No Appraisal, No Problem

Fewer loans that use real estate as collateral will need an appraisal under a new proposal.

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC) wants to increase the threshold from $250,00 to $400,000.

In a news release, FDIC said it believes raising the threshold could provide meaningful burden relief from the appraisal requirements, without posing a threat to the safety and soundness of financial institutions. The threshold was last increased in 1994.

Under the proposed rule, residential real estate transactions exempted by the threshold would be required to obtain an evaluation consistent with safe and sound banking practices, instead of an appraisal which would speed up the loan process while lowering the costs to consumers.

Evaluations, which have been required for transactions exempted from the appraisal requirement by the current residential threshold since the 1990s, would provide an estimate of the market value of real estate but could be less burdensome than appraisals. The FDIC’s appraisal regulations do not require evaluations to be prepared by state licensed or certified appraisers.  In addition, evaluations are typically less detailed and costly than appraisals.

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 4.50 MBS) lost -18 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move slightly higher compared to the previous week.

Overview:  We had another holiday-shortened week (Thanksgiving’s day) with really only 2.5 days of trading last week.  We had a very light week for economic data and there was not any real change in trade negotiations or other geo-political issues that could impact rates.  As a result, MBS moved in a very narrow and tight pattern with low volatility.

Taking it to the House:  October Existing Home Sales beat out estimates with a 5.22M vs 5.20M annualized rate. The median home price moved up again and is now $255,400. Inventory remains VERY tight with only a 4.3 month supply.  New Housing Starts basically matched expectations (1.228M vs 1.230M) and Building Permits just edged out estimates (1.263M vs est of 1.260M). While both of these readings look fairly good….the problem is that the strength is in Multi-family which is where you do not want it to be. For example, multi-family units jumped by 10.3 percent to a 363,000 rate but single-family starts slipped by -1.8 percent to an 865,000 rate. 

Durable Goods: The preliminary (will be revised) October headline reading was much weaker than expected (-4.4% vs est of -2.5%) which was dragged down by a decrease in defense spending. The Ex-transportation number showed a small gain of +0.1% vs est of 0.4%.

Jobs, Jobs, Jobs: Initial Weekly Jobless Claims hit 224K vs est of 215K. The more closely watched 4 week moving average ticked up a bit to 218,500 which is still extremely low.

Consumer Sentiment Index: The final November reading changed the preliminary release of 98.3 down to 97.5 which is a good reading but the lowest since August

What to Watch Out For This Week:

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.