Mortgage Business

The Fed Transition

20140309-080351.jpgThe Federal Reserve Board is going through quite a transition. Actually, more than one. The first transition is one of secrecy to transparency. In the past we had to guess at what the Fed was thinking. If they were planning a move, they never wanted to leak the news ahead of time because of what the “anticipation” might do to the markets. Over the past several years, they have transitioned to a more open culture, telegraphing potential moves well ahead of time in order to take that surprise factor out of the equation.

The second transition is removing fiscal stimulus from the equation. The financial crisis and ensuing recession was so strong that the level of fiscal stimulus applied was unprecedented — from record low interest rates to the purchase of hundreds of billions of dollars of Treasuries and mortgages. The Fed has continued to remove the purchase of Treasuries from the equation and they also face the second decision — when to raise short-term interest rates. Because of the new era of transparency, Chairwoman Janet Yellen has been talking about dates from the time she assumed the seat.

At first, talk of raising rates caused the markets to react as long-term interest rates rose. But as time went on, this effect has diminished. We are not sure if that is because of economic concerns, world-wide conflicts which have flared up or because the markets just got used to the message. The latest meeting of the Fed’s Federal Open Market Committee took place last week and the statement released told us that while the Fed thinks conditions are improving, they believe rates should stay as is for a “considerable time.” In many ways this statement tells us that there is “more of the same” coming from the Fed, at least for now.


The Markets. Fixed rates rose in the past week ending several weeks of stability. Freddie Mac announced that for the week ending September 18, 30-year fixed rates rose to 4.23% from 4.12% the week before. The average for 15-year loans also increased to 3.37%. Adjustables were mixed, with the average for one-year adjustables moving down slightly to 2.43% and five-year adjustables increasing to 3.06%. A year ago 30-year fixed rates were at 4.50%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans rose this week following the increase in 10-year Treasury yields being partially fueled by market speculation the Federal Reserve might change its interest rate guidance. Meanwhile, the Labor Department reported that its Consumer Price Index (CPI) declined 0.2 percent in August reflecting declines in energy prices. Excluding food and energy, the CPI was unchanged.” 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 19, 2014

Daily Value Monthly Value
Sept 18 August
6-month Treasury Security 0.04%  0.05%
1-year Treasury Security 0.12%  0.11%
3-year Treasury Security 1.10%  0.93%
5-year Treasury Security 1.85%  1.63%
10-year Treasury Security 2.63%  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%

  About 20 percent of households who would benefit from refinancing are not doing it — and they could be losing out on lessening their mortgage payments by thousands of dollars over the life of the loan, according to a new report from the National Bureau of Economic Research. In analyzing a large random sample of outstanding home loans from December 2010, researchers found that the median household could save $160 per month over the remaining life of the loan, amounting to a total savings of about $11,500. “Despite the large stakes, anecdotal evidence suggests that many households may fail to refinance when they otherwise should,” according to the report. “Failing to refinance is puzzling due to the large financial incentives involved.” The report found that borrowers may fail to refinance because they are unable to calculate the full financial benefit to them, they fail to see the benefits over time, or the high amount of upfront costs may deter them. “Our results suggest the presence of information barriers regarding the potential benefits and costs of refinancing,” according to the NBER report. “Expanding and developing partnerships with certified housing counseling agencies to offer more targeted and in-depth workshops and counseling surrounding the refinancing decision is a potential direction for policy to alleviate these barriers for the population most in need of financial education.” Source: HousingWire

While it doesn’t look like we’ll get our flying cars too soon, your clients may yet park their normal old cars in driveways attached to homes and buildings of a very different sort. Popular culture blog Gizmodo identified seven new materials and techniques that could lead to everything from taller high-rises to wallpaper that could charge your smartphone. A company called uBeam is heading the latter effort. Taking its cue from current wireless charging techniques, uBeam is working on techniques that use an ultrasonic sound transmitter to fill a room with inaudible energy. A receiver inside a wireless device can pick up the sound and convert it back to energy, letting you charge your devices while they’re anywhere in the home — even in your pocket. The transmitters can be placed around a home to provide full coverage. Also in the energy realm, researchers at Michigan State have created solar cells that should help to make the energy collectors more pleasing to the eye — by vanishing. Everyone has seen the large black panels that sit on roofs, and you may have encountered photovoltaic panels on windows that shimmer with rainbows, but Michigan State’s new solar concentrators are transparent. This material can be used in windows and doors to create solar power. Building materials themselves are also being upgraded. A team at MIT, for example, has studied bamboo’s structural power to apply it to other materials. “Even plywood could soon be stronger and cheaper and have less environmental impact,” says Gizmodo writer Kelsey Campbell-Dollaghan. And a company called Kite Bricks has developed bricks reminiscent of Lego blocks that snap together, but the holes can serve as conduits for the home’s wiring and plumbing, allowing easy access for repairs and upgrades. Source:

Cash sales made up 33% of total home sales in June 2014, the lowest share since September 2008, and down from 36.3% in June 2013, CoreLogic reports. The cash sales share also fell month over month from the 34.4% reported in May 2014. The share has fallen year over year each month since January 2013. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%. The peak occurred in January 2011, when cash transactions made up 46.2% of total home sales. Real estate owned, or REO, sales had the largest cash sales share in June at 55.3%, followed by re-sales (32.5%), short sales (31.8%) and newly constructed homes (16.2%). While the percentage of REO sales that were cash transactions remained high, REO transactions made up only 7.2% of total sales in June and, therefore, did not have a large influence on the overall cash sales share. In January 2011, when the cash sales share was at its peak, REO sales made up 24% of total sales. NMP Daily

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