Money is money, right? If Congress can place a "mortgage tax" in the form of
higher g-fees, and use the money to help cover a payroll tax waiver
extension, can the states use the mortgage servicer settlement money to pay
for chalk in classrooms
[http://r20.rs6.net/tn.jsp?et=1109366297430&s=8721&e=0015DroUx3evLTLS7w8VJoA
dAm1okzIdB3DKza-3wLS2i4oKytXm6aDkq1ca41qLHY9hrzLFcklJDdwyoIEmnllJimrxIjU-R6r
UQVNgoXxR9BV4YKJ3xSJmFy_x3e4LLHuE-ljQFVgUszJdsApE8CP_A==]?
How much is $1 trillion? One thousand million is a billion, and one
thousand billion is a trillion. According to Business Week, outstanding
student debt in the United States is approaching $1 trillion-that is $3,333
per head for our population of about 300,000,000. Is this an example of
living beyond one's means? The Federal Reserve noted in a White Paper last
month that the current mortgage lending standards are holding back younger
first-time homebuyers. Student debt has, for the first time in the US,
surpassed credit card debt, with recent university graduates carrying an
average load of over $25,000. Even if recent graduates are able to secure a
high-paying job (no small feat in a time when unemployment for 29-34s is at
9%), a number like that makes getting a loan difficult. A young medical
professional, for example, may make upwards of $125,000 a year, but there's
a good chance he or she will also be carrying over $100,000 of student debt.
The article points to the trend that the student debt issue is yet another
reason that record-low interest rates aren't invigorating the housing
market. First-time buyers make up a good proportion of demand, but they've
been disproportionately affected by tightening credit and mortgage
conditions. The percentage of 29-34's who obtained first-time mortgages
between 2009-11 was 9%, just about half of what it was a decade previously.
My parrot broke his leg today so I made him a little splint out of a couple
of wooden matches, and his little face lit up when he tried to walk.
Unfortunately, I forgot to remove the sandpaper from the bottom of his cage.
Speaking of unintended consequences...As if mortgage bankers and
depositories don't have enough to worry about, the Volker Rule should not
escape notice. Will rate locks be a thing of the past with the Volker Rule?
In the broadest sense it prohibits banks using MBS to hedge production. In
an interview on CNBC last week, John Stumpf noted that the way the rules are
coming down, they are "very broad in their prohibitions and very narrow in
their permissions.
Let me give you one example. When we make someone a mortgage, we give them a
free rate lock for 60 or 90 days, and if rates go up, even if only by .250%,
that's thousands of dollars over the life of a loan. If (The Volker Rule)
gets implemented the wrong way we might not be able to do that - we hedge
that, we swap that, and we'd have to have such a gigantic group of
consultants, accountants, attorneys making sure that doesn't (go against the
rules). Here is more
[http://r20.rs6.net/tn.jsp?et=1109366297430&s=8721&e=0015DroUx3evLR301JHr_k8
ILsS3mG_pud0Ch4zWzVQb2UnxDYUu7rT1WBKCAGN2OmFip90pr9seVDMZmvZaFKVw2FlZ1dQRG0p
JS9CAbOTa5IVygsTf0Qebf-T61DuvVGWZQZLuYRxe-J03WR6cxaDR80A0dYnnJYsHVBNJkb2fMYe
WpZNJd4P_MJucKXexGN-K10RdnVTI_qxlLGae0XH4mXLvGx0DuV6-eCw38vxkqNnSDTgYk-LuQ==
].
And how about contemplating the consequences of having AMC contracts
declared null and void? Last week, the commentary noted that NAIHP issued a
press release regarding appraisal management companies. NAIHP discovered
many AMC's were operating without authority in numerous states and failed to
pay state income tax. Most states won't issue a taxpayer I.D. number unless
a business is registered. And as we all know, all businesses are required to
register with the appropriate authority in any state (usually the Secretary
of State), prior to conducting business - often displayed in the lobby. I
was contacted by an industry veteran who advised me that, "Any business that
fails to register in any state may find contracts they signed in the normal
course of business to be null and void. In the specific case of an AMC, any
monies collected from consumers while operating without authority, would in
all likelihood need to be refunded." This could be a huge quagmire for
AMC's, many of which are lender-owned.
What is the potential HARP 2.0 borrower pool? "First, as to the size of the
market:
From our HARP 2 workshops, although there are 6.7 million HARP eligible
loans based on the May 31, 2009 cutoff date and Fannie/Freddie requirement,
when payment history and LTV requirements are overlaid, the number of
eligible loans drops to around
2.3 million. And, as the interest rate distribution indicates, a meaningful
proportion of these loans are already at low or fairly low interest rates.
So, assuming that
2 million loans are refinanced under HARP 2, and average $150,000, HARP 2
represents about $300 billion in incremental production over 2012-2013,
about a 15% increase in overall projected volume. Equally important, is that
the profit margins available to lenders for HARP 2 loans could be 2-3 times
what the normally realize, because of lower cost streamline processing and,
in the case of existing services, a captive base of borrowers. Thus, HARP 2
represents a big opportunity for the big aggregators but may not trickle
down to the smaller originators. So the comment that 'smaller originators
will be ideally positioned to pick up market share' is questionable unless
the large aggregators agree to purchase HARP 2 loans from smaller
correspondents.
While we think they will, they may limit such purchases to only their
largest correspondents and possibly only those correspondents with a direct
to consumer channel." Thanks to STRATMOR, Tranzact Information Services, and
Financial Literacy Systems (run by Garth Graham) for this input.
Originators know that appraisals, equity, and underwriting/documentation are
keeping a lid on lending. But could mortgage rates go even lower? I doubt
it, but then there's this story in the Wall Street Journal...Mortgage rates
should be even lower - the differential between the average MBS rate and the
mortgage rates quoted by banks is nearly 1%, much higher than normal. If
the normal relationship between the two rates held, 30yr mortgage yields
would be about 3.4% versus the 3.9% now being quoted! Check out the story
[http://r20.rs6.net/tn.jsp?et=1109366297430&s=8721&e=0015DroUx3evLQqkfjPDARA
pjWhXKFjZXEZPjR6kSCWDykj0WMDXr2ykpWCHgjtobdAxTlrnBBXfCZc_rKXtUMNRl8D_8MpiUmf
KWw5_hnV6XXlEwIHODsH58rFFZVPQJDuJwQa0Wf8zPegeOkc4D-SfRUzR7RovV2FDtmsrgnA-jsT
YhcBP-O4mZrehPEyXzk4].
Jobs and housing, housing and jobs - both are key indicators for the health
of an economy. Yesterday we learned that Existing Home Sales rose 4.3%. The
increase in sales has reduced the number of homes on the market to its
lowest level since April 2006. The median price fell 4.6 per cent in the
month to $154,700, down 2 per cent from the same month last year. Existing
Home Sales numbers have shown an impressive run recently, increasing in four
out of five months. On a year-ago basis, existing home sales are up 3.6% -
but before the celebration starts, remember that we're seeing a lot of
contract failures, and a good portion of transactions continue to be
distressed with all-cash sales making up 31% of total sales. Many investors
are buying discounted properties in select markets and renting them out,
which certainly helps unsold inventory numbers: total housing inventory fell
9.2 percent to 2.38 million, which represents a 6.2-month supply.
According to the Mortgage News Daily, housing affordability as measured by
the National Association of Realtors Housing Affordability Index (HAI) rose
during the last quarter of 2011 as housing prices continued to decline and
interest rates stayed at record lows. The national HAI reached a record high
of 184.5 where the base of 100 is defined as the point at which a
median-income household has enough income to qualify for a median-priced
existing home with 20% down and 25% of the income devoted to mortgage
payments. This index shows that prices are down about 4% from a year ago -
attributed in part to foreclosures and short sales. Better affordability is
certainly a good thing.
Yesterday rates improved during the day, resulting in many intra-day price
changes
- and we haven't seen too much of that lately. We had a good old-fashioned
"flight to quality bid" that was related to Greece. The 10-yr closed at
about 2.00% and MBS prices tagged along for the ride by improving about .250
in price.
For today's excitement we have Initial Jobless Claims and the FHFA House
Price Index for December at 10AM EST, along with a $29 billion 7-yr T-note
auction - the last Treasury auction for a few weeks. Applications for
jobless benefits were unchanged in the week ended Feb. 18 at 351,000, the
fewest since March 2008, per the Labor Department. The number of people on
unemployment benefit rolls dropped to the lowest level since August 2008 -
is everyone giving up the search? Rates have moved slightly higher on the
news, as one would expect.
An Englishman, a Scotsman, an Irishman, a Welshman, a Latvian, a Turk, a
German, an Indian, several Americans (including a southerner, a New
Englander, and a Californian, an Argentinean, a Dane, an Australian, a
Slovakian, an Egyptian, a Japanese, a Moroccan, a Frenchman, a New
Zealander, a Spaniard, a Russian, a Guatemalan, a Colombian, a Pakistani, a
Malaysian, a Croatian, a Uzbek, a Cypriot, a Pole, a Lithuanian, a Chinese,
a Sri Lankan, a Lebanese, a Cayman Islander, a Ugandan, a Vietnamese, a
Korean, a Uruguayan, a Czech, an Icelander, a Mexican, a Finn, a Honduran,
a Panamanian, an Andorran, an Israeli, a Venezuelan, a Fijian, a Peruvian,
an Estonian, a Brazilian, a Portuguese, a Liechtensteiner, a Mongolian, a
Hungarian, a Canadian, a Moldovan, a Haitian, a Norfolk Islander, a
Macedonian, a Bolivian, a Cook Islander, a Tajikistani, a Samoan, an
Armenian, a Aruban, an Albanian, a Greenlander, a Micronesian, a Virgin
Islander, a Georgian, a Bahaman, a Belarusian, a Cuban, a Tongan, a
Cambodian, a Qatari, an Azerbaijani, a Romanian, a Chilean, a Kyrgyzstani,
a Jamaican, a Filipino, a Ukrainian, a Dutchman, a Ecuadorian, a Costa
Rican, a Swede, a Bulgarian, a Serb, a Swiss, a Greek, a Belgian, a
Singaporean, an Italian, a Norwegian and
47 Africans walk into a fine restaurant....
"I'm sorry," says the maître d', scrutinizing the group one by one and
barring their entrance, "you can't come in here without a Thai."
If you're interested, visit my twice-a-month blog at the STRATMOR Group web
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj
bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P
jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]
. The current blog discusses residential lending and mortgage programs
around the world, part 2. If you have both the time and inclination, make a
comment on what I have written, or on other comments so that folks can
learn what's going on out there from the other readers.
Rob
(Check out
[http://r20.rs6.net/tn.jsp?t=w9uewfjab.0.epg7qedab.zy6u9cdab.8721&ts=S0732&p
=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinepress%2Fdefault
.aspx]
[http://r20.rs6.net/tn.jsp?t=w9uewfjab.0.v7uif6dab.zy6u9cdab.8721&ts=S0732&p
=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].
For archived commentaries, go to www.robchrisman.com
[http://r20.rs6.net/tn.jsp?t=w9uewfjab.0.fpg7qedab.zy6u9cdab.8721&ts=S0732&p
=http%3A%2F%2Fwww.robchrisman.com%2F].
Copyright 2012 Rob Chrisman. All rights reserved. Occasional paid notices
do appear.
This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of Rob Chrisman.)
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