Government Shutdown lenders allowing temporary exceptions to the norm

The government shut down drags on and more lenders are coming around to allowing temporary exceptions to the norm which is a mandatory processing of a 4506-T form by the IRS.  For W2 employees they’ll require us to verify income with the borrower’s employer.  For self-employed we need to get a letter from the borrower’s CPA stating the returns provided are accurate and were the same version submitted by them to the IRS.  It seems the borrowers who may still be affected by the shutdown are self-employed folks who happen to file their own tax returns (i.e. they don’t use a CPA) because there is no way to verify their accuracy from a 3rd party.  Or those W2 borrowers who happen to work for a branch of the Government that is currently shut down.  If their doors are closed we can’t obtain a verification of employment from them!  So in most circumstance there is a solution, but some transactions may be delayed until this ends.

CLICK HERE for a current mortgage rate sheet.

Taking a look at the chart below you can see that our prediction from last week that bonds would remain between the 200 day moving average and 100 day held true this week.  In fact bonds pulled back a fair amount twice after briefly touching the 200 day resistance line.  However we remain optimistic over the next couple months on bond pricing.  It seems the taper talk can has been thoroughly kicked down the road and we’re guessing that will not happen in 2013 at this point.  We also got some hints in the minutes from the last Fed meeting when the “no taper” decision was made.  They discussed that when they do taper it would potentially be more heavy on Treasuries and less on Mortgage Bonds.  Reason being they want to continue to support the housing market to help the economy rebound and buying Mortgage Bonds to keep rates low is a great way to do this!  This was expected by us and if you’ve followed our commentary over the past month or two we’ve mentioned the Fed may elect to taper more Treasuries then Mortgage bonds for this exact reason.

CLICK HERE for the chart and full commentary.

The second reason to remain optimistic on interest rates over the near term is that mortgage volume has declined significantly due to lack of refinance transactions.  Any Realtor holding open houses or attending marketing meetings has probably experienced a surge in lenders out looking for purchase business!  Well this drop in mortgage origination volume means less supply of securitized Mortgage Bonds will be hitting the market.  With the continued demand from the Fed buying Mortgage Bonds and less supply . . . . economics 101 says less supply and stable or increased demand equals increased prices.  When Mortgage Bond prices go up then interest rates go down.

There is always the curve ball that news can bring at any time and once the government reopens and we start getting our economic reports again so things can change quickly.  But for now the fundamentals support the stance that rates will remain low and may even improve in the near term.  Let’s see if we can make a run at the 200 day moving average next week!

By the way take a look at the 10/1 ARM interest rate on Jumbo loan amount on the attached rate sheet.  The rates for that loan has come way down lately and it may be a good time to consider using a 10/1 ARM instead of the 30 year fixed.

Tony Guaraldi VP of Mortgage Lending

o: 408.841.4953 – m: 408.504.3295 – f: 773.357.4819

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