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.

Rate update: Jobs report takes pressure off rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Jobs report takes pressure off rates
Feb 062017
 

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

By G. Steven Bray

We have an interesting contrast setting up. As I mentioned last week, I’ve been paying more attention to inflation data recently as inflation is the enemy of low interest rtes. Recent economic data had shown budding signs of inflation, but last week’s jobs report kind of squashed that. Wage inflation was a third of expectations, and the previous month’s elevated number was cut in half.

What does that mean? Wages are the vast majority of business expenses. When wages rise, it puts pressure on retail prices. Wages hardly budged during the economic recovery, which resulted in negligible inflation. Last week’s jobs report suggests that wage growth remains weak, and thus prices are unlikely to shoot higher.

Here’s the contrast. Several members of the Federal Reserve recently stated they see rising inflation, which suggests they’ll be more aggressive about hiking interest rates to slow down the economy. A more aggressive Fed will tend to push mortgage rates up, but if wages aren’t growing, homebuyers won’t be able qualify. Instead of choking inflation, a more aggressive Fed may choke the economy.

Why canceling the FHA rate reduction was the right move

 Loan Programs, Residential Mortgage  Comments Off on Why canceling the FHA rate reduction was the right move
Feb 042017
 

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

By G. Steven Bray

I’m sure you know by now that the Trump administration cancelled the FHA mortgage insurance rate reduction put forward in the waning days of Obama’s term. This caused moans from most of my housing industry friends, but I think it was the right move.

First, keep in mind that FHA MI provides insurance against defaulted FHA loans. By law, the insurance fund must be at least 2% of the FHA’s loan exposure. The fund last year exceeded the 2% threshold for the first time in many years. Given that economists are predicting a housing slowdown this year, wouldn’t it make more sense to let the fund grow a little before chopping the premium?

Second, I don’t believe the premium reduction would have resulted in many additional homebuyers. Instead, I think it simply would have transferred business from private mortgage insurance companies to FHA. I’ve never seen an honest analysis from HUD to justify its MI rates based on its risk exposure. Moreover, FHA also has up-front MI and never cancels its MI, unlike conventional loan mortgage insurance. If FHA wasn’t just trying to increase its market share, maybe it could have tweaked those characteristics.

In conclusion, I’m not convinced the move by the outgoing administration wasn’t intended to make the incoming team look bad. Personally, I think it makes them look prudent.