Posted by 101livescan on 6/30/13 9:54am
Msg #475181

Mortgage rates jump on Fed announcement

In layman's terms:


Mortgage rates increased in the week ending June 27 at the fastest pace since 1987, according to the latest Primary Mortgage Market Survey from Freddie Mac. The jump was primarily due to the latest announcement from the Federal Reserve pertaining to the reduction of the stimulus coming later this year.

According to Freddie Mac, a 30-year fixed-rate mortgage averaged 4.46 percent in the week ending June 27, up from 3.93 percent on a week-over-week comparison and up from 3.66 percent on a year-over-year comparison. A 15-year fixed-rate mortgage averaged 3.50 percent, up from 3.04 percent a week ago and 2.94 percent a year ago. Despite that significant increases, Freddie Mac reports that there is still high affordability with current mortgage rates for the typical family in most parts of the country.

Frank Nothaft, vice president and chief economist, Freddie Mac said Treasury bond yields and mortgage rates jumped after the Fed announced on June 19 that it would likely reduce its bond purchases later this year and the stimulus would end by 2014.

"Higher mortgage rates may dampen some housing market activity but the effect will be muted by the high level of buyer affordability, and home sales should remain strong," Nothaft said. "For instance, existing home sales in May rose to its strongest pace since November 2009 and new home sales were the most seen since July 2008. In addition, the 12-month growth in the S&P/Case-Shiller 20-city home price index for April of 12.1 percent was the largest since April 2006."

Home price increases good for the market
The S&P/Case-Shiller report showed that the 10-City composite increased 11.6 percent on a year-over-year comparison while the 20-City composite jumped 12.1 percent during that same period of time. On month-over-month comparisons the 10-City increased 2.6 percent and the 20-City composite increased 2.5 percent, accounting for a record high monthly increase.

The report indicated that while some markets are faring better than others, the price increases have been broad, encouraging a nationwide recovery. Those buying a home should cover all the bases and ensure they have title insurance to protect from losses.

"The two Composites showed the largest year-over-year gains in seven years," said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. "Atlanta, Las Vegas, Phoenix and San Francisco posted year-over-year gains of over 20 percent in April. San Francisco was the highest at 23.9 percent. Phoenix posted 12 consecutive months of double-digit growth. Recent economic data on home sales and inventories confirm the housing recovery's strength."

Reply by Bear900/CA on 7/1/13 12:38am
Msg #475234

The good thing about the knee-jerk reaction to the fed's announcement is that rate increases slow down the run-away economic engine before the train derails.

The predicament we're in is really a casualty of investors being addicted to the Feds buying up MBS. Investors go into shock at the slightest indication of the Feds withdrawing and rates jump.

We had a meeting Friday with the local mortgage association and the prez of the local real estate MLS. The consensus was that rates may drop slightly in months to come but mortgage rates are like gasoline hikes. They go up quickly but come down slowly.

It was interesting to hear him say that real estate sales people are dropping off like flies. Nothing to sell.

<<the effect will be muted by the high level of buyer affordability>>

I differ with that. What we are seeing is that some customers who once qualified are being called and told they no longer do. The higher rates put them out of range. They no longer can afford the house they did last month.

What will help them qualify again? The good old ARM, and here we go again, leveraging. We see lenders loosening up credit restrictions so expect to see more ARMs. That means more buyer's leveraging and over-leveraging is something to be afraid of when things go south.

We now have 97% conventional financing with LPMI (lender paid mortgage insurance) so that borrowers will not have a monthly premium as a lot of conventional borrowers do now.

Anyone (most of us) who have lived to see the cycles of the industry will understand a lot of this is normal. Will we eventually have a burn out period (bubble burst) similar to 2007? Eventually, yes, we do not know to what degree. Remember 1980? Rates were at 20%. Values remained stagnant for over a decade.

There is a tremendous amount of new compliance for loan origination that will prevent some of what happened in the recent past. But that is not for the majority. Unfortunately, the Feds are giving the big banks and Wall Street another free pass. They feel they must to keep the economy going. Do you think they will be self-governed enough to prevent the greed and corruption that brought down the house of cards the last time? Not something I would bet on.

How long can we continue to print fiat currency and expect to have an economy where anything will retain it's value? At what point do we give up on economic forecasters for good old-fashioned common sense?

Over-leveraging to buy homes? Home appreciation that doesn't make any sense whatsoever? House payments so high that any change in personal finance will cause ruin? Let the games begin! Once again we're all part of it, and sadly need to be.

Reply by 101livescan on 7/1/13 8:03am
Msg #475239

Thank you for your response. I think it is important for people to know how the loan signing business and signing service companies will be impacted by the change in types of loans we will see in the coming years.

On Saturday I I signed a couple who were dismally disappointed with their loan officer who came back at the 13th hour with mandated impounds up front and a first payment in August rather than September. It meant coming up with another $10Gs and they already were putting in $200K. They were pretty steamed about it. Although they make great money, have great jobs and great credit scores, they could have lost the transaction if they hadn't had parents to step in and help them out.

Most people would have had to walk away. LO blamed underwriting. I think these kinds of surprises are irresponsible and unwarranted.