After opening to the downside yesterday morning, mortgage backed securities recaptured most of the early losses allowing some lenders to reprice for the better by day's end.  Matt and AQ inform me that trading volume was well below average, indicating that the market is waiting for direction.  Leading the way for future mortgage rate fluctuations is the stock market. Remember: lower stocks force a flight to safer assets like benchmark Treasuries, which in turn help MBS prices move higher, allowing lenders to offer lower mortgage rates. 

First out this morning was the S&P/Case Shiller home price index.  This report tracks the monthly change in the value of single family home resales of residential real estate in 20 metropolitan regions across the U.S.   Since the home is the largest investment for most consumers, the value of the home affects the psychology of the consumer.  If home values are increasing, the home owner might be more willing to spend money but if home prices are falling they are more likely not to spend.   Additionally, increasing home values encourages new construction which leads to more jobs.   Many economists believe that until home values stabilize, our economy will have a difficult time breaking out of the current recession leading to economic growth.  The report has indicated for the first time in three years month over month prices rose in the 20 metropolitan regions by 0.5% in May from April and the year over year decline is easing to -17.1% when earlier this year it was at -20%.  This is good news for the housing market, but yesterday’s new home sales (new construction) posted a month over month decline of over 5%!  For the complete Case Shiller report including insight on the seasonally adjusted here.

The final economic release today is Consumer Confidence. This data set is based upon a survey of 5000 households. Consumers are surveyed on their attitudes regarding their present financial conditions and economic outlooks.  An optimistic consumer is more likely to spend while a pessimistic consumer is more likely to save.  Since our economy is driven by consumer spending, the equities market tends to rally with a better than expected number.  Last month’s report did disappoint coming in lower than expected at 49.3 and expectations for this month are for 50.0 reading.  Prior to June’s decline this data set had posted notable improvements helping to spark the green shoots theory of a quick economic recovery which applied pressure on mortgage rates to move higher.  July’s reading came in lower than expected at 46.6.   This is the second month in a row that consumer confidence has slipped.  It appears that the recent rise in gas prices and the continuing struggle of the labor market is having a toll on consumers. READ FULL STORY

At 1pm eastern, the U.S. Department of Treasury will auction $42billion of 2 year notes.  The added supply of debt will pressure treasury yields higher.  Since the supply is already know, the more important aspect will be the demand at the auction.  Strong demand, especially from indirect bids (foreign accounts) is a sign of a successful auction.  For MBS to continue to improve today, they will need the auction to be successful.  Matt and AQ will cover the auction in detail on the MBS Commentary blog.

There is some new government regulation which may impact the closing date of new home purchases and refinances that takes effect at the end of this month.  The Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) were passed by Congress to add further regulations on the Truth in Lending Act.  These new regulations are to provide greater transparency, and to protect consumers from deceptive lending practice.   There are four key elements you should know. 

First, your home purchase can be delayed.   Normally, the buyer and seller agree on a closing date and your lender would make all attempts to have your loan processed, closed and funded by that date.  This new regulation sets the earliest any purchase loan can close to 7 business days after the homebuyer is issued their initial mortgage disclosures.   Business days do not include weekends or holidays.  This part of the regulation is not a major issue as most loans will take longer than 7 business days to complete but it may impact some sales and delay the closing. 

Next, upfront fees can no longer be collected by the lender except for a credit report fee.  Many lenders charge a upfront fee to do the loan application, I personally have never charged this fee, but they will no longer be able to collect this money up front.  Now, any fees that are collected can only be collected after the homebuyer or home owner in case of a refinance has received the initial disclosures.  I applaud this rule as it prevents a lender from charging a several hundred dollar fee up front to do loan application even though they do not know whether the applicant will qualify.

Third, the home buyer/home owner must be provided a copy of the home appraisal a minimum of three business days prior to closing.  This should have no impact on the closing but will provide the applicant information before closing regarding the value of the home. 

Finally, there will be a change in the disclosing of the truth in lending statement.   When  you initial apply and receive loan disclosures, you get a copy of the truth in lending statement which lets you know the annual percentage rate of your loan.  The annual percentage rate (APR)is not the actual interest rate you are paying rather it includes the costs of the loan transaction into the rate so you can compare one offer against another.  If the APR increases by more than .125% from the initial truth in lending (TIL) disclosure, it is now required that a new TIL be sent to the applicant for review at least 3 business days before the closing.  This will provide the applicant time to review to make sure that the costs and rate quoted initially are the same as the final numbers.   Many things occur throughout the process of finalizing the transaction so this new rule can delay the closing.  For example, you might be quoted a rate but instead of locking you decide to float.  If rates move higher and you lock at the new rate, you will now have to receive the new TIL and wait 3 business days to close.   This part of the legislation can have an impact on your closing which might result in lock extensions which increases consumer costs.  Also, when setting closing dates for a new home purchase you might have to allow more time than the customary 30 days which might make the typical contract date extend to 45 days.  The best way to expedite your close is to lock in a rate and closing costs early.

Reports from fellow mortgage professionals are indicating that mortgage rates are improved this morning.  The par 30 year conventional rate mortgage is in the 5.00% to 5.25% range for the best qualified consumers.  In order to qualify you must have a FICO credit score of 740 or higher, a loan to value of 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.  You may elect to take a higher interest rate with reduced costs.  For consumers electing to access home equity, you should expect either a higher interest rate or increased costs.