Category: Swanson Home Loans Blog – Mortgage Rate Updates and More

Yield on US 10-year treasury note holds key to direction of mortgage rates

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Housekeeping: This weekly ‘rate update’ email will now be delivered each Tuesday instead of Monday.  

You may be here today but will you be gone to Maui?  On this day in 1959 Hawaii became the 50th state of the union.  I plan to celebrate when I am on Kauai in January.   

Mortgage Rates

Home loan rates improved modestly last week.  That said, during the month of August mortgage rates have barely budged.  

Housing

Those of in the real estate industry are acknowledging a modest slowdown in activity.  My personal view is that 2018 is the first year since 2014 for where we experience seasonality with demand.

Last week the Commerce Department reported that permits for single family homes decreased by 10% in the western region.  It appears that builders are having a harder time finding affordable and sufficient skilled labor.

This week the National Association of Realtors will release date on existing home sales on Wednesday and new home sales on Thursday.

Aside from that the only significant economic event on the calendar is durable goods which is also due out on Thursday.

Technical Trading Patterns

In the absence of a lot of economic data I expect mortgage rates to react to the stock market (when stocks do well mortgage rates tend to suffer and vice versa) and technical trading patterns.

The yield on the US 10-year treasury note, which home loan rates tend to track, is currently trading at 2.85%.  This is as good as interest rates have been all summer.  

If yields can find a way to break below 2.82% then we could see home loan rates improve by another .125%-.25%.  However, the past couple times that yields have hit this point they have reversed higher and home loan rates have worsened by .125%.

Current Outlook: cautiously floating

Turkey helps US mortgage rates

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Born this week in 1945 iss one of the greatest financial planning minds in US history.  This brilliant financial mind first appeared on late night TV spreading messages such as, “Don’t buy stuff you can’t afford”.  OK, maybe Steve Martin is known more for his comedy but his memorable SNL skit still resonates for me.  

Mortgage Rates

Home loan rates improved modestly late last week thanks to economic turmoil in Turkey.  After Turkish officials jailed a US pastor President Trump doubled trade tariffs against Turkey which caused panic in their financial system.  

Turkey

The Turkish Lira has depreciated rapidly and the financial markets grew concerned that the contagion would spread to other emerging economies.  Uncertainty tends to help US interest rates.

It appears that conditions have stabilized and that panic will not spread but if that changes later this week we may see mortgage rates hit near-term lows.

The Week Ahead

The economic calendar features a couple notable events.  On Wednesday we’ll get the latest reading on retails sales.  Also on Wednesday we’ll see the Home builders confidence index.  More telling may be Thursday’s release of new housing starts and building permits.  

As long as Turkey’s woes remain contained I would expect home loan rates to give back the .125% improvement they experienced at the tale end of last week.

Current Outlook: locking

Conforming loans vs. Jumbo loans

Posted on by Evan in Swanson Home Loans Blog - Mortgage Rate Updates and More

Transcript:

In this post and video, I will summarize the differences between a conforming loan and a jumbo loan.

Loan Amount

The first difference is the loan amount, which is ultimately what defines a conforming loan versus a jumbo mortgage.  For 2018, here in Portland, Oregon, the threshold that determines a conforming loan and a jumbo loan is $453,100.00.

A loan amount at that level or less can be underwritten to conforming loan standards, whereas a jumbo mortgage is for an amount in excess of that and is underwritten to jumbo underwriting standards.

I expect the threshold to increase annually overtime.

Underwriting

The second difference is that conforming loans are underwritten to more standardized and simpler guidelines. Fannie Mae and Freddie Mac have produced underwriting guidelines that are applied to conforming loan applications.

For jumbo mortgages, the market is much more fragmented. There are a lot more than two institutions that underwrite jumbo loans and each one has a different set of rules and guidelines.  Therefore, the criteria to approve jumbo loans is a lot less standardized than for conforming loans.

As you might have imagined, jumbo loans tend to be underwritten to a much higher standard than conforming loans. Let me give you a few examples.

Credit

With regard to credit, typically we see jumbo loans require higher credit scores, and in addition, the applicant must have more credit depth, more accounts and history on their credit report, than a conforming loan.

Income

Second, in terms of income, we measure a debt to income ratio for each loan application.  This calculation takes into account the amount of obligations as a percentage of the income. We typically see jumbo mortgages limited to a debt to income ratio of 43%, meaning 43% of the household’s income can be allocated to obligations and the new mortgage payment. Whereas with conforming loans, we can typically get applications approved to 45% and in some instances, 49.9% percent.  Conforming loans allow for higher levels of monthly obligations relative to an applicant’s income.

Assets

With regard to assets, under a jumbo underwrite, typically the jumbo guidelines will require that the applicant have a multiple of six times the mortgage payment left over in financial accounts after the down payment and closing takes place. Whereas with conforming loans, when buying a primary residence, the underwriter doesn’t necessarily require us to document any financial reserves.

Appraisal

Lastly the appraisal, or the collateral underwrite are different between these types of loans. With a jumbo mortgage we typically always need an appraisal, and in some instances, we might need two appraisals and/ or a review appraisal on top of the initial appraisal. With regard to a conforming loan, we can typically get the loan approved with an appraisal and in some instances even that is waived.

In terms of rates and fees, currently the jumbo and conforming loans are pretty similar, but at times you do see small differences between the two.  The bottom line is the conforming loans will be a little less cumbersome to be underwritten compared to a jumbo mortgage. If you have questions about qualifying for either, I would love to be a resource, contact me today. Thank you.

 

Fed stays put as do mortgage interest rates

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Seventy one years ago a wood raft carrying five people arrived at an island near Tahiti after a 101 day journey from Peru.  The raft was captained by Norwegian Thor Heyerdahl and supported his thesis that Polynesia’s earliest inhabitants may have migrated from South America.  

The story was later made popular in the best-selling book Kon-Tiki.  

The Fed

It looks like it will be about 101 days from the Fed’s last rate hike to the next one.  

As expected the Fed did not hike short-term interest rates last week.  According to CME Group there is a 93% probability that the Fed will hike by .25% when they meet in mid-September.  The Fed last hiked short-term interest rates back in mid-June.

As a reminder the Fed does not directly control mortgage rates but their comments and actions can influence them.  

Jobs Report

This past Friday the Labor Department released its monthly employment report.  It showed that the US economy created 157,000 jobs during July and wages grew modestly.

With the unemployment rate at 3.9% the labor market is deemed to be tight which we would expect to pressure wages higher.  If wages grow too quickly then it could lead to inflation which is not friendly for mortgage rates.

The Week Ahead

Speaking of inflation it is about the only significant event scheduled for release this week.  On Thursday we’ll get a look at the Producer Price Index and on Friday we’ll get the latest reading of the Consumer Price Index.

In the absence of a heavier economic calendar I would expect interest rates to react to technical trading patterns.  The technical signals suggest it will be much harder for rates to improve this week than for them to worsen.  I would recommend carrying a locking bias into the latter half of this week.

Current Outlook: locking

UPDATE: Eliminating mortgage insurance from a conventional loan

Posted on by Evan in Swanson Home Loans Blog - Mortgage Rate Updates and More

Video Transcript: 

Hey, I’m Evan Swanson of Swanson Home Loans, a division of Cherry Creek Mortgage Co. Inc. In today’s video, I’m going to talk to you about getting mortgage insurance eliminated from a conventional mortgage.

Back in February, I recorded a VIDEO which talks about the details of the Homeowner’s Protection Act, which is the federal statute which governs this topic. However, in my hand, I’m holding a Fannie Mae Mortgage letter, 2018-03, this document was released in mid-July and this changes the rules for Fannie Mae secured mortgages for consumers to get their mortgage insurance eliminated.

Now these particular rules only apply to Fannie Mae secured loans for now. If you have an FHA loan, a Jumbo mortgage, or loan which was secured by Freddie Mac, these rules may not apply. Also, in this video I’m only going talk about a primary residence one unit single family residence. I’m not going to talk about investment properties or two to four units. Those rules are slightly different.

The good news in this document is Fannie Mae is trying to make it easier for consumers to have their mortgage insurance eliminated. They talk about three different scenarios.

1) Getting the mortgage insurance eliminated based on the homes original value so a consumer has paid down the principal to have the mortgage insurance eliminated. Prior to these rules in order to have the mortgage insurance eliminated, a consumer would have to wait until the loan was scheduled to reach 80 percent of the original value of the home regardless of additional principal payments. What Fannie Mae is saying in this document is that they will now take into account the actual principal balance. So if you have made additional principal payments, then they will go off that without having to wait until the loan was originally scheduled to reach that point.

2) You want to take into account the home’s current value. In this scenario, the home value has gone up. It’s appreciated in value and you want the loan servicer to take that into account when determining the loan to value. Prior to these rules you’d have to pay for an appraisal or a broker price opinion and that particular document would create the value that the lender would use. What Fannie Mae is doing is they’re releasing an automated valuation system, it’s not going to be available until spring of 2019, but at that point, loan servicers will be able to cross check the current value of the property with the statistical model and if that valuation supports a loan to value of 80 percent or less, then the mortgage insurance would be eliminated assuming the loan is at least five years old.

If the loan is between two and five years old, Fannie Mae says the loan to value would have to be 75 percent. If the valuation in the statistical model does not support a proper value to have mortgage insurance eliminated, the consumer can still opt to get a broker price opinion or an appraisal to try to get the mortgage insurance eliminated.

3) If you’ve made improvements to your property that have increased the value, then you will have to provide the loan servicer with a detailed list of the improvements that have been made. Then they can go ahead and use that statistical model and if that doesn’t support a broker price opinion or an appraisal can substitute this. Basically the loan servicer can take into account additional improvements in value.

If you meet any of those guidelines, good news ahead. Starting January 1st of 2019, these new rules take effect and it should be easier for consumers to get mortgage insurance eliminated. If you have questions about your scenario, we’d love to be your resource for you. Thank you for the opportunity, we look forward to chatting with you soon.

Mortgage rates steady despite strong economic growth

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

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Mortgage Rates Steady

On Friday the Commerce Department reported the US economy grew by 4.1% during the second quarter.  This was the strongest growth since the third quarter of 2014.  

Normally good news for the economy is bad news for mortgage rates.  However, analysts had been expecting an even stronger number so home loan rates remained steady.  

Pending Home Sales

The National Association of Realtors released its monthly pending home sales report today.  It showed that the the number of homes currently in contract increased month-over-month (+.9%) but is still down year-over-year (-2.5%).  

If you’ll remember last week the existing home sales report showed a slight increase to the supply of homes which may explain why we see more pending sales.  The trends in the housing market continue to suggest a more balanced market ahead.  

The Fed

Fed officials will meet this week and make a decision about short-term interest rates.  The markets currently expect the Fed to hold steady at this meeting but hike short-term rates by .25% at the September meeting.

Even if the Fed does not hike rates their comments can still impact mortgage rates.  

The Week Ahead

This week’s economic calendar is busy.  

On Tuesday we’ll get the latest Case-Shiller Home Price Index report and the Fed’s favorite gauge of inflation (Personal Consumption Expenditure price index).  On Wednesday we get the aforementioned Fed announcement and on Friday the all-important jobs report.

Current Outlook: locking

Home loan rates move higher along with oil prices

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Sometimes our best ideas are formed when we least expect it. This is true for the guitarist Slash who during a band warm up played a string skipping riff that he initially disdained.

However, the rest of the band asked him to play it again and later the riff formed the foundation of “Sweet Child of Mine” which entered the Billboard top 40 on this day in 1988. The hit would eventually climb all the way to #1 and ultimately help catapult Guns N’ Roses to become one of the most famous rock bands of all time.

Home Loan Rates
Mortgage rates are also climbing higher. Last week I warned that we may be in store for a “break-out” following three weeks in which home loan rates remained flat.

Unfortunately, rates decided to break higher instead of lower.

Oil prices
You may have noticed that US consumers are paying more at the pump. Oil prices have risen by ~20% in 2018. Prices spiked this morning after President Trump sent a threatening tweet directed at the president of Iran.

Nearly 40% of the global oil market flows through Iran so if there were a disruption it would certainly move prices higher. Higher prices for oil would be inflationary which would not be good for home loan rates.

Existing Home Sales
The National Association of Realtors released its monthly existing home sales report today. It showed that the number of sales declined modestly in June.

The median home price for the US reached an all-time high at $276,900.

The most interesting part of the report was that the total inventory of homes increased for the first time since June of 2015. Might this be a signal that a more balanced market is near?

The Week Ahead
This week’s economic calendar is relatively light. We’ll get new home sales on Wednesday and Q2 gross domestic product on Friday.

Momentum is not on our side. I recommend locking.

Current Outlook: locking.

Home loan rates remain flat, risk of break out build

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

It all started with $6,000 in February of 1940 when the US Government granted that sum to a group of researchers who were curious about the potential for fissionable materials to be used for military purposes.  The original $6,000 later ballooned to over $2 billion and on this day in 1945 the Manhattan Project first “successfully” tested the atom bomb.

Home Loan Rates

Mortgage rates have been anything but explosive over the past two weeks.  Home loan rates have remained flat over that timeline.

Inflation

Price pressure is the primary driver of long-term interest rates.  

Last week both the Producer Price Index and the Consumer Price Index showed price increases above the Fed’s target of 2.0%.  The reports lend credibility for the Fed to maintain its rate tightening policy. It also increases the probability that mortgage rates will increase and not decrease.

Retail Sales

Although consumers may be paying higher prices for goods it does not seem to be slowing sales.  This morning the retail sales report showed better than expected activity.  Many analysts are pointing to federal income tax cuts as the primary reason why.  

Good news for the economy tends to be bad news for mortgage rates.

The Week Ahead

The economic calendar is fairly light this week.  Fed Chairman Jay Powell will be speaking on Tuesday.  On Wednesday we’ll get a look at housing starts and building permits.  On Thursday we’ll get leading economic indicators.

Technical signals

Mortgage rates have remained relatively flat for almost three weeks.  Any time rates remain flat for extended periods of time it increases the chances of a “break-out” which is when they move sharply higher or lower.  There is no telling when they will “break” and if they will break in our favor. The safe play is to lock in but ultimately it is a coin flip.

Current Outlook: neutral

Mortgage rates at best level since April, time to lock

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

On this day in 1846 the United States captured a small settlement called Yerba Buena located in a bay.  This site is now home to one of the most expensive housing markets in the world. SEE HERE for a parody on some of the rental offerings in this city which was later named San Francisco.  

Home Loan Rates

Mortgage note rates remained unchanged last week although the underlying closing costs improved modestly.  Pricing on mortgage rates are at the best levels since April.

Jobs

Last Friday’s all-important jobs report is being referred to as “goldilocks”, not too hot and not too cold.  It showed 213,000 new jobs created during the month of June and the US unemployment rate at 4.0%.  Wages increased moderately.

Overall, it was a healthy report but not too healthy to stoke inflation fears and push mortgage rates higher. 

 

The Week Ahead

There are not a lot of economic releases scheduled for this week but there will be some key events.  On Wednesday we’ll get the Producer Price Index, which reports on prices at the wholesale level of our economy, and on Thursday we’ll get the Consumer Price Index, which reports on prices at the retail level.  

Inflation is the primary driver of long-term interest rates including mortgages.  Inflation has been ticking higher but not enough to pressure rates too badly.  Any signal that inflation is accelerating would be bad for home loan rates.

The US Treasury is set to deliver $69 billion in fresh debt supply this week.  This is 23% more than was offered last year at this time.  The extra debt is being issued to fund the federal income tax cuts.  The additional debt supply will make it harder for mortgage rates to improve.  

After improving over the past couple weeks I think interest rates are ripe for reversal.  I am going to recommend a locking position.

Current Outlook: locking

Holiday shortened week could cause volatility

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

If we celebrated the day that the Continental Congress voted on the Declaration of Independence from Great Britain then we wouldn’t be in the office today. It was actually on July 2, 1776 that the colonies voted to approve the Declaration of Independence. However, following the nearly unanimous vote Thomas Jefferson took the document, made a few edits, and it was adopted on July 4, 1776. Happy 4th!

Mortgage rates adopted modest improvements last week.

The Week Ahead
It is a holiday week and the financial markets will close early on Tuesday and remain closed until Thursday. During holiday weeks trading desks tend to be lightly staffed. With fewer buyers and sellers in the marketplace we have to be on guard for volatility.

Jobs
The economic calendar this week is compressed with the highlights coming Thursday and Friday. On Thursday we’ll get minutes from the last Fed meeting at which they hiked short-term rates.

On Friday we get the all-important jobs report. Analysts are expecting ~190,000 new jobs created. A number north of that estimate would likely pressure rates higher and vice versa.

US Stocks
US stocks continue to slide on fears of trade tensions. Since the middle of July the S&P 500 is off about 3% and mortgage rates have improved by ~.125%.

Technical Trading Patterns
The yield on the US 10-year treasury note continues to trade below 2.90%. As long as we remain at or below 2.90% I will continue to recommend a floating position.

Current Outlook: floating