How the FSOC might single-out nonbanks for scrutiny

With the Financial Stability Oversight Council likely to resume singling out systemically-important nondepositories for scrutiny, even mid tier companies should brace themselves for the possibility, according to one Washington attorney.

The FSOC, which was established in 2010 to monitor systemic risk after the housing crash, could determine that a broad range of mortgage companies should be subject to “heightened prudential standards,” said Andrew Olmem, a partner at Mayer Brown and a former senior economic adviser to the White House.

“One cannot assume that, going forward, the FSOC will only be considering designations of the largest firms,” Olmem said during a recent teleconference. Experts “contend that the FSOC should consider designating even midtier-sized firms on the grounds that collectively they can present the same systemic risks,” he noted.

The concern reflects a broader fear among less-regulated nonbanks that they could be subject to more restrictions because a Democratic administration with a regulatory bent is in the White House, and the pandemic has highlighted relative liquidity challenges they face.

Nonbanks dominate government-related secondary mortgage markets. In November 2020, they represented 92% of securitized originations guaranteed by Ginnie Mae, 69% of loans purchased by Fannie Mae and 68% of those bought by Freddie Mac, according to data from eMBS and the Urban Institute.

Fannie and Freddie’s ability to identify systemic risks through the FSOC was among the topics Treasury Secretary Nominee Janet Yellen confirmed an interest in focusing on in a congressional hearing late last week.

However, while nonbanks’ growing role in the financial system is clearly on Washington’s radar screen, the issue may not be FSOC’s first priority, said Olmem, who worked with the Trump administration on the CARES Act in 2020 prior to joining Mayer Brown in July of last year.

“It’s … unclear whether mortgage companies will be the initial focus,” he said, noting that among the other types of nonbanks singled out in recent regulatory reports are broker-dealers, certain investment companies and money market funds.

That said, it’s clear that the ground has been laid for the FSOC to undertake the examination of the regulation of nonbank mortgage companies and servicers, and regulators could soon begin the process by making informational requests, Olmem said.

“For companies that believe they could find themselves considered for designation, it is appropriate to begin an internal assessment of their operations to understand if they satisfy FSOC’s standards,” he said.

Companies will have due process rights, said Olmem. They can present a case for why designation may be inappropriate in a hearing, and may have the opportunity to introduce reforms to reduce their systemic risk.

Under the Trump administration, three companies had their Obama-era designations as “systemically important” institutions dismissed, but such dismissals may be less likely under the Biden administration, depending on how much influence it can exert on the reconstituted leadership of the court system.


Will Biden take the nuclear option on the GSEs?

In the waning days of the Trump Administration, Treasury Secretary Stephen Mnuchin and Federal Housing Finance Director Mark Calabria put in place a new preferred stock purchase agreement that allows Fannie Mae and Freddie Mac to accumulate $275 billion in capital.

The change put in place by Mnuchin and Calabria is intended to create momentum for the GSEs’ eventual release from conservatorship and constrain their activities, both objectives supported by conservatives. The only problem, to quote Jim Parrott of Urban Institute, is that the PSPA is a really bad deal for taxpayers.

“By increasing the capital levels again and allowing the GSEs to pay yet more of their dividend in senior preferred shares, the taxpayer appears to come out on the short end of the stick. FHFA and Treasury will have to write down the taxpayer position well below where it is today for the GSEs to attract new private capital,” Parrott writes in a recent Urban Institute paper.

The fact that the PSPA may cost taxpayers hundreds of billions of dollars may be more than merely a fiscal point. In fact, the new agreement could lead to some very serious consequences for the housing market and the U.S. economy. Conservative zealots such as Director Calabria, who oppose a government role in housing, may have given President Biden an opening to restore full control to the Treasury over the GSEs.

The Biden administration has an aggressive agenda for subsidizing housing, particularly in the context of providing affordable housing and using home ownership to combat structural economic inequality. Vice President Kamala Harris talks of giving low-income families down payments towards a home purchase as a gift from the taxpayer.

Behind the entire discussion about housing affordability, equality of economic outcomes and “fairness,” loom the policies of the Federal Open Market Committee. The FOMC’s purchase of trillions in mortgage-backed securities since March of last year forced interest rates to record lows, pushed lending volumes to levels not seen since the mid-2000s, and sent home prices soaring due to a supply squeeze in affordable homes.

Fed policy inflates home prices and diminishes affordability for all Americans. Sadly, the dysfunctional politics of Washington dictate even more housing subsidies and ever higher home price inflation, something that ought to concern members of both political parties. President Biden thinks that Americans should not spend more than 30% of their income on housing, but he needs to talk to Fed Chairman Powell and the other members of the FOMC.

Of note, a number of observers are predicting a mortgage insurance premium cut at the Federal Housing Administration given the Biden administration’s focus on affordability. This is a profoundly bad idea. The secondary market execution for FHA, VA and USDA loans is already very competitive with the conventional loans.

A MIPS decrease will force up FHA loan volumes further and squeeze prices for more affordable homes along with it. Instead, President Biden should seek to accelerate home building outside of the larger cities, where physical conditions and aging housing stock makes social distancing impossible.

President Biden reportedly plans to ask Congress for $40 billion in housing spending this year and $640 billion over the course of a decade. To help families buy their first homes and build wealth, the Biden Administration seeks a refundable, advanceable tax credit of up to $15,000, in effect a repackaged version of the Harris proposal to give poor families a down payment to buy a home.

But here is the punch line: If these new policy initiatives are not adopted by Congress, say Washington insiders, the Biden Administration may seek to push the GSEs into receivership. The radical step of receivership allows the Biden Administration to use the GSEs for policy purposes, end private ownership and the litigation now before the courts. Because of the new PSPA, restoring 100% government control makes sense financially because it eliminates the need for building capital in the GSEs.

“There’s a better than 50% chance that the GSEs end up in receivership and never come out of conservatorship,” one Washington insider tells NMN. “The government will prepare a pre-pack receivership, create new companies with fresh capital and an explicit guaranty from Treasury, and liquidate Fannie and Freddie. The litigation and other claims, and the insurance responsibility for the existing conventional MBS, reportedly are left behind in the receivership.”

The assumption of course is that there will not be more than a momentary market impact of putting Fannie Mae and Freddie Mac into receivership, but that is a considerable assumption. A more realistic scenario is that the conventional loan market would be disrupted for several weeks or even months as global investors back away from MBS issued by Fannie Mae and Freddie Mac in favor of 100% guaranteed Ginnie Mae securities.

If the Biden White House chooses the nuclear option and puts Fannie Mae and Freddie Mac into receivership, be ready for an extended period of disruption in the credit markets, including the to-be-announced market for MBS. Conventional MBS is already viewed as inferior to Ginnie Mae MBS in the world of secured finance, thus this change will further impact investor confidence.

The irony of this incredible situation is that conservatives wanted to rein in the role of the U.S. government in housing, but the flawed Mnuchin/Calabria PSPA creates an incentive for the Biden Administration to do the opposite. The onerous terms of the new PSPA for taxpayers gives progressives the opportunity to reclaim full control of the GSEs, all the while claiming to protect the taxpayer from greedy Wall Street hedge funds!

Choosing the nuclear option of putting Fannie and Freddie into receivership, no matter how well orchestrated, will damage the conventional market. More, if a GSE receivership is combined with a cut in the MIPs over at the FHA, then look for the Ginnie Mae market to grow to $3 trillion or more over the next several years.

To shift new production volumes to the FHA, even as delinquency rates are in the mid-teens due to COVID, is another profoundly bad idea whose time has apparently come. In the event that President Biden takes the nuclear option with the GSEs, look for the Ginnie Mae market to grow to one third of all mortgage loans vs less than 20% today. Only in Washington.


Mortgage Rates Down Only Slightly Despite Bond Market Rally

What’s a bond market rally and why should mortgage rates care?  There are all kinds of bonds.  US Treasuries would be the quintessential example, but there are also bonds specific to the mortgage market.  These are what groups of loans ultimately become in order to be traded on the open market (thus allowing lenders to make more loans with less risk and lower rates).  As investors buy and sell bonds throughout the day, bond prices change.  The higher the price, the lower the implied interest rate.  Simply put, if bonds are rallying, rates should be falling shortly thereafter.

The 10yr Treasury yield is typically an excellent barometer for mortgage rate movement.  10yr Treasuries and mortgage-backed bonds tend to correlate extremely well.  As such, we might expect a more significant improvement in mortgage rates on a day where 10yr Treasury yields fell by more than 0.05%.  As it stands, the average mortgage rate is, at best, 0.02% lower (and in many cases, unchanged).

This has to do with periodic variations in behavior between these two otherwise highly correlated markets.  Those variations can crop up for a variety of reasons, but today’s was as simple as supply/demand imbalances in mortgage bonds during the Federal Reserve’s scheduled buying operation.  Long story short, there was a long line of mortgage bond sellers waiting to offload to the Fed.  Many of them were left holding the bag and were thus forced to accept lower prices later in the day (lower prices = higher rates, all other things being equal).  Fortunately, that drop wasn’t big enough to push prices any lower than they were on Friday afternoon.  Otherwise, mortgage rates could have moved higher today as opposed to merely holding mostly steady.


MBS RECAP: Strong Move in Treasuries But MBS Underperform (Significantly)

While much of the world of finance and institutional investment seemed to be preoccupied with day trading some truly epic ridiculousness via Game Stop, the bond market was doing a few interesting things of its own.  Treasuries jumped out to an early lead with help from Europe, but several big trades helped yields move even lower after the 10yr broke an important floor at 1.075%.  MBS had a completely different day with a significant amount of underperformance during and after the Fed’s final buying operation of the day.  At 4pm, UMBS 1.5 coupons were roughly unchanged on the day while 10yr Treasuries were nearly 5bps lower in yield!

Econ Data / Events

Market Movement Recap

08:23 AM

Moderately light volume overnight.  Bonds were flat during Asian hours, but rallied with European bonds following slightly weaker econ data and persistent covid-related concerns (i.e. new strains on the rise while vaccine distribution is sluggish).  10yr yields down more than 2bps and MBS starting out up an eighth of a point.

11:08 AM

Bonds going on a bit of a run now (in a good way), with several large block trades hitting CME screens at 10:21am ET.  Subsequently, heavy losses in stocks have driven additional ‘flight-to-safety’ trading.  10yr now down almost 5bps at 1.04% and MBS 1.5 coupons are up almost a quarter of a point.

03:19 PM

MBS-specific underperformance following the latest FedTrade buying operation (MBS sellers didn’t move as much inventory as they would have liked and thus “put it on sale” after the Fed was out of the picture.  Both 1.5 and 2.0 coupons are down more than an eighth from intraday highs.  No real drama in Treasuries with 10s down 4.5bps at 1.04%.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.


UMBS 2.0

103-10 : +0-02


10 YR

1.0330 : -0.0580

Pricing as of 1/25/21 4:15PMEST

Today’s Reprice Alerts and Updates

3:15PM  :  ALERT ISSUED: Negative Reprice Risk Increasing For Some Lenders

11:18AM  :  Gains Getting Bigger After Block Trades and Stock Selling

8:41AM  :  Starting Out in Better Shape; Quiet Calendar


Stanford Kurland, founder of the PennyMac firms, dies at 68

Stanford Kurland, who went from being pushed out of the No. 2 job at Countrywide Financial to founding the pair of publicly-traded companies known as PennyMac, has died at 68.

While Kurland had been battling brain cancer, the cause of death was attributed to complications from COVID-19, separate but similar releases from PennyMac Financial Services and PennyMac Mortgage Investment Trust said.

Kurland became the non-executive chairman of both companies at the start of 2020, leaving the day-to-day role as executive chairman he had since stepping down as CEO in 2016.

“COVID-19 has robbed us of a great leader, mentor and friend. Stan leaves an indelible mark not only on PennyMac, but on the mortgage industry he helped to build and shape,” said David Spector, PennyMac’s president and CEO said in the press releases. “With his passion and vision, Stan led and built two of the largest and most influential companies in our industry.”

Following a four-year career as an accountant, Kurland joined Countrywide in 1979, rising to become its chief financial officer and then president and chief operating officer. He became the heir apparent to Chairman and CEO Angelo Mozilo.

But on Sept. 7, 2006, Kurland abruptly resigned his posts at Countrywide, amid reports that Mozilo was looking to stay on as CEO. Ironically, the departure, which was rumored to not have been voluntary, kept Kurland out of the line of fire following Countrywide’s spectacular collapse.

Instead, in 2008, Kurland founded Private National Mortgage Acceptance Co., with the backing of BlackRock Mortgage Ventures and HC Partners, formerly Highfields Capital Management. Its initial purpose was to purchase distressed mortgage assets.

PennyMac Mortgage Investment Trust filed to go public in 2009; then in 2013, PennyMac Financial Services, which is a third-party mortgage originator, did its own initial public offering.

On Monday morning, colleagues and industry peers offered their condolences and remembrances of Kurland.

“The loss of one of the greats in my career, and someone who became a really welcome friend. He died way too young — he was almost ego-less — humble yet brilliant,” former Mortgage Bankers Association CEO Dave Stevens posted on Twitter.


DACA home loans — FHA will now approve home loans for ‘Dreamers.’ Here’s how to get approved

‘Dreamers’ can now get approved for FHA home loans

‘Dreamers’ — U.S. residents with DACA status — just got a huge boost to their homeownership dreams. The Federal Housing Administration (FHA) announced it had changed its policy on DACA home loans.

From this day forward, FHA is willing to approve home loans for DACA recipients — meaning they’ll get access to the low-down-payment FHA mortgage program that’s so popular with U.S. home buyers.

This new rule opens up the field of mortgage options for Dreamers, giving them access to a wider variety of affordable, accessible paths to homeownership.

Check your home loan options (Jan 25th, 2021)

In this article (Skip to…)

FHA’s new stance on DACA home loans

In a statement, U.S. Sen. Sherrod Brown (D-OH), who’s expected to soon chair the Senate Committee on Banking, Housing, and Urban Affairs, summed up what the change means: “DACA recipients are fully eligible for FHA loans.”

FHA’s new policy should make it easier for many Dreamers to buy real estate in the United States.

You might assume that this change was one of the first acts of the Biden administration. But, actually, it was one of the last of the outgoing Trump administration.

Previous FHA rules for DACA recipients

Official policy before January 19 (it was changed the day before it was announced) was that DACA recipients were ineligible for FHA loans.

According to the FHA Single Family Housing Handbook, “Non-US citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages.”

And up until January 19, those classified under the Deferred Action for Childhood Arrivals program (DACA) did not count as lawful residents according to HUD (the agency that manages the FHA).

FHA loans are one of the easiest mortgage programs to qualify for, having more lenient guidelines than many other home loans.

So for many Dreamers, the reversal of this policy is a significant change.

New FHA rules for Dreamers

Of course, the new rule only levels the playing field for DACA recipients.

Applicants still need to meet the same eligibility guidelines as every other lawful resident in order to get their FHA loan approved. More on those in a minute.

Note that Dreamers weren’t entirely locked out of homeownership even before the change.

They have always been eligible for some conventional loans, subject to lenders’ policies, including conforming ones that are offered by Fannie Mae.

Check your home loan options (Jan 25th, 2021)

FHA loan benefits

If Dreamers have been able to get some mortgage loans all along, what difference will access to FHA loans make?

Well, they’ll be able to access the same advantages that attracted more than 8 million borrowers who currently have single-family mortgages backed by the FHA.

Some of the biggest benefits of an FHA loan include:

  1. Small minimum down payment — Only 3.5% of the purchase price is required
  2. Lower credit score — Lenders approve applicants with FICO scores of just 580 and 3.5% down. You might even get a loan if yours is 500-579, if you can make a 10% down payment (though it will be harder to find a lender)
  3. More flexibility with existing debts — FHA loans typically allow higher debt-to-income ratios (DTIs) than other types of mortgages. So if you have a lot of existing debt, it could be easier to qualify

No wonder FHA loans are popular among first-time buyers and those who’ve been through difficult financial patches. And why they’re likely to appeal as DACA home loans.

One more thing. If you’re struggling to come up with a 3.5% down payment and cash for closing costs, explore the grants and loans (sometimes forgivable loans) that are open to homebuyers everywhere.

These down payment assistance programs are available in every state, and are often targeted toward first-time and lower-income home buyers who need a little extra help with their upfront housing costs.

FHA loan drawbacks

Inevitably, there’s a downside along with all those perks. FHA loans typically have higher borrowing costs than many other sorts of mortgage loans.

It’s not that FHA mortgage rates are higher. They’re actually pretty competitive.

Rather, the added cost comes from FHA loan mortgage insurance premiums (MIP).

MIP adds an upfront cost equal to 1.75% of your loan amount (most home buyers roll this into the mortgage balance). And it adds an annual cost equal to 0.85% of the loan balance (paid monthly).

Conventional loans charge mortgage insurance, too, if you put less than 20% down. But this can be canceled later on. With an FHA loan, by comparison, you have to refinance to get rid of MIP.

Mortgage insurance is not a bad thing if it helps you buy a home. But if you qualify for both an FHA loan and a conventional loan, be sure to compare the cost of mortgage insurance on each one so you understand which has higher long-term costs.

Which DACA recipients are eligible for an FHA mortgage?

If you’re a Dreamer, you may well find FHA loans appealing. And you’ll be anxious to know whether you personally are eligible.

So here, quoting extracts from the announcement, is what the FHA says borrowers will need:

  1. A valid Social Security Number (SSN), except for those employed by the World Bank, a foreign embassy, or equivalent employer identified by the Department of Housing and Urban Development (HUD)
  2. Eligibility to work in the U.S., as evidenced by the Employment Authorization Document issued by the USCIS
  3. To satisfy the same requirements, terms, and conditions as those for U.S. citizens

To the third point, those requirements include a credit score of at least 580; a down payment of at least 3.5%; and a debt-to-income ratio below 50%.

Your lender you apply with will require documents to verify credit, income, savings, and employment when you turn in your loan application.

You also need to make sure your loan amount (home price minus down payment) is within the FHA’s loan limits for your area.

FHA also requires that the property be your primary residence, meaning you must plan to live there full time.

Employment Authorization Document

That Employment Authorization Document is clearly central to your application succeeding. But suppose yours is due to expire within a year.

That shouldn’t be a problem. The FHA says:

“If the Employment Authorization Document will expire within one year and a prior history of residency status renewals exists, the lender may assume that continuation will be granted. If there are no prior renewals, the lender must determine the likelihood of renewal based on information from the USCIS.”

In other words, you should be fine if your status has already been renewed at least once. There’s an assumption it will be again.

If it hasn’t already been renewed, the lender will check with US Citizenship and Immigration Services (USCIS) to see how likely a renewal is.

Check your FHA loan eligibility (Jan 25th, 2021)

Other home loan options for Dreamers

We already mentioned that some lenders of “conventional loans” (meaning those that are not backed by the government) consider applications from Dreamers.

Fannie Mae’s conforming loans are also open to those in the DACA program.

Most mortgage lenders offer loans backed by Fannie Mae, and these include a wide variety of options like:

  • The 3% down Conventional 97 loan
  • The 3% down HomeReady loan for low-income buyers
  • Loans with less than 20% down WITH mortgage insurance (PMI)
  • Loans with 20% down payment or more and NO mortgage insurance

The situation is less clear for Freddie Mac (the other agency that backs “conforming” home loans).

Freddie’s guidance uses language that was similar to the FHA’s old wording. And those who lacked “lawful residency status” were ineligible. A search of its website on the day this was written revealed no hits for “DACA” or related terms.

But it may well be that Freddie will soon update or clarify its DACA policies now that the FHA has — and now that a new, more Dreamer-friendly administration is in place.

And it would be no surprise if other organizations (including the VA and USDA) similarly refined their policies in coming weeks to reflect those factors.

If you’re a DACA recipient in the market for a home loan in the coming year, keep an eye on the news and do periodic Google searches of these agencies to see whether any new loan programs have been added to your list of options.

Explore your home loan options (Jan 25th, 2021)

Which DACA home loans are best for you? 

On average, DACA recipients are younger than the US population as a whole, because they had to be under 31 years as of June 15, 2012. But, besides that, it may be a mistake to generalize about them.

Just as other American residents, some Dreamers will have stellar credit scores and others bad ones. Some will have plenty of savings and others won’t. And some will be laden with student loans and other debts, while others owe nothing.

So a DACA borrower needs to seek out the type of loan that best suits their personal financial circumstances — just like everyone else.

Those most attractive to lenders (high credit scores, 20% down payment, and small debts) will likely find a conventional loan to be their best bet.

Those with low scores, 3.5% down payment, and lots of debts may need to go for FHA loans.

And those between the two might find Fannie Mae offers their best deals. Better yet, Fannie requires a minimum down payment of just 3%.

Shop for loan options and mortgage rates

Whichever type of loan you choose, be aware that you’ll be borrowing from a private lender. The mortgage rates and overall deals you’ll be offered are likely to vary widely from one lender to the next.

So be sure to comparison shop for your mortgage, getting competitive quotes from several lenders and comparing them side by side.

That’s the best way to find a low interest rate and save money on your home loan, no matter which program you choose.

Verify your new rate (Jan 25th, 2021)


MBS Day Ahead: Bonds Should Give Their Next Technical Signal Any Day Now

The nature of the pandemic has made for some very mechanical and orderly market movement.  The best example of this in the bond market is the “trend channel” (parallel lines marking the highs and lows, yellow lines in today’s chart) we’ve been following in 10yr yields since the beginning of November. 

Smaller scale examples include several consolidation patterns (converging lines marking highs and lows, teal lines in today’s chart), just like the one that’s been taking shape over the past 2 weeks.  This one’s a bit different than the last two. 

On a negative note, this consolidation pattern is occurring at much higher yields, but on a plus note, it’s also resting near the top of the aforementioned trend channel.  The implication is that IF we can manage to get a friendly break, it means there’s a better-than-average chance of some positive follow-through.

20210122 open.png

The other interesting thing about consolidation patterns is that, due to the converging lines, yields will be forced to break out of the pattern by the time the lines cross.  Yesterday morning’s weakness took yields right to the bleeding edge of a negative breakout, but the ensuing rally kept the  channel intact.  Now we may not see a breakout until next week.

20210122 open2.png

There aren’t any great market movers on tap today in terms of scheduled data.  The Existing Home Sales report at 10am is relevant to the industry though.  Forecasts call for a slight decline but to levels that are still stellar in the bigger picture.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.


UMBS 2.0

103-06 : +0-02


10 YR

1.0940 : -0.0130

Pricing as of 1/22/21 9:24AMEST


Mortgage Industry Seller Funding Quality Overview

The intent of the following article is to provide an overview of mortgage industry loan funding and demonstrate methods that mortgage industry investors use to track and report mortgage loan funding quality statistics for their sellers.

Click here to print this section. Print Entire Article

Sellers, based on investors’ guidelines, make a lending decision and fund the mortgage loan. The lender may use their own money, a warehouse line of credit or an investor’s money to fund the loan. A lender’s efficiency at funding a loan is quantifiable and has a direct impact on their investor’s profit margin in the funding and servicing of the loan.

Specifically, in cases where an investor’s money is used to fund the loan the investor’s profitability is directly impacted by a seller’s funding quality and is measured in per loan origination and service costs. The less an investor spends on origination (sales, marketing and funding) and servicing (setup and maintenance) the more profitable they are. As a result, sellers that correctly register and deliver loans are more profitable for an investor because of the lower loan funding, setup and maintenance costs.

In determining a seller’s funding quality, investors will track and report statistics for loans delivered for purchase by the seller. Examples of values that an investor might track and report are:

  • Average Number of Days to Cure. When a loan package is delivered for funding by a seller it may be missing documents that are required to fund the loan. Typically, a processor from the investors funding department will notify the seller that required documentation is missing and enter the details of the missing documentation into a funding tracking database. The “Number of Days to Cure” is the number of days from when the seller is notified until the seller delivers the missing documentation to the investor. A loan in this state is referred to as being on exception. The loan cannot be funded until all of the exceptions are cleared. The “Average Number of Days to Cure” is the Weighted Average for all loans with a “Number of Days to Cure” value for the reporting period.
  • No Exceptions Percentage. This is the percentage of loans that are funded for a seller, in the reporting period, without any reported exceptions. This is also known as the “First Time Approval Rate Percentage”.
  • Suspended Percentage. The “Suspended Percentage” is the percentage of loans for which the seller cannot, or chooses not to, deliver the required documentation within the required time frame to fund the loan.
  • Rejected Percentage. The “Rejected Percentage” is the percentage of loans for which the investor determines that the loan does not meet requirements for funding.

The “Reporting Funding Quality Statistics” section of this article details steps for creating a report that an investor might use to track and report funding quality statistics for loans that a seller has delivered to the investor. A seller with a high percentage of funding quality issues could warrant a caution or corrective action letter from the investor. The Sample Seller Funding Quality Report in this article can be used as a model for a stand alone report or incorporated into a comprehensive Seller Scorecard report.

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Mortgage and refinance rates today, Jan. 23, and rate forecast for next week

Today’s mortgage and refinance rates 

Average mortgage rates fell yesterday. And suddenly they’re back within their uberlow range. Indeed, one more drop like yesterday’s and they’ll be at their all-time low.

That news provides grounds for optimism. But it doesn’t bring any certainty. There are still forces trying to push rates higher, and the fact they’ve been losing that struggle recently doesn’t mean they’ll continue to do so.

Personally, I’m a cautious type and I’d lock my rate when I was 30 days from closing. But, if you’re brave and enjoy risk, you might make more savings by hanging on.

Find and lock a low rate (Jan 24th, 2021)

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.745% 2.745% Unchanged
Conventional 15 year fixed 2.362% 2.362% Unchanged
Conventional 5 year ARM 3% 2.743% Unchanged
30 year fixed FHA 2.495% 3.473% Unchanged
15 year fixed FHA 2.438% 3.38% Unchanged
5 year ARM FHA 2.5% 3.226% Unchanged
30 year fixed VA 2.3% 2.472% Unchanged
15 year fixed VA 2.25% 2.571% Unchanged
5 year ARM VA 2.5% 2.406% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Jan 24th, 2021)

COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

We’ve now had seven working days without these rates rising. And that’s transformed the scene, bringing the prospect of a new all-time low tantalizingly close.

But those seven working days were preceded by six when they only rose. And such brief periods are bad bases for making predictions. So I can’t.

What I can do is say that your next move has more to do with your appetite for risk than an informed choice. If you’re cautious, you could lock now (at a highly attractive rate) and shrug if mortgages get even less costly. But, if you enjoy a gamble, continuing to float isn’t a bad bet — providing you can afford any losses if rates suddenly rise.

But, whichever way you’re leaning, read the next section before making a decision. It might contain insights that could help. And, in the meantime, my personal recommendations are:

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • FLOAT if closing in 45 days
  • FLOAT if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

What’s moving current mortgage rates

Recent falls in mortgage rates have been over way too brief a period for anyone to call a trend. And the force trying to push mortgage rates upward hasn’t disappeared.

Government borrowing

That force is the prospect of higher government borrowing. More details emerged this week of President Joe Biden’s spending plans. And his $1.9-trillion proposal for pandemic relief will be on top of the $2.9 trillion already spent over the last year through Trump-era relief measures.

And the new administration won’t stop there. Other similarly serious sums are earmarked for infrastructure, health and other programs. Of course, not all of those will survive Congress (60 votes are needed in the Senate to pass much legislation) but the likelihood of more government spending is high.

But more government spending means more government borrowing. And more government borrowing almost always eventually means higher interest rates.

True, the Federal Reserve has signaled that it won’t be raising its rates anytime soon. But government bond yields (Treasurys) and mortgage rates move independently of the Fed. And those could head sharply higher at any time and with zero notice.


It’s likely that the reason mortgage rates have mostly remained low is that another, similarly strong force is trying to drive them lower. And that’s the economic effects of the pandemic.

When that brake’s removed, mortgage rates should move considerably higher. But that’s not a problem yet. As Yale economist Paul Krugman wrote in Thursday’s New York Times:

And we know, as certainly as we know anything in economics, that the economy will be depressed at least into the summer and probably beyond.

— “The Corrupt, the Clueless and Joe Biden,” Paul Krugman, New York Times, Jan 21, 2021

Good and bad news

The good news is that new infections are falling following the holiday spike. And that the vaccination rollout is finally looking poised to gain traction. But yesterday’s e-newsletter from Comerica Bank Chief Economist Robert A. Dye reflected on the economic gloom that remains:

… we remain concerned that the rough start to vaccine distribution world-wide leaves some risk on the table with respect to the need for ongoing social mitigation policies. Extended restrictive social policies could push the expected fall rebound in economic activity back.

— Comerica Economic Weekly, Jan 22, 2021

Low interest and mortgage rates are a common feature of struggling economies. And economic gloom is slogging it out with higher government borrowing to determine where mortgage rates go next.

So which will win?

With luck, that economic gloom will fade later this year. The downside of that is that there will be nothing to stop higher government borrowing from pushing mortgage rates higher.

In the meantime, the two are likely to compete. And the best we can hope for is that they are mostly equally matched, resulting in a standstill. But there are likely to be times when one dominates the news, and briefly wins out.

And that might mean that we’ll see more volatility — up and down — in mortgage rates than we’ve grown used to. Unfortunately, that makes picking the ideal time to lock more difficult.

Economic reports next week

Thursday’s gross domestic product (GDP) figures are likely the most important data of next week. But Friday’s personal income and spending figures can also attract attention. The others are unlikely to cause waves in markets unless they’re shockingly good or bad.

Here are next week’s main economic reports:

  • Tuesday — December Case-Shiller U.S. national home price index
  • Wednesday — December advance durable goods orders
  • Thursday — First estimate for GDP in the last quarter of 2020. Plus weekly new claims for unemployment insurance. And December new homes sales
  • Friday — December personal income and personal spending

With the pandemic and future government borrowing dominating markets, all these could pass almost noticed unless they vary wildly from expectations.

Find and lock a low rate (Jan 24th, 2021)

Mortgage interest rates forecast for next week

We’re keeping our fingers crossed for a new all-time low next week. But we have few grounds for expecting that, beyond some natural optimism. Because mortgage rates remain inherently unpredictable.

Mortgage and refinance rates usually move in tandem. But note that refinance rates are currently a little higher than those for purchase mortgages. That gap’s likely to remain constant as they change.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble.

Your part

But you play a big part in determining your own mortgage rate in five ways. You can affect it significantly by:

  1. Shopping around for your best mortgage rate — They vary widely from lender to lender
  2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
  3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
  4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
  5. Choosing your mortgage carefully — Are you better off with a conventional, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, it’s not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So focus on your “PITI” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) you’ll be quoted. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2020

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.


MBS RECAP: Uneventful Start This Week; Next Move Remains Debatable

Bonds began the day in weaker territory but rallied back to nearly unchanged levels after several comments from inbound Treasury Secretary Janet Yellen.  Of particular note were Yellen’s comments on the possibility of repealing certain tax cuts as well as the need to get the federal budget on a more sustainable path.  Both of those bode well (or “better,” anyway) for Treasury issuance vs demand.  The econ calendar was silent and other market moving headlines were scarce.  Traders are waiting for the next major cue that settles the debate between keeping the broader negative trend intact or riding the recent positive correction back to lower-yield technical boundaries.  

Econ Data / Events

Market Movement Recap

08:28 AM

Bonds were moderately weaker at the start of the overnight session, in line with gains in global equities markets.  Trading has been flat since the start of the European session with 10yr yields 2bps higher at 1.107%.  UMBS are starting the day down 2 ticks (0.06) just a hair under 103-00.

11:39 AM

Bonds rallying a bit on Yellen comments (i.e. parts of tax cuts should be repealed, Federal budget needs to be put on sustainable path).  10yr yields dropped from 1.116 to 1.090 as a result, but are still 1bp higher on the day.  UMBS 2.0 coupons are down 1 tick (.03) on the day, but up 2 ticks from the morning lows.

02:36 PM

Uneventful since the last update.  Yields rose modestly and briefly by way of correcting to the Yellen-inspired rally, but they’re now back in line with the lows of the day.  MBS are dropping off a bit in the afternoon with both 2.0 and 1.5 coupons about 2 ticks (0.06) off their best levels.  Not a significant move by any means.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.


UMBS 2.0

102-32 : -0-01


10 YR

1.0900 : -0.0070

Pricing as of 1/19/21 3:49PMEST

Today’s Reprice Alerts and Updates

8:50AM  :  Slightly Weaker Overnight, Holding Inside Last Week’s Range

MBS Live Chat Highlights


Economic Calendar

Time Event Period Actual Forecast Prior
Wednesday, Jan 20
7:00 MBA Purchase Index w/e 338.9
7:00 MBA Refi Index w/e 4706.3
10:00 NAHB housing market indx Jan 86 86