Mortgage News and Market Snapshot provided by:Global Home Finance Inc.: Keeping Current

http://globalhomefinance.com

Today's Rate Volatility: HIGH

What happened yesterday?

Mortgage backed securities (MBS) lost -78 basis points from Wednesday's close which caused 30 year fixed rates to move upward.This was the third straight days of sell offs. MBS have lost -149BPS so far this week and hit their highest levels of 2013.

Both Great Brittan and the ECB left their key interest rates alone this morning.

The much anticipated ADP Private Payroll report came in at 176K. The original consensus estimates were for a gain of 157K but that was revised upward to 180K. So the reading of 176K was right in line. You would have needed a big miss to the down-side to see an improvement in pricing and we simply didn't get it.

Initial Jobless Claims fell another 9K last week and came in at 323K which was better than the consensus estimates of 330K. This, coupled with the ADP data is giving traders reason to bet that Friday's Non-Farm Payrolls will be better than expected and potentially give the Fed enough data to start tapering on Sept 18th.

But Non-Farm Productivity was much better than expected at 2.3% vs estimates of 1.5% and it was a big-time gain over the prior reading of -1.7%. Long term bonds love a good productivity number and this reading has helped MBS to temporarily rebound off of our early morning lows.

The biggest economic report to move MBS yesterday was the ISM Non-Manufacturing report. This measures the servicing sector which accounts for 2/3 of our economy. And it was much better than expected coming in at a blistering 58.6 vs the consensus estimates of 55.2. This report hammered MBS pricing causing MBS to fall from -25BPS just before the report to -48BPS by 11EDT.

U.S. Factory Orders were also better than expected. The market was expecting Factory Orders to fall -3.5% but instead they only fell -2.4%. This was also negative for MBS pricing.

MBS moved even lower (worse pricing for you) after news out of the G20 meeting hit the wires that Russian President Putin told President Obama that if the U.S. hit Syria that Russia would support Syria. This caused traders to further discount the likelihood that there would be a strike in the near term. This reduced the "fear factor" premium in bonds.
What is on the agenda for today?
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Okay, I know you are at work. But this has to be one of the more fascinating

sites I have seen in a long time. No, it doesn't show the lenders that were

impacted by the Optimal Blue outage yesterday, paralyzing companies without

lock & pricing backup plans. It is a series of maps showing practically

everything imaginable, to "help us make sense of the world." Yes, there are

other things than real estate, bond trading, and lending: GreatMaps

[http://r20.rs6.net/tn.jsp?e=001L_qFEEbZ15BghOqOpsr3WdqGDvQlKn8HwOYkH251lPic

fxrtjmuZqZpIHQqYnrsQyrW3mlP535IIFcn-fxamBUHcn92zW_GucbSpNgrV5oTf99mN1_UJC_DO

ZpgZtM1ZQ1u12zPmq-mBMc_rAGEc6iZcn2lcjaiPvOIS6gEYDkglDBnB2WcXle9WKoEYEg7105k2

gLlNIq4=].

On Saturday we'll have an exciting anniversary: on 9/7/08 Treasury Secretary

Hank Paulson announced a plan where the government took control of Fannie

Mae and Freddie Mac. Remember that the Treasury Department initially pledged

up to $200 billion of financial support in anticipation of future mortgage

defaults, and that was later doubled to $400 billion. As of today, Fannie

and Freddie have received $187 billion of taxpayer aid. But they're making

some coin now! Which leads me to...

Here's an interesting note I received: "Rob, my sister is thinking about

taking a job with one of the agencies. What have you heard about them

lately?" Well, there are plenty of agencies, but I assume you're asking

about Fannie Mae or Freddie Mac.

Both have suffered from a loss of experienced personnel in the last 5+

years, although I think the "brain drain" has slowed in the last 2 years.

Both agencies, however, seem to have a lot of key areas where they are

basically operating with the 4th and 5th string teams. It is logical that

the ability to attract talent outside the two GSEs is awfully difficult.

Insiders tell me that it is not an environment that is very conducive to

creative thinking. For example, the FHFA has to approve everything of any

consequence, and supposedly it is more thinly staffed than the agencies, and

some would argue have even less experience. (I know the STACR deals done

recently by them feel "new" but they're pretty basic senior sub structures

that have been around quite a while in the GSE/Wall Street space.) I think

most of personnel are treading water to see what happens next. Although

there will be a lot of groundwork laid this year, verbally, no one expects

much of substance until after the elections next year, and then it is on to

the presidential election in 2016. (How does anything get done?) If your

sister has a positive attitude, and is optimistic, she will fit in nicely

with those agency employees who believe that something interesting could

actually come out of a GSE restructuring. The names could change, but

personnel-wise there's hope that their skill sets will be highly valued in

any start up type entities that are ultimately created.

With Congress having been on vacation for over a month, not much has

happened regarding the agencies - and many do not expect anything concrete

to come out of Congress for quite some time - perhaps years. The House and

Senate have proposed different approaches to housing finance reform - and

although nothing proposed so far will sail through unscathed, it is

interesting to see check the wind direction. The leading House proposal,

introduced by Republicans, leans heavily toward privatization and would

eliminate the affordable housing responsibilities of Fannie Mae and Freddie

Mac. In contrast, the Senate proposal, introduced in a bipartisan effort,

would combine a government backstop (arguably through more transparent means

than those GSEs currently provide) with a continued attempt to fund

affordable housing programs.

Notwithstanding those differences, law firm K&L Gates points out there is

one common element of both proposals - a reduced government role in the

housing finance sector.

This core principle has been echoed by the President, who recently laid out

general principles for housing finance reform that include winding down the

GSEs, amplifying the role of private risk capital, and preserving the

function of FHA insurance.

There might not be much new with the agencies, but there is with eminent

domain.

For example, North Las Vegas rejected

[http://r20.rs6.net/tn.jsp?e=001L_qFEEbZ15DtL5n8Mn7rpOIRyI7L26f80oxDmmaYspEF

krNqlFZCXMCb0IpMggXX7TH8bMI5GjwaNcnoJ7LOKai0slQJd_vwwG-kXu72Cdz0_k2D3NGmD5u-

AV8Kn5s1zHiaoht85Soi61ZvbE51Fe8ejLf_7qdlFt0B-pbEaFeiyxO2_gQTPSgd65e2eja5_R5F

rtBepKJPKqlr06mlGMuKv3U0hUtz]

it. In the next state over, SIFMA and the Chamber of Commerce have filed a

"friend of the court brief" supporting Wells Fargo's position in a case

involving a plan by Richmond, CA, to use eminent domain to seize certain

mortgages. Wells Fargo is asking a judge to block the plan's implementation.

"We ... believe that the execution of these plans to use eminent domain will

result in a serious contraction of credit availability, as lenders and

secondary market sources of funding react with defensive, very stringent

underwriting criteria," said managing director and head of SIFMA's Asset

Management Group Timothy Cameron.

In fact, for proponents of Richmond's eminent domain plan, recent events did

not help to advance their cause. The lending and securitization industry

likes this

- no one wants to buy a security that can crumble, and if no one wants to

buy that security, the price drops and rates go up to compensate for the

risk - and the borrower pays more. Several developments, in addition to the

lawsuit filed against the city by opponents of the plan, have begun to cast

doubt on the viability of the program.

First, media began to highlight an under-reported angle to the story - if

the plan were to be enacted and borrowers were essentially relieved of tens

of thousands (or hundreds of thousands) of mortgage debt, they may face a

significant tax liability.

Congress and California lawmakers have extended mortgage debt forgiveness on

a year-by-year basis for the past few years, but there is no indication the

protection will be extended before the end of this year, putting potential

participants of the program at risk. And then the San Francisco Chronicle

reported that the City of Richmond found no buyers when it attempted to

refinance municipal bonds earlier in the month, costing them nearly $4

million in lost savings. It is not clear that Wall Street was spurning the

city's bonds due to the eminent domain program, but it has certainly given

city leaders another reason to pause.

And more information is coming to light about the status of the 600-plus

loans that the city made offers on, and will presumably exercise eminent

domain on it if the offers aren't accepted. According to opponents of the

plan, 31% of the loans aren't underwater; 10% have at least 20% equity; and

68% of all loans are current. The new information gives opponents the

ability to characterize the program as a for-profit scheme designed to

enrich Mortgage Resolution Partners (MRP): LATimes

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pQwqc5JZklunTmGxm16A9JyknG6zP_wmbWCMD6dhp8yqEim3XeTpTiGNt_74HYKriOI6rOGMucmV

7vSPE-B-OcL4LJ6QAVP1DxODo77qJvj8n57wznSCKpop8BXGFPDK-brM3WJ9HAX-8AGMeXDJPLVa

ObDXg2M=].

But speaking of purchasing loans, for those of you who haven't had a

repurchase demand in a while, you may want to consider what might be coming

down the pike.

Katten & Temple attorney Brian Levy, who has helped many lenders contest and

defend repurchase demands, believes, with the losses of the 2004-2009 period

waning, we may see new types of buyback requests in the near future. Levy

thinks that investors may seek to give loans back that are troublesome for

reasons other than just default.

He warns that investors with loans facing consumer litigation or regulatory

actions arising out of allegations of compliance violations, particularly

the thorny new regulations such as LO Compensation and QM/ATR, may be

inclined to mitigate those expenses by using buyback provisions in sale

contracts to give messy loans back to originators, even without losses or

defaults.

Another concern Levy describes is the potential for buybacks arising from

environmental issues. Most investor sale agreements contain specific

representations regarding environmental issues (Freddie Mac and Fannie Mae

also require that an appraiser disclose environmental risks). According to

Levy, it's not hard to envision a situation in which a residential

subdivision discovers an environmental threat (e.g., chemical runoff from a

landfill; or "vapor plumes" where toxic gases spread underground from

sources such as dry cleaners or oil pipelines). Information regarding these

risks is routinely obtained on commercial real estate loans, but, despite

availability at fairly reasonable cost, environmental reports are almost

never obtained on residential property. Levy imagines a deteriorating

environmental problem where defaults, borrower litigation and/or enforcement

actions cause investors to seek to push back these loans to the

originators. Readers can learn more in Levy's article in Mortgage Banking

Magazine.

How about some upcoming events and the ABA/SunTrust news?

The Illinois Mortgage Bankers Association is sponsoring a Mortgage Market

Update Conference on September 19 in Oak Brook. The agenda includes

presentations by Fannie Mae on reps and warrants and the post purchase

review process, subject matter expert, Loretta Kirkwood, on fair lending

risk and the CFPB, and a lender panel discussion on these topics as well as

QM and loan officer compensation. Attendees must register in advance at

www.imba.org

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bvpCQPLz4k8kNV-kvm53B37PznkjxXRzL1rY-WW12gBaScwbmTXxDmtq6GDBjV8MMGhknSJgfw==

The Arizona Association of Mortgage Professionals (AZAMP) will be holding

their annual Education and Lender Expo event on September 20th and 21st at

the Phoenix Convention Center. Marc Savitt, President of the National

Association of Independent Housing Professionals (NAIHP) will be the

speaking at the luncheon. He will cover L.O. compensation, QM, and other

CFPB regulations. For more information please follow this link

http://www.azamp.org/Convention.asp

[http://r20.rs6.net/tn.jsp?e=001L_qFEEbZ15C1XgXN9_Vp7sX9eTZyunO6AtbWYafMjB9T

bQj2iF9lzrKBl6beQgT8cprNF5-6J16n3T0SpJhLKD5wUKIj5CP8nrlT3fzGgxLJxnLNLFnxY9b4

ZBGgTkB7LrwsUE302S8=].

AllRegs will be holding a webinar on the CFPB servicing final rules on

September 20th, intended to provide participants with both a refresher and

guidance on preparing for the rules' implementation in September 2014. To

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PxcOeM1gewZPb3GyLR6dfwlj9ulaaaVUmEIg3Qe6F3PpIfVaZAvFh71iTsu9ZkWwuf8-8YT49Qzi

dutW1ULj-eNos7HX9qdlgnrUqH1sZXL3ZfLmhOXc5WbSUurQomATEvFnRBAeoSErmGMfVZt-a6Ht

FJK32hZPKshL3zHNXo9tRzXIfDLzhts6gpqKJhXEoBtDV2egYXzMqMGpqLV_el22MKqm6VpEm0Vv

I4t2vAbk-GLubC0nYZaY_gSAHmj-T6iHFHaNrZABv3TayXHbfgbf69wjzKC0lch_eUoCbacHhziO

cP0Y-G05hRGgGMTGYQzfg0CeSkoSFsxgk2LK].

I don't know much about the ABA, and certainly didn't know it acts as a

cooperative for members. The American Bankers Association (through its

Corporation for American Banking subsidiary) has "endorsed" SunTrust

Mortgage, Inc. to offer ABA members an outlet to sell mortgage loans on

advantaged terms. SunTrust's mortgage correspondent channel creates

liquidity for banks originating mortgage loans by purchasing the loans that

banks might otherwise keep in portfolio. "This alliance will allow ABA

member banks access to a full array of SunTrust's mortgage

products...SunTrust joins a group of existing strategic mortgage solutions

providers that offer ABA members advantaged programs to also help them

compete in the areas of compliance, fraud prevention, loan sales, quality

control, operational efficiency and mortgage portfolio risk analysis."

(SunTrust had fallen to #10 in the correspondent channel in the first

quarter, per NMN.) More on the ABA here

[http://r20.rs6.net/tn.jsp?e=001L_qFEEbZ15AahrlRoN5Ga6oM50Zfy5wbmNr0yusq4Zq9

WkYgC2IS3dThF0T1a2W6ETdFnCxA8RBUUnVevcPFhv79uKsIhcSz8oV89eFMNoIrqm2zBTEjdHWX

oA4COsFdZlh5Ag67zDM=].

Tomorrow we'll have the employment data. Employment is one of the most

widely watched indications of strength or weakness in the economy and we

judge this primarily using the monthly increase in total non-farm payrolls

and the unemployment rate. These numbers are released by the Bureau of

Labor Statistics (BLS), usually on the first Friday of each new month, and

represent the previous month's activity. For non-farm payrolls, the BLS

takes information from the Household Survey conducted by the Bureau of

Census. The survey provides information on employment of the US population

and classifies it by age, sex and other characteristics. The survey of

Current Employment Statistics looks at about 150,000 work sites, both public

and private, to provide industry information on hours and earnings.

Then there is the misleading unemployment rate. The rate is the number of

unemployed as a percentage of the total civilian labor force. If the size of

the civilian labor force falls and the number of unemployed falls a bit

more, then the unemployment rate drops (but not really due to strength).

The participation level of the US labor force in the 1990s was over 70%; now

they are in the low 60% range. So a smaller percentage of adults are

working. Not only that, but in the last report, 65% of the jobs were part

time, and more than 50% were low paying positions at retailers and

restaurants. In fact, this year low paying jobs have provided 61% of the

nation's job growth although those industries make up only 39% of overall US

jobs. Meanwhile, mid-paying industries have only contributed 22% of this

year's jobs gain.

For employment, there are other indicators as well, such as today's weekly

jobless claims (both initial and continuing), and today's (coincidentally)

ADP Employment Change which shows jobs growth in the private sector (have

been stronger than employment as a whole as government payrolls have

dropped).

Nope, rates aren't as good as they were. And in my conversations with LOs

and lock desks, the argument that "rates are still good by historical

standards" carries less and less weight every week. Has everyone who could

refinance done so? In spite of the Fed continuing to buy billions in agency

MBS and originators selling less and less every day, the prices of

mortgages have not held in well. Yesterday, for example, current coupon MBS

prices were worse nearly .5 and the 10-yr closed at a yield of 2.90%.

In the early going things aren't much better today. We've had the August ADP

employment changes, expected lower to +170k and actually at +178k - close to

expectations.

We also had the weekly jobless claims (expected +330k, it went from 332k to

323k), the Q2 final of nonfarm productivity and unit labor costs (+2.3%,

unit labor costs unchanged); later, at 10AM EDT is July Factor Orders (lower

from +1.5) and August non-manufacturing ISM (lower form 56.0). Rate-wise,

the 10-yr yield is the highest it has been in a couple years - 2.96% - and

agency MBS prices are worse about .375.

Keeping abreast of modern cultural trends is important. Actually, this is

downright embarrassing - but the whole short clip

[http://r20.rs6.net/tn.jsp?e=001L_qFEEbZ15Dw22qffIRTn8A24TeAEr5d0xw2lDHoqbYq

in5x3mviiFkjAXMmPRlGbAoyQR7l4xpzKy1VdTJexIeTH_oN986KqpVsNDPZsI1fB8thbuPRKh1O

1Y0tEUiBNwolBSpLhM4NjyihxPqmBYyhQTSyog0fmf9jB_AKdpB2o6qNIFzICg==]

is clever.

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=001L_qFEEbZ15BAVVqOTKcF500pKWH4ScgEqQm6RoikJWmj

0nkU9UUwTLItYHkvL2s544ebpp9Alwb2a5a9a09_V-TxH8_YP5TDiPy91NbStvWWBhpeNvjMzM1_

LYLqW2h2].

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

Friday, September 6, 2013

Keeping Current

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