Mortgage:Bad News Is Good News

Bad news for stocks can be good news
for mortgage rates. Spurred by slower
growth in China and unease in emerging
markets, the stock market has been in a correction
mode.

When the stock markets tank, bond markets
are often one of the safe-havens. Ten-Year
Treasury notes closely mirror movement in the
mortgage backed securities markets and often
sends mortgage rates lower. This has translated
into good news for mortgage interest rates.

Current mortgage interest rates are at the
lowest they have been for a few
months. The trend appears to be
that rates are drifting even lower.

If a borrower has locked in a
loan over the last several weeks
and the loan is not closing immediately,
they should go back to
their lender and ask if they have a
price renegotiation policy. Most banks do have
a policy which allows a one-time rate change. It
doesn’t cost anything to ask.

In recent weeks Ten-Year Treasury notes
reached a high of 3%. Currently Ten-Year
Treasury notes are around 2.72%, a drop of over
twenty-five basis points in the first part of the
year. This is a large move.

The new Dodd-Frank rules have kicked in
for the banking industry. These rules have put
further limits on the institutions and how they
must qualify a borrower for a mortgage. No
one seemed to think the rules were easy in 2013,
and now the new rules are tougher. Ratios have
been contracted to a total allowable debt ratio of
43%. Credit lines now must be counted against
a borrower even if they are untouched. A lot of
homeowners do have lines of credit which have
no balances which may be a determent to their
ability to refinance or buy a second home.

The Dodd-Frank rules pose a downside risk
for the housing market. If these regulations
restrict the supply of credit, some households
looking to purchase a home could find themselves
shut out of the market, which would
weaken demand. A lot of observers
think the Dodd-Frank rules
may slow the recovery in the housing
sector.

Time will tell if the current
downturn in the equities markets
persists or moves to the sidelines.
If it becomes sustained for a period
of time, it will tamp down economic growth
prospects for 2014. This would potentially help
keep mortgages lower.

One of the most important reports around
the corner is the employment report on February
7. Most expect a strong report in January and
revised (higher) numbers for December. The
report will be the foundation for the near term.

Bill Starrels lives in Georgetown. He specializes in
residential mortgages. He can be reached at 703-625-
7355 or bill.starrels@gmail.com NMLS#485021