Monday, December 30, 2013

Market Preview

http://globalhomefinance.com

What is on the agenda for this week?
Date
Time (ET)
Economic Release
Actual
Market Expects
Prior
30-Dec
10:00
Pending Home Sales
1.50%
-0.60%
31-Dec
9:00
Case-Shiller 20-city Index
13.80%
13.30%
31-Dec
9:45
Chicago PMI
60
63
31-Dec
10:00
Consumer Confidence
77.1
70.4
2-Jan
8:30
Initial Claims
333K
338K
2-Jan
8:30
Continuing Claims
2875K
2923K
2-Jan
10:00
Construction Spending
0.80%
0.80%
2-Jan
10:00
ISM Index
56.9
57.3
2-Jan
10:30
Natural Gas Inventories
NA
177 bcf
3-Jan
11:00
Crude Inventories
NA
-4.731M
3-Jan
14:00
Auto Sales
NA
5.7M
3-Jan
14:00
Truck Sales
NA
7.1M

We have another holiday-shortened week.  The bond market will close at 2:00EST on Tuesday and will not reopen until Thursday.

Tuesday's Chicago PMI report will be very key as it give us a general idea on how Thursday's ISM Manufacturing Index may turn out.  A strong reading in both of those reports would be negative for pricing.  And with the much better than expected Durable Goods Orders, Business Inventories and Wholesale Inventories over the past couple of weeks, we can infer that the manufacturing data this week will be strong.

We will get a nice dose of housing data with Pending Home Sales and the Case-Shiller Home Price Index.  The market is expecting an increase in new contracts for existing homes and continued increases in home values. Consumer Confidence will also be very key as will our weekly shot of Initial Jobless Claims.

There are no major U.S. Treasury auctions this week.

MBS are making a run back to our 10 day moving average which should help you to see some better pricing in early trading. But as we have discussed, that 10 day resistance line has held for the entire month of December. So, from a technical perspective our "upside" is limited and that is why we are not in a "floating" bias at this time.  Even if we begin to trade above that resistance level, we do not expected to close above it unless we get a dismal Pending Home Sales report.  For the rest of the week, it will depend on the economic data.  We have seen good trends in manufacturing and it is difficult to see a reason why that would change this week.  And if that is the case, then downward pressure on MBS may resume this week.

Saturday, December 28, 2013

Latest Lender Penalty

http://globalhomefinance.com

Water water everywhere, but not a drop to drink. A growing number of Realtors are keenly aware of the increasing concern about water and its scarcity. And sure enough, along comes a list of U.S. cities most likely to run out of water - and they aren't all out west. I doubt they'll run out - but water will become more costly.

And everyone is keenly aware of the CFPB's announcements of fines for various offenses. Last week it was $80 million for auto loans, but the latest came yesterday: "Feds Take Action Against National City Bank For Discriminatory Mortgage Pricing." In this case, PNC Bank, its successor, will pony up $35 million.

Originators know that unless there is demand for a given mortgage product, either by a portfolio lender or by investors, there is little use in offering it on any kind of large scale on rate sheets. Ten years ago, it was apparent that the demand by Wall Street and investors led to products being offered that perhaps should not have, or to relaxing underwriting or documentation guidelines that perhaps should not have been relaxed. Of course the demand by the Fed has led to higher prices, and lower rates...

Everyone (and their brother, as they say) knows that the Fed has, through QE3, been buying fixed-income assets. When we think of the Fed's current balance sheet in terms of dollars, the numbers can be quite large. Let's put this into perspective: the US Federal Reserve's current balance sheet exceeds the GDP of Germany, which is the fourth largest economy in the world. According to a recent Bloomberg News story, it's enough to cover all U.S. federal government spending for more than a year, and it could pay off all student and auto loans in the country with $2 trillion to spare. The central bank's assets are set to exceed the $4.1 trillion held by BlackRock Inc. (the world's largest asset manager). The third round of quantitative easing probably will total $1.54 trillion before it ends, bringing the balance sheet to $4.36 trillion. This has garnered the attention of elected officials, as risk versus reward rumblings have started. "This is a stimulus of the first order. It's just unprecedented," Alabama Republican Senator Richard Shelby said.

But in the last Fed meeting, a reduction of $10 billion a month in QE3 will kick in, reducing the pace of the purchases. 2013's word of the year, according to Oxford dictionary, was "selfie"; a strong case could have been made for "taper" however, as investors have been speculating on when the Federal Reserve will begin removing tax payers from the  billions of purchases per month in the fixed income markets. For months investors, and the financial press, have been paying close attention to the Federal Reserve, and specifically, to the time-line, and the when and if's of moving away from the QE programs, to a more supply/demand driven market. Morgan Stanley interest rate strategist Matthew Hornbach is tired of the incessant chattering about "the taper", and I don't believe he's alone. A few weeks ago Hornbach wrote, "Investors should stop talking about tapering and start talking about potential changes to the rate guidance framework. In our view, the exact timing of tapering should be a secondary concern. What matters is whether the Fed combines tapering with a reduction in the Unemployment Rate Threshold or an introduction in a new inflation floor. The thresholds are all about credibility, so the Fed must understand how each option will impact the market's perception of its commitments to remain on hold. Our economist's base case is that the Fed pairs a modest tapering with a 50bp cut in the URT. In our view, the risk to that base case is a more aggressive 100bp cut paired with a larger taper."

So where's the smart money flowing to these days? According to Bloomberg News, not into fixed income securities. Investors in November poured $31.6 billion into all equity mutual funds and exchange-traded funds (ETF's), favoring equities over bonds for a sixth straight month. However, flows into equities moderated from October, with flows into exchange traded funds picking up, and investors favored U.S. equity funds over offshore funds. Investors kept selling bonds, redeeming $21.8 billion from bond mutual funds and ETFs, the biggest outflow since $36.8 billion in August and the fifth-highest monthly outflow on record. Four of the six biggest monthly outflows from bond funds have occurred this year, no doubt part of the reason the S&P 500 is +27% YTD.

I can't think of any witty transitions, so let's just jump into some recent state updates.

Georgia has made revisions to its Chapter 80 Regulations. The state Department of Banking and Insurance has issued final revisions to Chapter 80, which seeks to promote safe and fair mortgage lending. These revisions relate principally to branch manager qualifications, loan processors acting as brokers, and fees and charges. Zachary Pearlstein of Bankers Advisory writes, "The revisions regarding fees and charges state that the management fees and other charges payable to a bank holding company (or an affiliate thereof) may be paid by the banking or trust subsidiary- provided these fees do not exceed the subsidiary's pro rata share of the administrative overhead of the bank holding company, plus any direct expenses attributable to the subsidiary. In addition, it must be shown that the subsidiary has received direct benefit from its relationship with the holding company." Mr. Pearlstein's full blog posting can be found here.

Texas Senate Joint Resolution 18, which amends the Texas Constitution, passed last month to authorize advances under a reverse mortgage for the purchase of a residential homestead property, is now effective. SJR 18 was approved by the voters on November 5, 2013, and became effective on November 22, 2013. Click for full details on SJR 18.

The New Jersey Department of Banking recently issued two Bulletins concerning high cost home loans and Residential Mortgage Act 2014 licensing information. Bulletin No. 13-20 addresses the NJ Home Ownership Security Act of 2002's required annual review and maximum principal amount adjustment for determination of a high cost home loan. Effective for completed applications received by the lender on or after January 1, 2014 the maximum principal amount for a high cost loan will be $452,288.55. And in Bulletin No. 13-18 which outlines information concerning residential mortgage transaction license renewal. The bulletin notifies licensees that the ability to request license renewal will begin on November 1, 2013 and may be electronically submitted through December 31, 2013. In the event the Department's review is not completed by January 1, 2014 for a timely and complete renewal request; the licensee may continue to engage in residential mortgage lending activity until a decision has been reached.

Iowa has made amendments to their mortgage filing and transfer rules. The state's General Assembly has amended Iowa's Code relating to the execution, filing and recording of a mortgage release certificates, as well as revisions and clarifications to provisions and requirements relating to transfers of interests in real property by unincorporated business entities, including nonprofit organizations. Both state Senate File 445 and House File 556, including an expanded explanation to the rule changes, can be found in the link above.

And let's see what vendors, lenders, and investors have been up to recently.

Secure Settlements announced that as January approaches, "we are experiencing increased interest in our services from lenders looking to develop a compliant vendor management program to meet OCC, CFPB, HUD and FNMA requirements for closing agent risk. To help lenders gain a better understanding of our program we are offering a special deal between now and January 10, 2014. Contact us for a FREE TRIAL of our vetting services. When lenders give us a sampling of their closing agents (or any other vendor) we will give them up to 15 free risk reports to sample our services. No commitment required.  Interested banks and lenders can contact us at info@securesettlements.com.

Sales automation software provider Velocify has published The Mortgage Purchase Playbook: 7 Winning Plays from Mortgage Industry Experts, an e-book that aims to help loan originators increase their sales.  The book includes several strategies presented at October's Virtual Mortgage Sales Summit, including how to motivate borrowers to commit to the lending process, how to recruit referral partners to boost leads, and how to use technology to boost sales speed and numbers.

VonkDigital.com, an industry leading mortgage website company, announced a new centralized content deployment console for mortgage lenders. Vonk is "focusing solely on helping bringing remarkable mortgage websites to loan originators. The Vonk hosted website platform allows independent originators and companies to launch their new mortgage website quickly and without any technical knowledge. Some notable features include a testimonial engine with 5 star rating that encourages positive feedback on social sites like Yelp and LinkedIn, mobile sites, landing pages, blog, and multiple TCPA (Telephone Consumer Protection Act) compliant lead capturing forms.  If you are considering re-branding or launching a new mortgage website for 2014 you should consider Vonk digital." For the larger mortgage lenders with multiple braches that are trying to manage online compliance and originator trust; Vonk has developed a solution that will cater to both and make online web monitoring an easy process. (New customers can use the promo code: "ROB" to receive their first 30 days free.)

Homeowners Choice Property & Casualty Insurance Company, Inc., a Florida based provider of homeowners insurance and wholly-owned insurance subsidiary of HCI Group, Inc. (NYSE:HCI), has been approved by the Florida Office of Insurance Regulation to offer flood insurance coverage to its Florida policyholders. Many Florida homeowners, most of whom have never filed a flood claim, are anticipating substantial increases in their flood insurance premiums under the National Flood Insurance Program as a result of the federally mandated Biggert-Waters Flood Insurance Reform and Modernization Act of 2012. In some cases, rates under the federal program may increase by as much as 25% per year. To provide rate relief to its existing policyholders, Homeowners Choice plans to offer flood coverage as an endorsement to its homeowner's insurance policies. The additional flood coverage is expected to be priced similarly to what Florida residents were paying before the Biggert-Waters Act.

The good news, apparently, is that the economy continues to move along in the right direction. The bad news, of course, is that rates are sliding higher. This week, and next, is more "thinly" traded, due to the holidays. But rates are where they are, and anyone locking has to deal with them. Thursday's Initial Jobless Claims gave us yet another measure of the jobs market picking up: applications for unemployment benefits dropped by 42,000 to 338,000 as continuing claims rose. And those stock markets continue to do well and set records. Of course, stock and bond markets don't always in opposite directions, but in this case the belief is that the economy is improving, and therefore companies will do better, and therefore earn more revenue for their owners. And in theory the demand for capital increases, and so rates should go up.

This doesn't make it any easier to deal with LOs, brokers, or borrowers who didn't want to lock in a month ago, but it may help push some folks off the proverbial fence. Thursday's close showed the 10-yr. yield up to 2.99%, and in the early going today we're at 3.00% with agency MBS prices worse a shade.


A man walks out to the street and catches a taxi just going by.
He gets into the taxi, and the cabbie says,
"Perfect timing. You're just like Frank."
Passenger: "Who?"
Cabbie: "Frank Feldman... he's a guy who did everything right all the time. Like my coming along when you needed a cab, things happened like that to Frank Feldman every single time."
Passenger: "There are always a few clouds over everybody."
Cabbie: "Not Frank Feldman. He was a terrific athlete. He could have won the Grand-Slam at tennis. He could golf with the pros. He sang like an opera baritone, and danced like a Broadway star. And you should have heard him play the piano! He was an amazing guy."
Passenger: "Sounds like he was somebody really special."
Cabbie: "Oh, there's more". He had a memory like a computer. He remembered everybody's birthday. He knew all about wine, which foods to order, and which fork to eat it with. And he could fix anything - not like me. I change a fuse, and the whole street blacks out. But Frank Feldman, he could do everything right."
Passenger: "Wow, some guy then."
Cabbie: "He always knew the quickest way to go in traffic and avoid traffic jams. Not like me, I always seem to get stuck in them. But Frank, he never made mistakes, and he really knew how to treat a woman and make her feel good. He would never argue back, even if she was in the wrong; and his clothing was always immaculate, shoes highly polished too. He was the perfect man! I never knew him to make a mistake! No one could ever measure up to Frank Feldman."
Passenger: "An amazing fellow. How did you meet him?"
Cabbie: "Well... I never actually met Frank. He died, and I married his darn wife."


If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, "What Do We Know About the Future of the Agencies?" 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://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)
 

Today's Rate Volatility: HIGH



What happened yesterday?
Mortgage backed securities (MBS) gained +6 basis points (BPS) from Tuesday's close (Wednesday the market was closed) which caused 30 year fixed rates to move sideways.
Our FNMA 4.0 January coupon traded in a very narrow range all day that was only 13BPS wide from our highs to our lows.  As a result, most of you saw no change in  your pricing all day.
Initial Weekly Jobless Claims were lighter than market expectations (338K vs est 345K) which is generally negative for bonds.  But tempering that good economic data is a lot of confusion over the seasonal adjustments and the fact that Continuing Jobless Claims rose.  This caused MBS to just move sideways.
There were no other economic releases, Treasury auctions or Talking Feds to guide pricing for the rest of the day.
The closely watched 10 year Treasury yield did briefly trade above 3.00% but couldn't sustain it and once again retreated. As we have discussed, once it actually closes above 3.00%, MBS will be under pressure.

What is on the agenda for today?
Don't miss out on the mortgage industry's premiere insight and commentary. Subscribe to RateAlert Executive today and get today's lock advice, complete market commentary and forecast for today, and watch the full Morning Coffee Update video with Bryan McNee - all available only to our Executive subscribers.

Friday, December 27, 2013

RateAlert Free Snapshot 12/27/2013

Today's Rate Volatility: HIGH



What happened yesterday?
Mortgage backed securities (MBS) gained +6 basis points (BPS) from Tuesday's close (Wednesday the market was closed) which caused 30 year fixed rates to move sideways.
Our FNMA 4.0 January coupon traded in a very narrow range all day that was only 13BPS wide from our highs to our lows.  As a result, most of you saw no change in  your pricing all day.
Initial Weekly Jobless Claims were lighter than market expectations (338K vs est 345K) which is generally negative for bonds.  But tempering that good economic data is a lot of confusion over the seasonal adjustments and the fact that Continuing Jobless Claims rose.  This caused MBS to just move sideways.
There were no other economic releases, Treasury auctions or Talking Feds to guide pricing for the rest of the day.

The closely watched 10 year Treasury yield did briefly trade above 3.00% but couldn't sustain it and once again retreated. As we have discussed, once it actually closes above 3.00%, MBS will be under pressure.

Dec. 27: Recent state mortgage changes; Fed's balance sheet - putting QE3 in perspective; CFPB's latest lender penalty

Water water everywhere, but not a drop to drink. A growing number of Realtors are keenly aware of the increasing concern about water and its scarcity. And sure enough, along comes a list of U.S. cities most likely to run out of water - and they aren't all out west. I doubt they'll run out - but water will become more costly.

And everyone is keenly aware of the CFPB's announcements of fines for various offenses. Last week it was $80 million for auto loans, but the latest came yesterday: "Feds Take Action Against National City Bank For Discriminatory Mortgage Pricing." In this case, PNC Bank, its successor, will pony up $35 million.

Originators know that unless there is demand for a given mortgage product, either by a portfolio lender or by investors, there is little use in offering it on any kind of large scale on rate sheets. Ten years ago, it was apparent that the demand by Wall Street and investors led to products being offered that perhaps should not have, or to relaxing underwriting or documentation guidelines that perhaps should not have been relaxed. Of course the demand by the Fed has led to higher prices, and lower rates...

Everyone (and their brother, as they say) knows that the Fed has, through QE3, been buying fixed-income assets. When we think of the Fed's current balance sheet in terms of dollars, the numbers can be quite large. Let's put this into perspective: the US Federal Reserve's current balance sheet exceeds the GDP of Germany, which is the fourth largest economy in the world. According to a recent Bloomberg News story, it's enough to cover all U.S. federal government spending for more than a year, and it could pay off all student and auto loans in the country with $2 trillion to spare. The central bank's assets are set to exceed the $4.1 trillion held by BlackRock Inc. (the world's largest asset manager). The third round of quantitative easing probably will total $1.54 trillion before it ends, bringing the balance sheet to $4.36 trillion. This has garnered the attention of elected officials, as risk versus reward rumblings have started. "This is a stimulus of the first order. It's just unprecedented," Alabama Republican Senator Richard Shelby said.

But in the last Fed meeting, a reduction of $10 billion a month in QE3 will kick in, reducing the pace of the purchases. 2013's word of the year, according to Oxford dictionary, was "selfie"; a strong case could have been made for "taper" however, as investors have been speculating on when the Federal Reserve will begin removing tax payers from the  billions of purchases per month in the fixed income markets. For months investors, and the financial press, have been paying close attention to the Federal Reserve, and specifically, to the time-line, and the when and if's of moving away from the QE programs, to a more supply/demand driven market. Morgan Stanley interest rate strategist Matthew Hornbach is tired of the incessant chattering about "the taper", and I don't believe he's alone. A few weeks ago Hornbach wrote, "Investors should stop talking about tapering and start talking about potential changes to the rate guidance framework. In our view, the exact timing of tapering should be a secondary concern. What matters is whether the Fed combines tapering with a reduction in the Unemployment Rate Threshold or an introduction in a new inflation floor. The thresholds are all about credibility, so the Fed must understand how each option will impact the market's perception of its commitments to remain on hold. Our economist's base case is that the Fed pairs a modest tapering with a 50bp cut in the URT. In our view, the risk to that base case is a more aggressive 100bp cut paired with a larger taper."

So where's the smart money flowing to these days? According to Bloomberg News, not into fixed income securities. Investors in November poured $31.6 billion into all equity mutual funds and exchange-traded funds (ETF's), favoring equities over bonds for a sixth straight month. However, flows into equities moderated from October, with flows into exchange traded funds picking up, and investors favored U.S. equity funds over offshore funds. Investors kept selling bonds, redeeming $21.8 billion from bond mutual funds and ETFs, the biggest outflow since $36.8 billion in August and the fifth-highest monthly outflow on record. Four of the six biggest monthly outflows from bond funds have occurred this year, no doubt part of the reason the S&P 500 is +27% YTD.

I can't think of any witty transitions, so let's just jump into some recent state updates.

Georgia has made revisions to its Chapter 80 Regulations. The state Department of Banking and Insurance has issued final revisions to Chapter 80, which seeks to promote safe and fair mortgage lending. These revisions relate principally to branch manager qualifications, loan processors acting as brokers, and fees and charges. Zachary Pearlstein of Bankers Advisory writes, "The revisions regarding fees and charges state that the management fees and other charges payable to a bank holding company (or an affiliate thereof) may be paid by the banking or trust subsidiary- provided these fees do not exceed the subsidiary's pro rata share of the administrative overhead of the bank holding company, plus any direct expenses attributable to the subsidiary. In addition, it must be shown that the subsidiary has received direct benefit from its relationship with the holding company." Mr. Pearlstein's full blog posting can be found here.

Texas Senate Joint Resolution 18, which amends the Texas Constitution, passed last month to authorize advances under a reverse mortgage for the purchase of a residential homestead property, is now effective. SJR 18 was approved by the voters on November 5, 2013, and became effective on November 22, 2013. Click for full details on SJR 18.

The New Jersey Department of Banking recently issued two Bulletins concerning high cost home loans and Residential Mortgage Act 2014 licensing information. Bulletin No. 13-20 addresses the NJ Home Ownership Security Act of 2002's required annual review and maximum principal amount adjustment for determination of a high cost home loan. Effective for completed applications received by the lender on or after January 1, 2014 the maximum principal amount for a high cost loan will be $452,288.55. And in Bulletin No. 13-18 which outlines information concerning residential mortgage transaction license renewal. The bulletin notifies licensees that the ability to request license renewal will begin on November 1, 2013 and may be electronically submitted through December 31, 2013. In the event the Department's review is not completed by January 1, 2014 for a timely and complete renewal request; the licensee may continue to engage in residential mortgage lending activity until a decision has been reached.

Iowa has made amendments to their mortgage filing and transfer rules. The state's General Assembly has amended Iowa's Code relating to the execution, filing and recording of a mortgage release certificates, as well as revisions and clarifications to provisions and requirements relating to transfers of interests in real property by unincorporated business entities, including nonprofit organizations. Both state Senate File 445 and House File 556, including an expanded explanation to the rule changes, can be found in the link above.

And let's see what vendors, lenders, and investors have been up to recently.

Secure Settlements announced that as January approaches, "we are experiencing increased interest in our services from lenders looking to develop a compliant vendor management program to meet OCC, CFPB, HUD and FNMA requirements for closing agent risk. To help lenders gain a better understanding of our program we are offering a special deal between now and January 10, 2014. Contact us for a FREE TRIAL of our vetting services. When lenders give us a sampling of their closing agents (or any other vendor) we will give them up to 15 free risk reports to sample our services. No commitment required.  Interested banks and lenders can contact us at info@securesettlements.com.

Sales automation software provider Velocify has published The Mortgage Purchase Playbook: 7 Winning Plays from Mortgage Industry Experts, an e-book that aims to help loan originators increase their sales.  The book includes several strategies presented at October's Virtual Mortgage Sales Summit, including how to motivate borrowers to commit to the lending process, how to recruit referral partners to boost leads, and how to use technology to boost sales speed and numbers.

VonkDigital.com, an industry leading mortgage website company, announced a new centralized content deployment console for mortgage lenders. Vonk is "focusing solely on helping bringing remarkable mortgage websites to loan originators. The Vonk hosted website platform allows independent originators and companies to launch their new mortgage website quickly and without any technical knowledge. Some notable features include a testimonial engine with 5 star rating that encourages positive feedback on social sites like Yelp and LinkedIn, mobile sites, landing pages, blog, and multiple TCPA (Telephone Consumer Protection Act) compliant lead capturing forms.  If you are considering re-branding or launching a new mortgage website for 2014 you should consider Vonk digital." For the larger mortgage lenders with multiple braches that are trying to manage online compliance and originator trust; Vonk has developed a solution that will cater to both and make online web monitoring an easy process. (New customers can use the promo code: "ROB" to receive their first 30 days free.)

Homeowners Choice Property & Casualty Insurance Company, Inc., a Florida based provider of homeowners insurance and wholly-owned insurance subsidiary of HCI Group, Inc. (NYSE:HCI), has been approved by the Florida Office of Insurance Regulation to offer flood insurance coverage to its Florida policyholders. Many Florida homeowners, most of whom have never filed a flood claim, are anticipating substantial increases in their flood insurance premiums under the National Flood Insurance Program as a result of the federally mandated Biggert-Waters Flood Insurance Reform and Modernization Act of 2012. In some cases, rates under the federal program may increase by as much as 25% per year. To provide rate relief to its existing policyholders, Homeowners Choice plans to offer flood coverage as an endorsement to its homeowner's insurance policies. The additional flood coverage is expected to be priced similarly to what Florida residents were paying before the Biggert-Waters Act.

The good news, apparently, is that the economy continues to move along in the right direction. The bad news, of course, is that rates are sliding higher. This week, and next, is more "thinly" traded, due to the holidays. But rates are where they are, and anyone locking has to deal with them. Thursday's Initial Jobless Claims gave us yet another measure of the jobs market picking up: applications for unemployment benefits dropped by 42,000 to 338,000 as continuing claims rose. And those stock markets continue to do well and set records. Of course, stock and bond markets don't always in opposite directions, but in this case the belief is that the economy is improving, and therefore companies will do better, and therefore earn more revenue for their owners. And in theory the demand for capital increases, and so rates should go up.

This doesn't make it any easier to deal with LOs, brokers, or borrowers who didn't want to lock in a month ago, but it may help push some folks off the proverbial fence. Thursday's close showed the 10-yr. yield up to 2.99%, and in the early going today we're at 3.00% with agency MBS prices worse a shade.



A man walks out to the street and catches a taxi just going by.
He gets into the taxi, and the cabbie says,
"Perfect timing. You're just like Frank."
Passenger: "Who?"
Cabbie: "Frank Feldman... he's a guy who did everything right all the time. Like my coming along when you needed a cab, things happened like that to Frank Feldman every single time."
Passenger: "There are always a few clouds over everybody."
Cabbie: "Not Frank Feldman. He was a terrific athlete. He could have won the Grand-Slam at tennis. He could golf with the pros. He sang like an opera baritone, and danced like a Broadway star. And you should have heard him play the piano! He was an amazing guy."
Passenger: "Sounds like he was somebody really special."
Cabbie: "Oh, there's more". He had a memory like a computer. He remembered everybody's birthday. He knew all about wine, which foods to order, and which fork to eat it with. And he could fix anything - not like me. I change a fuse, and the whole street blacks out. But Frank Feldman, he could do everything right."
Passenger: "Wow, some guy then."
Cabbie: "He always knew the quickest way to go in traffic and avoid traffic jams. Not like me, I always seem to get stuck in them. But Frank, he never made mistakes, and he really knew how to treat a woman and make her feel good. He would never argue back, even if she was in the wrong; and his clothing was always immaculate, shoes highly polished too. He was the perfect man! I never knew him to make a mistake! No one could ever measure up to Frank Feldman."
Passenger: "An amazing fellow. How did you meet him?"
Cabbie: "Well... I never actually met Frank. He died, and I married his darn wife."

Thursday, December 26, 2013

Today's Agenda

http://globalhomefinance.com

Today's Rate Volatility: HIGH



What happened yesterday?
Mortgage backed securities (MBS) lost -37 basis points (BPS) from Monday's close (Wednesday the market was closed) which caused 30 year fixed rates to move upward.
Tale of the tape: MBS have dropped -159 BPS in December so far.
Since we moved into a long-term locking bias on November 1st, MBS have dropped -255 BPS.

Durable Goods Orders were much stronger than expected and prior period was revised upward significantly.  The headline number grew at 3.5%, which is very robust and handily beat the market expectations of 2.0%.  The core number came in at double the consensus estimates (1.2% vs 0.6%).
This stronger than expected economic strength is generally negative for MBS. 
New Home Sales wee released at 10EST and came in higher than expected (464K vs 445K), plus the prior period was revised upward.  This provided a little added pressure on MBS.

What is on the agenda for today?
Don't miss out on the mortgage industry's premiere insight and commentary. Subscribe to RateAlert Executive today and get today's lock advice, complete market commentary and forecast for today, and watch the full Morning Coffee Update video with Bryan McNee - all available only to our Executive subscribers.

Monday, December 23, 2013

FHA Extends Loan Amount Period

http://globalhomefinance.com


Before we delve into the agency, lender, and investor news, here is some holiday cheer....maybe. On December 9th, the Federal Reserve released its Z.1 data revealing that homeowners in the United States had the value of their home equity increase $417B in the third quarter and $2.2T over the past year. This is nothing too earth shattering as analysts have been screaming this from the proverbial rooftops for weeks now. Homeowners' equity now stands at $9.2T, from a trough of $6.0T during FY11. Some analysts believe that this increase could support the issuance of home equity loans by banks, improve the credit profile of the U.S. consumer, increase the pool of borrowers available to refinance, and increase the mobility of the U.S. homeowner.

With higher rates comes talk of ARM business. The MBA's weekly poll of retail applications shows that 8% of new apps are ARM loans. But the MBA puts out additional stats, and when one looks at state-level numbers it is easy to see the differences. For example, in September, when overall ARM applications were running at 6% of the total, California's ARM percentage was 14.5% versus Oklahoma's 2.3%. For all of 2012, California's ARM share was 9.7%; Mississippi's was .8%. As you can guess, there is a direct correlation between ARM percentage and average loan amount - typically CA and Hawai'i have the highest state loan amounts.

Speaking of California, plenty of high income individuals have relocated to other states, such as Nevada or Texas, due to the increasingly onerous tax burden in The Golden State. Nationwide, while 43% of the population pays no federal income taxes, down from 47% in 2010, two-thirds of that 43% pay payroll taxes, leaving just 14.4% of the population that pay no federal income or payroll taxes. Of those, two-thirds are elderly with incomes below $20,000/year and one-quarter are nonelderly with equally low incomes. The remaining 1.3% of the population includes big givers of charity, those with large medical bills etc... 

As noted in Saturday's commentary, after some lengthy discussions with the MBA and other groups, incoming FHFA director Mel Watt agreed to delay the implementation of fee increases planned for March & April of 2014. (At this point loan level price adjustment changes are on hold; gfee changes are yet to be determined: per one well-placed source, "I believe he will delay all, but more information is being sent to him.") As the WSJ noted, "Rep. Mel Watt (D., N.C.), the incoming director of the regulatory agency that oversees Fannie Mae and Freddie Mac, said Friday night he would delay an increase in mortgage fees charged by the housing-finance giants, which was announced earlier this month by that agency. Upon being sworn in, 'I intend to announce that the FHFA will delay implementation' of the loan-fee increases 'until such time as I have had the opportunity to evaluate fully the rationale for the plan," he said in a statement."


The WSJ article noted, "Executives at Fannie and Freddie said last month that the fees they have been charging are enough to cover expected losses. But the FHFA, under the leadership of Acting Director Edward DeMarco, has said that those fees should rise in order to allow private investors, which target a higher rate of return, to compete. An FHFA official Tuesday said that even with the latest changes, Fannie's and Freddie's fees would be considered low relative to private firms'."

But that was not the only potentially good news for lenders. On December 6, 2013, the Federal Housing Administration (FHA) issued Mortgagee Letter 2013-43 which announced FHA's loan limits for case numbers assigned on or after January 1, 2014 and through December 31, 2014. The FHA is extending the date for interested parties to request a change to high cost area loan limits announced in ML 2013-43 from January 6, 2014 to January 31, 2014. The MBA did an analysis of the information for the industry, looking at the impact of the 2014 FHA loan limit change on the 3,000 counties in the US. "These are broken out by counties that are in metro areas and divisions, vs. counties that are in non-metro areas and micro areas. Here are the HUD loan limits files for 2013 and 2014 from the source."

Breaking things down, the MBA tells us it turns out that 52 percent of counties in a metro area or division saw no change in loan limits, while 92 percent of counties in a non-metro or micro area had no change in loan limits. But 43 percent of the counties in a metro area or division had some reduction in loan limits, compared to 6 percent in the non-metro or micro areas. And 25 percent of the counties in a metro area or division had greater than 10 percent reduction in loan limit (sum of the 3 blue bars on the left side of the chart), compared to 4 percent of the counties in non-metro or micro areas. The MBA calculates that, "For the counties with the largest reduction in loan limits, the median sales price used to determine the limit was unchanged in most cases, with some increases, but hardly any decreases. It appears that the biggest impacts to the loan limit reductions were from using 115% in the calculation, dropping the high cost limit from 729k to 625k, and moving some counties to the floor of 271k."

Returning to the extension for public comment, one can't merely write to HUD and whine about loan amounts. "Requests for a change to loan limits for a specific local area will only be considered for counties for which HUD does not already have home sale transaction data for the calculation of loan limits. A request to change loan limits must contain sufficient housing sale price data, with the request listing one-family properties sold in a specified high-cost area, and where the sale took place within the look-back period of January through August 2013.  Housing sale price data included in requests should also: differentiate between single-family residential properties and condominiums or cooperative housing units, and distinguish between distressed and non-distressed sales, to the extent possible. All requests for local area loan limit changes should be submitted by January 31, 2014, and only to FHA's Santa Ana Homeownership Center." Review Mortgagee Letter 2013-43.

Let's keep playing catch up with recent company-specific news - some of it is actually good.

But first, a correction. Last week I noted, "As of January 10th, Chase will apply a minimum FICO requirement of 60 and a maximum DTI of 45% to all Chase-serviced DU Refi Plus HPML transactions." No, this doesn't mean subprime is back. Some folks caught that typo, and I gave a few of them an all-expense paid trip to Cancun. (That is the last time that will happen, sorry.) It's 620.

Stonegate Mortgage Corporation announced that it completed the acquisition of Crossline Capital, a California-based mortgage lender that originates and services consumer direct mortgages. "The acquisition of Crossline expands the Company's retail channel and accelerates its geographic expansion, which is consistent with the Company's acquisition and growth strategy. Crossline is being operated as a wholly-owned subsidiary of Stonegate Mortgage. Crossline is licensed to originate mortgages in 20 states (AZ, CA, CO, CT, FL, GA, ID, MD, MA, NH, NM, NC, OH, OR, PA, RI, TX, UT, VA, and WA) and is an approved Fannie Mae Seller Servicer. In addition, it operates two national mortgage origination call centers in Lake Forest, CA and Scottsdale, AZ and also operates retail mortgage origination branches in seven other locations in Southern California. Crossline originated $572 million in mortgage loans during the year ended December 31, 2012 and $374 million in mortgage loans during the nine months ended September 30, 2013.

Speaking of which, Crossline Capital, being the beneficiary of Stonegate's investment, is building out its retail channel on the West Coast. It will still operate as Crossline Capital with the same tax ID, management, warehouse lines, lenders, policies/procedures, culture, etc. but with Stonegate as its financial partner to stand behind that growth. As Ryan Boyajian notes, "We now have the balance sheet power that will dwarf most competitors, immediate access to Non-QM mortgages, expanded Jumbo products with much better pricing as well as private labeled jumbo securitization, etc." Any interested parties (loan officers, branch, area and regional managers) should contact Mr. Boyajian directly at rboyajian@crosslinecapital.com.

Western Bancorp announced a new program designed for relief for self-employed borrowers. The company recently announced a 5/1 ARM for self-employed borrowers using Alternative Income Verification (AIV). The program also offers an interest-only option, non-owner occupied and options for first time borrowers, with loan amounts from $200,000 to $2,500,000.  Income is verified using bank statements to support the borrower's income, with no tax returns, no P&L, and no 4506T requirement. Western Bancorp lends in California, Washington, Idaho and Montana.

Wells Fargo Funding (correspondent)will be aligning its tax returns policy with that of FNMA to require a fully complete and signed 4506-T for each business tax return used to underwrite the loan in addition to the 4506-Ts required for personal tax returns.  In cases where an extension for business tax returns has been filed for the most recent tax year, the loan file must include Form 7004 and 4506-T transcripts confirming "No Transcripts Available" for the applicable year are required.  For self-employed borrowers who do not use their self-employed income to qualify, the first page of the most recent personal federal tax return must be provided so that underwriting can determine whether or not there was a business loss.  This affects all Conventional Conforming loans with applications dated December 16th and after.

Wells has extended the deadline by which DU loans with LTV/CLTV/TLTVs over 95% must be locked to December 23rd. The delivery and purchase deadlines have been updated as well; all loans must be delivered on or before March 3rd and purchased on or before May 1st.

As part of its standard guidelines, Wells is now accepting High Balance VA loans from $700,001 to $1.5m with DTIs of 41% or less, while all such loans with DTIs over 41% will be considered for purchase per the existing exception process. 

Homeward has rolled out its new FHA and VA IRRRL ARM products, both of which are now eligible for purchase from approved correspondents.  Both product matrices have been published to the Homeward website, and as a note, VA IRRRL ARMs will be offered under the 3/1, 5/1, and 7/1 products.

Homeward has revised its suspended closed loan policy to state that failure to supply the information or documentation required to purchase the loan within five calendar days from the later of the delivery expiration or the last initial review date will result in late fees.  Sellers may be provided with additional time for an extension or suspense fee or re-pricing of the loan in question; however, the delivery may also be rejected and/or incur a pair-off fee.

Congrats to John Hummel, ex-Citibank, who is now CMG Financial's SVP of Consumer Services. He will be helping with corporate business development initiatives, and will now expand his focus to managing all production efforts for CMG Financial's consumer-facing sales channels, including its traditional Consumer Services Branch (Retail), Affinity Partnerships and National Builder Division. "With the continued growth the company expects, it is important that we have strong, capable leaders that make up our senior management team. John Hummel fills a vital seat perfectly with respect to our B-to-C business operations. He brings a level of experience and expertise that will help take the organization as a whole, to another level, while fulfilling our expansion objectives in key areas." said Christopher M. George, President and CEO of CMG Financial.

Well, there won't be a lot of locks coming in during the next few weeks, and many folks are taking some time off. The economic calendar is somewhat light this week, but still has some numbers that can move rates around, especially with lower volumes, fewer traders, and less liquidity. Today is the Personal Income and Spending/Consumption duo, a spate of PCE numbers to help us measure non-existent inflation, and we'll also have a University of Michigan Consumer Confidence number. Tomorrow is the MBA apps numbers, along with Durable Goods and New Home Sales; along with folks scooting out early. Wednesday is Christmas, and then we resume things Thursday with Initial Jobless Claims and Pending Home Sales. In the early going, the 10-yr, which closed Friday around 2.89%, is around 2.90% and there is little change to agency MBS prices.


Joe M., a VP with a major aggregator, writes:
'Twas the night before Christmas and all through the shop, the LOs are pushing another loan to the top.
The processors all running on sugar laced highs, trying to satisfy all borrowers why's.
The lock desk keeps searching for more YSP, but now they realize that service is key.
Management still looking to close one more loan, in order for borrowers to get a new home.
Compliance team ready's for changes to come, just hoping these updates really are done.
Closing and shipping are running on caffeine, trying to help the American dream.
So put down your smart phone, your BlackBerry and tablet, give thanks to your co-workers, and make it a habit.
As we close out the year and look to the next, and look at the clutter that now fills our desks, we give thanks for our jobs our family our friends, for that we are grateful so I thank you again!   

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, "What Do We Know About the Future of the Agencies?" 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://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)



 

Join My Mailing List 


Contact Information

What is on the agenda for this week?

Date
Time (ET)
Economic Release
Actual
Market Expects
Prior
23-Dec
8:30 AM
Personal Income
-
0.50%
-0.10%
23-Dec
8:30 AM
Personal Spending
-
0.50%
0.30%
23-Dec
8:30 AM
PCE Prices - Core
-
0.10%
0.10%
23-Dec
9:55 AM
Michigan Sentiment - Final
-
83.3
82.5
24-Dec
7:00 AM
MBA Mortgage Index
-
NA
-5.50%
24-Dec
8:30 AM
Durable Orders
-
2.20%
-1.60%
24-Dec
8:30 AM
Durable Goods -ex transportation
-
0.60%
0.40%
24-Dec
9:00 AM
FHFA Housing Price Index
-
NA
0.30%
24-Dec
10:00 AM
New Home Sales
-
433K
444K
26-Dec
8:30 AM
Initial Claims
-
350K
379K
26-Dec
8:30 AM
Continuing Claims
-
2850K
2884K
27-Dec
10:30 AM
Natural Gas Inventories
-
NA
-285 bcf
27-Dec
11:00 AM
Crude Inventories
-
NA
-2.941M

We have a holiday-shortened week and a light schedule for economic data.

The bond market will close early on Tuesday at 2:00 EST and be closed on Wednesday in observance of Christmas.

There are no major Treasury auctions this week.  The biggest event of the week will be Tuesday morning's release of the Durable Goods Orders.  After that point, there will be a skeleton crew of bond traders on duty until next Monday which will lead to light trading volumes for the week.

We received Personal Income and Spending data this morning.  Personal Spending matched expectations of 0.5% and Personal Income came in a little lighter than expectations (0.2% vs est 0.5%).  Plus Personal Consumption matched expectations.  We still have Consumer Sentiment at 9:55EST this morning.

Our "upside" for better pricing is very limited as we are currently trading just below our 10 day moving average which has been a very strong resistance level all month long.  It will take a much weaker than expected Consumer Sentiment Index reading (say around 78 or lower) for MBS to break above that resistance level.  For the week, look for MBS to trade sideways as we enjoy a "pause" in our longer-term sell off.  Durable Goods Orders will be key.  If we get a strong reading, MBS will sell off.  We will need a surprise to the down-side to see any significant improvement in pricing this week.