Affordability has a strong impact on homeownership. Not
surprisingly, per
the NRA, I mean the NAR, four of five states with the
lowest homeownership
rates in the US are characterized by markets with high
prices. Washington,
DC has the lowest homeownership rate at 45.3%. At the
opposite end of the
spectrum, West Virginia, New Hampshire, Michigan, and
Maine have among the
highest affordability and homeownership rates.
More information about state homeownership rates is
available in the Local
Market Reports for the 2nd quarter of 2013
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jWAWrw3NPqta6bblraoaR7kEBIoQ6VKWAys
-g0sHvGsKJahstiwyYg0_tn-viesj8OVurU4MAGKmaayVTatTJxnV0S26n-icmkv-UdUOjqBxDYP
aNRqBhK-9nSxNzSwgzlbMQsOSO_JG95pCDtnagQ8iuBRh2Y5jq7g8CuWIwg50kYlfujocx4MfVD6
8dIGC8ZRuzRoiq2dL1C45YhKh5WzWOMN4hwO-GI=].
(In a related story, certainly the MBA's application
figures continue to
show the impact of higher costs, higher rates, and
greater restrictions. It
reported yesterday that mortgage apps were off 2.5%, with
purchases up 2.4%
-2nd week up in a row -
and refis off by 5.4%. Refi's dropped to 60% of
total loans, a new recent low.
Conventional refis were off 4.8% and GNMAs were off by
8.5% which reverses
last week's difference between the two.)
How many people are in the banking industry? Two million,
that's how many.
At least that is what the American Bankers Association
says it represents,
which I read when it sent out the response by Frank
Keating, ABA president
and CEO, to the QRM news yesterday. "We applaud the
proposed Qualified
Residential Mortgage rule released by federal regulators today. Gratefully,
the proposed rule aligns the QRM definition with the
existing Qualified
Mortgage rule. This will encourage lenders to continue
offering carefully
underwritten QM loans, including those with lower down
payments.
As a result, it will help the economy and ensure the
largest number of
creditworthy borrowers are able to access safe, quality
loan products at
competitive prices.
'The proposed rule removes unnecessary risk retention and
capital
requirements, which would reduce the availability of
low-risk loans.'"
Not so fast! I don't know what "final" means
anymore, and the 500-page QRM
verbiage is subject to a 60 day comment period (the first
rules issues in
2011 have received
10,000 comments) - until almost Halloween: SpeakUp
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jV6IcF5KdkuoQKxsjt36ZPTdn1z4i5DAviW
L6_uvHhVTF2TXHILYnBNNCim62TX77Zeqn-g5zwPzdCziqzTP4OQx2sFDn3pstQhK_K59wRJldlE
8x3ErGzTUy1-Kvyk7uRJHnYVJZAeKL2QetsLL4KzXHbbG5TInwpWW9PfaQJeecEtAQvG4D65].
Regulators originally said banks and bond issuers would
have to keep "skin
in the game," or hold part of securitized loans on
their books, for all
loans except mortgages that included a 20 percent down
payment. After
backlash from housing and consumer groups, regulators
decided to drop the
down payment requirement.
Practically everyone in the alphabet from the ABA to the
SEC seems to be
behind it, basically saying, "If we have to have QM
and QRM, they
may-as-well match up."
"An eased version of a rule requiring lenders to
keep a stake in risky
mortgages that
they securitize, a restriction designed to discourage the
kind of lax underwriting that contributed subprime credit
crisis, will be
proposed by U.S. regulators today.
The 500-page draft regulation written by a panel of six
agencies will
replace a more stringent proposal for the Qualified
Residential Mortgage
rule. The first version, which was released in 2011, drew
protests from
housing industry participants and consumer groups who said it would be too
restrictive of home lending. The plan would require banks
to retain a slice
of mortgages when borrowers are spending more than 43
percent of their
monthly income to repay their debt. The earlier proposal
would have required
banks to keep a stake in loans when borrowers were
spending more than 36
percent of their income on all loan payments and in loans
with down
payments of less than 20 percent."
The agencies involved in the rulemaking are the Federal
Reserve, Federal
Deposit Insurance
Corp., Department of Housing and Urban Development,
Federal Housing Finance Agency, Office of the Comptroller
of the Currency,
and Securities and Exchange Commission.
Don't forget that the CFPB is behind QM.
Dave Stevens with the MBA wrote, "Today, six
regulators, including the FDIC,
Federal Reserve, SEC, OCC, HUD, and FHFA re-proposed the
Risk Retention Rule
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jXDk9sVWxUfkmKBNMc2a2ra9LEtMCESRQ9k
NF9PY7dc3LFdusF7VYF1zNhKJjlHXx4DD9u1hXl-F53DCOriJKwaRmEqbhKzc7aS1-kYXrffG1Wl
QqJeE6yBxpE5wVJk0reHs-5qQDBwQuzxE16CcB4Dzf9Qww2ITIE=].
The re-proposal is a clear response to MBA, and others in
the consumer and
real estate finance industry, who voiced concerns about
key provisions in
the rule. Recognizing its importance, I wanted to share
with you summaries
of this re-proposed rule that affects both residential
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jUatf29Jw7JcfSz3JUIKPrKvlySeYihAz77
k56nmLt9wDmzDO_CXZkfD3PRJI8nzo2_0L8ruwGs3BzmbI6Fed7dnaIvhhkkJLLsSYDr2NMqXHC8
avZ2OcJxtJA-AZVblysjT0c-8kVOAmZKO7lG7g8k7YmvRJTvcuD-zDuZ0oW1dA==]
and commercial/multifamily
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jVWE4sQ89_X_DuRfu2wK13qTsolr2D8yEQS
hLG4A1k9bKTdjwUBT575GeHw-aT-J7MCd1xKLrwORBfE2I55n3BF0D9QaAhbx4Tz-xR2n6abDDZW
si7nE79OVznOg3ce5NxPydODFsPvGlMYUn2dhUSVjh8a8suBOTQ-NEzUdgCUAw==]
members...In particular, there are five main points to
highlight: 1. The
re-proposal aligns the Qualified Mortgage (QM) and
Qualified Residential
Mortgage (QRM) definitions for risk retention purposes.
The QRM definition
includes both safe harbor and rebuttable presumption QM.
MBA supports this
decision and is extremely pleased the regulators
restructured the rule to
include this distinction. 2. The re-proposal seeks public
comment on an
alternative option that would add a 30% down payment or
equity requirement
to the QRM definition. MBA strongly disagrees with this
decision because it
would severely impair access to credit. We will seek to
have this provision
removed from the final rule."
Mr. Stevens' bulletin goes on. "3. The Premium
Capture Cash Reserve Account
(PCCRA) was eliminated from the re-proposal. MBA has strongly advocated for
this decision because the PCCRA would have virtually
eliminated the
financial incentive for issuing CMBS. 4. The re-proposal
is also responsive
to MBA's recommendations on additional flexibility in
risk retention
structures, a modified duration/hold period, and
modifications to the
"operating advisor" proposal for CMBS. 5. A
notice and comment period for
the re-proposed rule was issued for 60 days and will end
October 30, 2013.
MBA will be working with its members to develop comments
and ensure that our
concerns and comments are communicated to the regulatory
agencies.
But things are never straightforward any more. Industry
critic Edward Pinto
noted in his writing why a Qualified Residential Mortgage
is not the same as
a Qualified Mortgage (Pinto
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jX2qg0TAIo88U1mJTz-RUaNh-9n7i_kCLjV
iY9cgJjPTzdpESVyCpH-ko4OszzwP_VeVmN4pfVBGuFFp2_n3DtKZBFVVdcYppEoS5GPjRjndfs4
4s8YcFM5OVJGy8qGNlEM1z6AXa1ASi2eyXL6grBI63QHZJsGyP-qGS2ltnyM75dg3tst2Wtpx_sV
tsc7L_ZlkMBAmlVHHAmqtxmKpz8xwzUI0DQSHnA=]).
"Defining these two terms is required by the
Dodd-Frank Wall Street Reform
and Consumer Protection Act. However, the proposed QRM definition turns
the
statutory language and the agencies' earlier analysis
upside down. A QM was
intended in Dodd-Frank to define a minimum loan standard,
not to define a
low risk loan.
Certainly the CFPB's QM definition
demonstrates this-a QM
may have no down payment, a 580 FICO credit score (a
score in the bottom
one-eighth of all scores), and a 50%+ debt-to-income
(DTI) ratio (if approved by Fannie, Freddie, or
FHA). A loan with these
characteristics is certainly not "prime," yet
the CFPB would call such a
loan prime."
He goes on. "A QRM was intended to set a standard
for loans placed in a
mortgage backed
security (MBS) that have a low credit risk as evidenced by
their past performance.
In their earlier
March 2011 proposed QRM rule, the six agencies defined a
QRM as a loan with a 'low risk of default even in a
stressful economic
environments that combine high unemployment with sharp
drops in home
prices'. They concluded based on substantial and rigorous research that to
be a low risk loan, it needed demonstrate three
qualities: a substantial
down payment of 20% (or low loan-to-value on a refinance
loan), a clear
demonstration of credit worthiness, and a DTI ratio of
less than or equal to
36%. "QRM = QM" clearly does not pass muster
under any low risk standard.
The long-term credit performance of the housing mortgage
market can only be
as sound as the underwriting practices used to originate
a preponderance of
loans in that
market. It is axiomatic that a
sound market requires that
the preponderance of
loans be prime or low risk loans.
By caving in to the
demands of the lobbies representing the Government
Mortgage Complex, both
the CFPB and the six agencies are committing a grievous
error. Calling QMs a
prime loan and making QM = QRM gives risky loans an imprimatur they do not
deserve. This is a
repeat of the false comfort Fannie and Freddie gave to
the definition of a prime loan. As we now know there was little that was
prime in most of their prime loans."
Where does all this put the poor LO? For now, there are
no changes. Non-QRM
loans and non-QM loans are not against the law. Nor are
they "bad" loans -
just ask ex-CFPB officer Raj Date who has created an
investor for non-QM
production. The qualified mortgage, or QM rule, contains
no down payment
requirement. For loans in which borrowers are spending no
more than 43
percent of their income on debt, the QM rule protects
banks from being sued
by investors or homeowners for faulty underwriting. And
that is the crux of
the matter - in this litigious environment lenders want
to stay away from
potential lawsuit liability years down the road. So banks
mortgage banks are
going to lend in a box that keeps them from being sued in
some class action
lawsuit.
But we can expect quite a bit of development at the
lender and AUS level
over the next four months leading up to January 10th. One
has to believe
that soon, when a loan is entered into DU or LP or an
automatic underwriting
program, it will either be a QM or not, in which case the
bank or mortgage
bank will either allow it or not. But non-QM loans are
not bad loans, in
which case, where will they go, and at what rate and
price? Will there be
compensating factors, like the old days? And as rates
stay high, loan level
price adjustments remain high, and documentation
requirements prove onerous
for some borrowers including first time home buyers, will
the resulting
impact on residential lending push the government or an
agency to change the
rules yet again? Stay tuned!
Today we had the GDP numbers. Remember that GDP is the
total output of goods
and services
produced by labor and property in the US and this information
is compiled and reported by the Bureau of Economic
Analysis (BEA). The BEA
divides GDP into four sectors of the economy - consumer
purchases (Real
Personal Consumption Expenditures), business investment
(Real Nonresidential
Fixed Investment), government spending (federal, state
and local) and net
exports. (Exports add to GDP, imports subtract from it.)
The process begins
with an advanced estimate about a month after quarter
end, then a second and
third estimate. The BEA even cautions that the first
number for a given
quarter is an advance estimate and based on source data
that are incomplete
and subject to further revision.
But this week we've seen some volatility, mostly based on
the impact of a
military strike in Syria will have on our economy. (Now
apparently it is
delayed in order
to build more support - a kinder, gentler attack?) Tuesday
we had a flight to safety, yesterday it went away.
Tuesday the price on the
10-yr T-note improved by .75, yesterday it was down a
half. Agency MBS
prices tagged along. Mortgage originations and locks and
sales continue to
be below the recent moving averages. No lender is saying
their back office
is backed up, and any company built around refis has seen
(per the MBA) refi
biz dropping for 11 weeks in a row.
Today we had the second reading on Q2 GDP. It was
expected higher at +2.2
percent from the advanced print of +1.7 percent. It came
out at 2.5%, +.7%
on the revision, and much stronger than expected. Also
reported was weekly
Initial Jobless Claims
which was expected to decline by 4k to 332k. It was
-6k from a revised 337k to 331k, also stronger than
expected. (Later we'll
have a $29 billion 7-yr note auction.) After this news,
the 10-yr is sitting
around 2.81% after closing at 2.78%, and agency MBS
prices are worse about
.125 than Wednesday's close.
Part 3 of 4 (yes, it grew) of YOU MIGHT LIVE IN COLORADO
IF...
You are 82 years old and take up snowboarding.
Your real Y2K fear was running out of Celestial Seasoning
tea and trail mix.
You get depressed after one day of cloudy weather.
You think formal wear is ironed denim.
North means mountains to the left; south is mountains to
the right; east and
west are where all those liberals keep moving in from.
You go anywhere else on the planet and the air is
"syrupy' and notice the
sky is no longer
blue.
You consider a 3-piece suit to be a pair of shorts,
sweatshirt, and Tevas.
If you're interested, visit my twice-a-month blog at the
STRATMOR Group web
site located at www.stratmorgroup.com
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jXPolfilc5YQrALda4MsqUb73SwJ0C0qMNH
xa9yeymrkMFxKETLTS46w47A2XAWfVRNiyoXva1eZmPTcVo9U1Fw2cftTUJbipoC-aA5POWU3ECM
bsNH-Vri].
The current blog is, "A Little Primer on Reverse
Mortgages"." 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?e=001B7-5bzUK8jVacgreGDW8EQkNCopIp-qZtmW5JOjKzFLY
4BWVoOp1nB_7VQsgKc-QjwPbYsgvpaSmhaQRvzkYYpTzjvq3RZ6oJuSZtYMI0xyr0NpFEGOhq5Bp
oSCItMmJsOV99JXPHJ3OBOO48LTb2X2IKMc7KgIRyNhAiqMgo_gWq5DjGVpDDQ==]
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jWiFtc6BGV0JJ2TOGD0jxDMPuY6tlTm1N8V
fdlXduoYAOiRqpH8lsJxI_BjdVlmJPFpCKb-RJpSWmnIe6EupatT-zzmQfLjhrrrq7SeCzfSiYff
85-FEDIx-GR3TQE2qn2Knurhdt3OgjhkSCXDpAEf].
For archived commentaries or to subscribe, go to www.robchrisman.com
[http://r20.rs6.net/tn.jsp?e=001B7-5bzUK8jVBjuXVDluiUC7UoQc8FKYgxARsGz0LWFay
Jx6YM2rGgQYq5hB5wR4m9FQIKhcep1CC_nSX3hlnjpqGclhcP3lM_98q46FvGMdPYu2DnBpl-IEn
QLD21L0D].
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