Federal Open Market Committee, Fed Chair: No Rush to Raise Rates

Wednesday’s customary post-meeting statement issued by the Federal Open Market Committee (FOMC) of the Federal Reserve provided some relief to investors and analysts concerned that the Fed may soon raise its target federal funds rate. The target federal funds rate has held steady at between 0.00 and 0.25 percent since the inception of the Fed’s current quantitative easing program. The FOMC statement indicated that the committee does not expect to raise the target federal funds rate until the Fed’s dual mandate of maximum employment and reaching its target inflation rate is achieved.

FOMC members don’t expect the wind-down of scheduled securities purchases under the quantitative easing program to cause long-term interest rates to rise quickly. The FOMC statement indicates that the Fed expects its current holdings and acquisitions of securities to hold down long-term interest rates and help with achieving the Fed’s dual mandate of achieving maximum employment and 2.00 percent inflation. As in past meetings, the FOMC statement asserted the committee’s dedication to reading and researching economic and financial reports and repeated that Fed policy is not contingent on a predetermined course, but that FOMC members make decisions based on current economic trends and developing domestic and global events.

FOMC members also re-asserted their position that after employment and inflation achieve levels consistent with the Fed’s dual mandate, the Fed will likely maintain the target federal funds rate at lower levels than the committee considers normal for “some time.”

Fed Chair Janet Yellen provided further insight into Fed policy during a press conference given after the FOMC statement. She also said that the FOMC’s view of current economic conditions has not changed over the past few months. Chair Yellen also said that the committee expects to maintain the current target federal funds rate for a “considerable time” after asset purchases under the QE 3 program cease.

Fed Chair Yellen: Gaps Between Current Data and Fed’s Mandate Shrink Modestly

In a press conference given after the FOMC policy statement was released, Fed Chair Janet Yellen emphasized that the committee’s discussions did not imply any near-term changes to the target federal funds rate. Chair Yellen cited gaps between current unemployment rates and the Fed’s mandate of achieving maximum employment and the current inflation rate and the Fed’s target inflation rate of 2.00 percent as major considerations in forming current Fed policy. She said that the respective gaps had narrowed “modestly,” and again emphasized the Fed’s commitment to constant review of economic and financial data as a significant factor in its decisions to change monetary policy.

Ms. Yellen cautioned media representatives and analysts to avoid making economic projections too far into the future and pointed out that longer term predictions are subject to more variables. Chair Yellen also cautioned press conference attendees not to consider anything in the FOMC statement or her press conference to a definite time frame.

Media reps continued to press for definite dates and time projections, but Chair Yellen held fast to the Fed’s often-repeated position that policy changes cannot be set by a calendar and also depend on economic trends and news that influence the Fed’s monetary policies.

What’s Ahead For Mortgage Rates This Week – Aug 11, 2014

Last week’s housing related news was minimal, but a Federal Reserve survey of senior loan officers revealed that although credit standards for commercial and industrial loans as well as credit cards are easing, current mortgage credit standards are more stringent than in 2005. This could be a contributing factor to slowing housing market gains while other sectors of the economy are recovering at a faster pace.

Qualified Mortgage Rules Impact Non-Conforming Mortgages

The Senior Loan Officers survey also noted that qualified mortgage rules have slowed approval of prime jumbo mortgages and non-traditional home loans. This suggests that applicants falling outside of stringent qualified mortgage rules can expect challenges when buying or refinancing their homes.

In other housing news, Freddie Mac’s Primary Mortgage Market Survey reported that last week’s mortgage rates were mixed. Mortgage rates for a 30-year fixed rate mortgage averaged 4.14 percent with discount points of 0.70 percent against last week’s reading of 4.12 percent with discount points of 0.60 percent. 15-year mortgage rates averaged 3.27 percent with discount points of 0.60 percent. This was an increase of four basis points, although discount points fell from 0.70 percent to 0.60 percent. The average rate for a 5/1 adjustable rate mortgage was 2.98 percent, a drop of two basis points, with discount points unchanged at 0.50 percent.

Fewer Jobless Claims, Service-Related Business Growth Exceeds Expectations 

The weekly Jobless Claims report brought a lower than expected reading of 289,000 new claims as compared to predictions of 305,000 new jobless claims. In other economic news, the Institute for Service Management (ISM) reported that its non-manufacturing index rose from June’s reading of 56.00 percent to 58.70 percent in July. Analysts had forecasted July’s reading at 56.50 percent. July’s reading represented the highest growth rate for service-related businesses since 2005.

According to the Department of Commerce, June factory orders rose by 1.10 percent over May’s reading of -0.60 percent against an expected reading of 0.60 percent. As business expands and factory orders increase, it’s likely that jobs and hiring will also grow. Steady employment is a compelling factor for most home buyers and positive reports in labor and industrial sectors could boost housing markets as more buyers increase demand for homes.

What’s Ahead

Next week’s economic reports include retail sales, retail sales excluding automotive, industrial production and the weekly reports on mortgage rates and new jobless claims. While there isn’t much housing news expected next week, readings in other economic sectors can suggest potential trends in housing markets

FOMC Minutes: Committee Discusses “Normalizing” Policy

April’s meeting of the Fed’s Federal Open Market Committee was held along with the Board of Governors of the Federal Reserve System.

Meeting minutes released Wednesday indicated the committee’s interest in “normalizing” its monetary policy. This included the FOMC’s ongoing commitment to tapering its asset purchases under its quantitative easing program.

The committee agreed to taper the Fed’s monthly asset purchases by $10 billion to $45 billion per month. Committee members discussed raising the target federal funds rate, which now stands at 0.00 to 0.25 percent, but the minutes clearly stated that this topic was undertaken as part of “prudent planning, and did not indicate that normalization would necessarily begin sometime soon.”

The FOMC minutes reflected the committee’s concern with achieving a balance between normalizing the Fed’s monetary policy and keeping short-term interest rates under control.

Meeting attendees considered methods for managing interest rates and considered potential impact of each method discussed on overall financial stability.

Importance Of Early Communication

Meeting participants discussed the importance of early communication of pending changes to the Fed’s monetary policy, and agreed that advising the public “well before the first steps in normalizing policy become appropriate.”

Early communication to the public of planned changes was viewed as a means of providing clarity and credibility to FOMC policy decisions and help FOMC achieve its statutory goals of maximum employment, stable pricing and moderate long term interest rates.

Potential Impact Of Achieving Normalcy

 FOMC members discussed the possible impact of tools considered for use in normalizing the economy on the following:

• Fed control over short-term interest rates
• The Fed’s balance sheet and Treasury remittances
• Functionality of Federal Funds Market
• Financial stability in normal times and times of stress

The minutes noted that the Fed has never used any of the methods discussed while the Fed held a large balance sheet, and recommended that flexibility in using tools for achieving normal fiscal policy.

No decision was made about normalizing current monetary policy; FOMC and Fed Board members agreed that further study and analysis were needed before any decisions would be made.

Fed: Mortgage And Refinance Applications “Tepid”

The FOMC minutes characterized the level of mortgage and refinance applications through March as tepid, due to increasing mortgage rates and home prices.

While a survey of senior loan officers revealed that mortgage credit had been loosened for applicants with prime credit, mortgage credit remained tight for those with less than excellent credit.

The unemployment rate held steady at 6.70 percent and remained above the FOMC’s benchmark of 6.50 percent. There was some good news as the workforce expanded and the ranks of the long-term unemployed decreased.

Stable employment is important to potential home buyers; if unemployment levels continue to fall, numbers of home buyers are likely to increase.

FOMC Minutes: Committee Discusses “Normalizing” Policy

April’s meeting of the Fed’s Federal Open Market Committee was held along with the Board of Governors of the Federal Reserve System.

Meeting minutes released Wednesday indicated the committee’s interest in “normalizing” its monetary policy. This included the FOMC’s ongoing commitment to tapering its asset purchases under its quantitative easing program.

The committee agreed to taper the Fed’s monthly asset purchases by $10 billion to $45 billion per month. Committee members discussed raising the target federal funds rate, which now stands at 0.00 to 0.25 percent, but the minutes clearly stated that this topic was undertaken as part of “prudent planning, and did not indicate that normalization would necessarily begin sometime soon.”

The FOMC minutes reflected the committee’s concern with achieving a balance between normalizing the Fed’s monetary policy and keeping short-term interest rates under control.

Meeting attendees considered methods for managing interest rates and considered potential impact of each method discussed on overall financial stability.

Importance Of Early Communication

Meeting participants discussed the importance of early communication of pending changes to the Fed’s monetary policy, and agreed that advising the public “well before the first steps in normalizing policy become appropriate.”

Early communication to the public of planned changes was viewed as a means of providing clarity and credibility to FOMC policy decisions and help FOMC achieve its statutory goals of maximum employment, stable pricing and moderate long term interest rates.

Potential Impact Of Achieving Normalcy

 FOMC members discussed the possible impact of tools considered for use in normalizing the economy on the following:

• Fed control over short-term interest rates
• The Fed’s balance sheet and Treasury remittances
• Functionality of Federal Funds Market
• Financial stability in normal times and times of stress

The minutes noted that the Fed has never used any of the methods discussed while the Fed held a large balance sheet, and recommended that flexibility in using tools for achieving normal fiscal policy.

No decision was made about normalizing current monetary policy; FOMC and Fed Board members agreed that further study and analysis were needed before any decisions would be made.

Fed: Mortgage And Refinance Applications “Tepid”

The FOMC minutes characterized the level of mortgage and refinance applications through March as tepid, due to increasing mortgage rates and home prices.

While a survey of senior loan officers revealed that mortgage credit had been loosened for applicants with prime credit, mortgage credit remained tight for those with less than excellent credit.

The unemployment rate held steady at 6.70 percent and remained above the FOMC’s benchmark of 6.50 percent. There was some good news as the workforce expanded and the ranks of the long-term unemployed decreased.

Stable employment is important to potential home buyers; if unemployment levels continue to fall, numbers of home buyers are likely to increase.

What’s Ahead For Mortgage Rates This Week – May 27, 2014

Last week’s economic news was dominated by speeches given by Federal Reserve presidents, the minutes from April’s FOMC meeting and commencement address given by Fed Chair Janet Yellen. The latest readings for new and existing home sales were also released.

Federal Reserve Speeches Suggest Concerns Over Monetary Policy Dependence, Low Inflation

Here are highlights of comments made by each of the Fed presidents’ speeches. Richard Fisher, president of the Dallas Fed, and John Williams, President of the San Francisco Fed, spoke at a conference held at the Bush Institute.

Mr. Fisher said that 98 percent of jobs lost during the recession had been recovered, and that other jobs had been added. He also cited “bad fiscal policies,” and said he is worried about dependence on the Fed’s monetary policy when “Congress and the Executive Branch have put on the brakes.” 

John Williams, president of the San Francisco Fed, said that he was concerned about slowing momentum in housing markets, although he noted that housing had driven economic recovery in the aftermath of the recession.

The inflation rate has remained well below the Federal Reserve’s target rate of 2.00 percent, and Mr. Williams said that the Fed is paying close attention to this. His remarks were supported in Wednesday’s release of the FOMC minutes of its April meeting.

Charles Plosser, the Philadelphia Fed’s president, took an optimistic tone at a speech given before the Women in Housing Foundation on Tuesday. He said that the national unemployment rate could fall below 6.00 percent by the end of 2014 and that he expects the housing market to bounce back as well.

This makes sense, as strong labor markets are known to influence consumer decisions to buy a home.

New York Fed President William Dudley spoke before the New York Association for Business Economics, and said that there would be “a considerable period of time” between when the current asset purchase program ends and the first Fed rate hike would occur.

He also indicated that he expected longer-term interest rates (which include mortgage rates) to be “well below” a historical average of 4.25 percent.

Minneapolis Fed President Narayana Kocherlakota said that the Fed should consider targeting price levels rather than the current policy of targeting the inflation rate. He said that this was not likely to occur any time soon, but noted that current Fed policy is “undershooting” the central bank’s goals for unemployment and inflation.

Fed Chair Janet Yellen cited her predecessor, Ben Bernanke as a positive example when she spoke at New York University’s commencement. She noted that he took “courageous actions unprecedented in ambition and scope” and that his “grit willingness to take a stand” had directed his decisions during the recession.

Mortgage Rates Down, Existing Home Sales Up

Freddie Mac reported that average mortgage rates dropped last week. The average rate for a 30-year fixed rate mortgage fell to 4.14 percent, a drop of six basis points. The rate for a 15-year fixed rate mortgage fell by four basis points to 3.25 percent.

The average rate for a 5/1 adjustable rate mortgage dropped by five basis points to 2.96 percent. Discounts were unchanged at 0.60 percent for 30-year mortgages and 0.40 for 5/1 adjustable rate mortgages, but dropped to 0.50 percent for 15-year mortgages.

Sales of existing homes rose to their highest level in four months according to the NAR. Month-to-month sales of previously-owned homes rose by 1.63 percent in April to a seasonally adjusted annual rate of 4.65 million sales as compared to March’s reading of 4.59 million sales. This was the first rise in sales of existing homes in 2014, and nearly met expectations of 4.66 million sales.

This Week

After the Memorial Day holiday, this week’s economic news includes the Case-Shiller Home Price Index, FHFA’s house price index and consumer confidence index.

Pending home sales, jobless claims and Freddie Mac’s mortgage rates report along with the University of Michigan consumer sentiment index round out the week’s scheduled events.

What’s Ahead For Mortgage Rates This Week – May 12, 2014

Results from a Federal Reserve survey of senior bank loan officers indicated that lenders have held the line on prime lending standards and have raised standards for sub-prime and non-traditional home loans.

Survey respondents represented 74 U.S. banks and 23 foreign banks. Survey respondents also said that demand for mortgage loans was lower; this could be an unintentional result of tight credit standards for mortgage loans.

Analysts said that tight credit requirements and less demand for home loans could mean more trouble for the housing industry.

Home Prices Rise In March, But At Slower Rate

The annual rate of increase for national home prices was 11.10 percent as compared to February’s 11.80 percent year-over-year rate of increase.

February’s reading was the fastest pace of home price growth in eight years, but March’s slower level of home price appreciation was the lowest month-to-month reading in three years. Fewer affordable homes were cited as a reason for slower growth in housing markets.

CoreLogic reported that home prices rose by 1.40 percent in March, and that Arkansas was the only state that posted a drop in home prices. Several states, including North Dakota and Texas, achieved new peaks in home prices due to strong job growth.

The slow-down in home price growth isn’t necessarily all bad news; analysts said that home prices could not continue to climb when household incomes aren’t keeping up.

Many first-time buyers have been sidelined with a combination of slow job growth, higher home prices and tight mortgage credit. CoreLogic reported that these factors contributed to their forecast for home prices to grow by about 6.70 percent in 2015.

Mortgage Rates Fall, Fed Chair Speaks

Freddie Mac reported lower average mortgage rates on Thursday. The rate for a 30-year fixed rate mortgage was 4.21 percent as compared to last week’s reading of 4.29 percent. Discount points dropped from 0.70 to 0.50 percent. The average rate for a 15-year mortgage was 3.32 percent and six basis points lower than the prior rate of 3.38 percent.

Discount points were unchanged at 0.60 percent. The rate for a 5/1 adjustable rate mortgage was unchanged at 3.05 percent, but discount points dropped from 0.50 to 0.40 percent.

Janet Yellin, chair of the Federal Reserve, spoke before the Senate Budget Committee on Thursday and said that the Fed can shrink its current balance sheet of $4.3 trillion by not reinvesting proceeds from its portfolio of maturing bonds.

This is directly connected to the Fed’s tapering of its quantitative easing (QE) program, which is currently at a level of $45 billion per month in mortgage backed securities (MBS) and treasury securities.

Some analysts believe that members of the Fed’s FOMC meeting discussed the end of QE in their last meeting, but this cannot be verified until the minutes of the meeting are released May 21.

The end of QE could cause higher mortgage rates as the program’s purpose is to hold down long-term interest rates.

Weekly Jobless claims fell to a new low of 319,000 against predictions for 325,000 new jobless claims and 345,000 new claims for the prior week. Seasonal anomalies caused by the Easter holiday and spring break schedules were cited as causes for ups and downs in new jobless claims in recent weeks.

What’s Next

This week’s scheduled economic news includes several consumer-related reports including Retail sales, Consumer Price Index, core CPI, Homebuilder’s Index, and Housing Starts.

Mortgage Approvals : Documents You’ll Need For Your Lender

According to the Federal Reserve’s quarterly Senior Loan Officer Survey, it’s getting easier to get approved for a home loan.

Between July – September 2012, fewer than 6% of banks tightened mortgage guidelines — the fourth straight quarter that’s happened– and roughly 10% of banks actually loosened them.

For today’s buyers and refinancing homeowners in , softening guidelines hint at a quicker, simpler mortgage approval process; one which gives more U.S. homeowners better access to today’s ultra-low mortgage rates. 

However, although banks are easing guidelines, it doesn’t mean that we’re returned to the days of no-verification home loans. Today’s mortgage applicants should still expect to provide lenders with documentation to support a proper loan approval.

Some of the more commonly requested documents include :

• Tax returns, W-2s, and pay stubs : In order to prove income, lenders will want to see up to two years of income documentation. Self-employed applicants may be asked for additional business information. Borrowers earning income via Social Security, Disability Income, Pension or other means should expect to provide documentation.
• Bank and asset statements : To verify “reserves”, banks will often require up to 60 days of printed bank statements, or the most recently quarterly reports. Be prepared to explain deposits which are not payroll-related — banks adhere to federal anti-money laundering laws.
• Personal identification documents : To verify your identity, banks often require photocopies of both sides of your drivers license and/or U.S. passport, and may also ask for copies of your social security card.

In addition, if your credit report lists collection items, judgments, or federal tax liens, be prepared to discuss these items with your lender. Sometimes, a derogatory credit event can be eliminated or ignored during underwriting. Other times, it cannot.

The more information that you share with your lender, the smoother your mortgage approval process can be.

As the housing market improves and lender confidence increases, mortgage guidelines are expected to loosen more. 2013 may open lending to even more mortgage applicants.

What’s Ahead For Mortgage Rates This Week : October 29, 2012

Mortgage markets ended the week slightly better last week. Wall Street took its cues from U.S. economic data, from developments in Europe, and from the Federal Reserve, moving mortgage rates lower nationwide.

Pricing for both conforming and FHA mortgage rates improved between Monday and Friday, with the majority of gains occurring late in the week.

The timing of the gains explains why Freddie Mac’s weekly mortgage rate report showed the average 30-year fixed rate mortgage rate rising this week when, in fact, it did not. Because Freddie Mac conducts its mortgage rate survey at the start of the week, its survey respondents had no time to acknowledge late-week improvements.

Freddie Mac said the 30-year fixed rate mortgage rate rose to 3.41% for home buyers and refinancing households willing to pay 0.7 discount points at closing plus a full set of closing costs. 

Mortgage applicants choosing zero-point mortgages should expect a higher rate.

The biggest event of last week was the Federal Open Market Committee’s seventh scheduled meeting of the year. The FOMC’s post-meeting press release described the U.S. economy as growing, and inflation as stable. The Fed re-iterated its pledge to QE3, a stimulus program geared at keeping mortgage rates suppressed. The group also said it would hold the Fed Funds Rate low until at least mid-2015.

Lastly, the Fed showed optimism about the broader U.S. housing market — and for good reason. Since October 2011, housing has trended higher and last week saw the release of the September New Homes Sales report and the September Pending Home Sales Index. Both showed strength.

This week, the market’s biggest story is Friday’s release of the October Non-Farm Payrolls report. Jobs are a keystone in the U.S. economic recovery so the monthly jobs report holds sway over mortgage rates. If the number of jobs created exceeds Wall Street expectations, mortgage rates will rise and purchasing power will shrink.

The U.S. economy has added jobs in each of the previous 24 months. 

What’s Ahead For Mortgage Rates This Week : September 17, 2012

Mortgage markets improved last week as the Federal Reserve introduced new economic stimulus. The move trumped bond-harming action from the Eurozone, and a series better-than-expected U.S. economic data.

The 30-year fixed rate mortgage rate dropped last week for most loan types, including for conforming, FHA and VA loans. 15-year fixed rate mortgage rates improved, as well.

Mortgage rates are back near their lowest levels of all-time.

Last week’s main event was the Federal Open Market Committee’s sixth scheduled meeting of 2012. Wall Street expected the Fed to launch a third round of quantitative easing (QE3) after its meeting and the nation’s central banker did not disappoint.

It launched QE3 and did so with such scale that even Wall Street was shocked.

The Federal Reserve announced a plan to purchase $40 billion monthly of mortgage-backed bonds indefinitely, a move aimed at lowering U.S. mortgage rates in order to stimulate the housing market which can create more jobs in construction and other related industries.

The Fed will continue to buy mortgage bonds until it deems such purchases no longer necessary. The Fed also announced a commitment to holding the Fed Funds Rate in its current target range of 0.000-0.250% until mid-2015, at least.

Mortgage rates responded favorably to the stimulus, falling to their lowest levels of the week. It masked a rise in rates from earlier in the week tied to the German court’s clearing of the European Stability Mechanism — the Eurozone “bailout fund”.

The action clears the way for debt-burdened nations including Spain and Greece to get the support necessary to remain solvent.

Mortgage rates were also pressured higher by a strong consumer confidence report. When consumers are more confident in the economy, they may be more likely to spend and consumer spending accounts for more than two-thirds of the U.S. economy.

This week, mortgage rates face competing pressures. The Fed’s bond-buy has started and that will lead rates lower, but with Housing Starts and Existing Home Sales data set for release, data could pull rates up.

What’s Ahead For Mortgage Rates This Week : September 4, 2012

Mortgage markets improved last week for the second consecutive week.

With no news coming from Europe, Wall Street was focused U.S. economic data and Federal Reserve Chairman Ben Bernanke’s planned public speech from the Fed’s annual retreat in Jackson Hole, Wyoming.

Rate shoppers and home buyers caught a break.

The housing market was shown to be improving last week, as was the average household income nationwide — two events which would have typically moved  mortgage rates higher. But, because the Fed Chairman used his speech to signal that new economic stimulus may be imminent, mortgage rates dropped.

The Fed is expected to launch a bond-buying program that would create new demand for mortgage-backed bonds. Mortgage-backed bonds are the basis for most U.S. mortgage rates and the new-found demand would result in lower rates nationwide. 

According to Freddie Mac’s weekly mortgage rate survey, the 30-year fixed rate mortgage rate fell to 3.59% last week for borrowers willing to pay 0.6 discount points plus a full set of closing costs, where 0.6 discount points is a one-time closing cost equal to 0.6 percent of your loan size.

Conventional mortgage rates open this week at a 4-week best. Threats to low rates remain, however.

A European Central Bank meeting is scheduled for Thursday and the release of the August Non-Farm Payrolls report is due Friday. Both events could have negative repercussions on mortgage rates. 

For example, the ECB is expected to announce new aid measures for some its struggling member nations, including Greece, Spain and Italy. If the aid package “ends” the sovereign debt issues which have plagued the European Union since 2010, equity markets would rally on the news at the expense of bond markets. This would drive U.S. mortgage rates higher as investors dump their bond holdings.

Similarly, if the August jobs report is deemed “strong”, it would lower the likelihood of new Fed-led stimulus. This, too, would lead mortgage rates higher — perhaps by a lot.

Economists expect to see that 130,000 net new jobs created last month. The jobs report will be released Friday at 8:30 AM ET.