Last Week in Review: Three Trends to Follow as Summer Begins
As the unofficial start of summer began with the Memorial Day holiday, there are three trends worth following which may determine how the economy moves past the coronavirus.
- The reopening. Most states have begun to open up in some form. A few states have been open for weeks and have not yet seen a resurgence in cases, which if the trend continues, would be a great proxy for the rest of the country.
- Don’t fight the Fed. Last Sunday on 60 Minutes, Fed Chairman Powell reiterated that the Fed will do whatever it takes to help underwrite the economic recovery. If the Fed, Treasury, and administration continue to throw every resource necessary to help the economy, it will likely work.
- American spirit. We are seeing incredible increased demand in online shopping, DIY projects, and more. It seems reasonable that American spirit and optimism can continue to rise as we enter the summer months and states gradually reopen.
When you couple American spirit and states reopening safely, along with continued Fed support, you have all the ingredients required for an economic recovery. Let’s see what the next few weeks bring.
Meanwhile, home loan rates are at all-time lows and the housing market continues to see buying demand.
On the other side of the virus, we may very well see a strong housing market for all the reasons above, plus the pent-up demand created by increased household formation.
Better days are surely ahead.
Last Week in Review: Fed Speak Shakes Markets
Home loan rates remain near historic lows and have stabilized, thanks mainly to the Federal Reserve, as the central bank continues to purchase mortgage-backed securities on a daily basis.
The Fed also helped rates this past week in another way, but it may have been unintentional. Fed Chairman Powell spoke last Wednesday and uttered remarks that lifted uncertainty about the economic recovery. By saying the U.S. is facing an “extended period” of economic weakness, Stocks fell sharply, providing an improvement to rates.
The reality is the U.S. economic recovery is likely to be gradual as states re-open at a slower pace, while consumer demand may take some time to return to more normal levels. At the same time, we should expect the Fed, Treasury, and U.S. government to do whatever it takes to help the economy through this deep, yet temporary, recession — and revive it upon coming out of the other side of the virus.
The next couple of weeks are important to see whether the unemployment rate can decline in states that are re-opening, alongside a continued decline in cases.
Bottom line: Home loan rates are at all-time lows. Even all of the uncertainty and the sharp decline in Stocks could not push rates another leg lower this past week. Anyone with an opportunity to lock a 30-year mortgage, should do so.
Last Week in Review: Oversupply of Bonds and Unemployment
One week after home loan rates failed to improve further in the face of multiple Bond-friendly stories, such as low inflation, high unemployment claims, and the Fed’s continued commitment to purchase Bonds, we watched home loan rates tick up this past week.
Oversupply. The U.S. Treasury announced they will need to borrow $3 trillion through the third quarter of 2020 to pay for the economic stimulus package related to the coronavirus. In order to “borrow” the $3 trillion, the Treasury will issue a new 20-year Bond that will need to be purchased by investors.
Investors, at the moment, are showing early signs that rates will need to tick higher to meet the buying demand for this enormous new supply of Bonds. Early in the week, the 10-year yield hovered near .60% but ticked higher to .73% during the week and this weighed on mortgage-backed securities, which home loan rates are derived from.
On Friday, the Bureau of Labor Statistics reported that 20,500,000 were unemployed in April, lifting the unemployment rate to 14.7%. It was the worst Jobs Report in the history of the U.S.
Home loan rates didn’t improve in response to the horrible “oversupply” of unemployed shown in the Jobs Report. This is because the markets are forward-looking, and April’s Jobs Report is backward-looking.
Bottom line: The Bond market is more focused on the additional supply of Bonds that will need to be purchased and the cautious optimism seen in reopening parts of the U.S. economy. For this reason, consumers who have an opportunity to lock home loans at current all-time low rates would be wise to do so.
Effective May 11, 2020, the Wholesale/Correspondent lock policy will allow a 60-day lock at the Approval milestone regardless of whether the appraisal has been received. There is no longer an option for a 45-day lock term. See updated Minimum Lock Term table below.
Revised Lock Policy
Encompass and Optimal Blue will enforce these requirements.
Lock Extension Policy
- Maximum of up to two extensions
- Maximum extension period of 15 days in the aggregate
- Current extension fee charges remain in place (see rate sheet)
- Free 3 day remains in place (existing policy applies)
- No additional concessions will be considered for extension fees charged
Refer to the CMS Wholesale Rate Lock Policy for additional information.
We are doing all we can to provide an exceptionally high level of service during this unprecedented time, so that you can close every loan as swiftly as possible.
To better serve you and eliminate delays, we’ve put together a list of tips to help get your loan closed quickly and smoothly.
All New Submission Files Must Contain:
- Recent 30 days of paystubs
- Proof of available assets within the last 30 days
- W-2s for the last 2 years
- Tax returns for the last 2 years
- Credit report within the last 60 days
- For FHA loans put the case # in Carrington’s name
For File Currently in Process:
- Submit all conditions 7 days prior to closing
- Allow 48 hours for closing after CTC
- Understand VVOE will be done within 5 business days before funding
Got Questions? Talk to your Account Executive or call us at (866) 453-2400
The Lock Desk will be closed on Monday, May 25, 2020 for Memorial Day, which is a Federal Holiday. Normal lock hours will resume on Tuesday, May 26, 2020.
Additionally, the Lock Desk will close early on Friday, May 22, 2020 at 11:00 A.M. PST due to the early close of the financial markets.
Rate locks that expire on the holiday will automatically roll to the next business day. In addition there are some important disclosure considerations associated with the holiday:
- Monday, May 25, 2020 cannot be included in the rescission period for refinance transactions.
- Monday, May 25, 2020 cannot be included in the seven (7) business day waiting period between the date the initial Loan Estimate (LE) was provided to the borrower and the consummation of the loan
- When re-disclosure of the LE is required, Monday, May 25, 2020 cannot be included in the three (3) business day waiting period between the date the revised LE was provided to the borrower and the consummation of the loan.
- When re-disclosure of the Closing Disclosure (CD) is required, Monday, May 25, 2020 cannot be included in the three (3) business day waiting period between the date the revised CD was provided to the borrower and the consummation of the loan.
Issues related to locks should be sent via email to firstname.lastname@example.org.
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- Options for FICOs as low as 500
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Home loan rates continue to hover near all-time lows, but there are three reasons why they should have improved but didn’t.
Let’s take a look at some of the “Bond-friendly” news from this week that was unable to push mortgage-backed security (MBS) prices higher and home loan rates lower.
- Unemployment: The unemployment line is growing. This past week another 3.85 million people filed for unemployment insurance, bringing the total to a staggering 30,000,000 since mid-March. Bonds embrace bad news, and this was bad news.
- Core PCE: The Federal Reserve’s favorite gauge on consumer inflation, the Core Personal Expenditure Index (PCE), was reported at -0.1%, well beneath expectations. Inflation is like the tide that rises all boats — when it declines, like we are seeing, rates typically decline as well. That did not happen this week.
- Monetary Policy Statement: This past week, the Federal Reserve issued their Monetary Policy Statement and shared that they will continue purchasing MBS “to support smooth market functioning.” Bonds and home loan rates were unable to improve further despite the Fed’s continued buying commitment.
What does this tell us? Have we reached the “bottom” in rates? Quite possibly.
Stocks ended April up 12%, the best month since the ’80s. At the same time, the 10-year Note yield, a benchmark for longer-term rates, has been unable to move convincingly beneath .60%. Both Stocks and the 10-year Note yield are forward-looking and appear, at the moment, to be ignoring the awful economic numbers that continue to roll in.
Bottom line: For those who have an opportunity to lock in a home loan rate, now is an incredible time. It’s not yet clear that once our economy starts re-opening that rates will stay near current levels. If this week was any gauge, it is suggesting they won’t.
Last Week in Review: Stabilization in the MBS Market
MBS pricing and trading activity determine home loan rates, so a big and fast solution was necessary.
Thankfully, the Federal Reserve quickly came to the rescue by purchasing MBS to help stabilize the MBS market — and it worked! Their massive MBS Bond buying program stabilized the market, helped the lending industry in numerous ways, and kept home loan rates in a sideways range throughout April.
Now the Fed, who was buying as much as $50 billion per day in MBS, purchased less than that amount this entire past week.
What does it all mean for homeowners or would-be homeowners today?
With the Fed buying significantly less MBS, there is a limit to how low home loan rates can go in the near-term, making today an incredible opportunity to capture historically low home loan rates.
Besides a sharply smaller Fed MBS buying commitment limiting the improvement to home loan rates, here are three additional reasons why home loan rates might not improve much further in the near-term, making today a great time to secure a home loan:
- Capacity at the lender level will limit how low home loan rates can go. Lenders are experiencing record mortgage volume. Whether a company is selling widgets or loans, when they are “flying off the shelf” the last thing a company does is lower price.
- MBS are now carrying an increased risk of default due to the current elevated unemployment rate. Investors in MBS will demand a premium for this risk, again putting a limit to lower rates.
- MBS hate good news. This week, stabilization in the oil market, and the idea that pockets of the U.S. economy will reopen, lend an air of optimism which limits interest rate improvement.
Last Week in Review: The Unemployment Line is Growing
The leading indicator on the health of the job market is the Initial Jobless Claims report, which essentially tells us the length of the unemployment line. And that line just grew.
Over the past four weeks, approximately 22 million people have filed for unemployment benefits, erasing nearly a decade worth of job creation.
Although the unemployment rate is likely 13% or higher, this is temporary in nature due to the coronavirus. We expect many people will be headed back to work relatively soon as the virus passes.
We won’t see the “pre-virus” 3.5% unemployment numbers for some time. However, the economy is expected to bounce back sharply as pockets of the country begin to reopen, putting people back to work.
There remains incredible opportunity during these uncertain times. Home loan rates are at all-time lows, affording many people the opportunity to refinance and restructure their personal debt.
With the Fed continuing to buy mortgage-backed securities, rates should hover near current levels for the foreseeable future.