WA mortgages : WA mortgage rates and home loans

Federal Housing Finance Agency (FHFA) – Fannie’s and Freddie’s conservator recently announced on March 10^th 2021 that they are limiting loans that they are purchasing to 7% of the overall loans they purchase secured by second homes or investment properties effective April 1^st 2021.

How does it affect you? While FHFA did not add any new “Loan Level Pricing Adjustments or LLPA” some lenders are already adding substantial costs to these loans. For example – PennyMac immediately added a 2.250% points to new 2^nd home mortgages across the board. Investment properties with less than 25% equity rose to 5 points. In addition to other lender pricing adjustments such as credit scores, property type, equity and loan purpose. As a reminder Fannie/Freddie also added a 0.50% cost to all refinances over $125K last fall as the pandemic increased defaults and forbearances. While not every investor raised their pricing adjustments immediately, most will eventually comply by April 1^st 2021.

How lenders define a second home - A property will be classified as a second home if it meets these 4 conditions:

1) You must live in the house for some part of the year.

2) The home cannot be subject to rental, timeshare or property management agreement.

3) You must have exclusive control over the property.

4) The house must be a one-unit dwelling and must be suitable for year-round occupancy.

Even though there is no distance requirements, you cannot choose a second home close to your primary or else it could be classified as an investment property which carries higher mortgage rates and stricter qualifying guidelines.

In conclusion, demand for second homes and investment properties will be greatly impacted by this new policy. Limits to these types of loans could be problematic since interest in these properties boomed during the pandemic. Expect to see more cash buyers and far fewer buyers and far fewer bidding wars as the new pricing adjustments raise rates and costs. Be prepared to pay higher costs or pay cash for that getaway condo or rental property.

8/26/20 - Wednesday - After severe opposition from many members of the mortgage industry, the FHFA announced that the implementation date for the new 0.50% fee on refinances will be postponed from September 1st to December 1st. This fee is only temporarily removed and it will be back soon depending on the lenders and the length of time borrowers seek to lock their rates. In fact some lenders are already reintroduced the fee on loans locked for 60 days or longer. For other lenders, it's only a matter of time. This is one of the few times in history when you can absolutely certain that mortgage rates are about to be about 0.125% higher than they otherwise would have been and it provides compelling cases that if you are in process of refinancing your loan - consider LOCKING IT.

8/14/20 - Friday - On Wednesday 8/12/20, the Federal Housing Finance Agency (FHFA) announced a new fee hit on all conventional refinancing effective for loans delivered to Fannie/Freddie - Government Sponsored Entities (GSEs) on September 1st or later. This applies to any conventional refinancing that is not currently locked and that cannot close by the end of August 31st. This fee is an LLPA (Loan-Level-Price-Adjustment). LLPAs are a normal part of the mortgage pricing process and they help lenders account for different risk factors such as credit score, LTV, property type, occupancy etc. However, the new fee is a bit different in that it's a sub-category known as "adverse market fee". This is the first time the GSEs have reached so deeply and so abruptly into lenders' pockets.

The hit is 0.50% or 50 basis points. Lenders will be eating this fee on loans that are already locked. However, on loans that are still floating - homeowners bear the full costs. This new refinance fee of .50% will be assessed for cash-out and rate and term refinancing sold to Fannie and Freddie after September 1st. The GSEs instantly doubled their fees that they charge to provide guarantees for the mortgage market. A bit of a background - the average guaranty fee charged by Fannie and Freddie to ensure timely payments to investors in Q2 2020 is about 48 basis points (0.48%). On Wednesday 8/12 /20 - in one abrupt announcement, they added an additional 50 basis points for all refinancing - almost doubling their intake (48 bps + 50 bps).

As a result, mortgage quote for conventional refinancing just got more expensive and it has nothing to do with your lender. If you are in process of refinancing your conventional mortgage right now and your rates have not been locked - hear are your options:

Option 1 - Choose a rate that is between 0.125% to 0.25% higher than what you were originally planning.
Option 2 - Choose to pay discount points to obtain a lower rate.
Option 3 - Wait it out to see if things calm down in the near future.

How long will this elevated rates last? Hopefully not too long - anywhere from a few days to a few weeks. Rates will eventually restore their previous relationship with the bond market. Stronger bond market in the last few days has put downward pressure on mortgage rates.

For the GSEs to add 50 basis points surcharge on refinances when the nation is struggling with the greatest economic downturn since the Great Depression is outrageous. (Just when we thought that election year will be doldrums year for mortgage rates). The above charge does not apply to all purchase loans, VA, FHA or other loans not guarantee by Fannie or Freddie.

6/26/20 - Friday - Last week, rates are still very close to all-time lows today since hitting the confirmed all-time lows on June 11th. Rates will continue in this low territory as long as the broader financial market remains concerned about the resurgence in COVID-19 new cases in several states.

Mortgage rates are primarily driven by the bond market. When event unfolding such as COVID-19, it creates market uncertainty and investors flock to bond market for safe haven. When the demand for bonds increases, bond prices rise and bond yields fall. "Yield" is another word for "rate". Can rates go even lower? As I mentioned in the previous commentary - COVID-19 situation is calling the shots right now as far as rates are concerned.

Why are mortgage rates continuing to operate near record lows? Simply put - markets know that coronavirus sagas has yet to fully play out. Number of cases looked to be getting under control but as most states eased their lockdown measures, epidemiologists's fears are being confirmed that the virus is still contagious and is still spreading among people who are in close contact.

Globally, it only took a few days for the truce between China and India to unravel with an attack in a Himalayan border region. The situation has not been this intense since a war over the same spot of the land in 1962.

"It would be wise to look at ways to continue to support people who are out of work and also smaller businesses that may not have vast resources for a period of time so that we can get through this critical phase." Fed Chairman, Jerome Powell.

"When the economy has recovered and is back on its feet, we will be willing to pull back from these asset purchases, but that's down the road." Fed Vice Chairman, Richard Clarida.

"The Fed is going to need to have a very accommodative monetary policy for quite some time." Cleveland Fed President Loretta Mester.

Please let me know with any of your questions. Thanks - Sam Kader

6/19/20 - Friday the Fed's kept the Fed Funds at the current rate of zero potentially through 2022 - good news for mortgage rates but not for stocks. As a reminder - the Fed's dual mandate is to promote full employment and manage inflation in the US economy. Unemployment rate is currently elevated at 13.5% due to COVID-19 and inflation is running below 2.00% for the foreseeable future. This is good news for mortgage rates because it also means rates will remain low for the foreseeable future. In addition to the Fed continues to buy Treasuries and mortgage-backed securities on a daily basis to sustain smooth functioning of the markets will also keep a lid on rates.

Globally - tensions along the Chinese/Indian border finally eased as the two sides were able to come to an agreement on the poorly defined mountainous border. Tensions between North and South Korea are on the rise again after the North skipped a scheduled diplomacy call for the first time since established in 2018.

Can rates get even lower? Mortgage rates will continue to take major cues from COVID-19 numbers and the resulting impact on the economy. The better it goes, the more likely rates will go up and vise versa.

"In many cases they will be back in jobs that they had before as those businesses come back. But in many cases they won't, I think there are jobs that will go away." - Richmond Fed President, Tom Barkin

6/10/20 - Wednesday - Protests continue on into a second week spreading to all 50 states and around the world for racial equality. On the other side of the globe, India and China moved troops into a disputed mounted region near Bhutan on a scale that sparks fears of war between two nuclear powers. Last week we got a surprise reading for the non-farm payrolls reporting a -8 million net jobs in May expected and +2.5 million net jobs delivered. This week the FOMC meeting is the only economic event of relevance. Bond yields finally broke out of the two month narrow range with 10-YR and 30-YR treasury yields trading as high as 0.954% and 1.758% respectively, the highest since mid-March. While nobody expects the Fed to raise rates any time soon, the recent selloff in bonds has increased the odds of a rate hike from 0% to 15%.

"This economy will recover. It may take a while and it could stretch through the end of next year, we really don't know." - Fed Chairman, Jerome Powell

"I don't think we're anywhere near the limit to issue government debt. The U.S. government is issuing a lot of debt right now and global investors are gobbling it up." - NY Fed President, John Williams.

"We need to dramatically increase testing and contact tracing so that we can grow the economy faster and work down this unemployment rate." Dallas Fed President, Robert Kaplan

6/03/20 - Wednesday Curfews and civil unrest have replaced COVID-19 in the news lately as protests broke-out across the US in response to the death of an unarmed black man in police custody in what's being described as the most horrific widespread civil unrest in over 50 years. The economic data continues to paint a bleak picture. Last week, durable goods (manufacturing) showed a drop of more than 17% in April. Friday, the non-farm payrolls report will show the true extent of job losses due to the virus (projected to be around 8 million for May after April showed a loss of 20.5 million jobs.

Bond yield and mortgage rates have managed to stay in their narrow ranges and trading sideways due to lack of newsworthy material breakthrough. Until the market sees a catalyst, much the same can be expected in the near-term. Here's where we are this week.

5/29/20 - Friday Last week, the U.S. stocks soared to start the week after promising initial results were announced for a vaccine trial. Trade tensions between the US and China continue to rise sparking fears of a return tit-for-tat tariffs at the worst possible time. Last week's inflation data missed its marked significantly with the production input pricing actually negative. Retails sales also showed the extend of consumer decline in April with sales falling 16.4% more than the 12% that was expected. This week we receive the Federal Open Market Committee (FOMC) minutes providing insight into how their perspective on the economy has been evolving throughout the crisis:

"What we really looking at is getting the medical data, which is not what we usually look at, taken care of so that economic data can start to recover." Fed Chairman Jerome Powell

"We could see the economy start to reopen activity picks up some improvement over the second half of the year. But at the end of year, we are still going to have output below the level it was the end of last year." Cleveland Fed President, Loretta Mester

"The second quarter data will be brutally painful. What happens after that to a large extend depends on how the virus moves through our society and our reaction to it in terms of balancing stay-at-home policies versus an intelligent and I want to stress, intelligent - reopening." Philadelphia Fed President, Patrick Harker.

5/28/20 - Thursday Summer is unofficially here with the Memorial Day holiday. Here are three trends worth following which may determine how the economy moves past coronavirus.

The reopening. Most states have begun to open up in some form. A few states have been open for weeks and have not yet seen a resurgence in cases which if the trend continues would be a great proxy for the rest of the country.
Don't fight the Fed. Fed Chairman Powell reiterated that the Fed will no whatever it takes to help underwrite the economic recovery. If the Fed, Treasury and administration continue to throw every resource necessary to help the economy, it will likely work. Fed reiterate that they are far from out of ammunition and plenty of tools left to fight future downturns.
American spirit. We are seeing incredible increased demand in online shopping, DIY projects and more. It seems reasonable that American spirit and optimism can continue to rise as we enter the summer months and states gradually reopen.

The U.S. stepped up its rhetoric blaming China for the pandemic and China moved to directly apply some mainland laws to Hong Long as protesters have taken to the streets again. Meanwhile, home loan rates are at all-time lows and housing market continues to see pent-up buying demand due to the virus. Unless we see more promising drug trials soon or we see a second wave of virus cases, bonds and mortgage rates are likely to trade sideways into the near future. Here's where we are this week.

5/27/20 - Wednesday Last week, the U.S. stocks soared to start the week after promising initial results were announced for a vaccine trial. Trade tensions between the US and China continue to rise sparking fears of a return tit-for-tat tariffs at the worst possible time. Last week's inflation data missed its marked significantly with the production input pricing actually negative. Retails sales also showed the extend of consumer decline in April with sales falling 16.4% more than the 12% that was expected. This week we receive the Federal Open Market Committee (FOMC) minutes providing insight into how their perspective on the economy has been evolving throughout the crisis:

"What we really looking at is getting the medical data, which is not what we usually look at, taken care of so that economic data can start to recover." Fed Chairman Jerome Powell

"We could see the economy start to reopen activity picks up some improvement over the second half of the year. But at the end of year, we are still going to have output below the level it was the end of last year." Cleveland Fed President, Loretta Mester

"The second quarter data will be brutally painful. What happens after that to a large extend depends on how the virus moves through our society and our reaction to it in terms of balancing stay-at-home policies versus an intelligent and I want to stress, intelligent - reopening." Philadelphia Fed President, Patrick Harker.

Bond yields (and mortgage rates) continue to bounce sideways in a narrow gap. The movement seems to coincide with announcements of Covid treatment and vaccine trial successes and failures. If the recent hopes for a promising vaccine prove true, it seems likely that yields will push higher out of this narrow range, putting upward pressure on mortgage rates.

5/20/20 - Wednesday Mortgage rates remain near historic lows for a top tier loan scenarios thanks mainly to the Federal Reserve as the central bank continues to purchase mortgage-backed securities on a daily basis. In the short term – market are taking into account any significant shift in the coronavirus narrative and in the longer term, uncertainty surrounds the timing and nature of the economic recovery. Fed Chairman Powell spoke last Wednesday that the U.S. is facing an “extended period” of economic weakness. This week is a short trading week as markets will close early on Friday and remain fully closed next Monday on observance of Memorial Day Holiday. If you need Pre-Approval over the holiday - please reach out for your Customized Pre-Approval letter.
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5/19/20 Tuesday - The North Korean leader Kim Jong Un family resurfaced after a lengthy absence from public and speculation that he had died. While his tiny county means little to the global economy, his unsecured nuclear weapons would be quite meaningful. Oil prices have rebounded 300% from its recent lows easing deflationary concerns. Rates have been gradually drifting higher over last month with 10-YR yield now bumping up against the short-term resistance levels of 0.691%. Mortgage rates are still the best for top-tier scenarios defined as Conventional financing, Conforming with at least 720 FICO scores. I am still not seeing rates improving for "Non-Vanilla" type loan scenarios defined as Cash-Out refinances, lower FICO scores, Investment properties, Higher Loan-To-Value (LTV), High-Balance and Jumbo loans. If you or your clients are in any of this category - please reach out to me for a quote. Forbearances in some of those scenarios have created rampant uncertainty for mortgage investors. Simultaneously, investors are cautious about a second wave of coronavirus infections with several countries reopening economies (Germany and South Korea reported a surge in COVID-19 cases after easing lockdowns). Traders are waiting for more clarity on how everything will unfold as the economy restarts. Whether you have "Vanilla or Non-Vanilla" loan scenarios, please reach out for your Customized Quick Rate Quote here.

5/7/20 Tuesday - The market last week once again whipsawed up and down on news/rumors that coronavirus vaccine has been developed. Both the number of cases and deaths in a number of hot spots around the world have stabilized in recent days giving hope as certain states begin to slowly loosen restrictions. Tensions between the U.S. and China flared up again over the weekend for allowing the virus to spread into a global pandemic raising fears that a renewed trade war could be brewing. Analysts' average estimate shows economic output contracting by 4%. Last week's jobless claims report brought the total number of people who have lost their jobs since the crisis began to 31 million.

One of the major effects of the coronavirus was the enormous destabilization of the Mortgage-Backed Securities (MBS) market back in mid-March. Thankfully the Federal Reserve quickly came to the rescue by purchasing MBS to help stabilize the MBS market and it kept home loan rates in a side-way range throughout April. Lately, the Fed has been buying less than $50 billion per day in MBS as originally proposed resulting in a limit of how low rates can can go in the near-term. Besides a smaller Fed MBS buying commitment, here are 3 additional reasons why rates may not improve much further in the near-term.

Lenders are operating at record breaking capacity as such that lowering rates further is out of the question. MBS are now carrying an increased risk of default due to current elevated unemployment and increasing forbearance. Investors in MBS will demand a premium for this risk - again putting a limit to lower rates. MBS hate good news. Last week stabilization in the oil market and the idea that pockets of the U.S. economy will re-open lend an air of optimism which limits interest rate improvement. For those who have the opportunity to lock in a home loan rate, now is an incredible time to do it. It's not yet clear that once our economy starts re-opening that rates will stay near current levels. My assessment is that rates will go up. Please reach out for your customized Quick Rate Quote.4/28/20 - Tuesday - Coronavirus has had far-reaching effects on the economy and mortgage market. Nearly 7% of mortgage holders have sought forbearance arrangements. This is having an inordinate impact on loans that are "Outside the Box" - defined as high balance, cash-out refinancing, jumbo and low score FHA. Whereas, borrowers with top tier qualifications defines as Conventional 30 Year Fixed with at least 700 FICO score are seeing the lowest rates since early March. Borrowers with less than 700 FICO score are seeing rates or upfront costs that are staggeringly high by comparison or lenders simply saying "sorry, we are not doing those scenarios currently."

The increased costs and decreased credit availability will continue to be an issue for the mortgage market. It will likely get worse before it gets better since markets have to digest the forbearance issue before having any hints or a shift in those trends. "Non-Vanilla/Outside of the Box" loan options continue to diminish and borrowers in that category must act immediately. 4/1/20 Wednesday - The coronavirus continues to wreak havoc on the global economy with India, the largest democracy in the world the most recent to order a nation-wide 3 week lock-down over a billion people. Cases in China and Italy have likely peaked but the US remains at least a few weeks from the peak. Jobless claims last week saw the largest increase in history with 3.3 million new claims. For context, the highest new claims report in the great recession was around 700,000. The unemployment report on Friday may give some insight in the extent of the economic crisis. Mortgage rates have steadily declined over the last week but not quite down to the record we saw in early March. As equities continue to fall, money has been pouring into "safe haven" assets such as government bonds putting pressure on yields. With governments around the world offering record stimulus packages - the specter of inflation may finally rear its ugly head.3/27/20 Monday - Flexibility seems to be the keyword as government agencies try to adjust to a lot of new realities. The Federal Housing Finance agency has already empowered the GSEs (Fannie Mae and Freddie Mac) to be flexible about obtaining appraisals, verifying borrower credit factors and working with distressed borrowers. As you may have heard over the last few days, the Fed is in overdrive mode in buying Mortgage-Backed Securities (MBS). Based on the verbiage in the announcement, the Fed is effectively buying unlimited MBS to calm the market down. We have seen rates improving across the broad albeit we have not reached rates at the same level as prior to 3/13/20. 3/23/20 Monday - Rates moved wildly last week with massive swings from day to day and hour to hour. This week - the Federal Reserve announced on $300 billion in Treasury and Mortgage-Backed Securities purchase. Treasury Secretary - Steven Mnuchin said that policymakers are committed to providing relief to American workers and businesses impacted by the coronavirus and will take all necessary steps to support and to protect the U.S. economy. In general, rates are improving today.

3/19/20 Thursday - Despite the Federal Reserve's buying, the market remains illiquid with Mortgage Backed Securities (MBS) investors aren't buying and lenders are still keeping their rates artificially high for fear of loosing in this volatile market. Markets are expecting for the Fed to take further action (in addition to its recent "Quantitative Easing (QE)" policy by buying more assets including corporate bonds to drive rates lower and to inject liquidity in the market. The markets are unsettled right now with prices and yields sloshing around on an hourly and daily basis. Unless you have to and unless you have a strong stomach for it - do not follow rates on a daily basis but check back in a week. 3/16/20 Monday - No you can't get that new "0% Mortgage" you heard about. 0% is referring to the Fed Funds Rate - an overnight rate that financial institutions loan to one another. Fed Funds Rate is set by the Central bank or the Federal Reserve System. Mortgage rates are different than the Fed Funds Rate. What's driving mortgage rates? The short answer as of right now is lender's capacity to process it's backlog. Lenders raised interest rates purposely to discourage customers and reduced advertising to cope with massive loan volume. We will eventually get back to a more logical level of correction but it will take days or weeks. Beyond lender's capacity, they are margin requirements, funding line availability, servicing valuations and the cost of hedging amidst current market volatility. 3/15/20 Sunday – The Fed announced that it will begin buying $200 billion of Mortgage-Backed Securities (MBS) that would stabilize and lower mortgage rates. This is part of a brand new $700 billion round of Quantitative Easing (QE) in response to the COVID-19 pandemic. Simultaneously, the Fed is also lowering the Fed Funds Rate to 0.00% - 0.25% encouraging banks to go to the discount window and in hopes of spurring lending to cash-strapped businesses. 3/14/20 Saturday – By the end of last week, markets across the board were showing increasing signs of stress with high volatility and widening yield-spread. The pace of the move has been the fastest since the last 2016 presidential election. Two main reasons are bond market panic and mortgage market over-supply. Market panic when 10-Year Treasury yield fell precipitously to new all-time lows. One of the reason for such volatility is that when rates are this low – refinancing activities result in accelerated principal pre-payment and ultimately investors lost in potential future interest payment/profit. Investors then pay less for the same type of mortgages (say for Conventional 30 Year Fixed). Lower investors demand results in lower Mortgage Backed Securities (MBS) prices and higher mortgage rates. Historically, mortgage rates always move in tandem with 10-Year Note yield. However, this week is an exception - they de-coupled. 10-Year Yield had the biggest 1 day move since the Volcker era. It went from 0.72% to close at 1.08% (mind you yield usually moves in an increment of 0.125% in a normal market). In relation to market panic above - mortgage market over-supply (due to refinancing activities) puts downward pressure on prices which translates to higher rates. Investors that buy mortgage backed securities (MBS) from new refinances have been so overwhelmed with bond supply that sellers have desperately lowered prices to entice buyers. Investors/buyers have less appetite to own 30-year-fixed-rate mortgages yielding 3% or less. Once again, lower prices on MBS translates to higher interest rates for consumers. In the past both FannieMae and FreddieMac would have come in and bought these Mortgage Backed Securities providing market liquidity but now only the dealer community and the banks are the only ones making markets and they are at capacity already. The solution (as in the past) is for the Fed to intervene and to enter the market directly and buy MBS to relieve some of the pressure by using its balance sheet to buy agency securities until the market stabilizes.