6% Is Average Rate On $11t Of U.S. Mortgage Debt, Jumbo Mortgage Rates & Securitization

Average Rate Is 6% on $11t In U.S. Mortgage Debt
Yes, rates are still great, even with the little uptick we saw last week. But interestingly, the effective mortgage rate outstanding on all $11 trillion of US household residential mortgage debt remains basically unchanged at 6%. Originators on the front lines know that even though rates are at all-time lows, a huge proportion of households cannot refinance due to credit or value issues. So unlike previous low-rate cycles, when prepayments increased predictably, this time around is different.

Fannie Mae Zero-Down Loan
A new program from Fannie Mae called Affordable Advantage is available to first-time home buyers in Idaho, Massachusetts, Minnesota and Wisconsin, and created in conjunction with the states’ housing finance agencies. Proponents say that low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting. Various state agencies have continued to make loans with low down payments to those who may or may not have the best credit. Affordable Advantage loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes.

New Government Help: FHA Short Refinance
Another new modification program, announced in March, has begun, the target being underwater loans for homeowners who are current on their mortgage payments. In FHA’s “short refinance” program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to FHA. Where is the government finding the money to cover the expected 1 in 5 default risk? It set aside $14 billion previously earmarked for housing aid from the Troubled Asset Relief Program to cover losses. Of course, the bank or investors that own the loan must be willing to write down its value, and the servicer must have the time and manpower to process the loans.

Jumbo Mortgage Update
The jumbo market is seeing some continued revival. Redwood Trust is rumored to be coming to market with a $300 million jumbo MBS sometime in the fourth quarter. Five months ago the company put out a $238 million jumbo security backed by 255 prime Citi loans. Late last week Wells Fargo pushed its jumbo rates below 5%, although the big banks seem to be still holding on to their jumbo production and keeping the loans in portfolio.

Pending Home Sales Up
Last week’s Pending Home Sales picked up a little bit. PHS is signed contracts between buyers and sellers, and they rose in July by about 5%. Sales are still down by 19% versus a year ago. And it was reported that the increase or decrease in values is still very localized. In California, for example, the LA Times reported that the State Board of Equalization stated that the value of properties fell 1.8% to $4.4 trillion. Forty-eight of California’s 58 counties saw totals fall this year, but the decline was less than the -2.4% last year.

Bond Market Update
Now that we’re back from the weekend, let’s take a look at the actual bond markets. The Treasury market was hit Friday with the stronger-than-expected employment report. For the week, overall, news was not great for the economy but better than expected, and since the Treasury markets seemed to be priced to a worst case scenario, prices went down and rates up. 10-yr Treasury yields went up more than 30 basis points in 6 business days (2.42% to 2.75%). And not only have we seen decent news, but the markets have supply to grapple with: this week we have 3’s,10’s and 30-yr auctions, and the corporate debt supply calendar looks very heavy this month – both of which compete with mortgage pricing. $2.1 billion hit the market in MBS’s on Friday, and current coupon mortgages were worse about .375.

Besides the $67 billion auction this week, there is not much economic news. Thursday we have Jobless Claims and the international trade numbers. And the Fed’s Beige Book will come out tomorrow. I guess that the financial news networks can focus on the elections, still two months away. This morning’s 10-yr yield is back down to 2.64%, and 30-yr mortgage prices are better by roughly .250.