Flatness in Mortgage Rates

A slow week for economic news led to relative flatness in mortgage rates to kick off April.

Freddie Mac released Thursday the results of its latest weekly Primary Mortgage Market Survey, showing the average rate on a 30-year fixed-rate mortgage (FRM) coming up to 4.41 percent (0.7 point) for the week ending April 3—a minor increase from 4.40 percent last week. A year ago at this time, the 30-year FRM averaged 3.54 percent.

The 15-year FRM was up slightly higher, averaging 3.47 percent (0.6 point) from 3.42 percent a week ago.

Changes in adjustable rates were also small: The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.12 percent (0.5 point) this week, up from 3.10 percent previously, while the 1-year ARM moved up to 2.45 percent (0.4 point) from 2.44 percent.

“Mortgage rates were little changed amid a week of light economic reports,” said Frank Nothaft, VP and chief economist for Freddie Mac. “Of the few releases, real GDP was revised up slightly to 2.6 percent growth in the fourth quarter of 2013.”

Meanwhile, finance website Bankrate.com reported the 30-year fixed rate at an average 4.54 percent for the week (up 3 basis points), with the 15-year fixed settling at 3.58 percent (up 2 basis points).

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Senators Introduce Bill to Replace GSEs in 5 Years

By: Tory Barringer, DSNews.com

A bipartisan group of senators introduced on Tuesday legislation to replace Fannie Mae and Freddie Mac with a newly created agency.

Citing the overwhelming presence of the GSEs in today’s mortgage marketplace, Sens. Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) unveiled a new piece of legislation designed to wind down the enterprises and rebuild the private mortgage sector.

Also involved in the unveiling were Sens. Mike Johanns (R-Nebraska), Jon Tester (D-Montana), Dean Heller (R-Nevada), Heidi Heitkamp (D-North Dakota), Jerry Morgan (R-Kansas), and Kay Hagan (D-North Carolina), all members of the Senate Banking Committee.

The legislation would dissolve Fannie Mae and Freddie Mac within five years of passage and transfer appropriate utility duties and functions to a “different, modernized and streamlined agency.” The transfer would be done with a fiduciary duty to maximize returns to the taxpayer as the GSEs’ assets are sold off.

In addition, the new bill requires private market participants to hold 10 percent of the first loss of any mortgage-backed security (MBS) that purchases a government reinsurance wrap.

It also sets up an infrastructure for splitting up credit investors—who are willing to take on the risk of loss—from rate investors, thus keeping mortgage rates competitive while mitigating the risk of loss to taxpayers.

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Market Set to 'Bloom' as Spring Buying Season Begins

By: Tory Barringer, DSNews.com

While a few stumbling blocks remain, Freddie Macinsists the economy is finally headed “from gloom to bloom” this spring.

The GSE released Wednesday its U.S. Economic and Housing Market Outlook for March, showing that low mortgage rates, rising prices, and gradually improving consumer confidence will bolster home sales as the homebuying season starts.

Compared to 2012, experts at Freddie Mac expect home sales to increase 8 to 10 percent this year, coming to about 5.4 million units sold by year’s end.

With inventory remaining tight and home sales picking up in many markets, the demand for new single- and multifamily housing should result in more construction, higher new home sales, and greater construction employment. Housing starts are forecast to increase to 950,000 units for 2013, up from 780,000 last year.

On the topic of prices, Freddie Mac expects an average 4.0 percent appreciation in 2013, with 0.8 percent price growth in Q1 being cut down by 0.8 percent depreciation in Q4. The two middle quarters are each expected to see 2.0 percent appreciation.

The news isn’t all good, however. On the economic front, the enactment of the sequester in March spurred the GSE to slice half a percentage point off its economic growth projections. Budget cuts will also likely result in lower employment growth, which in effect will dampen housing somewhat.

With spending reductions going into effect throughout the year, Freddie Mac predicts the unemployment rate will average about 7.8 percent for 2013, essentially flat for the year but about 0.25 percentage points higher than it would have been otherwise.

With modest growth and high unemployment, long-term interest rates will creep up at a more gradual pace and will likely remain below 4 percent throughout 2013.

Flagging consumer confidence is another concern. March’s preliminary release of the Thomson Reuters/University of Michigan consumer sentiment measure shows the sentiment index coming in at 71.8, well below consensus expectations of 78.0. While the stock market has shown improvement—boosting confidence for higher-income families—slow employment growth continues to exert downward pressure on confidence for lower-income households.

Regardless, experts insist the long-term picture looks brighter as the economic recovery starts to reach more and more areas of the United States.

“History shows us not all economic recoveries are created equal and consumer confidence mirrors this fact. With the spring homebuying season upon us, the recent highs in the stock market are a welcome signal of better times ahead,” said Frank Nothaft, VP and chief economist for Freddie Mac. “But it will be the gradually declining unemployment rate and steadily improving housing market that will deliver broad-based economic benefits for Americans and, in turn, support the overall recovery.”

HARP Accounts for 1 in 5 Refinances in May!

With the help of record-low mortgage rates, HARP refinances surged in May, accounting for 20 percent of all loans refinanced by the GSEs, FHFA announced Monday.

For the month of May, 67,456 loans were refinanced through HARP, and the total number of loans refinanced by Fannie Mae and Freddie Mac for the month was 341,209. The one in five ratio of loans refinanced through HARP is the largest increase since the program’s 2009 inception.

“These numbers show HARP 2.0 is accomplishing the goals set forth—to provide relief to borrowers who might otherwise be unable to refinance due to house price declines,” said FHFA Acting Director Edward J. DeMarco. “Borrowers with Fannie Mae- or Freddie Mac-backed loans who are current on their underwater mortgages are taking advantage of the opportunity offered by HARP 2.0.”

The number of underwater borrowers who found relief through HARP also saw a significant increase. Year-to-date through May, 78,273 refinances were completed for underwater borrowers compared to 59,991 refinances for underwater borrowers for the entire year of 2011.

Since the program began, Fannie Mae and Freddie Mac have refinanced 1.3 million loans through HARP.

In March 2012, the GSEs launched HARP 2.0, which allowed mortgages with a loan-to-value (LTV) ratio of 125 percent or higher to be eligible for refinancing.

Following this change, the percentage of those with high LTVs who received refinancing doubled. In May, borrowers with LTVs greater than 105 percent accounted for 32 percent of HARP refinances, up from the 15 percent average in 2011.

The percentage of those who opted for shorter term 15- and 20-year mortgages increased to 19 percent in May compared to the 10 percent average in 2011. Choosing shorter term mortgages over a 30-year mortgage helps build equity more quickly.

In Nevada, Arizona, Michigan and Florida, HARP refinances accounted for 40 percent of all refinances in those states compared to the 20 percent nationwide average.

In Nevada and Arizona, underwater borrowers represented more than half of those refinanced through HARP, and in Florida, Idaho, and California, underwater borrowers represented 40 to 50 percent of HARP refinances.

By: Esther Cho