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Mortgage rates near historic lows for third straight week

November 18, 2011 By

By Inman News

Mortgage rates were little changed this week, with rates on 30-year fixed-rate mortgages at or near 4 percent for the third week in a row, Freddie Mac said in releasing the results of its weekly Primary Mortgage Market Survey.

Rates on 30-year fixed-rate mortgages averaged 4 percent with an average 0.7 point for the week ending Nov. 17, essentially unchanged from 3.99 percent last week and close to the all-time low in records dating to 1971 of 3.94 percent seen during the week ending Oct. 6. At this time a year ago, rates on 30-year fixed-rate mortgages averaged 4.39 percent before climbing to a 2011 high of 5.05 percent in February.

Rates on 15-year fixed-rate mortgages averaged 3.31 percent with an average 0.7 point, little changed from 3.3 percent last week and close to an all-time low in records dating to 1991 of 3.26 percent seen during the first week of October. At this time a year ago, 15-year fixed-rate mortgages averaged 3.76 percent, before climbing to a 2011 high of 4.29 percent in February.

For five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans, rates averaged 2.97 percent with an average 0.6 point, down imperceptibly from 2.98 percent from last week and a hair above the all-time low in records dating to 2005 of 2.96 percent last seen during the week ending Nov. 3. At this time a year ago, rates on five-year ARMs were averaging 3.4 percent, before climbing to a 2011 high of 3.92 percent in February.

Rates on one-year Treasury-indexed ARMs averaged 2.98 percent with an average 0.6 point, up slightly from 2.95 percent from last week. The one-year ARM hit an all-time low in records dating to 1984 of 2.81 percent during the week ending Sept. 15.  At this time last year, the one-year ARM averaged 3.26 percent before climbing to a 2011 high of 3.4 percent in February.

Looking back a week, a separate survey by the Mortgage Bankers Association showed demand for purchase loans during the week ending Nov. 11 was down a seasonally adjusted 2.3 percent from the week before, and 9.5 percent from a year ago.

The survey, which included an adjustment to account for the Veterans Day holiday, showed demand for refinancings was down 12.2 percent from the week before, but that refi requests still accounted for 77.3 percent of all mortgage applications.

During October, the MBA said 50.6 of refinancing applications were for 30-year fixed-rate loans, while 28.8 percent of refi requests for were 15-year fixed-rate loans and 6 percent for ARM loans.

Among homebuyers, 85.5 percent sought 30-year fixed-rate loans, 6.9 percent sought 15-year fixed-rate loans, and 5.9 percent applied for ARM loans. That was the lowest ARM share for purchase loans since the MBA’s Weekly Mortgage Applications Survey was rebenchmarked in January.

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Fitch: Price Declines Take a Bigger Piece of Prime Borrowers’ Equity

October 11, 2011 By

By Carrie Bay

The analysts at Fitch Ratings warn that before the housing market pulls out of this downturn, half of prime borrowers could find themselves underwater on their mortgage.

Data released last month by CoreLogic shows that one in five of all residential mortgages in the U.S. is in a negative equity position.

But segment out just those homeowners with prime mortgages, and Fitch says one in three currently owe more on their mortgage than the home is worth. Fitch took into account all prime borrowers in private-label residential mortgage-backed securities (RMBS).

“The sputtering U.S. housing market will result in more prime borrowers being pushed further underwater on their mortgages,” Fitch said in a report released this week.

Despite some recent modest gains, home prices have further to fall before any sustained recovery takes hold, according to Grant Bailey, a managing director at Fitch.

“With home prices likely to decline another 10 percent, roughly half of prime borrowers will wind up underwater on their mortgage,” said Bailey.

Looking at the entire mortgage borrower population, the analysts at Deloitte cite data from JPMorgan Chase which indicates that a further drop in housing prices of 5-10 percent – as expected by the end of 2011 – would increase the number of properties with negative equity to 15-20 million.

CoreLogic’s latest assessment put the number of underwater borrowers at 10.9 million at the end of the second quarter of this year.

On top of the unsettling negative equity positions of prime borrowers, Fitch’s study also revealed that over 12 percent of all prime borrowers are seriously delinquent on their mortgages.

“Prime mortgage default rates will stay elevated as home prices fall further and unemployment remains high,” according to Bailey.

Fitch has cited borrower equity as the pre-eminent driver of mortgage default performance in its new rating model.

The combination of declining equity, rising delinquencies, the growing risk of payment shock, and the application of Fitch’s updated criteria led to further negative rating actions on prime RMBS transactions in the agency’s latest ratings review.

Forty-two percent of prime RMBS ratings, primarily those already rated ‘B’ or below, were downgraded further by Fitch.

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No rush to lock in record-low mortgage rates

October 8, 2011 By

Rates on 30-year fixed-rate mortgages dropped below 4 percent this week for the first time in history amid increasing global economic concerns, Freddie Mac said in releasing its Primary Mortgage Market Survey.

A separate survey by the Mortgage Bankers Association suggested many homeowners and would-be homeowners are unwilling or unable to take advantage of record low rates, with demand for refinancings and purchase loans both falling last week.

Fannie Mae economists are projecting that mortgage rates will stay well below 5 percent through 2013, and that demand for purchase loans will more than double in the next two years.

Freddie Mac’s survey showed rates on 30-year fixed-rate mortgages averaged 3.94 percent with an average 0.8 point for the week ending Oct. 6, down from 4.01 percent last week and a 2011 high of 5.05 percent in February. Rates on 30-year fixed-rate mortgages have never been lower in Freddie Mac records dating to 1971.

Rates on 15-year fixed-rate mortgages averaged 3.26 percent with an average 0.8 point, down from 3.28 percent last week and a 2011 high of 4.29 percent in February. The 15-year fixed-rate loan, often used by homeowners to refinance, set a new low in records dating to 1991.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loan averaged 2.96 percent with an average 0.6 point, down from 3.02 percent last week and a 2011 high of 3.92 percent. That ties a low, in records dating to 2005, last seen in September.

Rates on one-year Treasury-indexed ARM loans averaged 2.95 percent with an average 0.5 point, up from 2.83 percent last week but down from a 2011 high of 3.4 percent in February. The one-year ARM hit a low in records dating back to 1984 of 2.81 percent during the week ending Sept. 15.

Freddie Mac chief economist Frank Nothaft said interest rates for one-year ARMs rose as the Fed began moving $400 billion currently invested in short-term government bonds into Treasurys with remaining maturities of six years to 30 years, which will help reduce upward pressure on long-term interest rates.

Under a plan dubbed “Operation Twist,” the Fed is also reinvesting principal payments on the $1 trillion the government holds in Fannie Mae and Freddie Mac mortgage-backed securities (MBS) and debt back into agency-backed MBS as those investments mature.

Nothaft noted that Federal Reserve Chairman Ben Bernanke testified before Congress this week that the recovery is close to “faltering” and stressed the need for lawmakers to act.

The Mortgage Bankers Association’s Weekly Mortgage Applications Survey showed demand for purchase loans fell a seasonally adjusted 0.8 percent during the week ending Sept. 30, and was down 12.1 percent from a year ago.

Requests to refinance were down 5.2 percent from the week before, but accounted for nearly eight out of 10 mortgage applications.

In a Sept. 19 forecast, economists at Fannie Mae projected that mortgage purchase loans will total just $394 billion this year, down 16 percent from last year and 33 percent from 2009.

Fannie Mae’s forecast calls for purchase-loan demand to more than double within two years, growing 66 percent next year to $654 billion, and surging again in 2013, to $853 billion.

The mortgage giant’s economists don’t see upward pressure on mortgage rates, projecting that 30-year fixed-rate loans will average 4.2 percent during the final quarter of 2011 and stay there for the first half of 2012.

Fannie Mae’s forecast then calls for a gradual rise in rates for 30-year fixed-rate loans, to 4.4 percent during the final three months of 2012 and an average of 4.6 percent during 2013.

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Mortgage rates break records again

September 10, 2011 By

Mortgage giant Freddie Mac reports that mortgage rates set new record lows this week, as concerns over the European debt crisis and a weak U.S. employment report for August sent investors fleeing to the relative safety of Treasuries and mortgage-backed securities that fund most home loans.

But a separate survey by the Mortgage Bankers Association showed demand for purchase loans remaining “at extremely low levels” last week, close to lows last seen in 1996.

Rates on 30-year fixed-rate mortgages averaged 4.12 percent with an average 0.7 point for the week ending Sept. 8 — a new low in records dating to 1971, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey. That’s down from 4.22 percent last week and a 2011 high of 5.05 percent in February.

Rates on 15-year fixed-rate mortgages averaged 3.33 percent with an average 0.6 point, down from 3.39 percent last week and a 2011 high of 4.29 percent seen in February. That’s a new low in records dating to 1991.

For 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans, rates averaged 2.96 percent with an average 0.6 point, unchanged from last week’s record low of 2.96 percent. That’s down from 3.56 percent at the same time last year and a 2011 high of 3.92 percent in February.

The 1-year Treasury-indexed ARM loan averaged 2.84 percent with an average 0.6 point, down from 2.89 percent last week and a 2011 high of 3.4 percent seen in February.

“Market concerns over Eurozone sovereign debt default and a weak U.S. employment report for August placed downward pressure on Treasury bond yields and allowed fixed mortgage rates to hit new lows this week,” said Freddie Mac chief economist Frank Nothaft in a statement.

“On net, the economy added no new jobs last month and was the weakest reading since September 2010. Meanwhile, the unemployment rate remained at 9.1 percent, marking its 31st consecutive month of being above 8 percent, the longest such stretch in 70 years.”

Looking back a week, a separate survey by the Mortgage Bankers Association showed demand for purchase loans was virtually unchanged last week compared to the week before, and down 13.5 percent from the same week a year ago.

Requests for refinancings were down 6.3 percent from the week before, and were down more than 35 percent from a year ago, the MBA said in releasing the results of its Weekly Mortgage Applications Survey.

Refinancing requests nevertheless accounted for 77.1 percent of all mortgage applications. Requests for ARM loans accounted for 7.1 percent of applications.

In an Aug. 19 forecast, MBA economists predicted rates on 30-year fixed-rate mortgages will rise to an average of 4.6 percent during the final three months of this year, and continue a gradual rise next year to an average of 5.2 percent during the fourth quarter of 2012.

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Turn vacation home into cash cow

September 3, 2011 By

By Steve Bergsman

To me, one of this year’s biggest surprises in the hot initial public offerings market was the success of HomeAway Inc., an Austin-based operator of vacation-rental websites.

In June, the company’s successful IPO raised $231 million as HomeAway opened trading with a nifty price of $27 a share.

I always considered HomeAway more of a real estate play on vacation-home rentals, but the IPO market, which has been very generous this year to startup technology companies, viewed HomeAway more of a tech play, as it owns more than 30 sites mostly dedicated to the online vacation-rental business.

I guess we were both right.

Still, the IPO caught my attention, and when I began looking at HomeAway’s core business I came across a recent study the firm had undertaken on the direction of the vacation-rental market.

The lead information from HomeAway was about the strength of vacation rentals heading into the peak season, but what I found more interesting was the claim that the number of owners who cover the bulk of their mortgage with rental income is increasing.

The lack of syntax obscured important trend-line information: Those investors who have a mortgage on a vacation property have been able to recapture more of that expense through rentals than had been the case in recent years.

To be specific, according to HomeAway, 48 percent of owners who financed their vacation home said they’re able to cover more than 75 percent of their mortgage by renting to travelers. That was up from 38 percent a year go.

About 65 percent of owners earn enough to cover at least 50 percent of their mortgage

Of course, this kind of positive news means more people will think about renting their vacation homes, which increases business for companies like HomeAway, so on one hand it might all be a little self-serving. On the other side of the corporate coin, companies have to do this kind of research to figure out which way their business is heading.

I called Alexis de Belloy, HomeAway’s senior vice president of North America, to see what’s what.

Underlying the change has been better rental programs by individual owners, said de Belloy. “As people get more sophisticated about renting, they are able to generate more income.”

There’s a learning cycle in the business. At first, buyers of vacation homes settle in and use the property for themselves. After two or three years, they realize they are not quite using the home as much, or even if they are, there are upkeep expenses even when they are not there, so they start to rent. Then, they have to learn how to rent with efficiency and acceptable income.

“You have to find the right places to rent and the right places to advertise,” de Belloy said. “You have to learn how to properly set your rates, how to adjust rates for the different seasons, and how to make your property stand out.”

Renting a vacation home is a slice of the property business that has come into its own, partly because of the bursting of the real estate bubble. Up until 2006, vacation-home owners didn’t really worry about expenses because they figured price appreciation would eventually override ongoing costs. Those days are over.

Indeed, even vacation-home prices suffered serious declines over the past four years. Depending on location, prices have fallen up to 50 percent from the bubble years.

“Generating income to cover the mortgage is important,” de Belloy said. “You can’t count on appreciation.”

So there is a change in mindset when it comes to vacation homes. According to research that HomeAway conducted for the National Association of Realtors, 94 percent of the people who buy second homes plan to rent them over the next 12 months, and seven out of 10 surveyed said rental income was a factor in the purchasing decision.

To check to see if all this survey information was consistent with other vacation-home rental companies, I called Stiles Bennett, president of North American operations for Newport, R.I.-based Wimco Villas.

Wimco boasts a very strong presence in the Caribbean — and that’s a totally different business. Most villa owners in those sun-drenched islands don’t have to worry about paying off their mortgages; they don’t have any. That’s due to two principal reasons: it’s difficult to get a mortgage for a Caribbean property, and many of the homeowners are wealthy.

“There are substantial operating expenses associated with owning a home in the Caribbean, so homeowners use the rental income to cover operating costs or to fund improvements,” said Bennett. “And if the home is well-presented, well-located and well-priced, they have good chance to do that.”

How’s business? Bennett’s answer was a resounding “excellent,” although it was really for the wrong reasons.

During the bubble years, development blossomed in the Caribbean because people thought they could use the properties for a few years and then flip the houses, Bennett said.

“Sadly, a lot of those homes came on the market during the midst of the recession. Now, there are more quality villa rentals than there (have) been in the past. Inventory is good and there are more homes for us to look at.”

The top markets for rentals in the Caribbean include the U.S. Virgin Islands, St. Martin, St. Barts, Turks and Caicos, and Anguilla, said Bennett.

In the United States, the hot markets, as reported by HomeAway, include Amelia Island, Fla.; Galena, Ill.; Hollywood, Calif.; Charleston, S.C.; and New Orleans.

As they say down in St. Barts, “Vive la difference” — although I don’t think they’re talking about real estate.

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Mortgage Rates Plunge to Lowest Level in Over Five Decades

August 18, 2011 By

By Carrie Bay

Investors’ growing appetite for the safety of U.S. Treasury bonds in the wake of European debt troubles and domestic policy decisions aimed at jump-starting a stagnant economic recovery have driven mortgage interest rates to their lowest in over 50 years.

Freddie Mac says both fixed- and adjustable-rate mortgages have reached all-time record lows, providing further incentive for homeowners looking to refinance.

Data released by Freddie Mac Thursday puts the average 30-year fixed-mortgage rate at 4.15 percent (0.7 point) for the week ending August 18th, a 17 basis-point drop from 4.32 percent in one week’s time.

The 15-year fixed-rate similarly fell 14 basis points, from 3.50 percent last week to 3.36 percent (0.6 point) this week.

Adjustable-rate mortgages (ARMs) also headed lower, with the 5-year ARM falling from 3.13 percent to 3.08 percent (0.5 point), and the 1-year ARM slipping from 2.89 percent to 2.86 percent (0.6 point).

Freddie Mac’s weekly mortgage rate survey averages quotes gathered from about 125 lenders across the country.

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U.S. Downgrade: How Will It Impact Housing Fundamentals?

August 15, 2011 By

By Carrie Bay

Congress’ last-minute accord to raise the nation’s debt ceiling and avert a default wasn’t enough to save the United States’ AAA rating from Standard & Poor’s. The market’s reaction to the news could have an impact on Treasury yields and with these yields closely tied to mortgage rates, on homebuyers’ borrowing costs.

The international ratings agency downgraded the long-term sovereign credit rating of the United States to AA+ late Friday night. That’s a grade level just below the AAA rating the U.S. had held for 70 years, going back to 1941 when S&P began assigning ratings to countries.

S&P said the fiscal plan that Congress and the administration agreed to last week “falls short” of what its analysts believe is “necessary to stabilize the general government debt burden by the middle of the decade.”

The agency also said the wrangling that went on in Washington – namely the use of the impending threat of default as a political bargaining chip – makes near-term progress on curbing public spending or reaching an agreement to raise revenues “less likely than we previously assumed.” S&P says the debate “will remain a contentious and fitful process.”

White House and Treasury officials fired back at S&P for basing the downgrade on what they said was a “math error of significant consequence.” The administration says S&P misquoted estimates from the Congressional Budget Office by $2 trillion in projecting the deficit over the next 10 years. S&P has since acknowledged the error but says that doesn’t change its decision.

So what does all this mean for the housing and mortgage markets?

Mortgage financiers Fannie Mae, Freddie Mac, and 10 of the 12 Federal Home Loan Banks also had their senior debt

issue ratings cut from AAA to AA+ by S&P Monday morning. (The Federal Home Loan Banks of Chicago and Seattle were already rated AA+ prior to the U.S. sovereign downgrade.)

S&P says the downgrades were the result of the institutions’ “direct reliance on the U.S. government.” The agency warned back in April that the rating of the U.S. would have a direct impact on the ratings attached to the debt of these government-sponsored entities.

Reuters notes that a downgrade of Fannie Mae and Freddie Mac could also affect billions of dollars of debt issued by public housing authorities, debt that is secured by federally guaranteed mortgages.

The markets are bracing for an eventful week ahead, with expectations that the value of the dollar will slip and Treasury yields will begin to rise. The trajectory of mortgage rates typically goes hand-in-hand with Treasury yields.

But market participants point out that mortgage rates are already at historical lows, and it still hasn’t done much to boost demand from homebuyers.

Economists and housing experts alike were expecting mortgage rates to head higher later this year, even before the rating downgrade.

According to Paul Dales, senior U.S. economist for the research firm Capital Economics, “[A]ny spike in Treasury yields and/or fall in the dollar should be relatively short-lived. Once the dust settles, attention will turn back to the economic fundamentals, which are certainly consistent with low Treasury yields.”

The analysts at Barclays Capital don’t expect the ensuing shock to the market to run very deep.

“Treasuries are not going to sell off…but longer-run the fiscal problems are likely to mean a weaker dollar,” Barclays said.

The firm also stressed that for many observers, it was really a question of when the downgrade would happen rather than if it would since S&P had been very clear about its expectations.

“But it is yet another milestone in the ongoing financial crisis: another once-unthinkable event has taken place,” Barclays said. “For decades the 10-year U.S. government bond yield was the definition of the long-run risk-free interest rate; now that has been declared a less than top-notch credit risk.”

S&P is the only one of the three major ratings agencies to downgrade the United States.

Moody’s Investors Service and Fitch Ratings both confirmed their AAA ratings after the debt deal was reached last week.

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White House to tackle housing reform after debt ceiling fight

July 23, 2011 By

by Jon Prior

Once the tumultuous debt ceiling negotiations settle, Washington officials said the Obama administration will begin a revitalized effort to address lingering concerns in housing finance reform.

When debt ceiling talks resolve remains a question. President Obama took to a town hall meeting Friday morning urging lawmakers to forge a deal, but the Senate rejected a House plan later that afternoon. New developments late Friday indicate Rep. John Boehner (R-Ohio) walked away from talks with Obama to find common ground on a long-term deal.

But if Washington ever strikes a debt ceiling deal, the still struggling housing market awaits.

Already, plans are being drawn.

A spokesperson for Rep. Barney Frank (D-Mass.) told Housing Wire Friday the Obama administration has begun work on a proposal to extend the conforming loan limits, which are set to expire in October. In February, the administration put out a white paper, providing Congress three options for winding down mortgage giants Fannie Mae and Freddie Mac.

Allowing the conforming loan limits – the maximum size of a mortgage the government can guarantee or buy – would be the first step toward allowing the private market to rejuvenate, the administration said at the time.

However, funding for mortgages outside Fannie, Freddie or the Federal Housing Administration remains barren, even to one of the industry’s largest trade groups, the Mortgage Bankers Association.

“[Rep. Frank] believes that the administration is working on an extension, but he doesn’t know what legislative vehicle would be used,” the spokesman said.

Rep. John Campbell (R-Calif.) and Rep. Gary Ackerman (D-N.Y.) introduced a bill last week that would extend the elevated loan limits for another two years.

“The Obama administration’s reported support of an extension of the conforming loan limits is welcome news for middle-class homeowners,” Ackerman said. “The administration understands that the painful cycle of foreclosures, distressed sales and deep price declines will continue to weigh on the economy if nothing is done to support the housing market.”

But other issues remain, including what to inevitably do with Fannie and Freddie. Aside from the slew of legislation passed by Republican members of the House Financial Services Committee – some receiving Democratic support as well – no bill on what to replace the government-sponsored enterprises with has yet to be considered by the committee.

Democrats and Campbell criticized the committee chair Rep. Spencer Bachus (R-Ala.) at a recent hearing for not taking up legislation and starting the process of installing a new housing finance system.

“I’m being criticized here for waiting on the administration. If they want to bring forth a comprehensive proposal, they have two or three weeks to do it,” Bachus said at the time.

“Until we have a mechanism in place, we are threatening this economy,” Campbell said.

There is also the matter of the Consumer Financial Protection Bureau gridlock.

Obama nominated Richard Cordray as the new bureau’s director on Monday, but a group of 44 Republican Senators threatened to filibuster the approval until the president agrees to their terms for restructuring the agency, which includes installing a commission and providing more powers to its oversight committee.

Obama maintained this week that he would veto legislation passed by the House that would bring these changes to the CFPB.

According to the MBA, mortgage originations are expected to drop to $1 trillion for the year. The robo-signing scandal last year pushed up to 1 million foreclosures to next year and new filings continue to mount.

Several smaller lenders testified before Congress this week that regulatory uncertainty need to be addressed so their companies can comply and move on.

Ackerman acknowledged the need to move decisively, as well as quickly.

“With so much at stake for American families, inaction is not an option,” Ackerman said.

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