Mortgage Rates Edge Higher From Long Term Lows by Mathew Graham

Mortgage rates were steady to slightly higher today, leaving the average lender just a hair above the lowest rates in months, and still very close to the lowest rates in more than 3 years. The coronavirus outbreak is still a relevant consideration for financial markets, including interest rates, but traders took today to consolidate their recent positions. 

In other words, the recently prevailing trends experienced a bit of a correction.  Stocks rose moderately after falling sharply over the past 2 days.  Treasury yields did the same.  Mortgage rates moved a bit higher in some cases, but because they’re not directly tied to Treasuries, they fared better by comparison.  The trade-off was that mortgage rates didn’t fall as much as Treasury yields over the past 2 business days.

If the virus situation continues to get worse before it gets better, rates could certainly go even lower.  That’s impressive considering the average lender is very close to their lowest rate offerings since the middle of 2016.  But as soon as the fear begins to be replaced by optimism (i.e. containment of the virus becomes a probability), interest rates may snap back quickly to moderately higher levels.

Loan Originator Perspective

My pricing regressed slightly from Monday’s, as durable goods and consumer confidence data largely met projections.  With Wuhan Virus concerns largely priced into rates, and pricing near multi-year lows, seems like a good time to lock loans closing within 45 days, at least for risk averse borrowers. – Ted Rood, Senior Originator

Today’s Most Prevalent Rates For Top Tier Scenarios 

  • 30YR FIXED – 3.5 -3.625%
  • FHA/VA – 3.25 – 3.75%
  • 15 YEAR FIXED – 3.25 – 3.375% 
  • 5 YEAR ARMS –  3.25-3.75% depending on the lender

Ongoing Lock/Float Considerations 

  • 2019 was the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections 

  • Fed policy and the US/China trade war have been key players.  Major updates on either front could cause a volatile reaction in rates.  

  • The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.  

  • In addition to the economic data and the trade war, other factors can certainly emerge and cause rate volatility for better or worse (Wuhan Virus, for example)

FICO Changes To Dramatically Affect Credit Scores In Effort To Reduce Defaults

by Tyler DurdenTue, 01/28/2020

Fair Isaac, the company behind FICO credit scores, announced the rollout of a new scoring method that will dramatically shift credit scores for millions of Americans in either direction.

In a nutshell – ‘FICO Score 10 Suite’ is supposedly better at identifying potential deadbeats from those who can pay, and claims to be able to reduce defaults by as much as 10% among new credit cards, and nine percent on new auto loans.

Around 40 million people with already ‘high’ scores (above 680) are likely to see their credit rise, while those with scores at or below 600 could see a dramatic drop. 

00:18 / 09:35

According to Fair Isaac, around 110 million people will see their scores swing an average of 20 points in either direction.

“Consumers that have been managing their credit well … paying bills on time, keeping their balances in check are likely going to see a gain in score,” said Dave Shellenberger, VP of product management scores.

The changes come as consumers are accumulating record levels of debt that has worried some economists but has shown no sign of slowing amid a strong economy. Consumers are putting more on their credit cards and taking out more personal loans. Personal loan balances over $30,000 have jumped 15 percent in the past five years, Experian recently  found. –Washington Post

That said, according to WalletHub, delinquency rates are in much better shape than they were a decade ago, with 6% of consumers late on a payment in 2019 vs. around 15% in 2009. Meanwhile, the average FICO score went from bottoming out at 686 in October of 2009 to an average of 706 in September of 2019.

As we noted in October, FICO has been talking about recalculating credit scores for some time now. According to the Wall Street Journal, anyone with “at least several hundred dollars” in their bank account and who don’t overdraw are also likely to see their scores rise. Specifically, anybody with an average balance of $400 in their bank accounts without an overdraft history over the last three months would likely get a boost. 

And with non-revolving debt such as student and auto loans recently rising by $14.9 billion, identifying potential deadbeats is more important than ever.

Interest Rates Press Lower. Mortgage Rates grudgingly follow.

Coronavirus Panic Sends 10 Year Note Higher

Michael Seery – Seery Futures – Mon Jan 27, 8:10AM CST 

10 Year Note Futures—The 10 year note in the March contract is trading higher for the 3rd consecutive session up another 16 ticks at 130 /25 as there is sheer panic of the Coronavirus spreading throughout the world sending the stock market down nearly 500 points as money flows are going into the bond sector at this time.

I have been recommending a bullish position from around the 129/17 level and if you took that trade continue to place the stop loss under the 2 week low standing at 128/25 as the yield currently stands at 162 % and looks to head even lower in my opinion.

The one major concern I have is that there is a price gap that was created today as who knows how severe this virus is going to be longer term, but in the short-term it certainly is a bullish fundamental factor for higher prices and lower yields with the next major level of resistance all the way at the 132 area as there is still room to run.

The 10-year note is trading above its 20 and 100 day moving average telling you that the trend is to the upside as prices have now hit a 3 1/2 month high as I have very few trade recommendations at the current time.

New Home Sales Disappoint, Slump To 5-Month Lows

by Tyler Durden Mon, 01/27/2020

Following the big upside surprise in existing home sales, analysts expected new home sales to extend gains further in December but they disappointed significantly, dropping 0.4% MoM (vs +1.5%) and worse still, November’s 1.3% jump was revised drastically lower to down 1.1% MoM.

The 694k SAAR is the lowest since July…

Despite low rates, soaring homebuilder sentiment, and housing starts at decade highs, new home sales fall for the 3rd month in a row.

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The median sales price edged up 0.5% from a year earlier to $331,400.

Purchases of new homes fell in the South, the largest region, and the Northeast, while they climbed in the Midwest and West.

Rates Open the Week Lower

MBS Week Ahead: Bonds Attempting to Confirm a Breakout  by Mathew Graham Jan 27 2020, 9:45AM

Last week was really the first truly interesting week of 2020 (and arguably of the past several months) as far as the prevailing range in the bond market is concerned.  Yields had been narrowing since September and were holding a very tight range since mid-October.  By Friday, 2 of the 3 potential boundaries (there are different ways to approach them) were broken by a rally in the bond market.  

But “broken” is a bit of a subjective term when it comes to following “key levels” or other lines (like moving averages or trend-lines) that a technical analyst might use to interpret bond market momentum.  Traditionally, the first move past such a line is referred to as a “test.”  In other words, bonds are testing their ability to operate on the other side of a line that had previously turned them away.  If they’re able to do so, the 2nd part of a breakout is referred to as “confirmation.” 

Friday, then, provided a compelling “test” of 2 of the 3 lines we’ve been watching.  One of those lines is a simple horizontal pivot point at 1.69-1.71% (personal preference can dictate exactly where to place that).  The other broken line is less subjective as it perfectly connects the last 3 major lows (the teal line below).  The only other resistance line (aka “floor”) was the longer-term trend-line connecting all the lows from the 2nd half of 2019 (yellow line below).  

Long story short: if today’s gains hold, 2 of the 3 floors will be confirmed broken and the final floor will be aggressively “tested.”  If that test is confirmed tomorrow, the implication is for the rally to extend down to the previous lows in the 1.4-1.5% range.  

Of course if bonds are on the move to such an extent, we have to ask why.  In this case, we know a good amount of the movement is due to coronavirus concerns.  That’s unfortunately not very solid footing for a sustainable rally so we shouldn’t get too attached to it unless it’s joined by weaker economic data.  We’ll get plenty of opportunities to assess data this week as the calendar is night-and-day busier versus last week.  In addition, there’s another round of Treasury auction supply to assess bond traders’ level of demand. 

Last but not least, the Fed releases a new policy announcement on Wednesday.  While it’s hard to imagine what the Fed could say to surprise the market (i.e. they’ve been clear they’re neither hiking nor cutting without a major shift in inflation or jobs), that hasn’t stopped bonds from having at least a moderate reaction in the past.  If all of the above happens to align in a bond-friendly way (weak data, strong auctions, no surprises from Fed), this rally could keep going even without a major deterioration in the the coronavirus containment outlook.

Current market rates

Posted by ft Editorial Staff | Jan 24, 2020 

The average 30-year fixed rate mortgage (FRM) rate decreased to 3.60% in the week ending January 24, 2020. The 15-year FRM rate also declined to 3.04%. FRM rates rose significantly in 2018, but fell back in 2019, now well below a year earlier. The long-term rising trend has briefly stalled as the Federal Reserve (the Fed) drops interest rates as we head into the coming recession, expected by the end of 2020. In response, expect interest rates to remain low for the next several months.

Rising interest rates discouraged homebuyers and decreased their purchasing power in 2018, causing sales volume and prices to slip going into 2019. Now begun, the downward trajectory for prices and sales volume will continue in 2020, not to recover until after the next recession is over, in 2021-2023.

FRM rates are tied to the bond market, tending to move in tandem with the 10-year Treasury Note (T-Note) rate. Bond market investors are feeling discouraged in light of the slowing economy and instability emanating from the federal government. This has led them to accept lower yields in return for the safety of treasuries, which in turn has kept FRM rates down in recent weeks. FRM rates will remain low over the next two-to-three years.

The spread between the 10-year T-Note and 30-year FRM rate is 1.90%, above the historical difference of 1.5%. The higher margins seen through much of 2018-2019 signify that mortgage lenders, uncertain of the market’s future, are padding their risk premiums. 

The average monthly rate on ARMs was 4.0% in December 2019, far above its low point of 2.49% experienced in May 2013. The average ARM rate is actually higher than the average 30-year FRM rate, making these riskier mortgage products even less appealing. As interest rates fell back in 2019, the spread between the ARM and FRM rates has diminished and now inverted. Therefore, ARM use will remain extremely low over the next couple of years, as the Fed will work to keep interest rates on FRMs low as the economy slows and a recession arrives, projected to hit by late-2020.

Chart update 01/24/20

Mortgage Rates Drop to 4.5-Month Lows on Virus Fears


Mortgage rates moved meaningfully lower over the past 2 days as panic over the coronavirus outbreak continues affecting financial markets.  If this epidemic ends up being similar to SARS in 2003, it ultimately won’t be worth as much of a drop in interest rates as we’ve seen so far.  But the thing about brand new strains of deadly viruses is that neither the market nor the medical community knows exactly how this will unfold.  Until that picture becomes clearer, the market is preparing for more dire outcomes.  

For whatever it’s worth, the timeline of the SARS outbreak spanned 2 calendar years (2002 – 2004) but the most notable market impact was confined to the space of a single month (March 2003).  We’ll be a week into February before the current epidemic reaches a similar milestone.  I’m basing that on the virus being identified as “novel” back on January 9th.  If we start the clock at the beginning of the current week (when markets really began to respond to virus-related news), we’ve only just begun to move lower in rate.

That’s a very scary thing to type and think.  With mortgage rates at 4.5 month lows, there should be a voice in everyone’s head saying “they’re going to have a hard time going lower than that.”  That’s my first instinct as well, just as almost everyone had the instinct rates were very likely heading higher in 2020.  That’s the thing about markets (which ultimately dictate mortgage rates): when too many people are making the same bet, the other bet can end up being the winner.  In this case, however, I would guess we’ll see a linear and logical relationship between the spread of coronavirus and rates, all other thing being equal.

Loan Originator Perspective

Corona Virus concerns continued to boost bonds Friday, and we finished the 4 day week with moderate additional gains.  I’m in no hurry to lock my March closings, but most February ones are.  Feels like we’re still in the early stages of Corona concerns.  –Ted Rood, Senior Loan Originator

Today’s Most Prevalent Rates For Top Tier Scenarios 

  • 30YR FIXED – 3.625 -3.75%
  • FHA/VA – 3.375%%
  • 15 YEAR FIXED – 3.25 – 3.375% 
  • 5 YEAR ARMS –  3.25-3.75% depending on the lender

Ongoing Lock/Float Considerations 

  • 2019 was the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections 

  • Fed policy and the US/China trade war have been key players.  Major updates on either front could cause a volatile reaction in rates

  • The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as trade war updates. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.  
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

HSH Weekly Market Trend by

January 24, 2020 — After a few weeks of rising optimism, a holiday-shortened trading week and one with a dearth of significant new economic data seemed to leave investors to dwell on the more negative or pessimistic components of the current climate. As a result, there was a bit of a shift out of riskier assets like stocks, lowering benchmark bond yields and mortgage rates a bit. Although there is now a “phase one” trade agreement in place with China it looks as though there’s a realization that while having a deal in place is a good thing, it’s not as though the effects of it will be felt quickly or even necessarily broadly when they do show, and may not even undo the effects of the recent trade “war” between the two largest economies, since a wide range of tariffs remain in place. As well, there seem to be a bit of rising skepticism about the prospects for a more significant “phase two” agreement, which might not come to pass until after November’s election. It appears as though we will see the USMCA signed next week, which would solidify the parameters of trade with our largest trading partners and neighbors, so that would be a good thing. However, the trade and tariff troubles are by no means behind us, as President Trump has set his sights on the European Union for similar treatment. Overall, while the climate for trade may becoming somewhat clearer and more stable, it remains a source of discomfort for businesses around the globe. 

Adding to global concerns this week is the worries about the impacts of a spreading coronavirus, which seems to be growing by the minute in leaps and bounds. China is taking extraordinary steps to address the growing crisis, even pledging to build a hospital for a 1,000 patients in only a weeks’ time while essentially quarantining 30 million people to help contain the spread of the disease to the extent possible. Still, the number of cases is rising there and being reported elsewhere, and there are reasons to think that the outbreak will diminish already soft growth in places around the world, although those effects may be short-lived. The slight bit of fresh economic data in the U.S. certainly didn’t help lighten the darker outlook, as most of it simply reinforced the message that all we might expect at the moment is modest growth at best. For example, the Federal Reserve Bank of Chicago’s National Activity Index moved from a pretty positive 0.41 reading in November to a decidedly negative one of -0.35 in December, reflecting a slowdown in economic activity. This amalgam of 85 economic indicators seeks to show if the economy is growing above or below it’s “potential”, or natural ability to grow without throwing off any excesses. This is thought to be a GDP level of perhaps 2.6% or so, possibly less, and the December value does suggest sub-par growth for the month. The NAI has been in a highly uneven pattern for months, with positive swings giving way to negative ones, but the trend effect continues to be less-than-stellar growth.

There may not be much improvement to be expected in the near term, either, if the forecasting ability of the index of Leading Economic Indicators is any indication. The Conference Board’s ostensibly forward-looking tool posted a reading of -0.3% for December, so there most definitely was a little slippage in activity to close out 2019 and little momentum to start 2020.With the two wide-ranging trackers finishing 2019 on a soft note, it would be a shock to see GDP for the fourth quarter of 2019 come in higher than the 2.1% notched for the third quarter. While we’ll get the first official (advance) figure on Q4 GDP next week, the current run rate as reckoned by the Atlanta Fed’s GDP Now tool suggests we’ll only see a rate of perhaps 1.8% or 1.9% for the period. That’s not enough softness for the Fed to become concerned enough to act, but the Fed does meet for their January two-day policy meeting on Tuesday and Wednesday next week. The Fed has made it plain it will hold rates steady unless things really turn sour, and a soft quarter isn’t enough to warrant concern, especially with a range of outlooks starting to improve for other economies. As reckoned by the future markets tracked by CME Group, there’s about an 87% chance that the Fed will make no move at next week’s meeting, but in an interesting turn, the remaining 13% of odds makers lean toward a quarter-point rate hike. That’s rather at odds even with longer-range futures forecasts, where a sizable majority expects one or more rate cuts before 2020 comes to a close.

The labor market should continue to be a source of comfort for the Fed and to investors, as there are no indications that a slowing job market is forming. High employment levels should keep consumer spending powering the economy forward, and this effort will hopefully be joined by manufacturing and agriculture spending to a greater degree before too much more time passes. The next employment report is a couple of weeks away yet, but the latest review of initial claims for unemployment benefits remains very solid, with just 211,000 new applications filed at unemployment offices in the week ending January 18. It’s to be expected that applications for mortgages would begin to tail off a bit after the usual post-holiday blast of pent-up demand is sated. That hasn’t happened just yet, but there was a 1.2% decline in overall application placed in the week ending January 17, according to the Mortgage Bankers Association of America. The dip was pretty equally balanced, with a 2% fall in applications for purchase-money mortgages and a 1.8% decline in those for refinances. Still, with mortgage rates edging down a bit more this week, there’s a good chance that refi activity will kick higher again.

It may be hard for purchase-money mortgage activity to move any higher, because there are increasingly fewer and fewer homes available for sale. In December, sales of existing homes rose 3.5% to a 5.54 million (annualized) pace, the highest level since March 2018, but the effect of the flare in sales last month is twofold: First, it depleted supplies of homes for sale to just 3 months, the lowest level in 20 years, and second, it caused a spike in the price of homes sold, with a year-over-year increase of 7.8% (up from an already firm 5.4% annual gain in November, and the largest year-over-year increase since January 2016). The lack-of-inventory-for-sale-leading-to-higher-prices issue doesn’t look like it will be solved quickly, as listings of homes for sale declined by 15.9% compared to November (probably some seasonal/holiday effect reflected there) but were also 9% below a year ago December’s tally. Simply, there are few homes for sale, what is for sale is commanding increasingly steep prices, and mortgage rates aren’t falling enough to provide an offset for those fast-rising prices. Failing a spurt of new inventory into the market, what’s likely to come next is a slowdown in sales, and that would put a drag on the soon-to-start spring housing season. More new construction will help with the inventory problem, and likely will to a degree, but as with most things it will take time. Even then, the $231.19 per month difference in monthly payment between the median price of a new home with 10% down and an existing one may prove too steep for potential homebuyers to make the leap to new construction.

One local look at the strength of manufacturing activity in the district covered by the Federal Reserve Bank of Kansas City showed a better grade of lousy, as their barometer sported a value of -1 in January. Still, that sub-par figure was good enough to be the best since September, and there was upward movement in measures of new orders (to -4 from -13) and employment (to +4 from -7), so the report did reflect at least some improvement in factory conditions this month. With disappointment in the air at the moment, mortgage rates seem poised to drift downward a little bit again next week. Perhaps the Fed will have some cheerier news for markets, something akin to the “green shoots” kinds of language we saw at times in the early days of the economy recovery and expansion. There’s a bit more data out next week for investors to consider, but most of the consequential reports come after the Fed meeting has concluded. With a soft end for markets this week and not too much to consider before the Fed, it looks like we’ll see mortgage rates fade a little more again next week. We expect that there will be a couple of basis point decline in the average conforming 30-year FRM that Freddie Mac reports next Thursday. If it’s more than three basis points, rates will have drifted back to where they were last September.