Lower FHA premiums to fuel home buying in 2015
In a move designed to bring more first-time homebuyers into the housing market, the Federal Housing Administration (FHA), the government insurer of home loans, will lower its annual insurance premiums from 1.35 percent to 0.85 percent.
Mortgage bankers praised the decision. “It couldn’t come at a better time,” said David Stevens, CEO of the Mortgage Bankers Association. “February is the beginning of the spring market. I think it will have a definitive impact particularly in the first-time homebuyer market.”
For the typical FHA applicant, the reduction in premiums means a savings of about $80 on their monthly payment, according to CoreLogic’s chief economist, Sam Khater.
The FHA had been the only low down payment product available, with a minimum 3.5 percent down, but recently Fannie Mae and Freddie Mac announced a new 3 percent down payment product that would require private mortgage insurance. The product would compete directly with the FHA and could have offered some borrowers a cheaper option if they had a good credit score. But many applicants that would qualify under FHA’s credit and debt-to-income guidelines would not have been approved for the new Fannie and Freddie programs, so this move by FHA will add more purchasers into 2015.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) gained +87 basis points (BPS) from last Friday’s close which caused 30 year fixed mortgage rates to move lower from the prior week, to their lowest levels in history. Wed our best rates on Tuesday and our worst rates on Monday.
It was our full week with all the traders back from vacation and we reached a new all time high on Tuesday.
One of the biggest stories of the week were falling oil prices as WTI Crude Oil dropped from $52.61 per barrel down to $48.21 per barrel. This longer-term trend of oil prices falling is very anti-inflationary and therefore positive for long-bonds in the short term and helped your mortgage rates decline.
Our benchmark FNMA 3.0 coupon reached its highest price ever (therefore lowest mortgage rates ever) on Tuesday after the weaker than expected ISM Services report was released. This was coupled with the perfect storm of light volume as much of the global market was on holiday and concerns over a Greek exit from the Eurozone gained momentum.
The two biggest domestic events of the week were the release of the minutes from the last Federal Reserve meeting and Friday’s Non-Farm Payroll report.
FOMC minutes from the last December meeting:
– Could hike rates based upon current core level of 1.4% as long as it appears that inflation is on its way up.
This is key as before their stance was that inflation had to hit 2% before they would act…so they are leaving the door open.
– Said rate hikes “unlikely” for the next couple of meetings which puts April as the soonest that they could raise.
– As for the economy, FOMC members saw upside risks, with lower oil prices and labor market improvements providing a lift.
– The officials saw global weakness as the main threat to continued U.S. economic growth.
Overall this was right along the lines of what Janet Yellen said at her live press conference and did not have a material impact on rates.
December Non-Farm Payrolls (NFP) came in at 252K vs est of 240K, this is better than expected but not by enough to drive pricing by itself. The real movement in pricing was the fact that the November NFP was revised upward from 321K to 353K…the market was concerned that this blockbuster reading in November was an anomaly and would be revised back down below 300K…but it was not a fluke..it held and was revised upward. In all, November and October NFP were revised upward by 51K. This is what drove MBS pricing downward from their weekly highs. The Unemployment Rate dropped from 5.7% to 5.6% which is not a big deal considering the participation rate also dropped which heavily influences this number.
The lone disappointment was a reduction is average hourly earnings which fell -0.2% vs est of +0.2%, if it weren’t for this piece of weakness, MBS would have sold off a lot more.
What to Watch Out For This Week:
|Date||Time (ET)||Economic Release||Actual||Market Expects||Prior|
|13-Jan||10:00 AM||JOLTS – Job Openings||–||NA||4.834M|
|13-Jan||2:00 PM||Treasury Budget||–||$3.0B||+$53.2B|
|14-Jan||7:00 AM||MBA Mortgage Index||–||NA||11.10%|
|14-Jan||8:30 AM||Retail Sales||–||0.10%||0.70%|
|14-Jan||8:30 AM||Retail Sales ex-auto||–||0.10%||0.50%|
|14-Jan||8:30 AM||Export Prices ex-ag.||–||NA||-1.20%|
|14-Jan||8:30 AM||Import Prices ex-oil||–||NA||-0.20%|
|14-Jan||10:00 AM||Business Inventories||–||0.30%||0.20%|
|14-Jan||10:30 AM||Crude Inventories||–||NA||-3.062M|
|14-Jan||2:00 PM||Fed’s Beige Book||–||NA||NA|
|15-Jan||8:30 AM||Initial Claims||–||293K||294K|
|15-Jan||8:30 AM||Continuing Claims||–||2400K||2452K|
|15-Jan||8:30 AM||Core PPI||–||0.10%||0.00%|
|15-Jan||8:30 AM||Empire Manufacturing||–||7||-3.6|
|15-Jan||10:00 AM||Philadelphia Fed||–||19||24.3|
|15-Jan||10:30 AM||Natural Gas Inventories||–||NA||-131 bcf|
|16-Jan||8:30 AM||Core CPI||–||0.10%||0.10%|
|16-Jan||9:15 AM||Industrial Production||–||0.00%||1.30%|
|16-Jan||9:15 AM||Capacity Utilization||–||80.00%||80.10%|
|16-Jan||9:55 AM||Mich Sentiment||–||94.1||93.6|
|16-Jan||4:00 PM||Net Long-Term TIC Flows||–||NA||-$1.4B
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.