Economists are carefully watching the impact
of falling oil prices on the Texas (and other oil states) economy. For single
adults making the federal minimum wage of $7.25 per hour, it may be impossible
to find a place to live that won't cost more than the common rule of thumb that
annual housing costs should not exceed 30% of one's annual income. To determine
the amount of income needed to live in a particular area, Zillow analyzed
median rents and the income necessary to afford them in more than 15,000 cities
nationwide. Zillow's analysis found that a single worker making the federal
minimum wage could not afford rent for a typical property in any of the 15,000
cities and towns Zillow researched, without exceeding the 30% threshold.
Households with at least two workers earning the federal minimum wage could
afford the average rent in only 135 cities across the U.S. which were largely
located in the Midwest and South and were less than 1% of all communities
Zillow analyzed. Use Zillow's
interactive map to find out what
income is necessary to afford the median apartment in a particular metro area.
The Community Home Lenders Association
(CHLA) sent a letter to the CFPB urging them to enforce bank mortgage
originators to meet the basic testing and continuing education requirements as
licensed loan originators. Currently, these standards apply to only non-bank
mortgage originators that require them to pass the SAFE Act test, undergo a
background check prior to employment and complete at least 8 hours of
continuing education each year. The letter states, "We believe that
it is important-both for the integrity of the profession of mortgage
originators and for the consumers that they serve-to have high uniform
standards that apply to all mortgage originators, regardless of whom they work for..."
The letter also identifies that there are 1,415 registered mortgaged
originators working at banks and other depository institutions that failed and
never passed the SAFE Act test and should not be considered as
"qualified" originators. The letter also pointed out that if
registered bank mortgage originators were forced to take the exam, anywhere
from 36,000 to 120,000 may fail it. All other individuals in the real
estate and mortgage industry including real estate brokers, appraisers, home
inspectors, and nonbank mortgage originators are all subject to licensing,
testing and continuing education, which make bank employees an exception to the
rule.
Speaking of originators, in the December 26,
2014, issue of the Texas Register
(Volume 39 Number 52), the Finance
Commission of Texas and the Texas Credit Union Commission jointly adopted
amendments to the following home equity lending interpretations in the Texas
Administrative Code (7 TAC Chapter 153) without changes to the proposed
amendments published for comment in the July 4, 2014, issue of the Texas
Register (Volume 39 Number 27). The text of the adopted amended interpretations
is set out below. The Finance Commission of Texas proposed amendments to 7 TAC §2.104,
concerning Application and Renewal Fees for residential mortgage loan
originators applying for licensure with the Office of Consumer Credit
Commissioner (OCCC) under the Secure and Fair Enforcement for Mortgage
Licensing Act.
At the Federal level,
the securities industry is very interested in the "Final Rule" regarding
Residential Mortgage-Backed Securities and keeping 5% "skin in the
game". The Federal Register does not mention that term, but notes that, "The Commission
understands that sponsors of non-agency RMBS historically did not generally
retain a portion of credit risk in the form and at a level consistent with the
rule being adopted. I will save you the effort of going through 166 pages and
tell you to go to page 116, or perhaps a few before, to see the nitty-gritty.
Skin in the game is
important for originators. Currently the Fed owns about 52-53% of all
30-year FN/FH passthroughs alone at the moment. Considering that the 30-year
Fannie & Freddie passthrough market is the most liquid part of the MBS
market and is widely used for hedging purposes, the reduced float in this
sector could keep MBS spread volatility (versus Treasury prices) very high for
a long time.
Although the Federal Reserve is not out using new cash to buy
securities, it is still using the money from early payoffs to buy MBS. The
outlook for the reinvestment of pay-downs received by the Fed is the most
important theme for MBS spreads from a long-term perspective while the volatility
in the rates market around the end of the QE 3 program is the most important
theme from a short-term perspective.
And what about the impact of lower rates on early payoffs, and
therefore reinvestment by the Fed? It costs more than ever to do a loan, so
refinancing is somewhat dampened. Analysts estimate that the 30-year mortgage
rate has to settle down below 4.00% in 2H'15 (or 10-year Treasury yield to be
below 2.25%) for long-term supply/demand technicals to work against the MBS
basis. Considering the current state of the US economy and the end of the QE 3
program several months ago, it seems reasonable to expect that 30-year mortgage
rate will average higher than 4.0% in 2H'15 and MBS spreads are unlikely to
widen meaningfully from a long-term perspective (as excess supply will be
absorbed by money managers to cover their underweights). For this positive
supply/demand technicals backdrop for agency MBS to change, securitization rate
of MBS by originators has to increase to 2013 levels again!
The period from Christmas until New Years is always an
interesting time in the financial markets. Volumes are normally down, staffs
are usually light, and anything worth doing can be put off until the first week
of January....but as someone sang once, the times they are a changin'. The
coming year will probably contain more interest rate "talk" than the
prior three; the Fed will enter a period tightening which hasn't happened since
June '06, and everyone's attention will be on the yield curve again. Wells Fargo writes, "Our
expectation for this tightening cycle is for a much flatter yield curve. This
curve flattening could again have the effect of not fully pricing in actual Fed
actions given how much flatter we expect the curve to become. In anticipation
of the upcoming tightening cycle, we expect that there will once again be
mismatches between short-term yields and the actual pace of Fed tightening
behavior." A year from now many believe Fed Funds will be 75bps
higher, barring any systemic change to the economy at-large.
Through all of this rates
have continued their downward path. The general consensus appears to be
that investors are moving money into the bond market (which includes MBS) amid
fears of a potential Greek exit from the euro. (Remember when we were all
concerned about PIGS?) Greece's parliament failed to name a new president after
three rounds of voting, meaning early elections will be held on January 25.
Recent polls have suggested the anti-euro Syriza party is the favorite. And with
no other news, the market may-as-well attribute any movement to Greece - most
of the benefit accruing to Treasury securities. The 10-year closed at 2.21%.
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