Courtesy Tony Guaraldi, VP of Mortgage Lending Guaranteed Rate Mortgage
Holly Guacamole! We unexpected got a lousy jobs report this morning and Mortgage Bonds are the beneficiary! The Bureau of Labor Statics reported the economy created 74,000 jobs missing huge on the forecasts that predicted a range of 200k to 250k jobs! For comparison the number for October was 200k created and November was 241k created so this was really out of left field! The Jobs Report each month is always the biggest market mover and again its tied to Fed stimulus right now so reactions to the news are exacerbated for Mortgage Bonds. You can see the large green box on the right of the chart below showing the bond market rally today but you can also see we are a long ways off from where rates were in Mid-November. We will enjoy the improvement for now and continue to watch it as we still have some room to run before hitting resistance. Hopefully we can hold onto these gains today as its typically a volatile day after the jobs report like this!
CLICK HERE for the January 10, 2014 Guaranteed Mortgage Rate Sheet
A major change in mortgage regulation was implemented today which is the Qualified Mortgage (QM) and Ability to Repay (ATR) as part of the Dodd Frank act passed a couple years ago. Basically the rules says lenders need to confirm that borrowers have the ability to repay their loans (I’m shocked) and that lenders should not make loans the government deems to be risky such as Stated Income, Interest Only, Negatively Amortized loans, and loans with a term exceeding 30 years. Another aspect of QM loans is they must have a debt to income ratio of 43% or less, however they government made an exception for Fannie, Freddie, and FHA who’s guidelines remain unchanged for the most part. If you are saying to yourself aren’t those three agencies under government control you would be right, and I’m guessing this is no coincidence that they got the exception. Good news for borrowers who were already pre-approved under these programs as their approval should still hold after the change. So the programs most affected by this new regulation are Jumbo and niche lenders.
If lenders stay within ATR and QM they are afforded some protections from the government against being sued by borrowers who claim they were harmed by the loan program offered to them. Let’s not forget that these borrowers signed on the dotted line for this loan that is now “harming” them . . . but I digress.
Long story short is several lenders have cut back some loan programs and guidelines to comply with the new rules and stay within the government’s protections. Other lenders will continue to step outside of the lines and take the risk of being sued by their borrowers. I would assume these out of the box loans would now carry a price premium to compensate for the additional risk they are taking on, but time will tell. At Guaranteed Rate we still have Jumbo lenders going to 50% debt to income ratio which can really help someone who is a move up buyer but doesn’t want to sell their current primary before buying a new home. Or any borrower who wants to maximize their purchase price with a Jumbo loan.
CLICK HERE for the full report, graph and commentary.
Have a good one! – Tony Guaraldi, VP of Mortgage Lending
o: 408.841.4953 – m: 408.504.3295 – f: 773.357.4819
1901 S Bascom Ave, Suite 105
Campbell, CA 95008
NMLS ID: 293894