Daily Rate Update for Friday, June 11th from Province Mortgage Associates
Part of my job is to send a daily email to the staff at my company detailing the condition of the mortgage market, and whether our originators should be locking rates, or if it is safe to float to another day. I've been doing this for two months now, and from what I've heard around the office, the results have been great. We're having more success in improving profitability, while at the same time delivering better rates to our borrowers.
On Tuesday, I closed my message, saying,
"In spite of the fact that rates are ridiculously good right now, there is still some room to float and possibly do even better. However, it is precisely times like this where we can get burned by overconfidence. In light of this, I would suggest floating, but do so cautiously. I have a nasty feeling that some of the ordinarily less important data we have coming this week might actually come in better than expected. Because pricing is so high right now on loans, a little bit of good news could go a long way in erasing some of the gains we’ve seen."
Well, you know what happened yesterday. A small amount of positive data about economic growth in Europe and US unemployment was all it took to trigger a nearly 3% bounce in stock markets, and fixed income markets, like bonds and mortgages, took it on the chin. There's a direct connection between the two markets: as investors buy stocks, they have to free up cash to do it, and that often comes from selling fixed-income securities.
Today, bond markets have rebounded, as US retail sales were a significant disappointment to investors. A 0.2% increase was expected, but the result was a decrease of 1.2%. Retail sales suggest what the future might hold for GDP growth, as consumer spending makes up about 70% of the US GDP. Consumer sentiment was also reported, and came in higher than expected, so it appears that consumers are happy for the most part, but not happy enough to open their wallets.
The result has been little change in stock markets, but a significant retrenchment in bonds, meaning that mortgage prices are almost as good today as they were on Wednesday.
It is safe to float over the weekend, as I expect little news on Monday, and bonds tend to pick up steam Friday afternoon when investors take defensive positions for the weekend. By the end of the day today, I expect we might even get a rate improvement.
One other piece of news I saw this morning relates to a bill to change the monthly FHA insurance charges. Yesterday, the House of Representatives passed a bill intended to help strengthen the finances of the Federal Housing Administration. The bill will allow FHA to increase its annual insurance premiums from the current level of 0.55% per year to as much as 1.55% per year. If the whole increase were enacted immediately, a buyer using a $200,000 FHA mortgage would pay $167 more per month. Put another way, that buyer would qualify for about $27,300 less than under the current premium.
The bill will now move to the Senate for passage before heading to the president. Once enacted, it will probably take a few months for the change to go through to borrowers, and it is possible that FHA might only use part of the allowable increase, for example, raising premiums to 1% per year. Obviously, though, anyone on the cusp must move quickly to avoid the premium increase.
I hope you have a fantastic weekend! If I can help with anything loan-related, please contact me by commenting on this article, or by cell at (401) 263-8655.
Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven.
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