Yesterday Dr. Janet Yellen chaired her last fed meeting of the Federal Open Market Committee. The committee is part of the Federal Reserve leadership and they chose to keep rates unchanged. Dr. Yellen passed the gavel to Trump nominee and incoming chair, Mr. Jerome Powell. Yellen is an Obama appointee and since 2014 has served as chair. The move was expected and even though the discount rate did not change there is speculation for increases as we move into the year. The economy continues to move in a positive direction and it is the Fed’s mandate to manage monetary policy.
On the mortgage side of consumer finances, the benchmark 30-year fixed rate mortgage continued to rise. In week over week reporting from the Freddie Mac primary market rate survey rates moved up seven basis points to 4.22%. The increase in rates was expected based on economic conditions. While consumer confidence also continues to improve the jump in rates affects affordability, especially for those on the margins where qualifying for a mortgage could be trickier.
Seven basis points represents almost 1/8th of a percent and while the movement is up there is no need for alarm as movement is based on a normal cyclical flow. As a comparison in year over year reporting, this year’s rate of 4.22% is just three basis points from last year which was 4.19%
This morning the benchmark 30-year mortgagejumped eleven basis points and came in at 4.15%. Likewise, mortgage applications also increased almost five percent from week over week reporting. As the economy continues to pick up steam consumers can expect to see rates increase accordingly as they are cyclical in nature and move based on a variety of economic factors.
Also, it is noted consumer confidence has improved. Combined with the heralded tax cut and the recent announcement of companies providing bonuses to employees, the result is more household cash to work with. Some analyst caution the giddiness being reported about the bonuses and cuts. Just this morning Home Depot joined the list of companies who will provide bonuses to eligible staff to the tune of up to $1,000. For most, the additional cash might seem like a great windfall but in the larger picture higher interest rates or higher cost of goods will reduce perceived savings.
Short term gain, long-term loss
Let, take a look. As an example, assuming a mortgage of $200,000, prior to the tax cuts rates where around 3.90%. Compared with today’s mortgage survey release of 4.15%, the difference is 25 basis points here is the bottom-line.
3.90% principal and interest = $943
4.15% principal and interest = $972
The difference is a motley $29 per month which seems nominal. However annually it is $348 and factoring seven years (which is the average time consumers keep their mortgage) the result is $2,436. So, while the bonuses are great in today’s dollars, it is more than wiped out based on higher cost.
Short term gain, long-term loss
There is a long-standing political debate on what effect the tax cut has for the “average” family that typically lives paycheck? No doubt in the capital society which we live in it is great to receive extra money such as bonuses or tax cuts, however the issue for many is sustainability or how long it will last?
The jump is interest rates is one sign attributed to the increase in mortgage applications. On one hand consumers may have extra money but on the other hand those who are in the market for a refinance or new mortgage realize any delay in making an application or locking in a rate may subject themselves to higher movement or additional cost to their budget.
The mortgage rates which are reflected are from the Freddie Mac weekly rate survey. The mortgage application data is from the Mortgage Bankers Association from the “Mortgage Application Weekly Survey.”
For the first time in eight months mortgage rates have climbed above the 4% threshold. The news was expected as financial markets continue to post positive numbers including improved business and consumer confidence.
Lenders who fund mortgage applications typically offer rates in a range based on various factors. Today’s report is from Freddie Mac’s primary market rate survey. It is the industry standard used to gauge rates and the data is compiled from a sample of lenders who sell their closed mortgage loans on the secondary market. This week’s rate is 4.04% and is based on the benchmark thirty-year mortgage.
While mortgage rates inched higher they stil make home ownership affordable. At the same time consumers realize timing is everything and as overall economic conditions improve, increases may be the result.
[Washington, D.C.] In its last meeting for 2017 the Federal Reserve’s Federal Open Market Committee (FOMC`) agreed to raise the discount rate from 1.250% to 1.500%. The move was expected and based on the health of the economy and the unemployment rate falling, if not holding steady, the Fed’s felt the move will benefit the economy in the long run. It was also mentioned the move is designed to thwart inflation and keep it no higher than two percent.
“The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.” FOMC
Two dissenting votes
On the nine FOMC voting members, surprisingly there were two who voted against the increase due to concerns of maintaining the existing target.
Voting for: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Randal K. Quarles.
Voting against the action were Charles L. Evans and Neel Kashkari.
Today, Donald Trump appointed Jerome Powell as the next chair of the Board of Governors of the Federal Reserve system (Fed) replacing Janet Yellen. The announcement was expected as Powell must now prepare himself to go through the gauntlet called confirmation. Since he is already part of the board there should be no surprises and he is expected to be in place when Yellen’s term ends in February.
“I congratulate my colleague Jay Powell on his nomination to be Chairman of the Federal Reserve Board. Jay’s long and distinguished career has been marked by dedicated public service and seriousness of purpose. I am confident in his deep commitment to carrying out the vital public mission of the Federal Reserve. I am committed to working with him to ensure a smooth transition.” Janet Yellen, 11/2/17
Yellen was appointed as chair by President Barack Obama in 2014 and her term officially ends February 3, 2018.
Prior to taking over the chair’s functions she was second in command under then Fed chair Ben Bernanke. Many in the financial sector applaud her tenure as being a steady force in guiding the United States monetary policy. Even though the position is supposed to be non-partisan, her primary criticism came from those on the opposite side of President Obama who took fault with anything and everything he proposed. Yet, like most things history has the final say and the economy is in much better shape as she exits – stage left!
Not fake news
Her critics and several others have short memories or blatant amnesia as they forget about a decade ago, the United States economic condition was becoming quite perilous and eventually exploded in 2008 resulting in hardships for millions of citizens and people around the globe. It was through focus and commitment that Bernanke and his team as well as the leadership of President Obama who accepted the daunting task of stabilizing the markets. The rest is history and the residual effect is an economy which has regained its footing, including a stock market which has grown to unprecedented levels.
Fed rate remains unchanged
Yesterday the Fed’s Monetary Committee met and decided to maintain the fed discount rate, although it is still projected to increase before the end of the year. The concern conveyed by members was acknowledgment the economy is moving is a positive direction.
As Yellen is preparing to move on the one concern being voiced is the GOP’s proposed tax reform bill. Monetary policy is a methodical process and it takes extreme discipline to not allow partisan politics to be the guiding force to ensure normalization.
“That task could be complicated by the GOP plan to inject huge stimulus into an already-healthy economy. Doing so may force the Fed to more aggressively raise rates to prevent the economy from overheating. “
It was in the middle of July when mortgage rates were at 4%. Based on yesterday’s mortgage rate survey the benchmark 30 years mortgage jumped six basis points in week over week reporting and came in at 3.960%. Most know rate movement is cyclical so the increase must be viewed based on trends not as an isolated incident.
Industry experts attributed the jump to the increase of the yields on the 10-year Treasury bond, which jumped nearly 10 basis points. The 10-year bond is the primary indices which affect movement on the 30-year mortgage.
The markets reacted based on anticipation that a tax deal may be accomplished? Also, yesterday the Senate passed procedural regulations known as a budget resolution making it a bit easier for a deal to be reached. If things work out as projected, it would mark a key win for the Trump administration which has been bogged down since taking office by not being able to tout any legislative victories.
In the meantime, homeowners who are purchasing a property or attempting to refinance their existing mortgage are gauging rates to make sure their budgets are not negatively impacted.
Here is a snapshot of this week’s rates:
October 26, 2017
Fees & Points
The Freddie Mac rate survey is published every Thursday. It is an industry standard and used to gauge mortgage movement.
The mortgage or housing crisis erupted across the nation in 2008 and crippled the U.S. economy. Institutions, companies, cities, communities and individuals were not spared its devastation. Even though recovery was a painful process and total restoration is a fleeting hope for many, it was felt those responsible, especially the well-known companies and their corporate leadership would eventually be held responsible for their involvement.
Shockingly, of all those who may have been involved in the nuances of mortgage lending and whose decisions resulted in historic loses, only one bank was indicted by the federal government. Abacus Federal Savings and Loan headquartered in New York was dealt the wrath of selling fraudulent loans to the Federal National Mortgage Association (FANNIE MAE).
Too Big to Fail
You remember the panic, the desperation and the commentary from our political leadership? Most had never heard the phrase, “too big to fail!” They would quickly learn it was akin to one of the great Chick Hearn phrases in announcing a basketball game, “no harm, no foul.” That basically meant that even though a foul may have been committed by the opposing player, it was not deemed worthy of declaring a foul or infraction.
Instead, countless banks and mortgage originators were fined billions by various regulators, however there was no criminal prosecution as was the case with Abacus. Even today there are many raw nerves, emotions and opinions when the topic of the mortgage crisis is discussed. The how and why of Abacus being targeted raises more questions than it answers. In 2016 a film about the plight of Abacus and impending trial was released. Frontline, which specializes in showing documentaries on the public broadcasting network platform released the television version on September 12, 2017.
This spread the danger of risky mortgage loans, systematizing the housing market’s risks throughout the global financial system.23 These developments occurred in an environment characterized by minimal government oversight and regulation and depended on a perpetually low-interest rate environment where housing prices continued to rise and refinancing remained a viable option to continue borrowing. When the housing market stalled and interest rates began to rise in the mid-2000s, the wheels came off, leading to the 2008 financial crisis.
Low hanging fruit
Abacus was eventually vindicated as the government was not able to prove their case. Whatever your thoughts are about the crisis or your familiarity of the case, you ponder and ask what was so unique about Abacus that the government thought them to be “the poster of criminal intent and deemed a responsible party?” There were so many well-known companies that were involved in the crisis. As a matter of fact, each day lenders were imploding right before our eyes. No doubt, they represented low hanging fruit that even a rookie prosecutor could attempt to give the public some sense of relief through indictments.. Yet, absent those who managed to survive and keep the doors open, their core penalty as mentioned was having regulatory fines levied against them. From their perspective, dealing with a fine was much better than going out of business or worse, having to spend time in jail or prison.
Abacus goes down in history by being the only bank or mortgage lender to suffer the fate of being indicated and having to go through a full trial.
Mortgage rates which have been sliding during the past several months reached their lowest point of 2017. As reported by the weekly Freddie Mac Primary Market Rate Survey, the benchmark 30-year mortgage dropped another four basis points in week over week reporting and came in at 3.780%
The dip was attributed to the 10-year treasury yield which also fell to new lows at 2.061%. Of all financial indicators which influence mortgage movement, it is the 10-year treasury yield which is the most predominant. At the beginning of the year there was much optimism that the Trump Administration could jumpstart economic growth and inflation by cutting taxes and regulations. However, with the administration not being able to claim any legislative victories investors are wondering whether they have the will to move the economy at a faster pace.
Rates are cyclical and will not always drop, however the recent national disaster of hurricane Harvey will have an effect in consumers applying and qualifying for mortgage. Low mortgage numbers are great but you still have to be able to qualify based on your credit and condition of the property being used as collateral. One of the first economic data points of Harvey was the BLS report reflecting unemployment claims. The report showed that claims jumped 62,000 from week over week reporting and came in at the highest level since 2015. That is worth mentioning as there as several more hurricanes, with equal or greater strength which is slated to hit the United States within the next several days.
Based on Harvey and other pending hurricane’s which primarily affect regional economics, consumers can expect a broader impact resulting in rates remaining at their current level. The big question is with all that is going on, can consumers switch gears and be concerned about mortgage money?
September 7, 2017 (based on Freddie Mac weekly rate survey)
For most the quarter mortgage rates have been below 4%. There has been a steady drip in week over week reporting and currently they ended August at 3.820%, which was down four basis points from the previous week. The rate reported is for the benchmark 30-year Fixed Rate mortgage. A full recap of popular programs is listed below:
August 31, 2017 (Freddie Mac Primary Market Rate Survey)
Fees & Points
As more consumers are purchasing homes or refinancing their existing mortgages, tighter competition for affordable mortgage money could be the result. Thus, experts suggest the trend may reverse as rates move higher. Of course, that is the projection but for now the current rate range appears stable.
Rates for the most recent week were posted Thursday or August 31st. However, on Friday, September 1st the Bureau of Labor Statistics released monthly employment numbers for August. While many were jubilant that July’s numbers exceeded expectations, August numbers brought them back to reality as there were 156,000 new jobs reported. That number was a sharp reduction from July, and way below the 2016 monthly average of 187,000 new jobs.
Of course, with the disaster of hurricane Harvey and other regional issues both mortgage and employment data should see some immediate adjustments. Construction employment surely will see a pick-up, however in the Texas region there is some concern as industry experts peg undocumented construction labor at nearly thirty percent. Based on the Trump administration unpopular focus on building “the wall” and removing undocumented people from the United States, many from that population are petrified of being targeted resulting in their unwillingness to come forward and perform jobs they have done prior to the attention of their plight. The bottom line is if these workers are unavailable the cost of recovery will be much higher.
For the first reporting week of August, mortgage rates were basically unchanged and came in at 3.930% or up one basis point in week over week reporting. Unemployment numbers for July were released and they reached the lowest level in years as they came in at 4.3%.
Both numbers are critically important to consumers and is also closely monitored by economist and policy makers.
The mortgage numbers were projected as rates have held steady for the past several months. Affordability is also an important issue as those seeking to purchase a property have seen prices increase due to supply. The 3.930 is for the benchmark 30-year mortgage. The popular 15-year mortgage also held steady and sits at 3.180% Both numbers are from the Freddie Mac Primary Mortgage Market Rate survey which is an industry standard in gauging mortgage rates on a national basis. For more information on mortgage data please see here.
The employment data exceeded projections and represented good news for the Trump administration. For them, this week has been another roller-coaster ride and their lack of communicating honest information, instead of having to retract one issue after another has made the public less confident in their ability achieve some of the basic issues they campaigned on.
Job gains occurred in food services and drinking places, professional and business services, and health care.
For those in the workforce the big issue remains flat wages. For more information on the employment data please see here.