Tag Archives: rates

What Will a Trump Administration Mean to the Housing Finance Industry?

Source: RISMedia

After Donald Trump’s stunning victory on Election Day, many of us are wondering what his election might mean to the residential mortgage industry, especially considering the Trump team provided few details on housing during the campaign. The following are some perspectives:

Reduced Regulations
This is the one area where the Trump campaign did provide some indication of what the president-elect would do. Trump’s transition team has recently indicated that it would like to see a full repeal of the Dodd-Frank law, which would include the abolishment of the CFPB.  Many people think this is unlikely, but most in the mortgage industry would welcome a broad rollback of regulations. Reduced regulation would provide a number of things, some good and some not so good, depending on where you work and where you stand on issues such as subprime lending.

First, reducing or eliminating the detrimental usage of enforcement tools such as the False Claims Act could lure large lenders back to the FHA program. It would also cause many lenders to reduce underwriting overlays and open the credit box, which is needed. Secondly, reducing regulation could reverse the trend of swelling loan manufacturing costs by lowering mortgage origination expenditures associated with compliance. In theory, this would improve pricing for consumers. Finally, reducing regulations could spur a resurgence of subprime and Alt-A lending. This could be good or bad, depending on who you ask.

Subprime lending has all but vanished from the mortgage market, leaving consumers with less-than-stellar credit with few options. The reemergence of subprime lending would definitely increase overall mortgage volumes, but it could also lead to increased foreclosures and larger and more frequent real estate bubbles. Large lenders, who will be unlikely to move towards subprime, will probably counter by creating products that leverage their ability to hold certain proprietary loans on their balance sheets. This would obviously favor larger depository institutions that have the capacity to hold loans on their books. In terms of marketshare, reduced regulations will also favor big banks.

Higher Interest Rates
Higher interest rates were already in motion before Trump was elected, but the upward trend accelerated in the days following, although it’s not yet clear why. Economists generally believe that most of Trump’s stated ideas on immigration, trade, infrastructure, and tax rates will lead to bigger deficits and higher inflation. While a deficit-hating Congress could keep some of this in check, inflation and deficits equate to sharply higher interest rates.

This obviously would not be good for mortgage originations and could lead to further consolidations in the industry. Higher interest rates also favor big money-center banks, which have diversified income streams and mortgage servicing units that will see their MSR values increase. Lenders with deep pockets are in the best position to weather any downturn.

GSE Reform
This, in my view, is the biggest wild card. Some believe that Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, finally has an ally in the White House who will support his desire to dismantle Fannie Mae and Freddie Mac and eliminate any further government guarantees of conventional mortgage loans. This would be catastrophic for mortgage lending in America, causing thousands of independent lenders to go out of business and making mortgage loans available only to a relatively miniscule segment of our population. But others believe the GSEs provide billions of dollars to the Treasury each year and that Congress would never support a policy that would harm homeowners and turn off the spigot of free cash to the government.

It is difficult to anticipate how this one will play out. If Fannie Mae and/or Freddie Mac need to take a draw from the Treasury, which is likely to happen at some point, some members of Congress might see that as an indicator that it is time for the government to get out of the mortgage business. Let’s hope that cooler heads will prevail. Reforming the GSEs and creating a permanent source of liquidity for the mortgage lending industry would be good for everyone, especially independent lenders. Trump is a real estate man; he may see homeownership as a way to build communities and support our economy. He’s not someone who believes that most of us should be renters.

There is no doubt that there are a lot of questions that will remain unanswered in the coming weeks and months. What will be Trump’s position on affordable lending or FHA reform? Will he take a page from the Bush Administration and see homeownership as a vehicle to engage with minority and other underserved communities? His appointments to key housing positions at HUD and inside the White House will begin to give us some indication of what is likely to occur.

Gary Acosta is the CEO of the National Association of Hispanic Real Estate Professionals (NAHREP) and co-founder of The Mortgage Collaborative.

For more information, please visit www.nahrep.org.

For the latest real estate news, trends and marketing, be sure to bookmark rismedia.com.

Pending Home Sales Reach Highest Level in Nearly 12 Months

Source: RISMedia

Pending home sales increased slightly in March for the second consecutive month and reached their highest level in almost a year, according to the National Association of REALTORS®. Only the West region saw a decline in contract activity last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 1.4 percent to 110.5 in March from a downwardly revised 109.0 in February and is now 1.4 percent above March 2015 (109.0). After last month’s slight gain, the index has increased year-over-year for 19 consecutive months and is at its highest reading since May2015 (111.0).

Lawrence Yun, NAR chief economist, says last month’s pending sales increase signals a solid beginning to the spring buying season.
“Despite supply deficiencies in plenty of areas, contract activity was fairly strong in a majority of markets in March,” he says.
“This spring’s surprisingly low mortgage rates are easing some of the affordability pressures potential buyers are experiencing and
are taking away some of the sting from home prices that are still rising too fast and above wage growth.”

Yellen Says Fed To Continue Rates With Caution

Source: RISMedia

 

U.S. stocks increased on Tuesday after Janet Yellen, Federal Reserve Chairwoman, noted in a speech that the Fed would proceed with caution when it comes to interest rate hikes.

During her speech at the Economic Club of New York, Yellen noted the Fed will move precariously based on issues such as low inflation and the overall weak global economy.

“Given the risks to the outlook, I consider it appropriate for the (Fed’s policymaking committee) to proceed cautiously in adjusting policy,” Yellen said.“This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric. If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilize the economy.”

These comments echo the Fed’s announcement early in March that it plans to halve its rate hikes this year, from four to two.

Read Yellen’s entire speech here.

Record-Low Mortgage Rates Are Coming

Mortgage rates in the U.S. are incredibly low… and there’s a great chance they’ll go lower…

Last week, U.S. 30-year mortgage rates finished the week around 3.6%.

They haven’t been this low – basically ever. (The exception is late 2012, when they nearly touched 3.3%.)

As an American, it sounds outrageous to even consider that they could go lower. But when you take the rest of the world into account, it’s not as outrageous as it seems.

I will show you why today. But first, let’s back up for a minute…

Where do mortgage rates come from? Who decides what they will be?

Typically, the U.S. 30-year mortgage rate is (somewhat) based off of the U.S. 30-year Treasury bond interest rate…

Take the 30-year government rate (which is thought of as the “risk-free” rate)… add a bit of interest due to the risk of the borrower… and boom, there you have it. (It’s a rough approximation of reality, at least.)

You can see this idea in the chart below… The lower line is the 30-year Treasury rate. The upper line is the 30-year mortgage rate…

It has to do with what’s going on in the rest of the world…

Interest rates are crashing globally. And 30-year government bond rates outside the U.S. are “crazy low.” Take a look:

 

 

Country Rate
United States 2.68%
Germany 1.01%
Japan 0.71%
Switzerland 0.27%

 

Look closely at this list… One of these four is not like the others. Which one is it?
Source: Dr. Steven Sjuggerud

 

It doesn’t take long to realize that U.S. interest rates are dramatically higher than the rest of the developed world.

Keep this in mind: Money flows where it’s treated best.

The difference between U.S. rates and the rest of the world is simply too great for investors to ignore… Money is about to flow into the U.S.

Investors who have their money in low-paying bonds in Germany, Japan, and Switzerland will move some of that money into higher-paying U.S. bonds.

That will put downward pressure on long-term U.S. interest rates.

And the chart above shows, if U.S. interest rates on 30-year government bonds go down, U.S. mortgage rates will likely follow them lower.

Mortgage rates are incredibly low in the U.S. based on history. And as I showed today, there’s a strong chance they could go even lower…