October 7th, 2019 1:47 PM by Richard Sardella MLO.100007700/NMLS 233568
Borrowers jump on board the refinance bandwagon as rates drop
When mortgage rates plummet to historically low levels, you have to expect a reaction from the borrowing public. And, as usual, they did not disappoint. Borrowers got themselves to their loan reps and began taking advantage of the market. According to the Mortgage Bankers Association (MBA), the volume of mortgage applications rebounded sharply last week as homeowners rushed to refinance.
Mortgage News Daily says, "The Refinance Index increased 14 percent from the previous week and was 133 percent higher than the same week one year ago. The refinance share of mortgage activity increased to 58.0 percent of total applications from 54.9 percent the previous week."
The article reports that although refinance activity slowed in September compared to August, the months together were the strongest since October 2016, and this is expected to continue. MBA' Joel Kan said, "Purchase applications also increased and remained more than 9 percent higher than a year ago. Low rates and healthy housing market fundamentals continue to support solid levels of purchase activity."
The FHA share of total applications decreased a percent, to 10.4 percent from 11.4 percent the week the previous week and VA loans followed, dropping to 12.4 percent from 13.1 percent. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or below the conforming limit of $484,350 decreased as well, while the contract interest rate for jumbo 30-year FRM, loans with balances greater than the conforming limit, dipped 2 basis points. The article reports that both the contract and the effective rate for 5/1 adjustable rate mortgages (ARMs) moved higher.
MBA's Weekly Mortgage Applications Survey has been around since 1990 and covers over 75 percent of all US retail residential applications. Its respondents include mortgage bankers, commercial banks and thrifts.
Source: MorgageNewsDaily, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market improved by +40 bps on moderate to high volatility. This was enough to improve mortgage rates or fees.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates pricing this week. 1) The Fed, 2) Trade War and 3)Geopolitical
1) The Fed: We will hear from Fed Chair Powell no less than three times this week. We will also get the release of the Minutes from the last FOMC meeting and a barrage of talking feds all week.
2) Trade War: Chinese Vice Premier Liu He is due to visit Washington for talks with meetings expected to take place on Thursday and Friday. According to news reports, the Chinese are "increasingly reluctant to agree to a broad trade deal" and that the "range of topics they're willing to discuss has narrowed considerably." The same reports claim that Vice Premier Liu He is likely to bring an offer that won't include commitments on reforming Chinese industrial policy or government subsidies that have been the target of longstanding US complaints. Direct reports from the White House and Chinese delegation could have a huge impact on market sentiment later this week.
3) Geopolitical: The three-ring circus of the impeachment "inquiry" will get a lot of attention as well as the drama from across the pond with Brexit negotiations. Both have seen massive media coverage amid new developments; both will feature heavily this week.
Treasury Auctions this Week:
This Week's Potential Volatility: High
We shouldn't see too much rate volatility today, but this week could be a different story. Rate markets will be focusing on a few things; the trade war, Brexit, Fed Chair Pawell's speeches, and potentially impeachment news. If anything happens outside market expectations, which is entirely possible, rates are likely to experience increased volatility.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
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