Mortgage Default Rates Drop as Economy Improves

As the economy continues to improve, consumer debt continues to decline. Because Americans now have less debt overall, consumer default rates have decreased for mortgages and automobiles alike! This means that the financial condition for consumers is getting better as the economy stabilizes.

The national default rate for mortgages fell to 1.31 percent in the month of April, which is down from 1.41 percent in March.  This data is according to S&P Dow Jones and Experian Consumer Credit. They've worked together to build a comprehensive measure of the changes in consumer credit defaults. Mortgages are doing well, but bank cards saw a small increase in default rates.

Unemployment rates are still somewhat high, but the good news regarding the decline in default rates indicates that the recession is truly behind us. Some cities have reached new post-recession lows in regard to default rates.

If you feel you are in danger of defaulting on your mortgage, seek financial help! Perhaps refinancing could save you from your situation. View the links to the right for information on a couple companies that we'd recommend!

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Record or Near-Record Low Mortgage Rates!

The economy is still gradually improving day by day, and that may mean that you are making more money now. Or maybe not. If you are in need of lower monthly mortgage payments, now would be an excellent time to refinance!

Just this week, the fixed mortgage rates have once again dropped! In fact, the 15-year average rate hit a new record low of 2.56%!!  The 30-year record low mortgage rate is 3.31% and the current rate has dropped down to 3.35% which is almost as low as it could be!

As mortgage professionals, we want to take the time to encourage you to seek more information about refinancing your home. Right now is a great time to take advantage of the low rates! The economy is strengthening and the rates continue to fall for the 5th consecutive week.

"Mortgage rates eased somewhat following the release of the advance estimate of real GDP growth for the first quarter of the year, which rose 2.5 percent but fell short of the market consensus forecast. The latest GDP report confirmed that the housing sector has become an important contributor to the economic recovery,” said Frank Nothaft, vice president and chief economist of Freddie Mac. “Residential fixed investment added to overall economic growth over the past eight consecutive quarters and contributed more than 0.3 percentage points in growth over the first three months of this year. Moreover, near record low mortgage rates should further drive the housing market recovery over the near term."

Take a look at this mortgage rate chart (brought to you by Freddie Mac).

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Housing Market Outlook for 2013

After a rough few years, the housing market and the economy are finally on an upward trend! Housing starts, prices and confidence are showing better figures everyday. Of course there are always ups and downs, and while some investors are still being cautious about jumping into the market, 2013 is promising to bring a more competitive market for homebuyers.  With the housing inventory as low as it is, experts wouldn't be surprised if bidding wars break out among investors and homebuyers. It is expected that homes will sell fast in 2013 as long as they are priced right. It is a homesellers market!

When the market was experiencing buying dry spells during the recession, the Federal Reserve dropped interest rates to record-lows in order to lure buyers. Now that things are steadily improving, the rates may begin to slowly climb upward, however experts are not expecting significant jumps. Some banks have already vowed not to touch the interest rates until the unemployment rate drops.  Even if mortgage rates do inch upward, they are expected to remain around 4% which is still remarkably low compared to years past.

Mortgage rules are always being amended in order to prevent fraud and reckless lending to the underqualified. The Consumer Financial Protection Bureau recently issued new mortgage standards with new criteria for qualifying for a loan. Some of the new rules state that a qualified mortgage cannot include risky features like interest-only payments or negative-amortization payments. Loans cannot have fees and points above 3% of the total mortgage, and the total debt-to-income ratio must be limited to 43%. Some experts are concerned that these tighter rules may restrict credit and discourage lower-income homebuyers. Additionally, there are new rules designed to stop over-borrowing. Some fear that this could make the process longer for potential homebuyers or even prevent some from qualifying. Those looking to purchase a home should begin the mortgage lending process at least three months in advance since some of the new lending standards may cause time delays.

The new rules aside, 2013 is expected to remain in this upward trajectory. Home pricing indexes started to rise last year and promise that home prices will continue to increase. This will encourage homeowners to want to sell again, and cause homebuyers to jump in quickly before the prices rise too high. It is expected that home prices will jump 6% this year.

We already mentioned that housing inventories are low. They've been steadily falling since 2007. If the inventory remains at a below-normal level, some fear that this will hold back home sales and impede the market's recovery. However, rising home prices should help to increase inventories. Housing construction is up 60% in the last two years as well, however it is still far from where it should be. It is estimated that roughly 1.5 million units need to be built every year to keep up with housing demands. Last year, only 600,000 were built, and experts are expecting 750,000 to be constructed in 2013. With high building-material costs and a lack of skilled laborers, builders confidence is moderate, but there is potential for this to all improve this year.

As far as foreclosures go, there are still more than a million homes in the process but the overall crisis is nearly at an end. As the market improves, more and more people are taking advantage of foreclosures and short sales. Some investors are even buying homes at 50 cents on the dollar, renovating them, and putting them back out there which helps to stimulate the market.

2012 saw a refinancing boom because of low interest rates, but 2013 is expected to slow. Refinancing helps to boost the economy by reducing payments so homeowners have more money to throw toward consumerism. Refinancing will only continue booming as it did in 2012 if eligibility requirements expand or if rates drop further. However, borrowers looking to refinance should start the process now!

Overall, the complexities of the housing market are very reliant on a tug and pull system. Something increases and causes something else to decrease, but the balance is improving and 2013 is expected to be a strong year for all involved.

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Expired Payroll Tax-Cut Barely Noticed by Workers

In January, the payroll tax cut expired, meaning that paychecks are now 2% less than they were before. Many economists predicted that consumer confidence and spending would suffer as a result, but it turns out that retail sales actually rose higher than expected, and consumer confidence rebounded. In fact, Bankrate.com surveyed workers and found that 48% of respondents didn't even notice that they were being paid less. 7% said that the loss has not had an affect on their finances.

“It’s very encouraging. It means other things going on are helping,” said Mark Zandi, chief economist at Moody’s Analytics. "We are weathering the storm well, at least so far, better than I would have thought."

However, Zandi also cautioned that the impact could take longer to become evident and that the results of the survey may not be accurate since it is only based on consumer perceptions. He said that there is a "wealth effect" currently taking place because of record highs in the stock market and a rebounding real estate market. These two things themselves do not put more money into American's pockets, but people seem to be willing to save less and spend more.

“The job creation numbers were sufficient to make consumers believe that their economic situation was improving,” said Richard Curtin, director of Surveys of Consumers at the University of Michigan’s Survey Research Center, which publishes a monthly survey of consumer confidence. In February, consumer sentiment rose nearly  5% over January’s figure.  “Hours increased and employment increased, so more people had more money in their income even if taxes were higher,” Curtin said.   42 percent of the workers surveyed said that they cut their spending. These respondents were middle class with household incomes between $50,000 and $75,000.

It isn't really surprising that so many people did not notice the disappearance of the tax cut. It was created to give Americans a few more bucks on their checks in hopes that they would turn around and feed that money back into the economy without realizing it. It was a stealthy boost that consumers weren't meant to even notice.

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Unemployment Rate Dropped; Economy Recovering

According to the Labor Department, businesses around the nation have added 146,000 new jobs! As a result, the unemployment rate has dropped from 7.9% to 7.7%. This rate is the lowest that it has been since December 2008 when President Obama took office.

There was concern initially that businesses would slow down their hiring out of fear of the federal budget's "fiscal cliff" and what it might do to next year's economy, but this appears to not be an issue. Also, Hurricane Sandy did not have as big of an effect on the job market as originally anticipated. The holiday season seems to be keeping moods high as Christmas sales are booming. As a result, most of November's job gains were in clothing, electronics and general merchandise stores.  However, there were declines in employment for manufacturing, construction, and government workers. The average hourly wages only rose 1.7% over the past year and the average worker continues to work 34.4 hours a week.

Economy analysts were expecting weaker growth because of the storm but are currently increasing their forecasts due to the better-than-expected jobs performance. The economy is slowly but surely recovering. And of course, the stronger the job market, the stronger the housing market.

If you are currently doing well and in need of a new home, let Quest Loans know! Don't wait until the new year, take advantage of the Christmas Mortgage Rates we have available for a limited time! Call for more information 888-883-5252!

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March Saw Increase in Home Sales

The National Association of Realtors (NAR) says that the housing market is definitely recovering. Pending home sales have increased in the month of March, putting them well above where they were a year ago. Since there is an overall national increase in sales, the inventory is slowly being lowered which helps to bring a balance to the housing market. This indicates that home prices will also be rising through 2012. In fact, first quarter sales closings were at higher levels this year than they have been in the past 5 years. According to the lastest contract signing activities, we should also see great data for the 2nd quarter.

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Mortgage Rates Rise Above 4%

According to Freddie Mac, the 30-year fixed-rate mortgage has risen above 4% for the first time since October. Last year, the rate was averaging 4.81%; right now it is at 4.08%. The rates are thought to be rising as a sign of economic growth. It was the Federal Reserve that helped to push the rates down to record-low levels in the recent past.

U.S. Treasury bond yields have been increasing lately. However, consumers have been able to reduce their debt burdens quite a bit overall. The economy is finally beginning to stabilize.

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Retirement Growing Increasingly Difficult for Americans

In this rough economy, most people cannot afford to be unemployed. This is especially the case when these people have mortgages to pay. However, money woes do not discriminate against age. More and more, people are finding themselves unable to retire at the traditional age of 55. In fact, surveys have shown that just over 40% of Americans 55 and older are still working. Comparatively, this figure was below 30% in the early 1990s.

Granted, there are people in this age range that choose to work. But overall, people don't have much of a choice otherwise. The economy can take the blame for that. Fortunately, there are more jobs today that are not physically demanding as compared with past decades, so those who are forced to work are at least able to do so relatively well. Those who have held onto a job throughout the recession are reluctant to give them up quite yet.

This economy has made it increasingly difficult to save money in a retirement plan. Even those who had a significant nest egg in the past are finding that it has dwindled due to drops in the stock market. Wisely, people are holding on to every penny they can. Specifically, it is women between 55 and 64 who are now working more often to make up for child raising years when they may not have worked, and therefore did not have retirement savings during that time.

There is also the issue of health insurance. Those who worked full time for years may have had health insurance through their employer that took care of most of their medical needs. It would be very expensive for someone at retirement age to purchase private health insurance and pay on it every month, so this has also had an affect on the decision to retire. Health care coverage is very linked to employment, and many have depended on this over the years. In fact, it is almost vital for some people to continue working until they've become eligible for Medicare.

Additionally, many older homeowners have refinanced in recent years expecting to sell their home at a profit so they could downsize and not have a mortgage. However, they are now finding themselves unable to profit, which forces them to continue making monthly mortgage payments. This of course, leads to a greater need for a job despite being near or past retirement age.

Overall, people are afraid to give up their jobs despite their age, or simply cannot afford to retire in this economy.  Are you in a similar situation?

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Economy Impacting News from Around the World

Here on our own turf, President Obama is proposing a new "Seven Step" budget plan to Congress in hopes of cutting the country's deficit by $4 trillion over the next 10 years. He will do this by raising taxes and cutting expenditures. However, this plan is likely to cause a larger deficit first before it reduces it. The expectation is $1.33 trillion in 2012 and $1 trillion in 2013. This is mostly due to the government trying to pull the struggling economy out of the gutter, such as helping homeowners to refinance at lower rates across the board to clear up much of the underwater housing market. Here's to hoping this plan really will help the citizens and in turn reduce the deficit which is currently at a staggering $15 trillion.

Moving on to Greece. As you may know, its outraged citizens have been rioting and burning down buildings in protest to Greece's "Austerity Plans". The Greek Parliament is currently in the process of trying to receive a fresh bailout from these austerity measures. This move means that mortgage bonds will be trading lower. These plans are not yet set in stone, however. The Finance Ministers of the Eurozone will meet on Wednesday to discuss the approval of Greece's austerity plan. Greece is hoping to receive these bailout funds by the March 20th deadline, but it will not be a quick fix for all of their problems.

Lastly, we look at the Middle East. Iran is building up their nuclear capabilities against Israel. The countries are feuding and it is expected that Israel may make a pre-emptive strike on Iran because they do not appreciate Iran pointing their weapons in their direction. This affects oil prices. Now at $100 a barrel, this feud is partially to blame for that. If they go to war, who knows what may happen to the prices and how it will effect the rest of the world. It may even bring about some safe haven buying of US bonds.

The current of the Federal National Mortgage Association (FNMA) 3.5% Bonds are $103.41, + 3bp. Because of this, we do want to encourage that you exercise caution while floating.

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Outlook for the Housing Market in 2012

As of December 2011, unemployment rates fell to their lowest level in three years with the addition of 200,000 jobs. This means good news overall for the real estate market since the country's economy is beginning to improve. This recovery is essential for the housing market and it is expected to continue throughout 2012. As we reported earlier, the Fed has announced that interest rates will not be raised until 2014 in the hopes of continuing in this economy recovery. The interest rates are currently at historic lows and are expected to stay that way to ensure a slow but steady rise by the end of the year. Therefore, taking out a mortgage is a very affordable thing at this time.

Predictions for the 2012 housing market include these continued low interest rates as well as the stabilization of home prices. This should lead to an increase in home sales: roughly 12% of existing homes and 74% of new homes; and there will also be a rise in inventory mostly due to increased foreclosures throughout the country. Distressed properties will make up about half of all home sales. There will also be an improved short-sale process so we can further avoid foreclosures. Homeownership rates are expected to continue to fall. Foreign and domestic investors will be likely to buy 25% of homes. And there will be an increased reliance on real estate agents in 2012. We will continue to report on these matters to see if these predictions pan out over the next year.

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News for the Week of Jan 8th: Reports and Auctions

There are four reports that are expected to be released this week that may concern mortgage rates depending on its economic data. Also, two  important treasury auctions will take place.  The Stock Market will be a major contributor early in the week for any movements in bond prices and mortgage rates.

At 2:00 PM ET on Wednesday, the Federal Reserve's Beige Book Report will be released. It will give details of the economic condition throughout the US by region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises, particularly regarding inflation, unemployment or future hiring.

Wednesday and Thursday bring the treasury auctions featuring the sale of 10-year-notes and 30-year-bonds. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If there is a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would result in upward revisions to mortgage rates.

On Thursday, the most important report of the week is released: December's Retail Sales data. This comes from the Commerce Department. The report measures consumer spending and tracks tracks sales at retail establishments.  Customer spending makes up two-thirds of the U.S. economy so this data is watched carefully. A sales increase of 0.4% is expected.  A smaller than expected increase in sales would indicate consumers did not spend as much as thought over the holiday season, helping to prevent rapid economic growth. That would be considered good news for the bond market and mortgage rates.

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Current State of the Mortgage Banking Industry

As a Mortgage Professional yourself, you are likely aware of all the economic issues going on in our country. We at Quest Loans found this article to be informational. It discusses the state of the industry regarding the loan process, the new LO compensation reform, and more.  The following is an excerpt of the article written by Leif Boyd.

"As we look at the current industry and where it will likely head over the next few years, many brokers have more questions than answers. Companies, brokers and loan officers are still figuring out how loan originator (LO) compensation reform will impact their balance sheets and wallets. As the government and banks have continued to add more requirements to get loans approved, it has become harder for once-qualified individuals to get loans. A few large companies seem to control a large share of the market."

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Monthly Employment Report from the U.S. Labor Dept.

The U.S. Labor Department reported on Friday that the economy's payroll increased in December 2011. This monthly employment report showed that 200,000 jobs were created, well above the 150,000 that was expected. However, a portion of that number is most likely being attributed to seasonal hiring for the holiday shopping season. 

The Unemployment Rate fell from 8.7% in November to 8.5% in December. The rate has been falling for 4 straight months and is currently at its lowest level since February 2009. Even though the rate has been dropping, this economy still leaves 24.4 million Americans either unemployed or underemployed.  

For more information, take a look at MSNBC's article.

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Fed White Paper: "The U.S. Housing Market: Current Conditions and Policy Considerations"

The Federal Reserve wrote a report addressing the current problems in the US housing market. They say that it doesn't cover everything but it is to serve as a "framework for thinking about certain issues and tradeoffs that policymakers might consider."

It discusses the American economy, the unemployment rate, housing foreclosures and more. They may push the government-owned mortgage buyers to rent out the homes they own as a possible way to improve the housing market.

Read all about it by clicking on this link here.

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