Archive for July, 2009

Auction Results Push Austin Mortgage Rates Lower

Mortgage investors were more focused on this week’s Treasury auctions than on the economic data. Overall, demand remained healthy for US Treasury securities, and mortgage rates ended the week a little lower. Major economic reports on Gross Domestic Product (GDP), Durable Orders, and Chicago PMI manufacturing contained mixed results and were roughly neutral for mortgage rates. While recent Treasury auctions have seen stronger than average demand, investors remained cautious ahead of this week’s record supply of government debt. The auctions got off to a rocky start, with demand falling back to average levels for the 2-yr and 5-yr auctions. Strong foreign demand for the 7-yr Treasuries eased investor concerns, however, and mortgage rates improved after the auction. China, in particular, holds about $800 billion in US Treasury securities and is an enormous buyer. Chinese officials were in Washington this week meeting with US economic leaders, and the Chinese expressed concern that US budget deficits would reduce the value of its US Treasuries. Analysts believe that reduced buying from China caused the weaker than expected demand for the 2-yr and 5-yr auctions, but they fully participated in the 7-yr auction. With the US government issuing record amounts of new debt, investors will be closely watching for changes in China’s purchasing policy. Any perceived reduction in China’s demand would likely push long-term interest rates, including mortgage rates, higher. This week’s housing market data was generally positive. June New Home Sales jumped 11%, the third straight month of increases. Inventories of unsold new homes fell to an 8.8-month supply from a 10.2-month supply in May. The May Case-Shiller index of home prices in 20 metropolitan areas rose 0.5% from April, following 34 straight months of declines. While the results varied greatly in different parts of the country, the increase in average prices provided support for the analysts who believe that the housing market has bottomed.

TDHCA 90-Day DPA: $8,000 First-Time Homebuyer Tax Credit for Down-Payment and Closing Costs

Program Overview

In an effort to monetize the $8,000 tax credit and to assist borrowers with down-payment and closing costs, TDHCA created the 90-Day Down Payment Assistance Program.

TDHCA has the authority to offer tax credit advances with second liens. The 90-Day Down Payment Program may be used with FHA 15 & 30-year fixed-rate, first-lien mortgage loans.

Subordinate DPA Funds and Terms

Funds Available:   $5 Million, First come First Served

Amount of Assistance Available:   5% of the total mortgage amount including MIP up to a maximum of $7,000

First 90 Days:   0% Interest Rate (encourage borrowers to payoff 2nd lien with tax credit refund). Thereafter, 2-Year term at 10% interest rate, Max CLTV 100%.

Credit: Min credit score of 620 is required.

Qualified and Eligible Borrowers

• Borrowers must meet the federal first-time homebuyer requirements
• First-time homebuyers must be purchasing a home – new or resale that will be used as a principal residence.  Includes: single-family detached homes, attached homes such as townhomes & condominiums.
• First-time homebuyer is a buyer who has not owned a principal residence during the 3 year period prior to the purchase.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
• Home purchase must occur on or after 01/01/09 and before 12/01/09.  The purchase date is the date when closing occurs and the title to the property transfers to the homeowner.
• Income limit for single taxpayers is $75K; the limit is $150K for married taxpayers filing a joint return.

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Results are what traders call a “bow wow” (dog) showing little demand for that yield and duration

The 5 year note auction (39 billion) just hit the tape with very poor response.  The issue created a tail of 5.4 bps (very high and bearish) and bid to cover was a measly 1.92 to 1.  The results are what traders call a “bow wow” (dog) showing little demand for that yield and duration.  Mortgage backs fell like a rock on the news from plus 4/43’s to down 6/32’s.

Changes in Government Guidelines May Affect Your Closing Dates

HERA At-A-Glance

What happened?

Going into effect on July 30, 2009, the Housing Economic Recovery Act (HERA) contains an amendment to the Truth-In-Lending Act (TILA), named the Mortgage Disclosure Improvement Act (MDIA).

What is the purpose of HERA?

The legislation was designed for three main purposes:

1. To include extra steps in the home loan process to help prevent deceptive lending practices.
2. To outline more direct and clear guidelines and governing structure for the real estate industry.
3. To provide more information directly to the homebuyer for their own protection.

HVCC At-A-Glance

What happened?

Effective as of May 1, 2009, the Home Valuation Code of Conduct (HVCC) has been adopted by Fannie Mae and Freddie Mac.

What is the purpose of HVCC?

This legislation is intended to reinforce the precision and autonomy in the appraisal process. Under HVCC, appraisers are protected from outside pressures in order to provide better and more accurate appraisals. Additionally through HVCC, it is required that homebuyers receive enough time to thoroughly review information in their appraisal by providing borrowers a copy of their appraisal report no less than three days prior to the closing of their home loan transaction.

4 Changes to Expect

#1 Required Waiting Period Before Closing Date

A closing date traditionally has been set by the homebuyer and seller. Under the new legislation, a closing date still can be included in purchase contracts; however, a home purchase cannot close any sooner than seven business days after thelender has issued initial mortgage disclosures to the borrower which must be delivered or placed in the mail no later than three business days after an application is received. If the required disclosures are mailed, they are considered officially received three business days after they are mailed. In cases when disclosures are sent via overnight mail, they are not documented as “received” until the following business day; it is at that time fees may be collected.

#2 Lenders Cannot Collect Upfront Fees

In the past, lenders have been able to collect upfront fees once an application has been submitted. With the new guidelines, fees may not be collected by the lender until the homebuyer has received the initial loan disclosures. The credit report fee is the only exception to this rule; it may be collected at the time of application.

#3 Additional Waiting Period Required if APR Changes 1/8 Point

Re-disclosure is required if the APR, at the time of consummation, increases from the APR disclosed earlier by more than: 1?8 of 1 percentage point in a regular transaction; or 1?4 of 1 percentage point in an irregular transaction (ie. ARM loan). This point change will trigger the three business day waiting period. If a change in terms does not make the APR out of tolerance, then you must re-disclose all of the changed terms but this does not trigger the three business day waiting period prior to consummation. The APR is subject to a number of influences including: a change in the loan amount, a change in the product, an unlocked rate, a rate re-lock, a change in the closing date or changes in fees. Because of these various determining factors, it is vital that the estimated fees are documented accurately.

#4 Copy of Appraisal Must be Provided 3 Days Before Closing

Under the new legislation, a copy of the appraisal must be provided to the homebuyer a minimum of three business days before closing. The homebuyer may relinquish the requirement to receive the appraisal within three business days.

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FAQ – Housing Economic Recovery Act (HERA) and Home Valuation Code of Conduct (HVCC)

1. Does the new legislation change home loan applications taken before these guidelines go into effect?

If the purchase property was documented before May 1, 2009, the application is not subject to HVCC. Likewise, if the purchase property was documented before July 30, 2009, the application is not subject to HERA.

2. Are purchases of investment properties covered under the same requirements?

Purchases of primary residence and second homes are the only transactions to which these regulations apply at this time.

3. If submitting your loan application in person, can fees be collected at that time?

Yes. In fact, your loan could close faster if you submit your loan application in person.

4. Is it possible for the lender to hold credit card information, a post-dated check, or another form of payment until it is permissible to collect upfront fees if the application is taken over the phone?

It is not permitted for payment information for upfront fees to be collected before the appointed collection date. Upfront fees are allowed to be collected on the next business day after initial disclosures are obtained. Disclosures can be issued and upfront fees can be collected on the same day as an in person application.

5. Is it possible to collect fees paid by the seller before established collection time (the next business day after initial disclosures are received by the homebuyer)?

No fees (except for the credit report) may be collected by the lender on behalf of the homebuyer until the initial disclosures are received by the homebuyer. Any fee commonly covered by the seller (such as the appraisal fee) or any other party may not be collected until that time.

6. Are disclosures affected if after the initial application the homebuyer adds a home equity loan or a line of credit?

There is not an affect if the homebuyer adds a home equity line of credit. However, if the homebuyer adds a home equity loan, the initial disclosure time period begins again, and it is required that the same disclosure requirements be followed for the home equity loan.

7. How will the loan process be affected if there is a delay in collecting the homebuyer’s upfront fees?

The loan process more than likely will be delayed if the lender is unable to collect the upfront fees as soon as they are permitted to do so. Required services such as the appraisal can be put on hold until those fees are collected.

8. What triggers the re-disclosures of the initial APR?

Re-disclosure is required if the APR at the time of consummation increases from the last disclosed APR by more than: 1?8 of 1 percentage point in a regular transaction; or 1?4 of 1 percentage point in an irregular transaction (ie. ARM loan).

9. If still in the seven (7) business day period of the initial Truth-In-Lending disclosure, can a TIL re-disclosure still be issued?

If the APR at the time of consummation increases from the APR disclosed earlier by more than: 1?8 of 1 percentage point in a regular transaction; or 1?4 of 1 percentage point in an irregular transaction (ie. ARM loan) and a re-disclosure of the Pre-Closing TIL is required, it can be released and sent out within the first seven (7) business day time frame. The three (3) business day rule would still apply as well.

10. Are rush transactions still possible?

In the loan process, especially now more than ever, it’s best to have time on your side. Still, the most that can be asked for, in the perfect scenario, is for a loan transaction to close in a minimum of seven (7) business days after the initial disclosures are mailed.

11. How soon may the closing happen after the final Truth-In-Lending disclosure is received?

Three (3) business days must be allowed for the mailing of the TIL; an additional three (3) business days must be provided for the homebuyer to approve their loan scenario. The closing may be held on the third business day after receipt of the TIL.

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Volatile mortgage price action as stocks are off 52 points on the big board and bonds trade like a Six Flags ride

Bonds, notes and mortgage backs had a nice start to the day, rallying as Consumer Confidence painted a bleak view going forward.  Just out, the 2 year auction results are taking a little wind out of our sails.  Indirect bidders took only 20.5 billion versus last month’s 37.2 billion.  The bid to cover was ok at 2.75 to 1.0 but the issue produced a 2.5 bps tail.  Ok auction results at best.  Given the print, the 10 year has shed 10/32’s in a nano second and I’m afraid the reprice for the better will go away as well.  Volatile mortgage price action as stocks are off 52 points on the big board and bonds trade like a Six Flags ride.  Proceed with caution.

We see the selling as shallow into the later part of the week and then a rebound/rally to deliver better mortgage pricing as we close the book on July

Both stocks and bonds opened on the weak side this morning.

• New Home Sales blew the doors off economist’s estimates, up 11% to a seasonally adjusted 384K annual units.
• Inventories were down to 8.8 months, the lowest level since October 2007.
• Sales in the Midwest jumped 43.1%, the West rose 22.6%, and the Northeast posted a 29.6% increase.
• Only the South failed to rise again, falling 5.3%.

The improvement is welcome but somewhat is question as continued growth will depend on Unemployment, foreclosures, and a consumer that feels good about re-entering the market.  The week ahead will focus on treasury supply.

When you include the cash management bills, etc., the total package is over 200 billion in paper to be auctioned off this week.  That’s the primary reason that the 10 year note is off 12/32’s (yield 3.71%) and mortgage backs off 5/32’s.  We did dip as low as 3.75%, a target we were looking for and a level of good support.  Stocks are off 30 something, unable to rally on the positive housing news.  Trouble is they are very over bought after rallying 11% in two weeks.  We’re looking for a pullback, lending support to mortgage pricing.

News this week will consist of the following:

• Consumer Confidence,
• Durable Goods Orders,
• the Fed’s Beige Book,
• Weekly Unemployment Claims,
• and GDP (Advanced Q2),
• Employment Cost Index,
• Chicago Purchasing Managers report,
• and ISM for Milwaukee on Friday.

Technically, the rise in yields is a continuation of last Wednesday/Thursday’s selling and Friday stall (weak reversal).  Sellers are in control of the market but strong momentum has not been confirmed.  We see the selling as shallow into the later part of the week and then a rebound/rally to deliver better mortgage pricing as we close the book on July.

With stocks in control, the balance of the week could see continued pressure (on mortgage rates) unless someone of substance “misses” on earnings

Stocks are on fire, closing up 256 points on the Dow and 63 points on the Naz.  Fixed income products are running for cover, pushing prices through the 38% retracement of the June/July rally.  For the record, the 10 year note is down 46/32’s (yield 3.61%)and mortgage backs are off 29/32’s as nothing but sell orders hit the screen.  The technical picture points towards the 50% retracement level which resides at 3.73% to 3.75%.  Sell signals have formed on most time frames but trend readings have not adopted bearish readings.  That’s the good news in this missive.  With stocks in control, the balance of the week could see continued pressure (on mortgage rates) unless someone of substance “misses” on earnings.  Weekly Unemployment Claims could give us a little help in the morning as we expect a rise on that index.

In our opinion, this is a true reflection of the economy. One that has manufacturing falling hard and fast, coupled with increasing unemployment.

The winds of change have once again blown through the financial markets.  Just last week, analysts were talking about skyrocketing unemployment, consumer sentiment sliding, and stocks looking to retest the March bottom.  Today, it’s all about the recession being over and stocks having not a worry in the world.  Reality is somewhere between my last two statements.

CPI, inflation at the consumer level, hit the tape plus .7% with the core index up .2%.  The gains were once again all about petroleum products.  Strip out the energy component as it looks like we are neither inflationary or deflationary, operating close to the sweet spot for now.  July Empire State Manufacturing data was also released, improving from -9.41 to -.55.  Overall business conditions improved sharply in both new orders and reduced inventories.  Last to the dance was Industrial Production/Capacity Utilization.  IP dropped .4% followed by a revised 1.2% fall in May.  CapU fell to a record low 68.0%.  In our opinion, this is a true reflection of the economy.

One that has manufacturing falling hard and fast, coupled with increasing unemployment.  I guess the stock market isn’t listening.  Currently, the 10 year note is off 28/32’s to yield 3.55%.  We talked about any close (yesterday) above 3.45% being trouble and true to form, we finished the day at 3.47%, opening the door for continued technical selling.  We are near the next target of 3.57% and becoming very oversold on the chart.  We feel that support will show up soon and give us a little bounce.  However, if stocks continue to defy the odds, a bottom may not show up until we touch 3.75%.  Mortgage backs are taking a bath as well, down another ½ point on the day.

Our longer term view is still the same, low interest rates into yearend as the consumer continues to dig in their heels and look for work

The selling which entered the market late yesterday has carried forward today.  Goldman Sachs released 2^nd quarter earnings this morning, blowing away the pre-release estimates by nearly a dollar and a half.  Top line growth was respectable as well, posting over 13 billion for the quarter.  Johnson and Johnson also released, beating the street by .04 cents a share.  Both have helped stocks to hold yesterday’s gains as the Dow is currently down 2 points.  PPI rising 1.8% (core up .5%) and Retail Sales up .6% are the culprits behind the rise in yields and worsening mortgage pricing.

Looking into the numbers, this is all about petroleum products and not viewed as sustainable going forward.  Nonetheless, the 10 year note is off 23/32’s trading at 3.44%.  This is a critical area (3.45%) which marks the 8 day moving average.  We’d like to think this is as far as it goes (worsening mortgage pricing) but warn you that being “cautiously optimistic” is as far as we’re willing to stick our neck out.  “If” we close at 3.46% or higher (day end), expect the next stop to be 3.57%, putting the hurt on mortgage backs for about another .50bps from current levels.  Our longer term view is still the same, low interest rates into yearend as the consumer continues to dig in their heels and look for work.