So far this morning, mortgage backed securities (MBS) are holding steady, slightly higher than closing levels from Friday. This should allow lenders to pass along par 30 year conventional rate mortgages in the 4.625% to 4.875% range for the best qualified consumers. These consumers must have a FICO credit score of 740 or higher, loan to value at 80% or under, not accessing any home equity and be willing to pay all closing costs and one point.
For consumers looking to tap into your home equity expect to pay higher fees or accept a higher interest rate. For example, a consumer with a 750 FICO score and pulling equity out to 80% of the appraised value will have to pay an additional fee of .50 of the loan amount or take an interest rate about .125% higher than par. For a consumer with a 690 FICO score and pulling equity out to 80%, they will have to pay an additional fee of 2.875% of the loan or accept a rate about .50% higher than par. So, if loan amount is $200,000 this new fee is $5750. These new fees are part of the Loan Level Price Adjustment (LLPA) that was implemented by both Fannie Mae and Freddie Mac.
Onto the data for the week.
Today, we get the release of Leading Indicators. This report is designed to forecast the strength of the economy 6 to 9 months into the future. This is a forward looking report which tends to carry more weight with investors versus backward looking reports; however, most of the data is released via individual reports beforehand which soften the affect of this report. Economists are looking for a reading of -0.3% following last months -0.4%. The report was just released coming in right on expectations.
- Mortgage Bankers’ Association Purchase Applications, which measures the amount of applications at mortgage lenders. This report is a leading indicator of future home sales and housing construction. Since housing is a large part of our economy, this report gives a gauge for both demand for housing and economic momentum. Better than expected numbers generally helps the stock market which is a negative for MBS and mortgage rates.
- Jobless Claims, this report is released weekly and shows the number of US citizens who filed for unemployment insurance for the first time. As part of the release we get continuing claims which measures the amount of people who continue to file for unemployment insurance. Expectations are for 636,000 first time filers following last weeks surprisingly improved level of 610,000. Continuing claims continues to set new all time high records of more than 6 million Americans still looking for work.
- Existing Home Sales which measures the number of existing homes that actually sold during the month. The expectations are for a reading of an annual pace of 4.70million which would be slightly lower than the previous months pace of 4.72million.
- We also get to know the amount of treasuries that the US government intends to auction in the near future. With the added supply of debt announced, it could pressure treasury yields higher which might cause mortgage rates to follow. While on the subject of treasuries, over the weekend treasury yields were pressured lower and the benchmark 10 yr Treasury is currently trading at a 2.85 yield after closing last week over 2.90.
- Durable Goods Order which shows the number of new orders placed with domestic manufacturers for immediate and future delivery. Durable goods are items that are going to be used for 3 years or longer such as automobiles or large appliances. If this report is showing durable goods orders increasing, that is an indication that factories will be busier in the months ahead which leads to economic growth. Since this report is forward looking, it is highly important to investors for a gauge into future economic growth. MBS prefer more moderate growth, so they tend to rally with a lower than expected reading. Last month this report showed durable orders up 3.4% and is expected to show this month a decline of -1.8%.
- New Home Sales which measures the amount of newly constructed homes that have a sold the prior month. Economists are expecting this report to show an annual pace of new home sales to have fallen even lower to 330,000 after last months pace of 337,000. Just a few years ago, July of 2005, this report showed an annual pace of new home sales at 1.41 million, how far we have fallen.
While on the subject of home sales, I would love to hear from our readers. Interest rates are at all time lows, and property values have to be near a bottom. How many of you have been waiting to buy a new home and when do you plan on pulling the trigger? If you plan to stay on the sidelines, what are you waiting on? Is job security an issue, are you thinking property values will continue to decline, do you think rates will fallen further? I would love to hear your thoughts on this subject.
Early reports from fellow mortgage professionals are showing mortgage rates slightly worse than Friday by about .25 in discount. This will allow most lenders to offer 4.625% to 4.875% as their par interest rate.
Since the release of leading indicators at 10am eastern, MBS have started to improve. The stock market looks to be taking it on the chin and is currently down almost 200 points. If the stock market remains at this level or sells off further, MBS and Treasuries should see some benefit due to the flow of money. Investors sell stocks and move money into fixed income. So far the biggest winner of the day is treasuries with the benchmark 10 yr now up almost a full point to a yield of 2.84.
For intraday updates on the movement of MBS and mortgage rates, please click over to the MBS Commentary.