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Weekly Rate Lock Advisory

This week is packed with relevant pieces of economic news in addition to another FOMC meeting. All seven of the reports are considered to be at least moderately important while several are considered very important to the markets and mortgage rates. This makes it likely that we will see plenty of movement in mortgage pricing over the next several days.

The first report comes late Tuesday morning when the Consumer Confidence Index (CCI) for April will be released. This Conference Board index is a key indicator of future spending by consumers. The group surveys 5000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to continue to spend. However, if they are concerned about issues such as job security and investments, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in sp ending would ease inflation concerns. But, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 62.0, which would be a decline from March's 64.5 reading.

Wednesday brings us the release of two important reports along with the FOMC meeting. The first is the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best indicator of economic growth or contraction. I expect this report to cause major movement in the financial markets Wednesday and therefore the mortgage market also. Analysts are expecting to see output at an annual rate of 0.4%. A smaller increase would be ideal for mortgage rates a sit would fuel recession concerns. But, a larger increase would almost certainly cause inflation concerns in the b ond market that would push mortgage rates higher Wednesday morning.

The next report of the day is the 1st Quarter Employment Cost Index (ECI), which tracks employer costs for wages and benefits. This gives us a measurement of wage-inflation. If it shows a large increase, we may see inflation concerns cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.8%.

This week's FOMC meeting will begin on Tuesday but will not adjourn until Wednesday afternoon. It will likely adjourn with an announcement of another rate cut to key short term interest rates. Just how much of a reduction is open for debate. Look for another round of volatility following the 2:15 PM ET post-meeting statement.

March's Personal Income & Outlays is the first of two reports due to be posted Thur sday morning. This data helps us measure consumers' ability to spend and current spending habits, which is important to the mortgage market due to the influence that consumer spending related information has on the financial markets. If a consumer's income is rising, they are more likely to make additional purchases. This raises inflation concerns and has a negative affect on the bond market and mortgage rates. Current forecasts are calling for a 0.4% increase in income and a 0.2% rise in spending.

The Institute for Supply Management (ISM) will post their manufacturing index late Thursday morning. This is one of the first important economic reports released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. But , if we see a drop from last month's reading of 48.6, the bond market should thrive and mortgage rates will probably fall. It is expected to show a reading of 48.0.

The week's most important release is being saved for nearly last. The almighty Employment report will be released Friday at 8:30AM, giving us April's employment statistics. This is where we may see a huge rally or major sell-off in the bond market and large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and fewer than expected new payrolls. Just how much of an improvement or worsening depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for a 5.2% unemployment ra te and approximately 80,000 jobs lost during the month.

Friday's second report and the last of the week is March's Factory Orders data at 10:00AM. This is a fairly important release because it measures manufacturing sector strength. It is similar to last week's Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report usually has more of an impact on the financial markets than the Factory Orders report does. Still, a smaller increase than the 0.4% that is expected could push mortgage rates slightly lower, while a larger increase will likely lead to higher rates. But, the employment numbers are of much more importance to the markets than this data is.

Overall, look for plenty of movement in the financial markets and mortgage rates this week. Wednesday or Friday will likely be the most important day of the week with the GDP and Employment numbers being posted along with the FOMC adjournment, but we may see noticeable changes to rates Tuesday also. If this week's reports reveal weaker than expected economic conditions, the bond market should rally and mortgage rates should fall significantly for the week.

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Weekly Rate Lock Advisory

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Credit Scores: When Good is not Good Enough

In the past, a consumer with a FICO score of 620 was considered to be a low-risk borrower by Fannie Mae and Freddie Mac. Not anymore. After suffering major losses in the mortgage market last year, the nation's two largest mortgage finance lenders have redefined risk, announcing new Loan-Level Price Adjustments (LLPAs) for borrowers with FICO scores below 680.

LLPAs are automatic, cumulative fees based solely on credit scores, and they can significantly increase the cost of credit. These fees have nothing to do with your mortgage company or its various products and cannot be negotiated away.

Let's take a look at the impact that LLPAs have on conforming loans.


*Based on Loan Amount of $300,000. This chart is meant to be a guide. Interest rates and loan programs are subject to change.

As you can see, borrowers who have FICO scores below 680 will now be forced to pay more, either in points (as much as 2% more) or in interest rate. Borrowers with FICO scores below 620 will incur the maximum adjustment which, on a $300,000 loan, would amount to $6,000 in upfront costs.

For borrowers who can't or don't want to pay the cash up front, be aware that lenders have the option of converting these fees into higher rates. In the above example, a 2-point fee (2% of the loan amount ) is charged to the borrower. The charge could be waived, however, in exchange for increasing the interest rate by one full percentage point. The end result would be an increase of nearly $7,500 in mortgage payments over the course of the first three years of the loan, which translates into approximately $200 more per month.

According to Fannie Mae and Freddie Mac, the FICO credit score used to determine the fees for single borrowers is the median or "middle" score generated by the three national credit bureaus. For multiple borrowers, the median score of the borrower that earns the highest income is used. In addition, requirements will vary based on the loan program and loan-to-value. For those borrowing more than 70% of the home's value, for example, credit scores must be 680 or more in order to avoid being subject to the adjustments.

If you are thinking about getting a mortgage in the next 12 months, your credit score is going to be more important than ever. Call your mortgage professional right away to find out where you stand. In some cases, professional credit repair may be required, which could take up to six months or more to achieve the most effective results.

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