Monthly Archives: July 2015

Mortgage Delinquency Rate Declined, Lowest Since November 2008

Freddie Mac reported that the Single-Family serious delinquency rate declined in June to 1.53%, down from 1.58% in May. Freddie’s rate is down from 2.07% in June 2014, and the rate in June was the lowest level since November 2008.

Freddie’s serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are “three monthly payments or more past due or in foreclosure”.

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for May later today.Fannie Freddie Seriously Delinquent Rate
Although the rate is declining, the “normal” serious delinquency rate is under 1%.

The serious delinquency rate has fallen 0.54 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-2016.

So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Mortgage Rates Stay Steady After GDP

Mortgage rates were very close to unchanged despite market volatility surrounding the release of today’s GDP figures.  GDP can occasionally cause a significant response in mortgage rates, and that’s especially true of the “advance” release.  That’s due to the fact that the “advance” release is the first look at GDP for any given quarter.  Subsequent releases merely revise the previous quarter’s result.  Moreover, the Commerce Department implements revisions once a year that greatly affect past GDP reports.  So not only are we getting the first look at last quarter’s GDP, but also a potentially significant revision to GDP numbers over the past 2+ years.

Today’s revisions painted a generally weaker picture of economic growth since 2012.  But the most recent quarter showed slightly stronger inflation data.  These offset each other to some extent, considering the Fed’s rate hike is predicated on inflation rising.  But the weaker overall growth was the stronger influence, and that helped rates recover after the data.  Most lenders were very close to yesterday’s latest levels, with a few slightly higher or lower.  The most prevalently-quoted conventional 30yr fixed rates remain in the 4.0-4.125% range for top tier scenarios.

With minimal movement comes minimal change in the lock/float outlook.  There continues to be less risk and more opportunity than there had been in June, but not a whole lot of certainty about the next move.  It could be the case that we’re waiting for next week’s Jobs report (an even bigger deal than GDP) and other significant data to set the tone.

Mortgage Rates Continue Pushing July Lows

Mortgage rates continued modestly lower for the 5th straight day, further extending Friday’s push to the lowest levels of July.  Even so, most borrowers will see the same rates on lenders quotes, with the improvements in the form of lower closing costs compared to Friday.  The most prevalently quoted conventional 30yr fixed rates remain in a range between 4.0 and 4.125% for top tier scenarios.  Recent gains help more and more lenders move to the lower end of that range, while a very small minority are at 3.875%.

Last week’s caution still applies: any time we see this many positive days in a row, rates are increasingly likely to pull back.  This will only become more true if rates continue to improve, but there is no implicit commentary about how long such a pull-back would last or how far it would go.  Any way you slice it, the lock/float outlook is less intense than it had been earlier in the month (meaning things are looking better), but the lowest rates in more than a month are always arguably a good opportunity to lock.

Mortgage Rates Dip

Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates reversing course once again and moving lower amid mixed economic and housing data.

News Facts

  • 30-year fixed-rate mortgage (FRM) averaged 4.04 percent with an average 0.6 point for the week ending July 23, 2015, down from last week when it averaged 4.09 percent. A year ago at this time, the 30-year FRM averaged 4.13 percent.
  • 15-year FRM this week averaged 3.21 percent with an average 0.6 point, down from last week when it averaged 3.25 percent. A year ago at this time, the 15-year FRM averaged 3.26 percent.
  • 1-year Treasury-indexed ARM averaged 2.54 percent this week with an average 0.3 point, up from last week when it averaged 2.50 percent. At this time last year, the 1-year ARM averaged 2.39 percent.

Mortgage Applications, Rates Hit Summer Doldrums

With the distortions of the Independence Day holiday week and the subsequent week’s recovery now history mortgage application activity settled down.  Really settled down.  As measured by the Mortgage Bankers Associations Market Composite Index the volume of mortgage applications during the week ended July 17 barely stirred from their levels of the previous week.  The index increased 0.1 percent on a seasonally adjusted basis and 0.4 percent when unadjusted.

The Refinance Index was up 1 percent from the week before and the share of refinancing applications dipped to 50.3 percent of all applications from 5.8 percent the week before.  Both the seasonally adjusted and unadjusted Purchase Indices rose 1 percent from the previous week and the unadjusted index was 18 percent higher than during the same week in 2014.

The government share of mortgage applications rose slightly with applications for FHA mortgages increasing to 14.0 percent form 13.8 percent and those for VA mortgages up from 10.8 percent to 11.3 percent.  The USDA share of total applications was unchanged at 0.9 percent.

Like application volumes, interest rates during the week were mixed and relatively flat.  The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,000 or less) remained unchanged at 4.23 percent, with points decreasing to 0.34 from 0.39.  The effective rate was down from the previous week.

Jumbo 30-year FRM (with balances greater than $417,000) had an average rate of 4.16 percent with 0.33 point.  During the week ended July 10 the rate was 4.20 percent with 0.28 point.  The effective rate for these loans declined week-over-week.

Thirty-year FRM backed by the FHA had an average rate of 4.0 percent, a decrease of 2 basis points from the week before.  Points decreased to 0.17 from 0.26 and the effective rate was also lower.

The average contract interest rate for 15-year FRM was unchanged at 3.43 percent, with points increasing to 0.34 from 0.33.  The effective rate increased.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) decreased to 3.08 percent from 3.13 percent and points dipped to 0.41 from 0.42.  The effective rate decreased from the previous week.  The market share of ARMs eased from 7.4 to 7.3 percent of mortgage applications.

MBA’s Weekly Mortgage Applications survey, which has been conducted since 1990, covers over 75 percent of residential mortgage applications.  Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio with points that include the origination fee.

Mortgage Rates Back to 2 Week lows

Mortgage rates reversed course today, getting back in line with the recent trend of slow, steady improvements.  The average lender is now back in line with their best offerings in more than 2 weeks.  This puts the most prevalent conventional 30yr fixed quote squarely in a range between 4.0 and 4.125% for top tier scenarios.  With the day-to-day movements being as small as they are, the average borrower is more likely to see changes in the form of slightly lower closing costs (or higher lender credit).

Naturally, today’s modest improvement is in line with our broader strategy shift toward a “wait and see” approach.  Until recently, locking early and often was the only way to go.  To be clear, that’s still a perfectly viable strategy.  In many cases, it’s the only strategy, regardless of what markets are doing.  But for those clients with more risk tolerance, who understand the potential costs, the past week has been the first safer-looking opportunity to see if recent highs will hold.  It’s worth noting that risks do increase somewhat tomorrow as we’ll get the week’s first significant economic data.  That said, increased risk is relatively balanced with increased opportunity.

Growing Home Sales Expected to Fuel Remodeling

Home remodeling is expected to soon kick back into gear.  LIRA, the Leading Indicator of Remodeling Activity produced by the Joint Center for Housing Studies at Harvard University is projecting that annual spending growth for home improvements will accelerate to 4.0% by the first quarter of 2016.

LIRA is designed to estimate national homeowner spending on improvements for the current quarter and subsequent three quarters. The indicator, measured as an annual rate-of-change of its components, provides a short-term outlook of homeowner remodeling activity and is intended to help identify future turning points in the business cycle of the home improvement industry.

Expenditures on remodeling reached a recent peak of $146.0 billion in the third quarter of 2014 but declined over the following two quarters to an estimated $140.0 billion in the first quarter of this year.  Second quarter totals were estimated at 144.7 billion.  For the upcoming three quarters LIRA estimates the moving average will change by 3.5, 2.9 and 4.0 percent respectively.

“A major driver of the anticipated growth in remodeling spending is the recent pick up in home sales activity,” says Chris Herbert, Managing Director of the Joint Center.  “Recent homebuyers typically spend about a third more on home improvements than non-movers, even after controlling for any age or income differences, so increasing sales this year should translate to stronger improvement spending gains next year.”

“Other signals of strengthening remodeling activity include sustained growth in retail sales of home improvement products and ongoing gains in house prices across much of the country,” says Abbe Will, a research analyst in the Remodeling Futures Program at the Joint Center.  “Rising home prices means rising home equity, which should encourage improvement spending by a growing number of owners.”

Freddie Mac Updates Alter DTI Calculations, Multi Property Requirements

A number of selling updates to Freddie Mac’s Single-Family Seller/Servicer Guide are slated to go into effect over the next several months.  The largest number of updates concern credit and underwriting

The first of these changes effect the calculation of debt payment-to-income ratios (DTI) where a borrower is obligated by student loans.  Effective for mortgages with settlement dates on or after August 1 the minimum payment that must be used in lieu of a verified monthly payment, i.e. when a loan is in forbearance or deferred, will drop to 1 percent from 2 percent of the outstanding loan balance.  This could change the required imputed minimum payment on a 2014 graduate’s average student loan balance of $33,000 from $660 a month to $330.

The new Seller letter will also allow the substitution of a percentage based payment on student loans, revolving and open-end accounts only when there is no verification of an actual required payment.  Also, monthly payments can be excluded from the DTI calculation if the borrower is self-employed and the payment is made by his or her business.

In analyzing other real estate financed by a borrower who is applying for a mortgage for a second home or investment property the number off allowable other properties for which the borrower is financially obligated will be increased from four to six. The change will also remove the requirements that a borrower must have a two-year history of managing investment properties and that he/she maintain six months of rent loss insurance in order to use income from an investment property (whether the subject property or another) for qualifying purposes. These changes will be effective for settlement dates on or after October 26, 2015.

Another change involves mortgages with abatement’s.  Loans with funds provided to a lender or third party by an interested party to pay or reimburse in whole or in part a certain number of the Borrower’s Mortgage payments in excess of the Prepaids/Escrows are not eligible for sale to Freddie Mac. This is being revised to exclude payment of up to 12 months of homeowners’ association dues by an interested party from definition as an abatement considering it instead as an interested party contribution subject to those requirements and other conditions.

Foreclosure Inventory Rapidly Disappearing

More than a quarter of the national foreclosure inventory that existed in May 2014 had been absorbed by May of this year and completed foreclosures saw only slightly less improvement.  CoreLogic said today that the inventory of properties in the process of foreclosure, which had totaled 676,000 homes a year earlier had dropped to 491,000 by May 2015, a decrease of 27.4 percent.  Homes in foreclosure which had represented a rate of 1.7 percent of mortgaged homes declined to 1.3 percent.  The largest foreclosure inventories as a percent of mortgage homes were in New Jersey (4.9 percent), New York (3.7 percent), Florida (2.9 percent), Hawaii (2.5 percent) and District of Columbia (2.4 percent).

There were 41,000 completed foreclosures in May, down from 51,000 the previous year, a 19.2 percent decrease and 64.9 percent fewer foreclosures than at the peak of activity in September 2010.  Foreclosure activity did increase from April 2015 to May by 2,000 units or 4.1 percent.  As a basis of comparison, completed foreclosures averaged 21,000 per month nationwide between 2000 and 2006.  Half of all completed foreclosures during the 12 months ended in May were in five states:  Florida (104,000), Michigan (46,000), Texas (33,000), California (28,000) and Ohio (27,000).

The serious delinquency rate (90 or more days past due or in foreclosure) is now at a more than seven year low with 1.3 million mortgages or 3.5 percent of borrowers in this category.  This is an annual decline of 22.7 percent and the lowest rate since January 2008.  Delinquencies fell by 2.4 percent on a month-over-month basis.

“With three million jobs created during the past year, the improving labor market has helped more borrowers stay current on their mortgage loan,” said Frank Nothaft, chief economist for CoreLogic. “Because fewer loans are becoming seriously delinquent, the foreclosure inventory has come down to its lowest level in more than seven years, with only 1.3 percent of loans in foreclosure proceedings.”

“While the nation’s seriously delinquent rate-3.5 percent-is at its lowest level since January 2008, it remains very high in several big markets,” said Anand Nallathambi, president and CEO of CoreLogic. “The greater New York City region and central Florida continue to have some of the highest serious delinquency rates, almost doubling the national level. Default rates remain elevated in the Chicago and Baltimore metro areas as well.”