Company News

Last Week in Review: Thinking Like an Investor

This past week we watched home loan rates touch three-year lows as investors around the globe continue to seek the safe haven of the U.S. dollar.
Why are global investors moving money into the U.S. dollar and safe instruments like U.S. Bonds? Due to the lingering uncertainty behind the U.S./China trade dispute, global economies slowing, and central banks around the globe cutting interest rates.
All of this forces investors to search for yield in a world where many countries like Japan, Germany, Switzerland, and the like have negative interest rates, meaning investors who park their money in those countries receive no interest and a loss of principal. That's a bad investment.
So, our 10-Year Note hit 1.59% this past week, which is a ridiculously low level, but when compared to other countries around the globe yielding negative interest rates, 1.59% looks pretty attractive. And that coupled with the relative strength of the U.S. dollar, thanks to our strong economy, is the reason why the U.S. continues to attract significant investment dollars from around the globe.
For us in the mortgage and real estate industry, we must understand that volatility is high and any glimpse of good news or a random tweet could change sentiment quickly to something more positive, which is bad for Bonds and interest rates.
Finally, as mentioned, the 10-year yield hit 1.59% before ticking back up into the 1.70s to finish the week. At the same time, the yield or interest you can receive by investing in the S&P 500 Stocks is 1.96%. At some point, investors and the financial markets start to question, if I am investing for 10 years, am I better off investing in stocks like Apple where I can receive a higher yield or interest payment than Treasuries, along with a better chance of price appreciation? When that time comes, a decline in home loan rates, which has been in place since November, will pause.

Last Week in Review: First Fed Rate Cut in 10 years

This past week the Federal Reserve (Fed) cut the Fed Funds Rate by .25% to 2.25%, the first rate cut in 10 years.
Many consumers are wondering why home loan rates haven't declined by .25% in tandem with the Fed action. Let's break down how a Fed rate cut affects different interest rates including home loan rates.
The Fed Funds Rate (FFR) is an overnight rate at which banks lend to each other. It affects short-term rates on things like home-equity loans, credit cards, and auto loans. And oh, by the way, savings deposit rates likely decline as well.
The FFR has no effect whatsoever on home loan rates. Home loan rates are driven by pricing and trading action in mortgage-backed securities (see chart below), which tend to ebb and flow with the direction of U.S. 10-Year Note.
The main driver for long-term rates, like mortgages, is inflation and inflation expectations. If inflation is forecasted to move higher, rates move higher. The opposite is also true.
Since last November and up until last Wednesday's Fed rate cut, home loan rates have declined by over 1.00%, so home loan rates have already declined by a lot.
Another driver of long-term rates is uncertainty, and last Thursday we received a good dose upon a surprise announcement that the U.S. will institute a fresh 10% tariff on $300B worth of Chinese goods. In response, home loan rates touched the lowest levels in three years.
Bottom line: home loan rates are near three-year lows and thanks to low inflation, slowing growth around the globe, and the U.S./China trade war renewed, rates are likely to go lower still.

Last Week in Review: Indecision Ahead of Huge News Week

The U.S. Bond market traded in a tight sideways range, leaving home loan rates essentially at unchanged levels week over week. However, the technical picture reveals Bond market indecision as prices trade near the best levels of the year.
Why the indecision? The financial markets are bracing for a multitude of headline risk events in the upcoming week and traders are reluctant to place bets on the next market move in advance of the news. More on this in the forecast below.
The European Union continues to struggle economically. This past week Germany posted very weak economic numbers and manufacturing data, and as a result the European Central Bank said they are prepared to offer more stimulus to help their economies. The bad news in Europe pushed their Bond yields lower, and in turn helps push U.S. Bond yields and interest rates lower.
Here in the States, the U.S. remains the "cleanest shirt" in the laundry when compared to other global economies. This past week we saw strong Durable Goods Orders, which highlights the strength of the U.S. consumer, the shortest unemployment line in over 50 years, and strong corporate earnings reports.
Bottom line: the U.S. economy and housing market continues to bask in a Goldilocks situation -- strong economy and labor market, high consumer confidence, low inflation, and low home loan rates. And if that were not enough, it is widely expected the Fed will cut rates for the first time in a decade -- read on.
 

Last Week in Review: Summer Sideways Trend Continues

This past week had little economic data for the financial markets to react to. As a result, home loan rates have inched higher though they remain near multi-year lows.
It's pretty easy to see the sideways trend in mortgage Bonds and the reason why home loans have stabilized since the beginning of June.
It is normal to see quiet sideways trading action in the summer months, especially with the U.S./China trade war punting into the future and the Fed about to cut rates at month's end. Traders are more apt to sit on their hands and wait for the next directional move in the financial markets.
What should we expect next for home loan rates? Volatility. Long, boring and complacent sideways trading patterns like we are seeing in mortgage Bonds are typically followed by an increase in volatility, and a sharp breakout one way or the other.
How mortgage Bonds respond to the Fed Statement and rate cut on July 31 may very well determine the next directional move in home loan rates.
Bottom line: anyone looking to either refinance or purchase a home ... being ready to lock in the next couple of weeks would be wise. A Fed rate cut doesn't guarantee that home loan rates will move lower. In fact, ever since the probability of a Fed rate cut hit 100%, home loan rates ticked up a bit.

Overview

Carrington Mortgage Services, LLC (CMS) is pleased to announce effective Monday, July 15, 2019, the Carrington Advantage (Flexible Advantage/Advantage Plus and Investor Advantage) programs will offer a new Interest-only product option. Interest-Only loans offer borrowers lower monthly payments by allowing borrowers to pay only the interest during the 10 year interest-only period.  Once the interest-only period ends, borrowers must begin making principal payments to pay off the debt.
The new Interest-only product has the following features:

• Terms Available: 5/1 ARM-IO, 7/1 ARM-IO, and 10/1 ARM-IO
• Doc Types: Full Doc, 1-Year Alt Doc, 12 or 24 Month Bank Statements
• 5/1 Caps = 2/2/5 (Initial cap at 2%; Interim cap at 2%; Life cap at 5%)
• 7/1 and 10/1 Caps = 5/2/5 (Initial cap at 5%; Interim cap at 2%; Life cap at 5%)
• Margin = 3.50% (Flexible Advantage Plus), 5.00% (Flexible Advantage)
  and 6.00% (Investor Advantage)
• Floor = Start Rate
• Index = 1 Year LIBOR

Interest-only Qualifying Payment

Interest-only loans qualify using the fully amortized payment calculated over the fully amortizing period, based on the greater of the note rate or the fully indexed rate to determine qualifying PITIA. For example, a 30-year loan with a 10-year interest-only period would have a 20-year fully amortizing period (see guidelines for details).

Example 1:

• Loan Amount: $400,000
• Interest Rate: 5.75%, Full Indexed Rate 6.75%
• 5/1 IO ARM
• Principal and Interest to Qualify borrower = $3,041.46 (Fully Indexed Rate over 20 Year Amortization)

Example 2:

• Loan Amount: $250,000
• Interest Rate: 7.25%, Fully Indexed Rate 6.75%
• 7/1 IO ARM
• Principal and Interest to Qualify borrower = $1,975.94 (Interest Rate over 20 Year Amortization)

View the Guidelines here.

Please Note: All Interest-only Terms are amortized over 20 years for qualification and have an Interest-only period of 10 years regardless of the fixed period of the ARM.

Last Week in Review: Goldilocks Scenario for Housing Continues...

The housing market is enjoying a great 2019 and the good times are poised to continue. We are seeing home price gains slow to a healthier level and at an equilibrium with wage growth. Consumer and business confidence remain at multi-decade highs, unemployment rates are at 51-year lows, stocks are at all-time highs, and thanks to slowing economies abroad and low inflation ... the Fed is expected to cut interest rates at the July FOMC meeting. Couple all of this great momentum with home loan rates just .50% above the best levels ever, and you have a Goldilocks housing scenario for the foreseeable future.
This is great news for those who are thinking about refinancing an existing property or purchasing a new home.

This past week financial markets around the globe traded in a bit of a calm sideways pattern ahead of arguably the most important economic event of 2019 -- the US/China trade talks at the G20 meeting.
Depending on when you read this newsletter, the headlines may already be out as talks between President Trump and China's President Xi are to take place on Saturday, June 29th.
How the trade talks go could have a major impact on global economies and even determine whether the Fed cuts rates, which at the moment is widely expected to happen in late July.
So, if you are looking to buy a home or potentially refinance an existing one, it's hard to overstate the magnitude this event can have on rates for the foreseeable future.
At the moment we are watching the 10-Year Note yield hover near 2.00%, which has served as a psychological barrier preventing rates from moving lower. How the US/China talks go could very well determine which side of 2.00% the 10-Year Note trades.
Why is this important? Because if the 10-Year Note yield moves lower and beneath 2.00%, it will push Mortgage Bond prices higher and home loan rates lower still. The opposite is also true.
Bottom line: home loan rates are within .50% of the best rates ever and there is a very real chance we might see even lower rates in the very near future ... like next week.

Overview

The Carrington Mortgage Services, LLC (CMS) Lock Desk will be closed Thursday, July 4, 2019 for Independence Day, which is a Federal Holiday and also Friday July 5, 2019 for a Company Holiday. In addition, the lock desk will close early (10:00 AM PST) on Wednesday, July 3, 2019. Normal lock hours will resume on Monday, July 8, 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:

• Thursday, July 4, 2019 cannot be included in the rescission period for refinance transactions.
• Thursday, July 4, 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, Thursday, July 4, 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, Thursday, July 4, 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 lockdesk@carringtonms.com.

Big Pricing Improvement with our Non-QM Loan Programs

The team at Carrington Mortgage Services is extremely excited to announce some big changes to our Non-QM pricing:
Carrington Flexible Advantage^sm:

• LLPA's improved .25% (Full Doc and lower FICO loans) - see the matrix

Carrington Flexible Advantage PLUS:

• Base price improved .375% - across the board - see the matrix

Carrington Investor Advantage:

• Base price improved by 100bps across the board! - see the matrix
• Increased max price from 101 to 102.25
• FICO x LTV LLPA improvements across the broad
• Prepay Buy out – reduced from 1.5 to1.25
• Reduced DSCR bands to help simplify your pricing scenarios

[btn link="/loan-scenario/" color="tomato" size="size-xl"]SUBMIT YOUR SCENARIO[/btn]
[btn link="/loan-products/" color="tomato" size="size-xl"]VIEW THE GUIDELINES[/btn]
[btn link="https://www.carringtonhomeloans.com/drop-in/CMSWholesaleRates.pdf" color="tomato" size="size-xl"]VIEW TODAY'S RATES[/btn]

Overview

Effective Tuesday, June 25, 2019, all VA IRRRL’s submitted to Carrington Mortgage Services, LLC (CMS) must have a 36 month or less recoupment of fees.  This applies to all VA IRRRL’s regardless of any other benefits to the borrower.  Specifically, loans with term reductions and payments going up are now ineligible for an IRRRL.  As VA provides more clarity around this subject we will update our guidelines accordingly.

Please contact your Account Executive with questions.