Freddie Mac, Construction Spending And Refinance Volume

Freddie mac, construction spending and refinance volume were all in the news today.  For the most part today is general a slow news day for the mortgage industry while we wait on the FMOC rate decision tomorrow, ADP employment report and the BLS employment report on Friday.  All three might have a significant impact on mortgage rates if their are any positive or negative surprises.  Freddie Mac reported a decent earnings quarter of $2.2 billion of net income and a $2.2 billion dividend to the federal government.  Freddie Mac was taken over by the federal government back in 2008.  The government invested just over $70 billion into Freddie Mac and the mortgage giant has paid all of that back and then some.  In fact they’ve paid an additional $40 billion to the federalCalifornia government.

Between Freddie Mac and Fannie Mae they guarantee nearly $5 trillion worth of mortgages.  Recently Freddie Mac sold a portion of it’s more riskier portfolio and they attributed that a positive for the company moving forward.  One would expect profits to increase if home loan rates moved back to the mid 3% range for a 30 year fixed mortgage.

Construction spending dipped a bit to .2% in March to an adjusted $1.218 trillion (this report actually came in on Monday).  This is slightly weaker than the very strong month of February where it rose 1.18%.  Despite the overall higher interest rate environment construction spending has been robust heading into the Spring.  It will be interesting to see what happens during the summer months and if the current rate environment will have any impact on the rate of spending for construction.  Also; keep an eye on legislation and/or a possible government shut down later this year-that might have an affect on construction spending.

What should not surprise anyone; refinance volume has been hit harder than purchase volume in the residential mortgage industry.  Despite the higher rates, compared to pre November 2016, purchase volume has not suffered as much as refinance mortgage loan volume.  Reason is; buyers of a home are more likely to accept a higher rate environment than those that already own a home.  Besides; many current homeowners already have a sub 4.25% rate so there is little to no incentive to refinance (unless they want to shorten their term and/or obtain cash back to pay for home improvements or education expenses.).  

As time goes on refinance volume will pick up even if rates do not fall back to lower levels.  Homeowner’s will look to refinance to possibly pay for a home renovation and some will move from a 30 year fixed rate to a 15 year fixed rate term.  If rates do move back down then refinance volume will be very strong as those that have bought in the last 6-12 months will look to reduce their rate and or go with a shorter term.