Last Week in Review: Complacency heading into spring
Volatility has disappeared in the financial markets and a sense of calm and complacency has emerged. Why?
Well thanks to the Fed, and inflation and higher rates not being a threat — both Stocks and Bond prices are moving higher.
For 2019, home loan rates have been stable at one-year lows (look at the chart below), and everyone’s stock portfolio is increasing in value. What’s not to like?
Complacency will change to volatility at some point, and what we are watching is rising wages and how that may increase inflation in months to come.
Should that happen, we could experience a real shock to the US Bond market and the present complacent interest rate market will be over — and in a hurry.
But for now, complacency is the theme as we head into the Spring housing market…meaning good times for us.
Last Week in Review: Disinflation washes up on our shores
If inflation moves lower or is expected to move lower — rates must go lower as well. That’s the situation right now.
The financial markets and interest rates also follow inflation on a global scale. Why is this important to homeowners?
If disinflation or the rate of inflation moderates in places like Europe, interest rates in those countries move lower and tend to drag US interest rates lower as well.
This past week we watched home loan rates revisit one-year lows upon news that the European Central Bank or ECB downgraded their economic outlook and inflation expectations.
The ECB said they now expect 2019 economic growth to come in at a paltry 1.1%, down sharply from a previous forecast of 1.7%. Moreover, ECB officials said inflation, which is already very low, could move lower still.
Again, if inflation moves lower in large countries around the globe — we tend to see improvement in long-term US interest rates…that is the current trend.
Interest rates don’t buy houses, jobs do!
The Bureau of Labor Statistics reported that just 20,000 jobs were created in February, well below expectations of 175,000. This was a disappointing number, but the unemployment rate fell to 3.8% and wages grew by 3.4% year over year…the highest level in a decade. Overall the labor market continues to expand and wages are rising — all good news for housing.
Due to severe storms, straight-line winds, and tornadoes in Alabama, FEMA has declared the following county a disaster.
Incident Period: March 3, 2019
- If an appraisal was completed prior to the incident date of the disaster, a re-inspection will be required.
- If an appraisal was not required due to a property inspection waiver or product type, an inspection report is still required.
- Regardless of whether or not the transaction requires an original appraisal, an inspection will be required up to and including 90 days from the date the natural disaster occurred, prior to the Note date.
Please contact your Account Executive if you have additional questions.
Last Week in Review: U.S. Economy showing solid growth.
This past week, the Bureau of Economic Analysis (BEA) reported the U.S. economy, as defined by Gross Domestic Product (GDP), grew at a 2.6% rate in the fourth quarter of 2018. Economists and the markets were expecting 2.0% to 2.3%, so this was a nice upside surprise.
This left GDP for all of 2018 at 2.9%. Consumer spending, which makes up nearly two thirds of GDP, expanded by a solid 2.8% in the fourth quarter – yet slower than the previous quarter.
Another solid number within the report was business investment which grew at a swift 6.2% pace.
This Q4 GDP reading was the first of three – so we will see some revisions in the months ahead.
Seeing the economy grow at such a nice clip despite high stock market volatility and the U.S. government shutdown is a good sign as we head into the spring housing market.
The increased wealth effect caused by the recent rally in Stocks along with one-year lows on home loan rates, rising wages and increased housing inventory sets the stage for an improved 2019 housing market.
Back by Popular Demand!
Carrington Mortgage Services, Wholesale Lending Division is offering to waive the underwriting fee on ALL Non-QM* submissions in the month of March. Whether you submit 1 or 100 loans, the underwriting fee ($650 in most states) will be waived!
Bonus: The Slamdunk Offer!
In by 10 and out Same Day**
For any full submission*** received in underwriting by 10 a.m., we will commit to have a same day turnaround and have a response to you by the end of the day. How’s that for fast?
With lower costs and faster service, the Carrington Team is committed to making March very successful for all.
Already an approved broker?
*Carrington Flexible Advantage (Non-QM) product requirements vary depending on the consumer’s credit grade, LTV, DTI, and FICO scores and may require reserves from 3 to 6 months. Ask your Account Executive for additional details and requirements. Not available in MA and ND. No cash out in TX.
**Submissions to our Windsor office by 10 a.m. Eastern Time will be completed by end of day (EDT); submissions to our Anaheim office by 10 a.m. Pacific time will be completed by end of day (PDT).
***Please see the Carrington Advantage Products Loan Submission Form.
The highlight of this past week was the Fed Minutes from the January Fed Meeting. The Minutes are a detailed record of the Fed’s monetary policy setting meeting, so the markets gain insight into the psyche of the Fed as it relates to interest rates, the economy and more.
What the markets heard loud and clear from the meeting Minutes was Patience — meaning, the Fed is in no rush to hike interest rates and they will watch the incoming economic data to determine when they might hike again. There is now a low probability for another hike in 2019.
What are the most important reports the Fed is watching which can influence rates?
- Gross Domestic Product
- Inflation (big report next week — more on that below)
- Jobs Report
- Consumer Confidence
- Retail Sales
In response to the Minutes, mortgage bond prices and thus home loan rates are hovering near the best levels in a year.
Last Week in Review: Canary in the coalmine.
The financial markets are sensing a government shutdown and protracted trade war with China will be averted. This is good news and a reason why Stocks have continued to push higher and home loan rates have capped for the past few weeks.
But last Thursday, Retail Sales was reported at a shocking 9-year low. Combing through the report, a 3.9% decline in internet purchases was a huge negative surprise. With consumer spending making up nearly 70% of GDP, there is fear in the markets that this very poor Retail Sales number is an early warning sign that both consumer spending and thus economic growth are indeed slowing.
One thing we know for sure — Bonds love uncertainty and bad news. This Retail Sales report brought both and, as a result, pushed prices and home loan rates near the best levels in a year.
We will be watching future Retail Sales reports to see if this is just one bad report or the start of a negative trend.
In any case, reports like these support the Fed to not raise rates in 2019.
As a reminder, effective for loan applications taken on or after February 15th, 2019 Lenders must provide a Comparison Disclosure within three (3) days of loan application for all VA Full Doc refinance loan transactions (even if the existing loan is NOT a VA loan).
Carrington Mortgage Services, LLC (CMS) has developed a new VA Guaranteed Home Loan Cash-Out Refinance Comparison Certification form to use to meet these requirements. The disclosure shows the refinancing loan passes NTB and provides a comparison of key loan characteristics for the existing and refinancing loan.
To comply with the three (3) day disclosure requirement:
Broker Disclosed loans: Brokers are required to meet the requirements and provide disclosure dated within three (3) days of application. CMS will ensure compliance at Submission Acceptance or reject the loan submission.
CMS Disclosed loans: CMS will complete NTB form. If any required data elements are missing, CMS will condition the broker and cannot accept the submission until the missing items are received.
The new form is available on BrokerIQ at Broker Center > Documents & Forms > VA Guaranteed Home Loan Cash-Out Refinance Comparison Certification
The Carrington Mortgage Services, LLC (CMS) Lock Desk will be closed on Monday, February 18, 2019 for Presidents Day, which is a Federal Holiday. Normal lock hours will resume on Tuesday, February 19, 2019.
Locks that expire on the holiday will automatically roll to the next business day. In addition, there are some important disclosure considerations associated with the holiday:
- Monday, February 18, 2019 cannot be included in the rescission period for refinance transactions.
- Monday February 18, 2019 cannot be included in the seven (7) business day waiting period between the date the initial Loan Estimate (LE) was provided to the borrower and the consummation of the loan
- When re-disclosure of the LE is required, Monday, February 18, 2019 cannot be included in the four (4) business day waiting period between the date the revised LE was provided to the borrower and the consummation of the loan.
- When re-disclosure of the CD is required, Monday, February 18, 2019 cannot be included in the three (3) business day waiting period between the date the revised CD was provided to the borrower and the consummation of the loan.
Issues related to locks should be sent via email to firstname.lastname@example.org.
Effective February 7, 2019, Carrington Mortgage Services, LLC (CMS) is pleased to announce the following guideline improvements for the Carrington Advantage products:
- Higher LTV’s for CFA Investment cash-out loans
- More lenient Non-Sufficient Funds (NSF) requirements on bank statement programs
Improved LTV’s for Investment Cash-out (CFA program only)
Improved the Investment Overlay LTV Reduction for Cash-Out refinance transactions by decreasing the LTV adjustment to 5% from 10%. This increases the maximum LTV by 5% for all investment cash-out loans using the Carrington Flexible Advantage program.
Improved Non-Sufficient Funds (NSF) Guidance – Bank Statement Programs
Current NSF guideline:
Up to 3 NSF checks in the most recent 12-month period are allowed with explanation from the borrower.
New NSF guideline:
NSF (non-sufficient funds) is a term used to indicate that a demand for payment can’t be honored due to insufficient funds available in the account. Overdraft protection transfers are not considered an NSF. Excessive NSFs will be highly scrutinized and may cause the loan to be deemed ineligible.
More than 3 NSF checks or overdrafts within the most recent 12 months require explanation, supporting documentation, and underwriter analysis for acceptability. Note: Overdraft Protection Transfers from a linked bank account or line of credit are not considered an NSF. Refer to the CMS Carrington Flexible Advantage Program Underwriting Guidelines available on carringtoncorrespondent.com for additional details.