Friday we'll have the
employment data, or unemployment data, depending on how you'd like to look at
it. Cynics in residential lending and other heavily regulated industries think
that we're approaching the point where half the people who work actually do
something and the other half monitor and regulate the first half. We aren't
quite there yet, but about 1 out of every 6 American workers is employed by the
government, either at the federal, state or local level. The Department of
Labor tells us that if you exclude the nearly 8 million teachers in our country
from the calculation (teachers are technically employees of their respective
local governments), 1 out of every 9 American workers is employed by the
government. Roughly 10% of American workers belong to a union versus about
40% of Eurozone workers. And to keep things in context for Friday's number,
the highest unemployment rate in the USA since 1947 was 10.8% in November and
December 1982. The lowest unemployment rate since 1947 was 2.5% in May and June
1953.
Ellie Mae's temporary failure
brings up numerous issues. Bill Cosgrove, the MBA's Chairman-elect
visiting Pewaukee for the Wisconsin Mortgage Bankers Association's annual
conference, wisely noted that, "This really shows the industry what can
happen when data is kept up 'in the cloud.'" Counterparty risk
evaluation is something that the CFPB, other regulators, and the agencies
view as critical for lenders. It is not enough to guarantee your own system and
data. Lenders will be increasingly required to monitor the dependability and
validity of every entity that they do business with and an event like this shows
how fragile any counterparty risk assessments are. Stay tuned for increasing
scrutiny by the CFPB - especially if consumers are impacted.
Its
tax time for individuals, but lenders pretty much do their books every month. I
received this note: "Rob, my accounting department keeps talking about 'gain
on sale margins'. What's the basic formula for this? Is it the after tax
gain divided by the total volume of closed loans? Or units closed?" I
asked Nicole Yung at the STRATMOR Group which puts together results of
companies and analyzes them during peer group sessions held jointly with the
MBA. She answered, "Gain on Sale or Gain on Sale Margin is the net of all
pricing components including servicing value, discount points and execution
gain. It will also take into account investor delivery fees and hedging
costs. It will not include pass-through fees, lender fees or Net Interest
Spread. It does not include any costs or compensation. We do often
speak of Margin which tends to refer to the before tax all-in net profit of an
operation. This will include all revenues including Net Gain on Sale less
LO Commissions and any other direct and indirect costs."
Targeting
real estate agents has been the goal of most loan officers for as long as I can
remember and maybe it's time to think outside the box. Loan officer Martin
Lopez with iServe Residential Lending has come up with an alternative strategy,
"marketing to Divorce Attorneys". Martin has built an online toolbox
called AgentBuz that connects mortgage loan officers and real estate
agents to attorneys. In America there are over 6,600 divorces daily and
Attorneys are in the most influential position to refer this business.
The Federal Trade Commission
announced a settlement with CLGX for its $661 million acquisition of
Dataquick. CLGX will be required to license national assessor and recorder
bulk data, among other items, to Renwood RealtyTrac. CLGX had announced the
acquisition in July 2013. CLGX will also be required to provide several
ancillary data sets it currently provides to customers to enable RealtyTrac to
become an effective competitor in the marketplace. According to the settlement,
CLGX would be required to undertake many of these actions within 10 days of the
acquisition close.
Thomson
Reuters reports that, "In news of interest to MBS participants, the NYFRB
announced that beginning April 9 it would increasingly conduct agency MBS
purchases over its proprietary trading platform, FedTrade. The Fed currently
conducts its Treasury securities transactions, repo and reverse repo
transactions, and securities lending operations over FedTrade. Dollar rolls, as
well as, any purchases not conducted through their platform would remain over
Tradeweb. The press release also said the Desk would publish a tentative
schedule each Friday around noon for agency MBS purchases to be conducted for
the weekly period beginning on the following Monday. For more, see here. Overall, the change
is not expected to have much of an impact on the mortgage market."
It
is becoming harder and harder to deny that on a nationwide scale, housing
prices are not doing better than they were a few years ago. In housing news,
CoreLogic reported that home prices, including distressed sales, rose by 12.2%
year-over-year in February, which represents 24 months of consecutive
year-over-year increases. From January to February, prices were up
0.8%. Corelogic forecasted that prices could rise by 10.5% year-over-year
in March 2014 and 0.5% from February to March. Prices are still nearly 17%
below their peak, however, which was set in April 2006. The big gains
from 2013 are starting to cool and come back down to more normal historical
levels - as they say, "no tree grows to the moon".
Speaking of doing better, yesterday
we learned that construction spending increased .1% in February after a 0.2%
drop in January. The February increase put levels at almost 9% above the level
of a year ago. The small increase in February came from a 1.2% advance in
nonresidential projects, led by a 3.5% rise in construction of hotels and
motels. Spending on government projects edged up 0.1%, helped by a big gain at
the federal level. Residential construction dropped 0.8 percent, the biggest
setback since July. We also learned that ISM's manufacturing purchasing
managers' index edged up to 53.7 in March from 53.2 in February.
Things have been relatively
quiet in terms of supply and demand for agency mortgage-backed securities.
Traders report that originator selling is relatively steady, while the same
entities are buying the production: the Fed, money managers, overseas accounts,
pension funds, etc. Steady as she goes! This morning we learned from the MBA
that applications last week were down 1.2% - apps are down 6 out of the last
8 weeks.
Today, aside from the press
remembering Charles Keating (representative of the S&L scandal, he died at
the age of 90), we'll see the March ADP Employment number. Always of
questionable predictive ability (+193k expected), it gives the employees of ADP
something to do, and the press something to yammer about. But we'll also see
Factory Orders for February which is projected higher at +1.2 percent from -0.7
previously. For numbers, we had a 2.76% close for the 10-yr U.S. T-note, and
in the very early going we're at 2.77% and MBS prices are worse a shade.
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