This past week had rate watchers frequently monitoring pricing as volatile markets caused concern for mortgage rates. Stocks took off while MBS prices were hurt by the multiple end of month economic reports that were released. Housing reports were also mixed, yet still showing a housing recovery.
The November S&P/Case-Shiller index indicated that home prices are on the rise at a rapid pace. December property values increased 5.5% from November of 2011 and was the biggest year over year increase since August of 2006. On the other hand, the Census Bureau reported that homeownership fell 0.6% to 65.4% in December, which was a decrease from 66% at the end of 2011. The peak of homeownership was 69.2% in 2004. Construction spending was up 0.9% in December and increased a total of 9.2% in 2012, according to the Commerce Department. The Bureau of Economic Statistics reported that personal incomes grew by 3.5% in 2012 and consumer spending rose 3.6% for the year.
On the down side, even though the economy added 157,000 in January, the unemployment rate increased to 7.9%, according to the Labor Department. Jobless claims also rose by 38,000 for the week ending January 26th which was above expectations.
The most recent survey of wholesale and direct lenders shows that conforming rates have stayed the same again over the past week. Current 30 year fixed mortgage rates are as low as 3.125%, 15 year fixed interest rates are as low as 2.375% and 5/1 adjustable mortgage rates are as low as 2.375%.
Obtaining low rates requires that borrowers have good credit, as well as, be able to meet lender guidelines for approval. According to the Mortgage Bankers Association's Market Composite Index, application volume fell 8.1% on a seasonally adjusted basis and 17% on an unadjusted basis for the week ending January 25th. Purchase loan applications were down 2% on a seasonally adjusted basis and 6% unadjusted. The Refinance Index fell 10% from the previous week with the share of refinance activity dropping to 79% of total volume.
The good news was for the HARP program. HARP loan applications increased to 26% from 25%. HARP 2.0 refinances are for underwater homeowners, even those with above 125% LTV, who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009. Since HARP offers underwater homeowners a streamlined process that does not require an appraisal in man cases, borrowers should apply now before increasing home prices pushes them out of eligibility.
Decreasing by .250%, FHA 5/1 adjustable mortgage rates are now as low as 2.250%. Current FHA 30 year fixed rates are as low as 3.250% and FHA 15 year fixed mortgage interest rates are as low as 2.750%, both remaining the same. FHA officially announced changes which will affect the cost of an FHA mortgage, as well as, qualifying. The FHA annual mortgage insurance premium for regular FHA mortgages will be increased by .10% to 1.3%. For FHA jumbo mortgages that are above $625,500, the annual MIP is increasing .05% to 1.35%.
This new rule does not affect the FHA streamline with reduced fees for loans that were endorsed prior to June 1, 2009. New MIP premiums are effective for case numbers assigned on or after April 1, 2013. In addition, borrowers will be required to pay the annual mortgage insurance premium for the life of the loan. This change affects all borrowers who have a down payment of less than 10% of the purchase price at closing.
Changing this rule affects many consumers since most home buyers use FHA because of the low down payment requirements. This is effective for case numbers assigned on or after June 3, 2013. Finally, credit scores (FICO) that are below 620, as well as, debt to income ratios that are greater than 43% will require that the loan go through manual underwriting.
For loans that fall into these categories, the lender will be required to show "compensating factors" and the reason why the loan should be approved for closing. This is effective for case numbers assigned on or after April 1, 2013. However, the FHA streamline refinance with no cash out is not affected by credit scores or this new rule.
Jumbo 30 year fixed mortgage rates decreased by .250% and are now as low as 3.250%. Increasing by .125%, jumbo 5/1 adjustable mortgage rates are now as low as 2.500%. Jumbo 15 year fixed rates remain the same and are as low as 2.700%. Borrowers who apply for jumbo loans are still required to have excellent credit in order to receive low jumbo rates. In addition, full documentation is required and substantial assets are necessary in order to fund the higher down payment and additional months of reserves. With the jumbo market becoming increasing popular, more lenders are offering these loans which is creating competition. It is wise for jumbo loan borrowers to shop around to find guidelines and jumbo loan rates that they are comfortable with.
MBS prices (mortgage backed securities) are affected by economic reports and investor reactions which often cause volatile markets. Mortgage loan rates are affected by MBS prices and move in the opposite direction. Reported over the past week, the Gross Domestic Product shrank during the fourth quarter for the first time in 3 1/2 years, according to the Commerce Department. GDP declined at an annual rate of 0.1% between October and December which was below expectations of 1.0% growth.
The December Core PCE price index remained unchanged from November which was below expectations. The University of Michigan/Thomson Reuters reported that consumer sentiment rose in January to 73.8 from 72.9 in December and was higher than projections. The Institute for Supply Management (ISM) reported that its index of national factory activity increased to 53.1 from 50.2 in December which was above expectations of 50.6.