Mortgage Rates Lower as Risk Aversion Sets In
Mortgage backed securities managed to end their recent run of price declines, posting nice gains yesterday. After the MBS rally most lenders did reprice for the better. To remind readers, as MBS move higher in price mortgage rates move lower. When looking to market fundamentals behind this rates rally some say a flight to quality ensued after bearish comments from Fed governor Dennis Lockhart. Other point towards speculative bargain buying ahead of Chairman Bernanke's semi-annual report to Congress on monetary policy.
The economic calendar today is empty so market participants have been focused on Ben Bernanke's testimony on Capitol Hill. Today he is delivering his semi-annual monetary policy testimony to the House Financial Services Committee. Most of what Chairman Bernanke said was "as expected", notably stocks moved lower as Bernanke highlighted the fact that the US was likely to endure a long recovery process as economic growth is expected to be slow. After some early morning weakness, Treasuries rallied on this news as investors moved into safer assets, we refer to this as a flight to safety rally. MBS prices have benefitted from this feeling of risk aversion and mortgage rates have ticked a few basis points lower today.
In other news from Capitol Hill, yesterday the House Appropriations Committee approved the Housing and Urban development budget for 2010. The approved appropriations include an extension of the loan limits as defined by the 2009 American Recovery and Reinvestment Act. This means through 2010, borrowers in high cost areas will be able to utilize GSE/HUD funding for loans up to $729,750. This is the max loan amount a borrower could obtain using GSE/HUD loan programs, however it should be stated that you must live in a high cost lending area to obtain max loan amounts. Each county varies. HERE IS A LINK TO DETERMINE YOUR AREA'S MAX LOAN AMOUNT .
Here are some other provisions from the Bill Text:
Public Housing Operating Fund: $4.8 billion, $200 million above the request and $345 million above 2009, for maintenance, crime prevention and energy costs. HUD and the PHAs have determined $5.3 billion is needed in 2010.
Section 8 Tenant Based Vouchers: $18.2 billion, $406 million above the request and $1.2 billion above 2009, to support 2.1 million vouchers to individuals and families.
Veterans Affairs Housing Vouchers: $75 million, matching 2009 and $75 million above the request, to provide 10,000 housing vouchers for homeless veterans.
Section 8 Project Based Vouchers: $8.7 billion, $600 million above the request and $1.6 billion above 2009, to provide affordable housing to 1.3 million low-income families and individuals, two-thirds of whom are elderly or disabled.
Housing for the Elderly: $1 billion, $235 million above the President’s request and the level provided in fiscal year 2009, to rehabilitate and build housing for low-income elderly people. Ten eligible seniors are on the waiting list for every one unit of housing available.
Housing for the Disabled: $350 million, $100 million above the request and 2009, for grants to rehabilitate and build housing for disabled people.
Homeless Assistance Grants: $1.85 billion, $56 million above the request and $173 million above 2009, for grants to local communities to provide housing and services for the homeless. This increase will help fund new competitive projects in communities with capacity and demonstrated need for this housing.
Neighborhood Reinvestment Corporation: $196.8 million, $30 million above the request and $15.8 million above 2009, to provide counseling for families in danger of losing their homes to foreclosure.
Housing for Persons with AIDS: $350 million, $40 million above the request and 2009, to help address homelessness within this vulnerable population.
Housing Counseling Assistance: $70 million, $30 million below the request and $5 million above 2009, to continue pre-purchase counseling for prospective homebuyers.
Community Development Block Grants: $4.6 billion, $174 million above the request and $725 million above 2009, to fund community and economic development projects in 1,180 localities.
Brownfields Redevelopment: $25 million, $15 million above 2009 and $25 million above the request, to remove blight and spur economic development on formerly vacant commercial and industrial sites.
HOPE VI: $250 million, $130 million above 2009, to fund competitive grants to transform neighborhoods of extreme poverty into sustainable mixed-income neighborhoods through the demolition of severely distressed public housing.
Native American Housing Block Grants: $750 million, $105 million above the request and 2009, to rehabilitate and construct housing on Native American lands.
Reports from fellow mortgage professionals indicate that mortgage rates are a few basis points lower today. This places the par 30 year conventional rate mortgage in the 5.00% to 5.375% range for the best qualified consumers. If you are planning on accessing home equity, you should expect a higher interest rate or increased closing costs due to the loan level price adjustment fees initiated by Fannie Mae and Freddie Mac earlier this year. If you are currently floating, continue to do so but check in later with MBS Commentary blog for further guidance. Anytime MBS have a good rally, it is advisable to evaluate your pricing at day’s end cause things can change rather quickly. Today being a perfect example.