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Mortgage rates failing to propel housing recovery

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WASHINGTON (1/30/15)--The Federal Housing Finance Agency (FHFA) reported Thursday that the national average contract mortgage rate in December fell to 3.98% from 4% the prior month--yet another index to report that interest rates have dropped below 4%.

But the lower mortgage rates have yet to fuel a rise in home sales, as pending-home sales fell 3.7% in December, reversing November's positive gains and pushing sales back to their lowest levels since April, according to numbers from the National Association of Realtors.

The Census Bureau also reported Thursday that the homeownership rate dropped 1.2% in the fourth quarter to 64% on an annual basis.

"Demand from traditional homebuyers continues to be muted, according to both recent mortgage application data and mortgage origination volume data," said Brent Campbell, Moody's analyst ( Jan. 29). "Further, according to several indexes, house-price growth continues to slow, as the contribution from institutional investor demand is beginning to wane and traditional homebuyers who use credit have yet to pick up the slack."

All regions posted declines in pending-home sales in December, with the Northeast dropping 7.5%, the West falling 4.6% and the Midwest and South slipping 2.8% and 2.6% respectively.

While pending-home sales remain 6.1% higher than year-ago levels, analysts had expected a gain in sales nationwide, rather than a step back across the board.

One explanation could be the growing preference to rent instead of buy.

The rental vacancy rate fell in the fourth quarter by 1.2% to 7% on a year-over-year basis, and 0.4% on a quarterly basis. Further, the median asking rent for vacant units climbed annually to $766 per unit.

"As house prices keep the upward momentum and get closer to their fundamental values, owning a home becomes less affordable," said Jing Zhang, Moody's analyst ( Jan. 29). "Moreover, many households still lack the confidence to buy, and many have not recovered from the credit loss during the housing crisis, resulting in low-purchasing mortgage origination."

The average loan amount, meanwhile, climbed to $298,300 in December, up from $293,600 in November, according to the FHFA.

The average interest rate on conventional, 30-year fixed-rate mortgages of $417,000 or less was 4.19%, down from 4.24% in November. And the effective interest rate, which accounts for initial fees and charges over the life of the mortgage, dropped to 4.15% in December, from 4.16% in November.

News of the Competition (1/29/15)

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  • WASHINGTON (1/29/15)--In the wake of the financial crisis that toppled the U.S. economy in 2008, federal lawmakers targeted the big banks that were largely responsible for the crash with regulations they hoped would prevent future financial catastrophe. But a recent study has found that banks continue to be as complex as ever, potentially keeping the threat of economic upheaval very much alive ( MarketWatch Jan. 28). "The complex structure and opaque connections among (the banks) impeded oversight and market discipline before the crisis and greatly complicated crisis management," the study from the Systemic Risk Council found. The study examined 29 banks deemed "globally systemically important" by the Financial Stability Board. Specifically, it looked at the subsidiaries of these massive financial institutions and found that the banks had an average of 1,002 majority-owned subsidiaries , according to MarketWatch . The study also found that banks had 2.6 times more subsidiaries than non-financial institutions with similar market capitalization, with an average of 60% of those subsidiaries found outside the institution's home country ...

FOMC still in holding pattern on Fed funds rate

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WASHINGTON (1/29/15)--Given the opposing forces of a strengthening job market and weakening inflation, the Federal Open Market Committee (FOMC) Wednesday made no substantial changes to forward guidance on when it will raise short-term interest rates from their near-zero levels.

Mimicking the refrain seen in its last policy statement, the FOMC said policy accommodation may be appropriate for "some time" once employment and inflation reach their mandate-consistent levels.

The Fed also reiterated that it will take a patient approach to making the decision on when to hike interest rates. Many expect the FOMC will not begin to raise rates until mid-2015, or later.

"The FOMC's decision to keep the federal funds rate at its current 0% to 0.25% target is not surprising given the low inflation rate, which is anticipated to decline further," said Perc Pineda, senior economist for the Credit Union National Association.

"One thing is definite: The decision of the Federal Reserve to keep the federal funds rate unchanged means that the squeeze on net-interest margin, which could be experienced by credit unions when short-term interest rates rise, is postponed for now," Pineda added.

While the FOMC did not mention the global economy, which has stagnated of late, much attention in the policy statement was paid to inflation and its recent struggles.

The Fed, which noted it continues to monitor inflation closely, expects inflation to continue to decline in the near term, but to rise gradually towards 2% in the medium term.

The FOMC sees the labor market, on the other hand, trending in the right direction, which could ultimately dictate when the Fed raises interest rates.

"This year is going to be another positive year for the U.S. economy, and at some point the federal funds rate will rise," Pineda said. "Since monetary policy has lags, it makes perfect sense to increase interest rates at some point sooner than later. The timing, however, depends on where inflation and unemployment rates are heading. So far, the Federal Reserve has done a good job keeping its fingers on the pulse of the U.S. economy."

NEW: Fed standing pat on rate hike

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WASHINGTON (1/28/15, UPDATED 2:25 p.m. ET)--While economists still widely expect the Federal Reserve to hike short-term interest rates this summer, the Federal Open Market Committee's (FOMC) policy statement, released today, gave few hints as to when that first rate hike will actually happen.

Similar to December's policy statement, the FOMC said monetary policy accommodation, or maintaining the federal funds rate at its near-zero level, could be appropriate for "some time" even after employment and inflation reach their mandate-consistent levels.

Further, the committee reiterated, when making the decision to raise interest rates it would take a patient approach.

"When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%," the FOMC said in the statement.

That the language used by the FOMC closely resembled that of its previous statement could mean that the Fed's monetary policy-making body is waiting to see how inflation and the global economy respond to recent shaky periods.

The FOMC said that it expects inflation to decline further in the near term, but that it will rise gradually toward 2% over the medium term as the labor market continues to strengthen and the effects of lower energy prices begin to dissipate.  

Still, recent improvements in the labor market, household spending and business fixed investment still may foreshadow a rate hike in mid-2015.

"If incoming information indicates faster progress toward the committee's employment and inflation objectives than the committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated," the statement said. "Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated."

The statement came at the conclusion of its most recent two-day policy meeting; the FOMC's first meeting of 2015.

The FOMC's next meeting is set for March 17-18.

News of the Competition (1/28/15)

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  • NEW YORK (1/28/15)--Ocwen Financial Group said Monday investors had no basis for claiming the large mortgage servicing firm failed to comply with agreements to collect $82 billion in home loan payments. The investors, which include BlackRock, Metlife and Pimco, sent a notice of non-performance to Ocwen Financial and trustees for 119 residential mortgage-backed securities trusts, the initial step toward a lawsuit (Reuters Jan. 27). The investors claim that Ocwen's performance lagged other servicers each year from 2009 through 2013 and that the trusts experienced losses of more than $1 billion …

Consumer confidence surges to 7-year high

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NEW YORK (1/28/15)--U.S. consumer confidence surged in January to its highest level since August 2007.

The Conference Board, a private research group, said its index of consumer confidence jumped to 102.9 from a revised 93.1 in December, first reported as 92.6, The Wall Street Journal reported (Jan. 27).

"A more positive assessment of current business and labor market conditions contributed to the improvement in consumers' view of the present situation," said Lynn Franco, Conference Board director of economic indicators and surveys. "Consumers also expressed a considerably higher degree of optimism regarding the short-term outlook for the economy and labor market, as well as their earnings."

Consumers' assessment of present-day conditions was considerably more favorable in January than in December. Those saying business conditions are "good" increased to 28.1% from 24.7%, while those claiming business conditions are "bad" decreased to 16.8% from 18.9%.

Consumers were also much more positive in their assessment of the job market. Those stating jobs are "plentiful" increased to 20.5% from 17.2%. Those claiming jobs are "hard to get" decreased to 25.7% from 27.3%.

The economy grew from July through September at a 5% annual rate, the fastest in 11 years.

Adding to improving spirits: Gas prices have plunged to $2.04 a gallon Tuesday from $2.32 a gallon a month ago, according to AAA.

Refis climb as interest rates slip, home prices bolster

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BOSTON (1/27/15)--Homeowners have been pulling equity from their homes through refinancings at nearly double the pace seen last year at this time, according to data from Freddie Mac.

Slimmed-down mortgage rates and strengthening home prices have emboldened waves of home owners to refinance their mortgages with "cash-out refinancings" to pay for remodeling projects, college tuition payments or other investments (The Boston Globe Jan. 26).

According to the recent numbers, cash-outs rose to 28% of refinancing loans compared with 14% from a year earlier.

Robert Cashman, president/CEO of $1.3 billion-asset Metro CU, Chelsea, Mass., told The Globe that homeowners are merely taking advantage of the perfect conditions to pursue such deals.

Cashman said he's encouraging members with higher mortgage rates to at least explore refinancings.

"Now is the time if someone hasn't had the opportunity, if they haven't had the chance to refinance," Cashman said.  

Cash-out refinancings allow homeowners to access equity by borrowing more than they owe on their mortgages.

Thanks to mortgage rates that have dropped to as low as 3.63% for 30-year fixed-rate mortgages, or 2.93% for 15-year mortgages, lenders saw a spike in these types of refinancings over the last month, which is traditionally one of the slowest points of the year.

Refinancings in general have surged in recent weeks on the heels of the low mortgage rates as well.

According to the Mortgage Bankers Association, applications for refinancings jumped 22% for the week ending Jan. 16 after a whopping 66% surge the week prior (The Boston Globe).