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October 16th, 2013

Will Uncle Sam become Uncle Subprime?

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DeadlineFor the week ending October 15, mortgage rates posted a minor increase, according to HSH.com’s weekly Mortgage Rates Radar.

The average rate for conforming 30-year fixed-rate mortgages rose by 0.05 percent to 4.39 percent, while conforming 5/1 Hybrid ARM rates increased by just 0.01 percent, closing the Wednesday-to-Tuesday wraparound weekly survey at an average of 3.22 percent.

If lawmakers cannot come to a resolution before the debt ceiling deadline on October 17, mortgage rates will likely rise even more.

“The stalemate in Washington continues without resolution, and investors are growing increasingly concerned,” said Keith Gumbinger, vice president of HSH.com. “Should no agreement be reached, the impending debt ceiling deadline of Oct. 17 will have unknown consequences for interest rates, but it is a good bet that they will rise.”

Uncle Subprime?

The longer this Congressional stalemate continues the more impact it will have on the mortgage and real estate markets.

“The effects of the government shutdown will eventually slow activity in the housing market,” adds Gumbinger.

“However, while that’s more of a political fight over spending priorities, the debt ceiling issue is about being able to pay yesterday’s obligations. In the mortgage market, we know that failing to make agreed-upon payments can ruin credit ratings. Without a lift of the debt ceiling, will Uncle Sam become Uncle Subprime? The hope is that a deal can be reached before there are any effects on the low mortgage rates borrowers have come to rely upon.”

Refinances increase while shutdown hurts purchase apps

In the past two weeks we’ve seen a significant consumer response to mortgage rates at early-summer lows. According to an industry trade group, refinance applications continue to increase while purchase applications decline.

The Mortgage Bankers Association reported on Wednesday that refinance applications were up 3 percent during the week ending October 11. The share of refinance applications increased to 66 percent of all mortgage applications.

What’s behind the decline in purchase applications? The MBA is blaming the government shutdown.

“The government shutdown had a notable impact on the mortgage market last week,” Mike Fratantoni, MBA’s vice president of research and economics, said in a statement. “Purchase applications for government programs dropped by more than 7 percent over the week to their lowest level since December 2007, and the government share of purchase applications dropped to its lowest level in almost three years. Conventional purchase applications dropped as well, but not to the same extent, falling almost 4 percent for the week.”

Both potential home buyers and refinancing homeowners are hoping the government stalemate ends as soon as possible.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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