Tag Archives: Federal Reserve

What’s Ahead For Mortgage Rates This Week : September 17, 2012

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Fed Funds Rate 2006-2012Mortgage markets improved last week as the Federal Reserve introduced new economic stimulus. The move trumped bond-harming action from the Eurozone, and a series better-than-expected U.S. economic data.

The 30-year fixed rate mortgage rate dropped last week for most loan types, including for conforming, FHA and VA loans. 15-year fixed rate mortgage rates improved, as well.

Mortgage rates are back near their lowest levels of all-time.

Last week’s main event was the Federal Open Market Committee’s sixth scheduled meeting of 2012. Wall Street expected the Fed to launch a third round of quantitative easing (QE3) after its meeting and the nation’s central banker did not disappoint.

It launched QE3 and did so with such scale that even Wall Street was shocked.

The Federal Reserve announced a plan to purchase $40 billion monthly of mortgage-backed bonds indefinitely, a move aimed at lowering U.S. mortgage rates in order to stimulate the housing market which can create more jobs in construction and other related industries.

The Fed will continue to buy mortgage bonds until it deems such purchases no longer necessary. The Fed also announced a commitment to holding the Fed Funds Rate in its current target range of 0.000-0.250% until mid-2015, at least.

Mortgage rates responded favorably to the stimulus, falling to their lowest levels of the week. It masked a rise in rates from earlier in the week tied to the German court’s clearing of the European Stability Mechanism — the Eurozone “bailout fund”.

The action clears the way for debt-burdened nations including Spain and Greece to get the support necessary to remain solvent.

Mortgage rates were also pressured higher by a strong consumer confidence report. When consumers are more confident in the economy, they may be more likely to spend and consumer spending accounts for more than two-thirds of the U.S. economy.

This week, mortgage rates throughout Pennsylvania face competing pressures. The Fed’s bond-buy has started and that will lead rates lower, but with Housing Starts and Existing Home Sales data set for release, data could pull rates up.

What’s Ahead For Mortgage Rates This Week : September 4, 2012

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Jobs Report In FocusMortgage markets improved last week for the second consecutive week.

With no news coming from Europe, Wall Street was focused U.S. economic data and Federal Reserve Chairman Ben Bernanke’s planned public speech from the Fed’s annual retreat in Jackson Hole, Wyoming.

Rate shoppers and home buyers in Phoenixville caught a break.

The housing market was shown to be improving last week, as was the average household income nationwide — two events which would have typically moved Pennsylvania  mortgage rates higher. But, because the Fed Chairman used his speech to signal that new economic stimulus may be imminent, mortgage rates dropped.

The Fed is expected to launch a bond-buying program that would create new demand for mortgage-backed bonds. Mortgage-backed bonds are the basis for most U.S. mortgage rates and the new-found demand would result in lower rates nationwide. 

According to Freddie Mac’s weekly mortgage rate survey, the 30-year fixed rate mortgage rate fell to 3.59% last week for borrowers willing to pay 0.6 discount points plus a full set of closing costs, where 0.6 discount points is a one-time closing cost equal to 0.6 percent of your loan size.

Conventional mortgage rates open this week at a 4-week best. Threats to low rates remain, however.

A European Central Bank meeting is scheduled for Thursday and the release of the August Non-Farm Payrolls report is due Friday. Both events could have negative repercussions on mortgage rates. 

For example, the ECB is expected to announce new aid measures for some its struggling member nations, including Greece, Spain and Italy. If the aid package “ends” the sovereign debt issues which have plagued the European Union since 2010, equity markets would rally on the news at the expense of bond markets. This would drive U.S. mortgage rates higher as investors dump their bond holdings.

Similarly, if the August jobs report is deemed “strong”, it would lower the likelihood of new Fed-led stimulus. This, too, would lead mortgage rates higher — perhaps by a lot.

Economists expect to see that 130,000 net new jobs created last month. The jobs report will be released Friday at 8:30 AM ET.

What’s Ahead For Mortgage Rates This Week : August 27, 2012

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Greece bailout plans revisitedMortgage markets improved last week. Mixed data highlighted the U.S. economy’s slow, steady expansion; the Federal Reserve changed market expectations for the new stimulus; and, sovereign debt concerns moved back to the forefront in Europe.

Conforming mortgage rates fell last week for the first time this month, breaking a 4-week losing streak that had stymied would-be refinancing households in Pennsylvania and nationwide.

Mortgage rates had been higher since the start of August.

In published minutes from its July 31-August 1, 2012 Federal Open Market Committee meeting, the Federal Reserve revealed that, absent “substantial and sustainable” economic growth, many of its members believe further monetary easing would be warranted.

Recent data shows that growth may be sustainable, but it’s hardly substantial. 

  • Job growth is higher in 22 straight months, but averaging less than 100,000 net new jobs per month over the past three months
  • Housing data shows a steady home sales growth, but a dwindling home inventory of new homes and home resales
  • GDP grew 1.5% in Q2 2012, down from 2 percent during the first three months of the year

Should the Fed add new stimulus, it would likely come in the form of a third round of quantitative easing, a program by which the Federal Reserve purchases government-backed bonds on the open market, including mortgage-backed bonds.

The new-found demand for bonds helps raise their respective prices which, in turn, moves down their respective yields.

“QE3” would push mortgage rates lower, likely. It’s not expected to be released (if at all) until the FOMC’s next scheduled meeting, September 12-13, 2012. There is a small chance it’s announced this Friday, however; the Federal Reserve is meeting in Jackson Hole, Wyoming for its annual retreat.

For this week’s rate shoppers, this week is filled with data and rhetoric. New U.S. housing data will be released along with recent inflation statistics. Both have the ability to cause mortgage rates to rise. In addition, second quarter GDP figures will be revisited and revised. If they’re revised lower, Fed-led stimulus may be more likely.

Lastly, Eurozone leaders reconvene to discuss the terms of Greece’s bailout. If terms are changed for the worse for Greece, mortgage rates may drop in a bout of safe-haven buying.

Mortgage Standards Stop Tightening; Lending Soon To Loosen?

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Fed Senior Loan Officer SurveyAs another signal of an improving U.S. economy, the nation’s biggest banks have started to loosen mortgage lending guidelines.

As reported by the Federal Reserve, last quarter, no “big banks” reported stricter mortgage standards as compared to the quarter prior and “modest fractions” of banks reported easier mortgage standards. 

The data comes from the Fed’s quarterly Senior Loan Officer Survey, a questionnaire sent to 64 domestic banks and 23 U.S. branches of foreign banks. The survey is meant to gauge, among other things, direct demand for consumer loans and banks’ willingness to meet this demand.

Not surprisingly, as mortgage rates fell to all-time lows last quarter, nearly all responding banks reported an increase in demand for prime residential mortgages where “prime residential mortgage” is defined as a mortgage for an applicant whose credit scores are high; whose payment history is unblemished; and, whose debt-to-income ratios are low.

Consumers were eager to buy homes and/or refinance them last quarter and 6% of the nation’s big banks said their credit standards “eased somewhat” during that time frame. The remaining 94% of big banks said standards were left unchanged.

The ease of getting approved for a home loan, however, is relative.

As compared to 5 years ago, Collegeville home buyers and rate shoppers face a distinctly more challenging mortgage environment. Not only are today’s minimum FICO score requirements higher by up to 100 points, depending on the loan product, applicants face new income scrutiny and must also demonstrate a more clear capacity to make repayments.

Tougher lending standards are among the reasons why the national home ownership rate is at its lowest point since 1997. It is harder to get mortgage-approved today as compared to late-last decade.

For those who apply and succeed, the reward is access to the lowest mortgage rates in a lifetime. Mortgage rates throughout Pennsylvania continue to push home affordability to all-time highs.

If you’ve been shopping for a home, or planning to refinance, with mortgage rates low, it’s a good time to commit. 

What’s Ahead For Mortgage Rates This Week : July 30, 2012

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ECB meets ThursdayMortgage markets booked major losses last week after European leaders spoke of their determination to preserve the European Union. Mortgage rates jumped Thursday and Friday as investors sold positions of relative safety, including bonds, and moved their money into stock markets.

Mortgage rates closed the week at a 14-day high and, if not for last week’s GDP figures, conforming mortgage rates in Pennsylvania would likely have closed even higher.

The Commerce Department said GDP slipped to +1.5% last quarter, down from +2.0% from January-March. The slowdown suggests that the U.S. economy may not meet analyst’s 2012 projections, and gives the market hope that the Federal Reserve will add new stimulus at its scheduled, 2-day meeting this week.

The Fed meeting is just one of the story lines affecting mortgage rates this week. For rate shoppers in Phoenixville and nationwide, it will be a risky week to float a rate.

For a brief run-down of the events of the week :

  • Wednesday afternoon, the Federal Open Market Committee adjourns. Wall Street believes that the economy has slowed enough to justify new market stimulus. It’s unclear whether the Federal Reserve agrees. If new stimulus is added, and if the package is sufficiently large, mortgage rates should drop. Otherwise, mortgage rates should rise.
  • Thursday, the European Central Bank meets, after which the ECB is expected to announce an aid package for Spain, and a general plan to hold the European Union together. If the plan is well-received by markets, mortgage rates will rise. If the plan is panned, mortgage rates will fall.
  • Friday, the Bureau of Labor Statistics releases its July Non-Farm Payrolls report. Economists expect 100,000 jobs created in July. If the actual figure falls short, mortgage rates should fall.

It’s important to understand that each of these three events represents major risk to rate shoppers. Mortgage rates will be volatile this week, and that volatility is expected to continue until mid-September, at minimum.

If you’re shopping for a mortgage, therefore, the longer you wait to lock, the bigger your mortgage rate risk. Especially with rates at all-time lows; rates have been falling for so many weeks, there’s a lot of ground to cover on the way back up. 

What’s Ahead For Mortgage Rates This Week : July 16, 2012

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Retail SalesMortgage markets improved last week on slowing economic growth worldwide and investor thirst for “safe” investments.

China’s economy posted to its weakest growth since 2009 and economic activity in the Eurozone continued to sag. Both events resulted in a broad-based sell-off of equities and non-U.S. bonds. Mortgage bonds benefited from last week’s flight-to-quality as bond pricing moved higher.

When mortgage bond prices rise, mortgage rates fall.

According to Freddie Mac, the average 30-year fixed rate mortgage rate is now down to 3.56% nationwide for borrowers willing to pay 0.7 discount points plus a full set of closing costs. The 15-year fixed rate mortgage fell to 2.86%, on average.

Both mortgage rates are all-time records, rewarding today’s Phoenixville home buyers and mortgage rate shoppers. The principal + interest mortgage payment on a $200,000 mortgage is now just $904.80 per month.

Low rates may not last forever.

One reason why low rates may not last is that, also last week, the Federal Reserve released the minutes from its June 2012 meeting. In it, the Fed appeared more ready to add new market stimulus than Wall Street had expected. The market’s initial reaction was to push mortgage rates higher because new stimulus would encourage risk-taking among traders, and invite inflation.

This week will see the release of a number of key data points for the U.S. economy :

  • Monday : Retail Sales
  • Tuesday : Consumer Price Index
  • Wednesday : Housing Starts
  • Thursday : Existing Home Sales; Initial Jobless Claims

If any of these reports show better-than-expected results, mortgage rates are expected to rise. In addition, Federal Reserve Chairman Ben Bernanke begins a 2-day congressional testimony beginning Tuesday. The chairman’s words can move mortgage markets.

Mortgage rates remain at historical loans. If you have not yet locked a mortgage rate, talk to your loan officer soon.

Mortgage Guidelines Resume Tightening Nationwide

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Senior Loan Officer SurveyDespite an improving U.S. economy, the nation’s banks remain cautious about what they will lend, and to whom.

Last quarter, by a margin of 3-to-2, more banks tightened residential mortgage lending standards for “prime borrowers” than did loosen them.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio. The insight comes from the Federal Reserve’s quarterly survey of its member banks.

Last quarter, of the 54 responding banks :

  • 0 banks tightened mortgage guidelines considerably
  • 3 banks tightened mortgage guidelines somewhat
  • 49 banks left guidelines basically unchanged
  • 2 banks eased mortgage guidelines somewhat
  • 0 banks eased mortgage guidelines considerably

By contrast, in the quarter prior, not a single surveyed bank reported tighter residential mortgage guidelines. The period from January-March was a step backwards, therefore, for the fledgling U.S. housing market.

Overall, getting approved for a mortgage is tougher than it used to be. Banks enforce higher minimum credit score standards; ask for larger downpayment/equity positions; and require higher monthly income relative to monthly debt obligations.

It’s one reason why the homeownership rate is at its lowest point since 1997.

Another reason why homeownership rates may be down is that prospective home buyers believe the hurdles of today’s mortgage approval process may be impassably high. That’s untrue.

There are many U.S. homeowners and renters — even here in King of Prussia — that were approved for a home loan last quarter — prime borrowers or otherwise. Some had excellent credit, some had modest credit. Some had high income, some had moderate income. Many, however, took advantage of low-downpayment mortgage options such as the FHA’s 3.5% downpayment program, and the VA’s 100% mortgage program for military veterans.

Despite a general tightening in mortgage standards, loans are still available and banks remain eager to lend.

It is harder to get approved today as compared to 5 years ago, but for those that try and succeed, the reward is access to the lowest mortgage rates in a lifetime. Mortgage rates throughout Pennsylvania continue to push home affordability to all-time highs.

If you’re in the market to buy a new a home or refinance one, your timing is excellent.

The Fed Starts A 2-Day Meeting Today. Make A Strategy.

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Fed Funds Rate vs Mortgage Rates 1990-2012

The Federal Open Market Committee begins a 2-day meeting today in the nation’s capitol. It’s the group’s third of 8 scheduled meetings this year. Mortgage rates are expected to change upon the Fed’s adjournment.

Led by Chairman Ben Bernanke, the FOMC is a 12-person, Federal Reserve sub-committee. The FOMC is the group within the Fed which votes on U.S. monetary policy. “Making monetary policy” can mean a lot of things, and the action for which the FOMC is most well-known is its setting of the Fed Funds Funds.

The Fed Funds Rate is the overnight interest rate at which banks borrow money from each other. It’s one of many interest rates set by the Fed.

However, one series of interest rates not set by the Fed is mortgage rates. Instead, mortgage rates are based on the prices of mortgage-backed bonds and bonds are bought and sold on Wall Street.

There is little historical correlation between the Fed Funds Rate and the common, 30-year fixed rate mortgage rate.

As the chart at top shows, since 1990, the Fed Funds Rate and the 30-year fixed rate mortgage rate have followed different paths. Sometimes, they’ve moved in the same direction. Sometimes, they’ve moved in opposite directions. 

They’ve been separated by as much as 5.29 percent at times, and have been as near to each other as 0.52 percent.

Today, that spread is roughly 3.65 percent. It’s expected to change beginning 12:30 PM ET Wednesday. That’s when the FOMC will adjourn from its meeting and release its public statement to the markets.

The FOMC is expected to announce no change in the Fed Funds Rate, holding the benchmark rate within in its current target range of 0.000-0.250%. However, how mortgage rates in and around King of Prussia respond will depend on the verbiage of the FOMC statement. 

In general, if the Fed acknowledges that the U.S. economy as in expansion; growing from job growth and consumer spending, mortgage rates are expected to rise. If the Fed shows concern about domestic and global economic growth, mortgage rates are expected to fall. 

Any time that mortgage markets are expected to move, a safe play is to stop shopping your rate and start locking it. Today may be one of those times.

What’s Ahead For Mortgage Rates This Week : March 12, 2012

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FOMC meeting this weekMortgage markets were mostly unchanged last week despite a series of positive developments. In addition to Greece successfully reaching a deal with its private creditors, the U.S. economy turned out strong reports — most notably with respect to Non-Farm Payrolls.

In February, the U.S. economy added 227,000 new net jobs and the figures from December and January were revised higher by an additional 61,000. It marked the 16th straight month of job gains nationwide.

The Unemployment Rate held unchanged at 8.3%.

Conforming mortgage rates in Pennsylvania improved slightly last week and mortgage rates continue to hover near all-time lows.

According to Freddie Mac, the average 30-year fixed rate mortgage nationwide is now 3.88% for King of Prussia mortgage applicants willing to pay 0.8 discount points and a full set of closing costs.

1 discount is equal to 1 percent of your loan size.

Freddie Mac also reported the 15-year fixed rate mortgage at its lowest level in history. The average 15-year fixed rate mortgage fell to 3.13% with an accompanying 0.8 discount points. This is more a full percent lower as compared to March 2011.

This week’s big event is the Federal Open Market Committee’s second scheduled meeting of the year. Whenever the FOMC meets, mortgage rates can change in a hurry.

The FOMC is a subcommittee within the Federal Reserve, the U.S. government’s monetary-policy making group. Since 2008, the Federal Reserve has held its benchmark Fed Funds Rate near 0.000%. It’s not expected to raise that rate Tuesday. However, just because the Fed Funds Rate won’t change, that doesn’t mean mortgage rates won’t.

This is because the Fed doesn’t set mortgage rates, but it does influence them. Market will read the Fed’s post-FOMC press release Tuesday for hints of new policy or economic growth. If the statement shows more optimism for the economy than expected, mortgage rates are expected to rise. 

Conversely, if the Fed shows pessimism for the U.S. economy, rates are expected to fall.

Other economic events this week include the releases of Retail Sales, Producer Price Index, and Consumer Price Index; plus three high-profile treasury auctions.

Banks Start To Loosen Up In Underwriting

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FOMC senior loan officer survey 2011 Q4

After a half-decade of tightening mortgage guidelines, banks are starting to “loosen up”.

The Federal Reserve conducts a quarterly survey of its member banks and, last quarter, not a single responding bank reported having tightened its mortgage guidelines for prime borrowers.

A “prime borrower” is defined as one with a well-documented credit history, high credit scores, and a low debt-to-income ratio.

53 banks responded to the Fed’s survey and none said that mortgage guidelines “tightened considerably” or “tightened somewhat” between September and December 2011; 50 said that guidelines remained “basicaly unchanged”; 3 said that guidelines “eased somewhat”.

Mortgage applicants sometimes remark that the mortgage approval process can be challenging. Last quarter’s Fed survey hints that looser standards are coming. 

Not since before the recession have banks lowered mortgage approval standards like this and it bodes well for this year’s Phoenixville  housing market. Real estate agents report that 1 in 3 home sale contracts fail with “declined mortgage applications” as a leading cause.

Looser mortgage lending standards should mean more home loan approvals for buyers, and fewer contract cancellations. This can spur the housing market forward.

Make note, though. “Looser standards” should not be confused with “irresponsible standards”. It remains more difficult to meet bank standards as compared to 5 years. Today’s underwriters are more conservative with respect to household income, overall assets and credit scores. 

Even as compared to one year ago:

  • Minimum credit score requirements are higher
  • Downpayment/equity requirements are larger
  • Maximum allowable debt-to-income ratios are lower

For buyers and refinancing households gaining approval, though, the reward is the lowest mortgage rates in a lifetime. Mortgage rates in Pennsylvania continue to fall, helping home affordability reach new highs.

If you’re in the market to buy a new home or refinance one, your timing is excellent.