WeeklyBasis 8/21/09: Preview of Next Week’s Rate Volatility, Beware Disclosure Rules

Rate/Market Update
Rates on conforming loans up to $417k and super-conforming loans up to $729k are net even this week after building on last week’s .25% gains then giving up ground today. Rates for jumbo loans above $729k remain steady because those rates don’t trade all day every day like conforming loan rates do. Tame producer inflation data and smaller than expected Treasury auction announcements this week led to gains most of the week. Then today, we had a better than expected Existing Home Sales report along with optimistic comments on the economy from Fed Chairman Ben Bernanke.

Stocks rallied to their highest levels of the year, with the Dow closing at 9505 and the S&P 500 closing above the critical 1000 psychological barrier (actual close 1026). Bonds suffered on this stock rally, including mortgage bonds that rates are tied to. When mortgage bond prices decrease in a selloff, yields (or rates) rise. Rates will be volatile next week. Here’s the list of market moving data with my predictions of which way each will push rates (+ for higher, – for lower, or neutral): two voting members of the Fed’s rate policy committee are giving economic outlook speeches (+), the second revision of 2Q2009 GDP (–), S&P Case Shiller home price data for June (neutral to +), and a new round of Treasury auctions (+).

Disclosure Rules Update
Loan transactions moving into doc draw phase this week were the first that were subject to revised disclosure rules that went into effect July 31. These rules say that if the final Truth In Lending statement used when borrower’s loan docs are drawn is different (higher or lower) from the original, borrower must sign a new Truth In Lending disclosure, wait 3 days, then draw docs. The variances are as follows: APR (rate expressed as though closing costs were being financed) must be within .125% and Finance Charge (total interest over life of loan plus closing costs) must be within $100.

These are very tight thresholds and can be changed by just about anything including: a one day change to close date, a seller credit not on original home purchase contract, lender appraisal review fee, etc. So homebuyers/owners and Realtors need to be in very close coordination with their lender to make sure that every last line item on a settlement statement are accounted for on original disclosures or you will face delays in closing.

CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 5.125% (5.275% APR)
FHA 30 Year: 5.0% (5.16% APR)
5/1 ARM: 3.875% (4.015% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT
30 Year: 5.375% (5.49% APR)
FHA 30 Year: 5.25% (5.40% APR)
5/1 ARM: 4.25% (4.37% APR)

JUMBO RATES ($625,500 – $3,500,000) – 1 POINT
30 Year: 6.125 % (6.275% APR)
10/1 ARM: 6.25% (6.39% APR)
5/1 ARM: 5.25 % (5.43% APR)