Mortgage Rates Holding Near Recent Highs to Start the Year

I hope everyone had a fantastic Christmas break and a safe new year.  Welcome to 2010!

While many market watchers discount the final few weeks of trading activity because decision makers are generally out of the office, it does not change the fact that mortgage rates ended the year on a month long losing streak. Whether it was a function of seasonal trading influences or an over shift in economic sentiment does not appear to matter at the moment because consumer borrowing costs are holding at higher levels to start the new year. A near term correction will be dependent upon the busy week of economic data ahead.

Today the market recieved two economic reports.   First out was the ISM Manufacturing index which provides a measure of the strength of manufacturing conditions across the United States.  The Institute for Supply Management surveys over 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories.  Readings above 50 indicate expanding conditions while readings below 50 indicate contraction.   This survey has shown improving (above 50) conditions for the last four months, economists surveyed expected this trend to continue. Forecast called for a read of 54.8 for December.   The survey came out better than expected at 55.9.

The second release was a report on Construction Spending. This data set represents the amount of money spent on new construction activity.  Increased spending on construction could lead to more jobs and higher consumer spending which benefits the equities market.  In addition, businesses would have to feel pretty confident in future sales to invest money on new construction or expansion of existing facilities.   This also holds true for individuals looking to build as they would have to be very confident in their own financial position and job security to take on the building of a new home.   This data has a two month lag, today’s data reports on the month over month change in construction spending for November.  Today's release indicated that construction spending fell more than expected by 0.6%, making for the seventh straight month of declines and the lowest level in more than six years. October’s numbers were revised worse from an initially reported 0.0% to a decline of 0.5%.

Following the release of economic data, mortgage backed securities prices improved and benchmark treasury yields moved higher. To remind readers, as MBS move higher in price, lenders can offer lower mortgage rates. 

For more on the week ahead, check out the MND STORY.

Reports from fellow mortgage professionals indicate the par 30 year conventional rate mortgage remains in the 5.00 to 5.25% range for well qualified consumers. Rate sheet rebate is mostly unchanged while a few lenders are marginally worse.  To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.  If you are looking to secure a 15 year fixed rate, you should expect a par rate in the 4.50% to 4.75% range with similar costs.

What is your outlook for 2010 regarding the mortgage industry?   I would like to hear your opinion regarding mortgage rates, underwriting, Fed involvement, HVCC, etc….. 

Mortgage Rates
a)rise  b)fall   c)briefly fall than rise   d)hold steady

Underwriting
a)continue to toughen    b)ease up     c) stay the same

Fed Involvement in MBS
a)end buying as they stated    b)extend the MBS program to support the recovery

HVCC
a)goes away     b)no change     c)FHA drops HVCC    d)FHA institutes HVCC in February as stated