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December 2013

What Does “Taper” Mean

We all hear the term, “taper” from a Federal Reserve perspective. But what does this term actually refer to? Let’s take a look.

First let’s highlight the Federal Reserve’s bond purchasing program known as quantitative easing or QE. This is a monetary policy utilized to lower interest rates and increase money supply. The FED purchases securities in the marketplace, which in turn increases the money supply and lowers interest rates. The most recent cycle, otherwise known as QE3, started on the 13th September 2012. The current cycle incorporates $85 billion per month of US Treasury and mortgage backed securities.

The term “taper” was first introduced back in May 2013 by Federal Reserve Chairman, Ben Bernanke. This term referred to the slowing and or reduction of QE purchasing. When first announced, the markets experienced a great deal of volatility, pushing interest rates up significantly.

Most recently, The Fed announced plans to cut its monthly purchases of US Treasuries and mortgage backed securities from $85 billion in December to nothing by the end of next year, in a series of small steps, starting with a reduction to $75 billion in January 2014.

To recap, the word taper is not a fiscal policy. The term refers to the slowing of quantitative easing, a Federal Reserve liquidity policy.

Loan Limit Updates for 2014

Loan limits are the maximum loan size for a mortgage loan. These vary by product and even region. Some updates below for the upcoming year.

The U.S. Federal Housing Administration (otherwise known as FHA) will pull back on loan their limits for 2014. As noted above, limits could vary by region. Single family limits will decrease to $625,500, from $729,750 in ceiling areas. This limit will apply to FHA case numbers issued on or after January 1st 2014 to December 31st 2014.

Fannie Mae and Freddie Mac announced there will be no changes to confirming loan limits for 2014. Conforming limit will remain at $417,000. Current limit has been in place since 2006.

Its important to know the above loan limits per product. If a loan falls outside of the mentioned loan limits, clients will have to meet varying criteria, which could include higher interest rates, higher down payments or even reserve requirements (money in the bank post closing).

Week ending 12/13/13

Rollercoaster ride due to economic data, budget talks and upcoming Fed meeting.

Germany announced their industrial production fell for a second month. This triggered speculation that the ECB will also keep borrowing costs low to support growth in Euro zone. No economic news released.

The FHFA announced a GFee increase effective April 1st. This increase of 10 bps, is one of the larger increases we have seen to date.

Overnight Treasuries declined due to speculation that U.S. budget agreement will support the economy and make it easier for the Fed to cut bond purchases. Retail sales increased in November economists predict.

Bond market broke three day winning streak after strong petroleum report. Rates increased. 10 year auction captured some losses back. Reports in Washington suggest budget deal may be close, causing investors to think about taper.

Inflation report less than stellar. U.S. PPI for crude goods drops more than 2.5%, which is biggest decrease since 2012.With inflation lower than expected, Fed may not be ready to tighten policy.
Other notable events:

• Congressman Mel Watt was confirmed this week as Director of the FHFA. The FHFA is the conservator over Fannie Mae and Freddie Mac and as such has tremendous influence over much of the mortgage market.

Week ahead:

• The next Fed meeting will take place on Wednesday. The statement is scheduled to be released at 2:00 EST. Decision regarding the timing of the taper likely will produce a significant reaction. Other market moving reports include inflation indicators and housing reports.

Rates on the Rise Due to Strong Economic Data?

Rates on the Rise Due to Strong Economic Data?


Rates pushed higher this week on strong economic data. Many reports came in stronger than expected. Is this a sign of things to come? Let’s take a look at how we got here.

Thursday-Stronger than expected GDP and Jobless Claims data reported. Factory Orders came in close to expectations.

Freddie Mac reported average 30 year mortgage rate increased week over week to 4.46%, from 4.29%.

Wednesday-U.S. economy added 185,000 jobs last month. This is was less than the 204,000 in October. New home sales also surged-October New Home Sales increased 25% to an annual rate of 444K, above the consensus of 425K. ISM report stated economy is still growing at a moderate pace.

Tuesday-Investors sold MBS ahead of important labor market data coming out over the few days.

Monday-Stronger than expected data hurt MBS. ISM national manufacturing index rose to 57.3, above the consensus. Currently at the highest level since April 2011. Construction Spending also exceeded expectations.

Friday will report non-farm payrolls, unemployment rate and more. These two variables could push the market again.

Borrowers should consider locking in low rates while they can. More volatility may follow.