Rate update: Will the Fed deliver a rate goblin?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will the Fed deliver a rate goblin?
Oct 262015
 

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

By G. Steven Bray

Steady as she goes. Last week was fairly quiet in terms of economic data, and interest rates stuck to their current range. This week could bring a little more excitement.

The Federal Reserve meets Tues and Wed. Almost no one expects the Fed to raise short term rates, but that doesn’t mean the Fed can’t launch some fireworks. The focus will be on the Fed’s post-meeting statement. Really, I only see downside risk for interest rates. If the statement suggests the Fed wants to raise rates in Dec or hints that the global economic picture is improving, I suspect rates will edge up. I think the Fed would have to paint a gloomy economic picture for rates to head lower, and I don’t think that’s likely.

Thurs, the government releases the 3rd quarter GDP numbers. While this is backward looking data, lessening its impact, rates may respond if the headline number differs greatly from the downwardly-revised estimate. More important will be if markets can glean some expectations for the 4th quarter and the Christimas shopping season.

Finally, we have the ongoing budget and debt ceiling talks between Congress and the President. If the talks collapse, rates could improve because of the potential impact on the economy, but volatility and uncertainty could negate any improvements.

If this week doesn’t bring some excitement, next week is a jobs report week. The last two jobs numbers have been disappointing to say the least. A third lousy report could push rate hike expectations back until next summer. We’ll talk about that more next week.

Rate update: Next week’s Fed meeting could move rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Next week’s Fed meeting could move rates
Oct 202015
 

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

By G. Steven Bray

Mortgage rates seem very content with their current lot in life. They’ve been hanging out in the same range, around 4% for a 30-year fixed mortgage, for the last couple months, and that really doesn’t seem likely to change soon.

The next big economic event that could move rates is the Federal Reserve meeting next week. The Fed indicated at its Sep meeting that it could raise short term rates in Oct, but pretty much no one believes that. US and global economic data has deteriorated since the meeting, and the Fed hardly wants to risk being blamed for the next recession.

Even if the Fed doesn’t raise rates, its post meeting statement could cause a stir. Speeches by the Fed governors since Sep have seemed contradictory. In the unlikely event the statement clarifies the Fed’s position on the timing of rate increases, I suspect rates will move. I think the risk is greater that rates will move up than down. Markets seem disinclined to push rates lower at this time, so even if the Fed takes rate hikes off the table for months, rates may remain in their current range. Alternatively, if the statement stresses the Fed’s determination to raise rates this year, look for rates to jump, at least temporarily.

FHA changes may hurt homebuyers with student loans

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on FHA changes may hurt homebuyers with student loans
Oct 082015
 

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

By G. Steven Bray

New FHA loan guidelines may make it harder for you to qualify for a mortgage if you have student loans.

Previous to the new rules, FHA allowed us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered as part of your monthly debt.

If your student loan servicer won’t report a monthly payment, the new rules say we must use 2% of the loan balance. Fortunately, loan servicers typically will provide an effective payment based on the loan’s current balance if you ask, and this payment typically is closer to 1% of the loan balance.

The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the balance if the servicer won’t report a payment.

FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

Rate update: Markets are chewing their cud

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Markets are chewing their cud
Oct 062015
 

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

By G. Steven Bray

Rate watchers hardly could have dreamed of a better result for last Friday’s jobs report. Simply put, the report stunk. Jobs created were about 2/3rds of what was expected, and the numbers for previous months were reduced. Wages once again are stagnant, and hours worked declined. And to top it all off, the workforce participation rate dropped to a level not seen since 1977.

Markets responded by dropping rates to their lowest levels in 5 months, at least briefly. Markets seem ill-at-ease with rates this low, and they’ve bounced back this week towards their previous range. Now, understand this is a pretty sweet range with 30-year mortgage rates around 4%. But it just feels like they should be lower.

I think markets are ruminating – yes, like a cow. Interest rates are most strongly correlated with inflation and economic growth. Inflation continues to be almost non-existent and thus is exerting no pressure on rates. US consumers finally are providing some support for the US economy, but global economies are showing signs of struggle, especially the Chinese economy. Does this jobs report signal the US economy is turning, too? Finally, we have the Fed, which seems bound and determined to raise rates this year. Grind that cud.

For the near term, I suspect rates will hold their current range, seeking more input to set a direction. That input may come in the form of an unexpected event, which makes predicting the medium term a crapshoot.