A Primer on Mortgage Insurance and What MI Folks are Doing

By rchrisman@robchrisman.com

 

Kevin walks into his boss's office. "Sir, I'll be straight with you. I know the economy isn't great, but I have over three companies after me, and I would like to respectfully ask for a raise."

After a few minutes of haggling, the boss finally agrees to a 5% raise, and Kevin happily gets up to leave. 

"By the way," asks the boss, "which three companies are after you?"

"The electric company, water company, and phone company," Kevin replied.

 

Lenders everywhere are looking forward to a great March given their swollen locked pipelines. As thousands of operations folks descend on Ellie's conference in Las Vegas, regulation will be the focus, and its impact on lenders and consumers. Is the cure worse than the disease? We'll see where TRID takes things. According to the December Origination Insight Report from Ellie Mae, the average time to close a loan in 2015 took 49 days. The average time to close a refinance dropped to 47 days, while the average time to close a purchase transaction increased to 50 days. Closing rates for all loans was 67 percent, while the closing rates for refinances reached the highest level of the year at 63 percent and closing rates for purchases declined slightly to 71 percent.

In spite of only 10-20% of current mortgage volume having mortgage insurance, many industry-watchers believe that the performance of mortgage insurance companies provides a good bellwether for lending in general. Last year things were decent for the mortgage insurance biz although the sector came under pressure as the market focused on price competition. Analysts think that in 2016 this competition will increase and there may be some market share loss for some monoline mortgage insurers. Regardless of individual companies it is good for folks to understand some basic terms.

 "New Insurance Written" (NIW) is a good general measure of health. Many estimates for overall mortgage volume see it dropping in 2016, in spite of this current jump in refi volume. Analysts think that as an industry new insurance written will be roughly flat in 2016 at about $215 billion - which would be good if volume actually declines. This reflects the much higher penetration rate of purchase mortgages versus refinances.

 "Insurance-In-Force" (IIF) is another good metric. Most estimates indicate that IIF for the industry to continue to grow at a roughly 6% annual pace that we saw in 2015 and stands between $800-900 billion. The growth is being driven by continued growth in the purchase mortgage market.

 "Loss Ratio" is also a key statistic. In 2016 one can expect declining losses for the legacy companies and modestly rising losses for newer companies, and residential mortgage credit trends to remain very strong driven by the tight underwriting standards over the past few years and reasonably strong job growth.

 What about "Average Premium Rates?" Experts think that declining premium rates for some of the big MI companies are in the cards. (National MI seems to have the hot-hand in pricing at the higher end of the market - but don't expect other MI companies to sit idly by letting that continue especially if they want more market share.) Most expect to see a roughly 10% decline in industry premiums through 2018, which in turn impact the earnings of those companies over future years since it would only apply to new business.

 "Market Share" is always in flux - few are happy with the status quo. We may see that market share shifts away from some of the monolines (Radian, Essent, and MGIC) and toward "upstarts" such as National MI. In the third quarter of 2015, for example, NMIH's market share was almost 6%, but 56% of its production came from the single premium channel.

 We find that United Guaranty is the "number one" MI company for the fifth consecutive year in terms of traditional New Insurance Written (NIW) according to Inside Mortgage Finance. For 2015, United Guaranty's first-lien NIW exceeded $50 billion. UG President and CEO Donna DeMaio noted that, "In 2016, our focus will continue to be on building on our strengths, including our solid capital base and our advanced technology, to continue to earn our customers' loyalty." Over the past seven years UG "has issued more than 1 million quotes with Performance Premium, saving borrowers millions of dollars in premium compared to rate card prices by precisely reflecting the credit risk of each loan."

 For earnings UG, the mortgage insurance subsidiary of AIG, had pretax operating income of $644 million for 2015 - an improvement of nearly 9% over the $592 million of pretax operating income for 2014. As we know AIG has proposed spinning off 19.9% of UG in a public offering. AIG earned $2.2 billion for the full year, but lost $1.8 billion during the fourth quarter. Improvements were due to lower delinquency rates and higher cure rates. The fourth-quarter 2014 income was enhanced by $24 million due to a legal settlement in UG's favor.

 For the full year, UG had $50.7 billion of new insurance written, up from $41.9 billion in 2014. However, UG's new insurance written in the fourth quarter declined by 1% to $10.6 billion, from $10.7 billion one year prior. UG ended 2015 with the largest volume of NIW, followed by MGIC at $43 billion, Radian at $41.4 billion and Genworth at $31.6 billion.

 KBW's Bose George met with Essent's management recently and did a fine write-up on the impressions. "Management sees the transition to risk-based pricing and flatter rate cards as natural following the finalization of PMIERs and believes that returns remain compelling. We continue to see Essent as a growth story within the industry as its IIF share catches up to its NIW share. We see the industry as a whole as attractive given the sharp decline in valuations.

 "Essent...noted that it is not seeing pressure from lenders to roll out a flatter rate card and noted that Essent's market share has remained unchanged for the last few quarters...The company said that while the new flatter rate cards could result in some market share moving to FHA, it remains too early to quantify the impact. Management noted that lenders prefer conventional lending to FHA lending and stronger borrowers will continue to go to the GSEs. Some move towards the FHA in the low end of the market would also help the future credit performance of the MI books of business."

 Earnings-wise, Essent Group LTD, based in Bermuda, recently reported net income of $44.5 million in the fourth quarter, more than double the $19 million over the same period in 2014. Flow NIW of $6.0 billion was down from $7.4 billion in 3Q, and an estimate of the company's market share was about flat Q/Q at 12%. KBW noted that, "The single premium percentage increased to 24% from 22% Q/Q, similar to peers. Insurance-in-Force (IIF) increased Q/Q to $65.2 billion from $62.1 billion in 3Q. (New insurance written for the full year totaled $25.9 billion, up from $23 billion in 2014.)

 During the year, Essent Group's reinsurance subsidiary reinsured $121 million of risk from Freddie Mac's Agency Credit Insurance Structure and Fannie Mae's Credit Insurance Risk Transfer programs as compared to $43.9 million in 2014.

 Of course Arch turned heads when it released its Arch MI RateStar product, "Our risk-based pricing solution is available on any smart device that uses a browser, so you can always get your RateStar premium quotes instantly."

 Over at MGIC it is continuing to buy back its own debt. Through early this month MTG has purchased or entered into an agreement to purchase some of its debt securities including $127.7 million par value of 5% notes for $132.4 million and $132.7 million par value of its 9% debentures for $150.7 million. MTG borrowed $155 million from the FHLB to buy back those 9% debentures which will not be retired but instead will be retained by MTG. Makes sense given that the borrowed funds have a fixed rate of 1.91% and mature in 7 years.

 Radian saw its operating income beat many expectations primarily due to its lower-than-expected loss provision. Book value rose to $12.07 from $11.77 in 3Q15. RDN did not note any change on pricing. Radian's losses in the MI business came in at $56.8 million, down from $64.1 million in 3Q and below some forecasts. The number included a $2.2 million reserve benefit on existing delinquencies (about half a penny benefit to earnings). The company stated that as of December 31, 2015, it was compliant with PMIERs.

 Radian's delinquency trends reflect that of the industry - which continues to show improvement. Primary delinquencies declined to 35,303 from 35,875 quarter over quarter. The total delinquency rate fell to 4.0% from 4.1%. New default notices totaled 11,650, up from 10,698 in 3Q. Cures of 9,751 were up from 9,676 in 3Q. Loss development on post-2008 loans remained very strong.

 Radian introduced new monthly pricing, aligning its rate card with the pilot rate card put out by NMIH and generally slightly lower than MGIC. The company also announced the completion of its $100 million share buyback program. The company lowered rates on >740 FICOs and raised prices for <740 FICOs (with terms greater than 20 years). RDN also raised pricing on LPMI business: it will continue to provide customized rates for LPMI on a selective basis but plans to decline to participate significantly in discounted aggregated singles.

 Turning away from MI and toward interest rates, yes it is Monday, but harken back to Friday. U.S. Treasuries lost ground after a raft of U.S. economic data beat expectations. U.S. GDP growth for the fourth quarter was revised up to 1.0% and personal income and spending grew at 0.5% in January. Michigan Sentiment was finalized at 91.7.

 That was so... then. This week we have quite a stampede of numbers coming out. Today will be the February Chicago PMI and January Pending Home Sales. Tomorrow will be January Construction Spending and the February ISM Index. Wednesday is the MBA Mortgage Index, February ADP Employment Change, and the March Fed Beige Book. Thursday includes the February Challenger Job Cuts, Initial Jobless Claims, Q4 Productivity and Unit Labor Costs, January Factory Orders, and February ISM Services. Friday is The Big Daddy: February Employment Situation Report. We closed the 10-year at 1.76% and this morning we're at 1.75% with agency MBS prices roughly unchanged in the very early going.

A Big Bill For lenders, and Licensing News From Around the Nation

By rchrisman@robchrisman.com

 

The Quotes of Steven Wright, part 3 of 3.

25 - If at first you don't succeed, destroy all evidence that you tried.

26 - A conclusion is the place where you got tired of thinking.

27 - Experience is something you don't get until just after you need it.

28 - The hardness of the butter is proportional to the softness of the bread.

29 - To steal ideas from one person is plagiarism; to steal from many is research.

30 - The problem with the gene pool is that there is no lifeguard.

31 - The sooner you fall behind, the more time you'll have to catch up.

32 - The colder the x-ray table, the more of your body is required to be on it.

33 - Everyone has a photographic memory; some just don't have film.

34 - If at first you don't succeed, skydiving is not for you.

35 - If your car could travel at the speed of light, would your headlights work?

36 - Kevin C. contributed, "I just got back from vacation and found that someone had broken into my apartment, stolen everything, and replaced it with an exact replica."

 

On a personal business travel note, within the last seven days I've been in Northern & Southern California (yes, two separate states), Arizona, Washington, and Kansas; next week is Las Vegas and Atlanta. And I continue to see lenders and vendors who are trying to help their clients in the best ways they know how in spite of the labyrinth of weighty, and often conflicting, regulations. Most realize that the current regulatory environment is a result of past excesses, but most will also say that borrowers are being negatively impacted and that the process of lending money to deserving clients has never been more difficult. Yet plenty of very smart lenders continue to make a go of it with varying degrees of success. Good for them!

Various groups around the nation are echoing the MBA's bulletin about a bill that Congress is considering. "...the House Financial Services Committee intends to hold a markup next Wednesday, March 2, on a number of bills, including one of MBA's top priorities, H.R. 2121, the SAFE Transitional Licensing Act of 2015.

"H.R. 2121 is an important bill for the mortgage industry that would provide transitional authority to originate mortgages for individuals who move from a federally-insured institution to a non-bank lender while they work to meet the SAFE Act's licensing and testing requirements. Transitional authority would be available to MLOs that have a clean history as an originator (e.g., no license denials, revocations or suspensions, no cease and desist orders, and no felonies that preclude licensing).

"The language of the bill...would be a narrow and simple solution to allow individuals to continue working and underwriting loans, while in no way weakening the important consumer protections of the SAFE Act.

"The Mortgage Action Alliance (MAA) will be sending out a Call-to-Action to its members in the days ahead, encouraging them to write to their legislators in support of H.R. 2121. If you are not a current MAA member, please click here to sign up and ensure that you do not miss the call-to-action email."

 While I am yammering about licensing, Colorado posted new PE requirement and education notices, effective March 1^st. Colorado will require 2 hours of NMLS approved state-specific PE and 1 hour of state-specific CE. The new requirement is a result of Colorado adopting the Uniform State Test (UST).

 In a series of announcements distributed on December 2nd, December 3rd and December 8th, the North Carolina Division of Banks informed federally registered mortgage loan originators (MLOs) that hold North Carolina loan originator licenses (categorized as "approved inactive" status) that they would not be allowed to maintain their licenses in inactive status going forward.  MBA and the MBA of the Carolinas (MBAC) opposed this decision, and MBAC emphasized to Division leadership that if federal MLOs were not allowed to renew their licenses it would discourage federal LOs from taking continuing education and make it harder for them to work for a state-regulated company in the future. Because NC law limits the validity of prior education and test results, the new policy would also require many federal MLOs to repeat education and testing requirements in order to move back to a nonbank lender. After considering the industry's point of view, the Commissioner of Banks sent a notice to MBAC, indicating that the Division intended to mitigate the potential consequences of the December memoranda. Specifically, for those federally registered MLOs affected: through 12/31/20, the Division will accept a passing test score from a test taken prior to 1/1/16; and through 12/31/18, it will accept pre-licensing education credits completed at any time prior to 1/1/16. While not perfect, this is a positive result thanks to the efforts of MBAC.

While we're on the Carolinas, thanks a while back to Scott R. who sent along, "Big news in North Carolina. I was in my Continuing Education class for the SAFE Act, when one of my classmates told us about a letter she received. It stated since she worked for a federally regulated bank (Top 20 bank), and she held her SAFE Act license, she needed to surrender her SAFE Act license. Here is the letter from Pat McCrory. Shocking to read the letter.  There was plenty of uproar in our SAFE Act CE class."

 New Jersey has passed escrow agent and foreclosure legislation, to now make it illegal for an escrow agent evaluation service to prepare a report used by a mortgage lender in evaluating the capacity of an escrow agent to perform real estate settlement services, in exchange for a fee charged to that escrow agent. The fine for the unlawful practice is $10,000 for the first offense and $20,000 for any offense thereafter. Regarding foreclosure of a mortgage, the new provision provides established holders of a mortgage to take action to foreclose. An "established holder of a mortgage" is defined as a record holder of the mortgage as established by the latest record of assignment or by the original mortgage recording in the records of the county clerk or the register of deeds and mortgages, or holder of the mortgage in a civil action joining as defendants the record holder of the mortgage. Failure to cancel the mortgage record within the 15 day period will result in the mortgagee being liable to either the mortgagor or purchaser for the greater of actual damages or the sum of $1,000, less any fines recovered.

 A while back Illinois has amended its Code of Civil Procedure Section 15-1507.1, the changes include the repeal date from March 2, 2016 to March 2, 2017 and the inoperative date of Subsections 15-1507.1 (a) and (b) is changed from January 1, 2016 to January 1, 2017.  Section 15-1507.1 requires the purchaser of residential real estate to pay a fee for deposit into the Abandoned Residential Property Municipality. Relief Fund: the fee is 0.1 percent of the purchase amount but cannot surpass $300.

 And in New York state-specific education notices have been updated for NY-DFS, which now includes a course content outline for the 3 hours of PE.

 If you were around in 2008 I'll bet you can remember all the finger pointing when the marketplace started to contract (heck, I guess I could say the same thing for 2015, too); you probably can also remember that the rating agencies (S&P, Fitch, Moodys) received their fair share of liquidation demands by everyone from bankers to investors. Over Christmas I was sent this article by a Secondary Marketing guy I know, with the comment, "Glad to see Congress' initiatives to make the ratings marketplace more competitive is working out."

 According to Bloomberg, "Of the $5.9 billion in revenue generated by 10 rating firms recognized by the government in 2014, the most recent data available, 94.3 percent was pulled in by the Big Three, according to an annual SEC review. That's slightly higher than in 2011, a year after Congress voted for policies designed to open up the market to smaller competitors. S&P, Moody's and Fitch issued 95.8 percent of ratings outstanding as of December 2014, the SEC said in its review. That compares with 98.8 percent in 2007." And that's just in domestic business. In Europe, according to the European Securities and Markets Authority, Moody's, Fitch and S&P competed against more than two dozen other ratings firms, but managed to generate 92% of market share. In my expert opinion, which consists of tea leaves and my trusty Magic 8 Ball, I believe the big three are going nowhere. 

 As if to remind us that sometimes U.S. economic news means little, Treasuries traded higher today (and rates dropped) despite a very positive surprise from always-volatile durable goods orders data for January and stocks and oil pushing higher. The 7-year Treasury note auction was postponed until Friday due to "technical difficulties" - given our reliance on computers and what can go wrong with them it is surprising this doesn't happen more often. Aside from that it was pretty much a normal day with small intra-day price movements, various coupons of various MBS securities doing various things, and lenders looking forward to a great March given the swollen pipelines.

 Today we've already had the major news of the day. The second estimate of the fourth quarter GDP and GDP Deflator came out (+1.0%, stronger than expected); the trade deficit widened to $62.2 billion. After this initial round of numbers the yield on the 10-year, which closed Thursday at 1.70%, is at 1.77% and agency MBS prices are worse about .250.

Multi-Family News and Rent Trends That Aid Lenders

By rchrisman@robchrisman.com

                                           

The Quotes of Steven Wright, part 2 of 3.

13 - How do you tell when you're out of invisible ink?

14 - If everything seems to be going well, you have obviously overlooked something.

15 - Depression is merely anger without enthusiasm.

16 - When everything is coming your way, you're in the wrong lane.

17 - Ambition is a poor excuse for not having enough sense to be lazy.

18 - Hard work pays off in the future; laziness pays off now.

19 - I intend to live forever. So far, so good.

20 - If Barbie is so popular, why do you have to buy her friends?

21 - Eagles may soar, but weasels don't get sucked into jet engines.

22 - What happens if you get scared half to death twice?

23 - My mechanic told me, "I couldn't repair your brakes, so I made your horn louder."

24 - Why do psychics have to ask you for your name?

 

How much do small firms spend on paying for examiners and auditors camping out in their shops? And what about legal bills? I am sure it is a tiny fraction of what companies like Bank of America, Citi, and Chase are spending. And this week Reuters did a piece on the continuing probes that Wells Fargo is handling - what a nightmare.

 Assurance Financial reports it is closing loans on time in spite of TRID. The company is expanding, too. They have an immediate need for branch managers and loan officers throughout the Southeast and Southwest. Assurance Financial supports all of its LOs with ready-to-use marketing materials and customized webpages plus a dedicated back-office team that is focused on consistently closing loans on time. If that sounds good to you, reach out to Paul Peters, CMB at 225-239-7948 or visit www.lendtheway.com/careers.

 Congrats to Tom Davis who First Guaranty Mortgage Corporation appointed to be its National TPO Sales Director.

 And Dart Appraisal, an independently-owned, nationwide appraisal management company (AMC), announced some personnel additions. Timothy Coleman will be covering south Texas, Gary Hale will cover the north Texas area including Dallas/Fort Worth, and Brian Killian is now a national account executive for Missouri and Kansas.

 And what trends are we seeing in rents and multi-family news that will eventually help lenders? After all, the higher rents go, the mo' better buying looks - all they need are some decent down payment assistance or high LTV programs. Reis Inc. reports average effective apartment rents climbed 4.6% nationwide in 2015, the "best" performance since 2007. In fact apartment rents have risen more than 20% since early 2010. And to the surprise of no one, research by Equifax and Moody's finds the percentage of people age 18 to 34 years old that are living with their parents is around 23% currently versus the roughly 18% level seen from 1990 to 2005.

 As far back as December we learned that US banking regulators were stepping up their scrutiny of commercial real estate lending practices.

 Recently the Fed released its senior loan officer survey. The January survey results indicated that banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans in the fourth quarter of 2015. The survey results indicated that demand for C&I loans had weakened somewhat and demand for CRE loans strengthened somewhat during the fourth quarter on net. Banks indicated that they expected standards on C&I and CRE loans to tighten over 2016 and loan performance of C&I loans and loans secured by multifamily residential properties (MF loans) to deteriorate over that same period. Regarding loans to households, the survey found a moderate easing of standards on some categories of residential mortgage loans as well as on auto loans, while banks reported having left standards on credit card loans basically unchanged.

 In an interesting twist, the omnibus spending package Congress recently passed included measures easing restrictions on foreign real estate investment that some expect will increase foreign investment in commercial real estate by billions of dollars.

 The MBA has released numerous reports regarding the commercial/multifamily real estate finance markets. The MBA's Q4 Commercial/Multifamily Mortgage Bankers Originations Index report highlights that commercial and multifamily originations were up 19 percent in the fourth quarter of last year and 24 percent YoY. The fourth quarter also marked the fourth greatest volume for borrowing and lending thus far. Another MBA report suggests that eleven percent of outstanding commercial and multifamily mortgages held by non-bank lenders/investors will mature this year, which would be a 51 percent increase from 2015. Maturities are also expected to grow to $208 billion in 2017. The MBA forecasts a 3 percent rise in commercial/multifamily mortgage banker's originations in 2016 and current mortgage debt outstanding should increase to $2.9 trillion.

 Zelman and Associates published its Banking Survey from the fourth quarter of 2015.Lenders ranked availability of AD&C capital at 68.2 this quarter, slightly down from 70 the previous quarter. AD&C loan balances for the banking industry was up 18 percent YoY, with 2015 anticipated as being the year with the strongest growth since 2006. Within the last 30 years, AD&C loans have averaged 5.7 percent of total outstanding bank loans, with peaks reaching in 1986 at 8.5 percent and 2007 at 8.8 percent. Survey respondents believed capital availability was the strongest among local lenders at 78.7 and banks of all sizes have been participating in the recovery. At the end of the fourth quarter last year, the availability of single-family AD&C financing was rated 76.4 and the availability of multi-family AD&C was rated at 67.2. For more information regarding the survey, contact Ivy at ivy@zelmanassociates.com.

 Now is the time to sell, according to a recent Apartment Survey published by Zelman. The majority of respondents (61 percent) said that buyer demand is strong and pricing is high, making it a prime seller's market. December blended rent growth reached 3.7 percent, with the strongest rent growth evident on the West Coast at 4.9 percent, but at the same time, the deceleration has been most severe on the West Coast as well as rent growth declined 90 basis points from last year. New move in growth for Decembers slightly declined to 3.3 percent along with occupancy at 94.2 percent. Implied move-outs resulting from purchasing a home declined to 14.6 percent. Pricing power was noticeable in 22 of the 30 metros that are tracked and multi-family transaction volume should increase 12 percent in 2016.

 Wells Fargo Funding is updating its multi-family 2- to 4-unit and condominium adjusters for Fannie Mae HomeReady and Wells Fargo Funding Home Opportunities loans to better align with Fannie Mae's adjuster caps. The Best Effort and Mandatory rate sheets will reflect multi-family 2- to 4-unit and condominium adjusters by LTV and FICO for HomeReady and Home Opportunities Loans effective February 29th. These changes will also mitigate issues Sellers were experiencing when registering and/or locking HomeReady Loans, which were the result of differences between Wells Fargo Funding adjusters and Fannie Mae's adjuster caps.

 As if finding a place to live as a college student was not hard enough, new apartment buildings that have popped up in Philadelphia are attracting young adults, due to its close proximity to college campuses like Drexel University and University of Pennsylvania. Yet these apartment complexes are not geared towards the undergraduate students that are nearby, but instead are intended to attract young professionals to live in the University City. The cost to rent these apartments range from anywhere between $1,900 for a small one bedroom apartment to almost $3,000 per month, as the high rent prices are meant to discourage undergraduate residents. Even the developers who have been building these luxury apartments near college campuses say they are intended for faculty members and not students and at the same time, allow young adults to enjoy the "college experience" by way of the apartment location. Not only is the high rent a strategy to prevent undergraduates from renting, but the lease terms purposefully miss the start of the academic year, and they reject applicants who rely on a guarantor to pay rent. The trend for building luxury apartments for young professionals is starting to take hold into other college campuses like Arizona State University, Texas A&M University in College station and the University of Chicago. 

 The federal banking agencies issued a statement to reinforce prudent risk-management practices related to commercial real estate (CRE) lending. The agencies have observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards. Financial institutions should maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. Financial institutions should have risk-management practices and maintain capital commensurate with the level and nature of their CRE concentration risk. The statement reinforces existing guidance for CRE risk management and contains a table that lists interagency regulations and guidance related to CRE lending activities.

 And this week Ken Harney wrote a piece for the Washington Post on how lenders are promoting home ownership for renters - catch the wave!

 Turning to something simple, like the bond markets, let's face it: as opposed to a few weeks ago, when our markets were being moved by oil and China, this week seems practically moribund. We have seen, however, plenty of intra-day volatility on Tuesday and again yesterday - and that impacts secondary marketing results. The U.S. Treasury complex rallied sharply Wednesday morning after we learned that sales of new homes in the U.S. fell to a 494K annual rate in January from 544K in December, and that Markit's flash PMI for the U.S. service sector fell to 49.8 in February, well short of both expectations and the January reading of 53.2. But then prices bond prices headed back to pretty much end unchanged on the day. Fortunately the $34 billion 5-year Treasury auction was well-received.

 Are we decoupling our markets from what happens in China? Wouldn't that be nice? In overnight news, European stocks rose despite the Shanghai Composite index falling the most in a month. Today for scheduled data we've seen Initial Jobless Claims (+10k to 272k, as forecast). We've also had January Durable Goods Orders and Durable Goods Orders ex-transportation (+4.9%, +1.8%, respectively, the strongest in about a year), and coming up is the December FHFA Housing Price Index. Anyone wondering where rate sheets might come out this morning should know that the 10-year yield was 1.74% at the close of Wednesday and this morning is sitting around unchanged with agency MBS prices a shade better.

Google Changes Mortgage Tack

by rchrisman@robchrisman.com

 

The Quotes of Steven Wright, part 1 of 3.

1 - I'd kill for a Nobel Peace Prize.

2 - Borrow money from pessimists -- they don't expect it back.

3 - Half the people you know are below average.

4 - 99% of lawyers give the rest a bad name.

5 - 82.7% of all statistics are made up on the spot.

6 - A conscience is what hurts when all your other parts feel so good.

7 - A clear conscience is usually the sign of a bad memory.

8 - If you want the rainbow, you got to put up with the rain.

9 - All those who believe in psycho kinesis, raise my hand.

10 - The early bird may get the worm, but the second mouse gets the cheese.

11 - I almost had a psychic girlfriend, but she left me before we met.

12 - OK, so what's the speed of dark?

 

Here's your IT lesson for the day. The NSA's Skynet program utilizes metadata to identify suspected terrorists. The system uses mass surveillance of cell phone data and runs patterns through a learning algorithm that identifies "normal" human behavior (i.e. daily routine travel patterns) against individuals who go through greater lengths to remain undetected. The use of metadata is not new (i.e., Instagram is uses it to sell products to users) but the NSA's program overseas is far more controversial as the results are passed along to the CIA for potential drone strikes. I am not a terrorist, but don't like Apple or Google tracking where I am all the time so turned that feature OFF on my phone. (Go to Settings, Privacy, Location Services, System Services, Frequent Locations - but it is a great way to see where your kids have been.)

And after less than a year in operation, Google is reportedly abandoning its mortgage comparison business in the U.S. It's also closing its well-established U.K. mortgage site. Google sent a letter to advertisers saying the sites would shut down March 23. "Despite people turning to Google for financial services information, the Google Compare service itself hasn't driven the success we hoped for. We greatly appreciate your partnership and understand that this decision will be disappointing to some. But after a lot of careful consideration, we've decided that focusing more intently on AdWords and future innovations will enable us to provide fresh, comprehensive answers to Google users, and to provide our financial services partners with the best return on investment." In other words the revenue generation was insufficient and selling leads cannibalized Google's other advertising businesses. After all, there is overlap. Had Compare not existed, many lead buyers would have used Google AdWords to attract mortgage leads.

 Yesterday the commentary mentioned several updates to Fannie's, Freddie's, and other conventional conforming programs. There's more! And why do folks care? Because the lion's share of originator's volume continues to be directed to these programs, which in turn flow into agency mortgage-backed securities.

 A state of emergency has been declared for Flint, Michigan, due to the city's water quality. This Fannie Mae Notice reminds servicers that workout options are available to assist borrowers who may be struggling to make their mortgage payments, including granting disaster relief. "Servicers are authorized to temporarily suspend or reduce a borrower's mortgage payments for up to 90 days. The Notice also reminds lenders about existing products and options that homeowners can use to purchase homes, or refinance or repair existing homes. This includes DU Refi Plus and Refi Plus, HomeReady, HomeStyle Renovation, and Community Seconds. Fannie Mae continues to buy loans secured by properties in Flint and the surrounding area. We also published Frequently Asked Questions that answer a number of appraisal- and property-related questions that we have already received."

 Fannie Maeservicing guide updates include: Updates to Form 629, Removal of the DO and DU Maintenance Fee, Update to the New Jersey Foreclosure Attorney Fee, Introduction of the Servicing Guide Change Control Log, and Reminder of Law Firm Selection and Retention Requirements.

 Fannie Mae is eliminating the continuity of obligation in its entirety via SEL 2016-02. "The continuity of obligation policy is being eliminated in its entirety. This policy was introduced during the financial crisis, to ensure borrowers who recently acquired ownership of a new property in the absence of a recorded sale of the previous property were properly qualified and it applied to all limited cash-out and cash-out refinance transactions. Since this policy was introduced, Fannie Mae has implemented a number of policy updates to improve the reliability of borrower qualification, broadened the collection of appraisal data, and developed Collateral Underwriter®, an appraisal assessment tool. These actions collectively provide adequate controls to ensure borrower eligibility requirements and maximum LTV ratio limits are met. As a result, the continuity of obligation policy is no longer required. The elimination of this policy will simplify refinance transactions. The Desktop Underwriter® (DU®) messaging referencing continuity of obligation will be updated in a future release and may be disregarded until that time. Also, the reference to continuity of obligation on the Eligibility Matrix has been removed. The updated Matrix is available on Fannie Mae's website.

 Effective Feb. 8 Fannie Mae and Freddie Mac implemented the Appraisal-Sharing release in the Uniform Collateral Data Portal (UCDP). This new functionality enables correspondent lenders to easily share appraisal information in UCDP with their aggregators. Aggregators also have access to real-time results for their correspondents' appraisals. Updated UCDP user documentation, as well as new job aids that highlight this functionality, are all available on the UCDP page.

 Effective for loan submissions after February 1^st, ditech updated its Fannie Mae (DU and Manual Underwrite) guidelines regarding how to calculate and document self-employment income, including the parameters under which business income without a history of distribution may be included to qualify self-employed borrowers. Ditech has posted an update to its DU Refi Plus products. When the borrower receives/received Hardest Hit Funds assistance (HHF), the loan is not eligible if the borrower received HHF assistance to make the mortgage payment in the past 12 months. For loans submitted to ditech for underwriting, a copy of the HHF note and the disbursement schedule and bank statements for last 12 months will be required to verify funds were not used in making the mortgage payment. For loans underwritten by a delegated correspondent, ditech recommends obtaining this documentation to verify the HHF assistance was not used to make the mortgage payments. Note, this process is for refinance transactions where the borrower had previously received HHF assistance. Ditech does not currently allow a refinance transaction with new HHF assistance.

 Lenders are encouraged to begin using Fannie Mae's new Loan Delivery application as soon as possible. Import and submit functions within the old application will be disabled as of Feb. 1, 2016 (only archive and MBS correction functions remain). Lenders should be aware that delayed use of the new system could impact future deliveries. To support your transition reference the Checkpoint, At-A-Glance User Tips and more on the new Loan Delivery page.

 For all loans sold to AmeriHome, Sellers must comply with the requirements of the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice (Section 501(b) of the Gramm-Leach-Bliley Act (GLBA)). Its new requirement, to ensure compliance, Sellers must: maintain a response program designed to address incidents of unauthorized access to borrower information maintained by the Seller, report known or suspected data breaches affecting loans sold to AmeriHome, and cooperate with AmeriHome in the event of a breach.

 ditech is eliminating the 5% reduction to the LTV for mortgages with secondary financing that are locked in a Freddie Mac program. Implementation of the removal of the 5% reduction will be done in phases.

 Fifth Third Correspondent is aligning with HUD guidelines, and a new appraisal is required to be ordered on all HUD REO properties.  For HUD REO properties with escrow repair, the cost of the necessary repairs will be based upon the appraisal, Real Estate Assets Manager's (REAM) inspection, and/or staff inspections, as necessary.  Regarding Freddie Mac cash-out refinance, the maximum LTV/TLTV/HTLTV expansion to 85% for fixed-rate mortgages secured by 1-unit primary residences is permitted provided ALL of the following conditions are met: minimum 740 FICO, LP Accept/Ineligible required with Ineligible due to LTV, any condo must not have used a Streamlined Project Review and not Super Conforming.

 We had a fair amount of U.S. news yesterday, but it was mixed. The S&P/Case-Shiller showed that home prices in major metropolitan areas continued to rise in December. The 20-city home price index increased +5.7% as the best year-over-year gains centered in Portland, San Francisco and Denver each adding over 10% gains. But Consumer confidence numbers fell to seven-month lows as Americans are more pessimistic about job prospects and business conditions. But wait! U.S. existing home sales rise to a six-month high. So when all was said and done agency MBS prices didn't do much.

 Intra-day volatility has increased however, which is never an inexpensive thing for lenders trying to hedge their pipelines and pass along cost savings to borrowers. As a proxy for the bond market in general, 10-year notes briefly broke 1.80%, hitting a high of 1.814% but then finally closed at 1.75% - about where they started the day!. The early backup in treasuries proved attractive for MBS investors who were good buyers on better than average volumes early in the session. And then the Fed came in buying their usual daily billions which certainly helped the "demand" side of the equation.

 This morning the MBA told us what lock desks around the nation knew: overall app volume was down about 4%. (Purchases were actually up about 2% with refis tumbling almost 8%.) Later we will some forgettable Market Services PMI number, but also January New Home Sales at 9AM CST. And if you have any loose change the Treasury will conduct two auctions today: $13 billion reopened 2-year FRNs and a $34 billion 5-year auction. As mentioned above we had a 1.75% close on the 10-year and this morning it is down to 1.69% and agency MBS prices better by roughly .125-.250.