Mortgage rates could hit 8% if US defaults

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1. Mortgage rates could hit 8% if US defaults

The US economy could be hit with skyrocketing mortgage rates if the country defaults on its debt due to the unresolved debt ceiling issue. Zillow warns that mortgage rates could increase to 8.4%, up from the current rate of 6.3%, leading to a 22% increase in typical home mortgage payments.

According to Jeff Tucker, a senior economist at Zillow, “A US default threatens to send the market into a deep freeze.”

“As the Fed tightens monetary policy to fight inflation, mortgage rates have been above 6% for months. That’s cooled the pandemic real estate frenzy, with the higher borrowing costs keeping both buyers and sellers on the sidelines. First-time buyers have had a particularly hard time cracking the market and another surge in rates would only make it worse”, Tucker said.

President Joe Biden and House Speaker Kevin McCarthy have so far failed to reach a deal on raising the debt ceiling and the US could default on its debt as soon as June 1, according to Treasury Secretary Janet Yellen.

2. FHFA rescinds DTI-based LLPAs

The FHFA is ditching a contentious loan-level pricing adjustment (LLPA) for conventional borrowers with debt-to-income (DTI) levels at or above 40%, receiving cheers from the mortgage industry.

Industry lobbyists and practitioners argued the fee was impractical, causing logistical and compliance issues, and mistrust among borrowers. The move follows pushback from the MBA and the NAR over changes to LLPA fees that could impact middle-wealth homebuyers and increase overall pricing.

The FHFA is also seeking public input on other new fees, including those for borrowers with higher credit scores and moderate down payments.

3. More Nuggets

🤝 Mr. Cooper Group has entered into an agreement to acquire Home Point Capital for $324 million in cash, the companies announced yesterday. (Homepoint)

⚖️ The delinquency rate for mortgage loans on one-to-four-unit residences decreased to a seasonally adjusted rate of 3.56% in Q1 2023, the lowest first-quarter level ever. (MBA)

🏡 Applications to refinance a home loan rose by 10% last week, compared with the previous week, while mortgage applications for home purchases increased by 5% but were 32% lower compared to the same week last year. (CNBC)

📉 UWM Holdings Corporation, the parent of United Wholesale Mortgage (UWM), reported a net loss in the first quarter of $138.6 million, or 13 cents per diluted share. (Detroit News)

4. Lowest inflation level in 2 years

Wall Street seems to think April’s inflation data clears the way for the Fed to finally hit the brakes on the longest, sharpest series of rate hikes since the early 1980s.

April's consumer price index data shows a 4.9% increase from last April, while the core index — excluding food and energy prices — rose 5.5%. Despite seeming high, these figures are lower than last year's 9.1% and 6.6% peaks.

Market reactions saw bond prices rise and stocks fluctuate, but the most notable shift was in Fed funds futures, with the probability of the Fed maintaining rates between 5.00% and 5.25% jumping from 78% to 95%.

Though there are a few more data drops before the next rate decision on June 14, traders now think it's a near certainty that the Fed will leave rates alone.

5. Mortgage rates move down again

According to Freddie Mac, mortgage rates fell four basis points this week, continuing the sideways movements of recent periods.

The 30-year fixed-rate mortgage averaged 6.35% as of May 11, a drop of four basis points from last week's 6.39%. Sam Khater, Freddie Mac's chief economist, noted the trend as a "welcome departure" from last year's record increases.

This trend aligns with cooling inflation and expectations that the Federal Reserve is done raising the federal funds rate for now.

☀️ See you on Monday!

1 fun thing: Snoop Dogg on AI risk: “Sh–, what the f—?”.

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