Fannie Mae gives "transactors" credit for good behavior

WASHINGTON — Are you a “transactor” or a “revolver” when it comes to your credit? Terms like these never have mattered much to home buyers seeking a mortgage. You’ve probably never heard of them. Yet they are about to become more important to millions of mortgage seekers, and could even help determine whether you qualify for a mortgage in the first place.

A transactor is someone who pays off credit bills in full every month or makes more than the minimum required payment. A revolver is the opposite: Someone who routinely makes the minimum payment on credit cards and other debts, rolling balances over to the next month. Credit industry statistical research suggests that, all other factors being equal, revolvers tend to present higher risks of future default to lenders, especially when they are accumulating substantial unpaid balances. Transactors tend to be lower risk.

But up until now, mortgage lenders and investors had difficulty distinguishing revolvers from transactors. Credit reports told them whether you as an applicant were late on card payments, whether you defaulted on your car loan, but didn’t tell them what you paid on your balances month by month over extended periods of time. They didn’t reach back to show distinctive patterns and trends in your money management: Did you roll large monthly balances on three credit cards during the last six months of 2015? Are you a rate surfer, transferring balances from one account to another, always making minimum or no payments? Up until recently, traditional credit reports used in the mortgage arena weren’t able to answer questions like these. Now they will.

Fannie Mae, a dominant player in the mortgage market, will soon begin evaluating how all loan applicants have managed their credit over the previous two years — how much they owed in revolving debt each month, the minimum payment allowed on each debt, and how much they actually paid. Mortgage credit reports acceptable to Fannie will need to include “trended credit data” like this on every applicant.

As a general rule, according to Eric Rosenblatt, Fannie’s vice president of credit risk analysis and modeling, the new system will “benefit borrowers who regularly pay off revolving debt” and should “provide more creditworthy borrowers access to mortgage credit.” That’s a big deal.

Starting June 25, the new reach-back data will become an integral part of Fannie’s automated underwriting — an online system that is used by the vast majority of mortgage lenders to determine whether applicants are eligible for the loan they’re seeking. Two of the three national credit bureaus — Equifax and TransUnion — will supply two years worth of continuous, month-by-month data on the credit management patterns of millions of mortgage applicants.

This should prove especially important for consumers who might not qualify for a mortgage because their credit reports contain too little information to generate a credit score. Many of these would-be purchasers are first-timers — millennials just starting out on their careers. Others are individuals who simply do not make much use of credit but now need a mortgage.

TransUnion conducted a study of “unscorables” and found that by adding credit usage data into their reports, 26 million thin-file or unscorable consumers could generate credit scores and that nearly three million of these consumers could be classified as “prime” or “super prime” credit risks — possibly qualifying them for reduced interest rates from lenders, according to Joe Mellman, TransUnion’s vice president and mortgage business leader.

Fannie Mae’s use of the new credit report data will not affect anyone’s FICO credit score, but it will open the door for applicants who look marginal or unqualified yet demonstrate responsible credit management habits over time. They may not have vast amounts of credit available to them, but they pay off or limit their balances.

Experts in the credit industry consider the upcoming move by Fannie Mae to be a major advance in fairer credit. Terry Clemans, executive director of the National Consumer Reporting Association, says it amounts to “the biggest change to the mortgage credit report in nearly a quarter of a century.” Freddie Mac, the other big mortgage investor, is “evaluating” whether to adopt a similar approach, according to a spokesman.

Bottom line for you: Be aware that how you manage your credit could now become a key determinant of whether you get a mortgage. Transactors will reap the benefits; revolvers playing games with credit cards will get more scrutiny.

Ken Harney’s email address is kenharney@earthlink.net.

(c) 2016, Washington Post Writers Group

Fannie Mae: If Govt Policy Continues Mortgage Market Will Collapse – Bove

Richard X. Bove, Vice President Equity Research at Rafferty Capital Markets, highlights some breakthroughs needed in mortgage production, Fannie Mae and Freddie Mac’s mortgage pools accounted for an incredible 87.4% of the net fund flows.

Core Issue

Housing activity has improved meaningfully from its low point in 2009, demand factors indicate that it could go much higher. The structure of the mortgage markets is looming as a potential impediment. The nation needs to build 1.5 million new units each year for the next 10 years and there is no indication where the mortgage money will come from to finance the potential buyers.

Housing

Housing Production

In 2005, 1,726,000 single family housing units were started. This number fell off to 434,000 in 2011. From that low point, the market showed steady recovery to 713,000 units in 2015. It is at a run rate of 764,000 at present.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

For comparative purposes, similar trends have been noted in total shelter production (single family starts plus multi-family starts plus mobile homes). There were 2,221,000 units created in 2005; 604,000 in 2009; and 1,165,000 in 2015. The present run rate is 1,200,000.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

Housing Sales

Single Family home sales new and existing (excluding mobile homes and multifamily units) seem to be slowing, however. They were running at 7,449,000 in 2005; 4,103,000 in 2011; and 5,129,000 in 2015. Today’s run rate is 5,271,000.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

Demand Considerations

Replacement Demand

The first step in determining effective demand is to compare the number of housing starts with the estimated dilapidation data. The housing start figures come from the Commerce Department. The dilapidation estimate is based on an assumption that 0.75% of the existing housing stock becomes unusable each year. The 0.75% figure is based on the housing studies completed for the Omnibus Housing Act of 1968. (Sorry, I just do not have a better number).

What the comparison shows is that in 2005, the nation was producing 1,143,000 more units than it was losing. By 2009 it was losing 422,000 units more than it was producing. In fact, in aggregate from 2008 to 2014, an estimated 1,542,900 units were lost over and above production. By 2015, the nation was back to producing more units than it was losing.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

Population Considerations

There was a significant shift in the population of people aged 25-44 in 1997. The number stopped growing. In fact it fell from 85,536,000 in 1997 to 82,135,000 in 2010. In 2011, this population anomaly shifted back to normal and the population of people in this cohort started to grow again. In fact from 2015 to 2025, the demographers estimate that there will be 8,772,000 people in this age group. There will be 4,269,000 additional people aged 45 to 64.

If one assumes that there will be 2.00 people per household in the younger group that implies a demand for 439,000 more housing units per year for these people. Similarly, if one assumes that there will be 1.80 people per unit in the older group; it would imply annual demand for 237,000 more units.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

Aggregate Demand

Adding the need to replace approximately 1,000,000 units each year to the demographic demand for 675,000 new units suggests that the annual demand for new units is about 1,675,000 million a year. That, of course, assumes that there is no excess vacant units that need to be absorbed, but there are.

The current vacancy rate is 12.8%. This is down from 14.5% but history suggests that an 11.5% vacancy rate is closer to normal. Vacancies are needed to facilitate the mobility of the population. Assuming that there are 1.3% too many vacancies it would mean that over the next 10 years approximately 175,000 units must be absorbed annually.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

This implies that the annual demand for housing is about 1,500,000 units per year. This is 400,000 more units than are being produced currently.

Affordability

The numbers here are quite good. Assuming a 4.04%, 30-year fixed rate mortgage, with a 15% down payment, and a 25% payment to income index, the Rafferty Capital Markets Affordability Index is 1.74%. This is very high relative to the long-term past.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

Fannie Mae Freddie Mac – Mortgage Money

Thus, it appears that there is significant demand for new housing. Plus, it is likely that the incomes are available to pay for the new units. The question is where is the mortgage money going to come from?

In 2005, the answer was simple. The private sector would come up with the funds. According to the Federal Reserve 68.3% of the net new money flowing into the mortgage market came from banks and the asset backed securities markets. Not so any more. Banks are still major buyers providing 30.7% of the industry’s fund flows but the ABS market is taking an amount equal to 55.8% out. Thus, the net from these two sources is now a negative 25.1%, although credit unions and REITs are filling most of this gap (23.8%).

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

If one can believe the Federal Reserve numbers in the fourth quarter of 2015 Agency and Fannie Mae and Freddie Mac mortgage pools accounted for an incredible 87.4% of the net fund flows into the mortgage market. If one adds the direct buying by the Fannie Mae and Freddie Mac and subtracts the net selling by ABS holders, the government accounts for 102.4% of the total market money inflows.

Today, the Agencies and Fannie Mae and Freddie Mac own or guarantee 60.9% of the existing loans. Three of every five mortgages in the country are either owned or guaranteed by the government and this does not count the FHA or VA guaranteed loans.

Fannie Mae and Freddie Mac Fannie Mae and Freddie Mac

This is particularly unhealthy because the Fannie Mae and Freddie Mac are currently insolvent and they will be bankrupt by December 2017 under current regulations. This begs the question as to who or what will replace them? At this moment no one knows. Thus, housing could be throttled by a lack of mortgage money in 18 months.

These numbers make it hard to assume that the Fannie Mae and Freddie Mac will in fact be eliminated as currently planned. If they are it would appear that the mortgage markets would be thrown into chaos.

Freddie Mac: Homes Could be Under Water–Literally–Due to Climate Change

April Digital Edition

2016 Buyers Guide

Make the most of your outdoor living space


Springtime in Middle Tennessee is enough to make anybody want to move here. The past two weekends have spoiled us all rotten with an abundance of sunshine and the temperature set to just right. Provided you can manage your allergies, this is absolutely the best time of the year.

May is National Barbecue Month, and our spring weather makes it easy for us to celebrate outdoors. Outdoor spaces have become a big draw to buyers. Whether your outdoor space is big or small, here are some ideas to update your space for your enjoyment or to entice buyers.

Furnish it. From a bistro table on a small patio to a full-sized sectional sofa, outfit your outdoor living space with the right furnishings. It could be that your current furnishings simply need a cleaning, or it may be time to replace them. Think beyond the standard table and chairs. If the space is large enough, add a sofa or a loveseat.

Light it up. While longer days provide excellent natural daylight, maximize the use of an outdoor space with the right lighting for nighttime use. Candles, lanterns and torches add a softer element while providing just the right amount of ambiance.

Bring the inside out. These days, decks and patios are more than just a place to eat; they are outdoor living spaces. Bring some of the flair from inside your home to the outside by including an outdoor rug, pillows and wall art. You can even add outdoor Wi-Fi antennas to allow for strong Internet access.

Make it social. Outdoor spaces are perfect for evening entertaining in the warmer months. Many stores sell wireless outdoor speakers so you can pipe in your favorite playlist. Outdoor televisions make a great option for hosting a watch party for a game or streaming a movie.

Fire up the grill. If your budget allows, consider upgrading your space to include an outdoor kitchen. Options range from a grill and small refrigerator to a full-blown kitchen with an outdoor oven, wine cooler and sink. This setup is perfect for those who entertain often or enjoy dining outside.

If you’re selling your home this season, be sure to pay attention to all of your living spaces, including those that are outside. A comfortable and welcoming outdoor living space adds to the charm, and sometimes value, of your home.

Denise Creswell is president of the Greater Nashville Association of Realtors. A Realtor is a member of the National Association of Realtors who subscribes to its strict Code of Ethics. Contact her at 615-473-1663 or denise@denisecreswell.com.

Inside spring’s real estate market in Middlesex County

PERTH AMBOY - Spring has sprung, and so has the housing market. According to the latest monthly housing market reports from New Jersey Realtors, new listings in March were more numerous in Middlesex County — 996 single-family homes came to market, an increase of 7.9 percent over last year. In the townhouse/condo market, 289 new properties came to market, a 2.8 percent increase. The adult community market is soaring right now, with a 31.8 percent increase over last year at 174 new properties on the market.

While many new listings came on the market, the months’ supply of inventory largely dropped due to high numbers of closed and pending sales. Single-family home closed sales were up 26.2 percent at 390 for the month, townhouse/condo closed sales totaled 113 for an increase of 1.8 percent, and adult community homes rose a huge 48.4 percent for a total of 92 closed sales.

Median prices for single-family and townhouse/condo properties dropped slightly in March – $292,500 for a 0.8 percent decrease and $225,000 for a 0.9 percent decrease, respectively. The adult community median price, however, rose 20.2 percent to $150,250.

“We’re seeing trends starting to emerge that suggest there are advantages on both sides of a home transaction in Middlesex County,” said Nicole Banbor, Executive Officer of the Middlesex County Association of Realtors. “If you’re thinking about getting into the market, contact a Realtor, who can provide in-depth knowledge of your local market.”

To find a Realtor in Middlesex County, visit middlesexrealtor.com and select “Find a Realtor.” To access the most comprehensive monthly New Jersey housing market data, visit njrealtor.com/10k, or ask your Realtor for a copy.

The Middlesex County Association of Realtors is comprised of more than 2,400 Realtor members and provides services and products they need to operate professionally. MCAR works to keep its diverse membership at the forefront of the industry to foster cooperation and enable its members to better serve the public. For more information, visit middlesexrealtor.com.

Realtor is a registered collective membership mark which may be used only by real estate professionals who are members of the National Association of Realtors and subscribe to its strict Code of Ethics. ShowingTime/10K is a research and analytics firm that serves Realtor associations, MLS organizations, brokers and other real estate companies. ShowingTIme/10K specializes in localized and elegant housing market reports with the goal of breathing life into data. For more information, visit 10kresearch.com.

NAR Video Spotlight: Window to the Law—New Effort to Combat Money Laundering

Editor’s Note: This is part of a monthly video series from the NATIONAL ASSOCIATION OF REALTORS® to inform and educate members about important aspects of being a REALTOR®. Watch for this series each month in RISMedia’s Daily e-News.

The NATIONAL ASSOCIATION OF REALTORS® (NAR) recent Window to the Law video highlights the Treasury Department’s Financial Crimes Enforcement Network’s (FinCEN’s) efforts to curtail money laundering by targeting certain high-end real estate transactions in the Borough of Manhattan, NY, and Miami-Dade County, Fla.

Click here to view the slide presentation for this video.

Click here to view the transcript from this video. 

To view this video on NAR’s website, click here.

Fannie Mae gives “transactors” credit for good behavior

Credit

(Credit: Investopedia)

Are you a “transactor” or a “revolver” when it comes to your credit? Terms like these never have mattered much to home buyers seeking a mortgage. You’ve probably never heard of them. Yet they are about to become more important to millions of mortgage seekers, and could even help determine whether you qualify for a mortgage in the first place.

A transactor is someone who pays off credit bills in full every month or makes more than the minimum required payment. A revolver is the opposite: Someone who routinely makes the minimum payment on credit cards and other debts, rolling balances over to the next month.

Credit industry statistical research suggests that, all other factors being equal, revolvers tend to present higher risks of future default to lenders, especially when they are accumulating substantial unpaid balances. Transactors tend to be lower risk.

But up until now, mortgage lenders and investors had difficulty distinguishing revolvers from transactors. Credit reports told them whether you as an applicant were late on card payments, whether you defaulted on your car loan, but didn’t tell them what you paid on your balances month by month over extended periods of time. They didn’t reach back to show distinctive patterns and trends in your money management: Did you roll large monthly balances on three credit cards during the last six months of 2015? Are you a rate surfer, transferring balances from one account to another, always making minimum or no payments? Up until recently, traditional credit reports used in the mortgage arena weren’t able to answer questions like these. Now they will.

Fannie Mae, a dominant player in the mortgage market, will soon begin evaluating how all loan applicants have managed their credit over the previous two years — how much they owed in revolving debt each month, the minimum payment allowed on each debt, and how much they actually paid. Mortgage credit reports acceptable to Fannie will need to include “trended credit data” like this on every applicant.

As a general rule, according to Eric Rosenblatt, Fannie’s vice president of credit risk analysis and modeling, the new system will “benefit borrowers who regularly pay off revolving debt” and should “provide more creditworthy borrowers access to mortgage credit.” That’s a big deal.

Starting June 25, the new reach-back data will become an integral part of Fannie’s automated underwriting — an online system that is used by the vast majority of mortgage lenders to determine whether applicants are eligible for the loan they’re seeking. Two of the three national credit bureaus — Equifax and TransUnion — will supply two years worth of continuous, month-by-month data on the credit management patterns of millions of mortgage applicants.

This should prove especially important for consumers who might not qualify for a mortgage because their credit reports contain too little information to generate a credit score. Many of these would-be purchasers are first-timers — millennials just starting out on their careers. Others are individuals who simply do not make much use of credit but now need a mortgage.

TransUnion conducted a study of “unscorables” and found that by adding credit usage data into their reports, 26 million thin-file or unscorable consumers could generate credit scores and that nearly three million of these consumers could be classified as “prime” or “super prime” credit risks — possibly qualifying them for reduced interest rates from lenders, according to Joe Mellman, TransUnion’s vice president and mortgage business leader.

Fannie Mae’s use of the new credit report data will not affect anyone’s FICO credit score, but it will open the door for applicants who look marginal or unqualified yet demonstrate responsible credit management habits over time. They may not have vast amounts of credit available to them, but they pay off or limit their balances.

Experts in the credit industry consider the upcoming move by Fannie Mae to be a major advance in fairer credit. Terry Clemans, executive director of the National Consumer Reporting Association, says it amounts to “the biggest change to the mortgage credit report in nearly a quarter of a century.” Freddie Mac, the other big mortgage investor, is “evaluating” whether to adopt a similar approach, according to a spokesman.

Bottom line for you: Be aware that how you manage your credit could now become a key determinant of whether you get a mortgage. Transactors will reap the benefits; revolvers playing games with credit cards will get more scrutiny.

Freddie Mac Prices $732 Million Multifamily K-Deal, K-C01

MCLEAN, VA–(Marketwired – Apr 25, 2016) –  Freddie Mac (OTCQB: FMCC) recently priced a K-C Series offering of Structured Pass-Through Certificates (K Certificates), which are multifamily mortgage-backed securities. The company expects to issue approximately $732 million in K Certificates (K-C01 Certificates), which are expected to settle on or about May 4, 2016. The K-C01 Certificates are guaranteed by Freddie Mac and are backed by a majority of 7-year, fixed rate loans that feature longer than typical periods of reduced prepayment penalties before maturity.

K-C01 Pricing

Class
 
Principal/
Notional Amount (mm)

 
Weighted Average Life (Years)
 
Spread (bps)
 
Coupon
 
Yield
 
Dollar Price
A-1
 
$123.000
 
4.23
 
S + 58
 
1.9710%
 
1.6993%
 
$100.9979
A-2
 
$608.898
 
6.63
 
S + 73
 
2.6320%
 
2.1278%
 
$102.9991
X1
 
$731.898
 
6.23
 
T + 100
 
0.8454%
 
2.3415%
 
$3.3988
X3
 
$40.661*
 
6.69
 
T + 700
 
3.9692%
 
8.5601%
 
$18.8159

*50% of the Class X3 notional size

Details

  • Lead Manager and Sole Bookrunner: Credit Suisse Securities (USA) LLC
  • Co-Managers: J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner Smith, Incorporated and Stern Brothers Co.

Related Links

The K-C01 Certificates are backed by corresponding classes issued by the FREMF 2016-KC01 Mortgage Trust (K-C01 Trust) and guaranteed by Freddie Mac. The K-C01 Trust will also issue certificates consisting of the Class X2-A, X2-B, B and R Certificates, which will not be guaranteed by Freddie Mac and will not back any class of K-C01 Certificates. 

Freddie Mac Multifamily is a leading issuer of agency-guaranteed structured multifamily securities. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. K Certificates typically feature a wide range of investor options with stable cash flows and structured credit enhancement.

This announcement is not an offer to sell any securities of Freddie Mac or any other issuer. Offers for any given security are made only through applicable offering circulars and related supplements, which incorporate Freddie Mac’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (SEC) on February 18, 2016; all other reports Freddie Mac filed with the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) since December 31, 2015, excluding any information “furnished” to the SEC on Form 8-K; and all documents that Freddie Mac files with the SEC pursuant to Sections 13(a), 13(c) or 14 of the Exchange Act, excluding any information furnished to the SEC on Form 8-K.

Freddie Mac’s press releases sometimes contain forward-looking statements. A description of factors that could cause actual results to differ materially from the expectations expressed in these and other forward-looking statements can be found in the company’s Annual Report on Form 10-K for the year ended December 31, 2015, and its reports on Form 10-Q and Form 8-K, filed with the SEC and available on the Investor Relations page of the company’s Web site at www.FreddieMac.com/investors and the SEC’s Web site at www.sec.gov.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four home borrowers and is the largest source of financing for multifamily housing. Additional information is available at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

Freddie Mac: Mortgage Rates Rise For 2nd Straight Week

Freddie Mac: 30-year mortgage rates hit 3.66%

Mortgage Rates Rise, Remain Ultra-Low

Mortgage rates – they’ve climbed for two straight weeks, but remain ultra-low and accessible for buyers and refinancing households.

According to Freddie Mac, mortgage rates climbed 7 basis points (0.07%) this week, and are holding beneath 3.75% for the 13th straight week. Rates have steadily declined since the New Year.

For today’s home buyers, falling mortgage rates means a rise in buyer purchasing power. You can afford roughly 5% more home as compared to the start of the year.

For refinancing households, the news is just as good.

If your current mortgage is backed by the FHA or the Department of Veterans Affairs, you’re going to find it easier to meet the “net savings” requirements of those programs; and, for homeowners with conventional loans, it’s an excellent time to consider a rate-and-term refinance to lower rates.

Click to see today’s rates (Apr 29th, 2016)

Freddie Mac: 30-Year Rates Now Average 3.66%

Each week, government agency Freddie Mac surveys 125 banks for its Primary Mortgage Market Survey (PMMS), a recap of the current “going rate” for three common mortgage loans.

The survey covers the conventional 30-year fixed-rate mortgage, 15-year fixed-rate mortgage, and 5-year adjustable-rate mortgage (ARM).

Rates for each of the three products are lower as compared to one week ago.

  • 30-year fixed-rate mortgage: 3.66% with 0.6 discount points
  • 15-year fixed-rate mortgage: 2.89% with 0.6 discount points
  • 5-year ARM: 2.86% with 0.5 discount points

Freddie Mac rates are available to prime mortgage borrowers where “prime” is defined as having excellent credit scores; ample, verifiable income; and, plans to purchase single-family home as a primary residence.

Note that each of the above quoted rates comes with accompanying discount points.

Discount points are a one-time, upfront closing cost which “discount” the offered mortgage rate to something lower.

One discount point comes at a cost of one percent of your borrowed amount such that a Seattle home buyer paying 1 discount point on a loan at the local mortgage loan limit of $517,500 should expect an additional closing fee of $5,175.

The IRS treats discount points as “prepaid mortgage interest” so, in many cases, discount points are tax-deductible for borrowers who opt to pay them.

For loans without discount points, mortgage rates are often higher.

In general, one discount point will discount your mortgage rate by 25 basis points (0.25%). Borrowers choosing to waive discount points, therefore, should expect this week’s 30-year mortgage rates to be closer to 3.875%.

Rates do not apply to investment properties nor to the purchase of multi-unit homes.

Freddie Mac’s surveyed rates also do not apply to VA loans or FHA loans which are backed by the Department of Veterans Affairs and the Federal Housing Administration, respectively.

Mortgage rates for VA loans and FHA loans are typically lower than what’s published by Freddie Mac — sometimes by as much as 40 basis points (0.40%).

Click to see today’s rates (Apr 29th, 2016)

Should I Refinance My Mortgage?

This year’s mortgage rates — at least so far — have defied “expert predictions”. Rates had been projected to be north of four percent by now, but they’ve gone the other way.

Since the New Year, 30-year mortgage rates have dropped, as have rates for all other loan types.

With home values climbing, today’s market represents an excellent opportunity to refinance.

If you’re currently paying mortgage insurance, a refinance could cause your mortgage insurance to cancel; and if your loan is backed by the FHA, you may able to cancel FHA MIP forever.

For everyone else, even small mortgage rate savings will add up. Homeowners are expected to save more than $5 billion on their refinanced mortgages this year.

Meanwhile, there’s no promise that mortgage rates will keep this low.

The conditions that have lowered rates to where they are could reverse at any time, which would result in higher rates.

Consider the series of events that conspired to drop mortgage rates to the 3s:

  • U.S. economic growth has been slower than expected
  • The Federal Reserve has said it won’t raise the Fed Funds Rate as fast as expected
  • The Chinese economy is showing signs of a slowdown

These three developments, among other causes, have resulted in a drop in commodity prices, including for the price of oil which is also running below analyst expectations.

Low oil prices have stifled inflation with the U.S. economy, creating potentially deflationary environment — especially with wage growth weakness and uncertainty within the labor markets.

However, with the global economy so inter-connected, it will only take one strong report to flip the switch on market sentiment. A huge jobs report from the U.S.; a rapid growth data point from China; a sign that the Eurozone is busting out – any of these events could reverse the flow on rates.

Mortgage rates are low today. Tomorrow, they may not be.

If you’ve been considered whether now is the time to refinance your loan, at least take a look with your lender. You may even want to refinance for the sake of refinancing, minimizing your risk and costs using a zero-closing cost loan.

Zero-closing cost mortgages are an excellent way to ride the market lower while limiting your exposure to future increases to rate.

What Are Today’s Mortgage Rates?

Freddie Mac puts current mortgage rates in the 3-percent range, and there’s little risk of rates hitting four percent anytime soon. However, what if they do? What will be your plan?

Take a look at today’s real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.

Click to see today’s rates (Apr 29th, 2016)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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Freddie Mac may need another taxpayer bailout next week

Bloomberg

Freddie Mac

FMCC, -1.21%

 is expected to report a loss when it announces first quarter earnings before the bell on Tuesday. That’s bad news for any public company, but especially critical for the mortgage provider because of its tangled history with the federal government.

Freddie and its counterpart, Fannie Mae

FNMA, -0.58%

were put into conservatorship in 2008 as the mortgage meltdown ensnared the financial system. They have lingered as wards of the state ever since. The Treasury department modified the deal in 2012, requiring Fannie and Freddie to send all quarterly profits to the government — and shrink their reserves to zero by 2018.

As Mel Watt, the chairman of Fannie and Freddie’s regulator, put it in a speech in February, Fannie and Freddie are quickly approaching the point where they won’t be able to weather quarterly losses without going back to the Treasury for taxpayer dollars.

Read: This plan to overhaul Fannie Mae and Freddie Mac just might pass Congress

There are many reasons Freddie and Fannie could lose money in any given quarter, Watt noted, including the fact that the enterprises now stand to make less income on the portfolios they’re required to shrink. What many analysts are watching for this time, though, is the use of interest rate derivatives.

Freddie has used such instruments to hedge against big swings in interest rates, and their value can fluctuate unpredictably. (Fannie relies more on the issuance of longer-term debt to guard against short-term interest rate swings.)

Derivatives have gone bad for Freddie before. In the third quarter of last year, it reported a $475 million loss, the first negative quarter in four years, when rates plunged. Freddie did not need to tap Treasury for more funds, but neither did it remit money to the government.

Read: Fannie and Freddie rally on report that Treasury knew of profitability at time of sweep

Noted bank analyst Richard Bove speculated about the possibility of a first quarter loss in a recent note. “It is impossible for an outsider to predict what this will do to Freddie Mac earnings but it is not unrealistic to assume a loss of $2.0 billion plus in derivatives (it could be as high as $4.0 billion or more). At the $2.0 billion plus level, Freddie Mac’s pretax earnings would be negative $749 million,” Bove, vice president of equity research at Rafferty Capital Markets, wrote.

Spokeswomen for Freddie and its regulator, the Federal Housing Finance Agency, declined to comment.

A Treasury draw is a possibility, Moody’s Analytics Chief Economist Mark Zandi told MarketWatch, although he thinks the chance of one is “less than 50-50.”

The 10-year Treasury declined 49 basis points in the first quarter, far more than the 29-basis point drop that caused Freddie’s loss last year, noted Laurie Goodman, director of the Housing Finance Policy Center at the Urban Institute. (A basis point is one one-hundredth of a percentage point.)

More important than the results from one quarter are Freddie’s steadily shrinking reserves, according to Goodman and Zandi.

Freddie will hold $1.2 billion in 2016, $600 million in 2017, and zero by 2018, its fourth-quarter earnings release noted.

“As capital continues to go down it makes it more likely that they end up with a draw,” Goodman said.

Zandi, who co-wrote a proposal for reforming Freddie and Fannie in March, thinks a loss will help make the case that change is needed. “It may light a fire under lawmakers,” he said. “They clearly don’t want to be in the position of giving Fannie or Freddie…another handout from taxpayers.”

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But both he and Goodman think a real overhaul of Fannie and Freddie that would get them out of the current limbo isn’t in the cards for some time. It may even take a crisis to spur lawmakers to act, Goodman said. That may be too late, Zandi noted, making another bailout — and more housing market pain — inevitable.

“The catalyst can’t be the next recession because [Fannie and Freddie] will be out of capital by then.”

Fannie Mae reports its first quarter earnings on Thursday, May 5.