MMG WEEKLY -WHAT ARE THEY SAYING THIS WEEK?

Forecast for the Week 

This week’s economic calendar is made up of key data points, and market players will be able to gauge how the U.S. is holding up in the current environment.

  • The economic reports don’t get underway until Thursday with the weekly Initial Jobless Claims report.
  • In the inflation arena, the Producer Price Index and the Consumer Price Index for August will be released on Thursday and Friday, respectively.
  • Also on Friday, the markets will be able to tell if the consumer is spending with the delivery of the Retail Sales report.
  • Finally, Consumer Sentiment will be reported on Friday.

In addition to those reports, all eyes will be on the two-day FOMC meeting that begins on Wednesday and ends on Thursday, with the statement being announced at 12:30pm ET. The dialogue at the meeting will be dominated by whether or not QE3 will be ushered into the economy. And, the outcome will surely have an impact on Bond prices…and, in turn, impact home loan rates.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse.

To go one step further — a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds and home loan rates rallied after last week’s weaker than expected Jobs Report. I’ll be watching closely to see how the markets react to the Fed meeting and all the news of the week.

Chart: Fannie Mae 3.0% Mortgage Bond (Friday Sep 07, 2012)
Japanese Candlestick Chart

The Mortgage Market Guide View… 

Fee Increase to Impact Home Loans

The Federal Housing Finance Agency (FHFA) has again increased the guarantee fee they charge to lenders delivering loans to Fannie Mae and Freddie Mac. This is important to know, as this increase has a rippling effect that will impact the cost of mortgage financing.

Here’s what’s happening and what it means to home loan rates:

What exactly is this “g-fee”? The guarantee fee or “g-fee” is an amount charged by mortgage-backed securities (MBS) providers, like Freddie Mac and Fannie Mae, to help protect against credit-related losses in the overall mortgage portfolio. In other words, it acts a lot like insurance and helps lower the overall risk…which means home loans can be offered at terrific interest rates to borrowers that have good – but not perfect – credit.

What exactly is the impact of the rate increase? The increase will impact loans with different amortizations in different ways. For example, for a $200,000 home loan, the increased g-fee (assuming a .125% increase in rate) would equate to $250 more per year in interest, or $7,500 more over 30 years. Someone buying or refinancing a home can certainly choose to buy down the cost with cash up front – but most folks will not do this.

Why is the guarantee fee being increased? FHFA has increased the guarantee fee to collect more revenue to enhance the safety and soundness of the Government Sponsored Enterprises (GSEs), and perhaps indirectly encourage private firms to participate in the mortgage market.

Who will this impact? The change will impact all new borrowers using Fannie Mae and Freddie Mac loans.

When will it start? Officially, the increase to guarantee fees will begin on December 1, 2012. However, Fannie Mae will also be making adjustments to pricing for those loans that are committed on or after November 1, 2012. It’s important to note that the increase is already being seen in rate sheets right now, since home loans being originated now will likely not be closed, pooled and securitized until December and therefore will need the increased g-fee priced in earlier.

The bottom line is that the g-fees will be going up…and this will impact homebuyers looking to obtain a home loan through Fannie Mae and Freddie Mac.

Economic Calendar for the Week of September 10 – September 14

Date
ET
Economic Report
For
Estimate
Actual
Prior
Impact
Thu. September 13
12:30
FOMC Meeting
Sept
NA
0.25%
HIGH
Thu. September 13
08:30
Jobless Claims (Initial)
9/08
NA
NA
Moderate
Thu. September 13
08:30
Core Producer Price Index (PPI)
Aug
NA
0.4%
Moderate
Thu. September 13
08:30
Producer Price Index (PPI)
Aug
NA
0.3%
Moderate
Fri. September 14
08:30
Retail Sales
Aug
NA
0.8%
HIGH
Fri. September 14
08:30
Retail Sales ex-auto
Aug
NA
0.8%
HIGH
Fri. September 14
08:30
Consumer Price Index (CPI)
Aug
NA
0.0%
HIGH
Fri. September 14
08:30
Core Consumer Price Index (CPI)
Aug
NA
0.1%
HIGH
Fri. September 14
10:00
Consumer Sentiment Index (UoM)
Sept
NA
74.3
Moderate
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