5% Skin in the Game Hits the Federal Register; LOs Watching Changes in Texas Law

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Economists are carefully watching the impact of falling oil prices on the Texas (and other oil states) economy. For single adults making the federal minimum wage of $7.25 per hour, it may be impossible to find a place to live that won't cost more than the common rule of thumb that annual housing costs should not exceed 30% of one's annual income. To determine the amount of income needed to live in a particular area, Zillow analyzed median rents and the income necessary to afford them in more than 15,000 cities nationwide. Zillow's analysis found that a single worker making the federal minimum wage could not afford rent for a typical property in any of the 15,000 cities and towns Zillow researched, without exceeding the 30% threshold. Households with at least two workers earning the federal minimum wage could afford the average rent in only 135 cities across the U.S. which were largely located in the Midwest and South and were less than 1% of all communities Zillow analyzed. Use Zillow's interactive map to find out what income is necessary to afford the median apartment in a particular metro area.

The Community Home Lenders Association (CHLA) sent a letter to the CFPB urging them to enforce bank mortgage originators to meet the basic testing and continuing education requirements as licensed loan originators. Currently, these standards apply to only non-bank mortgage originators that require them to pass the SAFE Act test, undergo a background check prior to employment and complete at least 8 hours of continuing education each year.  The letter states, "We believe that it is important-both for the integrity of the profession of mortgage originators and for the consumers that they serve-to have high uniform standards that apply to all mortgage originators, regardless of whom they work for..." The letter also identifies that there are 1,415 registered mortgaged originators working at banks and other depository institutions that failed and never passed the SAFE Act test and should not be considered as "qualified" originators. The letter also pointed out that if registered bank mortgage originators were forced to take the exam, anywhere from 36,000 to 120,000 may fail it.  All other individuals in the real estate and mortgage industry including real estate brokers, appraisers, home inspectors, and nonbank mortgage originators are all subject to licensing, testing and continuing education, which make bank employees an exception to the rule.

 

Speaking of originators, in the December 26, 2014, issue of the Texas Register (Volume 39 Number 52), the Finance Commission of Texas and the Texas Credit Union Commission jointly adopted amendments to the following home equity lending interpretations in the Texas Administrative Code (7 TAC Chapter 153) without changes to the proposed amendments published for comment in the July 4, 2014, issue of the Texas Register (Volume 39 Number 27). The text of the adopted amended interpretations is set out below. The Finance Commission of Texas proposed amendments to 7 TAC §2.104, concerning Application and Renewal Fees for residential mortgage loan originators applying for licensure with the Office of Consumer Credit Commissioner (OCCC) under the Secure and Fair Enforcement for Mortgage Licensing Act.

 

At the Federal level, the securities industry is very interested in the "Final Rule" regarding Residential Mortgage-Backed Securities and keeping 5% "skin in the game". The Federal Register does not mention that term, but notes that, "The Commission understands that sponsors of non-agency RMBS historically did not generally retain a portion of credit risk in the form and at a level consistent with the rule being adopted. I will save you the effort of going through 166 pages and tell you to go to page 116, or perhaps a few before, to see the nitty-gritty.

 

Skin in the game is important for originators. Currently the Fed owns about 52-53% of all 30-year FN/FH passthroughs alone at the moment. Considering that the 30-year Fannie & Freddie passthrough market is the most liquid part of the MBS market and is widely used for hedging purposes, the reduced float in this sector could keep MBS spread volatility (versus Treasury prices) very high for a long time.

 

Although the Federal Reserve is not out using new cash to buy securities, it is still using the money from early payoffs to buy MBS. The outlook for the reinvestment of pay-downs received by the Fed is the most important theme for MBS spreads from a long-term perspective while the volatility in the rates market around the end of the QE 3 program is the most important theme from a short-term perspective.

 

And what about the impact of lower rates on early payoffs, and therefore reinvestment by the Fed? It costs more than ever to do a loan, so refinancing is somewhat dampened. Analysts estimate that the 30-year mortgage rate has to settle down below 4.00% in 2H'15 (or 10-year Treasury yield to be below 2.25%) for long-term supply/demand technicals to work against the MBS basis. Considering the current state of the US economy and the end of the QE 3 program several months ago, it seems reasonable to expect that 30-year mortgage rate will average higher than 4.0% in 2H'15 and MBS spreads are unlikely to widen meaningfully from a long-term perspective (as excess supply will be absorbed by money managers to cover their underweights). For this positive supply/demand technicals backdrop for agency MBS to change, securitization rate of MBS by originators has to increase to 2013 levels again!

The period from Christmas until New Years is always an interesting time in the financial markets. Volumes are normally down, staffs are usually light, and anything worth doing can be put off until the first week of January....but as someone sang once, the times they are a changin'. The coming year will probably contain more interest rate "talk" than the prior three; the Fed will enter a period tightening which hasn't happened since June '06, and everyone's attention will be on the yield curve again. Wells Fargo writes, "Our expectation for this tightening cycle is for a much flatter yield curve. This curve flattening could again have the effect of not fully pricing in actual Fed actions given how much flatter we expect the curve to become. In anticipation of the upcoming tightening cycle, we expect that there will once again be mismatches between short-term yields and the actual pace of Fed tightening behavior." A year from now many believe Fed Funds will be 75bps higher, barring any systemic change to the economy at-large.

Through all of this rates have continued their downward path. The general consensus appears to be that investors are moving money into the bond market (which includes MBS) amid fears of a potential Greek exit from the euro. (Remember when we were all concerned about PIGS?) Greece's parliament failed to name a new president after three rounds of voting, meaning early elections will be held on January 25. Recent polls have suggested the anti-euro Syriza party is the favorite. And with no other news, the market may-as-well attribute any movement to Greece - most of the benefit accruing to Treasury securities. The 10-year closed at 2.21%.

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Lawsuit update on Wells, Credit Suisse; How Much Does it Cost to Securitize a Loan?

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We're staring at 2015 this week and "I want to retire this year!" may be the refrain from various lenders when asked about New Year's resolutions. But where are the best places to retire? Other data shows about 17% of the 76 million Baby Boomers have already retired and about 10k will retire every day for the next 15 years. And note that the stock market has been doing fine in spite of some forecasts that retirees, in order to cover their living expenses, would be selling all their holdings thus driving stock prices down. It hasn't happened.

For better or worse no one in the industry will disagree that legal outlays and compliance related expenses have skyrocketed for residential lenders, and these costs are passed on to borrowers. And the lawsuit news continues to flow.

 

Many think that the older rating agencies have not seen the punitive impact of mistakes made in rating securities. Standard & Poor's Ratings Services is close to an agreement with regulators that will settle investigations into its ratings of commercial mortgage-backed bonds, sources said. The deal could be finalized as early as January, they said. 

At the other end of things, Credit Suisse lost its bid to have a case dismissed - the judge said, "Thanks but no thanks" and things must proceed. 

Wells Fargo & Co. has been ordered to pay $54.8 million in damages tied to a class-action lawsuit alleging that fees charged by two mortgage servicers were excessive. On Friday, a Manhattan federal jury ruled against Wells in a suit alleging that late fees charged by now-defunct mortgage firms The Money Store and HomEq were improper and unlawful. 

And Wells Fargo, HSBC Holdings Plc, Bank of New York Mellon Corp., and Deutsche Bank AG were sued by an Irish securities firm that claims the banks failed to protect investors in their role as trustees of securities backed by home loans that defaulted after the 2008 credit crisis.

 

Also of note is that Edward O'Donnell, a former executive at mortgage lender Countrywide Financial, is set to collect a cool $57.6 million from Bank of America for his role in exposing fraudulent activity at the firm. As you may recall a federal jury ruled that Countrywide Financial (now owned by BofA) had defrauded government-backed firms Fannie Mae and Freddie Mac by selling them defective mortgages. O'Donnell is entitled to 16% of a $350 million payment from Bank of America, according to documents filed this week in the Southern District Court of New York. The payment is a portion of the $16.65 billion settlement that Bank of America has to pay. It's the biggest financial settlement in history. O'Donnell's piece of the $350 million is equal to about $56 million. He's also entitled to an additional $1.6 million payment from Bank of America, to total about $57.6 million, which must be paid within a "reasonable time," according to the federal court document.  

Here's a doozie. It costs $900 to conduct due diligence on each loan pledged as collateral for an RMBS. That was the number that was tossed out at SFIG's ABS East Conference in Miami Beach.  If you don't believe it, drop a line to Eileen O'Grady who attended the conference. Eileen is a mortgage capital markets veteran, who has signed on as Capital Markets Business Development Manager at LoanScoreCard.  She wrote, "Nine.Hundred.Bucks.  Any volunteers to start looking at loan files? That's $225,000 per annum.  For.One. Loan. Per.Day." Eileen also captured some other interesting bullets from ABS East, like the big push for the 15 year "Wealth Building Home Loan" by the Fed and others; the somewhat baffling AB II regulation, which tries to balance bond data transparency against borrower right to privacy; and the pressure on Aggregators, Servicers, Trustees and others in the RMBS industry to spend a lot more money on technology, so they can stay in a lot less liquid RMBS marketplace.  Dilemma.  Email Eileen or hear about it yourself at the ABS West in Vegas Feb 8 - 11, 2015. (Maybe I can find my sports jacket that I lost at MBA.) 

October Research, LLC produced a free report, sponsored by SoftPro that provides guidance to title agents on implementing best practices and creating a comprehensive compliance program. The report includes information on how to apply compliance standards, whether you are in the beginning or final stages in the process. A list of companies and how their products, services and tools can help you stay afloat and comply with the new regulatory changes is incorporated into the report. The special report features licensing, escrow trust accounting, protecting NPI, settlement processes, policy production, insurance coverage and consumer complaints. The report serves as a one-stop-shop for those looking for a simplified process to meet regulatory compliance needs.  

Besides most lenders going to 97%, let's continue playing catch up with some random lender & investor news in the last several weeks to check the trends.

Looking at the markets, we're seeing lower rates so far this morning. The Federal Reserve said it is suspending until Jan. 2 all agency mortgage-backed-securities operations. And for now through Jan. 13 the central bank said it intends to buy no more than $10.8 billion of agency MBS. We have a decent amount of news this week although it doesn't commence until tomorrow's S&P/Case-Shiller series of two-month-old numbers (these are for October). We also have Consumer Confidence tomorrow. Wednesday, the last day of the year, will be the MBA's application data and also the Chicago Purchasing Manager's survey and Pending Home Sales. With the market closure on January 1^st we can all expect low MBS liquidity on December 31st. Lastly, on Friday, January 2nd, ISM Manufacturing Survey will publish the composite index of purchasing managers at 300 manufacturing firms nationwide about the general direction of production, new orders, order backlogs, inventories and other variables into the manufacturing health.

 

For numbers we had a 2.25% close on the 10-yr Friday and in the early going we're at 2.22% with agency MBS prices better by .125-.250 depending on coupon and type.

 

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States & Regional Population Gains; List of Largest Banks; Rate Market Report

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"I dream of a world where chickens can cross the road without having their motives questioned." More folks are crossing the road in Florida. According to the U.S. Census Bureau's statistics on population, between July 1st, 2013 and July 1st, 2014 an average of 803 new residents were added each day in Florida and it passed New York to become the third most populate state. Florida's population has reached almost 20 million whereas the population of New York is 19.7 million. California is still ranked as the most populous state at almost 39 million residents followed by Texas with 27 million. Georgia's population has also exceeded 10 million for the first time, landing the eighth spot on the list. North Dakota was the fastest growing state followed by Nevada and Texas compared to six states that lost population, including New Mexico, Alaska and Vermont. Overall, in 2014 the total U.S. population increased by 2.4 million to 319 million.

 

Certainly certain areas are attracting more growth than others. As the housing industry attempts to attract young adults and promote home buying among millennials, the young adults who are interested in homeownership are more inclined to buy in certain areas, according to an article published by Zillow. It used data from the Minnesota Population Center to take a closer look at homeownership rates amongst working-age emerging adults. The majority of these adults have been most successful at buying homes in the Midwest and South, with the least amount of young adults buying in expensive coastal metros, particularly in California. Conversely, the young adults who don't own a home and don't pay rent mainly reside in Southern Texas, Eastern Pennsylvania and Riverside, CA. Finally, the areas with the largest generational homeownership gap between millennials and baby boomers include New England and California, while the smallest gap can be found in the South and West, as well as Las Vegas, NV, Fresno, CA and Oklahoma City, OK.

 

Zelman and Associates November Mortgage Originator Survey predicts a re-accelerating housing market with low rates and lax credit standards. With improvements to the GSEs' rep and warrant policies and the CFPB's curing abilities, more lenders will look to reduce overlays which will benefit borrowers in the coming months. The survey identified that 52% of lenders expect underwriting standards to ease over the next year and none expect credit standards to tighten. With the new integrated disclosures taking affect in August of 2015, most lenders are prepared for the change and the new disclosures should not adversely impact underwriting standards. November purchase applications increased 4% YoY and refinance applications were down 10% YoY. The analysis reported that the credit quality index dropped to 67.5 from 68.9 a year earlier, with 32% of third quarter securitized loans below 700 credit score and the average GSE credit score dropped to 754 from 759 a year before, reflective of credit standards beginning to ease.

 

While we're speaking about macro issues, Comerica writes, "Despite the expected GDP reset, we observe strong momentum in the U.S. economy at year end. Labor markets continue to improve. A robust 321,000 payroll jobs were added in November. Hours worked increased, and so did wages. The combination of more workers, working longer hours, for higher wages provides a powerful boost to the U.S. economy. The unemployment rate for November held steady at 5.8 percent, but is set to resume its decline through early 2015. Auto sales have roared back. The 17.2 million unit sales rate of November cannot be sustained indefinitely, but it provides strong evidence that U.S. consumers are in a better mood this holiday shopping season. "That got me thinking...which is a good thing, otherwise I'd spend my time watching videos of squirrels running obstacle courses...how are auto sales doing? The answer is an easy one as sales in November haven't been this robust since 2001; up nearly 5% from a year earlier with five of the top six automakers selling more cars and trucks than analysts expected, compliments of a surging economy, heavy discounting and falling fuel prices luring consumers into U.S. showrooms. Case-in-point, according to the Wall Street Journal, luxury SUVs are up 17% YoY, and with the recent talk of SISA and NINA loans I'd swear it was 2004 all over again.  

 

SNL Financial's financial analysis found the top 4 largest US banks and thrifts by total assets in order as of Q3 were JPMorgan ($2.5T), Bank of America ($2.1T), Citigroup ($1.9T) and Wells Fargo ($1.6T). This group adds up to a whopping $8.2 trillion in assets. Rounding out the top 10 list are: US Bank ($391B), Bank of New York Mellon ($386B), PNC Financial ($334B), Capital One ($300B), HSBC North America ($280B) and State Street ($275B). This group adds up to about $2.0T. Finally, banks ranked 11 to 20 add up to $1.6T and include: TD, BB&T, SunTrust, American Express, Ally, Charles Schwab, M&T, Fifth Third, Citizens Financial and USAA. How many of these have well-known mortgage operations? Meanwhile regulators have increased the asset size threshold used to define a small bank for CRA purposes as one that as of Dec 31 of either of the prior 2Ys has assets of $1.22B. And an intermediate small bank is defined as a bank with at least $305mm in assets but less than $1.22B for the same period.

 

The pace of bank closings, fortunately, dropped dramatically from 2014 - but last Friday regulators closed Northern Star Bank ($19mm, MN) and sold it to BankVista ($135mm, MN) under a P&A agreement. BankVista received 2 branches as well as all of the deposits (at a 1.06% premium) and essentially all of the assets. And merger and acquisitions continued to be announced this week. Weymouth Bank ($212mm, MA) will acquire Equitable Co-operative Bank ($106mm, MA). Cornerstone Bank ($1.3B, NE) will acquire North Loup Valley Bank ($20mm, NE). As part of its move to streamline operations Citibank will sell its Peru subsidiary with 8 branches and 130k customers to Bank of Nova Scotia for an undisclosed sum.

 

Wednesday the commentary noted some information regarding the USDA eligible areas. Bill Scammell from PMAC reminded me that, "USDA Announcement (posted 12-22-14):  President Barack Obama signed the Consolidated and Further Continuing Appropriations Act of 2015 (omnibus spending bill) into law last Tuesday.  With the signing of this Act and barring further congressional action, the USDA will implement the eligibility maps on February 2^nd, 2015.  The changes will be those already published on the 'Future Eligible Areas' maps posted on the USDA eligibility website (USDA Future Eligible Maps).  A complete package for conditional commitment must be submitted to the USDA on or before Feb 2^nd, 2015 in order to fall under the current eligible areas.  Packages that are submitted to USDA after Feb 2^nd will be subject to the new 'Future Eligible Areas'." Thanks Bill!  

 

Turning briefly to the markets, Wednesday we learned that US Jobless Claims dropped 9k to 280k, a seven-week low. The 4-week moving average was 290,250, a decrease of 8,500 from the previous week's unrevised average of 298,750. We had a 2.26% close on the 10-yr Wednesday and this morning we're sitting at...2.26% and agency MBS prices are roughly unchanged. There is no scheduled news, not much exciting happened overnight, and no company is expecting much in the way of locks.

 

Rate Market Report:

The stock market opened better this morning; the bond and mortgage markets also started a little better. Trading today should be on light volume with many taking the opportunity for a long weekend. There are no economic reports out today. No hard data yet for Christmas holiday shopping but the WSJ reported sales were on track to deliver a welcome Christmas gift to retailers: the best holiday sales growth in three years. The tally won’t be available for a few weeks but most retail analysts are singing happy songs that consumers stepped up, particularly in the last week prior to Christmas.

Not good news out of Japan this morning; its inflation rate fell to its lowest level in over a year in November as the economy struggles to emerge from a recession; 0.7% in November from a 0.9% rise the previous month, according to government data released Friday. Most of Europe’s markets are closed today. China continuing to relax reins on its banks to use deposits to make loans. Analysts estimate the move is roughly equivalent to injecting 1.5 trillion yuan, or about $242B. Talk out that China may miss its GDP growth forecasts for 2014.

Oil prices in the news; the Saudi government saying that crude prices will rebound with global economic growth boosting demand as high-cost producers cut back, Oil Minister Ali Al-Naimi said on Dec. 21. “I’m 100 percent sure prices will go up, they have no other direction but to go up.”

At 9:30 the DJIA opened +37, NASDAQ +15, S&P +6. 10 yr 2.25% -1 bp, 30 yr MBS price +6 bp from Wednesday’s close and 18 bps better than at 9:30 am Wednesday. Trading today should be quiet ahead of the weekend and with skeleton crews manning the trading desks.

US long term rates better this morning on news from Japan that inflation is declining in Japan even with the recent stimuli from the BofJ and government initiatives. Europe mostly closed today also likely to keep markets relatively quiet. The markets opened all day today. The outlook for oil prices are increasingly gaining even more attention in markets; declining oil prices seen as the current main driver for consumer spending and economic growth. With US interest rates higher than other sovereign in the G-7 the demand will continue; last week’s 5 and 7 yr auctions saw very strong demand from foreign investors and foreign banks.

PRICES @ 10:00 AM

• 10 yr note: +2/32 (6 bp) 2.26% unch
• 5 yr note: +1/32 (3 bp) 1.75% -1 bp
• 2 Yr note: unch 0.75% unch
• 30 yr bond: +10/32 (31 bp) 2.82% -2 bp
• Libor Rates: N/A
• 30 yr FNMA 3.5 Jan: @9:30 103.84 +6 bp (+18 bp from 9:30 Wednesday)
• 15 yr FNMA 3.0 Jan: @9:30 103.65 +3 bp (+3 bp from 9:30 Wednesday)
• 30 yr GNMA 3.5 Jan: @9:30 104.52 +10 bp (+12 bp from 9:30 Wednesday)
• Dollar/Yen: 120.45 +0.35 yen
• Dollar/Euro: $1.2174 -$0.0051
• Gold: $1196.60 +$23.10
• Crude Oil: $55.94 +$0.10
• DJIA: 18,099.44 +69.23
• NASDAQ: 4797.86 +24.39
• S&P 500: 2091.77 +9.89

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Lender 1st New England Bankrupt; FHA MIP under fire; Ellie Insight Report

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As you may have guessed, there is no logical correlation between whether there is snow in Boston on Christmas and the performance of the stock market. Any incidence of a white Christmas in Boston and bullish market performance in the following year are purely coincidental. This may be why this indicator is also referred to as the "BS indicator". See? Who says you never learn anything from this commentary?

At the other end of the scale, Newton-based residential mortgage company 1st New England Mortgage Corp. has filed for Chapter 7 bankruptcy. 1st New England Mortgage Corp. does business as Aberdeen Mortgage, FNE Mortgage and First New England Mortgage, according to the bankruptcy filing. The mortgage company had $1.2 million in liabilities, including $124,456.28 to Company President and CEO David W. Black and $944,375.47 to Lehman Brothers Holdings Inc. care of Dallas-based Locke Lord LLP, according to the bankruptcy papers.

 

As a reminder since there still seems to be a little confusion about this, Congress unanimously voted to extend a provision of the Servicemembers Civil Relief Act (SCRA) until January 2016, which prohibits foreclosing on a Servicemembers house for one year after returning from active duty. Congress had previously extended the protection period from 3 to 9 months in 2008 and then to one year in 2012. If Congress did not pass the provision, the protection period would have reverted back to three months. Last May, Senator Sheldon Whitehouse proposed the Foreclosure Relief and Extension for Servicemembers Act of 2014 and stated that troops returning from fighting overseas should not have to fight to keep a roof over their heads when they return home, as they often need to time to regain their financial footing.

According to the latest Ellie Mae Origination Insight Report, the refinance market is picking up steam due to the low interest rates, as lenders' refinance share rose for the fourth straight month in November. Since July, lenders' overall volume of refinances climbed thirteen percent and the total closing rates on purchase loans increased to 66.5 percent, the highest level since Ellie Mae began tracking this number in August 2011. The increase in refinance volume has been a cushion for lenders who normally face a slow winter market. As the end of 2014 approaches, The New Year looks promising for most lenders with continued low rates and the re-emergence of the GSE's three-percent down payment loan programs. Other findings from the report include the average time to close a purchase loan was 41 days, up one day from October, whereas the average time to close a refinance loan decreased to 37 days, despite the increase in refinance activity. Credit requirements have also remained the same from a year earlier, with 31% of borrowers having an average FICO score of under 700. 

The level of FHA's insurance premiums continues to come under fire. As Millennials begin to invest in homeownership, changes need to be made to allow these young adults to qualify and finance a loan.

 The Community Home Lenders Association (CHLA) has called for the FHA to lower annual premiums in order to make FHA loans more affordable for lower and middle income homebuyers, an income bracket most millennials fall into. CHLA has proposed the change after the FHA's annual Actuarial Reported was published, which indicated the FHA is making a steady progress towards strengthening their finances. Since FHA's mission is to provide financing for first time and minority borrowers, the only way it can fulfill this undertaking is by reducing premiums. Last February, CHLA asked the FHA to reduce its annual premium level from 1.3% to 0.75%. In this report, CHLA pointed out that about 125,000 to 375,000 borrowers would have purchased a home in 2013 with an FHA loan if premiums weren't so high. FHA home purchase volume has also decreased by more than 40% since 2010 and has experienced comparable declines in loans to African-Americans and Hispanic homebuyers.

 

Ocwen Financial Corporation, in the news lately and the nation's largest independent mortgage servicer, announced the re-launch of a free database of loan-level data for mortgages serviced by Ocwen in private label mortgage-backed securities (MBS), powered by the REALPortal platform. The re-launch addresses a variety of requests from mortgage loan investors to enhance functionality, access to data and bandwidth. Additional functionality is being planned for near-term implementation. Access to Ocwen's REALPortal service is free, and interested parties can register a login and password, click here.

 

Last month Stearns Wholesale began offering LPMI pricing improvements and improvements to its government pricing. LPMI pricing features improvements on FICO scores 700+. For more details, click here. Government pricing also features improvements on FICO scores 660+ for both purchase and refinance transactions. Stearns has also announced mid-November that it migrated to a standardized Administrative Fee of $995 for all mortgage transactions in the state of California ($795 for Streamline transactions).

What did all that news yesterday mean for mortgage rates? Gross Domestic Product was much stronger than expected (pushing rates up), but Durable Goods were less than expected, pushing rates lower. Personal income was +0.4% to $54.4 billion in November.  Disposable personal income (DPI) increased +0.3% to $42.4 billion.  Personal consumption expenditures (PCE) increased +0.6% to $67.9 billion. The FHFA House Price Index was +0.6% in October.  From October 2013 to October 2014, house prices were up 4.5 percent - no impact on rates. The University of Michigan Consumer Sentiment hit a seven-year high, pushing rates up. New Home Sales were +1.6% in November - not a big impact on rates. The median sales price of new houses sold in November 2014 was $280,900; the average sales price was $321,800. The seasonally adjusted estimate of new houses for sale at the end of November was 213,000. This represents a supply of 5.8 months at the current sales rate.

 

So after all that rates moved higher primarily due to the GDP number - it is hard to argue with the strength of the 3^rd quarter and this momentum is expected to help things in the 4^th. The 10-year note sold off .875 in price, closing at a yield of 2.27%, while current coupon MBS prices only worsened .5.

This morning we had the MBA's apps data for last week (falling further by 1% from the week before) and will have Initial Jobless Claims at 8:30AM EST - a day early (expected unchanged from last week's 289k) and a $29 billion 7-year note auction at 11:30AM EST. In the early going rates are virtually unchanged from Tuesday's closing levels.

Merry Christmas!!! 

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Rent Increase Estimates; Fannie, Freddie, and Ginnie updates

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"Having a cold drink on hot day with a few friends is nice, but having a hot friend on a cold night after a few drinks - PRICELESS." While we're talking prices, let's talk about the $26 billion in equity gain in Colorado in 2014 - Rocky Mountain High! What are not gaining are the stock prices of non-bank servicers. At one point yesterday Ocwen was down 26%, Nationstar was down 8%, and Walters was down 7%. I hope employees have diversified 401(k) plans

Estimates for 2015 are flying. Zillow predicts that growth in rents will outpace home values in 2015 due to skyrocketing rental demand. The combination of young adults renting longer and families continuing to rent after losing their home to foreclosure has increased the rental market. The millennial generation (23-34 years old) will be the largest home buying age group and current millennial renters are more optimistic than other generations that they will be able to eventually afford a home. As rent prices increase, more of these young adults will turn to the purchase market and given their lifestyle preferences, home purchases could lean more towards condominiums or townhouses. Home builders are also beginning to cater to the millennial home buyer, as they are beginning to build more inexpensive homes. This is good news for buyers, as they will have more negotiating power in 2015 and buying will begin to look more attractive to current renters that can afford a down payment on a desired home. 

Zelman & Associates Land Development Survey indicates development activity remains strong. The November land development index equaled 62.5, down from 63.3 a month earlier, but is still indicative of an above average development activity. A negative impact on home-building demand due to decreased oil prices has yet to be felt in Texas as development is still robust in the Texas market but may decline over the next year. Finished lot demand is down for the eighth consecutive month but finished lot value is up 13% YoY. Acquisition demand also fell for the eighth consecutive month and raw land demand is also down but remains above the normal level. Development costs are up 6.9% YoY and land appetite ranking are down for builders and investors in November.  

Let's see what the agencies have been up to lately. First, fee increases and private sources of mortgage financing are expected to significantly cut new-loan business by Fannie Mae and Freddie Mac in the next decade, congressional analysts said recently. The share is expected to fall to about 40% by 2024, compared with 60% from 2008 to 2013. 

And many believe that Fannie Mae and Freddie Mac share prices could drop as the U.S. mortgage giants face lawsuits over the taking of profits. A federal court in September dismissed lawsuits brought by Perry Capital and Fairholme Funds over the government taking profits, and Pershing Square Capital Management sought dismissal of its own lawsuit. Government lawyers have asked the court to reject the Pershing request and instead rule that the previous dismissal includes the third suit.

Fannie Mae is talking technology and asking are you ready for Collateral Underwriter™ (CU™)? View the recently posted training Understanding CU's Risk Score, Flags and Messages, the updated FAQs, and other resources on the CU page.

 

As a reminder, Fannie Mae and Freddie Mac both announced enhancements to the life-of-loan representations and warranties under the selling representation and warranty framework.  The enhancements are detailed on each website and provide more specific guidelines, Freddie Mac bulletin or Fannie Mae announcement.

 

Ginnie Mae has added "Consolidation of Disclosure Pages on its website, choose the link to view the bulletin. Ginnie Mae also added periodic information in its November 17th notes and news.

 

Freddie Mac's Servicer Success Scorecard has been reissued to correct certain calculation descriptions in Attachment A. Additionally a preview of your 2015 Scorecard was available in your Servicer Performance Profile Friday, December 5. Simply click on the Servicer Success Scorecard link in your Servicer Performance Profile.

 

Fannie Mae servicing guide updates include changes to loss drafts processing, changes and clarifications to Mortgage Release borrower incentive payments. Updated information can be viewed in SVC 2014-21 Announcement. Additionally, an updated Evaluation Notices Exhibit has also been published.

 

There is 6 Months to the effective date for certain sections in FHA's Single Family Housing Policy Handbook. As announced on September 30, 2014, FHA's origination through post-closing and endorsement policies in its new Single Family Housing Policy Handbook (SF Handbook) (HUD Handbook 4000.1) become effective for FHA Case Numbers assigned on and after June 15. Information can be accessed in the Origination through Post-Closing/Endorsement for Title II Forward Mortgages (Origination through Endorsement) section from FHA's Single Family Handbook web page. FHA has also revised Form and Model Documents to Align with Eliminating Post-Payment Interest Charges and Changes to the Adjustable Rate Mortgage "Look-Back" Period Rules. The updated form, "Important Notice to Homebuyers (HUD-92900-B)" is posted on the HUD Client Information Policy Systems (HUDCLIPS) web page. Mortgagees may begin using this new form immediately, but must use this new form for all mortgages closed on or after the effective date of the Handling Prepayments: Eliminating Post-Payment Interest Charges rule, which is January 21, 2015.

As a reminder, since I continue to be asked about it, back in October Fannie Mae has made changes to its self-employed income policies and requirements to provide clarity and increase consistency in the application of these policies. Click the link to review this Announcement. Desktop Underwriter Version 9.2 has been implemented. Review the DU Version 9.2 Release Notes for additional information. Additionally, EarlyCheck Version 2.5 was released. View the EarlyCheck Release Notes from October for more information.

 

Freddie Mae Loan Coverage AdvisorSM launches on January 12, 2015. Visit the Loan Coverage Advisor Web page  to learn more about the features and benefits. Freddie is updating Loan Prospector® on January 26, 2015, to support Freddie Mac Home Possible Advantage, as announced in the Single-Family Seller/Servicer Guide (Guide) Bulletin 2014-22 on December 8, 2014. This new offering is available for mortgages with Freddie Mac settlement dates on or after March 23, 2015. 

 

FHA's "Lender Insight" newsletter is designed to provide FHA lenders with up-to-date information about what it is seeing in lender approval, recertification, monitoring and compliance, and enforcement. Each issue contains core information to help lenders better understand the trends and policies that affect their business. To view Lender Insight Issue #7, click the link to the Lender Insight page on www.hud.gov/lenders. The newsletter is distributed to lenders and other interested parties via FHA's Single Family Housing Industry Email List. If you would like to receive the newsletter, but are not on the email distribution list, please visit SFH News to sign up.

 

Freddie Mac announced the expansion of the Freddie Mac MyCity Modification to include Cook County, Illinois in its Single-Family Seller/Servicer Guide (Guide) Bulletin 2014-25. Additionally, it is also revising MyCity Modification requirements for the City of Detroit, Michigan as previously announced in Guide Bulletin 2014-11.

 

It's always disappointing when you draw your Secret Santa card from the hat and you selected someone in Secondary Marketing....what do you get someone who never appears to smile? My suggestion is a handful of skittles and a research paper. The Chicago Fed has just the paper, it writes in, "The labor force participation (LFP) rate-the share of the working-age population that is either employed or jobless and actively looking for employment-has fallen from 66 percent at the beginning of the Great Recession in December 2007 to 62.7 percent in September 2014. To some, this decline suggests the possibility that there may be labor market slack over and above that captured by the unemployment rate." This is hard core economics at work and particularly interesting to those of us who look at anyone under the age of forty and think "THESE are the kids who are going to take care of us in our old age?"

Looking at the markets, yields on government-backed mortgage securities have narrowed the most in two years, reducing the effect to home buyers of a fall in Treasury yields. Yields on 30-year bonds guaranteed by Fannie Mae narrowed Thursday to within 0.92 percentage point of an average on five- and 10-year Treasuries, down from 0.99 percentage point on Tuesday and the lowest since October 2012. 

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