• Louis Baca

Rates Continue to Fall!


After one of the greatest bull runs for the U.S. economy, after ten years, the cycle appears to be coming to an end. At least that is what the bond market is predicting as money pours into U.S. treasuries and mortgage backed securities. Yet the stock market seems to be resistant to fears of a looming recession.

With the fall of treasury yields, long term interest rates (i.e.: 30/15 Year Mortgage Rates) have been in a free fall, creating what appears to be the beginning of a refinance boom. And it couldn’t be a more perfect storm. Equity in U.S. housing is near an all time high. As is consumer debt; recently breaching $4 trillion. Millions of homeowners today can benefit from a rate in term refinance to simply lower their interest rate and/or term of their mortgage. Millions more can benefit from a cash out refinance to consolidate debt or for home renovations.

Today there are more home financing options than there have been in more than a decade. Guidelines have loosened substantially over the years allowing for less than perfect credit borrowers to be able to capitalize on lower rates, and even more products for self-employed borrowers that have issues with verifying income through traditional means. There are also products like the HomeSelect 1st position home equity line of credit that allow more financially sophisticated borrowers have more flexibility with their mortgage, which will also allow them to pay off a mortgage much more swiftly than a traditional 30-year fixed mortgage.

Don’t let uncertainty create inaction. It has been a long time since homeowners had such an amazing opportunity to reduce expenses and save money.


In June, Fannie Mae revised its outlook for the 2020 U.S. economy, and downgraded its forecast; stating that the U.S. will experience its worst economy since the Great Recession.

In the revised outlook, Fannie projected that the GDP growth for 2020 would be a meager 1.5%; the worst since 2009.

“The ratcheting up of international trade tensions, including tariffs applied by the U.S. and China, as well as the threat to impose tariffs on Mexico, could lead to higher prices and a possible reduction in consumer and business confidence,” according to the forecast released Monday. “This same uncertainty could also impact the previously invulnerable job market, which reported only 75,000 new nonfarm payroll jobs in May and downward revisions to its March and April numbers.” – Fannie Mae
Last month, President Donald Trump hiked tariffs to 25% from 10% on $200 billion worth of Chinese goods. In retaliation, China raised tariffs to 25% on $60 billion worth of U.S. products starting June 1. President Trump has threatened to expand tariffs to a further $300 billion of Chinese imports.
The existing tariffs will cost the average U.S. household $831 a year through higher prices and reduced economic efficiency, according to a paper published by the Federal Reserve Bank of New York last month. In addition, the U.S. economy will suffer as companies buy more from suppliers outside China at prices higher than they paid before the tariffs. That shift means U.S. importers are paying more, but the additional money isn’t going into the U.S. Treasury, the report said. - Housingwire

As of July 1st, the stock market in flirting with record highs, while the bond market is projecting a looming recession. One of these indicators is radically wrong.


The Federal Housing Administration (FHA) is revising some of the lending guidelines to offset the trend to lend to lower credit score and higher risk borrowers. The average credit score of an FHA borrower in 2011 was 703. Today that number has plummeted to 665.

(Chart: FHA)

According to the FHA report, the share of 680–850 credit scores continues to decline among FHA borrowers, while lending to borrowers with credit scores below 640 continues to rise.
The FHA report shows that in 2011, nearly 60% of borrowers had credit scores above 680. Now, only 34% of FHA borrowers have credit scores above 680.
Meanwhile, the share of FHA lending to borrowers with credit scores below 640 has increased to nearly 30%.
“This increase shows a much riskier population of mortgages being endorsed by FHA,” the report states. “Performance of these mortgages will be closely monitored to determine when policy changes should be implemented.”

Not only has risk been increasing for FHA due to the lower credit scores, but an even more concerning indicator of risk is the increase in debt-to-income (DTI) amongst FHA borrower. In a 2018 report, 25% of FHA purchase transactions had a debt to income over 50%. This calculation is based on “gross” income and does not factor in expenses such as medical insurance, auto insurance, electricity, cable, phone, and other ancillary expenses. In layman’s terms, borrowers over 50% DTI are one financial speed bump away from default.

(Chart: FHA)

FHA is not the only one lowering credit requirements. Fannie and Freddie have also eased guidelines, and with more borrowers now qualifying under conforming (Agency) guidelines, the number of FHA transactions is now down 12%.

(Chart: FHA)


Home values posted a 4.3% gain over last year, in the first quarter of 2019. This was the slowest gain in seven years. While home appreciation is slowing, values are now 15% higher than they were at the peak levels of 2006; just prior to the housing crash. Home values, according to the Federal Reserve, now sit at a record of $26.1 trillion. – Housingwire


Nationally, home prices appreciated 4% annually in the fourth quarter of 2018 according to a new report by Fitch Ratings. That number dropped a full percentage point, or a 25% decline in the 1st quarter of 2019.

“Annual home price growth is now at the slowest rate in seven years, but the slowdown should plateau due to the recent drop in interest rates and the limited supply of new homes," said Managing Director Grant Bailey in Fitch’s quarterly sustainable home price report.
Fitch also said only a limited number of housing markets appear to be at risk for a price correction.
Its report pinpointed overvalued housing pockets concentrated in Texas, Florida, and California. It also said home price growth has slowed significantly in Los Angeles, where prices fell 1.3% annually last quarter.
But Las Vegas wins the title of the most overvalued housing market in the country, Fitch said, with homes there overvalued by 20%-24%.

As the slowdown in the global economy continues to weigh on the U.S. economy, housing is being impacted. Falling home prices, falling interest rates, yet with high demand, will make for a very resilient market.


Eric Blankenstein, one of the highest paid government officials and a senior official at the Consumer Financial Protection Bureau (CFPB), resigned last month after racially charged posts from his past surfaced. Blog posts where Mr. Blankenstein questioned whether the N-Word was inherently racist and stated that most hate crimes where a hoax. He was essentially forced out, as he was in a position at the CFPB to enforce laws to protect minorities from discriminatory practices.

Blankenstein may have been forced out of the CFPB, but the Trump Administration didn’t want someone of his character to get away. In June, Blankenstein was hired by the Department of Housing and Urban Development (HUD).

“It was bad enough the Trump CFPB kept Mr. Blankenstein employed for months after his racist writings came to light, ironically to oversee their anti-discrimination efforts. But what’s the Trump HUD’s excuse for hiring him after knowing full well what kind of character they were dealing with?” questioned Allied Progress Director Derek Martin. “What a message this sends: Racism won’t just be tolerated in this administration; it’ll lead to more opportunities.”


In May, new homes sales fell 7.8% despite falling interest rates. The price of new home sales also fell 2.7% from the same time last year. – Census Bureau

Despite falling interest rates, affordability and inventory is still a major factor. To add insult to injury, construction of new homes fell 0.8% in May, largely due to rising construction costs and labor shortages.


Program Rate APR

30Yr Fixed 4.000% 4.186%

15Yr Fixed 3.625% 3.713%


Interest rates as of 07/02/2019. Conforming interest rates. Interest rates and APR based on loan amounts not to exceed $484,350. Loan to value not to exceed 80%. 740+ credit score. Owner occupied only. Purchase and rate in term refinances. Not all applicants will qualify. Call today for your individual scenario rate quote.

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