Mortgage bond prices fell this week pushing interest rates considerably higher. The primary cause for the increases was stronger than expected data. Consumer confidence and weekly jobless claims beat estimates solidly and shocked the bond market lower. Overall the Treasury auctions and stronger stocks also pressured mortgage bond prices. The retail sales data Tuesday will set the tone for trading this coming week. If any of the data comes in positive mortgage interest rates may continue the recent climb into higher territory. Expect more volatility, as stocks and bonds are likely to continue their back and forth trading pattern.
So why the volatility? When the economy appears strong or starts to improve, and investors move their money from the safe haven of Bonds to Stocks, a decreased demand for Bonds means that Bond prices move lower. And when Bond prices move lower, it means that Bond yields – and consequently home loan rates – move higher.
On October 4th, 2010, FHA will be changing the Mortgage Insurance Premiums that they charge to borrowers using FHA financing. They will be decreasing the Up-Front Mortgage Insurance Premium from 2.25% to 1.0, but increasing the monthly Mortgage Insurance from 0.55% to 0.85% – 0.90% annually. The monthly Mortgage Insurance change will increase a borrower’s monthly payment approximately $22 per $100,000 borrowed at today’s interest rates.
