Wednesday, January 21, 2015

MBA Calls for Folks to Write to CFPB re: Rate Checker;Executive Market Report

A new JPMorgan Chase report indicates that summer jobs for young adults have significantly declined. Less than half of young people (46%) who applied for summer employment were enrolled in 2014 and it's projected that tens of thousands of low-income youths looking for employment in the major 14 U.S. cities surveyed will come up short in the approaching summer months. In JP Morgan Chase's "Building Skills through Summer Jobs: Lessons from the Field" report, there has been a 40% decline in summer youth employment over the past year and only 26% of this age group held a paying job in 2011. This employment deficiency particularly impacts economically disadvantaged youth. In the summer of 2013, low-income teens (family income less than $20,000), were 20% less likely to be employed than high-income teens (family income greater than $60,000). As job opportunities for youth wane, it's imperative that they develop the necessary skills to be competitive in the job market.

Speaking of software, "While Mr. Obama and our elected representatives play political kickboxing over the 50 bp drop in the FHA insurance premium, the folks at LoanScoreCard want you know that they can save you up to 70% on your FHA AUS costs without 'an act of Congress,' so to speak - nice to be able to save that kind of percentage on anything in our business these days. And when the kickboxing match is over, and the broken ribs are counted in Obama's favor, we could see FHA volume tic up by 20%. LoanScoreCard says that their FHA AUS is a better, less expensive way to get FHA TOTAL Scorecard output than using DU or LP. In fact, Elva Johnson, Director of Production at Ontario-based, retail-wholesale lender First Mortgage Corporation signed up with LoanScoreCard, and is seeing annualized savings of 'around $90,000, in just their retail channel so far.'  She says it is designed specifically for FHA TOTAL Scorecard findings "the way they were meant to be," rather than through an agency AUS engine actually designed for agency use. Elva says it is much more accurate and useful, and saves a significant amount of money on every loan.  First Mortgage Corporation is now in the process of rolling out the use of LoanScoreCard with the broker channel to increase the savings and benefit. LoanScoreCard has built this cool model that you can tinker with, and download, to let you plug your own numbers in, to see how much value proposition LoanScoreCard can deliver for you on your FHA AUS.  Nice.  You get to sell yourself on the idea; no pressure, just bottom line numbers."


The MBA is asking its members to contact their Senators and Representative to ask them to contact the CFPB and ask them to remove the "rate checker" tool from its website AND meet with industry and other stakeholder representatives at the earliest date to ensure that this project benefits the consumers we all seek to serve. "The CFPB should take this misleading tool down and instead focus on providing a resource that encourages borrowers to shop more than one lender and makes certain they understand the base rate and all other costs and terms. Please click HERE below to go to the MAA homepage and click on the "Take Action" button to get started. Please contact MBA's Associate Director of Political Affairs, Annie Gawkowski, at 202-557-2816 if you need assistance."

Recently the Independent Community Bankers of America called on the FHFA to withdraw its proposal to restrict access to Federal Home Loan Banks. The ICBA wrote that "the agency's plan to require FHLB members to hold between one percent and 10 percent of their assets in home mortgage loans at all times contradicts Congress and will restrict access to mortgage credit." Community bankers view access to FHLB's as vital to the overall health of their banking community, and proposed "restrictions" would deter their serviceability in the surrounding communities. ICBA Senior Vice President of Mortgage Finance Policy Ron Haynie wrote. "Without ready access to the low-cost advances provided by the FHLBs to community banks, many of those banks would be forced to severely curtail home mortgage lending in the communities they serve." The exact sticking point with community lenders is the FHFA's proposal to implement an ongoing asset test to retain FHLB membership, which would force community banks to either hold more mortgage-backed securities in portfolio,  or have some have suggested, possibly force banks to pass up opportunities to make other types of consumer, small-business or agriculture loans. How is the Federal Home Loan Bank system faring? Well, total outstanding debt climbed to $847.2B in 2014, from $766.8B in 2013, which constitutes the highest year-end total since 2009 when members began running off FHLB borrowing tapped during financial crisis.

 The move in rates (and yes, mortgages are lagging considerably, but still...) has really given a shot in the arm to applications and locks, and residential lenders across the nation are licking their chops over February and March volumes. (Let's hope margins hold up!) In fact this morning the MBA gave us last week's application numbers echoing what everyone was thinking. Apps hit a 17-month high for a second straight week, up 14% with refis jumping 22% although purchases dropped 2.5%.


For more market news, the "benchmark" 10-year T-note closed Tuesday at 1.81% and is within 2.5 basis points of its lowest close since May 2013. And we may just hit it this week, given all the problems overseas. In this country we did have the Housing Starts and Building Permits duo: Starts were +4.4%, hitting its highest level in over six years, but Permits were -1.9% (single family +4.5% but multi-family was -11.9%). In the early going the 10-yr is at 1.78% and agency MBS prices are roughly unchanged.

Executive Rate Market Report:

Last night the President did his State of the Union message; you can read all about it in other commentaries and in the print media but as far as markets are concerned there was nothing of importance for the immediate consumption. Treasuries and MBSs opened abut unchanged this morning, early trade in stock indexes were slightly lower from yesterday’s generally unchanged levels.

At 8:30 the lone data point today; Dec housing starts and permits. Starts were expected up 1.25%, as reported starts increased 4.5% to 1.089 mil units. Nov starts were revised higher, from 1.028 mil to 1.043 mil making the increase in Dec even better. Dec building permits were thought to be up 2.4%, permits declined 1.9% to 1.060. As with starts Nov permits were revised better, from 1.035 mil to 1.052 mil. Dec. strength was in the single-family component. Housing starts rebounded 4.4% after declining 4.5% in November. Expectations were for a 1.041 million pace for November. The 1.089 million unit pace was up 5.3% on a year-ago basis. Single-family permits rose 4.5% while multifamily permits fell 11.8%.

MBA said mortgage applications increased again; applications increased 14.2% from one week earlier. The Refinance Index increased 22% from the previous week. The seasonally adjusted Purchase Index decreased 3% from one week earlier. Conventional refinance applications increased 21% relative to the previous week, while government refinances increased 29%. The increase in government refinances was driven by a 57% surge in applications for FHA loans, which also boosted the FHA share of refinance applications to 5.2% from 4.1% the prior week. The refinance share of mortgage activity increased to 74% of total applications, the highest level since May 2013, from 71% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.80%, the lowest level since May 2013, from 3.89%, with points increasing to 0.29 from 0.23 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 3.86%, the lowest level since May 2013, from 3.88%, with points remaining unchanged at 0.23 (including the origination fee) for 80% LTV loans.

Tomorrow will be a watershed day for the European Central Bank, as it decides whether to launch large-scale government bond purchases, known as quantitative easing. Will the ECB sets an explicit target amount for QE, or leaves it vague? So far since the financial collapse in 2008 the ECB has disappointed each time there was a stimulus of any kind presented to markets. With each attempt to fight the debt problems using stringent austerity policies it wasn’t enough and southern Europe’s economies continued to falter. In the last three years global markets have been disappointed on every ECB decision. The WSJ just said the discussion going on is for $700B of purchases debt over the next year at $58B a month.

Greek elections three days after the ECB meets that could determine the country’s future within the Eurozone. The ECB probably wouldn’t want to buy Greek debt under these uncertainties. The bank could get around this by setting a minimum, investment-grade threshold that would leave Greece and Cyprus out for now. If the current Greek ruling party loses there is a fear that Greece may leave the EU. Greece can’t handle the austerity put on it by the ECB, its debt is choking the country; non-performing loans (90 days), $89.4B The economy has shrunk 25% since its peak in mid-2008.

The DJIA opened -96, NASDAQ -16, S&P -7. The 10 at 9:30 -1 bp to 1.79%; 30 yr MBS price -3 bp.

The session is starting with high volatility, no driving news today so far. The technical picture still looks good but a corrective move back to 1.90% for the 10 yr (1.78% currently) cannot be ruled out. Not happening today but tomorrow and again next Monday on the Greek elections may pose high hurdles to overcome. The 10 and MBSs are both overbought in the near term. We have support on the 10 yr at 1.90% and 102.00 for Feb FNMA coupon -60 bp from the present price.

PRICES @ 10:10 AM

  • 10 yr note: +4/32 (12 bp) 1.78% -1 bp
  • 5 yr note: +1/32 (3 bp) 1.1,28% unch
  • 2 Yr note: unch 0.50% unch.
  • 30 yr bond: +17/32 (53 bp) 2.36% -2 bp
  • Libor Rates: 1 mo 0.168%; 3 mo 0.256%; 6 mo 0.355%; 1 yr 0.611%
  • 30 yr FNMA 3.0 Feb: @9:30 102.61 -3 bp (-8 bp from 9:30 yesterday)
  • 15 yr FNMA 3.0 Feb: @9:30 104.62 +3 bp (-7 bp from 9:30 yesterday)
  • 30 yr GNMA 3.0 Feb: @9:30 102.90 -5 bp (-33 bp from 9:30 yesterday)
  • Dollar/Yen: 117.48 -1.34 yen
  • Dollar/Euro: $1.1602 +$0.0052
  • Gold: $1301.70 +$7.50
  • Crude Oil: $47.54 +$1.11
  • DJIA: 17,456.73 -58.50
  • NASDAQ: 4652.77 -2.08
  • S&P 500: 2022.08 -0.47

Monday, January 19, 2015

ALTA's opinion of "Know Before You Owe"; Piece on CFPB's Enforcement Actions


Pretty much everyone knows that today is considered a legal holiday and cannot be included in the 3-day rescission period. The bond markets are closed, but plenty of lenders are open with their workers commuting in. If you think that the oil price decline is all rainbows and unicorns, think again. Yes, it is cool to spend less than $50 to fill up a gas tank. But its impact will be felt in many states such as Alaska, Texas, North Dakota, and Alabama. And around the world things will change - just last week this caught my eye: "Oil industry supplier Schlumberger to axe 9,000 jobs" - it seems the company is having a workforce reduction of 7% following big spending cuts by energy customers.

But wait! "ALTA Says New CFPB Mortgage Forms Disclose Inaccurate Fees"! "The American Land Title Association (ALTA), the national trade association of the land title insurance industry, released the following statement from Chief Executive Officer Michelle Korsmo in response to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray's speech at the Brookings Institution:


"'ALTA and its members support Director Cordray's efforts to help consumers gain greater control and understanding of their real estate transaction, however, we remain concerned with the Bureau's new Closing Disclosure, which goes into effect Aug. 1, 2015, and replaces the current HUD-1 Settlement Statement. The Closing Disclosure misleads consumers about the actual price of their title insurance policies,' said Michelle Korsmo, ALTA's chief executive officer. 'We urge the CFPB to take swift action to ensure consumers receive the most accurate information about their mortgage costs, including title insurance premiums and settlement services.'


"'Unfortunately, the current Know Before You Owe forms will create confusion at the closing table for many consumers. In nearly half of the country, title companies are required by state law to charge title insurance premiums and discounts in a manner different than the Bureau would have them disclose those fees to the consumer. The Bureau must take steps to disclose accurate costs of title insurance premiums and settlement services to meet their goal of educating consumers of the true costs of owning a home.'


"Title and settlement agents will have to provide additional disclosure forms to consumers at closing to show the actual title insurance premiums charged and to prove compliance with state law governing industry-filed rates. We support a cleaner real estate transaction but not at the expense of consumers understanding of their actual mortgage costs.'


"'We agree with Director Cordray that an educated consumer is a more confident and empowered consumer. Our economy can speed up its recovery if we provide more stability, growth and affordability in the mortgage market. We will continue to work with the CFPB and our industry partners toward commonsense solutions that decrease consumer uncertainty and bring demand back into housing market.'"


Vin Biscoglio with Village Mortgage writes, " regarding the CFPB and the Rate Checker tool,  One would wonder, if the CFPB had spent money to develop a tool called 'Cost to Rehab Our New Headquarters' Building' prior to them spending $114 - $145 million to renovate their downtown HQ, how much they would have been able to save? This agency continues to show their cards as to what their agenda truly is.  By selecting only chosen companies and not disclosing costs and APR's, a suspecting taxpayer should wonder where the protection is from the agency started to do just that.


Yes, there is a lot going on and the Collingwood Group has a new survey to help monitor things regarding the state of the Federal Housing Administration. With news breaking last week that President Obama has directed FHA to cut mortgage insurance premiums, FHA loans are poised to become more prominent in the housing market. What are your most pressing concerns for FHA moving forward? Here is the link.

Keeping on with what's going on, we have conferences coming up:

Join Texas Mortgage Bankers Association (TMBA) for the Southern Secondary Market Conference scheduled on February 2nd-3rd. This 5-session event will cover the following topics: New Product Strategies, Perspectives on the Market for Mortgage Servicing Rights, GSE and MI Update, The New Normal of Secondary Marketing, and Demystifying Affordable Housing Finance.  Click the link for registration.

Attend MBA's National Advocacy Conference on April 14 & 15 to find out what the industry issues are, learn how they affect your business, and get tips and talking points for discussions with lawmakers. Then join your colleagues on Capitol Hill for a day of democracy in action. Click the link for more information.

Turning to the markets... there are none! Many lenders are closed for the holiday. So take any rate sheet pricing with a grain of salt since most lenders will take Friday's closing prices, incorporate what happened in Europe (like Moody's downgrading Russian credit to near-junk bond ratings), put in a little cushion, and send it out.


Friday, January 16, 2015

Student Debt & Millennial's Impact on Housing

Poor Baby Boomers. The industry is so fixated on waiting for the "trophy generation" Millennials to figure out what they want for housing (see updates a few paragraphs down) that no one seems too concerned about older folks. But the National Reverse Mortgage Lenders Association/ Risk Span Reverse Mortgage Market Index (RMMI) grew for the tenth straight quarter. The RMMI, which evaluates trends in home values, home equity and mortgaged debt of homeowners, aged 62 or older every quarter, has reached its highest level since Q3 of 2007 at 183.87, a 2.5% increase from Q2 of 2013. The index indicates that Americans 62 years old and older now have more equity in their homes since 2007 and senior home values have grown by more than $97 billion in Q3, whereas collective home equity continues to increase, reaching a total of $3.84 trillion.

They aren't making any more Millennials either. Young adults today, often called the millennial generation, are more likely to be foreign born and speak a language other than English at home, compared with young adults in 1980...and take pictures of themselves and broadcast them over the internet. The U.S. Census Bureau pegs the Millennial group as age 18-34, thus born between 1981 and 1997. That definition is good enough for me.

Maybe some of them will go to college for free. Orange County is not exactly the hot bed of liberalism and progressive thought, and this article on free junior college proves it. But it does raise some issues about the cost of a college degree obviously impacting future home buyers.

Because overall, student loan debt lowers the likelihood of homeownership by age 30 or so for a group of individuals who attended college during the 1990s. If you don't believe me, ask the Federal Reserve Bank of Boston which published the most recent comprehensive study on the topic.

Remember, however, that our government earns income from all those ex-college students making their debt payments. The last figure I saw came from USA Today in late November 2013, and it noted that our government ("we're here to help") made a $41.3 billion profit for the 2013 fiscal year. There are companies out there, however, that are actively refinancing student debt - such as San Francisco's Social Finance.

Yes, a frequent news item is the level of student loan debt outstanding. The claim in the press is that student loans that young adults are saddled with are preventing them from purchasing homes. What is the current policy of how student loans are factored into a borrower's ratios? Here is exactly what FNMA has to say: "Fannie Mae requires that all deferred installment debt, including student loans not yet in repayment, be included in the calculation of the borrower's debt-to-income ratio. In determining the payment for deferred student loans, Fannie Mae currently requires that the lender obtain a copy of the borrower's payment letter or forbearance agreement or calculate the monthly payment at 2% of the balance of the student loan. Research has shown that actual monthly payments are typically lower than 2%. In addition, many student loan repayment structures now use an income-based approach in calculating changes in the payment due over time. As a result, Fannie Mae is modifying the monthly payment calculation from 2% to 1% of the outstanding balance. In addition, for all student loans, regardless of their payment status, the lender must use the greater of the 1% calculation or the actual documented payment. An exception will be allowed to use the actual documented payment if it will fully amortize the loan over its term with no payment adjustments." Therefore even if the payment is deferred we still have to factor in either the actual future payment or use the 1% calculation.

CNBC reports in 2014 renters paid 4.9% more than they did in 2013. Analysts say increases like this will eventually push Millennials into home ownership. Here's a great short video from The RE Source and Dave Savage of Mortgage Coach on working and winning with Millennials in Real-Estate and Lending. The guys talk about what matters most, and how to best communicate with this younger generation that currently makes up 36% of the workforce.

Other countries are dealing with this as well. And they have a few creative things going on overseas with regard to students and home buying. For example, this from the UK.

Last year I attended a school graduation where one of the graduates showed up to the ceremony wearing prison stripes, holding a ball and chain strapped to his leg, and a sign that read, "Class of 2014: Part of the Debt Chain Gang." Some may think it's well within his rights to use the event to create awareness....I however think a kindergarten school graduation is no place for political discourse. But the facts are the facts: young adults are being saddled with harder economic realities than generations past. Some may even attempt to quantify their misery...and they have. It's called the Youth Misery Index; the index adds together youth unemployment, average graduating student debt (in thousands), and national debt per capita (in thousands). Youth unemployment is at 18.1%, one of the highest levels since World War II. Average graduating student debt has reached $30,000. National debt per capita is $58,400....add it up and the Youth Misery Index for 2014 comes out to 106.5. In 2013 the index was calculated at 98.6; in 2012 it was 95.1; in 2011 it was 90.6; at the start of the financial crisis the index was 69.3....when the YMI was first calculated back in 1993, the American youth's misery was 53.1. Fun with numbers.

Wells Fargo Securities, LLC Economics Group recently released an article titled, "Making Sense of Household Formations", predicting that household formations should strengthen along with the economy in the coming years. Household formation drastically fell during the recession and has remained low over the past few years. Between 2008 and 2010, only 500,000 new households were formed in the United States, compared to the typical rate of 1.3 million per year. The downfall of household formations can be attributed to an increase in loan debt, growth in college and trade school enrollment, lack of job opportunities and weak income growth. These factors have led Millennials to move back home with their parents for a prolonged period of time. Data suggests that of those aged 25-34 years old, 13.9% live with an older family member, an increase from 10.8% in 2005, which means more than 1.5 million young adults are living at home. The sluggish rate of household formations may be the cause of the slow housing recovery. Fortunately, growth in household formations should be seen this year, due to an improving job market. Non-farm employment growth has increased and the unemployment rate has dropped. Wells Fargo Economic Group predicts that household formations should rise to 1.5 million in 2015. To learn more about Wells Fargo predictions, click here.

Turning our collective gaze to the markets, the smartest guys in the room believe that the Federal Open Market Committee (FOMC) will vote to begin increasing interest rates sometimes this year. The FOMC is made up of twelve voting members, including seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and four additional Reserve Bank Presidents who rotate annually. There are currently two vacant seats, so the voting power of the FOMC is predominantly in the hands of ten people. At the FOMC's December meeting, there were mixed reviews of when interest rates should increase. Some members recommended that interest rates should increase early this year as the economy should reach full employment by the end of 2015 or 2016, whereas others believed rates should increase mid 2015-to later in the year as inflation indicates indifferent demand.

That is all well and good, but there is a lot going on in the day-to-day security markets. Investors are selling their higher coupon securities and buying lower coupon securities, resulting in some wild price movements out there. And overall MBS prices are lagging Treasury securities - who wants to pay 106 for something that is going to pay off next week at 100 (par) resulting in a 6 point loss? With 10y rate 1.76%, current coupon basis 60bps, and primary secondary spread 130bps primary residential mortgages rates are being set ~3.625-3.75%.

Yes, mortgage rates are mostly influenced by supply and demand. Not only are lenders producing lots of mortgages, but (again) the New York Federal Reserve Bank announced readiness sale for next Tuesday with four odd lot GNMA pools totaling a max of $23.7 million. Priming the pumps! And there are certainly thousands of analysts at investors and Wall Street firms trying to second guess each other on prepayments, market direction, coupon spreads, how the price of oil will change things, and so on. Stay tuned!

Rate Market Report:

Prior to 8:30 the 10 yr yield was at 1.71%, slightly lower than yesterday’s 1.72% close. MBS prices early on were down 20 bps from yesterday’s close. CPI hit at 8:30; the overall price index was down 0.4% right on most forecasts, when food and energy are eliminated CPI was unchanged from Nov. Yr/yr overall consumer price index +0.8%, yr/yr core +1.6%. The decline was the biggest since Dec 2008, most due to collapsing oil prices, the core is a more reliable picture. No sniff of inflation in prices, similar to yesterday’s producer price index. The initial reaction the 8:30 report pushed the 10 yr up to 1.74% and MBS prices down 23 bps. The Fed has poo-pooed the decline in crude; Yellen’s comments that the drop in fuel won’t reverberate through the economy. Most all data released recently, here and global, continue to show that inflation fears are wasted. Deflation remains a major fear in Europe and in the US the Fed has not been able to pull inflation close to its target.

No matter how you cut it, inflation is a myth. The Fed is expected to begin increasing rates my mid-year based on Yellen’s recent press conference. The decline in energy prices and no pricing power in any industry is troubling the Fed now; increasing the FF rate too soon may derail the economy. All of that bullish talk coming from the Street that everything is good has been questionable, now reality may sway the Fed to hold rates low much longer than most expect. Federal Reserve Bank of Boston President Eric Rosengren said this week that he wants to hold off on raising rates until there is more evidence of firming inflation. “We need to see evidence to make us confident that it’s going to move back,” he said on Wednesday. “Based on the data right now, I’m not particularly confident.”

Dec industrial production declined 0.1% as was expected. Dec capacity utilization at 79.6% from 80% in Nov. The two reports at 9:15 had little influence in the markets. At 9:55 the U. of Michigan consumer sentiment index, expected at 94 from 93.6, as reported sentiment.

The price of crude oil has stabilized in the last few sessions, as it settles interest rate markets won’t decline much more before a round of long covering will push rates back up a little. Any decline in prices in treasuries and MBS markets won’t alter the wider bullish outlook. The same technical observation is occurring in the stock market. Stocks and bonds are currently stretched to excess; we are looking for both markets to reverse in the next few sessions.

The trade today is positioning for the long three day weekend; MLK birthday. Already the 10 yr note rallied earlier driving the yield to 1.70% earlier this morning but now +4 bps to 1.76%. Stock indexes were trading down 70 points in pre-opening trade. In less than 30 minutes the index that opened lower, down 17, the index rallied to +50, reversed again and at 10:10 -55.

High volatility in financial markets is a catharsis for traders and investors as stocks decline along with interest rates. High levels of uncertainty will not abate for weeks. Both stocks and bonds and MBSs are presently overdone, we expect interest rates will move a little higher as a result, we see the same thing for equity markets. Mortgage prices very volatile; lenders won’t pass on all of market gains.

We haven’t changed our bullish outlook but as noted yesterday and again here; the rate markets are about to reverse with prices working lower before the bullish trade resumes.

PRICES @ 10:15 AM

  • 10 yr note: -14/32 (44 bp) 1.77% +5 bp
  • 5 yr note: -11/32 (34 bp) 1.23% +6 bp
  • 2 Yr note: -3/32 (9 bp) 0.46% +0.5 bp
  • 30 yr bond: -26/32 (81 bp) 2.40% +4 bp
  • Libor Rates: 1 mo 0.168%; 3 mo 0.253%; 6 mo 0.358%; 1 yr 0.622%
  • 30 yr FNMA 3.0 Feb: @9:30 103.00 -30 bp (-33 bp from 9:30 yesterday)
  • 15 yr FNMA 3.0: @9:30 104.81 -39 bp (-16 bp from 9:30 yesterday)
  • 30 yr GNMA 3.0: @9:30 103.71 -47 bp (+1 bp) from 9:30 yesterday
  • Dollar/Yen: 117.26 +1.09 yen
  • Dollar/Euro: $1.1544 -$0.0089
  • Gold: $1268.10 +$3.30
  • Crude Oil: $47.12 +$0.87
  • DJIA: 17,268.26 -52.45
  • NASDAQ: 4569.72 -1.10
  • S&P 500: 1990.61 -2.06

Wednesday, January 14, 2015

Industry Reaction to CFPB's New Site is Swift and Stinging!


CFPB went and changed that with its announcement yesterday regarding telling consumers how to own a home, uh, actually how to partially shop for mortgages from large lenders. Before we get to CFPB possibly overreaching its purpose, how about some good news?  The Mortgage Bankers Association, echoing what lock desks already knew, said its seasonally adjusted index of mortgage application activity jumped 49% last week - its largest weekly percentage gain in over 6 years. Rates have helped: refis were up over 66%, and purchases were no slouch being up 24%.

Of course, given that around 30% of home purchases are all cash and then, when one actually owns a home, the focus is on utility bills, property taxes, HOA issues, and buying the right linen, one wonders why "Owning a Home" is focused on rate shopping. But more on that soon...

An originator from New Jersey wrote, "I am getting hammered with this all of a sudden. Is it the end goal of the CFPB to move into the primary market by merging with FHFA? I found this to be the most deceptive information ever produced: 'Getting quotes from multiple lenders puts you in a better bargaining position. If you prefer one lender, but another lender offers you a better rate, show the first lender the lower quote and ask them if they can match it.' This violates the MLO comp Rule. Further, it would establish violations of the Disparate Treatment for many lenders. You need to read through this through everything.  In some places it uses Brokers and Lender and in other its uses only Lender. There is no APR. Imagine if I advertised a rate without an APR."

And this note: "If we ever said to a regulator that we had the Best Deal on rates and fee, they would write us up every time. No one can claim to have the best deal. How do you gauge that? We're almost back to shopping using the TIL and APR calculation. And look what that got us."

From Washington came, "The CFPB's initiative is a noble effort, especially their rate shopper tool. I guess the scariest factor will be whether or not it will include lender fee adjustments that substantially affect the rate we offer the client? And, where will the consumer get their credit score that reflects a mortgage credit scoring model? Surely not from Credit Karma. I don't really know how that website generates a score for the consumer, but it is notoriously inaccurate for estimating a consumer's mortgage credit score (either good or bad, I've seen it go both directions)."

It went on. "And most surprisingly missing from Mr. Cordray's presentation was recommending to the public to check the CFPB's and state regulators' enforcement history and stay away from lenders who have had enforcement actions against them. Honestly, part of the reason that consumers probably doesn't shop many lenders, is the simple fact that many consumers don't have the time to sit through an hour to hour and half interview with multiple lenders who do explain all of the loan options and accurately gauged the consumer's income and credit, etc. If a lender says they can do this initial process in 5-10 minutes on the phone that is your first sign to keep shopping. All the CFPB did by announcing their initiatives to 'protect' the consumer is show us how little they understand the down and dirty actions we loan officers have to do each and every time we meet with a consumer and try to help them with their home financing in today's lending world."

Ken Perry, President and CEO of the Knowledge Coop writes, "This is so strange - the CFPB is becoming Lending Tree without the funding! The CFPB has created a way borrowers can get a rate quote based on their circumstances! This is insane! Its site is in beta and you can see it HERE. I am not sure what regulators are thinking with this but it is out there so we need to plan on how to deal with it. Here are my initial thoughts: 1. It is not quoting APR. The fine print shows that the rates are based on -.5 in rebate or .5 in fee... but it is REALLY small print. I am pretty sure the CFPB would take action against somebody using that small of font on a disclosure. I had to get my readers out just to see what it said! 2. I priced it out with my favorite loan officer who is on the lowest comp plan her company provides (yes, she has a 'pick your rate sheet' comp plan) and she was right in line with the lowest rate quoted today. The interesting thing is that if borrowers see this then she is the only one who will get that loan, because borrowers often want the lowest rate. For her this is awesome because she can send the link to every borrower without being concerned with the borrower leaving her. If she was on the highest rate plan her company offers then she would be off the charts on this site. So, I can totally foresee LO's with low comp plans using this to seal the deal and show the consumer that they are the lowest the CFPB has been able to find. Does this then drop rates all over the US? If low cost LO's figure out how to use it then it just might.

Ken's note finishes with, "3. I think the CFPB has clearly crossed a line here. The government posting expected rates while not knowing the exact circumstances of every borrower is crazy. You know that 534 FICO borrower who saw they were a 765 on and has a foreclosure less than a year ago is going to cry foul when you don't drop him/her right into the CFPB rate range. This is crazy!"

Another note commented, "Is this for real or is he still not getting it? The FRB said that SRPs and YSPs are the same form of compensation. So, what are the differences?  How many banks, in the current mortgage environment retain all their loans in a portfolio? 'Consumers should realize that their business is selling mortgages and that lenders and brokers have different business models and make money in different ways.' If the loan doesn't close they don't get paid, why would a borrower ever want the opposite, where the institution got paid whether the loan closes or not? Heck, some banks have been running 90-120 days in underwriting, denying HARP loans that should be approved, and they now want someone to originate loans with no incentive? This is the disconnect between government and private business. And why doesn't the CFPB suggest a person shop for a Realtor the same way?"

John Hudson opined, "The CFPB has launched a website to quote mortgage rates in order to encourage consumer shopping. I think we can all agree that consumer shopping is good. However, the CFPB's website apparently only pulls data from 'a mix of large banks, regional banks, and credit unions'. ...Why not mortgage brokers? Their data is pulled from a private firm from CA which does market research and offer 'mystery shopper' services. In statements today, the CFPB Director Cordray seemed disappointed that half of consumers only talk with one mortgage firm before they if he doesn't believe that consumers can find a mortgage professional they can trust the first time. Will the CFPB launch a site posting auto financing rates soon? How about credit cards? What about what gas stations are charging at various areas around town? How monitoring the price of color copies? I'm curious to hear what other Mortgage Professionals have to say. Will this help the consumer shop? FHA, VA, and USDA rates are not options on the site. Is the CFPB overreaching on their mission here? And why not get rate quotes from mortgage brokers?"

Turning briefly to the markets, yes, Chase's earnings fell short of estimates ($1.19 versus $1.31) - so are the results poor or were the people who created the estimates misguided? Wells Fargo, however, was right on the money ($1.02) for the fourth quarter. (And once again folks are asking, "If these big, complicated banks can produce their earnings only two weeks after the end of the quarter, why do I have to wait a month for my accounting group to do the same thing?")

Executive Rate Market Report:

Dec retail sales this morning shook markets. Sales were generally expected to be down 0.1%; as reported sales plunged 0.9%, ex auto sales -1.0%. Adding to the soft retail Nov. originally reported up 0.7% was revised to +0.4%. We have been warning the economy is weaker than the financial world was trying to push down our throats. Toward the end of Dec all chatter was positive that Holiday shopping would be a blow-out strong season for retailers; obviously not the case based on the data this morning.

Prior to 8:30 when sales were reported the stock indexes were looking OK, immediately after the report indexes dropped like that stone and the 10 yr prior to 8:30 at 1.89% -1 bp declined to 1.80%. 30 yr MBSs up +53 bps in price from yesterday’s close. Also at 8:30 Dec import prices were thought to be -2.7% as reported down 2.5%. Export prices thought to be down 0.5% fell to -1.2%. Yr/yr import prices -5.5%, export prices -3.2%.

At 9:30 the DJIA opened -182, NASDAQ -45, S&P -17. The 10 at 1.80% -10 bps and MBS prices +47 bps from yesterday’s close.

Markets were shocked on the weak retail data this morning. Last year investors were generally ignoring soft data points as anomalies, with no other place to invest global investors and domestic investors were piling into equity markets, the sector of the economy that didn’t jump into the pool, consumers, were verbally rebuked by analysts that the retail investor was not joining the party. Looks like the little person id the correct thing and stayed away. The is no way the financial markets can paint over the sales report, retail sales haven’t been close to the forecasts from economists and analysts.

Here we go once again with forecasts being lowered on the global outlooks. The World Bank cut its outlook for global growth Tuesday, saying a strengthening U.S. economy and plummeting oil prices won’t be enough to offset deepening trouble in the Eurozone and emerging markets. The Bank expects the global economy to expand 3% this year, up from 2.6% in 2014, but still slower than its earlier 2015 forecast of 3.4%. The Bank said the US is the only bright spot in the world; continuing the question whether the US can hold up as the rest of the world slips?

The data and economic forecasts continue to be revised downward each time the World Bank, the IMF, the US Fed and the ECB as well as China and Japan going back to a year ago have consistently been lowered from the previous forecasts. Those lower revisions last year didn’t get traction with investors, this year will be different with any weak data not likely to be pushed under the rug. The US and Global economies continue to refute all those positive outlooks that call for increased growth. Central banks are not able to get any traction on moving inflation up; deflation fears are increasing. Two weeks ago and through much of last year market participants were completely convinced the Fed would be4gin increasing rates by mid-year; now many are beginning to think the Fed won’t (can’t) increase rates this year as global economies and the US outlook softens.

Nov business inventories were up 0.2%, in line with 0.3% expected. Not much direct interest in it but will play into Q4 GDP.

This afternoon Treasury will sell $13B of 30 yr bonds re-opening the 30 issued in Nov. Yesterday’s 10 auction based on comparing demand to previous 10 ye auctions was a weak auction. By the end of the day yesterday those that bought the 10 were already in the black. The 10 auction had a yield of 1.93%, now at 1.82%.

MBA reported mortgage applications the week ending Jan 9th increased 49.1% from the previous week. The refinance index up 66% while purchase up 24%. The refinance share of mortgage activity increased to 71% of total applications from 65 percent the previous week. I have nothing to say on that; reads like that should be taken with that grain of salt.

Market volatility remains in both stocks and bonds and MBSs. Intraday trading has increased; yesterday the DJIA had a 425 trading range, up 282 in the morning, then declining to -143 before ending about unchanged (-27 points). All technicals remain bullish but with the swift decline the 10 yr is approaching overbought levels on the momentum oscillators. There will be no relief in volatility through the rest of Jan. On Jan 22nd the ECB meeting and on Jan 25th the Geek election.

PRICES @ 10:15 AM

  • 10 yr note: +21/32 (66 bp) 1.83% -7 bp
  • 5 yr note: +14/32 (44 bp) 1.28% -8 bp
  • 2 Yr note: +4/32 (12 bp) 0.48% -7 bp
  • 30 yr bond: +50/32 (162 bp) 2.43% -7 bp
  • Libor Rates: 1 mo 0.166%; 3 mo 0.252%; 6 mo 0.359%; 1 yr 0.620%
  • 30 yr FNMA 3.0 Feb: @9:30 102.94 +47 bp (+52 bp from 9:30 yesterday)
  • 15 yr FNMA 3.0: @9:30 104.81 +6 bp
  • 30 yr GNMA 3.0: @9:30 103.98 +53 bp
  • Dollar/Yen: 116.72 -1 21 yen
  • Dollar/Euro: $1.1784 +$0.0011
  • Gold: $1238.80 +$4.40
  • Crude Oil: $46.49 +$0.60
  • DJIA: 17,459.23 -154.45
  • NASDAQ: 4642.86 -18.64
  • S&P 500: 2009.44 -13.59