Wednesday, December 30, 2015

December's Wave of CFPB News Including Letter Meant to Assuage Industry's TRID Fears


(Thanks to Tony H. for this one.)

A guy gets his yearly physical and the doctor tells him all the results will be available by email.

The next day he gets all excited and tells his wife, "The results say 'Have Daily sex.'"

She exclaims, "No way! What does it really say?" 

He replies, "I'm reading the results right here: 'Have Daily sex.' Woo Hoo!"

"Let me look at that." She looks at the screen and says, "You idiot, it says: 'Have Dyslexia.'"

 

Death is rarely funny, and the aftermath can be even worse. But here's an interesting twist on things. Even in our digital world where e-mortgages should be in the not-too-distant future, paper is still king when it comes to life and death - that is, birth certificates and death certificates. "Some states, including South Carolina and California, use a certain security enabled paper to print those records. And that paper is suddenly in short supply. The Ohio company that produced it for years unexpectedly shut down last summer." Tell some family they will have to wait for a death certificate...

"Branch managers and originators, with rates on the rise are you concerned about your production in 2016?  If you are in the Atlanta area Jan 7th thru the 10th and want to see what the nation's largest group of real-estate investors looks like then email us to register for a free visit and let us show you a new path to production. We are FortuneBuilders Inc., the country's largest real-estate investment education company - you've seen our television show, 'Flip this House.' Paul Esajian and Than Merrill have built a national platform where over 1 million people have registered to attend one of our real-estate events just this year. What would access to a network like this mean to your residential & commercial production goals for 2016? We have limited spots available to show you our network, this is just 1 of 11 events for 2016, email us now to stop by for a short visit and see where real-estate production is happening." For more information contact Jon Mekeal.

 Regarding the Seattle Times and BuzzFeed articles by Mike Baker and Daniel Wagner about Warren Buffett and Clayton Homes, I received this note from Audrey Saunders in Clayton's Corporate PR & Communications Department. "We saw your recent article referencing the Seattle Times and BuzzFeed articles by Mike Baker and Daniel Wagner. In the interest of showing a fair and balanced view to your readers, we sincerely request that you include a link to our own response to the article's accusations."

 The CFPB is warning bankers that it will focus examiner efforts in 2016 on spending a lot of time looking at loan officer compensation plans, consumer disclosure requirements, ability to repay rules and marketing services agreements.

 The impact of "Know Before You Owe" continues to be felt by consumers, lenders, real estate agents, settlement agents, and investors. For example, Laura Williamson with Digital Risk observed, "Exact data on TRID kickback reasons is difficult to obtain; however, is it clear that the key contributors to TRID violations are content and attention to detail, such as hyphens, figures with ample number of decimal places, fees being listed in alphabetical order, and correct spelling of counterparty names. Mostly all primarily nonqualified jumbo mortgages have been rejected. The general consensus is that investors are rejecting many loans because they are dealing with the 'fear of the unknown' with regards to what the CFPB is going to focus on and how they will enforce it. Lenders have consulted technology vendors to integrate TRID requirements into their LOS system, but they would be wise to ALSO consult third-party consultants to work with them and the vendor to close compliance gaps and provide QC services that cover the technology's soft spots."

 Yesterday Richard Cordray, the Director of the CFPB, sent a letter to MBA President Dave Stevens. As Pete Mills, SVP, Residential Policy and Member Services at the MBA put it, "(Here is) the CFPB providing additional clarity to investors and due diligence firms about the ability to correct TRID errors in the LE and CD, and emphasizing that minor technical errors in the LE and CD should not give rise to a private litigation or liability to assignees. The letter is in response to a letter MBA sent last week to the Bureau raising concerns about the potential for significant dislocation in the jumbo market and the correspondent lending channel (more than 1/3 of the market) arising from certain minor TRID errors.

 "These clarifications are intended by the CFPB to give investors and 3rd party due diligence firms additional comfort that many of the technical TRID errors that are currently being flagged should not block secondary market sales. Importantly, the letter also emphasizes the Bureau's commitment to work with stakeholders during the 'diagnostic' period to ensure that minor TRID issues do not impair the flow of loan purchases from the correspondent and wholesale channels.

 Pete's note went on. "There are several key points in the CFPB letter that the readers of your commentary should note. The first is '...consistent with existing Truth in Lending Act (TILA) principles, liability for statutory and class action damages would be assessed with reference to the final closing disclosure issued, not to the loan estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability.'

 "Another is that, 'Formatting errors and the like are unlikely to give rise to private liability unless the formatting interferes with the clear and conspicuous disclosure of one of the TILA disclosures listed as giving rise to statutory and class action damages in 15 U.S.C. 1640(a). A third is that, 'The listed disclosures in 15 U.S.C. §1640(a) that give rise to statutory and class action damages do not include either the RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.'

 "'Moreover, in light of the points made above about the existing provisions for cure under TILA, the specific cure mechanisms in the Know Before You Owe mortgage disclosure rule, and the limits of private liability under TILA, we believe that the risk of private liability to investors is negligible for good-faith formatting errors and the like.' And lastly, 'The Bureau will continue to work closely with the industry to monitor implementation, answer questions, and address developments in the secondary market that may arise.'

 His note concluded with, "Needless to say, we think this is a very positive development, and MBA will continue to work with stakeholders to further mitigate any unintended impacts of TRID on secondary market activity."

 The CFPB has stated that it has supervisory authority over the service providers of bank and non-bank lenders, including software vendors, and Director Cordray has said, "Consumers must not be hurt by unfair, deceptive, or abusive practices of service providers. Banks and nonbanks must manage these relationships carefully and can be held accountable if they break the law."

 The House Financial Services Committee has picked up on the CFPB suing firms on discrimination using bogus data.

 The CFPB issued a final rule containing "technical corrections" to the final TILA-RESPA Integrated Disclosure (TRID) rule that became effective on October 3, 2015.  The corrections are effective December 24, 2015, the date of their publication in the Federal Register.

According to the supplementary information accompanying the corrections, the publication of the TRID rule in the Federal Register "resulted in several unintended deletions of existing regulatory text from Regulation Z and the Official [Regulation Z Commentary] and, in one case, the omission of regulatory language in the [final TRID rule] from the [Code of Federal Regulations]."  While not clear from the CFPB's statement, we understand that the final TRID rule was published correctly in the Federal Register but was incorrectly codified in the CFR by the Government Printing Office.

 To correct the CFR, the final rule reinserts existing regulatory text that was "inadvertently deleted" from Regulation Z and its Commentary and amends the Commentary to Appendix D to Regulation Z to add a paragraph that had been included in the final TRID rule published in the Federal Register but "inadvertently omitted" from such Commentary.  The CFPB describes the corrections as "non-substantive changes" to the final TRID rule.

 During 2015, despite requests from the industry to address many apparent errors with the TRID rule, the CFPB has so far decided not to act, not even to address issues that would be relatively simple to correct.  For example, because of an apparent error, property taxes paid at closing were not included in the list of items that are not subject to a specific percentage tolerance.  There also are disclosure issues, such as the provisions for determining how to complete the Cash to Close sections of the Loan Estimate and Closing Disclosure, which if followed as set forth in the TRID rule can result in (1) disclosing that there are no closing costs being financed when, in fact, the lender is financing closing costs and (2) disclosing a cash to close amount that is lower than the actual cash needed to close.  And, there is the so-called "black hole" issue that appears to prevent a creditor, in various cases, from being able to reset the tolerances with a Closing Disclosure.  Perhaps the CFPB will see fit to address the many issues in 2016.

 The CFPB has announced annual adjustments to two asset-size exemption thresholds. First, the CFPB is making no change to the asset-size exemption threshold under HMDA/Regulation C which is currently set at $44 million. Banks, savings associations, and credit unions with assets at or below $44 million as of December 31, 2015 will continue to be exempt from collecting HMDA data in 2016.

 Put another way, the CFPB announced the asset size exemption thresholds for depository institutions under Regulation C and for creditors under the escrow requirements, small-creditor portfolio and balloon-payment qualified mortgage requirements, and balloon-payment high-cost mortgage requirements under Regulation Z. These thresholds are effective Jan. 1, 2016.

The CFPB decreased the asset-size threshold under TILA/Regulation Z for certain small creditors operating primarily in rural or underserved areas to qualify for an exemption to the requirement to establish an escrow account for higher-priced mortgage loans (HPML). The threshold is currently set at $2.060 billion. Loans made by creditors operating primarily in rural or underserved areas with assets of less than $2.052 billion as of December 31, 2015 (including assets of certain affiliates) that meet the other Regulation Z exemption requirements will be exempt in 2016 from the escrow account requirement for HPMLs. (The adjustment will also decrease the asset threshold for small creditor portfolio and balloon-payment qualified mortgages which references the HPML escrow account asset-size threshold.)

 The CFPB also launched a new online tool to help creditors determine which properties are located in a rural or underserved area. The tool can be found here. As stated in the Amendments Relating to Small Creditors and Rural or Underserved Areas Under the Truth in Lending Act (Regulation Z) final rule that was published on October 2, 2015, a creditor may rely on this tool to provide a safe harbor determination that a property is located in a rural or underserved area.

 And don't forget that earlier this month the CFPB spread the word that its eRegulations web tool is a platform that makes regulations easier to find, read and understand and now includes six additional CFPB regulations. "We are actively working to increase the number of regulations in the platform in 2016." These are the new regulations live on the site are Regulations B (Equal Credit Opportunity Act), D (Alternative Mortgage Transaction Parity), J (Land Registration), K (Purchasers' Revocation Rights, Sales Practices, and Standards), L (Special Rules of Practice), and M (Consumer Leasing).

 Rates shot up Tuesday. Why? The "experts" attributed it to "a strong risk-on rally in commodities and stocks, limited liquidity, and technical factors." But we did have some news out. The Conference Board's Consumer Confidence Survey increased to "96.5" in December, up from 92.6 in November and from 93.1 in December 2014. And the Case-Shiller 20-City Index rose 5.5% in the year to October. The $35 billion 5-year Treasury auction was met with lackluster demand, drawing the lowest bid-to-cover ratio since 2009 and the lowest indirect bid since August 2015.

 The 10-year yield has been in a 25-basis point range for 2 months now which makes that the tightest such range for 2015. Tuesday saw a 2.31% close which is on the high side but we were last here in early December and again in mid-November so at this point it isn't earth-shattering. The good news is that MBS outperformed sharply as Treasury prices declined steadily over the day: the 10-year lost .75 in price, the 5-year note lost about .25, and agency MBS prices worsened .125-.375.

 But hey, it's Wednesday which ordinarily means we've seen the MBA application survey numbers from last week. But due to the year-end holidays, results for the week ending December 25 will be released next Wednesday along with results for the week ending January 1. Later this morning is a November Pending Home Sales figure (expected +.5%) and a $29 billion 7-year note auction. If anyone cares about rates the 10-year is still around 2.31% and agency MBS prices are roughly unchanged.

Tuesday, December 29, 2015

Conforming Conventional Lending Trends and Expectations for 2016


Fetch your HP 12c - here's some math magic. Take 259, multiply it by your age, and then multiply that by 39. You'll see an interesting result. (Kids, an HP 12c is an iPhone-sized thing that does calculations and is HP's longest and best-selling product - but you had to punch in the numbers yourself rather than say them out loud.) While we're on the topic of numbers, a CNBC survey of CFOs at major companies finds cybersecurity actions they have taken compared to Feb 2015 include: audited or tested existing infrastructure (92%); replaced or upgraded existing hardware or software (85%); initiated new IT protocols (81%); increased size of IT staff (73%); developed or amended corporate response plans (46%); and purchased cyber insurance coverage (42%).

Lenders have four more days to close loans in 2015, most which are TRID loans. So some of them will be closed in January 2016 as lenders, fearing the worst regarding fines, unsaleable loans, and vague UDAAP violations that will appear years from now, do what they can to adhere to the correct procedures at the expense of customer service.

 Freddie and Fannie find themselves in the thick of this, of course. As a reminder both have put out notices on the TILA-RESPA changes (Fannie, Freddie), and remember that FHA does as well. (If you have questions about whether or not correspondent investors are also going along with this, ask them.)

 But what garnered the most attention in recent weeks was the FHFA's release of its 2016 scorecard for the GSEs (Government Sponsored Enterprises - namely F&F) and Common Securitization Solutions (CSS) - especially since their activities will impact rate sheets.

 The new scorecard mandates that the GSEs prepare for the expiration of HARP (end of 2016) by creating a new high-LTV refinance program that will be implemented in January 2017. (Yes, over a year away - but these things take time.) They are also being instructed in implementing "Release 1" of the Single-Security Initiative in 2016. Freddie Mac will start to utilize the Common Securitization Platform (CSP) to perform activities related to its single-class, fixed-rate securities. No Single Securities will be issued under this phase of the program.

 (In 2018 we can expect to see "Release 2" of the Single-Security Initiative implemented. Both Fannie Mae and Freddie Mac will start to issue Single Securities and commingled re-securitizations.)

 F&F are also expected to transfer the credit risk on at least 90% of the UPB of single-family mortgages acquired in 2016 for 30y fixed-rate, non-HARP loans with LTVs greater than 60% (so-called "targeted loans") and explore ways to transfer credit risk on other types of single-family mortgages outside of this "targeted loans" category. Along those lines Freddie & Fannie will explore ways to expand the investor base for credit-risk transfer transactions.

 The FHFA is requiring that the GSEs further increase access to credit for borrowers by removing impediments that may be preventing qualified borrowers from obtaining a loan. Supporting this objective, the GSEs are to enhance their rep and warranty frameworks by completing an independent dispute resolution process for lenders who do not believe that their loans have breached the GSEs' rep and warranty policies, as well as provide lenders with feedback on the quality of their loan originations shortly after the loans have been sold to the GSEs.

 Capital markets folks are most interested in the single security news. "Release 1" is scheduled for 2016 and "Release 2" (the actual introduction of the Single Security) is scheduled for 2018. The scorecard requires that the market be notified of the precise implementation date of the Single Security at least 12 months in advance so that stakeholders can prepare for the change. The FHFA will also develop a process to evaluate new or updated GSE policies that may affect prepayments and buyouts on TBA mortgages, as well as monitor issuance and prepayments between the two agencies to alleviate concerns by some investors that with the introduction of a Single Security and the ability to deliver either Freddie or Fannie pools into the same TBA deliverable.

 In response to the Federal Housing Finance Agency (FHFA)'s 2016 Scorecard for Fannie, Freddie, and Common Securitization Solutions, U.S. Mortgage Insurers (USMI) has said it will continue to be committed to working with FHFA and the GSEs on steps to increase the amount and levels of credit risk transferred and to take greater advantage of the benefits of front-end risk sharing. Lindsey Johnson, President and Executive Director of USMI stated, "After three years of largely back end risk sharing transactions, the time is right to move forward with a more balanced approach."

The American Bankers Association has renewed its endorsement of Freddie Mac's secondary mortgage market solutions. ABA's partnership with Freddie Mac will allow member banks to utilize solutions that provide improved access to credit and enhanced pricing and mortgage products. Bryan Luke, chairman of ABA's Endorsed Solutions Banker Advisory Council stated "for more than decade, our alliance with ABA has helped its members create more opportunities for borrowers and realize new possibilities for their businesses."

 Earlier in December Fannie Mae updated its Servicing Management Default Underwriter (SMDU) tool to support a recently announced policy change that helps its servicers provide foreclosure prevention help to additional borrowers. Read the news release to learn more.

 What have top lenders and investors been doing in the conforming conventional channel recently?

 Flagstar Correspondent has suspended its My Community Mortgage product line(s).

 Wells Fargo has suspended its MyCommunity product line(s).

 And My Community products are no longer offered in various pricing engines but, for example, in the Optimal Blue system will be available for 90 days for secondary users.

 Freedom Mortgage is offering the Fannie Mae HomeReady Mortgage Program (Fannie Mae HomeReady program replaces the MyCommunityMortgage program which is no longer being offered). The Fannie Mae HomeReady Mortgage Program gives qualified Borrowers with low to moderate income more options to obtain an affordable mortgage.

 The Fannie Mae trading desk spread the word that HomeReady is available for committing and delivery. Lenders can commingle standard and HomeReady loans into MBS pools and whole loan commitments. HomeReady has no separate whole loan committing product/pricing grids. Refer to the HomeReady product matrix for more information.

 Effective Dec. 10, Plaza will accept locks and loan submissions for Fannie Mae's HomeStyle program. Refer to Plaza's HomeStyle Program Guidelines for complete requirements. In the coming weeks Plaza will be providing training for the HomeStyle Program. Plaza has also added Fannie Mae's HomeReady program to its product line. In addition to HomeReady, Plaza's programs have been updated to incorporate the enhancements offered in DU 9.3. These changes are effective immediately for loans approved under DU 9.3 on or after Dec. 14, 2015.

 Pacific Union Financial has updated numerous guidelines. For instance, due to Fannie Mae delivery requirements, loans using the higher LTV/(H)CLTV limits may not close prior to December 21, 2015. Adjustments to its Jumbo Series O include cash-out proceeds to be received at closing are not an eligible source of funds. Rate-Term Refinance Guidelines were updated to reflect that the property value for the transaction is based on the current appraised value, regardless of length of ownership. Freddie Mac's announced enhancements effective with submissions or resubmissions to Loan Prospector (LP) on or after December 14, 2015:  the occupying borrower will no longer be required to contribute at least 5% of the down payment from their own funds when the LTV exceeds 80%.  All funds for the transaction, including reserves, may come from the occupying borrower and/or non-occupying co-borrower.

 Fannie Mae High Balance 95% LTV is available at HomeBridge Wholesale. Recent updates include 1 year of tax return to qualify.

 As of December 12, 2015, Caliber Wholesale has adjusted their LTV/CLTV/HLCTV requirements to 95% for high-balance loans underwritten through DU. This is a result of Fannie Mae's recent decision to revise high-balance overlays and replace them with a new policy that requires all high-balance loans to be underwritten through DU.

 And Caliber Home Loans announced its LPMI adjustments for loan amounts over $417,000 have been reduced to 0.000. In addition, beginning Saturday, December 12 will adjust its LTV/CLTV/HLCTV requirements to 95% for high-balance loans underwritten through DU. Click here to view more information on Caliber's products.

 NewLeaf conventional matrices have been updated to reflect the changes with the Fannie Mae DU 9.3 release the weekend of December 12, 2015. The changes impact High Balance eligibility requirements, Non-Occupant Co-Borrower policy changes and the new HomeReady product that will replace My Community Mortgage which is being eliminated.

 Effective immediately for conforming LP approved loans, PennyMac is aligning with Freddie Mac updates announced in Bulletin 2015-20.  The highlights of the announcement are here.

 As of Monday, December 14, Arch MI's EZ Decisioning and Standard programs was updated to reflect its alignment with recent Fannie Mae announcements regarding Fannie Mae's HomeReady affordable program. A summary of the changes is available on its Credit Risk Bulletin #3-15-NR.

 Sun West, based on FNMA's announcement to postpone the implementation of the new policies on qualifying income for self-employed borrowers, is postponing the implementation of the corresponding underwriting requirements announced in the lender alert dated March 20, 2015 until further notice. Sun West will continue to monitor and provide further notification regarding the new underwriting requirements.

 Based on the 2016 loan limits increase in some counties for both FNMA/FHLMC loans as well as FHA, NewLeaf Wholesale will accept applications at the higher loan limits for FNMA/FHLMC products effective immediately. A manual lock process will be required until January 1, 2016.

 Shifting our collective gaze to rates, does anyone remember, or care, what the bond market did last Thursday morning? As expected not much has happened to yields after the well-forecast Fed tweak of short term rates, and we closed the 10-year at 2.24% on Christmas Eve. And frankly there isn't much else to move rates this week in the U.S. There is no scheduled news today; tomorrow will be the Trade Balance numbers, October Case-Shiller 20-City Index, December Consumer Confidence, and a 5-year T-note auction. Wednesday will be November Pending Home Sales & a 7-year Treasury auction. Thursday - New Year's Eve, will have Initial Jobless Claims and the December Chicago PMI.

 It has been pretty quiet, market-wise, around the world during the last 72 hours. (Of course here in the U.S. we've seen the terrible toll from the weather in many parts of the nation.) As mentioned we had a 2.24% close on the 10-year Thursday and this morning we're unchanged on it and close to unchanged on agency MBS prices.

Thursday, December 24, 2015

Trends in Capital Markets


Thanks to Deanna Sabey who sent along the lyrics for a new song ("Closing Got Run Over by TRID") to the tune of "Grandma Got Run Over by a Reindeer" from Citywide Home Loans, in Sandy, Utah.

 

Closing and funding got run over by TRID,

working from Citywide Christmas Eve.

You can say there's no such thing as the CFPB,

but as for us in closing and funding we believe.

The Team had been drinkin' too much egg-nog,

and we'd begged the CFPB not to change.

But the CFPB forgot how to help the borrower

and removed the HUDs to cause us all such pain.

When the Trolls found us that October Morning

after the CFPB's first attack,

we had red marks on our foreheads

and incriminating CFPB marks on our back.

Closing and funding got run over by TRID,

working from Citywide Christmas Eve.

You can say there's no such thing as the CFPB,

but as for us in closing and funding we believe.

Now we are so proud of the Team.

They been taking this so great.

See them sending CDs,

while they're drinkin' wine and working late.

It's not a closing package without HUDs.

All the closers are printing in black.

And we just can't help but wonder

if the borrower is going to e-sign or send them back

(send them back!).

Closing and funding got run over by TRID,

working from Citywide Christmas Eve.

You can say there's no such thing as the CFPB,

but as for us in closing and funding we believe

Now the borrowers at the closing table,

and the closers are doing their best.

And title is learning to let go.

All to accommodate the CFPB's request.

We warned all of our friends and neighbors.

You better watch out for yourselves.

The CFPB should not be able

to change documents when they have never closed a loan themselves.

Closing and funding got run over by TRID,

working from Citywide Christmas Eve.

You can say there's no such thing as the CFPB,

but as for us in closing and funding we believe.

Closing and funding got run over by TRID,

working from Citywide Christmas Eve.

You can say there's no such thing as the CFPB,

but as for us in closing and funding we believe.

 

As much of the nation reels from storms and their damage, and lenders review their disaster policies, there is one thing we don't have to worry about: changes in the status on MI tax deductibility. There were none, but as always borrowers should talk with their tax advisors regarding eligibility. The President signed a bill to renew the tax deductibility of mortgage insurance for those qualified. The deductibility can count towards refinance and purchase transactions that closed after December 31, 2014. MI premiums paid or accrued after December 31, 2014 through December 31, 2016 may qualify for tax deductibility. For borrowers with an adjusted gross income below $100,000 may deduct 100% of their MI premiums, for borrowers with adjusted gross incomes from $100,000.01 to $110,00, deductions are phased out at 10 percent increments for each additional $1,000 of adjusted gross household income.

 Yesterday the commentary discussed trends in rents - in many areas owning has become less expensive than renting - if only buyers could come up with a down payment. Have builders been reacting to changes in the marketplace? Let's go back 3-4 months and the trends in many parts of the country become apparent.

 Remember when housing starts fell to a 1.12 million pace in August, below the 1.16 estimate. July was revised downward from 1.21 million to 1.16 million. Building Permits rose to 1.16 million from an upward-revised 1.13 million. Both single family and multi-family dropped. We were entering the seasonally slow period for the builders, so analysts didn't read too much into these numbers.

 The majority of homes prices in the U.S. are rising, but some markets have experienced a decline in home values. About 30 percent of all homes nationwide (27.9 percent) lost value in August from a year earlier, whereas the median home value rose reaching a 3.3 percent YoY increase. Zillow analyzed 35 of the largest markets and found that Baltimore, Washington D.C and Philadelphia had more than 40 percent of homes lose value YoY in August, while Denver, Dallas-Fort Worth, San Francisco, San Jose, Seattle and Portland all had less than 10 percent of homes lose value within the same time period. Denver also had 1.5 percent of homes lose value over the past year. Almost half (48.1 percent) of homes in the larger Baltimore market are currently losing value, with a range from 24.7 percent to 74.1 percent of homes losing value, depending on the area. In some markets, builders may have also constructed homes within the last decade in areas farther from the city, which is often less desirable to buyers and therefore, have declined in value. Whereas other areas, such as the Bay Area, have seen an increase in home prices due to high demand and low supply, as more people look for affordable homes further from the city. The rise in home values is beginning to flatten though, as within the past 6 months, home values have appreciated less than 4 percent on an annual basis and home values last August were rising twice as fast as they are currently. Home value growth is expected to continue to slow within the next year, growing 2.2 percent from August 2015 to August 2016.

 Zelman & Associates published their August Homebuilding Survey and suggested that the housing market is in the middle of a steady demand environment due to an increase in order growth and pricing power in the 5-6 percent range. Orders are up 16 percent YoY and contacts' orders are up 24 percent YTD. Net order prices increased 5.8 percent YoY in August and 55 percent of respondents reported YoY improvement in gross margin.  The areas with the strong improvement include Phoenix, San Diego and Inland Empire, compared to Las Vegas and Houston that that posted the greatest declines.

 But let's move up a couple months and look at Housing Starts and Building Permits. Residential housing starts fell to a 1,060,000 annualized rate in October, short of expectations. September's reading was 1,191,000. Multi-family housing starts, which tend to be much more volatile than starts on single-family homes, declined 25.1%. Single-family starts fell by 18.6% in the South and 16.2% in the West. New building permits reached 1,150,000 in October, higher than expected.

 Zelman and Associates published its Homebuilding Survey indicating that order growth has accelerated to 20 percent but is expected to slow in October. September's sequential order decline of 11 percent was weaker than the normal 8 percent decline, but YoY growth accelerated 400 basis points to 20 percent. Net order prices increased 6 percent YoY, 20 basis points stronger than August. Roughly 61 percent of survey respondents reported YoY improvement in gross margin, which is the highest level since the survey began asking that question in May. The metro areas that had the strongest improvement include Phoenix (up 16 points), San Diego (up 9 points), and Los Angeles (up 7 points), while Houston declined 10 points. Labor costs have increased at the fastest rate within the past two years and overall cost inflation of 2.9 percent was stable with prior months, partly due to a drop in lumber prices. Housing starts are also expected to increase 19 percent in 2016 and 16 percent in 2017. For more information regarding the Homebuilding Survey, contact Ivy.

 Then the group published its October Homebuilding Survey which suggested steady trends despite a bumpy earnings season. Net order growth increased 16 percent YoY and survey respondents experienced a 1 percent sequential increase in orders.Net order prices grew 6.4 percent YoY, up 40 basis points from September and reached the highest level since May 2014. More than half (59 percent) of survey respondents reported YoY improvement in gross margins and housing start growth reached 22 percent, ahead of order growth at 16 percent. Labor inflation rates have reached the highest level since mid-2013, but inflation overall is a stable level. Sequential improvement in single-family housing starts is also anticipated, as production catches up with demand.

 The MBA's Chart of the Week for October 16th provides an overview of Single Family Housing Starts and BAS Forecast. During 2015, single family starts have been on an upward path. The Builder Application Survey Index (BAS) predicts that that the raw number of housing starts will slow over the next few months but the level of activity will be higher than normal (more than what has been seen in the past few years).

 Builder KB Home reported better than expected earnings but disappointed on orders. Orders were up 19% to 2,167 units. Backlog increased 36%. Average selling prices rose 9% to $357.2k from $327k.

 The MBA's Chart of the Week for November 6th highlighted the average loan size of applications in MBA's Builder Application Survey, which grew to a survey high of $325,000. The average loan sizes for new builder applications were larger than corresponding averages from MBA's Weekly Application Survey purchase applications. The rate of increase in loan size is about 6.25 percent per year over the past three years compared to the 6 percent rate of appreciation in FHFA's Purchase Only House Price Index (through August).

 The National Association of Homebuilders sentiment index slipped to 62 in November from 64 in October. 

 Zelman and Associates published its November Homebuilding Survey suggesting that a seasonal slowdown is imminent, but the market has picked up since last year. Survey respondents reported a 13 percent YoY increase in net orders, down from 17 percent a month prior. Net order prices increased 6.5 percent YoY in November, up from October and the majority of contacts (69 percent) reported flat-to-improving margins on a YoY basis. For the sixth consecutive month, housing start growth outpaced order growth. Labor continues to increase but the rate of inflation had dropped for the first time in nine months. As oil prices are in limbo, Houston orders dropped 28 percent YoY but the overall market score improved in Phoenix and San Diego.

 Now we are in the seasonally slow period for home building yet housing starts increased to 1.173 million last month and building permits increased to 1.29 million. The increase in housing starts was in both single-fam and multi-fam, while the increase in permits was mainly in multi-fam. We still continue to under-build which is just creating more pent-up demand.

 

Trends in the capital markets? Sure there are...

 

A spotty 2015 market for non-prime mortgages saw Angel Oak announce its $150 million securitization. Residential-mortgage deals by Residential Credit Opportunities and Angel Oak Capital signal a slow recovery. SIFMA reports $13.1 billion of issuance this year, compared with $500 billion in 2007.

 The FHFA has laid out the plan for Freddie and Fannie in the capital markets, and I will discuss early next week. But the move toward a single security for Fannie & Freddie loans is marching ahead, as is the move toward risk sharing.

 Monday this commentary mentioned that "Jefferies trading revenue fell 36% as fixed-income trading tumbled. There has definitely been a drain of talent and numbers from the investment banks, and the MBS trading staffs. And this may accelerate as we near the midpoint of 2016 given some of the upcoming capital requirements versus the dwindling margins in that business."

 (But there are different forms of compensation. For example, Credit Suisse Group AG announced one of the richest parental-leave packages in financial services, giving U.S. employees 20 paid weeks off after the arrival of a child, up from 12 weeks.)

 It appears that, in short, those making a market in MBS are facing a perfect storm of balance sheet issues. These include various regulations that have been determined to increase the difficulty in trading RMBS, agencies which require balance sheets to have a high enough ROE, lowered liquidity (again partially balance sheet related) causing less trading, Fed uncertainty, the possibility of the Fed eventually extracting itself from the market (QE for payoffs), and other issues.

 The Securities and Exchange Commission plans to discuss its accredited investor definition and continue work on a rule requiring third-party exams for advisers in 2016. The agency will also consider its own uniform fiduciary rule for brokers and advisers in the coming year.

 Fannie Mae is going after lenders using a concurrent servicing sale option by offering its Servicing Execution Tool (SET). Now it's available directly from the whole loan committing application, Pricing & Execution - Whole Loan. Using SET, lenders selling loans to Fannie Mae can access upfront pricing and all-in funding for the sale of the loan and the servicing asset, at the same time on a loan-by-loan basis. Learn more from this Housing Industry Forum article.

 Keeping on with capital markets, don't forget we have an early close today and the markets are closed entirely tomorrow - trading resumes Monday. Wednesday bonds sold off as the yield curve steepened in spite of the economic data releases from the U.S. being disappointing. The reason for the selloff was that oil prices rallied - maybe for no other reason than it was tired of selling off.

 This morning we've had Initial Jobless Claims for the week ending 12/19 (down to 267k from 272k). We closed Wednesday with the 10-year sitting at 2.26% and this morning, as folks plan their exits from work, we're sitting at unchanged.