What's Ahead For Mortgage Rates This Week : March 19, 2012

Mortgage markets worsened last week as the Federal Reserve's Federal Open Market Committee suggested economic recovery may be closer than it originally expected, and that inflation may be a near-term economic concern.

Although the FOMC voted to leave the Fed Funds Rate unchanged in its current range near 0.000 percent, its published comments sparked a broad-based mortgage bond selloff.

Conforming mortgage rates throughout Utah rose sharply post-FOMC, climbing by as much as 0.375%.

If you've been shopping for a mortgage rate, the run-up was both untimely and unwelcome.

According to Freddie Mac's weekly mortgage rate survey, for most of the year, conforming 30-year fixed rate mortgage rates had remained within a tight range near 3.90 percent for mortgage applicants willing to pay an accompanying 0.8 discount points.

This week, though, Freddie Mac is expected to report average 30-year fixed rate mortgage rates well north of four percent. It would mark the highest level for the benchmark mortgage rate since mid-December of last year.

There will be a lot more for rate shoppers to watch this week, too. There is a slew of housing data set for release and the heavily-anticipated HARP 2.0 Refinance program "goes live" nationwide.

HARP is a government-led refinance program meant to help underwater homeowners refinance their Fannie Mae- or Freddie Mac-backed mortgages into new loans at today's low rates.

The program was first launched in 2009 and helped roughly one million U.S. homeowners. HARP's newest iteration, though, provides for a more lenient underwriting process that is expected to open the program to an additional 6 million homeowners or more.

Mortgage rates may rise this week as a result of HARP-based loan volume. It may also rise on strength in housing -- there are four data points due for release :

• Monday : Housing Market Index
• Tuesday : Housing Starts
• Wednesday : Existing Home Sales
• Friday : New Home Sales

As in most weeks, it's less risky to lock a mortgage rate than to float one. Mortgage rates have much room to climb but very little room to fall. If you're not yet locked, talk to your loan officer and make a plan.

Foreclosure Volume Slated To Rise This Spring

After a series of months during which foreclosure volume was low, total filings have started to rise again, says RealtyTrac. 

In February, 21 states posted a year-over-year increase in monthly foreclosure filings, according to the national foreclosure-tracking firm. This is nearly twice as many states as compared to December 2011, marking the highest monthly reading since November 2010.

A "foreclosure filing" is defined to include any one of the following foreclosure-related events : (1) The serving of a default notice, (2) A scheduled home auction, or (3) A bank repossession.

Nationally, the number of foreclosure filings fell 2 percent from January. However, it's a trend that may reverse. Foreclosure volume is expected to rise over the next few months.

This is because the $25 billion mortgage servicer settlement provides a framework for servicers to execute necessary foreclosures, from notice-to-auction. Some analysts believe that foreclosure filings were artificially depressed in 2011 because of the absence of such guidance. 

Like all things in real estate, though, foreclosures remain local.

For example, nationally, there was one foreclosure for every 637 housing units. On a state-by-state basis, however, the results looked different.  

• Nevada : 1 foreclosure for every 278 housing units
• California : 1 foreclosure for every 283 housing units
• Arizona : 1 foreclosure for every 312 housing units
• Georgia : 1 foreclosure for every 331 housing units
• Florida : 1 foreclosure for every 341 housing units

Even on a city-by-city level, foreclosure concentration varied. Figures from several select cities include : 

• Atlanta : 1 foreclosure for every 244 housing units
• Chicago : 1 foreclosure for every 302 housing units
• New York : 1 foreclosure for every 3,439 housing units
• Seattle : 1 foreclosure for every 1,229 housing units
• Washington : 1 foreclosure for every 1,198 housing units

One reason why foreclosure concentration is worth tracking is because homes in various stage of foreclosure are often sold at deep discounts as compared to similar, non-distressed homes. It's no wonder foreclosed homes are in high demand among today's Salt Lake City home buyers. 

However, if you plan to buy a foreclosure in Utah , be sure to work with an experienced real estate agent. Foreclosed homes are often sold "as-is", and may be defective at best and uninhabitable at worst. It makes good sense to have an advocate on your side to help with contracts and inspections.

Mortgage Rates Climb Sharply After Retail Sales Report

The U.S. economy is expanding, fueled by a renewed consumer optimism and increased consumer spending.

As reported by the Census Bureau, Retail Sales in February, excluding cars and auto parts, rose 1 percent to $335 billion as 11 of 13 retail sectors showed improvement last month.

February markets the 19th time in twenty months that U.S. Retail Sales increased on a month-over-month basis.

Unfortunately, what's good for the economy may be bad for Salt Lake City home buyers and mortgage rate shoppers. Home affordability is expected to worsen as the U.S. economy improves.

The connection between Retail Sales and home affordability is indirect, but noteworthy -- especially given today's broader market conditions.

First, let's talk about affordability.

Last week, the National Association of REALTORS® released its monthly Housing Affordability Index, showing that homes are more affordable to everyday home buyers than at any time in recorded history. For buyers with median earnings buying median-priced homes, monthly payments now comprise just 12.1% of the monthly household income.

The real estate trade group considers 25% to be the benchmark for home affordability. Today's payment levels are less than half of that.

The reasons why today's homes are so affordable are three-fold :

1. Home prices remain relatively low as compared to peak pricing
2. Fixed- and adjustable-rate mortgage rates remain near all-time lows
3. Average earnings are increasing nationwide

Rising Retail Sales, however, can derail the trend. This is because Retail Sales measures consumer spending and consumer spending accounts for roughly 70 percent of the U.S. economy. As the economy expands, the forces that combined to raise home affordability so high begin to wane. 

First, in a recovering economy, mortgage rates tend to rise and, throughout 2012 and 2013, home prices are expected do the same. Second, as average earnings increase, it can spur inflation which is bad for mortgage rates, too. 

Home affordability is at all-time highs today. But, in part because of February's Retail Sales data, we should not expect these levels to last. Mortgage rates are higher by 1/4 percent since the Retail Sales data was released -- roughly $16 per $100,000 borrowed -- and are expected to rise more throughout the spring home purchase season.

Retail Sales are up 6 percent from a year ago.

A Simple Explanation Of The Federal Reserve Statement (March 13, 2012)

Tuesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

For the fourth consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. It is expected to remain near-zero through 2014, at least.

In its press release, the Federal Reserve noted that the the U.S. economy has "expanded moderately" since the FOMC's January 2012 meeting, adding that growth is occurring despite "strains in the global financial markets" that pose "significant downside risks" to long-term outlooks.

The Federal Reserve now expects moderate economic expansion through the next few quarters and a gradual easing in the national Unemployment Rate.

The Fed also noted that :

1. The housing sector remains "depressed"
2. Labor conditions have "improved further"
3. Household spending has "continued to advance"

With respect to inflation, the Fed said that rising oil and gasoline prices will "push up" inflation temporarily, but not over the long-term.

At its meeting, the Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs. The Fed re-affirmed its intentions to hold the Fed Funds Rate at "exceptionally low" levels through late-2014, and to buy mortgage-backed bonds in the open market.

Immediately following the FOMC's statement, mortgage markets worsened slightly, pressuring mortgage rates higher in and around Salt Lake City. 

The FOMC's next scheduled meeting is a two-day event slated for April 24-25, 2012.

The Fed Meets Today : Protecting Your Housing Payment

The Federal Open Market Committee meets today, its second of 8 scheduled meetings this year. As a home buyer or would-be refinancing household in Avenues , get ready for changing mortgage rates.

The Federal Open Market Committee is the 12-person sub-committee within the Federal Reserve that votes on the nation's monetary policy. Led by Federal Reserve Chairman Ben Bernanke, the FOMC's most prominent role is as steward for the Fed Funds Rate.

The Fed has said repeatedly that it intends to keep the Fed Funds Rate near 0.000 for an "extended period of time", through 2014 at least.

Unfortunately, this doesn't mean that Salt Lake City mortgage rates will remain low as well. Mortgage rates are not set by the Federal Open Market Committee. Mortgage rates are set by Wall Street.

As proof that the Fed Funds Rate is distinct from mortgage rates, consider that, since 2000, the difference between the Fed Funds Rate and the average, 30-year fixed rate mortgage rate has been as wide as 5.25% and as narrow at 0.50%.

If the Fed Funds Rate was tied to mortgage rates, the chart at right would be linear.

That said, the FOMC can influence mortgage rates. 

After its meetings, the FOMC issues a standard press release to the public which reflects the group's overall economic outlook. When the FOMC statement is generally "positive", mortgage rates tend to rise in response. This is because investors often assume more risk in an improving economy and this can harm bond market prices -- including those for mortgage-backed bonds.

Conversely, when the Fed is generally negative in its statement, mortgage rates can improve.

Since the FOMC's last meeting, there has been little about which to be negative with the U.S. economy. Housing and manufacturing are improving; employment is higher; and global markets are regaining their respective footing. The Fed may make note of it. Or, it may not.

Regardless, mortgage rates are expected to move so consider locking your mortgage rate ahead of today's 2:15 PM ET statement.

There too much risk in floating.

What's Ahead For Mortgage Rates This Week : March 12, 2012

Mortgage markets were mostly unchanged last week despite a series of positive developments. In addition to Greece successfully reaching a deal with its private creditors, the U.S. economy turned out strong reports -- most notably with respect to Non-Farm Payrolls.

In February, the U.S. economy added 227,000 new net jobs and the figures from December and January were revised higher by an additional 61,000. It marked the 16th straight month of job gains nationwide.

The Unemployment Rate held unchanged at 8.3%.

Conforming mortgage rates in Utah improved slightly last week and mortgage rates continue to hover near all-time lows.

According to Freddie Mac, the average 30-year fixed rate mortgage nationwide is now 3.88% for Salt Lake City mortgage applicants willing to pay 0.8 discount points and a full set of closing costs.

1 discount is equal to 1 percent of your loan size.

Freddie Mac also reported the 15-year fixed rate mortgage at its lowest level in history. The average 15-year fixed rate mortgage fell to 3.13% with an accompanying 0.8 discount points. This is more a full percent lower as compared to March 2011.

This week's big event is the Federal Open Market Committee's second scheduled meeting of the year. Whenever the FOMC meets, mortgage rates can change in a hurry.

The FOMC is a subcommittee within the Federal Reserve, the U.S. government's monetary-policy making group. Since 2008, the Federal Reserve has held its benchmark Fed Funds Rate near 0.000%. It's not expected to raise that rate Tuesday. However, just because the Fed Funds Rate won't change, that doesn't mean mortgage rates won't.

This is because the Fed doesn't set mortgage rates, but it does influence them. Market will read the Fed's post-FOMC press release Tuesday for hints of new policy or economic growth. If the statement shows more optimism for the economy than expected, mortgage rates are expected to rise. 

Conversely, if the Fed shows pessimism for the U.S. economy, rates are expected to fall.

Other economic events this week include the releases of Retail Sales, Producer Price Index, and Consumer Price Index; plus three high-profile treasury auctions.

FHA Drops Upfront Mortgage Insurance Premium To 0.01% For Qualified Borrowers

The FHA is making more changes to its flagship FHA Streamline Refinance program.

Beginning mid-June 2012, certain current, FHA-backed homeowners will be able to refinance their existing FHA mortgage into a new one, without having to pay the government-backed group's new, costly mortgage insurance premium schedule.

Earlier this week, the FHA rolled out its new MIP schedule.

Beginning April 9, 2012, new FHA mortgages are subject to a 1.75% upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium of up to 1.25% for loan sizes up to, and including, $625,500; or 1.60% for loan sizes exceeding $625,500.

Upfront MIP is typically added to the loan size as a lump sum. Annual MIP is paid via 12 monthly installments. Both add to the long-term costs of homeownership.

However, the FHA's new MIP schedules will not apply to all FHA-backed homeowners equally. Homeowners whose FHA mortgages were endorsed prior to June 1, 2009 will benefit from a different, less costly MIP schedule.

For these homeowners in search of a streamline, the MIP schedule is as follows :

• Upfront MIP : 0.01% of the loan size
• Annual MIP : 0.55% of the loan size, with no adjuster for loan sizes over $625,500

The new schedule is detailed in FHA Mortgagee Letter 12-04 and it lowers the cost of FHA Streamline Refinancing for long-time, FHA-backed households in Utah and nationwide to almost nothing.

As a real-life example, an FHA-backed homeowner whose $100,000 mortgage dates to 2008 could refinance via the FHA Streamline Refinance program and pay just $10 in upfront MIP, with a corresponding annual MIP payment of just $550, or $45.83 monthly. 

By comparison, every other FHA-backed homeowner with a $100,000 mortgage pays $1,750 in UFMIP and as much as $1,600 in annual MIP.

The new streamline refinance MIP schedule is in effect for FHA mortgage applications with case numbers assigned on, or after, June 11, 2012. It is not available for loan applications made prior to that date.

There are lots of dates and deadlines in the FHA's new streamline program. If you're too early -- or too late --  you could miss your optimal refinance window. Talk with your loan officer, therefore, and put a plan in place. You'll be glad to be prepared.