Monday, April 20, 2015

Quicken vs. the U.S. Government; Agency fee changes - much ado about nothing?



Let's start with something simple, like a bill introduced last week to amend the Real Estate Settlement Procedures Act of 1974 to prohibit certain financial benefits for referrals of business and to improve the judicial relief for certain violations, and for other purposes.

 

But the big recent news: dogs sleeping with cats, geese flying south for the summer, toast landing on the floor butter-side up... and Quicken Loans, the nation's largest Federal Housing Administration (FHA) mortgage lender, filing suit in Federal District Court against the United States Department of Justice (DOJ) and Department of Housing and Urban Development (HUD). "The company was left with no alternative but to take this action after the DOJ demanded Quicken Loans make public admissions that were blatantly false, as well as pay an inexplicable penalty or face legal action."

 

The Wall Street Journal noted that, "Because lenders must certify that the FHA-backed loans they make have no errors, the government has sometimes pursued damages under the False Claims Act, a Civil War-era law that lets the government recover triple damages. That's led to what some banks say are onerous settlements for minor penalties. Rather than audit banks' entire loan portfolios, the Justice Department also tends to extrapolate mistakes based on a sample, another practice that has drawn some banks' ire. 'The risks of doing FHA loans for lenders is too high and marks a low point when a Quicken Loans has to fight back,' said David Stevens, president of the MBA, which lobbies on behalf of lenders. 'This has gone too far and will only hurt consumers' access to credit.' A Quicken spokesman in an email said that the company would continue to make FHA loans in the near term and that "like nearly every lender in the country, we will be evaluating the prudence of our continued participation with FHA." Maybe they should talk to Chase...



Libertarian originators and industry analysts were quick to write.....



"God bless Quicken for having the money, determination and principle to become the aggressor in this matter. The DOJ and HUD should not be allowed to blackmail and strong arm those doing it best. I have been brokering loans to Quicken for about 5 years and have found them to be of the highest quality to partner."



"It takes the biggest to even attempt something like this.  Needless to say, I hope it works. Other lenders and I have spoken and believe there should be a remedy for consumers that will be damaged by the new archaic rules being implemented on 8/1/2015.  A purchase cannot be treated like a refi at closing. When the consumer is financially damaged by the poorly thought out, arrogant rules issued by the CFPB, they should be able to recoup their losses from the CFPB."

 

And for Agency news, to the surprise of no one the Federal Housing Finance Agency (FHFA) released the results of a comprehensive review of the Fannie and Freddie guarantee fees. In short, the review findings were that there is no current compelling reason to change the current g-fee structure... with a couple of notable exceptions. First, seven years after its implementation in 2008, the 25 basis point upfront adverse market charge is to be removed. The FHFA is also setting aside its December 2013 decision to retain the adverse market charge in certain high foreclosure states. And the FHFA is applying targeted and small fee adjustments to a subset of Enterprise (Fannie and Freddie) loans. This includes small fee increases for certain loans in the LTV/credit score grid and certain loans with risk-layering attributes (i.e. cash-out refi, investment properties, secondary financing, and jumbo conforming.) But to repeat, "As a result of FHFA's review of guarantee fee levels, the agency concludes that the current guarantee fee level is appropriate under current circumstances." And before anyone becomes all riled up, the changes to the LLPAs will be implemented for all loans purchased or delivered into MBS pools issued on or after September 1, 2015.

 

One cynic said, "They took away the adverse market fee but added a bunch of other fees based on purchase date - not commitment date - seems like a lot of fuss about not much." Most will see this as favorable - at least the FHFA removed the onerous adverse market fee and appear open to market input - but this will not generate a large systemic change in pricing/rates, and in that there will be little or no change for most borrowers.



With all this excitement who cares about the bond markets? Someone might - and there isn't much volatility - and for news this week we've had the Chicago Fed National Activity Index (-.42), zip tomorrow, Wednesday are the FHFA House Price Index and Existing Home Sales, Thursday is Initial Jobless Claims & New Home Sales, and Friday is Durable Goods. For numbers we closed the 10-year at 1.85% and this morning we're at 1.87% with agency MBS prices roughly unchanged depending on coupon.



Executive Rate Market Report:

Friday the stock markets around the world took big hits; the DJIA down 279, Nasdaq -76. China made it easier to short their stock market in an effort to slow speculation, Greece back in play on comments frm Christine Lagarde that she isn’t interested in any extensions unless Greece increases its austerity programs. Nothing however has changed for trading US stocks; for months now any day when the key indexes decline in big swings the following day the market rallies. Traders have to love it, wait for a major sell-off then buy on the close, the next trading day will be an up day. This morning the key indexes are stronger at 8:00.

The 10 fell to its resistance level on Friday at 1.86% down 4 bps frm Thursday; we thought this morning the note would continue lower and break out of the three week plus trading range. Not the case, the 10 traded up 1 bp to 1.87%. MBS prices on Friday didn’t improve much closing the day 9 bps better on the day. MBSs also locked in narrow ranges unable to exit.

Over the weekend, talks between the government and the institutions overseeing the Greek bailout took place in Paris. Negotiations have so far yielded little in terms of progress and European officials have cautioned that discussions between the two sides are nowhere near the point where bailout money can be disbursed. Chinese officials over the weekend made an attempt to cool the negativity that exploded last week by lessening the reserve requirements of banks hoping that would spur increased lending. The decision to lessen reserves in a sense counters Friday’s news that the government made it easier to short the Chinese markets, a move to calm global markets. It was the second in less than three months and the largest in magnitude since the 2008 financial crisis.

Today Europe’s equity markets recovering a little from Friday’s selling; Hong Kong suffered their largest one-day tumble this year on Monday and trading volumes in Shanghai jumped to a fresh record, as reassurance from Beijing over the country’s slowing economy failed to persuade investors.

This week’s trading should be focused on global markets; China and Europe. US earnings also will be in play, so far 75% of earnings reported have been better than estimates. Only three economic reports but all of the them have the potential of moving US market outlooks; March existing and new home sales and March durable goods orders.

The DJIA opened +160, NASDAQ +30, S&P +14. The 10 at 9:30 1.87% +1 bp, 30 yr MBS price +2 bp frm Friday’s close and +11 bps frm 9:30 Friday morning.

This Week’s Calendar:
Wednesday,
7:00 am MBA mortgage applications
9:00 am Feb FHFA home price index (+0.6%)
10:00 am March existing home sales (+4.5% to 5.045 mil frm 4.88 mil)
Thursday,
8:30 am weekly jobless claims (-8K to 286K)
10:00 am March new home sales (-3.9% to 517K frm 539K)
Friday,
8:30 am March durable goods orders (+0.5% frm -1.4% in Feb; ex transportation orders +0.3% frm -.06%)

Debate within Europe and the US whether the EU and IMF will let Greece default and eventually leave the EU will be in play. If Greece leaves the EU what are the downside repercussions? Will the debt issues spread to other southern Europe countries and cascade into more defaults then threaten the very existence of the EU? Safety moves should push investors toward US treasuries with our interest rates substantially higher than other safe sovereigns. In the end we expect Greece will not leave, the possibility of other debt ridden countries leaving while remote is too great to bet on the end of Greece.

http://www.lomagnet.com/Images/Hammer/Charts/sigmachartspecial042015am.jpg

We floated over the weekend, not much benefit; thought there was a better risk that the US 10 would finally break below 1.86%; so far it hasn’t happened. Expecting two strong down days in the US stock markets continues to be wishful rather than possible. How many times in the last two months have the key indexes had triple digit moves lower (on the DJIA) only to encourage buying on any dips. Both MBS prices and the 10 yr treasury are at critical pivots, the 10 at 1.86% and FNMA 3.0 coupon at 102.63 (at 10:00 102.54). We expect the 10 will break lower but the longer it holds it lessens our enthusiasm . Friday afternoon we said if the 10 yield does break it will drop to 1.70% and MBS prices would decline 200 basis points, a freshman brain fade, MBS price would increase 200 bps.

PRICES @ 10:00 AM

10 yr note: +1/32 (3 bp) 1.86% unch

5 yr note: +1/32 (3 bp) 1.30% unch

2 Yr note: +1/32 (3 bp) 0.50% -1 bp

30 yr bond: -10/32 (31 bp) 2.53% +2 bp

Libor Rates: 1 mo 0.180%; 3 mo 0.275%; 6 mo 0.402%; 1 yr 0.691%

30 yr FNMA 3.0 May: @9:30 102.55 +2 bp (+11 bp frm 9:30 Friday)

15 yr FNMA 3.0 May: @9:30 104.92 +5 bp (+13 bp frm 9:30 Friday)

30 yr GNMA 3.0: @9:30 103.61 +8 bp (+12 bp frm 9:30 Friday)

Dollar/Yen: 119.05 +0.15 yen

Dollar/Euro: $1.0745 -$0.0061

Gold: $1195.60 -$7.50

Crude Oil: $55.54 -$0.20

DJIA: 18,039.10 +212.80

NASDAQ: 4970.79 +38.97

S&P 500: 2098.30 +17.12
http://globalhomefinance.blogspot.com

1 comment:

  1. One voice is easy to ignore but thousands are hard to ignore.

    ReplyDelete