Rate Watch Report: February 13th 2017

Market Update

Monday, February 13, 2017

What’s going on and why does it matter?
Mortgage bonds opened lower today as stocks continue to rally in response to President Trump’s announcement last week that a “phenomenal” tax plan will be announced soon. Fed Chair Yellen is scheduled to give her semiannual monetary policy report to Congress on Tuesday and Wednesday. The market will be watching for any indication as to when and how the Fed will begin to unwind its massive holdings of mortgage bonds. Speculation is that the Fed will stop buying mortgage bonds sometime later this year, and the market will be looking for Yellen to confirm or deny these rumblings. The Fed’s mortgage bond purchases are very light this week because they won’t be in the market tomorrow and Wednesday due to Yellen’s testimony. In fact, the Fed is only scheduled to purchase 30-year conventional mortgage bonds during one operation later this week. As for today, the Fed is scheduled to purchase up to $1.75 billion in GNMA and 15-year conventional mortgage bonds.

What should you do about it?
Lock your rate to be safe.

Economic Calendar

Economic reports that may impact mortgage rates this week:

Date	Report	Period	Prior	Estimate	Actual
Tue 14 Feb	PPI final demand	Jan	+0.2%	+0.3%
Wed 15 Feb	Core CPI	Jan	+0.2%	+0.2%
Wed 15 Feb	Real Weekly Earnings	Jan	+0.1%	0.0%
Wed 15 Feb	Retail Sales	Jan	+0.6%	+0.1%
Wed 15 Feb	Industrial Production	Jan	+0.8%	0.0%
Wed 15 Feb	Capacity Utilization	Jan	75.5%	75.5%
Wed 15 Feb	Mfg. Output	Jan	+0.2%	+0.2%
Wed 15 Feb	Business Inventories	Dec	+0.7%	+0.4%
Thu 16 Feb	Building Permits	Jan	1.21M	1.23M
Thu 16 Feb	Housing Starts	Jan	1.23M	1.22M
Thu 16 Feb	Initial Jobless Claims	Week of Feb 6	234,000	245,000

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Scott Shenton
NMLS Number: 1039731
Apex Home Loans
Corporate NMLS Number: 2884
sshenton@apexhomeloans.com
https://www.apexhomeloans.com/scottshenton
(240) 268-3156
3204 Tower Oaks Blvd, Suite 400
Rockville, Maryland 20852

Apex Home Loans, Inc. NMLS #2884. For more information, please reference the NMLS Consumer Access Website at http://nmlsconsumeraccess.org. Licensed by: DE as a Lender by the Office of the State Bank Commissioner (011603); DC as a Dual Authority Mortgage Lender by the Department of Insurance, Securities and Banking (MLB2884); FL as a Mortgage Lender by the FL Office of Financial Regulation (MLD1088); MD as a Mortgage Lender by the Dept. of Labor, Licensing & Regulation (06-4989); N.J. Department of Banking and Insurance (2884); PA as a Mortgage Lender by the Dept. of Banking & Securities (45078); VA as a Lender and Broker by the State Bank Commissioner (MC1278); and WV as a Mortgage Lender by the WV Division of Financial Institutions (ML-34657).

Winter 2015 Guide to Mortgage Rates

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Mortgage rates are determined by the supply and demand for mortgage bonds in the bond market.

Why Mortgage Bonds?

When you get a mortgage in the US, your mortgage company is getting the money from Fannie Mae, Freddie Mac or other “securitizers”. These “securitizers” get their money by issuing bonds to bond market investors.  These bonds are called “mortgage bonds” or “mortgage backed securities”.  Therefore, the mortgage rate you pay is really determined by the supply and demand for mortgage bonds in the bond market.

The Role of the Federal Reserve

As you can see from the chart, the Fed owned zero ($0) mortgage bonds prior to 2008. Once the financial crisis happened, the Fed decided to start buying mortgage bonds in order to drive interest rates down and stimulate the economy.  This is called “quantitative easing” or “QE”, and we’ve had several rounds of QE so far.

Currently, the Fed owns a whopping $1.74 TRILLION in mortgage bonds!

The Fed has been the biggest buyer of mortgage bonds in recent years. This had the impact of holding interest rates down to artificially low levels.  In fact, mortgage rates were in the 6.5% – 7% range back in 2006 – 2007 before the Fed started buying mortgage bonds.  That’s over 2% higher than where mortgage rates are today.  Interest rates could be impacted if the Fed issues statements about slowing down or stopping their purchase of mortgage bonds.

Here are Three Things that May Impact Mortgage Rates in the Coming Months

• Jobs Report: bond investors and the Fed watch the jobs report and unemployment numbers very closely to determine if the economy is improving and whether they should buy, sell or hold mortgage bonds.
• Inflation Report: bond investors and the Fed watch the inflation reports (CPI and PCE) to determine whether they should buy, sell or hold mortgage bonds.
• Gross Domestic Product (GDP) Report: bond investors and the Fed follow the GDP numbers to determine if the economy is growing and whether they should buy, sell or hold mortgage bonds.  (GDP measures the size of the economy and whether it’s growing, shrinking or stagnating.)

Conclusion: we anticipate continued volatility in mortgage rates over the next several months as bond investors and the Fed decipher the economic reports that we’ve outlined above. Please contact me for more info on which economic reports may impact mortgage rates this week.

 

Scott Shenton
NMLS Number: 1039731
Apex Home Loans
Corporate NMLS Number: 2884
sshenton@apexhomeloans.com

https://www.apexhomeloans.com/scottshenton

(240) 268-3156
3204 Tower Oaks Blvd, Suite 400
Rockville, Maryland 20852

NMLS #2884 (www.nmlsconsumeraccess.org): Licensed as a Mortgage Lender and Broker by the Virginia State Corporation Commission, License #MC1278; Licensed in the District of Columbia as a Mortgage Lender and Broker by the DC DISB License # MLB2884; Licensed in Maryland as a Mortgage Lender and Broker by the DLLR, License #06-4989; Licensed in Delaware as a Mortgage Lender and Broker by the Office of the State Bank Commissioner, License # 011603.

Agents! Here are three Solutions for Low Housing Inventory

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Many homebuyers today are facing a shortage of available housing inventory.  This is putting a lot of extra pressure on you, as their real estate agent.  Here are three potential solutions that we can explore:

1. How to Find More Sellers.  Many real estate agents don’t spend any time on database marketing.  Other real estate agents blast their old clients with newsletters they probably delete, recipes they probably throw away, and/or fliers that basically say, “I’m awesome because I sold the home next door”.  What if you could be different?  Here’s an idea to consider: personally call just one of your old clients per day… every day for the next 100 days.  If you only have 100 old clients that you’ve worked with in the past, and your clients move on average every 8 years, you could literally generate an extra 12 listings by implementing this strategy!  That doesn’t even take into account the extra referrals and buyer-side transactions that you’ll generate from these one-on-one conversations.  I can give you a template for what to say when you make these calls, because I’m currently doing this in my business with great results.  You can probably get this done in less than 30 minutes per day!
2. How to Find and Work With Cash Buyers.  If you had $1mm in cash sitting around, where would you hang out?  Probably on the golf course with your financial planner/money manager!  That’s one reason why I’ve made it a point to work with financial advisors.  They have direct access to the types of clients I want to work with.  That’s also a great strategy for you.  Not many real estate agents focus on creating value for financial advisors.  What if you and I could offer a free housing consultation to a financial advisor’s clients as part of his/her financial planning process?  If we only work with one financial advisor, who has 100 clients, and these clients move on average every 8 years, we could literally generate an extra buyer AND an extra listing EVERY MONTH for you by implementing this strategy!  Remember, these are buyers who can afford to pay cash and/or make higher bids when buying real estate.  Let me know if you’d like to get started and I can facilitate an introduction.
3. How to Set Better Buyer Expectations.  What if we help buyers budget for the cost of home improvements BEFORE they go house shopping?  This opens up lots of possibilities because it helps buyers visualize themselves making an offer on a home they would have otherwise found unattractive.

Contact me so that we can further explore any/all of these ideas together!

Scott Shenton
NMLS Number: 1039731
Apex Home Loans
Corporate NMLS Number: 2884
sshenton@apexhomeloans.com

https://www.apexhomeloans.com/scottshenton

(240) 268-3156
3204 Tower Oaks Blvd, Suite 400,
Rockville, Maryland 20852

NMLS #2884 (www.nmlsconsumeraccess.org): Licensed as a Mortgage Lender and Broker by the Virginia State Corporation Commission, License #MC1278; Licensed in the District of Columbia as a Mortgage Lender and Broker by the DC DISB License # MLB2884; Licensed in Maryland as a Mortgage Lender and Broker by the DLLR, License #06-4989; Licensed in Delaware as a Mortgage Lender and Broker by the Office of the State Bank Commissioner, License # 011603.

How the 2014 Mortgage Rules Impact You

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Imagine that you’re playing a game where the rules constantly change, and everybody is always confused about them  (including the rule makers).  Welcome to the 2014 mortgage industry!  Here’s the inside scoop: federal regulators came out with “final” mortgage rules in January 2013.  They gave the mortgage industry a full one year to comply.  Then, the regulators literally changed the rules 4 times since then.  The latest changes came out in November, 2013… just two months before the deadline for compliance.

We asked the regulators for a final, final, final version of the rule so that we could read it in its entirety without getting confused by all the different versions.  Their staff-lawyers replied, “Good idea!  We don’t have a final, final, final version of this created yet, but if you figure it out, please send us a copy!”  This is NOT a joke.  No wonder why everyone is so confused…  So here’s what we did: we broke down the new rules into three areas that impact your business as a real estate professional.

#1 – The QM and ATR Rule: Three Buckets

The US government has written some mortgage underwriting guidelines into federal law in order to make sure that borrowers have the “ability to repay” their mortgages.  These guidelines are collectively known as the Ability-to-Repay (ATR) and the Qualified Mortgage (QM) Rules.  Generally, mortgage companies are now only allowed to originate mortgages that fit into one of three buckets:

	Bucket #1: Fannie Mae, Freddie Mac, FHA, VA, or RHS “Qualified Mortgages”	Bucket#2: Non-Agency and Non-Government “Qualified Mortgages”	Bucket #3: “Non-Qualified Mortgages”
Examples	Most Agency or Government Loans (including ARMs)	Loans that have unique features like balloons or pre-payment penalties	Loans that have higher APRs or don’t otherwise meet the criteria in the previous two columns
Maximum Debt-to-Income (DTI) Ratio	Flexible, based on whatever Fannie, Freddie, FHA, VA or RHS guidelines are at any given moment	43%	Flexible, based on each bank or mortgage company’s criteria
Lender’s Legal Liability	Lenders Have a “Safe Harbor” When Making Most of These Types of Loans	Lenders Have a “Safe Harbor” When Making Most of These Types of Loans	Lenders Open Themselves Up to a Little More Legal Liability When Making These Types of Loans

#2 – The QM and ATR Rule: DTI and APR Requirements

As you can see from the chart above, the one major difference between the new ATR rules and the lending guidelines as they currently stand, is that non-agency and non-government loans have a maximum 43% debt ratio. It’s possible that Fannie Mae, Freddie Mac, the FHA, the VA and the USDA/RHS may lower their maximum debt ratios in the future. However, most of these groups have come out recently and said that no change in maximum DTI (from current requirements) is imminent. Even so, it’s probably a good idea for you and your mortgage professional to help borrowers lower their DTI and their APR.  Here’s how:

• Consider a different down payment scenario
  • Less of a down payment in order to use the funds to pay off other debt and lower the overall DTI; or,
  • More of a down payment to lower the mortgage payment
• Consider seller-paid points to reduce the borrower’s monthly payment and/or the APR on the borrower’s mortgage. Added bonus with this strategy: seller-paid points are NOT required to be included in the borrower’s APR. Loans with a lower APR are more likely to fall under the coveted “qualified mortgage” category (buckets #1 or #2)!

Either way, borrowers should seriously evaluate these options with a Certified Mortgage Planning Specialist (CMPS®) who is skilled in this area.  Remember, a lot of lenders will be scrambling to fit their loans into one of the two “qualified mortgage” buckets. It’s much better for you to work with a mortgage professional who is skilled in helping borrowers reduce their DTI and their APR using some of these strategies.

#3 – The New Appraisal Rules Under the Equal Credit Opportunity Act (ECOA)

The new appraisal rules require mortgage lenders to provide a copy of the appraisal to the borrower three (3) business days prior to closing.  However, borrowers can waive this requirement if they sign a waiver 3 business days before closing.  Either way, this could be a problem for you if the mortgage company doesn’t get the appraisal or waiver to the borrower in a timely fashion.  Be sure to check with your mortgage professional to determine his/her policy in this area in order to make sure that your closings don’t get delayed over this issue.

Please feel free to contact me for further information on any of these topics!

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Scott Shenton
NMLS Number: 1039731
Apex Home Loans
Corporate NMLS Number: 2884
sshenton@apexhomeloans.com
https://www.apexhomeloans.com/scottshenton
(240) 268-3156
3204 Tower Oaks Blvd, Suite 400,
Rockville, Maryland 20852

   

NMLS #2884 (www.nmlsconsumeraccess.org): Licensed as a Mortgage Lender and Broker by the Virginia State Corporation Commission, License #MC1278; Licensed in the District of Columbia as a Mortgage Lender and Broker by the DC DISB License # MLB2884; Licensed in Maryland as a Mortgage Lender and Broker by the DLLR, License #06-4989; Licensed in Delaware as a Mortgage Lender and Broker by the Office of the State Bank Commissioner, License # 011603.