HUD's 4 bp fee & FHA & Ginnie updates; Status of Mortgage Forgiveness Tax Act

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Here is some Agency news: the Community Mortgage Lenders of America reports that earlier this year HUD had proposed that Congress authorize them to impose and collect a 4 basis points fee from lenders for each FHA loan that was insured. It is rumored that HUD has persuaded the Senate to include authority to levy and collect the fee into the Continuing Resolution needed to fund the government beyond December 11th of this year. The House will probably agree with the language in the Continuing Resolution on this fee when they eventually reconcile the different versions of the Continuing Resolution that each branch of Congress is expected to pass in the next couple of weeks.

CMLA's letter notes, "The CMLA opposes the provision as currently written in the Transportation, HUD and Related Agencies Appropriations bill S. 2438 that would authorize the Secretary of Housing and Urban Development (HUD) to retroactively assess a per loan fee on FHA single family mortgage insurance program lenders. This provision responds to a request in the Administration FY 2015 budget to levy a fee on lenders in order to fund an enhanced quality improvement program for single-family FHA insured loans. This proposed fee however would, in fact, harm home buyers as lenders will be compelled to pass the new fee onto homebuyers and the fee would thus become a federal tax on home ownership." Any questions should be directed to Executive Director Glen Corso.

I continue to be asked about the Supreme Court and HUD. The new ruling against HUD's Disparate Impact Rule makes you think twice about the validity of the laws that these agencies are creating. The federal court vacated HUD's Disparate Impact Rule stating the language of the Fair Housing Act only allows permits claims based on intentional discrimination and found that HUD surpassed its authority when it created the rule. U.S. District Judge, Richard Leon dismissed the government's argument that current laws allowed them to apply the method to fair housing laws, calling it "wishful thinking on steroids." Leon wrote, "This is yet another example of an administrative agency trying to desperately write into law that which Congress never intended to sanction." The judge stated that applying FHA law to insurance raises concerns about extensive federal infringement upon state insurance regulation. This ruling comes in the wake of the holding of the U.S. District Court for the Northern District of Illinois that HUD's response to the insurance industry's concerns regarding the Disparate Impact Rule was arbitrary and capricious and remand to HUD for further explanation.

Word is slowly spreading to those impacted of HUD's changes regarding Section 184 American Indian Mortgages that the cost is going up.

FHA revised the existing HECM Property Charge Set Aside structure, and introduced additional policy changes. Changes include origination and servicing requirements for a single Life Expectancy Set Aside that may be fully funded or partially funded if required based on the results of the Financial Assessment; policy allowing lenders to order a credit report prior to the completion of HECM counseling; and 12-month seasoning requirement for existing forward mortgages and other liens that will be paid off with HECM proceeds. Click the attached link to view the complete revisions of 2014-21. Revisions were also made to HECM Financial Assessment and Property Charge Guide. Revised list of documents required for, and the stacking order of these documents in, the Case Binder, expanded guidance on documenting and evaluating income/expenses, credit history, extenuating circumstances, compensating factors, and use of HECM funds and guidance for determining when, and in what amount, mortgagees must require a Life Expectancy Set Aside to pay property charges, based on the result of the Financial Assessment are included in the revision. The complete mortgagee letter 2014-22 is available for review.

Ginnie Mae announced it will discontinue production of the legacy HMBS Monthly Pool Disclosure file and the legacy HECM Saver Disclosure file from the Disclosure Data Download page effective February 1, 2015. To review the bulletin, click here.

HUD published information regarding FHA Refinance of Borrowers in Negative Equity Positions (Short Refi): Program Extension, which extends the expiration date of the program through December 31, 2016, and reiterates the permitted use of proceeds from government entities and instrumentalities of government to extinguish a portion of a borrower's negative equity. All loans originated under the Federal Housing Administration's (FHA) Short Refi program must close on or before that date. All other provisions announced in ML 2010-23, and amended in ML 2012-05, remain in effect. The information can be viewed with the following link: ML 2014-23.

And NAR spread the word on the Mortgage Forgiveness Tax Relief Act. "It is a bipartisan bill that would prevent homeowners from paying taxes on forgiven mortgage loan debt. This bipartisan legislation would extend an expired provision that has helped many families by allowing tax relief when lenders have forgiven a portion of the mortgage debt. There are still homeowners who are struggling to meet their mortgage obligations, about 5.3 million homes are still under water and more than 1 million are in the process of foreclosure. If the act is not passed, homeowners who did a short- sell or received a loan reduction will have to pay income tax on "phantom income." Click here to take action now and encourage congress to pass the bill.

The Federal Reserve Bank of New York announced that Mischler Financial Group, Cabrera Capital Markets, LLC, G.X. Clarke & Co., and Loop Capital Markets LLC have been selected to participate in the recently announced Agency Mortgage-Backed Counterparty Pilot Program. (MFG is the securities industry's oldest investment bank/institutional brokerage owned and operated by a service-disabled veteran's business enterprise.) "According to the New York Fed, the intent in conducting this pilot program is to explore ways to broaden access to open market operations and to determine the extent to which firms beyond the Primary Dealer community can augment the New York Fed's operational capacity and resiliency in its monetary policy operations." The New York Federal Reserve Bank formal announcement can be found at the NYFRB website.

Yes, it is certainly hard to say that housing is wallowing. Yes, we had some mediocre numbers in the first half of 2014, but since then things have picked up somewhat. Existing home sales rose more than expected in October and are now back above year-ago levels. The median price is up 5.5 percent from a year earlier. Housing Starts fell 2.8 percent in October but the drop came from the volatile multifamily component. Single-family starts increased 4.2 percent and are now up 15.4 percent over the past year.

It is the last funding week of the month, and plenty of companies are seeing good fundings. For news, stocks are rallying strongly pretty much everywhere on the planet due to news headlines (Draghi's speech and the China PBOC actions). Here in the U.S. - Wednesday is the Big Day if anyone on Wall Street is still at work to move bond prices. There is zip today. Tomorrow is GDP, Personal Consumption Expenditures, and the FHFA House Price Index, Consumer Confidence, and the S&P Case Shiller series of numbers (showing values from two months ago). On Wednesday, November 26^th are Jobless Claims, the University of Michigan Consumer Confidence number, Pending Home Sales, New Home Sales, Durable Goods Orders (new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods), Personal Income and Consumption, and the Chicago Purchasing Manager's Survey. There is no scheduled news of consequence for Friday, although the markets are open.  

Executive Rate Market Report:

Thanksgiving week is generally a strange one for markets. The markets will traded all day Wednesday, closed of course on Thursday and then close early on Friday. Typically by Wednesday afternoon there is an exodus for the long weekend; in the meantime though the economic calendar has a lot to digest. Today no reports are scheduled; tomorrow and Wednesday loaded with potential market-moving data points. This week also has more Treasury buying; this afternoon at 1:00 $28B of 2 yr notes, tomorrow $35B of 5s and Wednesday $29B of 7 yr notes. This morning the rate markets opened a little weaker with stock indexes looking like another better open at 9:30. At 9:00 the 10 yr note yield up to 2.34% after Friday’s 3bp decline in rate to 2.31%. 30 yr MBS prices on Friday, up 14 bps, this morning starting down 11 bps. Nothing in the bond and mortgage market has changed, the 10 still trading in its narrow range for the 20th session with hardly any change since the end of October. At 9:30 the DJIA opened +23, NASDAQ +12, S&P +4; 10 yr 2.34% +3 bps and 30 yr MBS price -13 bps.

US markets remain bullish on the idea the ECB will begin turning up the spigot to attempt to increase the inflation levels in the EU and keep that region from declining further. China last week cut its lending rates, also a plus for US equities. The interest rate markets are watching closely but since the end of October there has been on interest in either buying treasuries or selling them; that is keeping mortgage interest rates very stable the last three weeks. ECB President Mario Draghi said last week that policy makers would be willing to widen the scope of purchases should the inflation outlook diminish. The yield on Chinese government bonds due September 2024 fell 17 basis points to 3.53% in Shanghai, according to prices from the National Interbank Funding Center. That’s the biggest drop for a benchmark 10-year yield since October 2008, a China Bond index shows. A report showed German business confidence rose in November for the first time in seven months. The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 104.7 from 103.2 in October. Europe’s stock markets better fueling a better US market so far.

Trading volume will be lower this week with the holiday and people taking advantage of a few additional days off. Markets will trade and there are a number of key economic releases as well as Treasury auctions. The 10 continues to hold present levels, neither improving or worsening. The number of analysts that were sure interest rates would be 40 basis points higher by now, have been exiting the building. The 10 is not likely to increase much between now and the end of the year. For all of the talk and discussion, the fixed income market is not buying into the idea the US economy will grow quickly enough to increase inflation concerns. It isn’t something you hear about, but one of the key forces keeping rates low is hedging against the increasing potential of a decline in the equity markets. Large investors and hedge funds should the moving into treasuries; there is very little risk in doing so, and there is an increasing sense the stock market may be close to a big correction.

This Week’s Economic Calendar:

Monday,
1:00 pm $28B 2 yr note auction

Tuesday,
8:30 am Q3 preliminary GDP (3.3% from 3.5% on the advance a month ago; deflator +1.3%)
9:00 am Sept. Case/Shiller 20 city annual increase (4.7%, down from 5.6% in August)
Sept. FHFA housing price index (+0.4% from August)
10:00 am Nov consumer confidence index (96.5 from 94.5 in Oct.)
1:00 pm $35B 5 yr note auction

Wednesday,
7:00 am weekly MBA mortgage apps.
8:30 am weekly jobless claims (-5K to 286K)
Oct durable goods orders (-0.5%; ex transportation +0.5%)
Oct personal income and spending (income +0.4%, spending +0.3%; Sept income +0.2%, spending -0.2%)
9:45 am Nov Chicago purchasing mgrs. index (63.2 from 66.2 in Oct.)
9:55 am U. of Michigan consumer sentiment index (90.0 from 89.4)
10:00 am Oct new home sales (+0.7% to 470K units (ann.)
Oct pending home sales (+0.6%)
1:00 pm $29B 7 yr note auction

Thursday,
Thanksgiving

Friday,
1:00 pm Stock markets close
2:00 pm bond and mortgage markets close

PRICES @ 10:00 AM

• 10 yr note: -5/32 (15 bp) 2.33% +2 bp
• 5 yr note: -2/32 (6 bp) 1.62% +1 bp
• 2 Yr note: -1/32 (3 bp) 0.52% +1 bp
• 30 yr bond: -9/32 (28 bp) 3.03% +1 bp
• Libor Rates: 1 mo 0.155%; 3 mo 0.232%; 56 mo 0.328%; 1 yr 0.561%
• 30 yr FNMA 3.5 Dec: @9:30 103.53 -13 bp (-7 bp from 9:30 Friday)
• 15 yr FNMA 3.0 Dec: @9:30 103.85 -11 bp (-3 bp from 9:30 Friday)
• 30 yr GNMA 3.5 Dec: @9:30 104.40 -10 bp (+5 bp from 9:30 Friday)
• Dollar/Yen: 118.37 +0.58 yen
• Dollar/Euro: $1.2427 +$0.0036
• Gold: $1198.60 +$0.20
• Crude Oil: $76.32 -$0.19
• DJIA: 17,826.05 +15.99
• NASDAQ: 4738.67 +25.70
• S&P 500: 2067.56 +4.06

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