Mortgage Rates Increase

Mortgage Rates Increase 

An improving economic outlook was unfavorable for mortgage rates this week. The Dow stock index reached a
new high for the year, as investors shifted funds from bonds to stocks. Weaker than average demand for the
7-yr Treasury auction also helped push mortgage rates a little higher.

The economic data released during the week generally was a little stronger than expected. Most significant was
the monthly Employment report. Against a consensus forecast of 195K, the economy added 216K jobs in March.
The Unemployment Rate declined to 8.8%, the lowest level since March 2009, from 8.9% in February. Stronger
economic growth increases inflationary pressures, which is negative for mortgage rates.

The recently passed Dodd-Frank Act requires Federal housing regulators to define the characteristics of loans
which will be exempt from new risk retention requirements. Such loans will be known as Qualified Residential
Mortgages (QRM). Non-QRM loans will likely require higher interest rates than QRM loans. This week, the first
proposed QRM characteristics were announced. In the proposal, all government guaranteed or insured loans,
including FHA/VA, Fannie Mae and Freddie Mac loans, will be QRM. Unfortunately, outside of these agency loans,
the definition was very strict, making it hard to qualify. There will now be a 60-day comment period.

Also Notable:

  • The February Core PCE inflation index was just 0.9% higher than one year ago
  • February Pending Home Sales, a leading indicator, rose 2.1% from January
  • Oil prices rose to a 2.5-year high above $107 per barrel
  • The Fed’s Lacker suggested that Fed asset sales and rate hikes could happen this year

Unemployment Rate

Average 30 yr fixed rate:
Last week:
+0.05%
This week:
+0.05%
Stocks (weekly):
Dow:
12,400
+200
NASDAQ:
2,750
+100

Week Ahead

After a busy week, the Economic Calendar will be extremely light next week. ISM Services will come out on
Tuesday. The minutes from the March 17 Fed meeting will also be released on Tuesday. These detailed notes
on the discussion between Fed officials provide additional insight into the reasoning behind the Fed’s decisions.

Brought to you courtesy of MBS Quoteline