Friday, November 21, 2014

Possible changes for NY Lenders; Fannie & Freddie changes will help lenders


 

To celebrate American Indian and Alaska Native Heritage month (November), the U.S. Census Bureau tells us that in 2013 there were 5.2 million American Indians and Alaska Natives, and the projected population for this group is 11.2 million by 2060. The median age for American Indians and Alaska Natives in 2013 was 31 years old, which is lower than the median age of 38 for the U.S. population as a whole. There were 1.7 million American Indian and Alaska Native households in 2013 and only 53.9% of these householders owned a home, which is below the national average of 64%. Unfortunately American Indians and Alaska Natives have the highest poverty rate of any race group at over 29% versus the national poverty rate of 16%.

In New York, the New York Mortgage Bankers Association's website is now live. The group is functioning and has already had meetings with DFS, so lenders looking for things to be done on an "industry vs. company" level should reach out to the NY MBA to make their industry issues known. And by visiting the site one can read comments about Benjamin Lawsky stepping down from the NY Department of Financial Services post he now holds.



Speaking of which, the NY MBA spread the word to members that the NYDFS proposed regulation of force-placed insurance. "Under the proposed regulation, insurers and servicers are prohibited from: obtaining insurance in access of borrower's last known amount, unless that amount did not comply with mortgage requirements, issuing force-placed insurance on mortgaged property serviced by a servicer affiliated with the insurer, receiving compensation with respect to the force-placed insurance, including the cost of insurance tracking in the insurance premium, providing tracking services to the servicer at no cost or at a reduced fee.



It also posted information on proposed NMLS changes to the Mortgage Call Report. The National Mortgage Licensing System (NMLS) has issued a proposal that would make significant changes to the Mortgage Call Report (MCR). The NYMBA has signed on to a letter urging a postponement of the proposed changes.



And New York is considering a "borrow and save" pilot program as an alternative to high-cost mortgage programs. President Jim Bopp writes, "Although this pilot program is not directly related to mortgage loans, the NY MBA would support any program that helps NYS residents establish traditional credit histories that would enable them to build a credit rating that would help them qualify for the most competitive rates and terms available based on an established or improved credit score. This program executed correctly could result in more people being able to purchase a home and for the borrowers to realize the American dream of homeownership and all of the benefits related to achieving it."



Turning to agency news, Fannie Mae and Freddie Mac announced significant revisions to their respective rep & warrant frameworks. These revisions provide lenders with greater clarity concerning the post-sunset enforcement of Life of Loan exclusions, as well as certain other reps & warrants. Look for higher thresholds for "Life of Loan" breaches with numerical triggers for misstatement & misrepresentation and data inaccuracy. Perhaps the reduction of uncertainty to Life of Loan breaches will encourage lenders to expanding lending with larger players likely unmoved by the clarity with smaller ones set to fill the void. Fannie Mae's announcement can be found here; Freddie Mac's can be found here. FHFA Director Watt's statement concerning these revisions can be found here.



As this commentary has mentioned many times, lenders say, "We can play by the rules - just tell us what they are." This is an effort to do that by F&F, and may lead to an expansion of the credit box. For example, under the new rules seen by clicking on the links above, if there is a defect but the loan still would have qualified for purchase by F&F, the lender will have to cover the difference once the loan is re-priced but will not face a repurchase request. Dave Stevens of the MBA writes, "These changes build off the revisions announced earlier this year and are intended to provide lenders with clarity regarding R&W enforcement after a loan qualifies for repurchase relief. Life of loan exclusions concerning misstatements, misrepresentations, & omissions and data inaccuracies have been revised to state that the GSEs will only issue repurchase requests for significant violations that reflect a pattern of activity involving multiple parties to the transaction." The guidelines require that the same lender has 3 or more loans with qualifying misstatements, misrepresentations, or omissions prior to a life-of-loan R&W kicks in and the threshold is higher for data inaccuracies as the same lender/entity must have 5 or more inaccuracies before triggering the life-of-loan R&W.



For purposes of the life of loan exclusions, the definition of fraud has been revised to clarify the distinction between fraud and misstatement under the Guides. These revisions are applied retroactively to loans delivered to a GSE on or after January 1, 2013. The GSEs will lengthen the expected foreclosure timelines in 47 out of the 55 covered jurisdictions effective for all foreclosure sales completed on or after November 1, and will temporarily suspend compensatory fee assessment in four states (New York, New Jersey, Maryland and Massachusetts) for at least six months until more data can be gathered to determine an appropriate timeline effective for foreclosure sales completed on or after January 1, 2015. In addition, both GSEs have raised the de minimis exception- a threshold where there will be no compensatory fee invoice-from $1,000 per month to $25,000 per month, effective for foreclosure sales completed on or after January 1, 2015. This will provide significant relief for smaller servicers. Changes to both of these frameworks could not have occurred without the diligent work put in by MBA staff and a number of very engaged MBA members."



"There are qualified borrowers who are not being served in today's market," Andrew Bon Salle, a Fannie Mae executive vice president, said in a statement. "With this clarity, lenders should have greater confidence in lending to Fannie Mae's full credit standards and making mortgages available to more borrowers."

Bankers Advisory writes, "The changes to the framework are effective retroactively for whole loans purchased, and mortgage loans delivered into MBS with pool issue dates, on and after January 1, 2013, except that these changes do not apply to any loans for which Fannie Mae has issued a repurchase request prior to November 20, 2014. The changes to the Selling Guide provisions regarding compliance with laws are effective for whole loans purchased on and after November 20, 2014, and for mortgage loans delivered into MBS with pool issue dates on and after December 1, 2014.   It is Fannie Mae's expectation that any future modifications to the framework will apply prospectively.



"In addition to the above changes to the framework, Fannie Mae is also updating the Selling Guide, A3-2-01, Compliance with Laws, which among other things requires lenders to comply with applicable federal, state and local laws. These changes are effective for whole loans purchased on and after November 20, 2014, and for mortgage loans delivered into MBS with pool issue dates on and after December 1, 2014, without regard to whether the loan has obtained relief under the framework."

Fannie Mae is offering sessions designed to help servicers understand Fannie Mae's updated (Property) Hazard and Flood Insurance policy. This course explains the new guidance for handling insurance losses based on the mortgage loan status at the time the servicer receives notification of damages, regardless of the cause. The sessions are scheduled on December 9th and 10th, to register, click here.



It becomes harder and harder to argue that housing is still in a slump. Yesterday we learned that Existing Home sales rose (+1.5%) in October for the second straight month and are now above year-over-year levels for the first time in a year, according to the National Association of Realtors. Sales are at their highest annual pace since September 2013. The median existing-home price for all housing types in October was $208,300, which is 5.5 percent above October 2013. This marks the 32nd consecutive month of year-over-year price gains.



Rate Market Report:

 

US stocks are roaring early this morning on reports frm the ECB and China. Mario Draghi saying, he European Central Bank can’t hold back in its fight to revive the economy. “We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires.” Some inflation expectations “have been declining to levels that I would deem excessively low,” he said. The take away, the ECB may now be willing to take the steps necessary after moving too slow in the past to drive inflation higher in the region that is edging closer to deflation as the EU economies falter. The ECB is trying to boost the size of its balance sheet to early-2012 levels, signaling an increase of as much as 1 trillion euros ($1.24 trillion).

Overnight China announced it would cut its base lending rate for the first time since July 2012. The one-year lending rate was reduced by 0.4% to 5.6%, while the one-year deposit rate was lowered by 0.25 percentage point to 2.75%, effective tomorrow, the People’s Bank of China said on its website today. China is now lining up with the ECB and the BofJ in adding additional stimulus to bolster its economy that has lost about half of its growth over the last two years. “This interest rates adjustment is a neutral operation and doesn’t mean any change in monetary policy direction,” the central bank said in a statement on its website explaining the rate cuts.

Those two announcements have fueled a strong open this morning in the US stock indexes. The DJIA opened +152, NASDAQ +43, S&P +16. At 9:30 MBS price holding small gain, up 8 bps while the 10 yr note at 2.33% was down 1 bps. That the bond and mortgage markets are holding nicely with the stock market roaring ahead, is because both the ECB and China today have added more evidence that the level of inflation is not likely to increase quickly. With the Fed now outwardly concerned that it has been unable to move the level of inflation to its 2.0% target and saying in the FOMC minutes the progress is likely to take longer than most Fed officials had thought. No inflation concerns has a quieting effect on traders.

There are no scheduled economic reports today.

Nothing new in the bond and mortgage markets; the 10 is still in “the range”. The 20th day and not likely to exit it today. As long as the 10 trades in the narrow range we are reluctant to float overnight on the reality we would take on risk with little potential reward. No one is interested in selling their bonds and no one is willing to buy; how long that will last is hard to predict. A good thing really, lenders have more certainty about closings as long as there isn’t a significant improvement. For traders like us, it is extremely boring however. Traders need volatility to put food on the table, no movements means less opportunity.

PRICES @ 10:00 AM

10 yr note: 4/32 (12 bp) 2.33% -1 bp

5 yr note: +2/32 (6 bp) 1.62% -1 bp

2 Yr note: unch 0.51% unch

30 yr bond: +12/32 (37 bp) 3.04% -1 bp

Libor Rate: 1 mo 0.155%; 3 mo 0.231%; 6 mo 0.324%; 1 yr 0.562%

30 yr FNMA 3.5 Dec: @9:30 103.59 +8 bp (+4 bp frm 9:30 yesterday)

15 yr FNMA 3.0 Dec: @9:30 103.88 +2 bp (-3 bp frm 9:30 yesterday)

30 yr GNMA 3.5 Dec: @9:30 104.35 +3 bp (unch frm 9:30 yesterday)

Dollar/Yen: 117.81 -0.40 yen

Dollar/Euro: $1.2424 -$0.0115

Gold: $1202.50 +$11.60

Crude Oil: $76.48 +$0.63

DJIA: 17,866.58 +147.58

NASDAQ: 4736.00 +34.14

S&P 500: 2069.72 +16.97

 

Wednesday, November 19, 2014

MBA offers health care to members; Freddie & Fannie updates; New jumbo security



 

“I don't like making plans for the day because then the word 'premeditated' gets thrown around in the courtroom." We don't want that, but one thing Realtors and lenders want is young folks with less debt. (There is one company that I know of that is refinancing student debt and helping potential first time home buyer's credit: Social Finance.) A Wells Fargo survey of Millennials finds 47% spend at least 50% their paychecks servicing debt related to credit cards, student loans, mortgages and others. 

With the majority of the millennial generation already saddled with debt it may be surprising to find that more millennials are moving to larger and more expensive metropolitan areas.  While these cities do attract young adults for their cultural attractions and public transportation, these cities offer more job opportunities for millennials than other areas. Zillow's analysis of U.S. Census data suggests that there is an inverse relationship between a city's unemployment rate and its share of millennial movers. There are outliers in the data that include Chicago, San Francisco and New York that are attracting a large number of millennials even though the unemployment rate is high. Also, cities like Miami, Las Vegas and Phoenix should be attracting more millennials, since rent is affordable and unemployment rates are low, but they are not. In fact, older movers are more inclined to move to Arizona or Florida and may outnumber younger movers in these areas. Since millennials are moving to cities where home prices are very expensive, more young adults may not intend to a buy a home in the near future as it is out of their reach. Instead, they are moving to these cities because of income growth and employment opportunities.

 

The Mortgage Bankers Association (MBA) announced a new private exchange which will offer healthcare and other employee benefits for its member companies. The announcement noted that, "Addressing the challenges of maintaining a competitive employee benefit program, 'MBA Health Link' will provide an easy solution for employers wanting to control costs while offering more benefit options to meet the varied needs of their employees. The creation of MBA Health Link is being made possible through an exclusive partnership with Arthur J. Gallagher & Co., a US-based global insurance brokerage and risk management services firm. 'MBA is pleased to partner with Gallagher to create MBA Health Link and thus offer healthcare and employee benefits that are exclusively for our diverse membership,' said MBA Senior Vice President, Residential Policy & Member Engagement, Pete Mills." Companies that adopt MBA Health Link will utilize a defined contribution (DC) strategy.  Unlike the defined benefit approach, a DC strategy allows for transparency in total employee compensation and makes it possible for employers to link their long-term benefits budget with metrics relevant to their business.  A DC strategy works best in a private exchange environment, where employees have a choice on how to spend their benefits dollars. For more information, contact Tricia Migliazzo.

 

The results from the 2013 American Housing Survey is a detailed report that presents a summary of statistical data in the form of a spreadsheet covering a variety of housing figures.  Topics include single-family homes, apartments, manufactured homes, vacant units, family composition, income, housing and neighborhood quality, housing costs, appliances, fuel type, remodeling and repair, and recent moves. The American Housing Survey is conducted biennially and is sponsored by HUD. This year, new topics to the survey include disaster planning and emergency preparedness, public transportation, household involvement in neighborhood and community activities, and the presence of adult children living at home.   

Zillow analyzed U.S. home construction by decade and state, beginning in 1900 up to the current decade. The analysis grouped homes according to the decade they were constructed, encompassing a total of 12 decades, excluding homes that were previously built and then destroyed or rebuilt. Nationally, the greatest portion of existing homes was constructed between 2000 and 2009, representing 16% of all homes built during that decade. Eleven percent of all U.S. homes were built before 1950 and the majority of U.S. homes were constructed in 1950 or later. Homes constructed before 1920 only account for 3% of the current national housing stock, whereas the largest portion of Washington D.C.'s housing stock was built before 1920. Nevada and Arizona saw the largest amount of homes built from 2000 to 2009, at 36% and 29% respectively. Construction has waned since the beginning of the current decade, and is below par the rate set in the latter half of the 20th century and previous decade. 

 

Let's move on to Freddie and Fannie updates from the last few weeks - they never stop!

 

I have been asked recently about Fannie's HomePath product. No, it is not discontinued. Rather than offer HomePath as a negotiated variance, Fannie created a new version of HomePath is now available to all lenders as guide-eligible product. This was done in response to feedback from lenders who wanted direct access to some of the flexibilities in HomePath. Lenders should review the guide and the announcement at www.fanniemae.com in order to be familiar with the differences and/or speak with your rep. 

 

Fannie Mae is accepting delivery of HUD-guaranteed Section 184 (HUD-184) Native American mortgage loans and Rural Development (RD)-guaranteed Section 502 (RD-502) loans as standard products for whole loan committing and delivery, with no variance required (MBS execution will be available at a later date).For more information, click here.


Fannie Mae updated policies related to project standards requirements, including changes and clarifications to fidelity/crime insurance and liability insurance for certain projects. In conjunction with these policy changes, the Condo, Co-op, and PUD Eligibility web page has been enhanced and new and updated resources are available. Policy change pertaining to how loan-level price adjustments are applied to certain mortgage loans for borrowers without credit scores, allowing for applicable loan-level price adjustments to be applied based on the credit score of a co-borrower, if applicable, rather than the lowest credit score range. To view the entire announcement 2014-13, click here.

 

Fannie Mae posted Advance Notice of Future Changes to Investor Reporting Requirements
This Lender Letter provides advance notification to servicers of changes to certain investor reporting requirements that will become effective in or around the third quarter of 2016. To view the letter, click
here.
Fannie Mae announced the publication of the new Single-Family Servicing Guide, which will replace the 2012 Servicing Guide in its entirety. For details, view the announcement by clicking
here.

Freddie Mac and Fannie Mae have rescheduled the update to the Submission Summary Report (SSR) in the Uniform Collateral Data Portal® (UCDP®) for December 7. To review the planned UCDP changes, click here.

 

Fannie Mae has provided notification of upcoming changes related to the assessment of compensatory fees for delays in the liquidation process. To view the Lender letter, click here. Additionally, servicers are notified of changes to two Servicing Guide Exhibits, Foreclosure Time Frames and Compensatory Fee Allowable Delays, and Allowable Foreclosure Attorney Fees.

 

Freddie Mac's recent bulletin covers several servicing requirement changes including MI delegation of authority for foreclosure sale bidding and requirements for handling insurance loss settlements when the mortgage premises is located in an eligible disaster area as well as properties that are not. To view the complete bulletin, click here.

 

Fannie Mae released its new Servicing Guide that would replace the 2012 Servicing Guide in hopes of making it easier for servicers to do business with Fannie Mae. The new guide is intended to make locating policies and requirements easier, has created a separate Servicing Guide Procedures and allows for real-time updates. All announcements issued through October 17, 2014 have been incorporated into the new guide. The Servicing Guide has been rewritten to exclude policies and requirements that are not required or duplicative and content has been revised to be consistent with the selling guide. Other changes include submitting the term "lender" for "seller/servicer", "seller", or "servicer", there is a separate Balloon Mortgage Loan Servicing Manual and Investor Reporting Manual.

 

Turning to the secondary markets, Cerberus' FirstKey is coming to market with an MBS. Besides being guilty of being yet another company with a midDle letTer capitalized, the security is of interest to the market since it is a jumbo deal, rated by Kroll, and backed by loans from CMG and Cornerstone.

 

Market Report:


The 19th day that the bellwether 10 yr has traded in an 8 bps yield range; this morning the 10 opened at 2.34% then increased to 2.36% when October housing starts and permits were reported at 8:30. October starts were -2.8% on the headline but the details were good for single family starts; single family starts increased 4.2% in October while the volatile multi-family starts were down 15.4% from Sept. Sept starts were revised from 1010 mil to 1040 mil. Through the first 10 months of the year, single family starts are up 5.3%. Multi-family starts have increased 19.6% so far this year, compared with the first 10 months of 2013. That is an improvement, but not the breakout year that some had forecast. Building permits, a bellwether of future construction, increased 4.8% last month to a 1.08 million rate, estimates for permits was an increase of 1.7%. The decline in multi-family October starts masked the nice increase in single family, a more significant sector. Single family permits increased 1.4%, the best rate for the category since November 2013. Yesterday the NAHB housing market index jumped 4 points to 58 from 54, a much stronger report than had been expected.

The bond and mortgage markets took the report hard but in the context of the wider perspective the 10 is still well-contained in its19 day trading range between 2.30% an 2.38%; at 9:30 the 10 traded at 2.36% up 4 bps from yesterday’s close and 30 yr MBS price down 20 bps from yesterday’s close and down -15 bps from 9:30 yesterday. The DJIA opened down 32, NASDAQ -10, S&P -5.

Nothing else on the calendar to be concerned with until the FOMC minutes from the October meeting are released at 2:00 this afternoon. At that meeting the Fed decided to finally end the monthly purchases of MBSs and treasuries, it was not a surprise though, it was widely expected. The debate will be interesting; there is an increasing view that the Fed is falling behind the curve in terms of increasing the FF rate, recent data like today’s starts and permits will add to that thought but it is still likely the Fed will begin increasing rates until at least mid-2015.

After the elections two weeks ago we thought the first major vote would be to approve the Keystone pipeline; wrong…last night the Senate defeated the legislation by one vote 59 to 41, it takes 60 to win. Republicans, who won a Senate majority on Election Day, are already planning to bring the pipeline up for a vote as one of their first acts when they take control in January. It is of course not a market mover but does suggest even though the Senate went to Republicans they don’t have a walk over on any legislation.

As long as the 10 remains in its 19 day range between 2.30% and 2.38% we consider the market neutral; all of our technicals are essentially flat (or neutral); not bullish or bearish. In this kind of activity floating is more a guess for anticipating interday changes. We have tried floating a few time recently; in every case we didn’t benefit, however we didn’t lose either. In a trading pattern like we have now the problem is we can get whipped-sawed (floating when we should lock, and locking when we should float). Best to keep locked as long as the equity markets hold gains.

PRICES @ 10:00 AM

  • 10 yr note: -9/32 (28 bp) 2.36% +4 bp
  • 5 yr note: -6/32 (18 bp) 1.65% +4 bp
  • 2 Yr note: -2/32 (6 bp) 0.54% +3 bp
  • 30 yr bond: -16/32 (50 bp) 3.06% +3 bp
  • Libor Rates: 1 mo 0.154%; 3 mo 0.231%; 6 mo 0.325%; 1 yr 0.561%
  • 30 yr FNMA 3.5 Dec: @9:30 103.33 -20 bp (-15 bps from 9:30 yesterday)
  • 15 yr FNMA 3.0 Dec: @9:30 103.74 -14 bp (-10 bps from 9:30 yesterday)
  • 30 yr GNMA 3.5 Dec: @9:30 104.17 -20 bp (-15 bps from 9:30 yesterday)
  • Dollar/Yen: 117.63 +0.77 yen
  • Dollar/Euro: $1.2552 +$0.0016
  • Gold: $1196.70 -$0.40
  • Crude Oil: $74.65 +$0.04
  • DJIA: 17,650.95 -38.87
  • NASDAQ: 4675.48 -29.96
  • S&P 500: 2045.26 -6.54

Tuesday, November 18, 2014

Supreme Court & 2nd mortgages; What new FHA numbers mean for lenders?




Recently the commentary noted, "Maybe we should start at the grade school level and teach kids about money. How to make a budget, manage debt, save for retirement. Most kids only know how to use their ATM card and check their balance online. I challenge you to ask a millennial if they balance their checkbook (or know how).

Speaking of making a difference, while November marks the beginning of the season of giving, Academy Mortgage has a unique platform focused on giving back to individuals, families, and communities throughout the year. Academy's vision of inspiring hope, delivering dreams, and building prosperity shines through in all aspects of the independent mortgage lender's business. For example, unlike other typical sales incentives, Academy rewards its highest-performing Loan Officers and Branch Managers with opportunities to participate in Service Expeditions around the world to help those whose needs are great and whose resources are limited.

The U.S. top court will hear a Bank of America cases on second mortgages. Yesterday the Supreme Court agreed to hear arguments on whether homeowners can cancel their second mortgages in bankruptcy when their properties aren't even worth the value of the first mortgage.

And CoreLogic reported that home prices increased 5.6% nationwide in September 2014, compared to a year earlier. The non-distressed index rose 5.2% YOY, which fell from 9.8% in February of this year. The annualized, seasonally adjusted month over month home price appreciation increased 6.9%. The year to date home price appreciation was 3.7%, which increased from 2.9% in June. BofA Merrill Lynch predicts that the home price appreciation will end the year up 3.6%, a decline from 10.8% YOY in 2013.The only monthly seasonally adjusted rate that fell was Phoenix, where prices decreased to 0.3% from 1.1% in August, and Miami had the strongest change in month over month growth greatly increasing from -5.3% in August to 13.3% in September.

 

Here's something to note...The Actuarial Review of the FHA came out and shows that the FHA is back on more solid financial footing. But some think that the recovery is occurring at a slower than expected pace which lessens the likelihood of a significant FHA premium reduction in 2015. If that is what plays out (e.g., no change in FHA premiums in the near future) it is a positive for private mortgage insurers and a small negative for mortgage originators and builders that cater to FHA borrowers. The FHA's well-known fund (the Mutual Mortgage Insurance Fund) is expected to remain below the Congressionally-mandated 2.0% threshold until October 2016, so don't look for any Republicans to support a decision to lower FHA premiums in 2015. Unless, of course, building and lending really start to falter... 

"NAR is pleased that the 2014 Actuarial Review of the Federal Housing Administration confirms that the Mutual Mortgage Insurance Fund is healthy and continues its positive trajectory. The ongoing decline in delinquencies and stabilizing home values indicate that FHA will stay on track to rebuild its capital reserve fund and ultimately meet the 2 percent excess reserve amount required by Congress. Now that the MMI Fund is on a path to recovery, NAR urges FHA to lower its annual mortgage insurance premiums and eliminate the requirement that mortgage insurance be held for the life of the loan. Achieving homeownership has become more difficult with current FHA mortgage insurance premiums. NAR estimates that in 2013, nearly 400,000 creditworthy borrowers were priced out of the housing market because of high FHA insurance premiums. By lowering its fees, FHA could provide greater access to homeownership for historically underserved groups. To put it in perspective, over the past four years, the percent share of first-time buyers using FHA-backed loans shrank from 56 percent to 39 percent...NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace. In light of this report, NAR believes that Congress should not dramatically change the FHA or redefine its purpose. We will continue our work with FHA to help make the dream of homeownership a reality for millions more Americans." 

The MBA summed things up. "FHA released its Summary of the FY 2014 Actuarial Report. Here are a few important highlights: the Fund gained nearly $6 billion in value over the last year and now stands at $4.8 billion, the current capital ratio is .41 percent, and improvement in the Fund is a result of better portfolio performance including delinquency rates dropping 14 percent and recovery rates improving by 16 percent since last year. The entire report along with a summary can be found here, and MBA's statement can be found here.

Compass Point LLC opines, "We estimate that 10-12% of FHA production could shift to the PMIs (private mortgage insurers) if the PMIs offer better financing than the FHA for >729 FICO loans. This shift would help to offset the loss in PMI market share that could occur if the FHA significantly lowers its MIPs. 

As noted above, the FHA news might just be good for MI companies. Recently Radian published its monthly statistics for October with default notices increasing to 2.1% from September and the ending delinquent inventory declining to 1.3% from the previous month. The delinquent inventory was down 27.6% YoY, a slight decline from a year earlier when it was at 32.0% in October 2013. Paid claims decreased 0.2% MoM and net recessions and denials (R&Ds) were reported at 175 versus 125 in September. 

 

While we're talking about MI companies, here's a smattering of recent mortgage insurance news.

 

Arch MI announced the introduction of two new technology solutions. These new customer solutions include the launch of Arch MI's new mobile application as well as system integrations with the Optimal Blue pricing and automation platform.

 

Arch Mortgage Insurance and Ellie Mae have announced their partnership through the integration of Ellie Mae's Encompass® Mortgage Management Solution.

 

MGIC announced the State of Florida is terminating the emergency assessment on most property and casualty insurance premiums, including mortgage insurance premiums on MGIC-insured loans secured by Florida properties.

 

Eventually we'll see more ARM production, but not right now. The Federal Home Loan Bank of San Francisco announced that the Cost of Funds Index (COFI) for September 2014 is 0.663%, slightly down from last month's index. Twelve institutions reported COFI data for September, where the index is calculated based upon the average of interest expenses incurred by Federal Home Loan Bank District savings institutions covering Arizona, California and Nevada. Since the index is calculated each month for the previous month, the index's lagging pace tends to benefits borrowers when rates rise, but not when they fall. 

And the Libor drama continues as firms and government agencies met to discuss alternatives to using it - not because ICE is now charging large banks to use it, or because we don't know whether or not to capitalize all the letters in the acronym, but because of its recent sketchy history. 

Eventually everyone that is predicting higher rates will be right, but probably not in the near future: QE news is fully in the market, and the world's economies aren't doing well enough to push rates much higher. Yesterday we learned that Industrial Production was -0.1% in October, following a downwardly revised gain of 0.8% in September, which had initially been reported as a 1% increase, and Capacity Utilization, a measure of slack in the industrial sector, decreased to 78.9% in October from September's revised reading of 79.2%.

 

Yes, QE has ended, but that has not stopped the Fed from buying about $1 billion a day of MBS using money from early payoffs in its portfolio. And thus the Fed is continuing to provide a "cushion" on the demand side of the MBS price equation. And on the supply side, well, if MBS sales are any indication of locks and thus lender volumes, things are pretty steady.

 

Rate Market Report:

A much better open in the bond and mortgage markets this morning, even with October PPI stronger than forecasts. Oct PPI expected to be down 0.1% increased 0.2%; the core (ex food and energy) expected up 0.1% jumped 0.4%. Yr/yr PPI +1.5%, the lowest since last Feb; yr/yr core up 1.8% from +1.6% in Sept. On the surface wholesale prices are increasing, at least in Oct. The increase due to the largest gain in services since July 2013. The cost of services increased 0.5% in October, reflecting a record gain in margins received at retailers and wholesalers. Prices for goods dropped 0.4% last month, the most since April 2013, and were up 1.1% since October 2013. Energy costs dropped 3% last month, the most since March 2013. The average price of a gallon of regular unleaded gas was $2.89 on Nov. 16, its lowest level since the end of 2010. Wholesale food costs climbed 1% as prices of vegetables, eggs and meats increased.

Better news from Germany this morning, investor confidence increased for the first time in 11 months. In Japan, after retreating into recession on increases in taxes, the prime minister today said he would call for early elections to measure voters confidence and suspended a sale tax increase. Both the yen and euro currencies rallied this morning. Europe’s stock markets also trading better.

The 10 yr note at 8:45 2.32% down 2 bps from yesterday’s close, 30 yr MBS price at 8:45 +14 bps from yesterday’s close. Treasury yields were two basis points away from a seven-week high relative to their Group of Seven peers, bolstering speculation the premium will lure investors to America’s debt. The US 10 yielded 84 basis points more than the average of their G-7 peers. The premium increased to 86 basis points yesterday, the widest level since Sept. 30. Foreign ownership of U.S. government debt rose to $6.07 trillion in August, about half of the $12.4 trillion of publicly traded securities. The 10 22 bps higher than UK 10 yr and 157 bps better than Germany’s 10 yr bund. The reason offered up is with the Fed closer to increasing interest rates than other central banks, our rates are higher. This isn’t a new situation, our rates have been higher than G-7 countries for two years. Not that you need another Fed official comment; like broken records, Fed Governor Jerome Powell said yesterday he expects the U.S. central bank to increase borrowing costs in 2015, echoing remarks from New York Fed President William C. Dudley earlier this month.

At 9:30 the DJIA opened -5, NASDAQ +8, S&P +1; 10 yr at 2.33% -1 bp and 30 yr MBS price +6bps.

At 10:00 the November NAHB housing market index was thought to be at 55 from 54 in October; the index jumped to 58. NAHB contributes the improvement to increased consumer confidence. The reaction was not much, the stock indexes continued to improve from the 9:30 open.

17 days and still counting; the 10 yr and MBS markets have not moved. The key 10 has been in a very narrow range since the end of October, trading between 2.38% and 2.30% with the majority of trades between 2.36% and 2.32%. All technical we monitor are still throwing off neutral readings. Early this morning the 10 fell to 2.30% briefly (5 minutes) but once again didn’t attract enough momentum to crack the rock-hard resistance. This kind of narrow trading usually leads to a big move once the narrow range is broken. Most economists remain confident that the 10 and mortgage rates will increase by the end of the year; the reason of course is that the Fed is going to increase rates sometime in 2015. Most of the talking head Fed officials are saying that the FF rate will be increased by the middle of 2015. We have to go with the flow now, however we have not given up on a major stock market decline soon; maybe not this year, but it is coming.

PRICES @ 10:10 AM

  • 10 yr note: +4/32 (12 bp) 2.33% -1 bp
  • 5 yr note: +2/32 (6 bp) 1.61% -1 bp
  • 2 Yr note: unch 0.51% unch
  • 30 yr bond: +10/32 (31 bp) 3.05% -1 bp
  • Libor Rates: 1 mo 0.153%; 3 mo 0.232%; 6 mo 0.326%; 1 yr 0.563%
  • 30 yr FNMA 3.5 Dec: @9:30 103.48 +6 bp (+6 bp from 9:30 yesterday)
  • 15 yr FNMA 3.0: @9:30 No data
  • 30 yr GNMA 3.5: @9:30 104.57 +7 bp (-6 bp from 9:30 yesterday)
  • Dollar/Yen: 116.65 unch
  • Dollar/Euro: $1.2508 +$0.0058
  • Gold: $1194.00 +$10.50
  • Crude Oil: $74.94 -$0.70
  • DJIA: 17,687.88 +40.13
  • NASDAQ: 4700.36 +29.36
  • S&P 500: 2049.09 +7.77