Mortgage Business

Employment Report Analysis

20140309-080351.jpgAt first blush, it appeared that the jobs report was disappointing. The addition of 142,000 jobs in August was much less than the average of over two hundred thousand for the previous six months. Yet, the day of the report, the stock market reacted positively and interest rates did not fall as expected. What could have caused this “adverse” reaction? To us there are three possibilities. First, the same day as the jobs report, a cease fire was signed in Ukraine. As we have said previously, the world news is over-shadowing our domestic economic news this summer. If the truce holds, this is a positive indicator for the stock market but not necessarily positive for the continuation of lower interest rates.

Secondly, the markets may be betting that the lower number of jobs added might be a one-time occurrence. The jobs numbers are often revised in future months and the markets are not likely to get upset over one report. Now, if we get two or three reports below an average of 150,000 jobs each month, this could be worrisome to the markets. Looking at other indicators such as first time claims for unemployment and the ADP private payroll report, there was no indication that the job creation machine slowed down last month.

Finally, even if the production of jobs does slow down, the markets may not be too upset. Slower job growth might cause the Federal Reserve Board to keep short-term interest rates lower for a longer period of time and nothing would boost the stock market more than the prospect for a continuation of lower rates. This factor would apply if the production of new jobs does not slow any further from here. As we indicated last week, it is a good sign with regard to how far we have come in our recovery for the markets to now consider over 140,000 jobs created in a month a poor performance. Which of these factors is correct? There could be a bit of truth in each theory. You can bet on the fact that the Federal Reserve Board’s Federal Open Market Committee will be considering these possibilities as they meet this week.


The Markets. Fixed rates ticked up slightly last week, but remained near their lows for the year. Freddie Mac announced that for the week ending September 11, 30-year fixed rates rose slightly to 4.12% from 4.10% the week before. The average for 15-year loans also ticked up slightly to 3.26%. Adjustables rose slightly as well, with the average for one-year adjustables moving up to 2.45% and five-year adjustables increasing to 2.99%. A year ago 30-year fixed rates were at 4.57%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans were up slightly this week, following the increase in 10-year Treasury yields, despite last week’s disappointing employment report. The U.S. economy added only 142,000 jobs in August, after a 212,000 gain in July and a 267,000 increase in June. The unemployment rate fell to 6.1 percent in August from 6.2 percent the previous month.”  Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated September 12, 2014

Daily Value Monthly Value
Sept 11 August
6-month Treasury Security 0.05%  0.05%
1-year Treasury Security 0.11%  0.11%
3-year Treasury Security 1.07%  0.93%
5-year Treasury Security 1.79%  1.63%
10-year Treasury Security 2.54%  2.42%
12-month LIBOR  0.559% (Aug)
12-month MTA  0.115% (Aug)
11th District Cost of Funds  0.668% (July)
Prime Rate  3.25%

  At least 2.5 million borrowers will face an average increase of $250 per month on their monthly mortgage payment due to the imminent reset in home equity lines of credit over the next three years, according to Black Knight Financial Services’ Mortgage Monitor Report. However, depending upon borrower behavior between now and the time of the reset, payment increases could change, Kostya Gradushy, Black Knight’s manager of research and analytics, said. Borrowers whose HELOCs will reset over the next three years are utilizing just under 60% of their available credit. If these borrowers utilize more of their credit, they could face even more payment shock as the monthly increase would rise above the $250. And the news is not much better for the borrowers whose payments are not likely to reset until 2019. These borrowers are exhibiting even lower utilization ratios — about 40% of their available credit. Once reset, they will likely face an average monthly increase of $200. “Should their drawing pattern match that of older vintages, we could be looking at a significantly higher risk of ‘payment shock’ for this segment,” Gradushy said. Source: HousingWire

Builder confidence in the market for new, single-family homes rose two points in August, bringing the National Association of Home Builders/Wells Fargo Housing Market Index to its highest score since the beginning of 2014. NAHB surveys builders across the country and asks them to rate their sales expectations for the next six months, their confidence in current single-family home sales, and their perceptions of prospective buyer traffic. “Each of the three components of the HMI registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming,” NAHB chief economist David Crowe said in a statement. Builder confidence in current sales conditions rose to a score of 58, while expectations for future sales rose to 65. The third index, which gauges expectations for prospective buyer traffic, hit 42. The overall increase in the HMI index can be attributed to factors including sustained job growth, historically low interest rates, and affordable home prices, Crowe said. Source: NAHB

Recently, the Federal Housing Administration announced that they are halting the policy of allowing lenders to collect interest to the end of the month when the homeowner’s FHA mortgage is paid off. Beginning in January of 2015, lenders will be able to collect interest until the day the loan is paid off. However, it should be noted that for the millions of homeowners who currently have home loans insured through FHA, there is no change in policy. The new policy affects only those who obtain new FHA loans in January of 2015. What does this mean for present homeowners? It is important to time refinances and sales of houses to allow time to get the payoff to the present lender before the end of the month. Otherwise, the homeowner could owe a full month of extra interest. The worst time to close on a real estate transaction is the last day of the month because all service providers are especially busy on that day — from the lender to the settlement company. This rule is more on target for those who have FHA loans because payoffs do not go to the lender the same day. On refinances, the homeowner should close their new loan 10 days before the end of the month because the present loan is not paid off until a three day “right of rescission” expires. On a purchase, allow at least one full week before the end of the month to make sure you don’t get stuck paying almost a full extra monthly payment on the present loan being paid off. Note: If you are considering moving up or refinancing your present home and are not sure whether you presently have an FHA loan, we would be happy to help you determine this as well as assisting you with your new transaction. 

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