Thursday, October 30, 2014

Executive Rate Market Report; Lawsuit update on PHH, Lawsky, Castle & Cooke

As mortgage bankers gear up to see what the Shipping Department dresses up as tomorrow, let's take a quick look at some demographics. There is now a larger cohort of unmarried young adults who are driving the overall homeownership rate down as they are less likely to own a home. The creation of household formations plays an important role in homeownership rates among young adults and is one of the main reasons the average age of first time home buyers is now 31 years old.

And just because you settled with the CFPB, or Fannie, or HUD, or whoever, doesn't mean that you're not going to be on the receiving end of a lawsuit (or a complaint) from a borrower. Just ask Castle & Cooke. The "fun" never ends! As a reminder even though the CFPB got its pound of flesh out of Castle and Cooke the issue has now gone to the consumers who have filed a class action lawsuit in July.  C&C is in the "response" period, but the clock is ticking. There is speculation that this case, if successful, could actually establish a legal precedent for repayment of three times MLO commissions from the MLOS, along with fees, interest, and resetting the interest rate to what the borrower could have received. 

Along those lines, congrats to PHH and the industry in general. You remember PHH, right? The PHH that was facing a $16.2 million legal battle over a mortgage modification? The lower court's ruling on damages was mostly tossed out. Reminiscent of the case where the woman sued McDonalds because of hot coffee, if the damages had stuck this PHH case would have made anyone question why any of us write and service loans. Or want hot beverages. 

And many in the industry are waiting for the rating agencies to bear some of the brunt for their mistakes in rating mortgage-related securities. Their wait may be ending as this story describes moves that S&P is making toward a settlement. 

Lastly, "The defendants in the lawsuit brought by Benjamin Lawsky, the Superintendent of the New York Department of Financial Services, using his Dodd-Frank enforcement authority have filed an appeal with the U.S. Court of Appeals for the Second Circuit.  Under Dodd-Frank Section 1042, a state AG or regulator is authorized to bring a civil action for a violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices. The defendants, a large subprime auto lender and its individual owner, are seeking to overturn the district court's order denying their motion to modify a preliminary injunction entered by the court freezing the defendants' assets and enjoining them from engaging in new loan business.  In their motion, the defendants also sought to reduce the fees of the receiver appointed by the district court.  The defendants must file their brief by December 8. In addition to Mr. Lawsky's lawsuit, we have also been following lawsuits filed by the AGs of Illinois and Mississippi using their Dodd-Frank enforcement authority." 

I don't foresee any argument when I claim that most folks have set foot in a bank during their lifetime. Analysis of the 10 largest US banks at the end of the 2nd quarter finds that there were 94,725 bank branches in the country and this group controlled 33% of them (30,858). Of note, the top 5 banks have 24% of all branches nationwide or about 300% more on average than the next 5 largest. Drumroll please... Wells Fargo (6,314), JPMorgan (5,682), Bank of America (5,096), U.S. Bank (3,238), PNC (2,821), BB&T (1,843), Regions (1,673), SunTrust (1,514), Fifth Third (1,348), and Toronto Dominion (1,329). That is a lot of overhead! 

Bank M&A, and one closure, continued to be announced in the last week. Last Friday the National Republic Bank of Chicago, Chicago, Illinois, was closed by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver who in turn entered into a purchase and assumption agreement with State Bank of Texas, Dallas, Texas, to assume all of the deposits. San Diego Private Bank ($340mm, CA) will acquire First Security Business Bank's loans and deposits ($74mm, CA). And Heartland Financial USA ($6B, IA) will acquire Community Bank & Trust ($520mm, WI) for about $52mm in stock or roughly 1.55x tangible equity. 

Plenty of independent mortgage banks would like to see a more level playing field when it comes to bank & mortgage bank originators. So let's talk about the NMLS. "The Greater Midwest Lenders Association 'GMLA' has submitted our comments letter about the proposed changes to the Mortgage Call Report. The GMLA represents 12 Midwestern states that comprise over 5000 state registered company licensees and over 55,000 MLOs. GMLA is calling on the State Regulatory Registry/Conference of State Bank Supervisors "SRR/CSBS" that run the NMLS to establish clear bright lines regarding the definition for mortgage loan applications. The SRR/CSBS proposal also asks for comments regarding multiple new data fields to be included in the proposed Mortgage Call Report. Some of the new fields to be included are tracking of loan amount changes during the application process and the creation of new QM and Non-QM loan data fields on the MCR Standard Report that mortgage brokers typically use for MCR reporting. We urge everyone to submit comments by October 30, 2014.  Click here to download our letter to SRR/CSBS.  For more information on how to comment visit the NMLS web site: NMLS Resource Center." 

For thrills today we had Jobless Claims (283k prior, it came out +4k at 287k), and advanced Q314 Real GDP (+4.6% previously, it was 3.5% annual growth). The Treasury auctions its final fixed rate note of the week with $29 billion 7-yr notes going off later today. The 10-yr is at 2.31% and agency MBS prices are better by a few "ticks" (32nds).

Q3 advance GDP at 8:30 was headline better than expected; the estimate was for 3.0%, as reported 3.5%. The report is the first of three and will likely be revised next month when the preliminary report is released, the advance report misses some of the latest Q3 data that isn’t included in this report; the direction of the revision is not in our wheel house yet. The increase added to 4.6% in Q2 is the largest back to back GDP readings since Q3 and Q4 in 2003. Household purchases fell but increased government spending and a lower trade deficit offset. Government spending climbed at a 4.6% pace, the most since the second quarter of 2009. The pickup reflected a rebound in defense outlays. Consumer spending in Q3 at 1.8% was down from 2.5% in Q2, 70% of the economy is consumer spending and accounted for 1.2% of the 3.5% growth reported. Inventories grew at a slower pace, subtracting almost 0.6% points from growth. Excluding stockpiles, so-called final sales, climbed at a 4.2% pace last quarter, the most since 2010. The trade gap and inventories are two of the most volatile components in GDP calculations, and can show significant revisions in subsequent reports.

Weekly jobless claims increased 3K to 287K, estimated were for a decline of 3K; close enough to call the claims in line with estimates. The 4 wk average fell to 281K from 281,259, the lowest 4 wk average since May 2000. Job growth continues but there remains a huge gap between good decent paying jobs and most of the new jobs coming on line. The Fed is outwardly worried about the underutilization in the labor force; recent employment statistics confirm most of new jobs are at the low end of the pay scale.

At 9:00 the 10 yr note traded at 2.29% -3 bps, 30 yr MBS price +13 bps from yesterday’s close but just 2 bps from 9:30 yesterday. Yesterday prices fell off in the afternoon after the FOMC policy statement. At 9:30 the DJIA opened +47, NASDAQ -16, S&P -5; 109 yr 2.30% -2 bps, 30 yr MBS price +9 bps from yesterday’s close and -2 bps from 9:30 yesterday.

Not so good news out of Europe; six countries in the EU reported consumer prices declined. Deflation in the EU is getting worse according the data. Benchmark German 10-year yields fell four basis points, or 0.04 percentage point, to 0.86% today. Overall German inflation, calculated using a harmonized European Union method, declined 0.1% on the month, according to the median forecast in a Bloomberg News survey of economists.

The Fed ended QE3 yesterday; it was widely expected and with only $15B a month left on the monthly purchases from $85B a month when the QE began it isn’t a huge deal but is getting ink is secular media. In case you missed it yesterday, here is a synopsis of the policy statement:

  • Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate
  • Indicators suggests that underutilization of labor resources is gradually diminishing.
  • Household spending is rising moderately and business fixed investment is advancing
  • Recovery in the housing sector remains slow
  • With appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate
  • The Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year
  • A substantial improvement in the outlook for the labor market since the inception of its current asset purchase program
  • Continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment
  • The Committee decided to conclude its asset purchase program this month
  • The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program

A slightly better start this morning but not much and the stock market is likely to improve through the day n the better GDP. The fly in the pudding in the GDP data, the decline in consumer spending from Q2. Technically we are stepping on eggshells now; the 10 is barely holding its support at 2.30%, yesterday on the reaction to the FOMC the 10 jumped to 2.36% (40 day average) but closed at 2.32%. The 14 day RSI at neutral 50 still holding. The rate markets hanging on but after the beatdown in rates two weeks ago is having a lasting effect that there was no follow-through in the ensuing sessions, since the capitulation the 10 yield immediately climbed from the intraday low at 1.85% to the intraday high yesterday at 2.36%. The way rates easily bounced higher is somewhat of a concern now. Volatility!

PRICES @ 10:00 AM

10 yr note: +10/32 (31 bp) 2.28% -4 bp

5 yr note: +5/32 (15 bp) 1.57% -3 bp

2 Yr note: unch 0.48% unch

30 yr bond: +25/32 (78 bp) 3.01% -5 bp

Libor Rates: 1 mo 0.153%; 3 mo 0.232%; 6 mo 0.323%; 1 yr 0.541%

30 yr FNMA 3.5 Nov: @9:30 103.41 +9 bp (-2 bp from 9:30 yesterday)

15 yr FNMA 3.0 Nov: @9:30 103.68 unch (-17 bp from 9:30 yesterday)

30 yr GNMA 3.5 Nov: @9:30 104.46 +8 bp (+4 bp from 9:30 yesterday)

Dollar/Yen: 109.02 +0.13 yen

Dollar/Euro: $1.2604 -$0.0028

Gold: $1205.80 -$19.10

Crude Oil: $81.60 -$0.60

DJIA: 17,022.63 +48.32

NASDAQ: 4524.96 -24.27

S&P 500: 1975.73 -6.57

Wednesday, October 29, 2014

LOS survey; RESPA-TILA toolkit; LO comp violations still out there

You don't think things are changing? Apple announced it has signed up 500 more banks in addition to the 6 largest US banks it announced during the launch of its Apple Pay service, which is now available today. In the UK, Lloyds Bank is cutting 9,000 jobs. "Lloyds...wants a new type of branch, complete with iPads and facilitated internet discussion screens, enabling chats with staff who may not be physically in the same branch as the customer." And Walmart has recently announced a new banking initiative called GoBank through which it will offer mobile checking accounts with debit cards in its 4,300 US locations by the end of October. Bank analysts will counter with the line of thought that the most profitable bank customers may not shop at Walmart, but still...

USDA step aside: The CFPB has posted its 2015 final lists of Rural and Rural or Underserved Counties on its website. The CFPB has previously posted lists of such counties for calendar years 2011-2014. The lists are relevant to exemptions in several CFPB mortgage rules, including the CFPB's rule requiring creditors to establish escrow accounts for certain first-lien higher-priced mortgage loans.  The CFPB's blog post announcing the posting of the 2015 lists includes links to the various CFPB rules that refer to the lists. 

While we're on the CFPB, "Rob, here is a link to a TILA/RESPA toolkit that Wolters Kluwer put together for its clients. The materials and it seems to be pretty thorough and a great resource for those that don't have a large staff to help guide implementing the rule. There is a Resource center and tool kits - click on tool kits." Hey, compliance is going to cost you money anyway, and this might be a cost effective way to do so. 

Turning to vendors, what is the true market share of Loan Origination System (LOS) providers? "Have you recently replaced this crucial technology for your company? Was the implementation successful? How does your LOS functional experience compare to that of your peers, from a functional suitability and vendor service perspective? Take our 15 minute LOS Technology Insight survey to learn the answers. STRATMOR Group is actively conducting a repeatable, statistically reliable survey to provide lenders with up-to-date, industry-wide objective data for future trend analysis and much needed decision support for internal LOS self-evaluation and/or LOS replacement. Participation is FREE and respondents will receive a high-level summary of overall market share by product/vendor and of implementation success metrics. Note that you must participate in this survey to receive these summary results. Detailed survey results and STRATMOR's proprietary analysis of our findings will also be made available for purchase that will break out the full range of survey questions by respondent organization (independent, bank owned, etc.), origination channels, and by company size (origination volumes). As is STRATMOR's practice, to assure confidentiality, we will conduct this as a "blind" survey. All survey results will be aggregated; individual company results will not be disclosed, nor will we publish the results in a way that would enable individual respondent identities to be derived. To participate in the 2014 LOS Technology Insight, register at STRATMOR LOS Technology Survey Website.

“I haven't read much about LO COMP lately. Is the issue all taken care of, and the CFPB has moved on?" No, unfortunately it is still a source of confusion. And there are still reports of lenders offering programs that are not compliant with the CFPB's regulations, or the intent of the regulations. Examples are too numerous to list, but reports certainly include the following: one independent mortgage bank offers its LOs a deal where the first 100 basis points goes to the house on conventional loans and then the LO keeps everything above that. (Oh, and for FHA loans the house keeps 200 basis points and the LO keeps the rest.) There is chatter of paying LOs different amounts based on conventional and government loans. (Certainly an issue when a borrower is looking at a 95% LTV deal!) I've heard of single originators being offered a branch manager position paid out of profitability on the loans he or she closes personally. And I hear about independent mortgage banks, and even banks, having convicted felons employed in mortgage operations. And no, I don't know what these companies are thinking - but the question is whether or not the consumer could be negatively impacted by policies.

Let's play some catch up with lender, agency, and vendor news. As always it is best to read the full bulletin for complete details!

Hilco Real Estate LLC announced that it has sold its private real estate mortgage lending company - Hilco Real Estate Finance LLC (CEO Mark Filler) - to the Garrison Investment Group. "Neil Aaronson, CEO of Hilco Real Estate LLC, a unit of Hilco Global, indicated that the growth of Hilco's private real estate mortgage lending business had exceeded all expectations and financial projections.  Aaronson said that "following such a successful first year and a half of lending, originating loans in approximately 20 states and rapid expansion of the operations, we decided that the time was right to carefully transition the company to a new capital partner that wanted to aggressively scale the business."

Hey, don't forget that last week Ginnie Mae changed its net worth requirements.

On Q announced that it has opened a new branch office in Gig Harbor, WA which underscores the rapid expansion of the company into the home financing market in the Pacific Northwest. In 2014, On Q opened four branch offices in the Pacific Northwest (Bellevue, Lynnwood - Seattle, Vancouver and now Gig Harbor. The On Q Gig Harbor branch is managed by local residents, and husband and wife team, Peter and Dawn James.  The branch supports the entire Puget Sound area and plans to open a satellite office in the Olympia/Thurston County area as well.

Flagstar Wholesale streamlined the approval process for both the Construction and Renovation loan programs. By attending the full duration of one session, attendees will satisfy both construction and renovation requirements. To register for the Construction & Renovation Programs class, go to under the Help & Training link and then select Wholesale Live WebEx Training. Click the Upcoming Sessions tab to view and register for the date and time that works best.

Arch MI updated its rates for the Non-Refundable Single Premium Lender Paid Mortgage Insurance (LPMI) program. The changes include a new credit score tier for borrowers with credit scores 760 and greater, lower pricing for higher-quality borrowers with credit scores 720 and greater, and further rate refinement for credit score tiers below 680. The new rates also reflect some increases in the rates for credit scores below 660.

Video use is on the rise. Here is "Mortgage News Network Videos" presentation of "Master the Markets" for this week: "The Real Story on Housing and a Fed Preview".

Looking briefly at the markets, we did have some news yesterday. Durable Goods Orders decreased 1.3% in September after declining 18.3% in August. The S&P Case Shiller Home Price Indices told us that the deceleration in home prices continued in August. But despite the weaker year-over-year numbers, home prices are still showing an overall increase, as the National Index increased for its eighth consecutive month.  The large extent of slower increases is seen in the annual figures with all 20 cities; the two composites and the national index all revealing lower numbers than last month. Lastly, the Conference Board's consumer confidence index rose to 94.5 in October from 89 the prior month. By the time the dust settled the 10-year was at 2.28% and 30-yr agency MBS prices were worse about .125.

For today the Treasury sells $15 billion 2yr floating rates at 11:30am and $35 billion 5yr notes at 1PM Eastern time, and then an hour later all eyes turn to the FOMC meeting at its conclusion with the statement out around this time. Most foresee a cessation to MBS agency purchases and a continuation of prepay reinvestments (approximately $20B/month). The agency MBS market is roughly unchanged from Tuesday's close with the 10-year at 2.28%.

Market Report:

The bond and mortgage markets opened slightly better this morning but not much difference from yesterday’s selling that dropped MBS prices 20 bps and GNMA price down 27 bps. Equity markets still driving rates, yesterday the three key indexes had another strong day with earnings continuing to impress investors and a very strong consumer confidence index, the best since Oct 2007.

Today at 2:00 the FOMC policy statement; between now and then the media and analysts will spend all day making projections about what the FOMC will do. Our view; the Fed will end the QE at the end of the month, and the Fed will state it will keep interest rates low for a considerable period. Fedspeak interpreters will focus on each verb and adjective in the statements---what does each word mean and what is the message the Fed is projecting. We go through this process every six weeks. It usually takes a day or so for everyone to get on the same page about what the statement really means going forward.

At the beginning of the year the overwhelming consensus was the Fed would begin increasing the FF rate no later than next April; since then the consensus has been extended more than a few times. The current forecasts complied by Bloomberg is that there is only a 50% chance the Fed will increase the FF rate to 0.5% by next October. Janet Yellen hasn’t retracted any of her comments that she is concerned about the quality of new jobs being created; as long as that is her concern she isn’t likely to move anytime soon to begin increasing short term interest rates. This afternoon will be all about how the FOMC frames the statement; the way markets interpret the phrasing. The Fed has made a huge point in the last few years to be more transparent without being specific, letting markets define the meanings.

Prior to the FOMC this afternoon, Treasury will auction $35B of 5 yr notes at 1:00. Yesterday’s $29B 2 yr auction was in line with previous 2 yr auctions. Conducting an auction one hour before the FOMC is kind of dicey.

At 9:30 the DJIA opened +28, NASDAQ -14, S&P unchanged, the 10 at 2.30% testing its 20 day moving average. MBS prices at 9:30 +2 bps from yesterday’s decline of 20 bps points and down 15 bps from 9:30 yesterday.

The weekly MBA mortgage applications declined last week. The composite index -6.6%, the purchase index -5.0% while the re-finance index dropped 7.0%. The week before was strong, +11.6% composite while the refinance index was up 23.0%. Purchases the prior week were down 5.5%. Based on this, purchases are still slow.

Expect the bond and mortgage markets to stay still until this afternoon’s FOMC statement at 2:00 pm. The bellwether 10 yr note yield at 2.30% is the yield the 10 printed the day before the huge decline in rates; two weeks and back to where rates were before the capitulation of most bond market bears. Not really necessary to point out the volatility. Technicals now are neutral, not bullish or bearish, however that won’t last long. The fixed income markets are at a crucial pivot point now.

PRICES @ 10:00 AM

10 yr note: -4/32 (12 bp) 2.31% +2 bp

5 yr note: -2/32 (6 bp) 1.53% +2 bp

2 Yr note: 0.44% +2 bp from yesterday’s auction

30 yr bond: -11/32 (34 bp) 3.08% +2 bp

Libor Rates: 1 mo 0.152%; 3 mo 0.232%; 6 mo 0.322%; 1 yr .541%

30 yr FNMA 3.5 Nov: @9:30 103.42 +2 bp (-15 bp from 9:30 yesterday)

15 yr FNMA 3.0 Nov: @9:30 103.85 -4 bp (-10 bp from 9:30 yesterday)

30 yr GNMA 3.5 Nov: @9:30 104.42 +3 bp (-21 bp from 9:30 yesterday)

Dollar/Yen: 108.15 -0.01 yen

Dollar/Euro: $1.2741 +$0.0007

Gold: $1,222.20 -$7.20

Crude Oil: $82.24 +$0.82

DJIA: 17,058.66 +52.91

NASDAQ: 4561.17 -3.12

S&P 500: 1990.43 +5.38

Tuesday, October 28, 2014

Wholesale & correspondent products; Trends in housing & rents


This is the season that CEOs are asking underlings for 2015 projections, and of course no one wants to tell the boss that volume is going to go down. The MBA is here to help! It is forecasting that mortgage volume will increase 7.4% in 2015. (Given most people are thinking that home prices will increase by mid-single digits, that is not a lot of unit growth.) Some portion of that will come from refinancing, but no one can argue that as a share of total volume refinances have dropped significantly. Yes, rates dropping a couple weeks ago pushed some loans into the pipeline which will help the 4th quarter for many lenders - but then what? Refinances have declined as a share of overall lending from 69% of mortgage originations in Q2 of 2013 to 45% in Q2 of 2014. Mike Fratantoni (rumored to have the longest title in mortgage banking with "MBA's Chief Economist and Senior Vice President for Research and Industry Technology") stated, "We are forecasting that strong job growth, coupled with still low mortgage rates, should translate to an increase in home sales and purchase originations. "We expect that the 10-Year Treasury rate will stay below three percent through the first half of next year as concerns about broader global issues have caused a flight to quality, with investors seeking safety in US Treasury securities. However, if the global turmoil diminishes and US economic growth continues, we anticipate the rate will exceed three percent in the second half of 2015, continuing to increase through 2016." 

And companies are expanding. Endeavor America continues its mission to be the number one government wholesale lender in America. "Based on annualized FHA endorsements, EA Wholesale is the second largest wholesale FHA lender in the U.S. with a record 431 endorsements in the month of September (per HUD Neighborhood Watch). Not too shabby considering they just opened their doors for business in August 2013. By focusing on its culture and customer service and allowing brokers to work directly with underwriters, management continues to build its raving broker fan base and recently earned a 5 star lender rating for turn times, compliance support, and training by Mortgage Professional America Magazine.  Endeavor's guidelines mirror HUD with no overlays. 580+ FICO, Manufactured homes allowed, 203k streamline or full. 

And on the correspondent side, First Mortgage continues its growth. "Mel Watt's speech at the MBA conference is encouraging lenders to revisit their strict standards of credit overlays. At the conference, he said he can see 'mortgage finance moving back to a responsible state of normalcy, one that encourages responsible lending to creditworthy borrowers...' First Mortgage Corporation celebrates 40 years of business in 2015 and has always been committed to expanding homeownership to the credit worthy; in particular the low-to-moderate income borrowers. FMC believes, as mortgage lenders, it has a duty to offer homeownership opportunities to all credit worthy borrowers through responsible lending. In addition to not overlaying its originations with FICO score limitations, FMC also offers a unique down payment assistance program, available in six western states, which allows maximum financing to qualified borrowers with FICOS scores as low as 580, in addition to those with non-traditional credit. You can substantially increase your originations while providing the American Dream to deserving families. FMC is very proud of its extremely low seriously delinquent rate of just 3.19%.  Partner with the time-tested experts.  To learn more about becoming a Correspondent with First Mortgage Corporation, contact Sharon Magnuson

Speaking of government programs, "VA lending: catch the wave." One offshoot of our nation being "at war" (although we haven't declared war since 1941) is that the active military and veteran population has grown enormously and as a result VA loan originations have shown a huge percentage growth curve. Even the mainstream press has noticed (Washington Post article): since 2011, when VA-backed mortgages represented about 3% of total home-purchase mortgage activity, they've soared to roughly a 7% share.

And Zelman & Associates published its Single Family Rental Survey: "Rental Inflation Defies Typical Seasonal Headwind." Zelman Associates reported that rent inflation increased 3.1% in the third quarter of 2014, which is an anomaly from the 50 basis point average decline over the last two years.  Renter demand has declined over the past three months to 67 on a 0-100 scale, vacant rental supply increased 46.1% in September and the rent growth outlook was 3.8% in Q3 of 2014, indicating deceleration based on current new move-in inflation. Distressed pricing declines to 62.5 in September from 64 in August and new move-in growth declines 20 basis points to 4.2%, which is up 40 basis points from last year. 

Rapid home value growth has been evident over the past two years but beginning in May of 2014 home value appreciation has been slower in each month than the month prior. According to Zillow Home Value Index, home values grew at an annual rate of 6.5% in September, with a median home value estimated at $176,500. Although many people may have benefited from accelerated home value appreciation, the market has shifted to a more sustainable and normal level. Some of the causes of rapid housing appreciation were due to low interest rates, low home values and minimal inventory. 

On the renting side the Zillow Rent Index encompasses 857 metropolitan and "micropolitan" areas. National rents are up 3.5% YOY, with the greatest annual rent appreciation in San Jose (16.1%), San Francisco (15.5%), Pittsburg (12.1%) and Denver (10.1%). As rent prices increase, more people may turn towards the purchase market. 

The latest Origination Insight Report published by Ellie Mae, reported that refinances accounted for 36% of closed loans in September and the closing rate on mortgage refinances fell about 6% to 48.3%, the lowest since February.  The COO of Ellie Mae, Jonathan Corr said there may be life left in the refinance market, as consumers are taking advantage of the low interest rates and recovering equity in their homes. The increase in refinance activity was the first monthly increase in 2014, the report also highlighted that the average number of days to close a loan shot up to above 40 days and the average 30-year interest rate for all loans dropped for the 5th straight month to 4.381%, the lowest rate since July 2013. Ellie Mae also published profiles of closed and denied loans for September 2014: the average FICO score for closed first-lien loans for all loan types was 726, whereas the FICO score for denied loans for all loan types was 694. The LTV for closed first-lien loans for all types was 82 and the DTI was 24/37 while the LTV for denied loans for all loan types was 81 and the DTI was 28/45.  

The NMLS is launching "Your License is Your Business" campaign to encourage businesses and individuals licensed through the System to submit their annual renewal requests in November. By doing so, there will be a significant reduction in the likelihood of a lapse in licensing, since 94% of all renewal applications submitted in November are approved by December 31st.  To renew your license, you can log in to the System, select the state agency and the license type, pay the fees and submit a renewal request, you must also complete the required hours of continuing education prior to submission. As only two-thirds of license renewal requests are submitted in November The NMLS is encouraging licensees to submit a renewal request by November 15th.  More information about renewing your license can be found here

What is new with the debate about the mini-correspondent model? Time flies, and it has been four months since the CFPB released its "guidance" on the mini-correspondent model. (I have guidance in quotes since any lender that ignores it does so at its own peril. There is plenty of conversation about the fuzzy lines between being a broker, a mini-correspondent, and a correspondent, and examples of smaller lenders flipping between the three categories based on product, intent, or avoidance. The criteria that determine the differences are blatant, and include who draws the docs, who does the underwriting, who does the HMDA reporting, and who has the ultimate fiduciary responsibility.

 A broker's value proposition to a borrower is relatively clear ("We can shop your loan around to many investors to find the best rate") but as a broker moves into a mini-corr relationship the objectivity and unbiased alliances become less straightforward. Is the broker doing so to avoid the 3% cap on points and fees? What is being reported to the borrower? What are the branches being allowed to do? Certainly the "manufacturing quality" of the loan is important and lenders must be transparent with their borrowers. The National Association of Realtors (yes, the one with the powerful lobbying effort) is urging the Consumer Financial Protection Bureau not to disrupt the imperative role mini-correspondent lenders play in the home-buying process for Realtors. 

There is a paid web seminar on the topic coming up on Thursday from The American Banker titled "Mortgage Broker or Mini-Correspondent: Guidance and Perspectives to Staying Compliant." The cost is $99 and goes from 2-3:15PM EDT on Thursday. "Hear mortgage compliance experts share insights on the impact of the CFPB's new mini-correspondent guidance. Gain practical advice on how lenders of all sizes can adopt renewal processes, modify business relationships and implement internal infrastructure to remain both competitive and compliant. In this session we will discuss the intent and application of the new guidance, share roles, responsibilities, and risks for different lenders/originators, provide recommendations for implementing proper renewal policies and processes, and discuss the relationships and responsibilities between investors/warehouse lenders and mini-correspondents." 

Trundling over to the markets, what if no inflation is the "new normal"? Good question: Reuters says the price development outlook is evolving and the Fed thus faces a fresh set of problems. While labor has dominated the Fed for years, a new challenge is emerging - "the possibility that weak inflation may be so firmly entrenched it upends the return to normal monetary policy". To respond the Fed could strengthen its commitment to ZIRP (zero interest rate policy) and may even contemplate fresh asset purchases. 

Monday we learned that Pending Home Sales rose slightly in September and are now above year-over-year levels for the first time in 11 months, according to the National Association of Realtors. The index is above 100 for the fifth consecutive month and is at the second-highest level since last September. Of the reasons for not closing a sale, about 15 percent of Realtors in September reported having clients who could not obtain financing as the reason for not closing. 

As far as the actual bond market is concerned, supply and demand, as always, move markets, and traders reported Monday that they saw a dip in supply. This pushed prices higher and rates lower for agency MBS relative to Treasury securities. For titillating news today we'll have September Durable Goods Orders, which are seen higher from last month's lower to negative prints (headline -18.4%). We will also have the August S&P/Case-Shiller house price index (-0.5% last), and October Consumer Confidence (86.0 prior) and Richmond Fed PMI (+14 previously). The Treasury auctions $29 billion 2yr notes at 1PM while the start of the FOMC two-day meeting begins today (the statement tomorrow at 2PM EST). Rates are a shade higher with the 10-yr at 2.28% and agency MBS prices down slightly. 


Executive Rate Market Report:

Prior to 8:30 treasuries were slightly weaker with US stock indexes on another roll, the DJIA at 7:30 +80. Sept durable goods orders released at 8:30 were well weaker than +0.8% expected, as reported -1.3% after August orders dropped 18.2%. Excluding the transportation orders down 0.2% against forecast of +0.5%, ex defense orders down 1.5%. Durables are a volatile series but today’s numbers linked with the huge decline in August should be taken more seriously; however the initial reaction in the markets wasn’t much, the DJIA indicating an open of 60 points and the 10 yr note yield which was at 2.29% prior to the report slipped back to 2.27%, MBS price at 8:40 +2 bps. Waning demand for machinery and computers that signals companies are reluctant to invest in updating equipment. Markets in Europe and emerging nations slow, fewer exports will probably also damp orders in coming months, indicating American manufacturing will cool. The initial reaction to the very soft report was about the usual these days, any less than expected measurement on the economy is pushed off with optimistic reasoning that excuses bad or weak data.

From China; increasing speculation that the Chinese central bank is considering lowering rates to inject liquidity in the slowing economy. The speculation raised stock prices across the emerging market complex. The MSCI Emerging Markets Index climbed 1.1%. In Ukraine movement to form a coalition with more ties to European countries while Russia is said to be sending another caravan to the eastern Ukraine region that is dominated by Russian separatists. Markets not concerned about it.

The August Case/Shiller 20 city home price index was slightly weaker than expectations, the estimates were an increase of 5.8% yr/yr, as reported +5.6%. The increase was the smallest since Nov 2012 and is another indication that lending standards need to be loosened. On a national basis prices rose 5.1% year-to-year after a 5.6% gain in July. The less investor buying has slowed price gains while Dodd/Frank legislation six years ago continues to eliminate first time buyers. Prices in the 20-city index adjusted for seasonal variations decreased 0.1% in August from July.

Moving on through the session; at 9:30 the DJIA opened +72, NASDAQ +21, S&P +8; the 10 at 2.28% +2 bps and 30 yr MBS price -3 bps from yesterday’s close and +1 bp from 9:30 yesterday. Lenders should have priced about unchanged this morning.

The last of the data today; at 10:00 October consumer confidence index was expected at 86.8 from 86.0 in Sept. The confidence jumped to the best level since 2007 to 94.5. A huge change from Sept that is another hurdle for the interest rate markets. There has been no momentary reaction in the equity markets to the 10:00 report so far, not so in the MBS price that at 10:05 is -14 bp on the day and -11 bps from 9:30.

This afternoon at 1:00 Treasury will begin this week’s auctions with $35B of 2 yr notes.

US stocks doing better this morning on better emerging markets over night. Almost 80% S&P 500 companies that have reported so far have beaten earnings estimates, while 61% have surpassed revenue projections, according to data compiled by Bloomberg. Profit for S&P 500 companies rose 6.3% in the third quarter and sales increased 4.1%, analysts predicted. The weak durables orders this morning has been swept away by traders. Better news from emerging markets where global weakness is a headline appears to be trumping the soft data this morning and ahead of tomorrow’s FOMC meeting. Lots of talk about whether or not the Fed will end the QE; some say no, others yes---we say yes. There is no reason now for the Fed to continue it, $15B a month is not much and would have little to no impact on markets. Keeping it alive could be interpreted as the Fed more concerned about the economic outlook. There is no thinking that the Fed has any thoughts now about increasing the FF rate.

The 10 still is holding its support at 2.30% but it isn’t gaining any ground. Two weeks ago tomorrow the capitulation of all shorts happened but in the ensuing sessions there has been no follow-through. Becoming a little more concerning that the bond market hasn’t found buyers, but also no sellers of consequence either.

PRICES @ 10:10 AM

10 yr note: -9/32 (28 bp) 2.30% +4 bp

5 yr note: -4/32 (12 bp) 1.51% +3 bp

2 Yr note: unch 0.39% unch

30 yr bond: -20/32 (63 bp) 3.07% +3 bp

Libor Rates: 1 mo 0.152%; 3 mo 0.233%; 6 mo 0.322%; 1 yr 0.542%

30 yr FNMA 3.5 Nov: @9:30 103.58 -3 bp (+1 bp frm 9:30 yesterday)

15 yr FNMA 3.0 Nov: @9:30 103.95 -1 bp (+7 bp frm 9:30 yesterday)

30 yr GNMA 3.5 Nov: @9:30 104.63 -3 bp (+7 bp frm 9:30 yesterday)

Dollar/Yen: 107.92 +0.10 yen

Dollar/Euro: $1.2751 +$0.0053

Gold: $1234.00 +$4.70

Crude Oil: $81.19 +$0.19

DJIA: 16,870.79 +52.85

NASDAQ: 4526.27 +40.34

S&P 500: 1971.24 +9.61