A Mortgage Update from Jay Skwierawski for the week of January 13
A Mortgage Update from Jay Skwierawski
President of First Sterling Mortgage Services, LLC
Mortgage Update the Week of January 13
Hello Everybody!
It was supposed to be a quiet week!
In last week's update, I said, "There is almost no significant news anticipated next week. Just the first time jobless claims report on Thursday and the Balance of Trade report on Friday. Neither report has a major impact on mortgage rates. Events that could affect rates this week include an increase or decrease in the cost of oil, political turmoil abroad, major bad news on the US mortgage front."
So, what happened? We had an increase and a decrease in the cost of oil (above $100 and then below) and some major news (although not BAD news) on the US mortgage front. As you have probably heard, Bank of America is in the process of acquiring Countrywide Mortgage. This is huge news for both the mortgage and real estate industries. There was wide speculation that Countrywide was teetering on the brink of bankruptcy. It wasn't a matter of if, but when. If Countrywide would have filed for bankruptcy, it would have caused a further slowdown in the U.S. economy. Countrywide is the largest mortgage lender in the United States. If you think the headlines are already filled with gloom and doom about the real estate market, imagine if the headlines read "Countrywide - Largest U.S. Mortgage Lender Files For Bankruptcy". This could have cost the housing recovery a year or two. There would have been widespread panic of many people that have their mortgages through Countrywide. Some people have the misconception that if their mortgage lender goes bankrupt, that they could lose their homes. Countrywide purchases a lot of mortgages that are originated through their wholesale division from mortgage bankers and brokers, alike. A bankruptcy petition would have stopped a source of mortgage money, and further muddied mortgage lending. It is not known how exactly the acquisition by Bank of America will affect Countrywide. Bank of America closed down its own wholesale lending divisions within the past six months. Wholesale lending (purchasing loans from mortgage brokers and mortgage bankers) is a major part of Countrywide's business. It is probably unlikely that Bank of America will close down Countrywide’s wholesale division, or they would be doing away with a large portion of their purchase.
Another favorable aspect of Bank of America purchasing Countrywide has to do with interest rates. Mortgage rates are likely to fall as a result of this, for a couple of reasons. First of all, one way that Countrywide has been attracting money to fund their mortgage operations has been by paying higher than market rates on CDs and Money Market accounts through its bank. This has caused other banks to have to pay higher than market rates on their CDs and Money Market accounts. When banks have to pay more to attract funds, they have to pass those added costs on to whoever they lend money to, like mortgage borrowers. Secondly, because a bankruptcy filing by Countrywide has been widely anticipated, major mortgage lenders have been "pricing in" the added risk of a Countrywide bankruptcy filing. If Countrywide would have filed for bankruptcy, rates would have jumped, and any lenders with outstanding loan commitments would have stood to lose a lot of money on pending or recently closed loans. The way that mortgage lenders deal with risk is to charge higher rates to "prepay" for it. Now that it appears that a bankruptcy filing by Countrywide is not going to happen, that added risk factor can be removed from mortgage rates, and we should see rates fall. Hopefully now we’re headed towards the low 5s for conforming loan amounts!
What's in store for the week ahead? A lot of news comes out on the economy next week, which could impact mortgage rates, including:
| Day | News | Impact on mortgage rates |
| Tuesday | Empire State Index - (how the economy is doing in the state of New York) | Moderate |
| Tuesday | Retail Sales for December - (did cash registers ring enough for the holidays?) | HIGH |
| Tuesday | Retail Sales, excluding autos (ditto, less auto sales) | HIGH |
| Tuesday | Producer Price Index (PPI) - Inflation at the wholesale level | Moderate |
| Tuesday | Core PPI, excluding volatile food and energy costs | Moderate |
| Wednesday | Consumer Price Index (CPI) Inflation at the consumer level | HIGH |
| Wednesday | Core CPI, excluding volatile food and energy costs | HIGH |
| Wednesday | Industrial Production (how much our factories are producing) | Moderate |
| Wednesday | Capacity Utilization (how much is being produced vs how much could be) | Moderate |
| Thursday | Housing Starts (how many new homes were started last month) | Moderate |
| Thursday | Housing Permits (how many permits were taken out for new homes) | Moderate |
| Thursday | First time jobless claims (how many people started unemployment) | Moderate |
| Thursday | Philadelphia Fed Index (how the economy is doing on the right coast) | HIGH |
| Friday | Leading Economic Indicators (how the future looks for the economy) | Low |
| Friday | Consumer Sentiment (how consumers feel about the economy) | Moderate |
Wow, that's a lot of news that could affect mortgage rates one way or the other. Of course there are other things that could affect mortgage rates this week, like the usual suspects - more bad news in the mortgage industry, the price of oil and the weather. That's right, the weather could affect interest rates. It's supposed to get extremely cold by the end of the week. Cold weather means that more oil will be used to heat our homes. The more oil that is used, the higher the price of oil goes. An increase in the price of oil causes inflation fears. Inflation fears cause mortgage rates to go up. Wow. What can we do? Pray for warmer weather, I suppose! On the news front, in addition to the Countrywide news, there were rumors on Friday that Chase is in talks to take over Washington Mutual. That could also cause some waves in the week ahead.
I will keep you posted on any major news that affects mortgage rates!
Have a great week! Only 22 more days until the spring Market officially starts (if I am to believe what I heard this week - the spring market typically starts the day after the SuperBowl)!!!
Have a great week.
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
is a registered service mark of The Prudential Insurance Company of America. Equal Housing Opportunity. Midwest Realty Ventures LLC. All Rights Reserved.