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

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

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

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

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.