If your lock desk was really
busy last week, you're bucking the trend. The MBA's survey of 75% of retail
lenders showed that apps were off 4.1% with purchases leading the way (-6.3%)
but with refis following along (2.7%). The computers that slice and dice the
data tell us that the average loan size on refis was $5k lower to $204k,
conventional purchases were off 7.3% week over week, and conventional refis
were off 1.4%. FHA & VA purchases were down 6% and FHA/VA refis dropped 4%.
When it is -8 degrees F., bopping around house hunting is probably low on the
priority list.
The residential lending
industry is dealing with plenty of unintended consequences and perverse
outcomes due to the excesses of the past, and the resulting onslaught of
regulation. As an example, two years ago California's legislators agreed
to, and Attorney General Kamala Harris trumpeted, a landmark deal with the
nation's three largest housing lenders, which agreed to give
"beleaguered" California homeowners $12 billion in relief from their
underwater mortgages. Now the Sacramento Bee tells us, "Last fall, the
monitor that Harris appointed to supervise the agreement reported that the $12
billion promise had become 'an $18 billion achievement,' half in principal
reductions for those who wanted to remain in their home and half in short sales
for those who wanted out. There is, however, a darker side to the situation. That
$9.2 billion in principal reductions from the three big lenders, plus those
granted by other mortgage firms, is considered to be income to those who
received them - an average of $137,281 for first mortgages in the settlement
and $91,261 for second mortgages. That means the homeowners who breathed
sighs of relief last year could be hit with huge income tax bills. They
wouldn't be federal taxes, because Congress exempted principal reductions from
taxation. But they would be state taxes for 2013, because a temporary exemption
expired at the end of 2012 and the Legislature didn't act last year on an
extension due to a behind-the-scenes power play."
As it turns out, now
politicians have tagged the tax exemption on to another bill (SB 391) that
imposes new fees. The fees would be on real estate transaction documents in an
attempt to raise about $300 million a year for low-income housing. It's one of
the Legislature's efforts to make up for the money that low-income housing
programs lost when it and Governor Jerry Brown abolished local redevelopment
programs two years ago.
Yes,
capital is constantly being created and put to work. "Wall Street's latest
trillion-dollar idea involves slicing and dicing debt tied to single-family
homes and selling the bonds to investors around the world. That might sound a
lot like the activities that spurred the global financial crisis in 2007. But
this time, there's a twist. Investment bankers and lawyers are now lining up to
finance investors, from big
private equity firms to plumbers and dentists moonlighting as landlords, who
are buying up foreclosed houses and renting them out." "Wall
Street" continues to be a dirty term.
But
plenty of younger folks want to work for investment banks and broker dealers.
And those Millennials (age 18-34) needs loans. TD Bank's Malcolm
Hollensteiner, Director of Retail Lending Products & Services, chimes
in with information on what types of loans are millennials obtaining. "At
TD Bank, Millennials made up 18% of total mortgage units closed in 2013.
Alternately, their 'parents'" made up 47% of the total mortgage units
closed in 2013. In terms of type of loans, Millennials make up 15% of TD's
total ARMS customers, while their parents make up 50% of the bank's total ARMS
customers. The most noticeable difference, aside from the quantity of loan
units between the two groups, is apparent in the maturities. Millennials make
up just 8% of total 15 year fixed loans, while parents make up nearly two
thirds of total 15 year fixed loans, with 59%. In terms of 30-year fixed loans,
the gap lessens with millennials making up 22% of the total number of 30 year
loans, while their parents make up 42% of the total number of 30 year loans.
(TD Bank offers up its Right Step Program as an
alternative to FHA-backed loans.)
If
I told you that there is mounting evidence that the nine year slide in the
homeownership rate is nearing an end, would you believe me? Our dog, Cole,
just shook his head. What if I told you that people who are employed by Wells
Fargo, and who spend their days toiling away, crushing and processing housing
numbers with the brute strength of an Olympic skater (think speed skating, not
ice dancing) were the ones who claim that figure is accurate, would that make
you a believer? Despite mitigating expectations entering the New Year (after
slow December numbers and downward revisions for Q4) Wells' Economic team has
assembled a very good February '14 Housing Chartbook.
They write, "Despite diminished expectations, we do not believe the
underlying fundamentals of the housing recovery have suddenly taken a turn for
the worse. We have long held that the housing recovery would be a long,
difficult slog and now that investors appear to be backing away from the
market, it has become abundantly clear how modestly the underlying fundamentals
have actually improved." While I wouldn't categorize their view as
'bullish', I would say they are cautiously-optimistic, in the face of economic
recovery.
The
banking mergers continue unabated, although one recently announced deal was cancelled (Ohio's
deal where the Guernsey Bank was going to acquire The Ohio State Bank).
Citizens Business Bank ($6.6B, CA) will acquire American Security Bank ($426mm,
CA) for $57mm in cash or about 1.33x tangible book value. Regulators closed St.
Francis Campus Employees Credit Union ($51mm, MN) and sold it to Central
Minnesota Credit Union ($759mm, MN). First Financial Holdings ($8.0B, SC) said
it will consolidate its five banking divisions under the single name of South
Sate Bank and change the holding company name to South State Corp. The banking
divisions are First Federal Bank, Community Bank & Trust, The Savannah
Bank, North Carolina Bank and Trust and South Carolina Bank and Trust. North
Shore Bank, a Co-operative Bank ($474mm, MA) will acquire Saugusbank, a
Co-operative Bank ($208mm, MA) for an undisclosed sum. Stockman Bank of Montana
($2.6B, MT) will acquire Basin State Bank ($157mm, MT) for an undisclosed sum. And
Iberiabank ($13.1B, LA) will acquire First Private Bank of Texas ($350mm, TX)
for $64mm, or about 1.64x tangible book. First Federal Bank of the Midwest
($2.0B, OH) will acquire First Community Bank ($102mm, OH) for $12.9mm in cash.
Rates continue to waffle
around, up a little, down a little. Yesterday we had a fair amount of news,
most of it weak and so improved bond prices initially. January's Housing Starts
declined 16% to 880K units, far below the consensus of 950K although the
December data was revised higher by 49K units. Building Permits fell 5.4% to
937K, below the consensus of 980K. Analysts continued to talk about the bad
weather in parts of the nation. We also learned that inflation at the producer
level continues to not be a problem, despite what many "experts"
thought would happen with the Fed's Quantitative Easing. Producer prices are up
a little over 1% versus a year ago.
Besides the bad housing stats,
perhaps of more importance were the Minutes from the January 29 Fed Meeting.
Generally, the Fed appears to be content with gradually scaling back purchases
and providing less stimulus in the future assuming the economy continues to
muddle along. So after a little rally in the morning, after the Minutes the
10-yr, and agency MBS prices, worsened between .125 and .250.
****Government surveyors came to Ole's farm in the fall and
asked if they could do some surveying. Ole agreed, and Lena even served them a
nice meal at noon time.
The next spring, the two surveyors stopped by and told Ole,
"Because you were so kind to us, we wanted to give you this bad news in
person instead of by letter."
Ole replied, "What's the bad news?"
The surveyors stated, "Well, after our work here, we
discovered your farm is not in Minnesota but is actually in Wisconsin!"
Ole looked at Lena and said, "That's the best news I have
heard in a long time. I just told Lena this morning that I don't think I can
take another winter in Minnesota."****
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