August 01, 2014 Prospective homebuyers received promising news regarding affordability with the latest Primary Mortgage Market Survey, released July 17. The average 30-year fixed-rate mortgage dipped to 4.13 percent through mid-July, a decline of 0.6 percent from the week before and 4.37 percent a year earlier. Fifteen-year FRMs, meanwhile, dropped from 3.24 percent to 3.23 percent on a week-over-week basis, compared with 3.41 percent in mid-July 2013. Five-year Treasury-indexed adjustable-rate mortgages were also down, dropping from 2.99 percent to 2.97 percent week over week, and from 3.17 percent a year earlier. Frank Nothaft, vice president and chief economist for Freddie Mac, attributed the latest dips to economic data that revealed some weakness after a strong June jobs report. Federal Reserve Chair Janet Yellen also made statements earlier in the week alluding to the need to keep monetary policy accommodative, reiterating that the central bank won't move to raise interest rates until further signs of economic stability have presented themselves. "Mortgage rates were little changed amid a week of light economic reports," Nothaft explained. "Of the few releases, industrial production rose by 0.2 percent in June, below the market consensus forecast. Also, the producer price index for final demand rose 0.4 percent in June, rebounding from a 0.2 percent decline this prior month." From a consumer perspective, these rates constitute a welcome sign in a market where inventory is still rather tight and lending standards have remained rather stringent. Mortgage interest levels continue to hover near historical lows, and a separate report - the CoreLogic Home Price Index - noted that a slowdown in price appreciation has occurred not only for the high end of the market, but across all buying classes.

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GDP for Q1 2014 came out this week showing that the economy contracted 1.0% versus 0.1% growth in Q4. A reduction was for the most part expected, but not necessarily to the extent of a 1% drop (most predicted a 0.5% drop). Many were blaming the weather on poor economic activity during the winter months. However as we moved into spring it was clear that as temperatures rose, nothing really changed. In fact momentum seemed to gain on the theory that it wasn’t the weather, “it’s the economy stupid”. Let’s stop blaming everything other than the reality of the fact that the economy is what it is, stuck in the mud. The reality is sinking in and investors are not happy about it. Yields on fixed income (Treasuries and mortgages) are too low and there aren’t many alternatives. Yields at these levels force investors to take on risk to get return. Credit standards are loosening up and will continue to do so. Investors have a choice, hate the yield or hate the asset. I can’t paint a big enough picture of how much money is now being put to work to find yield. Treasury yields are inching closer and closer towards the levels of last year when Bernanke made his infamous ‘taper’ comment. The Fed is tapering assets faster than most had imagined and yields continue to fall. That’s how big this move in rates is. The 10yr is currently at 2.47% and if it continues to close below 2.50% then yield expectations continue to shift. The more buyers get comfortable with the new reality of rates and their returns, the more likely we stay at these levels or push lower. We are in unchartered territory and if yields can get to 2.40% or below, then watch out, it could fall all the way to 2.20%. There aren’t many risks that could push yields higher. The biggest risk was the Fed tapering, which has had the opposite affect; then it’s the Fed themselves. Nothing has come out of their mouths other than an ‘extended period of accommodation’. Fed Reserve San Francisco President John Williams said the Fed needs to boost jobs well after inflation takes root, furthering the argument that the Fed will keep rates low for a very long period of time. Some Fed members feel otherwise and there will likely be a huge debate about it: inflation and jobs are the battleground for interest rates. Those will be the main risks to rates moving higher. Until then, the main topic on everyone’s mind is how much lower will rates continue to drop until they find some major resistance. Right now we are in the 2.45% to 2.60% range but it’s probably a transitory range. What we are transitioning to is anyone’s guess so these next couple of weeks will be very pivotal. Everyone is almost 100% convinced rates will keep dropping, which usually is an indication that the market is going to move the other direction. The question is, what’s the trigger? Is it 2.40% or 2.30% or 2.20%? We have payroll data next week which may be the true equalizer in the debate. For now let’s just put the Polar Vortex talk behind us and focus on the economy. Economic Data Release Calendar: Monday June 2nd Construction Spending, ISM Manufacturing and Prices Paid Tuesday June 3rd Factory Orders Wednesday June 4th MBA Mortgage Applications, ADP Employment Change, ISM Non-Manuf. Composite and Trade Balance Thursday June 5th Initial Jobless Claims, Continuing Claims and Bloomberg Consumer Comfort Friday June 6th NonFarm Payrolls, Unemployment Rate, etc.

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In 2013, there was a lot of action, politically, economically and socially. Obamacare
opened a few cans, the government shutdown, the recession officially ended,
Snapchat surged to the forefront of social media, “selfie” was named word of the
year, the first Argentinian stepped up to the Pontiff, we welcomed the royal baby,
said goodbye to Nobel Peace Prize winner Nelson Mandela and the Red Sox won
the world series.

Also in 2013, the mortgage industry had its highs and lows. Refinances boomed
in the early half of the year, only to later fall flat. Housing prices came back up
and people once again started purchasing homes. HUD announced some major
changes that would affect homeownership starting in 2014.
So what does 2014 have in store? Below are some fun and interesting predictions:
1. It’s not an election year, but big news will still be hitting the air waves as Hillary
Clinton announces her run for Presidency in the 2016 election.

2. With the media frenzy surrounding the royal family’s newest addition, there will
be a surge in old-fashioned appellations such as Helena, Mary, Arthur, Louis, and
of course George.

3. Futbol fans everywhere will turn their eyes to Brazil as the 2014 World Cup commences
on June 12th. The semifinals will come down to Brazil vs. Germany and
Argentina vs. Spain. Ultimately it will come down to Brazil and Argentina, and of
course as the hosting country, Brazil fully intends to bring home the win.

4. With thousands of U.S. homeowners watching their home values come back up,
DIY projects will be rampant, and home improvement loans will be the “it” instrument
to keeping up with the Morgans.

5. Although many signs indicate a rise in interest rates, the speed at which this
happens is likely to be relaxed. With rates still at historic lows (as compared to
the 10%-16% interest rates of the 80s), and the reality of mortgage affordability,
purchase loans will be leading the growth in the mortgage industry.

6. New home construction surged in November 2013, and with consumer homebuilder
confidence at all-time highs in December, in 2014 we’ll continue to see an
increase in housing starts.

7. New American Funding will continue to deliver a vast array of loan products to
cater to its clients, competitive interest rates, and all with a big smile to boot. A
biased prediction? We think not.