Pending Home Sales Up; Bipartisan Bill Would Change Credit Scoring

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Higher home sales could reside in the immediate future. The pending home sales index was up a strong 1.5% in June. This is after three months of consecutive declines. During those months, existing home-sales growth has been tepid. 

Most of us are familiar with the issues plaguing existing-home sales:

Never-ending price increases and continually contracting supply weigh on sales growth, as they have for the past five years. Maybe something will give soon. Trends don’t last indefinitely. 

One trend we’d like to see end is the homogeneity trend that arose in lending after the 2008 financial crisis. Too many pegs, of varying shapes, are still forced into the same round hole these days. Then all the holes are enveloped in reams of paper. We’ve seen the consequences too frequently: the client’s shoulders droop and his head lolls to one side when ask for yet another data point on his financial standing. 

Competition is a good thing. It drives down prices, improves efficiency, and improves service. It appears that competition on credit scoring is on the way. Perhaps this competition will allow us to be more efficient in better serving the client.

The bipartisan-supported “Credit Score Competition Act” before Congress directs the Federal Housing Finance Agencyto create a process that would allow alternative credit-scoring models to be validated and approved by Fannie Mae and Freddie Mac. This is a big deal because Fannie and Freddie purchase most mortgage originations. Fannie and Freddie look only to Fair Isaac (the FICO score) for the scores.

Fair Isaac is a good company, but alternatives are always welcomed. (After all, customers have alternatives to our services.) 

We understand why the wheels came off 10 years ago. This knowledge should allow us to expand the rulebook to allow entrepreneurs to step to the fore to solve problems. One problem that remains is getting buyers financed and into a home who deserve to be in a home. The other problem is making the process more efficient and pleasing to those who already qualify.

Allowing competitors to compete with Fair Isaac is a step in the right direction, but many more steps can still be taken. 

The Cycling Continues

It appears we’re in the “down” section of another mortgage-rate cycle. 

We’ve mentioned in recent missives the cycling that has occurred in mortgage rates through 2017.   Mortgage rates rose from mid-April to mid-May, and then subsequently rolled over in late June. Quotes on a prime 30-year fixed-rate loan were down to 4%. Before that cycle, we saw rates run-up into March and then pullback into mid-April.  A similar cycle, beginning in January, occurred before the March-April cycle. 

Mortgage rates cycled up to a three-month high a couple of weeks ago. Since then, they’ve cycled down to a one-month low. A quote of 4% on a prime 30-year fixed-rate mortgage is the prevalent quote on the national scene. Quotes below 4% have popped up with greater frequency in recent days. 

The question again is to lock or float?

The Federal Reserve passed on raising the federal funds rate last week. No one expects Fed officials to raise the rate at their next meeting in September. (Fed officials meet every six weeks.) Traders are betting a 98% chance that the Fed will hold past September.

Interestingly, the mortgage cycles have occurred over a declining overall rate trend, with rates moving incrementally lower since spring. We noted last week that we still see comparatively less risk in floating a mortgage rate compared with any time over the past six months. Our sentiment hasn’t changed. But we must always account for the outlier event (the unknown). We say, “comparatively less risk.” Risk never goes away.

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