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Monday, November 30, 2015

Mortgage Bond Market Analysis - Monday Morning Blues

Happy Monday.  I don't have the blues but if you don't lock before the jobs data comes out later this week, you might.  If you are reading this because of the link in my email - surprise!!  There is data - just wanted to see who clicks through the link.  October Pending Home Sales missed estimates of 1.0% with an actual reading of .2%.  That pesky Chicago PMI is below 50 again with a reading of 48.7 vs. estimates of 54.  This hasn't had much impact on pricing since the real focus is on the jobs data.

Right now it seems like we are living on borrowed time with a likely hike in the Fed Funds rate coming on December 16th.  This is jobs week (like the first week of every month) and the data we get on Wednesday, Thursday and Friday (especially the last two days and especially on Friday) will tell us a lot with regard to whether it will actually happen or whether it will be pushed back until 2016.  No trader wants to be caught with their pants down, or be the last one to turn out the light or get caught holding the bag, or any other cliche that would fit.  I think they are trying to squeeze whatever profit they can out of their current strategies before they have to shift into a different methodology.  If I were a bond trader, I'd probably be shorting bonds in advance of the possible Fed move.

My guess is that if we see some good jobs numbers, we will likely see some more selling in advance of the Fed meeting which is on the 15th and 16th with the rate decision being announced on the 16th.  The RSI shows the FNMA benchmark bond is overbought and we are on our 5th day in a row of gains with the bond up 4 basis points today.  The gains have been extremely week at best with the bond up 13 basis points since last Monday's opening.  I would lock ahead of the Wednesday morning ADP private payrolls report but if you happen to float (or can't lock because you aren't in a position to lock) then it's increasingly important to lock by Thursday and then Friday with each new day bringing more important data as far as the Fed is concerned.  Rates are still really good and from a long-term perspective, will likely remain low relative to the long-term average of 30-year fixed-rate mortgages, but if you want the best rates, lock sooner rather than later.

I hope you had a great Thanksgiving weekend and that your December is awesome - can you believe tomorrow is already the first day of December?  Make today great.

Wednesday, November 25, 2015

Mortgage Bond Market Analysis - Thanksgiving Wednesday

It's the Wednesday before Thanksgiving which means a short day for the financial markets and if you are like me or most people I know, your mind will likely be on traveling, the family and friends you'll be hanging out with, the Turkey Bowl (if you play some football on Thanksgiving morning), or the great meal you'll be eating (or the nap you'll probably take after the meal).  Your mind probably won't be on work which means you probably won't be very efficient which means you'll probably take off early today if you aren't taking the entire day off - I've got an appointment at 2:00 today but other than that it's about getting the house ready and then family time when my daughter comes home from college.

But I digress.  I said in my blog yesterday how the benchmark bond was trading in a really tight range.  For the 2nd day in a row, it closed up 4 basis points and this morning it is down 3 basis points - there's probably two traders at work today and they're probably having a catered turkey lunch.

We did have a fair amount of data this morning including Jobless Claims (tomorrow is the only Thursday that isn't Jobless Claims Thursday).  Here's how it all shook out and, yes, it's mixed - go figure.  Jobless Claims came in at 260K vs. expectations of 270K.  Core PCE (Personal Consumption Expenditures) came in as expected at 1.3%.  Durable Goods Orders were 3.0% vs. expectations of 1.5%; ex-transportation they were .5% vs. .3% expected.  Personal Spending came in at .1% vs. expectations of .3% (a slight correlation to the declining consumer confidence / sentiment numbers) - October's final Consumer Sentiment reading came in at 91.3, adjusted down from the previous reading of 93.1.  Personal income also came in as expected at .4%.  Finally, October New Home Sales came in at 495K vs. expectations of 500K but well above the previous reading of 468K.  

None of this will move the market and the 1st resistance level is just 9 basis points above the current price at 103.48.  The 2nd level of resistance at 103.7 is very strong because there are also 3 moving average numbers that are at or close to this mark.  The biggest factor that is likely to keep the bonds from making any significant move upward is the growing belief that the Fed is going to start raising rates in December.  With that in mind, lock now if you have a loan closing soon or if you decide to float, lock on any good upward movement in bond prices.  The higher the rates go, the less a buyer can afford - contact me (801-853-8720 or 702-812-1214) if you would like my spreadsheet that calculates how buying power is eroded as rates increase or homes appreciate; I'm happy to share it with you.  Make it a great day and a super fantastic Thanksgiving weekend.

Tuesday, November 24, 2015

Mortgage Bond Market Analysis - Mixed Data Tuesday

Happy Tuesday (not to be confused with Happy Days which used to air on Tuesdays).  Once again we are in a tight trading range and probably will be for the foreseeable future - probably at least until jobs week in December (first week of the month) and possibly until the FOMC releases their interest rate decision on December 16th.  The mixed data today has the 1st revision of the 3rd quarter GDP revised to 2.1% from 1.5% (this will be a big influence on the Fed's decision to raise the Fed Funds rate) but Consumer Confidence for November came in at 90.4 vs. estimates of 99.5.  Overall, the GDP number is more influential than the consumer confidence number but between the low number and the geo-political happenings overseas, the mortgage bond market is getting a bit of a lift.

The FNMA benchmark bond closed up 4 basis points yesterday at 103.35 and is currently up 4 basis points to 103.39.  The RSI is now overbought so in addition to improving economic data and the increasing likelihood that the Fed will raise rates in December, we have even more headwinds.  I'm thinking that now is a good time to like and take advantage of our recent price improvement since November 10th.

Contact me if I can help in any way - 801-853-8720 or 702-812-1214.  Make it a great day.

Monday, November 23, 2015

Mortgage Bond Market Analysis - Happy Monday

It's Monday and the start of a FABULOUS week.  This is one of my favorite weeks of the year with Thanksgiving on Thursday (I think it's the only week where Thursday isn't Jobless Claims Thursday).  I love being able to spend quality time with my family - which I do about everyday - and on Thanksgiving we get to forget about the normal grind of life and concentrate on each other and yummy food.  There's always, games, football and a movie or two as well (and maybe a nap).

I was out last week with a number of projects and a couple of days of traveling but since the mortgage bonds are trading in a tight range - and trending slightly higher - I didn't think it was too big of a deal that you didn't have my blog to read (other than missing me, and an occasional joke, in general).  You can always contact me by phone for up to the minute information regarding the mortgage bond market and interest rates.

Since November 10th, the FNMA benchmark bond is 36 basis points better which means that rates are a bit better as well.  The RSI has gone from oversold to on the verge of overbought.  There is a growing sentiment that the FED will raise the Fed Funds rate in December barring some really bad data which doesn't appear likely.  If you are working with buyers it's important to educate them as to how buying power erodes as home prices appreciate and as interest rates rise.  If your buyers need something more than a theoretical discussion, feel free to contact me and I can provide you with a spreadsheet that will help give you and your buyers specifics regarding their situation.  If you are working sellers it's important for them to know that the buying population will decrease as rates and home prices increase which makes it all the more important to price their home correctly.

If I can help with anything, please contact me at 702-812-1214 or 801-853-8720.  I'll be back tomorrow with more analysis.  Make today great.

Thursday, November 12, 2015

Private Mortgage Insurance: Choices and Strategies to Help You Qualify to Buy a Home

If you are a first-time home-buyer, chances are you may wind up with an FHA loan (or  VA loan if you're a vet - but that's another story).  FHA loans have some really good features and are a great way to finance the purchase of a home.  However, conventional loans offer some good options for those who can qualify.  In order to provide you with a baseline, I will give you the elements of FHA - good and bad - so that you can compare the many options with the conventional loans and the mortgage insurance options they offer.

FHA:  One size fits all.  FHA guidelines are a little more lenient when it comes to credit issues and employment.  They are a bit stricter under their newly issued underwriting guidelines - the 4000.1 (the old 4155 is no longer in use).  Medical collections are still a non-factor, which is a good thing.  Additionally, debts that belong with assets assigned to an ex-spouse in a divorce decree also won't kill a deal if the ex-spouse decided to let the family home or car go - your credit score will definitely take a hit and you may have to pay a higher interest rate but you might still be able to get a loan.  On the mortgage insurance side of things, FHA has two elements, an up front mortgage insurance which is typically 1.75% of the base loan amount and is financed into the loan 99.99% of the time (I've had one client pay the UFMIP in cash in my 20+ years of doing mortgages).  The other part is the Annual MIP which is .85% of the base loan amount and it's paid monthly (.85% x base loan amount divided by 12).  FHA requires a 3.5% down payment which can come from a gift and rates are typically about .25% lower than conventional loans - usually, but not always.  The rates on FHA loans are not impacted by credit scores as much as conventional loans either but the higher the credit score you have, the better the rate is.  Finally, as alluded to above, FHA loans can be approved with lower credit scores, even down to the low 500s.

Conventional loans - more choices, more solutions.  Now that we have a baseline against which to compare, let's take a look at conventional loans and then we'll get to the heart of the matter, private mortgage insurance.  Conventional loans have many options for a wide variety of borrowers.

The My Community program is conventional's response to FHA and allows a borrower to finance 97% of the purchase price of a home.  With a 3% down payment requirement and no required up-front mortgage insurance, out-of-pocket expenses can be lower while also having a lower loan amount.  As mentioned previously, credit scores are much more important when it comes to getting the best interest rate AND the best mortgage insurance premium.  On this program, a credit score of 660 yields a mortgage insurance rate of .94% (9 basis points higher than FHA's) while a credit score of 700 yields a rate of .80% - 5 basis points lower than FHA's.  A 720 credit score gets a borrower a rate of .60% - a full .25% lower than FHA which roughly offsets the difference in interest rate.  Some of the difference is already offset by not having to finance the UFMIP.  Additionally, FHA requires borrowers to keep the mortgage insurance for 11 years regardless of the amount of equity where as conventional loans (including the My Community program) allow borrowers to get rid of mortgage insurance when they have paid down their balance to 80% of the purchase price regardless of how long they've had their mortgage (typically there is a two year mandate but most loans won't hit the 80% level until 5-7 years or more, depending on whether a borrower has made extra payments.  Additionally, mortgage servicers are required to cancel the mortgage insurance when the balance reaches 78% of the original purchase price.

Other conventional options include loans of 95%, 90%, 85% and 80% (or less) of the purchase price.  Each step down in loan amount (loan-to-value) yields a lower mortgage insurance premium for a given credit score.  Larger down payments mean lenders have lower risk which means mortgage insurers have lower risks which is why they can offer lower premiums.  With a 20% down payment, mortgage insurance is not required and since your loan amount will be lower, this is where you will have the lowest monthly payment since you will also get a better interest rate for a given credit score; hence, a convolution of three things - smaller loan, no mortgage insurance and better interest rate - provide the lowest monthly payment.  Since most people don't have the ability to put 20% down on their home, let's look at some mortgage insurance options that most people don't know about.

Unlike FHA which has UFMIP and one annual rate for the biggest majority of their borrowers, conventional loans offer a plethora of mortgage insurance options including, BPMI (borrower paid mortgage insurance), LPMI (lender paid mortgage insurance), Single-pay (which can either be paid by the borrower or the lender) and Split premium.  Additionally, these options have a choice of refundable (more expensive) or non-refundable (less-expensive).

Borrower Paid Mortgage Insurance:  This option is the most common one and may be the only one that most loan officers know about and offer to their clients.  With this option, the borrower pays a monthly mortgage insurance premium based on the percentage of the loan relative to the purchase price (loan-to-value) which means a $200,000 purchase price with 5% down is a 95% loan to value ($190,000 loan amount), the borrower's credit score and the minimum required coverage (this is a number derived from the automated underwriting systems - the better the credit score, the lower the coverage requirement and the better the mortgage insurance premium rate.  This mortgage insurance can be canceled when the borrower pays down the mortgage to 80% and requests cancellation from the lender and it has to be cancelled when the balance reaches 78% - this is a big advantage over FHA if the borrower is going to be in the home long enough to take advantage of this.

Lender Paid Mortgage Insurance:  This option has it's good and it's bad points.  Unlike the BPMI, lender paid mortgage insurance can never be cancelled so if you plan on being in the home for a long time (7+ years, give or take), then this is not the most cost-effective option.  Instead of having a separate mortgage insurance component in your monthly payment, the lender pays for it through a higher interest rate.  The premium rate depends on coverage and credit score but it's typically between .375% and .75%.  The advantages of this option are a lower mortgage payment compared to BPMI and a larger tax deduction since the borrower is paying more interest (consult a tax advisor for specific questions regarding tax deductibility).  For borrowers who are confident that they won't be in the home for a long time, this is a good option.

Single-pay Mortgage Insurance:  While it is very rare that a borrower will choose this option, it is a great option for those who can afford to do it.  A borrower with a 720 credit score who is putting 3% down on a My Community program would have a one-time premium of 2.18% ($4,360 on a $200,000 loan) and would not have a mortgage insurance payment which saves $100 per month for a borrower with the same credit score who opts for the monthly BPMI.  The up-front premium can be paid out of the borrower's savings or by a gift from a family member.  With a lower payment, the borrower can either qualify for a more expensive home or have a little more breathing room at the end of each month.  The up-front premium can either be refundable or non-refundable with the non-refundable being the most common and least expensive option.  For comparison purposes, a borrower with a 660 credit score would have a single-pay premium of 3.68% ($7,360) or their monthly premium would be $156.67; this really drives home the emphasis that conventional guidelines places on good credit scores.

Split-Premium Mortgage Insurance:  This option is similar to what FHA does and offers borrowers the flexibility to have a a lower monthly mortgage insurance premium by paying a portion of the premium up-front.  The borrower has a wide variety of options when it comes to a split premium since they can virtually say how much they want to pay up-front and then the monthly premium is calculated on what's left.  For a borrower with a 720 credit score who can pay 1% of the loan amount in mortgage insurance premium up front, the monthly premium would be .32% ($53.33).  An up front premium of .5% ($1,000) would yield a monthly premium of .45% or $75.  If you compare this with an FHA loan which would have an up-front premium of 1.75% ($3,500) and a monthly mortgage insurance payment of $141.67, you can see how much better the conventional option is for buyers with a good credit score.  The same scenario for a borrower with a 660 credit score would yield a monthly mortgage insurance payment of $131.67 (.79%) with an up-front premium of 1%.

As you can see, conventional mortgage insurance provides lots of options to help a borrower qualify for a mortgage based on their specific scenario.  Call me at 702-812-1214 or 801-853-8720 to find out what financing scenario is best for you or your client.  Please feel free to leave your thoughts and ideas in the comments section.  You can also email me with questions at

Friday, November 6, 2015

Mortgage Bond Market Analysis - BOOM!!!!! OUCH!!!! Edition

Rant time:  As a loan officer who has studied stocks and bonds for about 30 years (loan officer for 20+ years), it's frustrating when I advise people that they need to move quickly in terms of submitting the applications so that we can register the loan and be able to lock it.  More often than not, when people don't heed this advise, they don't get nearly they rate I originally quoted, whether it's for a refinance or a purchase, missing out on significant payment savings over their loan term.  Low rates don't mean a think if you don't lock at the right time.  Rant over.

Last Wednesday in my post I recommended locking (Tuesday I said it may be o.k. to float but to be ready to lock at a moments notice).  From last Wednesday to this morning when we got much better-than-expected Non-Farm Payrolls (I always warn that Jobs week can move the market - particularly on Friday) which is causing the FNMA benchmark bond to sell of in a big way - currently down 56 basis points - 10 more than when I took this snapshot of the bond chart (correction on my text in the chart - it was down 130 basis points, not 132):

Before last Wednesday, the bond market hadn't priced in the Fed's potential interest rate hike.  The selling that occurred last Wednesday and Thursday helped to get traders and the bond market closer to where they should be when the Fed starts their tightening.  The likelihood of a December tightening move just went up significantly when Non-farm Payrolls came in at 271K vs. estimates of 180K.  The truth of the matter is that many of these jobs are seasonal and may not turn into permanent positions but the fact is that the estimates were destroyed and this gives a lot of fuel to the fire of those who are starting to think that it's time to tighten.

The 1st support level of 103.28 has been breached with the current price at 103.22 but we could see it hover around this price point for the rest of the day or more people might get involved in the selling and we could see a bigger move down.  If it were me wondering whether I should lock or float, I'd lock and hope my lender has the option to float down in case rates improve enough to be able to do such a thing.  The 2nd support level is at 103 - 22 basis points below the current price.  The RSI (Relative Strength Index) is oversold but like I said the other day, I don't think that means much since the bias may be changing (which could be a huge understatement).

In the end, a loan officer's job is to get the loan closed.  Part of that job, though, is to help them get the best rate possible.  If a loan officer doesn't understand key financial concepts to help the borrower understand them so that they can make proper loan choices AND if they don't understand how the financial markets work so that they can provide their clients with solid educated guesses on when to lock, they are doing their clients and referral partners a great disservice.  Rant really over NOW.  As always, contact me if I can help with anything mortgage-related - 702-812-1214 or 801-853-8720.  This blog is my attempt to help with the mortgage-related item that deals with interest rates and locking or floating.  I hope it benefits you.  Make it a great day and a better weekend.

Thursday, November 5, 2015

Mortgage Bond Market Analysis - Jobless Claims Thursday

Will the Fed raise the Funds rate in December or won't they - that is the question.  I'm sure there are lots of other questions that may be more interesting to you regarding sports, movies, or other aspects of your life but if you are in the process of getting a mortgage and you are wondering when to lock, the real answer was last Tuesday.  Wednesday and Thursday saw a combined drop of 74 basis points of the FNMA benchmark bond and it's being followed up by a 34 basis point drop over the last two days.  The reason is because there is so much speculation as to whether the Fed will raise the Fed Funds rate in December or wait until the 1st or 2nd FOMC meeting of 2016.  On the one hand, the last two meetings saw votes of 9-1 in favor of keeping rates the same.  If you read my blog with any regularity you know that we've had lots of mixed data with no real definitive positive direction for the economy.

Yesterday we got more data that is showing signs of a recovery with the ISM non-manufacturing index (service sector) coming in with a very strong reading of 59.1 vs. estimates of 56.5 - the service sector is about 2/3rds of our economy so this is big and the bond, which was up a bit before this data, retreated and closed down 16 basis points.  This morning we got three pieces of data that should, at the very least, provide support for the current bond price:  Initial Jobless Claims came in at 276K vs. estimates of 262K, 3rd quarter Unit Labor Costs came in much lower than the expected 2.2% at 1.4% and Non-farm Productivity was up 1.6% vs. estimates of .1%.  These last two readings are positive for keeping inflation in check but these alone are not enough to get the bonds to rally and help rates to move down.  The 10 year Treasury is on an upward trajectory and it's bringing mortgage bonds with it.  It's becoming more clear that an increasing number of bond traders think the Fed will begin raising rates in December.  If that does happen, the next big question will be by how much - .125% - .25% (a more normal move for the Fed) have both been talked about.

From a technical standpoint, the benchmark bond is at 103.63, 3 basis points below the 1st level of resistance / 100 day moving average.  The bond is not below all of our moving averages and the 1st support level is 103.28 - 35 basis points below where it is now.  While the RSI is indicating an oversold level, bond traders are probably more focused on the long bonds (10 year treasury) where the bet is for a rate hike in December.  But for some supportive data today, we may be seeing more selling on the way down to the next support level.  Like I said in my post on Tuesday, there is much more risk to the downside than there is potential for upside movement.  I would lock and play it safe.  If you are working with a lender that allows for float-downs, you might be able to take advantage of that but don't count on it.  Contact me if I can help with a pre-approval or anything else mortgage-related:  702-812-1214 or 801-853-8720.  Make it a great day.

Tuesday, November 3, 2015

Mortgage Bond Market Analysis - Tuesday Trading

Happy 2nd business day of the week.  With some slightly better-than-expected data yesterday the FNMA benchmark bond closed down one, 1, uno, un, ichi (whatever language you want) basis point.  This morning we had some data that barely missed expectations and we are down 7 basis points.  The RSI is getting really close to oversold but I'm not sure that will matter very much.  I think that the bond traders are thinking they are living on borrowed time.  The last two Fed votes came in at 9-1 in favor of leaving the Fed Funds rate unchanged yet the hawks are circling and squawking about how it's time to start raising rates.  The fact that we have been in a tight channel with a somewhat substantial downward move last week leads me to believe that traders are buying into the whispers of a Fed Funds increase in December.

In the game of musical chairs, you don't want to be the one standing when the music stops and you get the feeling that the traders are trying to maximize their profits while being able to have a seat when the music stops (Fed starts raising rates).  Certainly arguments can be made that the rate should probably stay where it is until sometime in 2016 when we hopefully see a real recovery - we see good data on occasion but some of the related data points don't back it up so it's quite nebulous at this point.  For instance, consumer confidence numbers have been quite high but consumer spending has been week.  In an economy that is truly recovering, consumers who have confidence, spend.  There are other things like this in the jobs sector as well as the building numbers.

Speaking of JOBS, it is JOBS week.  Tomorrow kicks off the jobs data with the ADP Private Payrolls report.  Thursday we get Jobless Claims, just like every week.  Friday we are blessed with Non-farm Payrolls and the Unemployment Rate.  We also get the ISM Non-manufacturing (Service Sector) Index and we get to hear from Janet Yellen tomorrow.  I would probably lock now and if the market improves, I would float down if your lender offers that option (we do).  There's more risk to the down side (and a greater likelihood of a sell-off) than there is potential for reward to the upside.  I'm here to help in any way I can.  I can be reached at 702-812-1214 or 801-853-8720.  Make it a great day.