Lenders Pulling Back

It wasn’t a surprise to hear that smaller no-name mortgage companies were retreating from the marketplace due to the extreme volatility.

The mortgage business has become dependent upon the Fed’s support to backstop the agency market (Fannie/Freddie), which leaves the non-conforming (jumbo) lenders wondering what they will do with their funded loans in the coming weeks – can they sell them to somebody?

It’s another story when one of the big banks who have been the foundation of the jumbo market, Wells Fargo, Bank of America, and Chase, are starting to quiver as well. Seen on the internet this morning:

Several correspondent investors are exiting the business or are no longer accepting new applications due to volatile market conditions. Additionally, many wholesale investors have now fully suspended operations or temporarily revised guidelines, and correspondent jumbo investors are beginning to tighten credit requirements. Investor availability and guidelines are expected to change often as market volatility continues.

Notable non-conforming investor restrictions effective today, 3/27:

Wells Fargo Non-Conforming (Jumbo)

The following transactions will be ineligible on all new locks, relocks and renegotiations:

    • Cash-out refinances
    • Investment properties
    • LTV/CLTVs > 80%

You can’t blame Wells for being more conservative, but let’s hope they and other banks keep the jumbo loans coming.  The jumbo rates – which were about the same as agency rates a couple of weeks ago – have stayed since after the Fed bought enough agency MBS to bring down the conforming rates back into the mid-3s.  The jumbo rate is almost 1% higher:

Mortgage Rates Spike….Again

Rates changing from 2.875% to 4.0% in less than a week – wow!

There is some hope that the Fed will throw more money at the MBS market next week. From MND:

With all that in mind, some smart people are convinced the Fed will announce such a balance sheet juicing at or before next week’s meeting.  A subset of those smart people are convinced the Fed will make MBS a part of that new “true QE” (which will likely involve a higher monthly dollar amount than we’ve seen previously).   I haven’t been keen to agree with this point for a few reasons.

The Fed wouldn’t want to increase refi demand in an already overloaded market.  Or if they do, they’re dumb.  The Fed also would probably wait to see if spreads heal on their own, which is only in question due to the super low Treasury yields we’re currently seeing.  Otherwise, the precedent has been well established for MBS to not freak out to the extent they require Fed intervention since 2012.  Even then, there was no telling if the problem would have self corrected, but the Fed left nothing to doubt with QE3 in September 2012 (which specifically targeted MBS, as if to say “don’t worry… we won’t let spreads blow out”).

Those have been my counterpoints anyway.  Now today, watching MBS spreads blow out yet again, it’s starting to look like the market is attempting to force the Fed’s hand.  I’m not saying to count on a new round of Fed MBS buying, but I am saying I wouldn’t rule it out as of today.

The 10-year yield closed under 1.0% today, so a spread of 3% seems overly cautious and rates should settle down next week.

If rates don’t come back into the mid-3s, I’d expect home buyers to get real comfortable on the sidelines and only consider homes for sale that are a perfect match for their wants and needs.

Sellers – offer to pay down the buyer’s mortgage rate.  You’ll be one of the few doing it!

Higher Rates

Did you lock? If not, you only lost an 1/8% (or so) today.  Tomorrow!

Mortgage rates have exploded higher over the past day and a half as the bond market sends threatening signals about a big picture bounce off the recent lows.  This is made all the more jarring by the timing and the scope of the movement, as well as the circumstances surrounding it. What does that mean?

First off, the scope is huge, considering the 10yr Treasury yield (the most widely cited benchmark for the bonds that underlie mortgage rates) hit 0.318% late Sunday night.  While the 10yr doesn’t dictate mortgage rates, its movement speaks to the general momentum for all longer-term rates in the US.  0.318% was more than 1.0% below the previous all-time low seen in 2016, and it only took 8 business days to cover that entire 1.0%.

The drop in Treasury yields coincided with decent pricing in the mortgage-backed-securities (MBS) that underlie mortgage rates, which in turn allowed lenders to offer all-time low mortgage rates at some point in the past several business days.  For many, it was first thing Monday morning.  For others, it was in the previous week.  Either way, the average lender has been at or near all time lows on a few occasions over the past 6 business days.

This is why the move is jarring.  From all-time lows early yesterday morning, rates have moved up to the highest levels in more than a week for most lenders.  The average lender had been able to quote rates as low as 3.125% during the best few hours, but they’re now back up in the 3.375% neighborhood.


When to Lock Your Mortgage Rate

Even though the ten-year yield has plummeted, mortgage rates have been slow to follow – they actually went up a little today.  Today, we heard the all-time best excuse, which explained everything:

We’re too busy“, said the mortgage industry, which is code for ‘we are going to milk this for extra profits!’

Historically, the conforming mortgage rates could be calculated by adding 1.75% to the 10-yr, but today that would get us 2.25% mortgage rates.  Here is their greed meter – unprecedented spread here:

Here’s what Ted said at MND:

Financial markets are in total disarray, some lenders are not accepting new loans or locks, and lock pricing engines are crashing repeatedly due to excessive volume.  If this sounds like a mess, it is.  While this panic won’t subside overnight, if you like your current pricing and lender is locking loans, why not lock?  There’s no logic or reason in this market now, who knows what the mood will be tomorrow/next week?

Futures are in positive territory currently, so it appears we may have seen the worst for now.

If the mortgage industry doesn’t feel like sharing the wealth, then you might as well lock your rate.


Fed Cuts Half-Point

Does this mean mortgage rates will get into the mid-2s?  Probably not – the 10-year yield hasn’t moved much, and mortgage lenders are slow to match any declines.  But we could see 2.75% this week!

The Federal Reserve announced an emergency rate cut Tuesday of half a percentage point in response to the growing economic threat from the novel coronavirus.

The move was the first such cut since the financial crisis. It comes amid a volatile patch on Wall Street and amid a steady stream of hectoring from President Donald Trump, who has called for lower rates to stay competitive with policy at other global central banks.

“The coronavirus poses evolving risks to economic activity,” the Fed said in a statement. “In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.”

Link to CNBC article

Lowest Mortgage Rates Ever!

Mortgage rates officially hit all-time lows this morning.  Even so, it continues to be the case that Treasury yields (often referred to as the basis for mortgage rates) are falling much faster.  That’s because Treasuries aren’t actually the basis for mortgage rates.  They’re simply a very important source of guidance and momentum in the bigger picture for all kinds of rates.

When rates are this low and when they’ve fallen this fast, the question of locking vs floating is about as prevalent as I ever see it.  The easiest advice for those willing to take some risk is to float and continue to watch Treasury yields (specifically, the 10yr).  Since mortgage rates have been lagging so badly, they should be able to hold fairly steady for a day or two even if the 10yr signals a bounce.  Of course this requires preparation and planning.  Be sure your mortgage is ready to lock and to have a realistic idea of your ability to make that happen in a matter of a few hours or less on any given day.  In other words, if you’re floating, make a “locking game-plan” with your friendly neighborhood mortgage professional.

Link to Article

Mortgage Rates in the 2s

The MND’s survey above are today’s rates with no points, which means that homebuyers who are willing to pay a point or so will be getting a mortgage rate starting with a 2!

While there is certainly a big concern about the coronavirus affecting the world economy – and putting a dent in the down payments – these record-low rates should keep homebuyers engaged!

Rates Make A Difference

Mortgage Amount
30-Yr Rate
Monthly Payment

The same buyer who qualified for a $810,000 loan amount just 15 months ago can now borrow $1,000,000 and get the same monthly payment – a whopping 23% increase!

No wonder sellers expect +11% year-over-year!

Lower Rates Are Boosting Prices

Splitting up the price index by tiers does give us a better read on which segments are hotter……and interesting to see that the higher-end has been cooking lately:

Black Knight, in the current edition of its Mortgage Monitor covering December mortgage performance data, writes an epitaph for slowing home price appreciation. Prices had been appreciating at an annual rate of nearly 7 percent in early 2018 but had fallen to 3.8 percent in August of 2019 as affordability worsened.

But then, as Black Knight’s President of Data & Analytics, President Ben Graboske writes, “The national home-price-growth rate gained a good deal of steam as mortgage interest rates declined throughout the second half of last year. In fact, December marked four consecutive months of home price growth acceleration and the largest single-month acceleration in more than 6.5 years, while the annual rate of appreciation saw nearly a full percentage point increase over the last four months of 2019, closing out the year at 4.7 percent.”

Much of the month’s Monitor is concerned not only with how these lower interest rates throughout the back half of last year contributed to sharply accelerating home price growth, but also to improving affordability.

At the low end of the market, those homes in the bottom 20 percent by price, continue to grow at nearly three times the rate of those in the top 20 percent price tier; 6.6 percent versus 2.3 percent in the last four months of 2019. However, that highest priced tier has been more reactive to the recent declines in interest rates; the rate of appreciation among those homes nearly tripled from August to December while the bottom tier barely budged.

“Still, even with home price growth accelerating today’s low-interest-rate environment has made home affordability the best it’s been since early 2018, Graboske points out. “At that time, the housing market was red-hot, with national home price growth at 6.6 percent and climbing – before rising rates and tightening affordability triggered a pullback in growth rates. That’s not the case today. Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has actually dropped by 10 percent over that same span due to falling interest rates.”

Read full article here:


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