There's
a lot of data swirling around the demographic black-hole of lending known as
"the Millennials." I've come to the conclusion that this is because
the majority of analysts fall into that age category and deep down they enjoy
writing about themselves. It's just a theory right now. Zillow writes, "Consider
the diverging cases of Boston-Cambridge, Massachusetts and Washington, D.C.
They are both versions of the archetypal, walkable cities that many associate
with the modern 21st century knowledge economy. And both have large populations
of young adults in school or just starting their careers. In this analysis, we
compare the housing choices of Millennials-young adults ages 18 to 33-in these
two cities." Archetypal? I'll have to look that up - anything with
more than three or four syllables and my brain skips over it.
What
is going on out there with some general housing and economic trends? Not that we have much
to do with them directly, but it is good to know what is going on out there.
The
U.S. Census Bureau's Survey of Construction, which is jointly funded by the
Department of Housing and Urban Development, has released its 2013 New Housing Characteristics
tables. This release includes never before published data on age-restricted
developments, presence of homeowners association, sewer and water systems,
framing material and laundry. The report provides estimates of new privately
owned residential structures in the U.S and the four regions.
Are
we suffering from first-time home buyer blues? We'll try to overlook
student debt ratios, relatively stagnant wages over the past six years, and
assume those looking for homes fall outside the current beliefs surrounding millennials;
in a nutshell, there are still some challenges for these people. As
Michelle Jamrisko and Alexis Leondis write in a recent Bloomberg article, "The
median down payment for the cheapest 25 percent of properties sold in 2013 was
$9,480 compared with $6,037 in 2007, the last year of the previous economic
expansion, according to data from 25 of the largest metro areas compiled by
brokerage firm Redfin Corp. The higher bar is a symptom of still-tight credit
that is crowding out first-time buyers even as interest rates remain near
historical lows. Younger adults, who would normally be making initial forays
into real estate, are among those most affected, weakening the foundations of the
housing market and limiting its contribution to economic growth." There
are a number of factors at work here, one being the down payment. As pointed
out in the article, "the median down payment for the lowest 25% of
homes was 7.5% of the sales price last year, which is up from a low of 3.1% in
2006 and compared with an average 4.2% from 2001 through 2007." For
properties in the middle 50%, the share rose to 8.8% in 2013 from an average
8.2% in the seven years leading to the last recession, and for the top quarter
it climbed to 20.9% from 19%. As many know, a contributing factor is that fewer
first-time buyers are applying for loans backed by the FHA, which require
smaller down payments, after the government agency boosted mortgage-insurance
premiums.
Most
knew going into 2014 that business probably wasn't going to be anything to jot
down in your memoirs. Wells Fargo's Economics Group is normally
a straight shooting bunch, rarely are they too bullish, or too bearish, which
is good because bi-polarity affects many companies these days. The group
writes, "The housing market continues to have a difficult time putting
the legacy of this past decade's epic bust behind it. Sales of both new and
existing homes have been disappointing through the first seven months of this
year. Although the sales and new home construction numbers have been disappointing,
the housing sector continues to gradually chip away at many of the challenges
hanging over the industry." Coming out of an "unseasonably"
cold winter, into an "unusually" hot summer, right into an election
year, I can't think of another excuse to explain lackluster mortgage numbers
than to say demand just isn't there at the moment.
Not
too long ago the topic du jour in banking was all the REO's weighing down the
market, causing home price stagnation and turning gentlemen into
tyrants....that's right, I'm looking at you Florida. OK, so maybe it wasn't
that bad, and maybe Florida wasn't the whole problem (or was it?), but things
have slowly been improving as Zelman & Associates, write that total REO
inventory is down 57% from the peak. "While the 2Q14 pipeline of loans in
delinquency and the foreclosure process was down approximately 17% year over
year and 44% lower than the peak in 4Q09, there was still an excess of 1.4
million more homes in some form of delinquency or foreclosure relative to a
more normal level. The pace at which these homes enter and exit the REO process
impacts home price trends, investment opportunities for single-family REITs,
potential for-sale inventories and existing home sales. We summarize all of the
moving parts in this monthly report, including notices of default and REO
filings, REO inventory trends and lender-owned REO listings. Encouragingly for
home pricing, the various measures across the foreclosure spectrum, including
default notices, REO filings and distressed inventory levels, have posted
consistent year-over-year improvement while incremental supply coming to market
has stabilized. For the existing sales market, the continued reduction in REO
sales is a net negative to closings, but as the pipeline shrinks the impact is
becoming less onerous."
Let's
check out some relatively recent agency, lender, investor, and vendor news to
gauge the trends out there. As always, for extensive specifics, read the actual
bulletin.
As
a reminder, last week in the Federal Register (79 FR 50835), the FHA published
a final rule. Effective for FHA-insured mortgages closing on or after January
21, 2015, it revises FHA's regulations to prohibit an FHA approved mortgagee
from charging the mortgagor interest through the end of the month in which the
mortgage is being prepaid, allowing them instead to charge interest only
through the date the mortgage is prepaid, and prohibits the charging of
interest beyond that date. This change to FHA prepayment regulations is in
response to the Ability-to-Repay and Qualified Mortgage regulations (ATR/QM
Rule) that became effective January 10, 2014. The ATR/QM Rule defines
"prepayment penalty" in closed-end transactions as "a charge
imposed for paying all or part of the transaction's principal before the date
on which the principal is due." The ATR/QM Rule specifically excludes a post-payment
interest charge currently allowed by FHA regulations as a prepayment penalty
for FHA loans closed before January 21, 2015. For FHA loans closed on or after
January 21, 2015, a post-payment interest charge will be considered a
prepayment penalty by the ATR/QM Rule, thus making it necessary for FHA to
amend its regulations. Here is one take on the change.
PennyMac Financial increased
its servicing credit facility. A look at its 8-K shows it
stated it amended its revolving credit facility used to finance the acquisition
of mortgage servicing rights with Credit Suisse. The credit facility was
increased to $157mm from $117mm. The total amount that can be borrowed under
the credit facility is based upon a percentage of the market value of the
servicing rights. Although the increase in the facility is relatively small
compared to the overall debt financing available at PFSI, it does indicate PFSI
is actively looking to purchase additional MSRs
First
California Mortgage recently announced a spate of branch openings, including a
Dallas branch (in addition to San Antonio, Amarillo, Bryan and Houston), San
Diego, a second branch in Los Gatos, CA and now has a branch in Davis, CA.
Franklin
American
is requiring VA IRRL loans to include a comparison document between the loan to
be refinanced and the proposed new loan such as VA IRRL Comparison statement.
In addition, USDA loans do not allow electronic signatures.
There's
an old joke about two hikers confronted by a bear, and one starts to run. The
other yells, "You can't run faster than a bear," and his
"friend" yells back, "I don't have to - I just have to run
faster than you!" That is exactly what we're seeing in economies around
the world. France and Switzerland are flat, China is questionable, Germany's
economy shrank by 0.2% last quarter, Italy and Brazil are in a recession, and
the Russia/Ukraine conflict is dampening things even further. That leaves the
United States, where the slowly improving economy looks good on a relative
basis.
The job news continued today
with August payrolls and employment data. Non-farm payrolls (+209k prior, expected
around the same), came in at +142k - disappointing (and June and July were
revised downward); the Unemployment Rate (6.2% previously) came in at 6.1%; and
average hourly earnings came in at +.2%.
Soon after the employment
numbers bonds have rallied. The 10-yr T-note is sitting around 2.41% after
closing Thursday at 2.45% and agency MBS prices are better by .250-.375.
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