An improving economic outlook was unfavorable for mortgage rates this week. The Dow stock index reached a new high for the year, as investors shifted funds from bonds to stocks. Weaker than average demand for the 7-yr Treasury auction also helped push mortgage rates a little higher.
The economic data released during the week generally was a little stronger than expected. Most significant was the monthly Employment report. Against a consensus forecast of 195K, the economy added 216K jobs in March. The Unemployment Rate declined to 8.8%, the lowest level since March 2009, from 8.9% in February. Stronger economic growth increases inflationary pressures, which is negative for mortgage rates.
The recently passed Dodd-Frank Act requires Federal housing regulators to define the characteristics of loans which will be exempt from new risk retention requirements. Such loans will be known as Qualified Residential Mortgages (QRM). Non-QRM loans will likely require higher interest rates than QRM loans. This week, the first proposed QRM characteristics were announced. In the proposal, all government guaranteed or insured loans, including FHA/VA, Fannie Mae and Freddie Mac loans, will be QRM. Unfortunately, outside of these agency loans, the definition was very strict, making it hard to qualify. There will now be a 60-day comment period.
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