Bulls & Blogs

New FICO score may cost you money

Credit Scoring Comments Off

Jan 292020

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

By G. Steven Bray

Fair Issac Corporation is poised to release a new FICO credit scoring model, and for about 40 million American, the changes could cost them money. The new model, FICO 10, will score consumers more strictly for late payments and rising debt levels.

Fair Issac says the new model will help lenders reduce defaults by up to 10%, but for consumers who see their scores drop, it could mean they receive higher interest rates if they qualify at all.

The company says it has further integrated trended data into the model, meaning the models consider not only a consumer’s current account status, but also the account’s payment history for the last 24 months. This should help consumers who are paying more than the minimum monthly payment to reduce their debt. On the negative side, the new model will treat personal loans more harshly, which could hurt consumers who use those loans to consolidate credit card debt.

If you’re planning to buy a home this spring, take a deep breath. It’s highly unlikely you’ll encounter the model while applying for a mortgage. Most of the mortgage industry is stuck in a time capsule – using FICO 4, a model released in 2004. Changing the model requires approval from the Federal Housing Finance Agency, which moves at glacial speed.

While that may sound like good news, keep in mind that FICO 4 has its own issues. FICO 4 scores, what I call “mortgage scores,” tend to be lower than just about any scores available to consumers. Fair Issac has improved its models over the years in ways that also help consumers, and none of those changes are available for mortgage applicants.

Rate update: Virus outbreak leads to lower mortgage rates

Interest Rates, Residential Mortgage Comments Off

Jan 282020

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

By G. Steven Bray

Tragedy can lead to uncertainty, and uncertainty is good for lower interest rates. The outbreak of the coronavirus in China has unsettled global markets, and investors are running to the safety of Treasury bonds. Investors are concerned the virus will seriously impact global growth. One analyst already is predicting the virus will shave 0.4% off global GDP, and the outbreak seems to be growing.

The effect on stock and Treasury bond prices has been much more significant than the effect on mortgage rates. Even so, mortgage rates are the lowest they’ve been in over 3 years.

If you’ve been watching for low interest rates, don’t procrastinate. As quickly as these rates have appeared they could evaporate. If the number of new cases of the virus starts to decline, markets may conclude the effects will be limited, and rates will snap back.

In that case, we’re back to watching economic data and events, which ramp up this week. The Federal Reserve meets today and tomorrow. While no one expects the Fed to change its current policy – no rate hikes or cuts until inflation or unemployment change significantly – investors love to parse the post-meeting statements for hidden meanings.

Next week we get the ISM reports and the Jan jobs report. The service sector of the economy has remained strong despite the trade disputes, but pundits have been predicting its deterioration for many months. Should the ISM report hint a downturn, rates could improve further. Likewise, should the jobs report deviate from its current trend, that could gets rates moving.

Spring homebuying season starts in January

Real Estate Market Comments Off

Jan 142020

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

By G. Steven Bray

It used to be that the spring homebuying season was in, well, the springtime. According to Realtor.com, the seasons are a-changing. Homebuyers have started shopping earlier and earlier the last few years. In larger cities this year, the homebuying season may have already started.

This phenomenon is likely the result of the lower number of homes for sale over the last few years. That low inventory combined with rising home prices is leading home shoppers to get an early start. With housing inventory expected to reach record lows this year, Realtor.com says the trend towards early shopping should continue.

The company based its prediction on views of its Web site listings. Jan 2019 was only 1% behind Feb for the highest number of views per listing. That’s a huge change from 2015 when Apr was the top month, and Jan views lagged Apr by 16%.

So, if you plan to buy a home this spring, it’s time to start shopping.

Texas housing market outperforming

Real Estate Market Comments Off

Jan 132020

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

By G. Steven Bray

A survey of 110 economists and real estate experts conducted by Pulsenomics and Zillow forecasts that Austin has the best chance of all major metros to see above-average home price growth this year. Dallas and San Antonio also ranked in the top 10. According to the survey, home prices will grow an average 2.8% this year, but markets in the South are expected to outperform others.

Austin received a likely-to-outperform score of 76 (out of 100). The next closest metro was Charlotte with a score of 59. 83% of respondents said Austin will outperform the average with only 7% saying it will under-perform. (I think those 7% live in a cave somewhere.)

Dallas placed 5th on the list with a score of 34, and San Antonio placed 8th with a score of 32. A positive score means more respondents think the metro will outpeform than under-perform.

So, what does this mean if you’re planning to shop for a home this year? It most likely means higher home prices. Austin’s current inventory of homes for sale is less than 2 months. (Experts say 6 months is a balanced market.) Dallas is under 3 months, and San Antonio is less than 6 months. As the homebuying season ramps up, you can expect a lot of competition for the home of your dreams.

Rate update: Markets shrug off war drums

Interest Rates, Residential Mortgage Comments Off

Jan 082020

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

By G. Steven Bray

When I predict whether rates will rise or fall, I always issue the caveat “absent unexpected headlines.” Well, the past few days have provided a case in point. Rates dropped quickly following the US drone strike last week on the Iranian general and rose just as quickly today following the President’s address that suggested the crisis has passed.

Where does that leave us? Rates are stuck in the range again and waiting for inspiration. Potential sources for that inspiration are many, but let’s focus on a few of them.

First and foremost, if the Iranians don’t “stand down” as the President suggests, rates are certain to fall again. Renewed hostilities will make investors more cautious, and that caution will lead to lower interest rates.

Assuming that doesn’t happen, and markets currently seem confident it won’t, the next big event is this week’s jobs report. Recession whisperers were headliners on cable news last fall when it appeared the jobs market was softening. That changed with Dec’s blowout jobs report. Markets expect another strong report this Fri. Because of this expectation, its verification is unlikely to change rates much. Should the report disappoint, rates should improve a little.

Trade is the other major source of inspiration. The Senate is expected to pass the new trade deal with Mexico and Canada soon, and the President said he expects to sign a Phase 1 deal with China mid-month. Markets widely expect this to happen, so when it does, it’s unlikely to change market sentiment. Rates seem to be experiencing some slight upward pressure, and that probably would continue. However, should we experience a hiccup in either deal, we’d likely see at least a short-term drop in rates.