The cup overflowed with an assortment of economic data last week. Of most interest to mortgage watchers were the disappointing data on inflation. The producer price index for finished goods rose 1.1% in March, after a 0.3% increase in February, while the core index, which excludes food and energy, climbed 0.2% after rising 0.5% in February and 0.4% during January.
The data were equally disconcerting on the consumer end, where prices rose 0.3%, exceeding most economists' expectations. Stripping out volatile food and energy costs, the core consumer price index gained 0.2%. Inflation pressures are being stoked by rocketing crude oil prices, which broached $115-a-barrel last week, and increased food costs as commodity prices around the world continue to soar.
Surprisingly, the mortgage market's reaction to the inflation threat was upbeat, which suggests inflation may not be as onerous as the PPI and CPI numbers would imply. The benchmark 30-year fixed-rate mortgage rose only seven basis points to 6.03%, the 15-year fixed-rate mortgage rose nine basis points to 5.65%, and the 5/1 adjustable-rate mortgage actually fell 10 basis points to 5.85%, according to the Bankrate.com national survey.
Housing starts fell to a 17-year low in March – a decline that exceeded the consensus estimate twice over. However, given the current overhang in housing inventory, it's far better for housing starts to be low than high. Suppliers must reduce inventory to return some semblance of order to the market, and housing starts suggest that's occurring.
A glass-half-full spin could also be applied to the news that Freddie Mac is planning on buying $10 billion to $15 billion in jumbo mortgages in an effort to counterbalance the upper-end housing market. Freddie Mac used to be restricted from buying jumbo loans – mortgages above $417,000. Thanks to Congress, the new limit now exceeds $729,000 in many areas. Freddie Mac's move to purchase larger loans will grant home buyers cheaper rates than they would have otherwise received.
Eric P. Egeland
RE/MAX Advanced
847-337-7090
HomesInBG.com
Showing posts with label mortgage news. Show all posts
Showing posts with label mortgage news. Show all posts
Monday, April 21, 2008
Sunday, April 6, 2008
Weekly Mortgage Recap
Recession or no recession? That was last week's $64,000 question, and it appears we are listing toward the former. Federal Reserve Chairman Ben Bernanke acknowledged as much, stating that “it now appears likely that real gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly.”
Friday's labor report added gravitas to the Fed chairman's sentiments. Government figures showed the economy lost jobs for a third straight month in March, pushing unemployment up to 5.1%. The elimination of 80,000 jobs was the most since March 2003, when the labor market was still struggling to recover from the 2001 recession. Some professional soothsayers are now portending a 5.5% unemployment rate by year's end (of course, many of these soothsayers are no more accurate than a random coin flip).
Meanwhile, Fannie Mae – the quasi-government agency that buys and securitizes mortgages – continues to up the ante, setting new rules on what mortgages it will buy. On that front, Fannie Mae will no longer purchase loans made to borrowers with credit scores below 580, nor will it purchase loans that have been more than 60 days past due within the year.
Fannie Mae is also correlating fees to credit scores. (It already correlates interest rates to them.) The good news is that fees will drop for borrowers with credit scores of 720 and above. The bad news is that fees double to 1.5% of the loan amount for borrowers with credit scores between 660 and 680. For borrowers with credit scores below 660, fees are even higher.
Higher fees, interest rates, and a non-existent subprime market are making FHA-insured loans a viable alternative for many borrowers with marginal credit. Yes, there is an upfront fee of 1.5% of the loan amount, which can be rolled into the mortgage, and there's a monthly fee too, but FHA doesn't charge a higher premium to borrowers with low credit scores.
Eric P. Egeland
RE/MAX Advanced
847.337.7090
HomesInBG.com
Friday's labor report added gravitas to the Fed chairman's sentiments. Government figures showed the economy lost jobs for a third straight month in March, pushing unemployment up to 5.1%. The elimination of 80,000 jobs was the most since March 2003, when the labor market was still struggling to recover from the 2001 recession. Some professional soothsayers are now portending a 5.5% unemployment rate by year's end (of course, many of these soothsayers are no more accurate than a random coin flip).
Meanwhile, Fannie Mae – the quasi-government agency that buys and securitizes mortgages – continues to up the ante, setting new rules on what mortgages it will buy. On that front, Fannie Mae will no longer purchase loans made to borrowers with credit scores below 580, nor will it purchase loans that have been more than 60 days past due within the year.
Fannie Mae is also correlating fees to credit scores. (It already correlates interest rates to them.) The good news is that fees will drop for borrowers with credit scores of 720 and above. The bad news is that fees double to 1.5% of the loan amount for borrowers with credit scores between 660 and 680. For borrowers with credit scores below 660, fees are even higher.
Higher fees, interest rates, and a non-existent subprime market are making FHA-insured loans a viable alternative for many borrowers with marginal credit. Yes, there is an upfront fee of 1.5% of the loan amount, which can be rolled into the mortgage, and there's a monthly fee too, but FHA doesn't charge a higher premium to borrowers with low credit scores.
Eric P. Egeland
RE/MAX Advanced
847.337.7090
HomesInBG.com
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