Here is something a little unusual. With an eye on possible Christmas presents, for something non-mortgage related here is a gun that shoots a small amount of table salt to kill house flies - and with a five foot range! Returning to something more usual, this morning we learned that mortgage applications rose 1.4 percent in the week ended August 15. The MBA reported that refis were up 3 percent (and account for 55% of all apps) and purchase apps fell 0.4 percent.
On the servicing side of things (most lenders want to service their loans, but not all can actually afford to do so) the CFPB released a bulletin outlining expectations for mortgage servicers that transfer loans; bulletin includes information on how mortgage servicers should pay attention to new rules protecting consumers applying for loss mitigation help or trial modifications. The updated bulletin, which can be accessed here, replaces the CFPB's February 2013 guidance. The CFPB explains that its "concern in this area remains heightened due to the continuing high volume of servicing transfers."
Most view this updated bulletin as a more detailed supervisory tool rather than a departure from the CFPB's previous stance (in place since January) on mortgage servicing transfers. For example, the original bulletin included seven general information requests for certain servicers planning transfers and this bulletin includes the same list except it added the following request: "A detailed description of how the servicer will ensure that it is complying with the applicable new servicing rule provisions on transfers." The CFPB's approval is not necessary for a mortgage servicing transfer unless there is an overriding agreement (e.g. consent order) governing the company. Given the wave of transfers and the corresponding increase in headline pressure, it is not surprising to see continued regulatory headwinds impacting specialty servicers which are likely to further increase the costs associated with growth via acquisitions.
(Speaking of transferring servicing, MSR tapes? I've seen a few. MountainView Servicing Group has had two offerings, the first; a $1.6B FNMA/GNMA servicing portfolio. The package was 94% fixed rate, 94% retail, WaFICO 740, WaLTV 80%, WAC of 3.92%, $225k average loan size, with New York (30.9%), California (12.1 %), New Jersey (11.5%), and Virginia (5.6%); the second a $348M FHLMC/FNMA portfolio with 99% fixed rate/first lien, WaFICO 755, WaLTV 75%, WAC of 4.18%, $234k average loan size, with Colorado (61%), California (15%), Arizona (6.5%), and Illinois (6%); Interactive Mortgage Advisors' offerings included a $3.17B GNMA package with 3.67% Wtd Avg Note Rate, a 12 month Average Escrow Balances of 1.07% of UPB, sub-serviced by nationally known company, with DLQs (not including FC/BK) of 5.37%.)
But the CFPB impacts all areas of residential lending, not merely servicing, and recently released its annual CARD Act, HOEPA, and QM adjustments, as shown in this Ballard Spahr release. "The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank. The adjustments made by the final rule are effective January 1, 2015. The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor. The calculation did not result in a change to the current $1.00 minimum interest charge threshold. However, in the final rule, the CFPB increased the current penalty fee safe harbor of $26 for a first late payment and $37 for a subsequent violation within the following six months to, respectively, $27 and $38.
"HOEPA requires the CFPB to annually adjust the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent of such amount. In the final rule, the CFPB increased the current dollar thresholds from, respectively, $20,000 to $20,391, and $1,000 to $1,020. Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan must not exceed to satisfy the requirements for a QM. The CFPB must also annually adjust the related loan amount limits. In the final rule, the CFPB increased these limits to the following: For a loan amount greater than or equal to $101,953 (currently $100,000), points and fees may not exceed 3 percent of the total loan amount. For a loan amount greater than or equal to $61,172 (currently $60,000) but less than $101,953 (currently $100,000), points and fees may not exceed $3,059 (currently $3,000). For a loan amount greater than or equal to $20,391 (currently $20,000) but less than $61,172 (currently $60,000), points and fees may not exceed 5 percent of the total loan amount. For a loan amount greater than or equal to $12,744 (currently $12,500) but less than $20,391 (currently $20,000), points and fees may not exceed $1,020 (currently $1,000). For a loan amount less than $12,744 (currently $12,500), points and fees may not exceed 8 percent of the total loan amount." But hey, don't take Ballard Spahr's word for it - read all about it in the Federal Register.
The volatility that we saw last week is dissipating from the market. (Let's see what happens in October when the Fed isn't engaged in QE3!) Yesterday we saw a combination of lack of market-moving news from overseas (Ukraine and Israel) and good news here stateside. Housing Starts rose almost 16% in July to their highest level in eight months, and Building Permits increased by 8.1% to a 1.05 million pace, the fastest rate of building applications for single-family dwellings since November. No wonder builders are optimistic! From a year ago, home construction was up 21.7%. Starts on single-family homes, which reflect the bulk of the market, climbed 8.3% in July from June. Construction of multifamily units-mostly condominiums and apartments--rose 33% to a pace of 423,000 units, the highest level since January 2006. We also were reminded about the lack of inflation, in spite of the best forecasts by "experts". The Consumer Price Index was +.1% in July, the smallest gain since February. QE has not caused the widespread inflation many thought - yet.
Originators keep producing, and the Fed keeps buying. The New York Fed's daily MBS operations amounted to $1.591 billion total, or 92.2% of the scheduled $1.725 billion slated for purchase. But rates edged higher, basically because they wanted to, and 30-yr agency MBS prices closed lower/worse about .125.
The economic calendar at midweek features the Fed minutes from the July 29-30th meeting. These come out at 2PM EST, 8AM HST, as the market will no doubt be scrounging for any information and tidbits beforehand. In the early going this morning the 10-yr yield is slightly higher at 2.41% and agency MBS prices are worse a tad.
Executive Rate Market Report:
Generally quiet start early this morning but no improvement in the MBS or treasury markets even with US stock indexes aiming at a lower opening at 9:30. At 9:00 the 10 yr -2/32 2.41%, 30 yr MBS prices -5 bps frm yesterday’s closes. At 9:30 the DJIA opened -15, NASDAQ -7, S&P -3; 10 yr unchanged at 2.41% while 30 yr MBS prices -6 bps in price.
Mortgage applications increased 1.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 15, 2014. The Refinance Index increased 3% from the previous week. The seasonally adjusted Purchase Index decreased 0.4% from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 11 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 55% of total applications from 54% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.8% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.29% from 4.35%, with points increasing to 0.26 from 0.22 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.18% from 4.24%, with points increasing to 0.23 from 0.19 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.99% from 4.04%, while points remained unchanged at 0.03 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.44% from 3.48%, while points remained unchanged at 0.30 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 3.10% from 3.24%, with points decreasing to 0.44 from 0.45 (including the origination fee) for 80% loans.
Yesterday and Monday we got better housing data with the NAHB index gaining 2 points and July housing starts and permits twice as strong as forecasts. Starts up 15.7%, permits +8.1%. The better data set off a run of experts declaring the housing market getting back on track with the outlook much better. The MBA data this morning didn’t co-operate with those more positive reports on purchase apps, down 0.4%. The re-finance sector was widely declared as dead by a few housing experts, saying all re-finances have now been achieved; this morning MBA data showed re-finances increased 3.0% frm the previous week.
This afternoon (2:00 pm) the minutes of the 7/30 FOMC meeting will be released. Always something to chew on with more specifics than we get when the meeting concludes with the policy statement. Likely the minutes will get a little ink, but with Yellen speaking Friday at Jackson Hole, the minutes are somewhat dated given the title of her speech is “The Labor Market”, following her remarks Mario Draghi will also speak on the EU economy.
Not likely MBS prices will improve today with treasuries still unwinding huge long positions. No geo-political reasons for short term traders to buy now, the issues are still out there but this week there has been no fearful news from Ukraine, and Putin is scheduled to meet next week with Ukraine leaders and EU countries. Some relaxation occurring now in Ukraine, Israel and Iraq; nothing really has changed, just not worsening. The fear factor into treasuries has ebbed this week. The economy is back in the headlights. As we noted last Friday, the bond market had become overbought basis the near term; since then prices have slipped and interest rates have Increased a little; the 10 yield up 7 bps frm Friday’s close while MBS prices -36 bps since Friday’s close. Trading volume though is the lowest we have seen this year in both stocks and bonds ahead of Jackson Hole on Friday. The wider outlook is still bullish, a close over 2.48% will change the pattern and turn the 10 bearish frm a technical perspective.
WE SUGGEST KEEPING LOCKED THROUGH THE DAY. POTENTIAL FOR VOLATILITY IS HIGH, NOT MUCH ACTUAL TRADING IN STOCKS OR BONDS THIS WEEK.
PRICES @ 10:00 AM
10 yr note:-5/32 (15 bp) 2.42% +1 bp
5 yr note: -2/32 (6 bp) 1.59% +1 bp
2 Yr note: -1/32 (3 bp) 0.44% +1 bp
30 yr bond: -12/32 (37 bp) 3.23% +2 bp
Libor Rates: 1 mo 0.155%; 3 mo 0.234%; 6 mo 0.328%; 1 yr 0.552%
30 yr FNMA 3.5 Sept: @9:30 102.42 -6 bp (-30 bp frm 9:30 yesterday) 4.0 coupon 105.58 -3 bp (-27 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 103.47 +1 bp (-16 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Sept: @9:30 103.52 -11 bp (-24 bp frm 9:30 yesterday) 4.0 coupon 106.27 -3 bp (-23 bp frm 9:30 yesterday)
Dollar/Yen: 103.33 +0.41 yen
Dollar/Euro: $1.3287 -$0.0033
Gold: $1297.30 +$0.60
Crude Oil: $95.76 +$1.28
DJIA: 16,916.93 -2.66
NASDAQ: 4520.33 -7.18
S&P 500: 1980.58 -1.02