Fannie Mae DU 7.0 is here, Lower Risk Lower Rate

Fannie Mae Desktop Underwriter 7.0 is here!

In order to approve most mortgage loans, bankers submit their client’s loan application to Fannie Mae’s computer underwriting software.  Desktop Underwriter or DU is the name of the underwriting engine.  DU calculates all of a client’s risk factors to see if they are a good candidate for lending.  As I always say the lower the risk, the lower the rate!  In the newest update to DU certain risk factors are now considered higher risk than before.  This means that is will be even harder for most people to be financed and not possible for many.  Below are the highlights of tightened underwriting policy.

• Mortgage Insurance will no longer be considered a risk factor.  DU previously considered the presence of Mortgage Insurance as lower risk.  The amount of equity or down payment is still one of the highest weighted risk factors.

• Purchase vs. Refinance.  Purchases are still considered lower risk than refinances.  DU did factor in the unpaid principle balance [the amount you currently owe] increasing as higher risk.  Now DU will look only at the amount of cash-out when weighing risk.  Cash-out Refinances are higher risk than Limited Cash-out refinance [refinances the just lower your rate or term].

• Loan Term.  DU considers shortening a mortgages term as a good risk.  Fannie will continue to consider a shorten term lower risk, but no longer groups it with Loan to Value.

• Loan Type.  Interest Only Mortgages are now considered much higher risk then normal amortizing loans.  The new order of RISK is 30-5 Year Fixed Rate, 5-10 Year Adjustable Rate, 6m-3 Year Adjustable Rate and Interest Only Fixed Mortgages, and lastly Interest Only ARM’s and Balloon Mortgages.

• A Minimum Credit Score of 580 is required.  As long as Mortgage Insurance was not an issue, lower credit scores were allowed on Fannie Mae Refinances and Purchases.  Now 580 is the floor.

• Property Type.  Property Type has become a higher risk factor in today’s market.  Condos are higher risk than once thought.  The new RISK order is Single Family properties not in a co-op or attached, Attached Condominiums and Two-Unit properties, Three to Four Unit homes, then lastly Manufactured Homes.

• Self Employment is no longer considered a risk factor.

• Expense Ratio.  Clients could approve up to 65% Debt to Income previously.  Now debt ratios above 45% will be difficult to approve.

• A Previous Foreclosure used to prevent clients from buying for 2 years.  Fannie Mae now requires 5 years out of foreclosure before being able to approve for financing.

Fannie Mae has been trying to clean up its mortgage portfolio ever since the Mortgage Crisis started.  These updates are the next step in lowering their overall risk. 

St. Louis Mortgage Rates | May 30

 

St Louis Best Mortgage Rates [No Points]

30 Fixed/apr | 6.250% /6.350%

30 FHA/apr | 6.375% /6.875%

15 Fixed/apr | 5.875% /5.975%

7yr Arm/apr | 5.875% /5.975%

5yr Arm/apr | 5.875% /5.975%

3yr Arm/apr | 5.750% /5.875%

30 Jumbo/apr | n/a

15 Jumbo /apr | 7.125% /7.175%

7/1 Jumbo /apr | n/a

5/1 Jumbo /apr | n/a

3/1 Jumbo /apr | 7.000% /7.200%

St Louis Best Mortgage Rates [1% Point]

30 Fixed/apr | 6.000% /6.200%

30 FHA/apr | 6.000% /6.700%

15 Fixed/apr | 5.500% /5.700%

7yr Arm/apr | 5.375% /5.575%

5yr Arm/apr | 5.250% /5.450%

3yr Arm/apr | 5.000% /5.200%

30 Jumbo/apr | 7.375% /7.475%

15 Jumbo /apr | 6.500% /6.600%

7/1 Jumbo /apr | 6.750% /6.875%

5/1 Jumbo /apr | 6.375% /6.475%

3/1 Jumbo /apr | 6.125% /6.225%

Daily Mortgage Rates Predictions

  

  

  

  

  

  

Rates are still heading higher… The 200 day moving average is a ceiling bonds can’t seam to break through.

This morning all of the economic indicators met expectations.  Personal Income was up 0.2%, but inflation was also up, so consumers will feel no benefit of those gains.  After 6 rough days for Mortgage Bonds there was a glimmer of hope this morning when bonds attempted to rally up to 99.53 [+50bp] on the day.  The 200 Day moving average is at 99.48.  Unfortunately, Mortgage Bonds hit the 200 Day moving average and declined to currently only being up +28bp on the day.  We will be looking to next weeks economic indicators to see if Mortgage Bonds can break the 200 day ceiling of support.

Daily Economic Indicators May 30

Personal Spending April | 0.2% | E 0.2% | P 0.4% | Modest

Core PCE [PCE] Year over Year | 2.1% | P 2.1% | Elevated 

Core PCE April | 0.1% | E 0.1% | P 0.2% | Elevated

Personal Income April | 0.2% | E 0.2% | P 0.3% | Modest

Chicago PMI May | 49.1 | E 48.5 | P 48.3 | Elevated

Consumer Sentiment May | 59.8 | E 59.5 | P 59.5 | Modest

Daily Mortgage Rate Predictions

  

  

  

  

  

  

Rates are heading higher… Looks like the 200 day moving average couldn’t hold.

The 200 day moving average was broken this morning.  The GPD was lower than expectations of 1.0%, but showed growth from the 0.6% Q4 2007.  Yesterday the Treasury Auction of 2 Year Notes was not received well.  Today the Treasury will be selling 5 Year Notes at 1:00pm.  The 200 Day moving average was an important line for bonds to cross.  The last time it was broken mortgage rates ran to the upper 6’s.  Currently the FNMA Bond is down -69bp at 98.78.  This kind of volatility was unheard of last year.

Economic Indicators for May 29

Crude Inventories 5.25 | [10:30am] | P -5,317,000 | Modest

Initial Jobless Claims 5.24 | 372,000 | E 370,000 | P 368,000 | Modest

GDP Q1 | 0.9% | E 1.0% | P 0.6% | Modest

GDP Chain Deflator Q1 | 2.6% | E 2.6% | P 2.4% | Elevated

St. Louis Mortgage Rates | May 28, 2008

 

St Louis Best Mortgage Rates [No Points]

30 Fixed/apr | 6.250% /6.350%

30 FHA/apr | 6.375% /6.875%

15 Fixed/apr | 5.875% /5.975%

7yr Arm/apr | 5.875% /5.975%

5yr Arm/apr | 5.875% /5.975%

3yr Arm/apr | 5.875% /5.975%

30 Jumbo/apr | n/a

15 Jumbo /apr | n/a

7/1 Jumbo /apr | 7.375% /7.425%

5/1 Jumbo /apr | 7.375% /7.425%

3/1 Jumbo /apr | 6.875% /6.925%

St Louis Best Mortgage Rates [1% Point]

30 Fixed/apr | 6.000% /6.200%

30 FHA/apr | 6.000% /6.700%

15 Fixed/apr | 5.500% /5.700%

7yr Arm/apr | 5.375% /5.575%

5yr Arm/apr | 5.250% /5.450%

3yr Arm/apr | 5.000% /5.200%

30 Jumbo/apr | 7.375% /7.475%

15 Jumbo /apr | 6.500% /6.600%

7/1 Jumbo /apr | 6.750% /6.875%

5/1 Jumbo /apr | 6.250% /6.350%

3/1 Jumbo /apr | 6.000% /6.200%

Daily Mortgage Rates Predictions

Rates will be Heading Down since the 200 day moving average held up.

The better than estimated Durable Goods Orders helped drive Bond prices down to touch the 200 day moving average this morning.  As predicted the floor of support at 99.46 held, but the -64bp loss will have cost us to lose at least .125% on the 30 Year Fixed Rates this morning.  Crude Inventories will be reported shortly.  Since the Mortgage Backed Securities are currently only down -34bp on the day [+9bp since most rates were issued and a long way from the -64bp] Mortgage Rates should be heading up.  We will be closely monitoring the stock market to see how it reacts to the Crude Inventories, hopefully stock are down and Mortgage Bond prices increase giving us improved rates today.  Tomorrow the GDP Chain Deflator signaling inflation under control would be what we need to get back in the 5’s.

Economic Indicators May 28, 2008

Durable Goods Orders April | -0.5% | E -1.5% | P -0.3% | Modest

Daily Mortgage Rates Predictions

  

  

  

  

  

  

Rates are heading higher.

Inflation is the name of the game still today.  Even with the lowest consumer confidence report in 16 years, Mortgage Backed Securities can’t seam to recover.  Consumer’s fear of rising fuel and food prices is the major contributor to the low Consumer Confidence report.  The fact that new home sales beat estimates was another kick in gut for mortgage bonds.  Currently the FNMA Mortgage Bond is -34bp on the day selling at $100.00.  The San Francisco Fed President Janet Yellen reminded us this afternoon that the Fed has lowered rates enough and will be sticking to their holding policy at the next fed meeting.  Bonds are hurting and could touch the 200 day moving average at $99.44 [54bp lower!].  We will be keeping our eyes on the stock market this week and anxiously waiting for Thursday and Fridays economic indicators.

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