We had quite a volatile day yesterday. MBS prices moved to the lows of the day immediately following the 10 year treasury auction and then ticked even lower following the release of the Fed statement an hour later. Many lenders did reprice for the worse as losses grew, pushing mortgage rates higher. However after market participants had time to review the Fed statement (more on that below) MBS prices moved off the lows of the day and managed to cloe just below opening levels. Since the gains occurred late in the day, lenders did not pass along the improvements which has allowed for improved rate sheets this morning.
The Federal Open Market Committee (FOMC or "Fed") completed their 2 day meeting yesterday with the release of the Fed statement. As expected, the Fed Funds Rate was kept unchanged at 0 to ¼ percent. The wording of the statement did change slightly from the prior statement 8 weeks ago.
Regarding the economy, they stated that “economic activity is leveling” signaling improvement from last statements view that “the pace of economic contraction is slowing.” This shift does not imply growth, rather, the worst case scenario for our economy has been avoided. They went further to state that “household spending remains constrained due to ongoing job losses, sluggish income growth”. This implies that the Fed is concerned that the consumer will be unable to lead the economy out of the recession.
As expected, they also announced that they will be ending Treasury purchases program in October which is one month beyond the initial end date for that program. Instead of abruptly ending the program they intend to gradually ease out. AQ wrote a great analysis of the Fed statement which you can read in Top News.
Let’s move on to whats moving markets today. First out this morning was weekly jobless claims. This data totals the number of Americans who filed for first time unemployment benefits in the prior week. Higher unemployment leads to less consumer spending which indirectly benefits MBS and lower mortgage rates. The U.S. Department of Labor reports that first time claims rose last week to a higher than expected 558,000 from a revised higher 554,000 last week. Economists expectation’s called for continued improvement in the labor sector with only 543,000 claims. The continuing claims which totals the number of Americans that continue to file due to lack of finding a new job dropped much more than expected by 141,000 to 6.202 million. The steep decline in continuing claims is being attributed to the expiration of benefits rather than people finding a job. Jobless claims appear to be leveling off but labor markets remain among the chief concerns of the Fed. READ MND STORY
The U.S Department of Commerce released the Retail Sales report for the month of July. The report shows that retail sales came in much lower than expected. Retail sales month over month fell 0.1% following the prior month’s 0.8% increase. This decline is well below the 0.8% increase that was expected. When excluding auto sales from the data, retail sales dropped 0.6% which is much worse than the 0.1% advance that was expected. This report takes a gas-powered hedge trimmer to the "green shoots," that many a pundit have used to describe the rapid recovery. A majority of our economy is driven by consumer spending and this report indicates that the consumer is still not spending which is positive for MBS and lower mortgage rates. READ MND STORY
Also out this morning is the U.S. Department of Labor’s Import and Export prices report. This report gives market participants a read on inflation but as the FOMC statement pointed out yesterday, inflation is not a concern and should remain that way for quite some time. Import prices fell 0.7% month over month following last month’s 3.2% increase. On a year over year basis, import prices are down 19.3% after the prior month’s read of -17.4%. Export prices posted a month over month decline of 0.3% and a year over year decline of 8.1% both reads lower than the previous month. This report indicates that deflation is a much greater risk than inflation.
At 1pm eastern, the Treasury Department will conduct its last auction of the week with $15billion of 30 year bonds up for sale. Our country finances a good portion of its spending by issuing debt. They can issue treasury bills which have a term of under 2 years, treasury notes which have terms of 2 to 10 years and treasury bonds which have terms over 10 years. Yesterday’s auction of 10 year notes was fairly successful with decent demand from overseas investors including central banks. Strong demand at this auction can help MBS to move higher in price which can result in lower mortgage rates. It is very common to see quite a bit of volatility leading up to and right after the auction. If you are currently floating an interest rate, the results of this auction can have a major impact on rate sheets. Adam and Matt will cover this in detail on the MBS Commentary blog, check it out.
Last week I brought to your attention that most lenders had issued statements that they will not take an appraisal that was ordered through now defunct lender Taylor Bean and Whitaker. This was going to force many consumers who had already paid for an appraisal when their loan was submitted to Taylor Bean to pay for another one when the loan is submitted to a new lender. Yesterday, a couple lenders reversed their decision and will now accept those appraisals. If you had a loan with Taylor Bean and our now resubmitting to a new lender, consult with your mortgage professional as to which lender to submit your loan to avoid paying for another appraisal, but of course, don't let an appraisal fee be your deciding factor if other aspects might offset that.
Early reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage is in the 5.125% to 5.375% range for the best qualified consumers. In order to secure a par interest rate you will be required to have a FICO credit score 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee. If your profile falls outside that range you will either have to take a higher interest rate or pay additional fees to secure the par rate. If you are seeking a government loan, FHA or VA, you should expect the rate to be anywhere from .125% to .25% higher. One advantage of government loans is you do not need a FICO of 740 to get the best rate.