Mortgage:Bad News Is Good News
Bad news for stocks can be good news for mortgage rates. Spurred by slower growth in China and unease in emerging markets, the stock market has been in a correction mode.
When the stock markets tank, bond markets are often one of the safe-havens. Ten-Year Treasury notes closely mirror movement in the mortgage backed securities markets and often sends mortgage rates lower. This has translated into good news for mortgage interest rates.
Current mortgage interest rates are at the lowest they have been for a few months. The trend appears to be that rates are drifting even lower.
If a borrower has locked in a loan over the last several weeks and the loan is not closing immediately, they should go back to their lender and ask if they have a price renegotiation policy. Most banks do have a policy which allows a one-time rate change. It doesn’t cost anything to ask.
In recent weeks Ten-Year Treasury notes reached a high of 3%. Currently Ten-Year Treasury notes are around 2.72%, a drop of over twenty-five basis points in the first part of the year. This is a large move.
The new Dodd-Frank rules have kicked in for the banking industry. These rules have put further limits on the institutions and how they must qualify a borrower for a mortgage. No one seemed to think the rules were easy in 2013, and now the new rules are tougher. Ratios have been contracted to a total allowable debt ratio of 43%. Credit lines now must be counted against a borrower even if they are untouched. A lot of homeowners do have lines of credit which have no balances which may be a determent to their ability to refinance or buy a second home.
The Dodd-Frank rules pose a downside risk for the housing market. If these regulations restrict the supply of credit, some households looking to purchase a home could find themselves shut out of the market, which would weaken demand. A lot of observers think the Dodd-Frank rules may slow the recovery in the housing sector.
Time will tell if the current downturn in the equities markets persists or moves to the sidelines. If it becomes sustained for a period of time, it will tamp down economic growth prospects for 2014. This would potentially help keep mortgages lower.
One of the most important reports around the corner is the employment report on February 7. Most expect a strong report in January and revised (higher) numbers for December. The report will be the foundation for the near term.
Bill Starrels lives in Georgetown. He specializes in residential mortgages. He can be reached at 703-625- 7355 or firstname.lastname@example.org NMLS#485021