What is mortgage insurance?
It’s a financial guaranty that insures lenders against loss in the event a borrower defaults on a mortgage. If the borrower defaults and the lender takes title to the property, the mortgage insurer (MGIC, for example) reduces or eliminates the loss to the lender. In effect, the mortgage insurer shares the risk of lending the money to the borrower. (Mortgage insurance should not be confused with mortgage life insurance, which provides coverage in the event of a borrower’s death, or homeowner’s insurance, which protects the homeowner from loss due to damage from fire, flood or other disaster.) READ MORE
After a week off for Thanksgiving I have plenty of good news to report since my last update. Last week, the National Association of Realtors reported that, for the month of October, existing home sales surged 10.1% to a seasonally adjusted annual rate of 6.1 million units – far exceeding the 5.7 million units most economists expected. Also last week, the S&P Case/Schiller Home Price Index showed that home prices nationwide rose 3.1% in the third quarter, matching a 3.1% increase in the second quarter and marking the second consecutive quarter prices have risen. In a similar report of local interest – the Florida Association of Realtors reported that Panama City Beach condo prices actually rose 3% in October over 2008, the first increase this year, and sales of condos were up 88% in October ’09 over ’08.
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Mortgage rates continue to hover near record lows with the rate on the benchmark thirty year flirting with 4.875% this week. The rate on the fifteen year fixed rate has dipped below 4.50% coming in at 4.375%. Thirty year rates on most government loan programs including FHA. VA and Rural Development have eased to 5%. Rates were helped this week after Federal Reserve Chairman Ben Bernanke gave a speech on Monday in which he cited “economic headwinds” as rationale for keeping rates low for the foreseeable future. Low interest rates helped keep the value of the dollar low against other major currencies and driven the price of gold to record highs in recent weeks as investors look for a safe alternative to the U.S. currency.
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Last Friday, President Obama signed a bi-partisan extension to the first-time home buyer tax credit program last week giving prospective buyers through June 30th, 2010 to close on a home and receive the $8,000 credit. In addition, the law contained an expansion of the former program to include homeowners who have occupied their current residence for five years who want to trade up to another home. These repeat buyers can now receive a credit up to $6,500. The income limits on the program for buyers to receive the full amount of the credit were also raised to $125,000 annually for an individual and $225,000 for a couple.
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The National Association of Realtors reported on Monday that the September Pending Home Sales Index jumped 6.1% t0 110.1 after a 6.4% rise in August. The big rise far surpassed analysts’ expectations who anticipated a more modest rise of 1.2%. Most economists contributed the large increase to the estimated 200,000 to 400,000 first-time homebuyers rushing to take advantage of the $8,000 tax credit set to expire on November 30th. To that end, many analysts are anticipating a drop in pending home sales after November 30th. The NAR report helped offset a Commerce Department report last Thursday that showed new home sales fell unexpectedly on September after rising for five straight months. Commerce said new home sales fell 3.6% in September to a seasonally adjusted annual rate of 402,000. It was the first decline since March. Ironically, the drop was also attributed in part to the expiring first-time buyer credit. Go figure.
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We are definitely seeing a return to volatility in mortgage rates as a see-sawing stock market has made for fickle demand for bonds. While sitting near record lows for several weeks rates bounced back up by late last week and were approaching 5.375% on the conforming thirty-year, fixed-rate on Monday before settling back to 5.25% on Tuesday. Some of the pressure on rates can be attributed to the huge government bond auction this week that will push the nation’s overall debt to near its debt ceiling of just over $12 trillion. The $123 billion in government securities creates additional supply yet, so far, it appears there is still adequate demand to absorb the new debt which has allowed rates to ease somewhat. I believe we will continue to see this return to volatility in both bonds and equities as investors become less convinced that this year’s rally in stocks will continue.
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Mortgage rates remain low again this week helped out by reemerging doubts about the stock rally and economy as a whole. The benchmark thirty-year, fixed-rate stands just above 5% with no points and the fifteen year is just below 4.50%. While paying a point was buying a full ½% discount to the rate in the first quarter of the year, that premium has narrowed significantly and a point today is only buying a 1/4% rate improvement.
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I will be the first to agree that the mortgage industry was extremely under-regulated for years and feel that lack of oversight, among other things, was largely responsible for the collapse of the housing market and subsequent financial crisis we now find ourselves in. But two of the most significant changes we’ve seen in years, both designed to protect consumers and reign in unscrupulous lenders, have done more to hamper the housing recovery than provide better consumer protections.
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Mortgage rates remain at near eight month lows as strong demand in the bond market drove the yield on the ten year Treasury note below 3.20% before rising slightly to 3.25% today on a renewed rally in stocks. The rate on the benchmark thirty-year is hovering right at 5% with no points and the fifteen-year stands at 4.375. Thirty-year rates actually were pushing 6% back in the spring so this is quite an improvement and rather unexpected. The general consensus has been that as the economy pulls out of recession and as signs of economic growth become more evident, rates would rise as inflationary pressures mounted, but this has not materialized.
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Another mixed bag of housing data was released over the past week starting with last Thursday’s report from the National Association of Realtors that showed an unexpectedly drop in existing home sales. NAR reported that sales of existing homes in August fell by 2.7% form the prior month. This broke a four month trend of consecutive increases but still reflected a 3.4% increase form the same month a year ago. The report caught many economists off guard as extremely low interest rates, low prices and the government’s $8,000 tax credit were expected by most to boost sales for the month.
The Commerce Department reported on Friday that new home sales rose in August but only by a modest .7%. Even more disappointing is the fact that August new home sales were off 3.4% from a year earlier. Still, the slight increase for the month marked the fifth consecutive month of increases in the number of new homes sold. Mike Larson, an analyst with Weiss Research, Inc. said, “Price cuts and dramatic cutbacks in home construction are clearing out inventory in a big way.” “We now have the fewest number of new homes for sale since November of 1992,” he added.
Mortgage rates are still at eight month lows with the benchmark thirty-year fixed-rate flirting with 5.00%. Government rates, which usually lag behind conventional rates, are beginning to follow the downward trend with most FHA, VA and Rural Development thirty-year programs at or below 5.25%. Jumbo rates, rates for loans in excess of $417,000, are still in the high 6% range as that market remains highly illiiquid. I have been saying for some time that the run-up we have seen in the stock market this year has been irrational as concete evidence of an economic rebound has so far been lacking. The bond market, at least, agrees with me as demand for the safety of bonds remains high keeping interest rates low.
