What
did the psychiatrist say when a man wearing nothing but saran wrap walked into
his office? "I can clearly see you're nuts!" Lots of folks are going
crazy over the avalanche of rules and regulations that are increasing the cost
of every mortgage made in the United States. The latest update on Dodd Frank
rulemaking by Davis Polk indicates that of the 398 rulemaking
requirements, 58% now have finalized rules and 19% have had rules proposed that
may see some modifications in coming months. That leaves about 24% of rules
yet to be touched.
And
one can go nuts trying to keep track of the bank and mortgage M&A that has
happened, and will continue to happen. (Someone let me know when the U.S.
borrower starts being better off...) The latest acquisition was announced
yesterday from Southern California: Seashine Financial LLC spread the word
that it has completed its acquisition of American Interbanc Mortgage, LLC (AIM)
a full service mortgage banker with a focus on the Internet retail channel. "AIM
is a low cost, "A" paper, direct lender founded in 1998...AIM is
focused on originating loans exclusively over the Internet by advertising on
sites such as Bankrate and MSN Money. AIM does not originate Alt "A"
or subprime mortgages. To obtain a competitive rate advantage, AIM operates on
margins that are significantly lower than the industry average. Seashine
Financial, headquartered in Irvine, CA is the financial services investment arm
of Seashine Capital, a Shanghai China based financial holding company."
Speaking
of change, the amount of debt here in the United States is dropping.
That can be good news. What is bad news is that a portion of the decrease is
due to charge-offs. And leave it to our very own Federal Reserve to write a paper on it!
"About 70 percent of the decline in mortgage debt has occurred as a
consequence of banks and other entities that held residential mortgages
'charging off' certain loan balances, i.e., removing them from their
balance sheets as uncollectable, after borrowers defaulted on their payments
and lenders foreclosed. In this note we describe recent changes in how mortgage
charge-offs are accounted for in the Financial Accounts of the United States,
and their effect on measures of net mortgage borrowing and personal saving in
the Financial Accounts."
Many
originators, and therefore operations staffs, are impacted by changes in the USDA's
RD program. Tom Davis from PMAC writes, "The
midterm elections results are in and the Republicans now control the U.S.
Senate. More than likely when the current Continuing Resolution (CR)
expires on December 11th, the Republican-controlled House and Senate will
likely pass another CR which will fund our Government until March, 2015. If
another CR is passed in December, there is a strong possibility the current
eligible areas will remain intact during the length of the new CR. The CR
extends a current general provision regarding housing program eligibility. This
means that if a community is eligible today, they will remain eligible the
length of the CR.
FHA
is overseen by HUD, and the industry was pretty happy recently as a Federal
district court in Washington DC ruled against HUD's disparate impact
claim. The claim said that a lender is guilty of lending
discrimination if the numbers don't match the population even if they had no
intent to discriminate. This was a very left-wing take on discrimination, and
was intended to create lending quotas. On to the Supreme Court!
Whether
it is government-sponsored programs like the USDA's RD, various bond programs,
or the Agencies, it is hard to argue the role of government (primarily
regulators carrying out) in lending as increased. And recently the MBA weighed
in regulations and lenders. "As an industry, we've proven we need to be
regulated. However, the regulatory avalanche of today's Washington isn't working
and we are seeing the results in today's marketplace," Bill Cosgrove, MBA
chairman, said. "We all need to come back to center - policy makers,
regulators, consumer groups and our industry - to achieve a healthy balance
that the American economy desperately needs."
The
answer, according to MBA leaders, is to open access to credit and stop
punishing lenders.
"To
really turn this housing market around, federal regulators and enforcement
officers must understand the collective impacts of the new rules and severe
enforcement penalties," Cosgrove said. "If they're going to regulate
us, they must work to better understand the unintended consequences on
consumers."
Those
consequences, according to the MBA, include credit standards that cut out too
many potential homeowners, especially first-time borrowers who can no longer
get access to FHA loans.
"FHA-insured
loans have always been the bedrock for first-time homeownership. But in the 12
months ending in June of this year, FHA purchase loans fell 18.5%,"
Cosgrove said. "Let me make this as clear as I can - the future of housing
in America is on the line."
David
Stevens, president and CEO of MBA, was just as forceful.
"I'm
disappointed with the lack of progress," Stevens said of President Obama's
administration's slowness to address the suffocating regulation. Stevens called
on Obama to change the dialogue on housing from one of distrust to "a
dialogue of confidence."
Addressing
the Consumer Financial Protection Bureau's approach, Stevens said,
"Enforcement should be the exception to the rule, not the rule
itself."
The
MBA leaders expressed hope that recent comments by Mel Watt, director of the
Federal Housing Finance Agency, and Julián Castro, secretary of the U.S.
Department of Housing and Urban Development, on expanding the credit box and
partnering with lenders, will result in real change to housing finance
regulation.
Speaking of recent lender-related FHA news...
In
an announcement published in the November 3, 2014 Federal Register (79
FR 65140, click here), the FHA
announced that it is not adopting the CFPB's recently issued qualified mortgage
points and fees cure amendments for FHA insured loans. Recall that in the
December 11, 2013 Federal Register, FHA published a final rule
establishing a definition of "qualified mortgage" for single family
residential mortgages that FHA insures, guarantees, or administers (78 FR
75215, click here).
Flagstar
Bank Reminder:
2013 tax return extensions expired 10/15/14. For all pipeline loans that have
not closed, if tax returns are required and the borrower previously provided a
tax return extension for 2013, the returns will now need to be provided in the
file to extend the document expiration date. Effective for FHA loans registered
and locked on or after October 31, 2014, the minimum credit score requirement
for most loans is being increased. Flagstar Bank has previously accepted a
temporary Homeownership Counseling disclosure in accordance with CFPB
requirements for providing a written list of HUD-approved housing counseling
agencies to consumers. As sufficient time has now elapsed for lenders to
implement the generation of this list in their systems, effective November 1,
Flagstar will no longer be accepting the temporary disclosure and will require
the disclosure containing the list of counseling agencies.
Effective
for FHA case numbers assigned on or after 08/04/2014, Sun West is accepting
HECM Loans with non-borrowing spouse. HECM Loans with non-borrowing spouse must
comply with all FHA's requirements as specified in the Mortgagee Letter 2014-07.
Plaza
Wholesale
posted in response to the CFPB's final rule entitled "Ability-to-Repay and
Qualified Mortgage Standards Under the Truth-in-Lending Act," HUD
published Final Rule FHA 79 FR 50835 on August 26, 2014, revising the handling
of FHA payoffs. Effective for loans closing on or after January 21, 2015, the
final rule requires mortgagees to charge interest only through the date the
mortgage is paid and prohibits the charging of interest beyond that date. Plaza
will begin accepting FHA loans complying with revised regulations with loans
closed on or after January 21, 2015.
Flagstar
Wholesale posted
information as a reminder and to ensure FHA's UFMIP refund and loan calculation
requirements are met; Flagstar's Funding Department must receive all FHA
Refinance pre-funding documents no later than 5 p.m. ET on the appropriate
deadline. In addition, the planned revisions to input requirements for FHA
loans with gifts in DU have been delayed. Therefore, until further notice,
users must revert to the following gift input requirements: The full gift
amount must be input as both the source of down payment and asset. The amount
of gift already deposited to the borrower's bank account must be deducted from
the account balance and, instead, entered as a gift in the asset section.
The bond market has been
treading water for a week while stocks have been doing very well. But that was
then, and today we had the monthly employment data. Markets move suddenly based
on surprises, based on coming higher or lower than expectations. Forecasters
were thinking along the lines of the Unemployment Rate coming in unchanged at
5.9% and October Nonfarm Payrolls being up between 222 and 231k. (In fact, the
last several months have seen remarkably stable jobs growth that critics are
having trouble arguing with.)
Rate Market
Report:
October
unemployment rate declined to 5.8%, that will be the headline in the media
tomorrow in tomorrow morning’s newspapers. The labor participation rate though was 62.8%, still
high. Non-farm jobs +214K , less than 235K expected but Sept and August
revisions added an additional 31K jobs not previously counted. Private job
growth was expected +235K increased 209K. Average hourly earnings a little
softer than thought, +0.1% with all forecasts of +0.2%. On the initial reaction
MBS prices increased a little but on further reflection by 9:00 back to
unchanged from yesterday (look below for 9:30 levels). The 10 yr note didn’t
move much, the yield increased to 2.39% then back to 2.37%, down 1 bp at 9:00
am. Things got better after stocks opened at 9:30.
Average
hourly earnings for all workers rose 0.1% in October from the prior month. They were up 2% over the past 12
months, less than the 2.1% median forecast. Earnings are minimal and a reason
why consumers are want to spend. Factories added 15,000 workers after a 9,000
gain in September, construction +12K, service sector jobs is where most growth
has been occurring, +181K. The U-6 under-employment rate (those who are working
part time that are wanting full time employment) declined to 11.5% from 11.8%
in Sept.
NY Fed
President Wm. Dudley in Paris today at a Bank of France conference, saying the
US has a responsibility to support global stability. He essentially took the blame that the
US Fed missed the 2008 financial crisis. “Given the dollar’s role as the global
reserve currency, the Federal Reserve has a special responsibility to manage
U.S. monetary policy in a way that helps promote global financial stability,”….
“Our actions have global implications that feed back into the U.S. economy and
financial markets.”…. “The largest problems that countries create for others
often emanate from getting policy wrong domestically,”…. “We failed to act both
early enough and decisively enough to stem the credit excesses that spawned the
financial crisis and the Great Recession,”…. “The U.S. was not alone in this
shortcoming, but given our position in the global financial system, we
especially should have done better.”
It was a
Mae Culpa speech; not
sure why he had to say it because everything we do in the US in terms of
monetary decisions have always had an impact on the rest of the industrialized
world. His remarks are interesting, if it were not for today’s employment data
it would have carried more media attention. The meeting was filled with central
bankers; Janet Yellen and Bank of Japan Governor Haruhiko Kuroda among them.
Mohammad El-Erian was there (ex PIMCO co CEO);… “This is a world which places
too much of a burden on central banks,”…. “This is a journey, not a
destination. If the journey lasts too long, central banks go from being part of
the solution to perhaps being part of the problem.” Increasing realization is
spreading that the Fed and other central banks cannot heal all problems; a
message that is way past due.
After an
hour of uncertainty in markets; at 9:30 the DJIA opened -45, NASDAQ -8, S&P -4. The 10 yr
note jumped on the 8:30 employment data but by 9:30 the 10 traded at 2.35% down
3 bps from yesterday. 3 yr MBS price at 9:30 +25 bp from yesterday’s close and
+21 bps from 9:30 yesterday.
At 3:00
this afternoon Sept consumer credit data from the Federal Reserve. As you know it is a report we pay
attention to; we are not too interested in overall credit increases but focus
on the revolving credit component that measures consumer use of credit cards as
a measurement of consumer actions rather than the two consumer indexes reported
(U. of Michigan and consumer confidence from the Conference Board).
The
October employment report was good, not terrific but not weak, although the job growth was less than
expected it was in the wheel house of forecasts and didn’t deviate
statistically in any significant way. Interest rates are not moving much; a
little better but the 10 is still in an upward trend (see the chart above).
Technically, still getting bearish readings; to swing our work to a more
positive near term outlook the 10 now at 2.34% will have to close below 2.32%
and that is not likely to occur today. The positive reaction today is mostly
driven by no negative reaction to employment, it was a slight miss but not
enough to enthuse. The reaction so far is some short-covering of positions that
had been increasing for the last three weeks.
PRICES @
10:10 AM
- 10 yr note: +13/32 (41 bp) 2.34% -5 bp
- 5 yr note: +8/32 (25 bp) 1.62% -5 bp
- 2 Yr note: +2/32 (6 bp) 0.52% -3 bp
- 30 yr bond: +15/32 (47 bp) 3.08% -2 bp
- Libor Rates: 1 mo 0.155%; 3 mo 0.231%; 6 mo 0.325%; 1 yr 557%
- 30 yr FNMA 3.5 Nov: @9:30 103.38 +25 bp (+21 bp from 9:30 yesterday)
- 15 yr FNMA 3.0 Nov: @9:30 103.80 +14 bp (+19 bp from 9:30 yesterday)
- 30 yr GNMA 3.5 Nov: @9:30 104.48 +28 bp (++19 bp from 9:30 yesterday)
- Dollar/Yen: 114.64 -0.57 yen
- Dollar/Euro: $1.2429 +$0.0054
- Gold: $1152.40 +$9.80
- Crude Oil: $78.47 +$0.56
- DJIA: 17,530.10 -24.37
- NASDAQ: 4621.59 -16.88
- S&P 500: 203026 -0.95
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