The roller coaster theme of recent weeks continues. Yesterday mortgage backed securities were unable to hold onto impressive early morning gains following weak demand at the 2 yr Treasury note auction. After the results were announced MBS gave back all the gains that had been built up in the first half of the trading session. Most lenders passed along better rate sheets just before noon eastern, but took back the gains a couple hours later, bringing mortgage rates back to status quo on the day. We do get another round of auctions today and tomorrow so be prepared for the possibility that the road ahead will remain bumpy.
We do have some economic data today that will move investor money in the markets. First out this morning is the weekly Mortgage Bankers’ Association application index which tracks the weekly change in mortgage applications at major lenders. An increasing trend is a positive sign for the economy as more home purchases leads to other major purchases which is good for the overall economy. Recent home sales data has hinted at a bottoming in home prices but this report is yet to show signs of improvement. Week over week, the purchase activity was unchanged while the refinance activity posted a 11% decline. Historically, this report is not a major market mover but does give market participants a gauge into housing demand and overall economic momentum. Many economists believe that until housing starts to stabilize and show signs of improving it will be very difficult for our economy to rebound. READ STORY
The U.S. Department of Commerce has released the monthly Durable Goods orders report. Most economic indicators tell us what happened in the past. Durable goods orders tells us what might happen in the future. Specifically the Durable Goods orders provides an indication of what manufacturing production will take place in upcoming months. When interpreting the orders for factory goods.... a jump in orders indicates factories will remain busy....a fall in orders indicates contracting production. A persistent decline in factory orders is an omen that assembly lines may soon slow to the point that less labor is needed to fulfill production demand. This can lead to laying off workers and possibly even closing down plants.
This data set reports on the month over month change of new orders placed at domestic manufacturers. Durable Goods are products that have a life expectancy of at least three years (cars, computers, machinery). May's report came in unexpectedly strong at a month over month revised increase of 1.3% following a 1.4% rise in April. Economists were expecting the June report to indicate a 0.5% decline in orders, however when the data printed market participants were surprised to see a much larger 2.5% decline. This is the largest monthly decline since January. On a year over year basis, durable goods orders are down a whopping 26.8%. Not all the news from this report is negative for the economy. When excluding transportation orders, the report has indicated a month over month rise of 1.1%, following last month’s 0.8% gain, so there are some signs that specific sectors are stabilizing. READ STORY
The last major market event scheduled to take place today is a 1pm U.S. Department of Treasury auction. The Treasury will offer up $39billion 5 year notes. Since the supply is known in advance, the most important aspect will be the demand for the securities. A successful auction will have a high bid to cover ratio and strong demand from indirect bids. Yesterday’s weak 2 year note auction resulted in MBS giving back most of the early morning gains. Today is starting very similar to yesterday in that a bad economic report is leading to early morning gains in MBS, let’s hope that today’s auction is met with better demand so we can keep these gains! Matt and AQ will cover the auction in detail on the MBS Commentary blog.
I have received many emails from readers regarding the length of time lenders are taking to underwrite and approve loan applications. In times past, lenders would underwrite a loan in 24 to 48 hours but recently those times have increased dramatically. Some lenders turn times had increased to weeks with one lender currently taking over 40 days! Since the beginning of the year, lenders have been increasing staff to handle the massive amount of refinances and loan modifications and just now we are starting to see turn times come back to normal levels. Most lenders today are underwriting and sending out conditional approvals in under 4 days. Make sure you consult with your mortgage professional on the turn times at the lender your loan is submitted. Some lenders are still very back logged and taking much longer than normal to approve your loan so you need to make sure you lock your rate with enough time to allow for any delay. Also, slowing down the process is the new HVCC regulation which we discussed on Monday and the upcoming changes to the Truth in Lending Act which I discussed in yesterday's blog post. Are you experiencing lender delays?
Early reports from fellow mortgage professionals are indicating that 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 for a par rate 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. If you fall outside that criteria you can either choose to take a higher interest rate or pay additional fees to secure the par rate. If you are accessing home equity, your rate will be slightly higher or you will have to pay additional fees due to the Loan Level Price Adjusters initiated by Fannie Mae and Freddie Mac.