This week’s average mortgage rates and rising G-Fees, the latest on unemployment, inflation and incomes and why this means home buyers shouldn’t be dragging their feet!
Freddie Mac Reported:
- 30 year fixed rate mortgages averaged 3.99%
- This is down from last week when it averaged 4.01%
- Last year at this time, 30 year fixed rate mortgages averaged 4.22%
- 15 year fixed rate mortgages averaged 3.17%
- This is down from last week when it averaged 3.20%
- Last year at this time, 15 year fixed rate mortgages averaged 3.27%
Check out the mortgage rate chart from Freddie Mac:
Frank Nothaft, vice president and chief economist, Freddie Mac said:
Fixed mortgage rates were slightly down as housing starts declined 2.8% in October below the upwardly revised September rate. However, building permits increased 4.8% in October after a 2.8% boost a month earlier. Lastly, industrial production slipped by 0.1% in October, below the market consensus forecast.
In case you missed it, I talked about housing starts yesterday
Average 30 year fixed rate mortgages fell 3 basis points to 4.1%
Average 15 year fixed rate mortgages fell 2 basis points to 3.3%
Average mortgage rates for a 30-year jumbo fell 2 basis points to 4.13%
The Mortgage Bankers Association Reported:
The average contract interest rate for 30 year fixed rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.18% from 4.19%, with points decreasing to 0.24 from 0.26 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30 year fixed rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.10% from 4.13%, with points increasing to 0.16 from 0.15 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15 year fixed rate mortgages remained unchanged from 3.38%, with points increasing to 0.27 from 0.22 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
This week’s report from the MBA included an adjustment for the Veterans Day holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 4.9% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 7% compared with the previous week.
The seasonally adjusted Purchase Index increased 12% from one week earlier to the highest level since July 2014. The unadjusted Purchase Index decreased 3% compared with the previous week and was 6% lower than the same week one year ago.
The Take Away:
In general, mortgage rates drifted lower this week. But that doesn’t mean much since rates have pretty much been bouncing around at the same level for quite some time. All it would take would be one bad piece of economic news to get mortgage rates climbing to the highest level in months!
Even if rates stay low, if G-Fees ( guarantee fees ) increase, it means mortgages will cost consumers more.
The Federal Housing Finance Agency ( FHFA ) recently said it will propose a new framework early next year for how mortgage giants Fannie Mae and Freddie Mac will set their G-Fees. A rise in G-Fees means that mortgages will get more expensive for consumers since lenders will pass the higher costs down to buyers.
A recent survey of mortgage industry executives by Genworth found that 53% think an increase in G-Fees would result in fewer mortgages being closed. Something else that is interesting is that 61% of those surveyed think that lenders are overly restrictive with underwriting standards.
Back in January, FHFA Director Mel Watt stopped plans to raise G-fees so he could review the proposal and seek public comment. Republican lawmakers have criticized Watt’s decision to delay the fee increases and expressed concern over the new plan to allow lower down payments on government-backed mortgages. Watt said Fannie Mae and Freddie Mac will release details about 3% down payments in early December.
It isn’t just the Republicans that have criticized Watt.
In an op-ed column published in The Wall Street Journal, Sen. Elizabeth Warren (D) criticized the Fed saying the central bank’s leadership “seems more worried about protecting Wall Street than protecting Main Street.” Warren has said the Obama Administration, Federal Reserve and the Federal Housing Finance Agency (FHFA) are not doing enough to help the public struggling in the still weak economy.
Then on Wednesday, in a hearing before the Banking Committee, several top Democrats, including Warren, Robert Menendez (D) and Jeff Merkley (D), had tough questions for Watt. Warren said that she believes Federal Housing Finance Agency Director Mel Watt is moving too slow on mortgage reform.
It isn’t just Watt that is moving too slowly but all of the morons in DC, Republican and Democrat alike.
Both Warren and Menendez asked Watt why he hasn’t allowed principal reductions on loans owned by Fannie Mae and Freddie Mac. Warren cited studies she said showed reductions in loan principal could financially help borrowers and mortgage giants Fannie Mae and Freddie Mac.
Principal reductions are a very complicated issue that may sound good but could be opening up a can of worms with severe negative implications for housing. The thing about studies and statistics is they can be used to prove just about anything.
If banks have NO guarantee that they will get back the money they loaned, it is very likely that banks would become very leery about making mortgages.
And if principal reductions were allowed, you know that as with everything else, there will be people gaming the system.
You also have to wonder if the losses for the banks will be tax write offs. This would result in more money for the banks but hurt the average tax payer. Frankly, I am not a big fan of helping the banks at the expense of the tax payers.
Will we finally see some common sense changes because of the results of the recent election? I doubt anything will really change UNLESS it means more money to the big banks and Wall Street. More loans being closed should mean more profits for the banks so it is possible.
If lending standards were not tight or down payments lowered to 3%, would it mean more people buying a home?
Considering that middle class incomes have been stagnant for a long time, it seems unlikely…
While the economy continues to create jobs, continued slack in the labor market means that wages for many Americans are not growing. It may be some time before wage growth gets anywhere near 3.5 to 4%, a growth rate that would be consistent with the Fed’s 2% inflation target and assumption of 1.5% productivity.
Recently, the Bureau of Labor Statistics released the Consumer Price Index for October 2014. The figure below shows real average hourly earnings of all private employees (red line) and CPI (blue line) since 2007.
You can see that wages are not growing enough to keep up with inflation:
And speaking of jobs, the most recent report from the Department of Labor showed that the number of Americans filing new claims for unemployment benefits fell less last week. They also said that unemployment claims have been below the 300,000 threshold for 10 straight weeks. The claims report showed the number of people still receiving benefits after an initial week of aid declined to the lowest level since December 2000.
Sounds great and this is a sign that the labor market is tightening and could lead to higher wages. Maybe…
It also means the Fed is getting closer to raising rates…
And as you are probably aware, if the Fed raises their rate, it should mean mortgage rates will also climb. The FED has kept its short-term interest rate near zero since December 2008 and that is part of the reason we have had super low mortgage rates for such a long time…
All Good Things Come to an End
Most economists expect the first interest rate increase sometime in the mid-2015.
Yes mortgage rates are still low today…
But we know that rates will rise when the Fed acts.
We might not know exactly when this will be but we do know the results…
And we have to be concerned about rising G-Fees since that will also make mortgages more costly for consumers.
Add this on top of the fact that home prices are still rising…
You really have to wonder why any serious home buyer would be dragging their feet
As always, I am providing this to you for informational purposes only! I am not a mortgage lender and you should contact the lender of your choice directly to learn more about its mortgage products and your eligibility for such products.