Entries Tagged 'Mortgage Rates' ↓

The poor jobs report may be the catalyst for the Federal Reserve to stop raising interest rates and give the mortgage industry a chance to catch its breath and slow down a bit. The marketplace has been in turmoil as the Federal Reserve has been raising interest rates putting pressure on new borrowers and those in Adjustable Rate Loans (ARMs).

Since the Fed controls short term rates, a pause by the Fed means that adjustable loans will benefit the most from their likely neutral stance on rates. However, fixed rates might or might not see a benefit even though it is widely believed the Fed will pause raising rates on Tuesday.

Fixed rates are based on investors that trade Mortgage Backed Securities, it is these investors’ perception of inflation that controls the direction of fixed rate mortgages. These same investors will be more interested in the Fed’s statement than the pause in rate increases. If the Fed, in its statement, indicates that inflation is anything but under control fixed rates may in fact increase even though short term rates are held steady. Although we believe this scenario remote, it is possible and has occurred several times in recent history.

The bottom line - In our opinion a neutral statement by the Fed in conjunction with a pause in rate hikes will likely stabilize or slightly improve the market, Although unlikely, any indications that a pause will be temporary or not sustainable will likely result in higher rates. via OriginatorTimes.com.

This is just a little spooky. I bet there are a bunch of people who are expecting the housing bubble to pop hard to saying I told you so to this news.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.66%, up 0.05 percentage point from the previous week, and matching a four-year high touched two weeks ago. via USATODAY.com

 

 

 

 

Cash out refinancing has risen in the  first quarter of 2006 as refinancing for improved interest rates slowed to a crawl. People are  now looking on extracting some of the appreciation out of their  homes instead of trying to get a lower rate. Freddie Mac has come out with the new report on the trend.

In the first quarter of 2006, 88 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac’s quarterly refinance review. This percentage is up from the fourth quarter of 2005, when the share of refinanced loans that took cash out was a revised 81 percent, and is the highest since the third quarter of 1990.
“The share of all mortgages that were for refinance fell slightly in the first quarter of 2006 to 44 percent from 45 percent in the fourth quarter of 2005. Over that same period interest rates on all mortgages increased between 0.02 and 0.25 percent,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Almost no one is refinancing to reduce their interest rate in today’s environment. In fact, the first quarter of 2006 is the first time in 20 quarters in which the new mortgage rate was higher than the old one for more than half of refinancing borrowers. One reason why homeowners may be willing to increase the mortgage rate on their first-lien mortgage is because interest rates on most home equity lines of credit have been pushed up again as the Fed increased short-term interest rates in January and March, which in turn pushed up the prime rate. Home-equity loans are typically linked to the prime rate, which currently is at 7.75 percent, and many home equity loans have rates that are one percent or more above the prime rate. In contrast, the average rate on 30-year fixed-rate mortgages is presently near 6.5 percent. via Freddie Mac News Archive

The rising interest rates are forcing more and more homeowners to default on their mortgages and go into foreclosure according to the the Chicago Tribune today. Those in the midwest are being hit the hardest by the trend. If you are holding an adjustable rate mortgage you are looking at a huge increase in the cost of housing as your grace period expires and the mortgage starts adjusting.

Foreclosures across the U.S. have been hovering near historically low levels, as home prices have risen nearly 50 percent in five years. This appreciation enabled troubled borrowers to sell their homes relatively easily to resolve mortgage difficulties.

Now, a survey of the latest data confirms, that’s starting to change, with an uptick across the U.S. in foreclosure rates and late mortgage payments. But even the new higher rates of foreclosure and delinquencies are low in historical terms.

Nationally, the number of mortgage loans that entered some stage of foreclosure rose to 117,259 in February, up 68 percent from the same month a year ago, according to RealtyTrac, an online foreclosure data service in Irvine, Calif.

Delinquencies are up as well. Data provider LoanPerformance, a subsidiary of First American Real Estate Solutions, has reported that 3 percent of the most vulnerable loans, those made to borrowers with less than a stellar credit history, were 90 days delinquent in February. That’s up from 2.84 percent in February 2005.

Meanwhile, 90-day delinquencies for loans made to borrowers with better credit rose to 0.76 percent in February from 0.67 percent in the same month of 2005. via Chicago Tribune

According to John M. Reich, director of the Office of Thrift Supervision, speaking at the New York Bankers Association meeting recently, the mortgage industry is taking too many risks with their lending portfolios could be an unacceptable risk for the companies and the economy.

Non traditional loans are very prevalent in parts of the country as prices have hit levels that are unaffordable with conventional mortgages. Interest Only Mortgages and Adjustable Rate Mortgages are the norms in these areas. These loans work well in rising markets but can be extremely dangerous in periods of high interest rates or falling home prices.

Reich says the Feds don’t want to end the use of mortgage products that are clearly in demand, especially when some lenders have a track record of managing the loans’ inherent risks.
Instead the Feds seek to corral use of the loans and prevent them from falling into the hands of less sophisticated borrowers and others with weaker credit profiles.
To that end Reich said regulatory examiners are now “digging deeper” into loan portfolios to learn the level of risk lenders are facing. Examiners will scrutinize loan documentation, pricing, loan-to-value ratios, and overall underwriting standards.
“We continue to monitor overall operational costs, again, with close attention paid to costs attributable to prior build-ups in mortgage lending operations. In addition to our ongoing monitoring of interest rate risk, we are looking at credit risks, particularly with respect to nontraditional mortgage lending products,” Reich said.  via  the Realty Times

Higher mortgage rates are causing a slow down in the mortgage industry as experts have expected. The hot economy raising interest rates combined with parts of the country coming out of a housing bubble are all part of the slow down that has been expected in real estate sales. That combined with mortgage rates that are the highest in 3 years have caused the slowdown.

The Mortgage Bankers Association’s index of applications to buy a home or refinance an existing mortgage declined 5.5 percent to 579.4 from 612.8 a week earlier. The gauge of applications to purchase homes dropped 4.7 percent to 417.7.
Higher mortgage rates and a decline in speculative purchases may cause home sales to fall this year for the first time since 2000, said Anthony Chan, chief economist at JPMorgan Chase & Co.’s private client services group in Columbus, Ohio.
“The housing market is clearly slowing down,” Chan said before the report. “Now that the mortgage rates are going up, you may see people getting really, really scared.”

Bloomberg.com: U.S..

It looks like people are trying to get into new mortgages before any further increases are on the horizon. Countrywide saw a significant increase in newly funded mortgages for March, 2006 in year over year numbers. This must have the mortgage companies breathing easier.

Countrywide Financial Corp.  reported mortgage loan fundings for March of $40 billion, up 10% from the year-ago period, and up 29% from last month. For the first quarter, the company stated that mortgage loan fundings were up 13% to $103 billion from the prior year period.
According to the company, the mortgage loan servicing portfolio totaled $1.15 trillion at March 31, 2006, up 29% from March 31, 2005. via Trading Markets.