civil judgment records may not meet the new requirements; and
– as many as half of tax lien records may not meet the new requirements.

If a record fails the meet the new requirements, the credit bureaus will not include it on your credit report.

The changes are expected to take effect no later than July of this year.

Rate update: Yellen’s testimony could move rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Yellen’s testimony could move rates
Feb 132017
 

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

By G. Steven Bray

The bond market seems to have leveled off waiting for something to give it direction, and that something may happen this week. Fed head Yellen testifies before Congress on Tues. In the past she’s used these opportunities before Congress to clarify the Fed’s intentions. The question on deck is when is the Fed going to stop purchasing mortgages.

The Fed has an enormous portfolio of mortgages. When one of these mortgages pays off (through a home sale or refinancing), the Fed has been buying new mortgages. Recently, a couple of Fed governors indicated it’s time to stop these reinvestments and allow the Fed’s portfolio to shrink.

Here’s the problem. The Fed buys one to two billion dollars of mortgages each day. If the Fed stops buying, investors have not shown a willingness to pick up the slack. It might take higher interest rates to clear the market.

Yellen is unlikely to announce this policy change outside a scheduled Fed meeting. However, if she hints that the change is coming soon, markets are likely to lead off with higher rates.

The other things I’m watching this week are the inflation reports Tues and Wed and reaction to Pres Trump. Both could be negative for rates.

As I said last week, the report on wage inflation was comforting, but it’s not the only inflation report. If this week’s reports hint at budding inflation, they’re likely to boost rates.

Rates last week turned higher after Trump announced he’ll reveal his tax plan soon. Equity market loved that and rallied to new highs. That seems to have left less money for bonds causing rates to rise a little. As long as investors are feeling good about the future, I think we’ll continue to see some upward pressure on rates.