Jumbo vs. Conforming Chart, Will Lenders Adopt FNMA Guidelines?
It is nice to see jumbo/conforming spreads – shown in gray – narrowing from their peak in February! The graph comes from Bloomberg through Lehman Brothers, and doesn’t yet show May’s improvements.
Mortgage bankers have been heard humming to themselves, and seem to have a bouncier step lately. Have the changes Fannie and Freddie made recently (higher loan amounts, lower LTV, better pricing, etc.) going to help? I believe that they are. But interest parties, ranging from loan agents through brokers and into middle-tier originators, may not see all of the benefits. Fannie may announce a certain LTV increase, but by the time the perceived risk is filtered down through the large investors (Chase, Citi, Wells, Countrywide), the mid-tier accumulators (Taylor Bean, AmTrust, Franklin America), the mortgage insurance companies (Radian, RMIC, PMI, etc.), and finally signed off by the remaining warehouse banks (GMAC, Countrywide, Guaranty Bank, Colonial, etc.), well, Fannie & Freddie’s improvements may not be so dramatic. That being said, any investor or other entity who does not comply may see their market share and business drop relative to others.
Where are rates going? Maybe nowhere. We had a favorite saying on the trading desk: “If rates can’t go up, they may-as-well go down.” Or visa versa. Market commentators and media pundits seem to believe that the end of the credit issues is near. But just because we have not seen any major credit market shocks over the past several weeks doesn’t mean that we are “out of the woods”. Oil seems to be heading higher, as world-wide demand is strong. Stimulus checks? I ran out and spent mine on… paying my gasoline credit card down. (Maybe what some cynics are saying is true: that the stimulus checks are all going to OPEC.)
Speaking of changes filtering down to the borrower, Chase announced the availability of Agency Jumbo 5/1 Amortizing and Interest-Only ARMs in addition to their Amortizing Fixed Rate Agency Jumbo products.
On the flip side, HSBC, “due to current market conditions…they will be increasing all Freddie Mac Quick & EZ (SISA) and Stated Income Verified Assets (SIVA) documentation type overlays. The changes are effective May 19, 2008 and apply to all Fixed and ARM products.”
The Conference Board gave us yesterday’s April Leading Economic Indicators (LEI). They reported an increase of 0.1% compared to forecasts of no change, indicating that the economy may grow slightly more than was expected over the next few months. This data is considered to be moderately important and did not have much influence on today’s mortgage rates. This morning’s Producer Price Index came out at +.2%, with the core rate +.4%. The year-over-year, numbers, are definitely out of the Fed’s comfort range: PPI +6.5%, with the year-over-year core rate +3.0%. There is no relevant economic news scheduled for release Wednesday, but we will get to see the minutes from the last FOMC meeting: how did Fed members vote at the last meeting? After the PPI numbers, the 10-yr is drifting around the low 3.80’s, and mortgage are roughly unchanged to slightly better.