Mortgage Update

Mortgage update for 10.11.2010
Friday's Weak Employment Report Helps Mortgage Rates


Weak Employment data has pushed mortgage rates to a record low. Although the private sector performed relatively well, Friday's Employment data revealed net job losses and stagnant wage growth in September. Against a consensus forecast of a loss of 5k jobs, the economy lost 95k jobs. The weakness was seen mostly in the government sector, as state and local governments continued to shed jobs. The private sector actually added 64k jobs, which was close to expectations. The Unemployment Rate remained at 9.6%. A broader measure, which also includes the underemployed, rose from 16.7% in August to 17.1%, matching the high reached in April. Average Hourly Earnings, a proxy for wage growth, was unchanged from August.


Underwriting Guidelines Tighten Up Further

Fannie Mae and Freddie Mac have both tightened up credit requirement significantly once again. Effective today, Conforming loan applicants will not be allowed to have even one housing payment that has been more than 30 days late over the previous 12 months. A housing payment represents either the borrower's mortgage or rental payment for their primary residence.

In addition, FHA investors continue to increase the minimum credit score as well. Most FHA investors have now increased the minimum score requirement from 620 to 640 for FHA loans.

Fed's Plan to Purchase Treasuries Leads to Greater Volatility

One of the major reasons mortgage rates have fallen to a new low is that investors have priced in a high likelihood of additional Treasury security purchases by the Fed. When the Fed buys Treasury securities, this also increases demand for mortgage-backed securities (MBS), which leads to lower mortgage rates. There is a down side to the Fed's new plan, though. In contrast to the recent MBS purchase program, which involved a relatively steady, well defined level of weekly buying, the new program may be geared to allow the Fed to adjust its purchases based on changing economic conditions. By its nature, a program that is more flexible will be less predictable. The uncertainty will likely lead to increased volatility for mortgage rates, as investors amplify their reaction to each piece of economic news. In addition, if the Fed backs off this plan in any way, mortgage rates will surely shoot up quickly.

Briefly

• The National Flood Insurance Program has been extended through September 30, 2011
• August Pending Home Sales, a leading indicator, rose 4% from July
• The Bank of Japan (BOJ) unexpectedly cut interest rates nearly to zero
• The Treasury will auction $66 billion in 3-yr, 10-yr, and 30-yr securities this week
• Oil prices climbed above $83 per barrel, to the highest level since May
• Effective October 4, FHA mortgage insurance premiums are now 1% up-front and .9% per year paid monthly
• The Dow stock index rose 10% during the third quarter

Rate Update

Mortgage rates have reached a new low! Anyone with a fixed rate of 5.125% or higher, or with any type of ARM, should consider refinancing immediately.

Conforming

(Loan Amount  <$417,000)

30 Year Fixed 4.125%
15 Year Fixed 3.625%
10 Year ARM 4.875%
5 Year ARM 3.125%
3 Year ARM 3.375%


The above rates are for purchase loans for a primary residence and are intended to give you an overall idea of how rates are changing from week to week. Other factors such as credit score, down payment, and number of days the rate is locked all contribute to the exact rate, which is subject to change at any time and without notification. The Conforming rates above apply to purchase loan sizes $150,000 - $417,000 and carry zero discount points. Rates for lower loan amounts are slightly higher. Lower rates are also available for all programs with discount points. Qualification is subject to credit and property approval and other restrictions may apply.


Looking Ahead

The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI), which focuses on the increase in prices of "intermediate" goods used by companies to produce finished products, comes out on Thursday. The Consumer Price Index (CPI), which looks at the price change for those finished goods which are sold to consumers, comes out on Friday. In addition, the detailed FOMC Minutes from the September 21 Fed meeting will be released on Tuesday. Retail Sales, an important indicator of economic growth, will be released on Friday. Empire State, Trade Balance, Import Prices, and Consumer Sentiment round out a very busy week. There will also be Treasury auctions on Tuesday, Wednesday, and Thursday and the mortgage markets will be closed today for Columbus Day.

This information was provided by James A Williamson of Fairfield Mortgage.
The information contained herein is believed to be accurate, however no representation or warranties are written or implied. All Rights Reserved.