Mortgage markets improved for the second straight week last week, defying analysts who believed that a QE3 taper would lead mortgage rates up.
30-year fixed rates are down about one-eighth percentage point since the Fed announced that its mortgage rate-suppressing program would shrink by $10 billion monthly.
This week, meanwhile, rates may continue to fall. With little economic data due for release, momentum may play in favor of low rates. Furthermore, new Federal Housing Finance Agency (FHFA) Director Mel Watt begins his third week in office. Watt as FHFA Director makes the passage of HARP 3 much more likely.
Last week was another good week for shoppers of mortgage rates. Rates fell across all government loan types including conventional loans, FHA loans, Rural Housing loans, and loans via the Department of Veterans Affairs.
Rates were at their best Monday morning. They were at worst Wednesday.
The price of a Fannie Mae bond dropped roughly 32 basis points on the week, as did the price of a Freddie Mac bond. This means that a mortgage rate which required zero discount points to lock last week now comes with a closing cost rebate of equal to $320 per $100,000 borrowed.
FHA and VA loans experienced similar improvements, as did Rural Housing loans backed by the USDA.
Jumbo loans, however, bucked the trend. Jumbo mortgage rates worsened.
Jumbo mortgage rates are mortgage rates for loans which exceed an area's federal loan size limit. Jumbo loan sizes begin after $417,000 for conventional loans, except in certain "high-cost" areas of the country where they begin after $625,500. For FHA loans, jumbo mortgages begin after $271,050 except in high-cost areas where they limits stretch to $625,500.
For mortgage markets, last week was a busy one.
In the housing market, Housing Starts thumped expectations and showed that the 2014 market may be even stronger than last year's. Retail Sales were strong, too, which suggests a strengthening U.S. economy.
Notably, though, last week's Consumer Price Index data showed that inflation remains at bay -- even as the Federal Reserve amplifies inflationary risk via a zero-percent Fed Funds Rates and various market-stimulating programs.
One such program is the Fed's third round of quantitative easing, a program better known as QE3.
QE3 was first launched in September 2012 as a means to artificially lower U.S. mortgage rates. The Fed prescribed itself an $85 billion monthly spend in order to stimulate housing and create more jobs.
Via QE3, the Fed said it would purchase $40 billion in mortgage-backed securities (MBS) and $45 billion in U.S. Treasury bonds in the open market monthly. The purchases pushed bond prices up, which droves bond yields down.
The program was created with an open end-date, dependent on the health of the U.S. economy overall.
At the start of this year, then, with the economy showing signs of improvement, the Fed made its first QE3 reduction. The Federal Reserve now buys $75 billion monthly.
Wall Street believed that a reduction in QE3 would lead mortgage rates higher. So far, however, that has not happened. Mortgage rates are improved since January 1, and may continue to drop through this holiday-shortened trading week with very little on the calendar.
Here are the scheduled economic events for the week :
With such light activity, markets may take their cues from non-domestic economic events; and expectations for next week's Federal Open Market Committee meeting. The FOMC is expected to hold the Fed Funds Rate near zero percent, and to taper QE3 by another $10 billion monthly.
For now, though, mortgage rates are at the best levels of 2014.
With little economic data set for release, markets have time to ask whether this is the week Mel Watt and the FHFA pass the next version of the popular HARP refinance program.
Mel Watt is the new Director of the FHFA, and the FHFA is the conservator of Fannie Mae and Freddie Mac.
Since launching in early-2009, the HARP refinance has been used by more than 3 million U.S. households. HARP 3 would be the program's third iteration -- one which could instantly add millions to the eligible loan pool.
HARP 3 has been teased by Congress and the White House under several brand names including #MyRefi and "A Better Bargain For U.S. Homeowners". Active bills in Congress refer to it as The Responsible Homeowner Refinancing Act of 2013.
Whatever its final name, HARP 3 would expand the footprint of its predecessor, HARP 2. Any of the following HARP 3 updates are possible :
The Federal Housing Finance Agency (FHFA) has authority to pass HARP 3 on its own, without a congressional sign-off. With HARP 3's passage, millions of U.S. homeowners will be instantly refinance-eligible.
This may be the week HARP 3 finally passes.
Mortgage rates have dropped since the start of the year. It's an excellent time to review today's mortgage rates. Home buyers are getting great deals on mortgage rates, and refinancing households are saving big money with rates in the mid-4s.
Compare today's rates and see for what you qualify. Rates are available at no cost and with no obligation.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2015 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.