When it comes to interest rates reacting to scheduled economic reports, the magnitude of the reaction is generally correlated with the extent to which the data comes out better or worse than expected. Said more simply, the stronger the economic data is relative to expectations, the more rates tend to rise. The weaker the data is, the more rates tend to fall.
Of course there’s a third scenario where the data comes out almost perfectly in line with the median economic forecast. In those cases, there can still be subtleties in certain economic reports that tip the scales in one direction or the other. Then again, sometimes those subtleties balance each other out, or they simply fail to catch the market’s attention.
In today’s case, rates were waiting on the results of the Consumer Price Index (CPI)–the most widely traded inflation report on any given month. The top line numbers definitely threaded the needle with core inflation hitting 0.3% versus a median forecast of 0.3% in month-over-month terms. That was the most important number of the day.
The internal numbers weren’t perfectly balanced and they resulted in some upward pressure on rates, but it was only really detectable in the underlying bond market. Reason being: bonds were stronger overnight. Mortgage lenders would have been in a position to offer lower rates this morning, but due to the modestly negative impact from the CPI components, the bond market ended up right in line with yesterday’s latest levels by the time mortgage rates came out for the day.
Bottom line: mortgage rates were essentially unchanged.
We’ll get another chance to see some volatility after tomorrow afternoon’s Fed announcement (2pm ET).
Mortgage rate pricing can be a bit of a mystery. And also super complex.
I’ve written about it in detail (how mortgage rates are determined). But you could go on and on about it, eventually generating more confusion than clarity.
At the end of the day, there are many different loan types and countless loan scenarios.
There are also thousands of banks, credit unions, mortgage lenders, brokers, and so on.
Which begs the question; do we need a mortgage MSRP?
First Off, What Is MSRP? And Why Is It Useful?
First off, what is MSRP? Well, it stands for manufacturer’s suggested retail price.
It’s essentially what the manufacturer of the product suggests a consumer should pay.
Typically, it’s found at dealerships because auto dealers are required by law to post it on the windows of new vehicles on the lot.
You might also see it on a book at the bookstore, or even a bag of chips at a convenience store.
When purchasing a vehicle, it is known as the “sticker price,” and may include manufacturing and sales costs along with the retailer markup.
It’s all supposed to improve price transparency for the consumer, even though the final sales price could be above or below the MSRP.
But by knowing what the price of an item should be, you’ll know if you’re being overcharged.
For example, if a car has an MSRP of $25,000 and the dealer is attempting to sell it to you for $35,000, you might raise an eyebrow.
This ostensibly makes it more difficult for dealers to rip you off, assuming you don’t know a lot about car prices. Or you simply didn’t do your research beforehand.
The Mortgage Industry Doesn’t Have an MSRP
The mortgage industry does not have an MSRP, but similar to vehicles, pricing is often shrouded in mystery.
If you’ve ever purchased a new car and obtained a home loan, you may have felt some eerie similarities.
Instead of the car salesman “speaking to his manager,” the loan officer might tell you that she has to check pricing with the lock desk.
Or that this is the best that they can do. Meanwhile, you’re given a Loan Estimate (LE) with all types of numbers and other disclosures that create more confusion.
In the end, you’re probably unsure if the rate presented is good or bad. Never mind the mortgage APR, which factors in lender fees.
The one thing the mortgage industry has at the moment that kind of resembles MSPR is the “higher-priced mortgage loan,” which is simply one that exceeds the Average Prime Offer Rate (APOR).
For first-lien mortgages it is considered “higher priced” if the APR exceeds the APOR by 1.5 percentage points.
This number jumps to 2.5 percentage points for jumbo loans and 3.5 percentage points for second mortgages.
While this provides some protection to the borrower, the spread is pretty large. You could still be presented with a rate 1% above market and it wouldn’t be considered “higher priced.”
And even a rate of say .50% higher could result in a big monthly cost compared to a market rate.
On a $500,000 loan set at 6.5%, we’re talking $160 more per month versus a 6% rate. Or nearly $2,000 annually.
How a Mortgage MSRP Would Work
This has led housing policy advocates Laurie Goodman, Ted Tozer, Alexei Alexandrov to propose a “mortgage MSRP” to improve pricing transparency in the mortgage industry.
While there have been efforts by the Consumer Financial Protection Bureau (CFPB) to encourage borrowers to shop around, most borrowers fail to do so.
And the current disclosures are too confusing anyhow, even for those who work in the industry. In the end, most borrowers simply use the first lender they speak with, despite a big disparity in pricing.
Mortgage rates can vary tremendously, even for borrowers with the same exact LTV ratio, FICO score, loan purpose, and so on.
And studies have proven that those who gather additional quotes can save thousands on their mortgage.
To encourage borrowers to shop more, a mortgage MSRP could be published daily.
Both the GSEs (for Fannie Mae and Freddie Mac conforming loans) and the FHA (for FHA loans) could publish a daily rate sheet for prospective borrowers.
It could include APRs for a standard 30-year fixed home purchase loan locked the preceding day.
Additional numbers could be provided, including APRs for rate and term refinances and cash out refinances as well.
Lenders would then be required to disclose this MSRP to borrowers and warn them when the lenders rate quote is above the MSRP.
If so, they’d have to inform borrowers of the difference in monthly payments between the rate offered and the MSRP.
While they note that some borrowers would “be happy to pay more because they like the lender,” others would shop around and/or attempt to negotiate the mortgage rate.
A Mortgage MSRP Could Lead to Lower Pricing
The researchers argue that establishing a mortgage MSRP could lead to lower pricing, a claim backed by empirical evidence.
Additionally, it could result in more uniform pricing with less mortgage rate disparity among lenders.
At the end of the day, a mortgage is mostly a commodity with no material difference other than the service involved during the loan origination process.
After your 30-year fixed-rate home loan funds, it’s no different than someone else’s 30-year fixed-rate home loan.
The only real difference could be the interest rate attached and the lender fees paid. Beyond that, they’re essentially identical.
So having to pay significantly more at one bank doesn’t seem quite fair. Sure, level of service and lender competency (ability to actually close the loan!) have value.
But closing the gap in pricing between mortgage companies, especially higher-priced ones, could benefit home buyers and refinancers everywhere.
It could also improve the mortgage customer experience and the reputation of the industry, which isn’t always seen in the best light.
IndyMac Bancorp posted a fourth quarter loss of $509.1 million, or $6.43 per share, compared with a profit of $72.2 million, or 97 cents per share in the same period a year earlier due to higher credit costs.
The company said it absorbed $863 million in total pre-tax credit costs during the quarter, which ultimately led to the loss.
Analysts polled by Thomson Financial expected a much more modest loss of just $1.57 a share.
For the year, IndyMac posted a loss of $614.8 million, or $8.28 per share, compared with a profit of $342.9 million, or $4.82 per share, for all of 2006.
It was the Pasadena-based mortgage lender‘s first annual loss in its 23-year history.
“2007 was a terrible year for our industry, for IndyMac and for you, our owners,” Chief Executive Michael Perry said in his annual letter to shareholders today.
“Innovative home lending went too far,” Perry said. “All home lenders, including IndyMac, were a part of the problem, and, as IndyMac’s CEO, I take full responsibility for the mistakes that we made.”
At the same time, he noted that the loss was “consistent with nearly every other large financial institution in the mortgage lending and securitization business.”
During the quarter, the company’s total loan production was just over $12 billion, compared to $26 billion in the period a year ago.
For the full year, total loan production was $78.3 billion, down from $91.7 billion in 2006.
The company said its mortgage broker channel saw production fall by $4.7 billion, or 37 percent during the quarter, compared to a year ago, reflecting the ongoing retail push for lenders.
IndyMac’s pipeline of home loans fell 37 percent to $7.5 billion at the end of December compared to $11.8 billion as of December 31, 2006.
Non-performing assets jumped to 4.61 percent of total assets, up from just 0.63 percent a year ago, while the allowance for loan losses to total loans held for investment climbed to 2.42 percent from 0.61 percent.
The company said it expects charge-offs to “increase substantially” this year compared to 2007, but said its stockpile of credit reserves should absorb most of them.
At the end of the quarter, credit reserves for future losses totaled $2.4 billion, up from $619 million a year earlier.
“Our goal is to return IndyMac to profitability in (the second quarter) and grow our profit each quarter thereafter, and I believe that we have a realistic shot of achieving this goal,” Perry said.
The second largest independent mortgage lender also said it was suspending its $1 a year dividend “in light of current financial performance,” but would pay preferred shareholders 53 cents.
Perry projects a 2008 profit of about $13 million, or roughly 16 cents per share, compared to analyst expectations of a loss of 22 cents per share.
Shares of IndyMac were down 41 cents, or 5.39%, to $7.19 in early session trading on Wall Street.
Huge Rally as Dots Deliver and Powell Stays Out of The Way
By:
Matthew Graham
Wed, Dec 13 2023, 5:02 PM
Huge Rally as Dots Deliver and Powell Stays Out of The Way
It may have seemed that we were paying too much attention to today’s dot plot on the approach, but hindsight suggests it could not have been overdone. Rates plummeted as the dots revealed that September’s big revision was completely erased (in Sept, Fed members priced in 50bps of “higher for longer in 2024”). After the dots, some market watchers worried that Powell would push back on the rally in order to temper the volatility. He did not. He simply said the same things he’s been saying. Hikes are likely done unless data manages to surprise in an inflationary way. Bonds rejoice across the curve.
Core PPI m/m
0.0 vs 0.2 f’cast
09:46 AM
Gradually stronger overnight with modest additional gains after PPI data. MBS up 5 ticks (.16) and 10yr down 4bps at 4.17.
10:24 AM
Some illiquidity in MBS, currently up 3 ticks (.09), but briefly showing as being down more than an eighth. 10yr down 3.6bps at 4.174
01:35 PM
A bit weaker ahead of the Fed. MBS still up 1 tick (0.03) but down 3-4 ticks from highs. 10yr down 4.4bps on the day at 4.166.
02:07 PM
First move is stronger after the DOTS. 10yr down 11bps at 4.10. MBS up half a point in 5.5 coupons.
03:36 PM
Mostly holding massive gains seen during Powell’s press conference. 10yr down 18bps at 4.03. MBS up nearly a point in 5.5 coupons and nearly 5/8ths in 6.0 coupons.
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After two years of sharp declines, existing-home sales are poised for improvement in 2024. But first, this slice of the housing market must weather the rest of a rocky year in 2023, with existing-home sales expected to end up 18% lower than those of 2022, according to the National Association of REALTORS®. That puts these transactions on track for their worst year in more than a decade.
NAR Chief Economist Lawrence Yun joined other leading housing analysts Tuesday at NAR’s virtual Real Estate Forecast Summit to discuss sales projections heading into 2024—and the experts agreed that better days are ahead for the real estate market.
Mortgage rates likely have peaked and are now falling from their recent high of nearly 8%. NAR predicts the 30-year fixed-rate mortgage to average 6.3% in 2024; realtor.com® projects 6.5%. This likely will improve housing affordability and entice more home buyers to return to the market, Yun says. NAR’s data shows that rates near 6.6% enable the average American family to afford a median-priced home without devoting more than 30% of their income to housing, the threshold commonly used to measure affordability.
NAR is projecting that existing-home sales will rise 13.5% and new-home sales—which are up about 5% this year, defying market trends—could increase another 19% by the end of next year.
Markets to Watch in 2024
Some housing markets likely will experience higher sales upticks in 2024 than others. “Job growth will be a determinant for long-term housing demand,” Yun said.
NAR evaluated 100 of the largest U.S. metro areas to identify the markets with the largest pool of potential home buyers, the greatest likelihood for home price appreciation and more. The following markets have the most pent-up housing demand for 2024, according to NAR:
Danielle Hale, chief economist at realtor.com®, said at Tuesday’s summit that while she’s optimistic the housing market will improve in 2024, inflation is the issue that could derail optimistic real estate forecasts. If inflation doesn’t continue to improve, she said, it could raise long-term interest rates, which then could discourage more homeowners from selling and prolong the inventory bottlenecks in the market. Younger generations of home buyers may continue to be sidelined by higher housing costs and remain as renters. “That could have huge ramifications for the housing market,” Hale said. “The inflation data is very important to watch.”
Overall inflation has been easing, although “shelter inflation” continues to rise. The latest reading of the Consumer Price Index showed that inflation decreased to 3.1% in November. (The Federal Reserve’s target for the inflation rate is 2%.) Yun said an “oversupply” of new apartment units will hit many housing markets in the coming months, which could bring rental rates down and help better control inflation. Hopefully, he added, that will disincentivize the Fed to continue raising its short-term rates.
Regardless of inflation and mortgage rates, the 2024 housing market likely will remain challenging, particularly for first-time buyers who are unable to leverage the proceeds from a previous home sale, summit panelists noted. Plus, amid record low inventory, finding a home to buy will be a top hurdle. Homeowners remain reluctant to sell and give up the low mortgage rates they locked in two years ago. Further, homebuilders have underproduced for decades, leading to a shortage of 5 million housing units nationwide, according to NAR research.
However, current homeowners are in an envious position: With rapid home appreciation in recent years, owners will grow their nest egg in 2024. Even those in markets that are expecting slight dips next year will be able to weather the drop. Home price appreciation has jumped by about 5% over the past year alone. The typical homeowner has accumulated more than $100,000 in housing wealth over the past three years, NAR’s data shows. Plus, the wealth comparison between homeowners and renters continues to be significant: The typical homeowner has $396,200 in wealth versus $10,400 for renters, according to Federal Reserve data. “Over the long term, homeowners build wealth over time,” Yun said.
Just when it appeared that the recent rally was running out of steam, mortgage rates sunk even lower.
Despite a lackluster CPI report yesterday that merely met expectations, an updated dot plot and dovish comments from Fed chairman Jerome Powell seemed to do the trick.
That resulted in a big move downward for mortgage rates, which are now the lowest they’ve been since May.
The 30-year fixed is now priced at around 6.75%, or even lower if you pay points.
Ironically, home buyers weren’t thrilled with those rates back then, but they might be moving forward. Thank human psychology.
Why Did Mortgage Rates Fall So Much Today?
The Fed left the federal funds rate unchanged, as was widely expected. So that wasn’t it.
And remember, the Fed doesn’t control mortgage rates anyway.
But along with that announcement, they released an updated dot plot and Fed chair Jerome Powell held a press conference.
In prepared remarks he said, “While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured.”
Powell essentially confirmed that the rate hike in July was likely the last for this economic cycle.
He added that, “If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of 2024, 3.6 percent at the end of 2025, and 2.9 percent at the end of 2026, still above the median longer-term rate.”
The federal funds rate is currently 5.25% to 5.50%, so this represents about a one percentage point decrease within a year.
In other words, rate cuts are now in view and not just speculation. Though as Powell said, the economy has to cooperate.
But seeing that inflation has cooled significantly and Fed policy remains restrictive, an easing in rates is possible while continuing the fight toward its two percent goal.
Taken together, rates have likely peaked and cuts are now the next most likely outcome.
In fact, we could see the first rate cut as soon as January, with the CME FedWatch Tool now giving a quarter-percent cut at the next Fed meeting a 16.5% chance.
It’s more likely that cuts will begin in March though. And by December, the odds are now on a fed funds rate between 3.75% and 4%.
Bond Yields Plummeted After Fed’s Latest Summary of Economic Projections
The Fed’s latest Summary of Economic Projections (SEP) includes the all-important dot plot mentioned by Powell.
That revealed a more dovish outlook from the 12 FOMC participants and that rate cuts are likely in the cards for 2024.
Shortly after the Fed released their statement and updated SEP, the 10-year bond yield dropped about 17 basis points.
It’s now around 4%, well below the near-5% levels seen in late October when mortgage rates peaked.
Simply put, bonds rallied because the economy is no longer overheating, which means the Fed can ease rates.
Mortgage rates tend to follow bond yields. So this rosier outlook resulted in a midday reprice, with many lenders slashing rates by about 0.25%.
The 30-year fixed is now back in the high 6% range, with rates as low as the high 5s if it’s a vanilla scenario and discount points are paid at closing.
Aren’t Mortgage Rates Still Pretty High Though?
Here’s the funny part. While mortgage rates have rallied since late October, they’re still quite high relative to recent levels.
In fact, the 30-year fixed was in the low-to-mid 6% range for much of early 2023. Yes, this year.
And in early 2022, rates were still being quoted in the 3% range, even if it feels like forever ago.
They remained below 6% all the way until the fall of 2022, at which point they began to ascend toward 7% and beyond.
The mortgage rate picture got really bad this past August to October, before they appeared to finally peak.
Rates have since staged a huge rally, dropping from around 8% to 6.75% today. While that’s a big move in a short time span, it really only gets us back to levels seen in late spring.
They remain markedly higher than they were, though due to human psychology, an interest rate starting with a 5 or 6 is going to look (and maybe even feel) good.
After all, if you were used to seeing 7s and 8s, it’s a big improvement, even if it’s not a 3 or a 4 again.
Read more: 2024 Mortgage Rate Predictions from Top Economists
According to a report released today by real estate portal Zillow, nearly a third of U.S. homebuyers who purchased a property in the last two years are now underwater.
A troubling 39 percent of those who bought in 2006 and 30 percent who purchased a home in 2007 have negative equity, largely because home values continue to slide.
During 2007, single-family home values posted a year-over-year decline of 5.5 percent, while condos slid a record 7.4 percent.
To highlight the severity of the problem, only three percent of those who purchased a home in 2003 currently owe more than their homes are worth.
Homeowners were hit hardest in areas like California, Florida, Arizona, and Nevada, where home prices saw the worst declines and borrowers put little to nothing down.
In Las Vegas, home values dropped 13.8 percent year-over-year and 57.6 percent of those who bought in 2007, when the median down payment for the area was 5 percent, and 72.5 percent who bought in 2006 with a median down payment of zero, have negative equity.
“It’s important to remember that value declines and negative equity situations are largely unrealized effects for most homeowners unless they are in a situation where they must sell or withdraw equity immediately,” said said Dr. Stan Humphries, Zillow vice president of data and analytics.
“The decline in values, combined with the recent rate cuts by the Fed should make entering the market more attractive to would-be buyers, but we may not see any effects until the spring when the home shopping season usually kicks off.”
Humphries also noted that despite the recent record declines, the housing market has more room to fall.
“With consecutive declines over the past five quarters, we haven’t seen the housing market bottom yet, and it may very well get worse before things get better,” he said.
“Even many markets that have been largely insulated from recent declines, like some in the Pacific Northwest, reported notable value declines in the fourth quarter.”
Today I head to Northern California, home of plenty of technology. The other day I went to the doctor and the receptionist handed me a tablet and said, “Please fill out these medical forms on the screen, which are identical to the ones you filled out earlier online, and have the exact same questions your doctor will ask you later in the exam room.” Great. There’s nothing like old-fashioned printed things. I am sure that menu Quick Response (QR) codes are fine, but plenty of other QR codes are not: beware! “The Federal Trade Commission (FTC) warned the public against scanning any old QR code in a consumer alerts blog last week. Naturally, the warning comes down to security and privacy: bad actors can put QR codes in inconspicuous places or send them via text or email, then just sit back and wait for a payday in the form of money, logins, or other sensitive information. Lord knows that the mortgage industry has enough challenges from lousy characters without more of it coming our way! (Today’s podcast can be found here, and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. Today’s has an interview with Clear Capital’s Kenon Chen putting a bow on the real estate market in 2023 and why 2024 brings reasons for optimism.)
Lender and Broker Products, Programs, and Services
Are you missing out on originating more government-backed loans? A whopping 44 percent of purchase loans for 1–4-unit properties in the top 10 MSAs in the United States would be potentially eligible for down payment assistance. That’s according to a newly released Urban Institute (UI) study. UI partnered with Down Payment Resource (DPR) to analyze 2022 HMDA data and DPA data from the 10 largest MSAs. Among the findings, the report says that across channels, FHA and USDA loans are most likely to be eligible at 80 and 82 percent, respectively and that FHA and USDA loans are generally eligible for a greater number of programs than conventional or VA loans. For more insight into how DPA programs could help you fund more government-insured mortgages, schedule a demo with the DPR team.
TENA Companies, Inc. is your partner for achieving Mortgage Quality Control excellence in 2024 and beyond! In today’s challenging market, Quality Control remains paramount. Protecting the integrity of your firm’s portfolio, maintaining compliance, and reducing risk is critical in the current lending environment. TENA’s industry-leading team of skilled auditors have unmatched experience and knowledge of every facet of Mortgage Quality Control operations, ensuring your firm minimizes risk and stays compliant from Pre-Funding to Post-Closing to Servicing. Our tailored Mortgage QC services and SecondLook Software deliver all the tools needed to ensure loan quality remains high, providing your firm with peace of mind as we enter the New Year. Don’t just adapt; lead with confidence. Contact TENA today to get started and position your firm for Quality Control success in 2024!
“Technology for technology’s sake is useless.” That’s the mindset that drives the mortgage technology experts at ICE as they modernize the American homebuying process via digital solutions built with a purpose. Watch here as HousingWire’s CEO Clayton Collins sits down with Sandra Madigan, EVP of Product Strategy at ICE Mortgage Technology, to discuss the careful consideration it takes to effectively “digitalize” the mortgage industry. You’ll learn how ICE is unifying all parts of the homebuying journey and how that digitalization impacts homeowners, as well as back-office teams who support consumers. Catch the full interview here to hear how ICE is approaching product development and helping to improve the homebuying and homeownership process end-to-end, and which aspects of the mortgage experience the industry needs to digitalize next.
“If Fed fund futures are right, by the time we all meet at next year’s MBA Secondary, the Fed may have already cut once and may even be on their way to a second cut! Right now, MSR valuations are “hanging in there” but Fed cuts will likely erode some of the value from ‘float’ on escrow. Blue Water (“Blue Water Financial Technologies Services, LLC”) can assist lenders to sell bulk MSR, regardless of size. With BlueRATE™, a lender can obtain an instant portfolio valuation and then determine what to sell – whether it be a small geo carve or the entire MSR portfolio. Blue Water can also assist in moving your product quickly with Blue Water’s proprietary SuperTransfer™. With SuperTransfer™, transferring the portfolio to a buyer is easier than ever. Connect with our expert Sales Team to learn more.”
Have you heard about the laws the FCC and the TCPA have implemented for the new A2P 10DLC requirements, to try and stop the junk texting? Hopefully, you have because the fines for noncompliance are serious. Are your salespeople texting their databases? Since ALL texting through mortgage CRMs falls under this federal law, it is imperative that you utilize texting legally and compliantly. What have your CRM providers done to help you navigate this challenging compliance landscape? Usherpa is pioneering the way on this front, making sure they’re texting platform was built to the letter of the law, ensuring that their clients are not exposed and are utilizing texting legally. Click here to learn more about the regulations and what you need to do to be compliant. Share this Infographic with your team.
Correspondent and Wholesale Programs
“Long-term Rental or Vacation Rental? Visio Lending is the nation’s leader in Non-QM Investor DSCR loans for buy and hold SFR rentals with nearly a decade of experience and over $2.5 billion in originations. No-DTI, 30-year terms, rate buy downs, free 45-day rate locks; I/O and Sub-1 DSCR options available. Through our top-notch Broker Program, brokers are able to earn up to 2 points YSP, and 5 points total. Visio Brokers can count on a designated Account Executive and in-house processing.”
Yesterday, December 11, Symmetry Lending launched its new First Lien HELOC! This new solution presents an opportunity for mortgage brokers and loan officers to extend their reach and offerings to even more of their client base, helping to drive new business and extend borrower relationships in a still-challenging market. In addition, brokers will be able to collect 1.5 percent on the draw amount (with no maximum!) for Symmetry’s First Lien HELOCs! This new product launch is a major win for brokers, loan officers, and borrowers alike. Contact your Symmetry Area Manager for more product details and support with presenting this product to your clients.
“Axos Bank’s Wholesale & Correspondent and Warehouse lending teams wish you and yours a happy and prosperous 2024! Our teams are here to help you achieve your goals in the year ahead. Axos’ innovative mortgage solutions include Super Jumbo ($3MM+) loans, buy-before-sell options, and cross-collateralization programs. Check out our rates on our Quick Pricer today or contact J Shoop, National Sales Director, for additional details. And our Warehouse Lending team can help you gain the flexibility and liquidity that’s needed to become a top originator in today’s market. With our expanded product eligibility, investor relationships, and extended cutoff times (6:15 p.m. ET), achieving success has never been easier. Take the opportunity to meet our team at the IMB conference in New Orleans Jan. 22-24. To secure a meeting time, simply reach out to Eric Nelepovitz and Justin Castillo via email, or call 888-764-7080.
Conforming Conventional News
Freddie Mac has launched DPA One® to help mortgage lenders quickly find and match borrowers to down payment assistance programs nationwide. DPA One is an innovative new tool that aggregates and showcases down payment assistance programs in a single, standardized, insights-rich tool so lenders can quickly and efficiently access and compare programs to help make home possible for more families. Loan officers and down payment assistance program providers can visit the DPA One website for more information and to request a demo.
Fannie Mae posted Lender Letter LL-2023-09, confirming Conforming Loan Limit Values for 2024. The new loan limit for most of the country will be $766,550 — a 5.56 percent increase over the 2023 limit and is effective for whole loans delivered to Fannie Mae and loans in MBS pools with issue dates on or after Jan. 1, 2024. View the Loan Limit Look-Up Table.
Fannie Mae is partnering with Freddie Mac to develop standardized subordinate lien documents. This is part of a comprehensive effort to expand access to down payment and closing costs assistance programs. Access down payment assistance information.
Freddie Mac Guide Bulletin 2023-24 announced updates pertaining to 2024 conforming loan limit values, An additional 10-day pre-closing verification type, Cash-out refinance mortgages, Condominium projects, GreenCHOICE Mortgage® enhancements, Market condition adjustments. Watch the Q4 2023 Policy Highlights Video. See highlights from all of the Guide updates this quarter in the Q4 2023 Policy Highlights video.
The Uniform Property Dataset (UPD) was implemented into Fannie Mae’s Property Data API on December 1st and is now available for lenders to use with Fannie Mae’s value acceptance + property data offers. Use of the UPD will be required as of April 1, 2024, when Fannie Mae’s proprietary Property Data Standards v6 will be retired. Visit the UPD page for more information.
Capital Markets
Hasbro, the toy company, is laying off 1,100 of its employees, equal to 20 percent of its workforce. An isolated situation or an indication of the overall economy?
The Fed’s Federal Open Market Committee’s two-day meeting kicks off today in Washington D.C. The Fed is nearly assured to maintain interest rates at current levels of 5.25 percent to 5.50 percent for its last decision of the year. The Fed’s policy statement will likely acknowledge the recent decline of inflation and the bank will release its latest dot plot, which will indicate how many rate cuts the Fed expects next year. Chair Powell will likely emphasize that the Fed is still willing to hike if inflation proves stickier than expected. Forecasts are for the Fed to make the first rate cut of this cycle in June.
Outside of the Fed, there was a 10-year note auction yesterday and there is a 30-year bond auction today. The $37 billion 10-year note auction met underwhelming interest, but the market held its ground. The 10-year Treasury yield has fallen around 80 basis points from its mid-October peak as more confidence that the Fed will start reducing interest rates in the next six months has been priced into the markets. Agency MBS have followed to some extent, but prepayment fears are not helping MBS investor appetites.
Prior to the start of the FOMC’s two-day meeting, today’s economic calendar kicked off with the NFIB Small Business Optimism Index for November. More importantly, the consumer price index for November is also out. Headline CPI came in +.1 percent, +3.1 percent year over year, versus 0.0 percent month-over-month and 3.2 percent year-over-year previously. Core CPI increased .3 percent as expected month-over-month and 4.0 percent year-over-year expectations. Later today brings the aforementioned $21 billion reopened 30-year bond auction and the Federal budget for November. Remember that the last 30-year bond auction was weak, so this one will be closely watched. We begin the day with Agency MBS prices better than Monday afternoon by a solid .250, the 10-year yielding 4.16 after closing yesterday at 4.24 percent, and the 2-year at 4.65.
Employment
Movement Mortgage is looking ahead to more in 2024! Movement is investing in LOs through its More in ’24 bootcamp, a ground-breaking curriculum designed to help build momentum in business and drive new levels of success in 2024. Weekly coaching call topics include mining for gold in your database, setting a strategy for your 2024 business plan, creating stellar follow-up systems, building referral partnerships that last and more. More in ’24 is just one of the ways Movement is helping LOs close out 2023 strong and set a plan to jump start 2024. Are YOU ready for more in ’24? Reach out to Sarah Middleton, Movement’s Chief Growth Officer, today to learn more about Movement! Plus, Movement offers new loan officer hires 90 days of free one-on-one coaching with Movement top producers. Reach out today and join the Movement!
A veteran group of mortgage bankers is interested in purchasing a small wholesaler in good standing and that has its “tickets” with Fannie, Freddie, and Ginnie. Loan production volume is not a priority. Interested parties should send me a confidential note for forwarding.
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Federal Reserve left its key short-term interest rate unchanged again Wednesday, hinted that rate hikes are likely over and forecast three cuts next year amid falling inflation and a cooling economy.
That’s more rate cuts than many economists expected.
The decision leaves the Fed’s benchmark short-term rate at a 22-year high of 5.25% to 5.5% following a flurry of rate increases aimed at subduing the nation’s sharpest inflation spike in four decades. The central bank has now held its key rate steady for three straight meetings since July.
That provides another reprieve for consumers who have faced higher borrowing costs for credit cards, adjustable-rate mortgages and other loans as a result of the Fed’s moves. Yet Americans, especially seniors, are finally reaping healthy bank savings yields after years of paltry returns.
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Will the Fed raise interest rates again?
The central bank didn’t rule out another rate increase as it downgraded its economic outlook for next year while lowering its inflation forecast. In a statement after a two-day meeting, it repeated that it would assess the economy and financial developments, among other factors, to determine “the extent of any additional (rate hikes) that may be appropriate to return inflation to 2% over time.”
Fed Chair Jerome Powell said at a news conference, noting the Fed’s key rate is “at or near its peak.”
while the Dow Jones Industrial Average closed at a record high after rising 1.4% following the Fed’s signals that it’s probably done lifting rates and is forecasting three cuts next year. The 10-year Treasury was down to about 4% from 4.21% on Tuesday.
Last month, Powell said high Treasury yields, if persistent, likely would constrain the economy and require fewer Fed rate increases,
In its statement Wednesday, however, the central bank didn’t acknowledge the recent decline in Treasury yields, suggesting yields are still relatively high and could spike again, crimping the economy.
“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the Fed said, repeating the language of its previous statement.
Is inflation really slowing down?
The Fed’s middle-ground approach may have been cemented Tuesday by a mixed report on the consumer price index. The good news was that overall inflation barely budged in November amid falling gasoline prices, pushing down annual price gains to 3.1% from 3.2%, still well above the Fed’s 2% goal.
The Federal Reserve System is the U.S.’s central bank.
When does the Fed meet again?
The first Federal Reserve meeting of the new year will be from Jan. 30 through 31.
Federal reserve calendar
Jan. 30-31
March 19-20
April 30- May 1
June 11-12
July 30-31
Sept. 17-18
Nov. 6-7
Dec. 17-18
The U.S. economy was strong in the third quarter as consumers continued to spend despite high interest rates and inflation.
The value of all services and products generated in the U.S., or GDP, rose at a seasonally adjusted 4.9% for the year in the months spanning July to September, according to the Commerce Department. That was more than twice the 2.1% increase in the previous quarter and the most aggressive pace of growth since the end of 2021 when the economy surged back from a recession sparked by the pandemic.
a recession over the next year, down from the 61% odds forecast in May.
Barclays predicted a loss of roughly 375,000 jobs by the middle of next year. But consumer spending remains robust despite high inflation and interest rates that are making credit card use and consumer loans more expensive. And that may help stave off a recession, says Barclays economist Jonathan Millar.
What does FOMC stand for?
The FOMC is the Federal Open Market Committee, the voting body responsible for setting interest rates. The 12-member committee includes seven members of the Board of Governors and five of the 12 Reserve Bank presidents.
What causes inflation?
Inflation can have many roots. Typically, it’s caused by “a macroeconomic excess of spending over the economy’s relative ability to produce goods and services,” said Josh Bivens, the director of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
That means more people are wanting items and services than there is adequate supply, leading producers to raise prices.
“If everyone in the economy, tomorrow, decided they weren’t going to save any money from their paychecks, and they’re just going to spend every last dollar out of the blue, they would all run to the stores and try to buy things,” Bivens said. “But, producers haven’t produced enough to accommodate that big surge of across-the-board spending. So, you would see prices bid up.”
Inflation can also happen when there are too few producers, or there aren’t enough employees to provide the coveted products and services, Bivens said.
Finally, economies also have some “built-in inflation” to help keep inflation in check. In the U.S., that target is 2%, meaning businesses can raise prices 2% annually year and that shouldn’t overburden consumers. That’s also the typical cost of living raise offered by employers.
Inflation meaning
Inflation is the term for a “generalized rise in prices,” according to Josh Bivens, head of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
Everything from food to rent can become costlier due to inflation. But it is the overall impact that determines what the inflation rate actually is.
“Inflation, though, really is meant to only refer to all goods and services, together, rising in price by some common amount,” Bivens said. The Federal Reserve’s inflation goal is 2%, which means businesses can hike prices by 2% a year and that shouldn’t cause consumers financial distress. Cost of living increases to workers’ pay are also expected to meet that target to ensure consumers can adequately deal with the rising costs of goods and services.
What is CPI?
In November, the Consumer Price Index (CPI) ‒ a measure of the average shift in prices for different products and services ‒ was 3.1%, down slightly from the month before.
Annual inflation is down dramatically from the 9.1% in June 2022 that marked a 40-year high but remains above the 2% target the Fed sees as the level that signals the rate of price increases is under control.
Why is CPI important?
The Federal Reserve watches two key aspects of the economy, price stability and maximum employment, and those are the main factors it takes into account for its interest rate decisions. The CPI is a primary measure the Fed looks at to help determine if prices are “stable.’’
What is the difference between CPI and core CPI?
Core prices don’t count the volatile costs of food and energy items, giving a more accurate window into longer-term trends.
Are wages going up in 2024?
If you’re deemed a top performer at a company that is offering raises, you’ve got a pretty good chance of getting a pay boost next year.
About 3 out of four business leaders told ResumeBuilder.com they intended to give raises. But half of those company executives said only 50% or less of their staff members would see a pay hike, and 82% of the raises would hinge on performance. For those who do manage to get the salary boost, 79% of employers said the pay hikes would be greater than those given in recent years.
Are U.S. Treasury yields rising?
Not recently.
The 10-year Treasury yield was above 5% in November when the Fed kept rates steady for the second consecutive month the first time it had left the key rate unchanged two months in a row in almost two years.
That led to mortgage rates spiking to almost 8% and pushed up other borrowing costs for consumers and businesses. Stocks meanwhile sank close to a recent low, leading Fed Chair Jerome Powell to say such financial pressures could achieve the same cooling effect on the economy as additional rate hikes.
But in the following weeks, 10-year Treasury yields dipped to 4.2% and stocks rebounded. That might make the Fed resist rate cuts in case the economy heats up and causes the broader dip in prices “to stall at an uncomfortably elevated level,” Barclays says.
Barclays and Goldman Sachs forecast that rate cuts won’t happen until the spring, and that there will be only two, to a range of 4.75% to 5%, with more cuts implemented in the next two years.
When will inflation go back to normal?
It may take a little while.
Inflation’s decline likely “won’t show much progress in coming months,” Barclays wrote in a research note.
Overall price hikes have eased significantly since peaking at 9.1% in June 2022, a four-decade high. And in October, broader inflation as well as core prices experienced a dip, leading to a lower 10-year Treasury yield.
But core prices, which exclude the volatile costs of food and energy, will probably rise 0.3% each of the next three months, Goldman Sachs says. Used cars and furniture have been getting cheaper as the supply-chain shortages of the pandemic end. Meanwhile, health care, auto repairs, car insurance and rent continue to get more expensive, as employers pay higher wages to attract workers amid a labor shortage lingering from the global health crisis.
What is core inflation right now?
Core prices, which leave out the more volatile costs of food and energy, bumped up 0.3% in November, slightly more than the 0.2% uptick seen the previous month. That kept the yearly increase at 4%, the lowest rate since September 2021.
New inflation tax brackets
Inflation may also impact the amount of taxes you have to pay.
The Internal Revenue Service said in its annual inflation adjustments report that there will be a 5.4% bump in income thresholds to reach each new level in next year’s tax season.
In 2024, the lowest rate of 10% will apply to individuals with taxable income up to $11,600 and joint filers up to $23,200. The top rate of 37% will apply to individuals earning over $609,350, and married couples filing jointly who make at least $731,200 a year.
The IRS makes these adjustments annually, using a formula based on the consumer price index to account for inflation and stave off “bracket creep,” which happens when inflation shifts taxpayers into a higher bracket though they’re not seeing any real rise in pay or purchasing power.
The 2024/25 increase is less than last year’s 7% increase, but much more than recent years when inflation was below the current 3.1% inflation rate.
Will Social Security get a raise because of inflation?
Yes, but it will be a lot less than what recipients received in 2023.
The cost-of-living adjustment, or COLA, to Social Security benefits will be 3.2% next year. That’s roughly one-third of the 8.7% increase given in 2023, which marked a forty-year high.
The 2024 COLA hike is above the average 2.6% raise recipients have received over the past two decades, but seniors remain concerned about being able to pay their expenses as well as the increasing possibility Social Security benefits will be reduced in coming years, according to a retirement survey of 2,258 people by The Senior Citizens League, a nonprofit seniors group.
How does raising rates lower inflation?
The federal funds rate is what banks pay each other to borrow overnight. If that rate increases, banks usually pass along that extra cost, meaning it becomes more expensive for businesses and consumers to borrow as rates rise on credit cards, adjustable rate mortgages and other loans. That’s why the funds rate is the key mechanism used by the Federal Reserve to calm inflation.
Simply put, companies and consumers don’t borrow as much when loans cost them more, and that means an overheated economy can cool and inflation may dip.
Will credit card interest rates continue to rise this holiday season?
The Fed’s string of rate hikes, aimed at easing the highest inflation in four decades, are a big reason credit card interest rates have reached record highs just in time for the holiday season.
Some retail credit cards now charge more than 33% interest, topping a 30% threshold that stores and banks were previously able to bypass but seldom did – until now.
“They can charge that much,” said Chi Chi Wu, a senior attorney at the nonprofit National Consumer Law Center. “Credit cards can actually charge whatever they want. It’s a little-known fact.”
The domino effect of a high benchmark rate and soaring credit card interest could put many Americans in financial straits this holiday season.
Though some consumers are paring back to deal with high prices, rising debt and shrinking savings, the average shopper expects to spend $1,652 this year on holiday purchases, according to the consultancy Deloitte, more than was typically spent in the last three years.
A lot of the buying will be done with credit cards. In an October poll of 1,036 shoppers by CardRates.com, nearly 4 in 10 respondents said they intend to have holiday credit card debt in the new year.
The nation’s collective credit card debt was $1.08 trillion, at the end of September, a record high. And the average interest rate was 21%, the highest ever documented by the Federal Reserve.
Savings account impact of high rates
The upside to the Fed’s string of rate hikes has been that consumers were able to earn good interest on their savings for the first time in years. Even when the Fed leaves interest rates unchanged, savers can do well.
Unfortunately, most account holders aren’t making the most of that potential opportunity.
Roughly one-fifth of Americans who have savings accounts don’t know how much interest they’re earning, according to a quarterly Paths to Prosperity study by Santander US, part of the global bank Santander. Among those who did know their account’s interest rate, most were earning less than 3%.
But consumers have time to make a change that could enable them to make more from their savings.
“We’re still a long way from (the Fed) beginning to cut rates,” said Greg McBride, chief financial analyst at financial services platform Bankrate. “This is great news for savers, who will continue to enjoy inflation-beating returns in the top-yielding, federally insured online savings accounts and certificates of deposit. For borrowers, interest rates staying higher for a longer period underscores the urgency to pay down and pay off costly credit card debt and home equity lines.”
The string of Fed rate hikes that began in March 2022 has made it costlier for consumers to borrow as interest rates on credit cards and other loans increased dramatically.
At the same time, inflation has made daily needs more expensive, pushing more Americans to lean on credit cards to get by. But lenders have become more reluctant to issue new cards, so in the midst of the holiday season, more shoppers are seeking higher credit limits, experts say.
In October, the application rate for higher limits rose to 17.8% from 11.2% in the same month the previous year, and from 12.0% in 2019, New York Fed data showed.
For some consumers, a higher limit on a card they already have is about their only option.
“After COVID, inflation and interest rates went out of control … people have less emergency funds for car repairs or buying presents,” said Brandon Robinson, president and founder of JBR Associates, which specializes in retirement strategies. “What they’re doing is using more credit card utilization – over 30% or well over 50% of their credit card allowance – and then can’t get approved for another card because their credit rating is down.”
Inflation is leading more Americans to work multiple jobs
The number of Americans working at least two jobs is at its highest peak since before the COVID-19 pandemic, according to federal data, an uptick that may reflect the financial pressure people are feeling amid high inflation.
Almost 8.4 million people had multiple jobs in October, the Labor Department said, a figure that represents 5.2% of the laborforce, the highest percentage since January 2020.
“Paying for necessities has become more of a challenge, and affording luxuries and discretionary items has become more difficult, if not impossible for some, particularly those at the lower ends of the income and wealth spectrums,” Mark Hamrick, senior economic analyst at Bankrate, told USA TODAY in an email.
People may also be moonlighting to sock away cash in case they’re laid off since job cuts typically peak at the start of a new year.
What is the Federal Reserve’s 2024 meeting schedule? Here is when the Fed will meet again.
What is the mortgage interest rate today?
Mortgage rates are falling, so is it time to buy?
It depends.
First of all, the Fed doesn’t directly set mortgage rates, but its actions have an impact. For instance, when the central bank was steadily boosting its key rate, the yield on the 10-year treasury bond went up as well. Because those bonds are a gauge for the interest applied to an average 30-year loan, mortgage rates increased.
But over the past six weeks, mortgage rates have been declining, averaging 7% for a 30-year fixed mortgage. That’s down from almost 7.8% at the end of October, according to data released by Freddie Mac on Dec. 7.
That may be giving some wannabe homeowners the confidence to start house hunting. For the week ending Dec. 1, mortgage applications rose 2.8% from the prior week, according to the Mortgage Bankers Association.
“However, in the big picture, mortgage rates remain pretty high,” says Danielle Hale, senior economist for Realtor.com. “The typical mortgage rate according to Freddie Mac data is roughly in line with what we saw in August and early to mid-September, which were then 20 plus year highs.”
So, many potential buyers may still need to sit on the sidelines, waiting for rates to drop further, says Sam Khater, chief economist for Freddie Mac. Hale and many other experts believe mortgage rates will dip next year.
Interest rate projection 2024
The Fed is expected to cut interest rates next year, though markets and economists disagree about how many rate cuts there will be.
Futures markets forecast there will be four or five rate cuts in 2024, amounting to a quarter of a percentage point each. The cuts, they predict, should start by spring, and ultimately drop interest rates as low as 4% to 4.25%.
But core prices, which leave out the volatile costs of food and energy and are the metric followed more closely by the Fed, ticked up 0.3% in November, higher than the 0.2% increase the month before. That might make the Fed more hesitant to nip rates in the immediate future.
Goldman Sachs and Barclays expect there to be only two rate decreases in 2024. And Fed Chair Jerome Powell has cautioned in recent public remarks that it was “premature” to talk about rate cuts.
November inflation report
Inflation dipped slightly last month, with falling gas prices mitigating the impact of rising rents.
Consumer prices overall increased 3.1% from a year earlier, slightly below the 3.2% rise in October, according to the Labor Department’s consumer price index. That slower pace moves the inflation rate nearer to the level, reached in June, that was the lowest in over two years. Month over month, prices increased a slight 0.1%.
Core prices, however, which leave out the more erratic costs of food and energy and which are more closely monitored by the Fed, increased 0.3% in November after rising 0.2% the previous month. That means core inflation’s yearly increase remained at 4%, though it’s the lowest level since September 2021.
Over the past year and change, mortgage refinance applications have fallen off a cliff.
We had some of the biggest refi years in 2020 and 2021, followed by the worst year for mortgage applications this century.
And it’s all because mortgage rates hit all-time lows, then abruptly surged to around 8% in just over 12 months.
Rates on the 30-year fixed have since settled in around 7%, and there’s hope they’ll continue to drop into 2024.
If so, we might see a return to rate and term refinancing as recent home buyers seek out payment relief.
Does Anyone Refinance Their Mortgage Anymore?
As noted, mortgage refinancing hasn’t been very popular in 2023. After a few banner years, the low-rate mortgage party came to an end.
After all, most homeowners already took advantage when rates were low. And very few are forgoing their 2-4% mortgage rate to tap into their home equity.
Instead, they’re opting for a second mortgage if they need money, such as a home equity loan or HELOC.
This allows them to retain their low-rate first mortgage while still accessing their equity.
But because mortgage rates have hovered in the 6-8% range for much of the past year, and rates have since improved a bit, the refi applications are beginning to trickle in.
Per the latest Originations Market Monitor report from Optimal Blue, the 30-year fixed improved by 67 basis points during the month of November.
For some lenders, we’re talking a rate drop from around 8% to 7%. This resulted in a 10% month-over-month increase in rate and term refinance applications.
If rates continue to move lower, we might see apps rise even more in 2024.
And because many recent mortgage holders have very high rates, payment relief will actually be easier to come by. Allow me to illustrate.
Remember those 3% mortgage rates that were available in 2021? Well, lots of homeowners with higher-rate mortgages took advantage.
Many were able to reduce their rate from 5% to 3%, saving hundreds per month in the process.
Using our same $500,000 loan amount, the monthly P&I would drop from $2,684.11 to $2,108.02.
That’d represent a monthly savings of $576. While still a big reduction in payment, it’s about $100 less than the prior scenario of going from an 8% mortgage rate to a 6% mortgage rate.
This is why I don’t subscribe to a certain refinance rule of thumb, such as the 1% rule or some other fixed number.
There are countless scenarios, and what works for one borrower may not work for another.
As you can see, it’s easier to save money when refinancing a high-rate mortgage than it is a low-rate mortgage.
Simply put, there’s more room to save if your home loan has a higher interest rate.
Conversely, if you already have a low-rate mortgage, the savings are diminished because your interest expense is small to begin with.
What this means is as mortgage rates improve, borrowers with high-rate loans will find themselves “in the money” for a refinance more easily.
After all, if you can save more money each month, offsetting any upfront costs associated with the refinance will be less of a task. You’ll be able to break even quicker.
And you’ll enjoy more payment relief.
Lastly, your overall interest savings will be greater. We’re talking $242,000 in savings going from 8% to 6% versus $207,000 when going from 5% to 3%.