Mortgage Rates for 30-Year U.S. Loans Drop to Lowest Since 2013

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Freddie Mac reported on April 14 that the average 30-year fixed-rate mortgage dropped to 3.58 percent during the week from 3.59 percent the prior week, marking the lowest level since May 2013. The average 15-year fixed-mortgage fell from 2.88 percent to 2.86 percent over the same period. “The persistent weakness in the global economy has been a boon to mortgage shoppers,” says Greg McBride, chief financial analyst at “It brought rates lower in a year we widely expected them to go higher.” The 30-year rate has been below 4 percent since the start of the year, and experts do not expect mortgage rates to spike anytime soon, as the Federal Reserve announced last month that it would hold interest rates unchanged as it waited to see whether slower growth abroad put a damper on the U.S. economy.

From “Mortgage Rates for 30-Year U.S. Loans Drop to Lowest Since 2013”
Bloomberg (04/14/16) Gopal, Prashant

Fed Sends Signal That April Rate Hike Is Unlikely

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According to the minutes of the March policy meeting, Federal Reserve officials signaled an interest-rate increase in April is unlikely. Officials expected headwinds to subside slowly but noted “that a cautious approach to raising rates would be prudent or noted their concern that raising the target range as soon as April would signal a sense of urgency they did not think appropriate.” Some officials, however, disagreed, stating that they might want to raise rates as soon as April “if the incoming economic data remained consistent with their expectations for moderate growth in output, further strengthening of the labor market, and inflation rising to 2 percent over the medium term.” The next meeting is scheduled for April 26-27.

From “Fed Sends Signal That April Rate Hike Is Unlikely”
Wall Street Journal (04/07/16) P. A1 Hilsenrath, Jon

Large Banks and Small Banks Are Allies, Not Enemies

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JPMorgan Chase Chairman and CEO Jamie Dimon says that in the current economic climate, it is tempting to pit large banks against small banks, but the relationship between financial institutions is more complex. “A healthy banking system depends on institutions of all sizes to drive innovation, build and support the financial infrastructure, and provide the essential services that allow the U.S. economy to thrive,” he says. “In this system, regional and smaller community banks play an indispensable role. They sit close to the communities they serve … are able to forge deep and long-standing relationships and bring a keen knowledge of the local economy and culture. They frequently are able to provide high-touch and specialized banking services.” However, he stresses that regional and community banks depend on large banks for their service offerings, as Chase and other large banks provide vital correspondent banking services to smaller institutions, purchase the mortgages originated by smaller banks, and provide critical investment services to community banks. “The financial-services industry, in short, is a story of interdependence among banks of all sizes,” says Dimon.

From “Large Banks and Small Banks Are Allies, Not Enemies”
Wall Street Journal (04/05/16) Dimon, Jamie

New Risk of Weakness In The Commercial Property Market

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Wall Street Journal reports there is commercial property market weaknesses in the certain markets. Markets mainly tied to the energy industry.

“New signs of weakness are surfacing in the commercial-property market, ending a half-decade run of improvement with steadily climbing values. Amid global shifts like the sluggish Chinese economy and a new era of low oil prices, defaults on loans are popping up in areas that were considered overheated, occurring in small numbers for now, but stoking fears that more could be on the way.

This comes as there is a growing view that the best days are in the past for this property cycle, which benefited strongly from low interest rates and demand by global investors from regions like China and oil-dependent economies in the Middle East.

“We’re at the top of the market,” said Kenneth Riggs, president of Situs RERC, a real-estate research firm that advises investors on property values and market direction. “There’s going to be a market correction.”

If there is a downturn, few expect it to be severe because the economy is still creating a healthy level of jobs and lending has been far less aggressive than in past booms like 2007, when highly leveraged developers defaulted as the market slowed. Developers back then were routinely able to secure debt for more than 90% of the value of a building, compared with less than 80% today.”

Read the full article in the Wall Street Journal (here)

Housing Regulator Closes Loan Loophole Used by REITs

By | Commercial mortgages, Commercial Real Estate, Multifamily housing, Uncategorized

Move will bar membership in government-backed federal home loan banks for captive insurers

A top federal housing regulator on Tuesday shut the door on mortgage investors who had been using a loophole to access low-cost, government-backed financing.

The Federal Housing Finance Agency said so-called captive insurance companies, which insure the risks of the companies that own them, no longer will be eligible for membership in government-backed federal home loan banks.

Real-estate investment trusts that invest in mortgages are normally ineligible for home-loan-bank membership, but over the past few years have created captive insurers to gain indirect access to cheap federal funding.

After the announcement on Tuesday, shares of some mortgage REITs with captive insurers, such as Annaly Capital Management Inc., Two Harbors Investment Corp. and Redwood Trust Inc., fell between 0.9% and 5%.

Mortgage experts said the move is likely to make it even more difficult for some riskier borrowers who don’t fit the parameters of government-backed agencies to get loans.

“It will make some loans to lower-quality borrowers even slower to come back,” said Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute, a think tank.

Mortgage rates also could tick up, since the rules would effectively cut off some investment in mortgage bonds.

On the other hand, some had feared that allowing captive insurers to get access could put the FHLB system at risk, as other types of firms like hedge funds and investment banks considered using the workaround.

“Congress has had plenty of opportunities to give mortgage REITs access to the system, and they haven’t done so,” said Joseph Pigg, senior vice president for mortgage finance for the American Bankers Association, a banking industry trade group.

The 11 regional federal home loan banks advance low-cost loans to financial institutions such as credit unions and commercial banks to promote lower mortgage rates.

In shutting captive insurers out, FHFA Director Melvin Watt said the agency sought to abide by Congress’s intent when it passed the law governing the home loan bank system.

As of the end of September, 40 captive insurers had become home-loan bank members and as of mid-November, they had outstanding borrowings of more than $35 billion.

In a statement, John von Seggern, president of the Council of FHLBanks, said the FHFA’s decision “will mean fewer opportunities for private capital to expand homeownership opportunities for Americans.”

Mortgage Bankers Association President David Stevens said the rule “removes a vital component of the FHLBank membership which provides liquidity for the real estate finance market.”

On Tuesday, the FHFA did roll back separate provisions that would have required home-loan bank members to keep a certain percentage of their assets in mortgages. That move is expected to help liquidity.

The FHFA first proposed the changes in September 2014. A bipartisan group of congressmen in October last year introduced a bill that would require the FHFA to withdraw the proposal, though that legislation never left committee.

Mortgage REITs that have already used insurers to get home-loan bank access will get some relief. Those that entered the system before the September 2014 proposal can stay members for up to five years, while those that became members after will have one year.

Michael Widner, an analyst for Keefe, Bruyette & Woods, said that because of the uncertainty surrounding membership, mortgage REITs until now have hesitated to rely on the home-loan banks for a large portion of their funding. In part for that reason, he said he didn’t expect the FHFA’s decision to have a near-term impact on REIT earnings. Mr. Widner said 19 of 24 publicly traded mortgage REITs had captive insurers that were home-loan bank members.

Annaly CEO Kevin Keyes said mortgage REIT membership in the FHLB system “enhances both the stability of the residential financing market and is supportive of the federal government’s broader goal of returning private capital to the U.S. mortgage market.”

via (wsj)