Mortgage Rates drop

The average rate for a 30-year fixed-rate mortgage remained near lows last seen in December of 2009 as it continued its slide, the Freddie Mac Primary Mortgage Market Survey for the week ended May 27 found.

Mortgage rates at a near 50 year low.

Today rates are near the lowest level in 50 years . As existing home sales show a big jump in sales.

So is it time to buy a house?

As it turns out, the financial trouble in Europe the past few weeks, caused by worries about the ability of certain countries to pay off their debts, is pushing investors to put their money into comparatively safe U.S. Treasury Bonds.

Basically, investors think America is better positioned to pay back its debts over time than European countries. Since the rates on those bonds, which drop as the need to entice investors to buy our debt drops, are connected to mortgage rates, those drop at the same time.

"Whenever Treasury bonds come down, so do mortgage rates," stated by Diane Swonk, Chief Economist at Mesirow Financial.

Yet, for months, homeowners have been told higher mortgage rates were coming because of the trillions of dollars in federal help, and homebuyer tax credits were coming to an end.

Economists say those efforts appeared to have an effect on the housing market.

Sales of previously-owned homes rose 7.6 percent in April to a seasonally-adjusted annual rate of 5.77 million, the National Association of Realtors said Monday.

That increase led to a rise in home prices as the median price for a new home rose to $173,100, up 4 percent from a year ago.

Will you Get a Loan?

Even though rates are dropping, lenders, who just five years ago could not give mortgages away fast enough, have stiffened lending standards.

"It doesn't make it any easier to get a mortgage, but if you're in the market already, and you can qualify for a mortgage, you're going to get it a lot cheaper now than you did just a few weeks ago," said Swonk.

The good news is that even a small drop in mortgage interest rates can add up quickly. If you take a home valued at $400,000 with a 30-year fixed-rate mortgage, a one-point decline in your mortgage rate can cut about $200 off what you pay ever month.

Economists are hopeful the month-to-month jump in existing home sales might be sustained by this unexpected boost driven by worried overseas investors helping to bring mortgage rates down.

More Market News

The $8,000 and $6,500 homebuyer tax credits went out—to use poet T.S. Elliot's phrase—not with a bang but with a whimper. The applications index for purchase money mortgages managed to climb to 257, thankfully, but if you look at the history of this Mortgage Bankers Association index, you find that it's spent a good deal of time above 1,000…and 250 is very, very small potatoes.

So the tax credits didn't do all that much for us this time around, though every little bit helps. We will now have to start relying on genuine demand, rather than gimmicks, to bring in homebuyers and financers. The big problem, as I see it, is that we need a bit of confidence in the economic recovery if consumers are to feel good about buying a home. And we don't have that yet, in spite of slowly improving jobs figures and consumer purchases.

Last week provides a case in point. We began the week with the DJIA reeling from fears about the debt situation in Europe. Then, on Monday, the stock and credit markets were frozen in place as concerns that Treasury auctions might go poorly, based on the slightly weak auction of 5-year Treasury Inflation-Protected Securities.

On Tuesday, the DJIA plunged 1.9% on news that Standard & Poor's had demolished Greece's debt rating, sending the country's bonds to junk status, and also lopped two notches off of Portugal's debt rating. The only good news here was that the auction of 2-year T-bills benefited from the resulting global flight to quality.

On Wednesday, largely because the Fed reiterated that it plans to keep rates low and mumbled that the economic recovery seems to be faring slightly better, the DJIA regained 0.5%. But of course, the day's auction of 5-year notes resulted in slightly higher yields than expected, and the 10-year T-note climbed a bit to 3.778%.

Things looked up on Thursday, with a strong auction of 7-year notes, a large array of foreign investors participating. The DJIA climbed another 1.1%--which seems to be what it would like to do each day, left to its own devices—and the 10-year T-note giving very little ground.

And then Friday, a criminal investigation into the Goldman Sachs shenanigans was announced and the markets freaked. The 10-year fell to 3.663%; the DJIA dropped 1.4%.

This week, we face not only the usual auction of 3-month and 6-month T-bills, but also a hefty auction of 1-year T-bills. The stress on the market just doesn't stop—and won't. One of these days, as we all know, we will watch a panic of some sort…hopefully a small beast that can be quickly tricked back into its cage.

This is a difficult gauntlet for a weak recovery to have to run. It suggests that, though it is commonly agreed that interest rates are on the rise from here forward, the rise will be—at the least—slow, choppy and often unpredictable. Low interest rates, indeed, are one of the benefits of all this sound and fury. But I, at this point, would surely settle for slightly higher rates if they resulted from a firming recovery and real estate market.

Weekly Market Preview

Last Week; treasuries and mortgages had a good week; the 10 yr yield fell 16 basis points and mortgages down 12 basis points. Most of the week markets focused on the debt issues in the European Union led by the cliff-hanging balancing on Greece's potential sovereign debt defaults. It took weeks and down grades on the Greek debt by S&P but over the weekend the EU and IMF did come up with $146B in funds to dodge the immediate default concerns. Greece had to agree to spending cuts that were quite severe as a requirement for the "loan". Last week's economic data, the few there was, were generally indicative of recovery. Key stock indexes ended the week lower even with better reports from the Chicago manufacturing report covering the mid-west and another decline in unemployment filings. Equities suffered last week on the Greek debt problems. The FOMC meeting concluded with continued comments that the Fed will interest rates low for a lot longer. Treasury sold $118B in 2 yr, 5 yr and 7 yr notes, of the three auction the 7 yr note on Thursday was the strongest as the Fed continues to confirm that inflation is not on the radar.
 
This Week; Treasury borrowing but the economic data will provide economists a lot of ammo to think about. Monday has March personal income and spending and the April ISM manufacturing report. There key data points each day this week, but the big one markets will be setting up for comes on Friday with the March employment report. The early estimates are for non-farm payrolls to have increased about 200K with the unemployment rate unchanged at 9.7%. With the Greek loan worked out over the weekend, the stock market should have a decent day on Monday and the bond and mortgage markets should start weaker as safe haven trades are unwound. Interest rate markets will likely continue in their respective narrow and directionless pattern with not much change by the end of the week. We  do expect some increased volatility early this week based on economic releases and continuing news coming from the EU over the debt problems in Europe; Spain, Portugal and Ireland and Greece are still unresolved in the longer run. The Goldman-Sachs civil suit and now a possible criminal charge will also get attention from investors and traders this week.

Americas 10 Worst States for Fraud. Is Yours Listed?

Mortgage fraud is increasing nationwide, according to a statement issued Monday, law enforcement and policy makers seem powerless to stop or even reduce it.

Incidents of mortgage fraud perpetrated by industry professionals increased 7% in 2009, after jumping 26% the year before, said the Mortgage Asset Research Institute (MARI), a division of LexisNexis. The worst-hit states include Florida, California, Arizona, New York, New Jersey and Maryland.

The jump in mortgage fraud is a troubling trend, given that it played a big role in setting the housing crisis in motion, with mortgage professionals doing things like listing false income claims for borrowers, and overstating a home's appraised value.

And the statistics may not capture the entire picture, according to Jennifer Butts of LexisNexis Mortgage Asset Research, since fraud isn't usually detected until a loan goes bad.

"We believe that mortgage fraud is significantly understated," said Butts.

Mortgage fraud hot spots Florida was the worst hit state, according to MARI, with a mortgage fraud index reading of 292.

That means the Sunshine State had nearly three times the expected level of fraud given the number of loans issued there. A score of 100 would indicate the state had exactly the amount of fraud expected and a score of 0 would mean no fraud at all.

Although Florida's reading was the highest in the nation, it was still a huge improvement over 2008, when it was 430.

New York was the second worst state for mortgage fraud with a mortgage fraud index reading (MFI) of 217, up 14% from 2008.

California was next at 159 and Arizona was fourth with 158.

New York's second place ranking was primarily due to illegal activity in the New York City metropolitan area.

The Big Apple had the highest rate of mortgage fraud of any metro area in the nation, while Los Angeles came in second and Chicago third.

The report described several types of fraud that were detected most often.

These include so-called "liar" loans, in which mortgage originators knowingly listed false income claims for borrowers; inflated appraisals, in which mortgage loan officers or brokers pressure appraisers to overvalue a home so it would qualify for a bigger mortgage; and false occupancy claims, which is when buyers claim they will live in a home but are actually buying it for investment purposes. This activity wasn't the type you see from true mortgage professions, just a few bad apples.

The nature of fraud has changed somewhat since the housing bust, according to Denise James of LexisNexis Risk Solutions. "New trends continue to emerge," she said.

With the explosion in foreclosures in many U.S. communities, for example, foreclosure rescue scams are proliferating.

One example of this kind of crime occurs when scam artists convince distressed owners to sign over their deeds, which the scammers claim they need to keep the homes out of foreclosure.

The scammers then turn around and sell the homes to straw buyers, financing the sales with inflated appraisals.

They get, say, an appraisal of $100,000 for a house worth $30,000.

When the deal closes, they take the cash and walk away, failing to make any payments. That sticks the banks with properties worth far less than they gave out in mortgage loans.

The growing rate of mortgage fraud could exacerbate the country's foreclosure problem.

The United States is already on course to have more than a million homes lost to foreclosure in 2010, according to RealtyTrac, the marketer of foreclosure properties.

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This Week in the News

This week is moderately active in terms of economic news scheduled for release. There are five reports scheduled, but only two of them carry the potential to cause noticeable movement in mortgage rates. Accordingly, there is a decent possibility of seeing a relatively calm week in the mortgage market, assuming that the stock markets do the same.

The week's first data comes late tomorrow morning when the Conference Board will release their Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months. This is considered to be a moderately important report, so we may see a slight movement in rates as a result of this report. It is expected to show an increase of 1.0%, meaning it is predicting rapid growth in economic activity of the next several months. A much smaller than expected increase would be considered good news for the bond market and could lead to slightly lower mortgage rates tomorrow.

There is no relevant data scheduled for release Tuesday or Wednesday. The next report comes early Thursday morning when the Labor Department will post March's Producer Price Index (PPI). It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments, leading to higher mortgage rates. However, a slight increase, or better yet a decline in prices, would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.5% increase in the overall reading and a 0.1% rise in the core data.

Also Thursday, the National Association of Realtor s will post March's Existing Homes Sales numbers. A similar report to this one and actually the week's least important data- March's New Home Sales will be released Friday morning. Both of these releases give us an indication of housing sector strength and mortgage credit demand, but unless they vary greatly from analysts' forecasts, I don't think they will cause much movement in mortgage rates. Both are expected to show increases from February's levels.

March's Durable Goods Orders will be released early Friday morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Current forecasts are calling for an increase in new orders of 0.2%. This would be a sign of slight manufacturing sector growth, but this data can be quite volatile from month-to-month. Therefore, a small variance between forecasts and the actual results will not heavily influence the markets or mortgage rates. A decline would be considered good news, while a large increase would indicate manufacturing sector strength. The latter could lead to higher mortgage rates Friday.

Overall, look for Thursday or Friday to be the most important day of the week with the PPI and Durable Goods reports being posted. The rest of the week will likely be heavily influenced by the stock markets. If the major stock indexes rally, bonds will likely suffer and mortgage rates will move higher. If stocks extend last Friday's fall, we could see mortgage rates move lower the next few days.