WOW. What a roller coaster on Wall street. Markets experienced extreme volatility once again today especially after the Fed announced its statement at 2:15pm ET. The Fed did not say that it would add any additional stimulus to the economy but Stocks bounced back after the horrific sell-off in recent days. Mortgage Bonds also rose today – our new focus is the 3.5% coupon rising 131bp to end at 101.22. The Monthly Bond Rollover will occur after the close of trading and will be reflected tomorrow. The Dow surged 429.92 to 11,239.77, the S&P 500 jumped 53.07 at 1,172.53 while the Nasdaq soared 124.83 to 2,482.52. Oil in after hours trading was $82.14/barrel down $2. There is no economic data tomorrow. The Treasury will sell $24B 10-yr notes tomorrow.
Outgoing Federal Deposit Insurance Corp. Chairman Sheila Bair on Friday said it may be time to think about implementing a slow increase in interest rates to make bank lending more profitable. Bair’s comments come as some bankers have been criticizing the Federal Reserve’s zero interest rate policy, insisting that it is hurting bank profitability and is that it is impeding the lending environment. The Fed on Wednesday held interest rates at record-low levels as its controversial $600 billion bond-buying program came to an end. The central bank said it planned on keeping rates low for an “extended” period of time.
“That is an interesting debate, and I hear that from a lot of bankers that a gradual increase in interest rates could make lending more profitable and therefore provide more incentives for lending,” Bair said to reporters at the National Press Club after her last official speech as chairman of the agency. “It is an argument that the Federal Reserve board is very aware of and there is the counter argument in terms of economic impact [of raising interest rates]. Maybe it’s time to think about it a little more.”
With Mortgage Interest Rates at an all time low of 2011, the window to refinance may soon be closing.
Before deciding on what terms lenders will offer you on a loan (which they base on the “risk” to them), they want to know two things about you: your ability to pay back the loan, and your willingness to pay back the loan. For the first, they look at your income-to-debt obligation ratio. For your willingness to pay back the loan, they consult your credit score.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (and they’re named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).
Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. In fact, the fact they don’t consider demographic factors is why they were invented in the first place. “Profiling” was as dirty a word when FICO scores were invented as it is now. Credit scoring was developed as a way to consider only what was relevant to somebody’s willingness to repay a loan.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren’t as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit — credit scores requested.
Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
To get a FREE Copy of your credit score, contact your Maine Mortgage Banker today.
If you are considering a VA Home Loan the fastest and easiest way to find out if you qualify is by connecting to a VA Home Loan Specialist who can help to determine your eligibility, qualification level and let you know what your options are.
It doesn’t cost you anything and there is no obligation.
You May Be Eligible If Any One of the Following are True:
- Served 181 days during peacetime (Active Duty)
- Served 90 days during war time (Active Duty)
- Served 6 years in the Reserves or National Guard
- You are the spouse of a service member who was killed in the line of duty.
Get connected with a VA Loan Specialist who can help you maximize your VA benefits and let you know what you qualify for.
MARKET WRAP: Mortgage finished near unchanged levels but were able to pare losses after news that a new earthquake hit Japan, which drew money out of Stocks and into the Bond markets. The 4% coupon finished at 97.78 up 6bp. The only economic report today showed that Initial Jobless Claims fell 10,000 in the latest week but the news didn’t have much of an impact on trading. Stocks suffered moderate losses after the Japan news as the Dow lost 17.26 to 12,409.49, the S&P 500 lost 2.03 to 1,333.51 while the Nasdaq dropped 3.68 to 2,796.14. Oil settled at $110.30 up $1.47. There are no economic reports set for tomorrow.
For the past few years, homes have been the most affordable on record. Low rates and low prices make a wonderful combination. However, this wonder combination may soon be coming to an end. Why do we say this? For one, new home sales are the lowest they have been since the government started keeping records in 1963. While that sounds like bad news, the inventory of new homes for sale is not going up. This inventory is actually one-third of what it was just five years ago. This commentary just appeared in Fortune: “I’m a dirt-road economist who sees what’s happening on the ground, and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today,” declares Mike Castleman, CEO of Metrostudy. “The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses.” Bottom line, we are not building fast enough to accommodate future demand. Even the ominous shadow inventory which has hung over the market is now shrinking. There were 2.0 million units in various stages of “pre-foreclosure” one year ago and 1.8 million units today, according to CoreLogic. This may not seem a huge drop, however, it is the first move downward in several years.
What makes us think that the demand will arise to continue to shrink the shadow inventory? The population of America is rising. We had shrinkage of household formulation during the recession and this masked the continuing rise in population. Tight credit conditions also turned many potential homeowners into renters, though many are renting houses. However, the news that the economy has now produced 400,000 jobs in the past two months is the continuance of a reversal of this trend. As America goes back to work, household formulation will rise again and there will be significant latent demand uncovered. We understand that two months of data does not guarantee the whole trend reverses itself. We lost about eight million jobs during the recession and the workforce grows by 150,000 monthly. So we have a long way to go, but the trend is moving in the right direction. The key is moving from a vicious to a virtuous cycle. More jobs create demand. Demand creates more jobs. And all this will help loosen credit conditions as a stronger economy will help convince banks to have faith in the average American again. You may be hearing the “bad news” regarding home prices right now–but this is a story that may be changing faster than many analysts have envisioned. Even the Federal Reserve Board is taking notice as a member stated this week that the Fed may be raising rates by the end of this year.
More Americans signed contracts to buy homes in February, but sales were uneven across the country and not enough to signal a rebound in the housing market. Read more…