F&F stress testing & Johnson-Crapo update; Study on the Impact of Housing Reform

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All real estate is local. (Yes - that statement is original, and pithy.) For those of you about to give a presentation to your buyer, borrower, or local Realtor group, or just curious, here's a study from a few weeks ago about value trends. And don't forget that Freddie Mac has its fancy, patent pending, market indicator.

Speaking of two of my favorite agencies, in late summer 2008 the Treasury Department initially pledged $200 billion of financial help for F&F in anticipation of future mortgage defaults, a pledge later doubled to $400 billion. Did they use all of it? Heck no: the companies actually received $188 billion of taxpayer aid, less than the $203 billion of dividends paid by Fannie and Freddie to the government since the 2008 bailout. After conducting stress testing, the FHFA said FNMA and FHLMC might need a bailout of up to $190B in the event of a severe economic downturn. (I don't know why no one did a stress test on me in the event of an economic downtown, but I have told the dogs that the kibble ration may be cut back - they merely stared at me unwittingly.) A severe economic downturn would result in Fannie Mae and Freddie Mac requiring rescues ranging from $84 billion to $190 billion by the end of 2015, according to the worst-case, "stress-test" scenario under Federal Reserve stress-test assumptions, according to the Federal Housing Finance Agency. The FHFA used different economic models in its own stress tests, which showed that the mortgage giants wouldn't need additional taxpayer money.

I'm not saying its easy being a member of the U.S. Congress, however, having the ability to delay work by commissioning "impact studies" is quite the perk. Try this next time your spouse asks you when you're going to clean up the garage..."ah, ya, I'm just waiting on that impact study I ordered, and then I'll get right on it." As the Senate considers the Johnson-Crapo bill, policymakers are asking about the proposal's potential impact on mortgage markets. In particular, some have expressed concern that the bill may exacerbate currently tight credit conditions for certain underserved or highly leveraged populations. This brings us to Zillow; right or wrong, depending on how you feel about the firm (as I know there are a lot of differing opinions) they have access to data. The Zillow Economics Research piece "Assessing the Impact of Housing Finance Reform", uses data from the Zillow Mortgage Marketplace (ZMM), an online platform that connects thousands of mortgage borrowers and lenders each day, as well as HMDA's database and the U.S. Census Bureau's American Community Survey (ACS) to profile populations that are currently underserved or face high levels of debt.

Speaking of research, Garth Graham at STRATMOR recently put out a white paper about ways to measure borrower satisfaction, and the approach that they take with their MortgageSAT product.  It's a serious piece of work, and much less jokes than his normal writing has, and certainly worth a read if you are considering ways to measure borrower's satisfaction: CustomerRelationshipMeasurement

Let's continue catching up with some investor, lender, and agency updates to gain a sense of trends out there. As always, it is best to read the full bulletin from the issuer. So many lenders, so many guidelines...

First, a correction to a note yesterday regarding the Right Step Program. Dave B. writes, "I want to correct your general assessment of the Right Step Program from TD Bank (not TD Ameritrade); it is below market rates; currently available at less than 3.75% @ par, it does have a hard cap on the front ratio of 33% (41% on DTI), 660 FICO and it does require the consumer to contribute 3% into the transaction. Income caps as mentioned are waived if the property is in a LMICT area (low to moderate income census tract). We also will do a 90% 2-4 unit property with No M.I.. The Right Step Program is offered by TD Bank, TD Ameritrade is our 'brokerage arm' for investment products." There is no PMI for up to a 97% LTV and the credit standards are "fairly reasonable" as well:  33/41 ratios and a 660 credit score minimum.

Carrington Mortgage Services has announced the appointment of Industry Veteran Chad Ruggles as National Sales Director. Under Ruggles' direction, Carrington's retail sales operation will focus on substantially growing its geographic footprint, as well as providing a wide range of product offerings and faster turn times to effectively meet market demands - particularly with respect to serving the Nation's sizeable population of "underserved" borrowers (typically those in the sub-640 FICO score range).

As a reminder, the FHA has made policy change for prospective Home Equity Conversion Mortgages related to due and payable status published in Mortgagee letter 2014-7 amends the Home Equity Conversion Mortgage (HECM) program policy to provide for a deferral of the due and payable status at the death of the last surviving mortgagor for an eligible Non-Borrowing Spouse. The policy is prospective only and changes will be effective only for case numbers assigned on or after August 4, 2014. FHA hosted an overview briefing conference call for HECM-approved originators, servicers, counselors and other industry participants to review the operational information last week.

The Collingwood Group reports, "At a recent VA Lenders' Conference in Houston, VA announced that they will soon begin looking more closely at whether lenders are complying with the program's requirement for a Quality Control Plan.  All lenders who have been granted authority to process loans automatically (virtually all lenders) are required to maintain a plan and execute it in the course of making VA guaranteed loans.  Lenders were advised to become familiar with VA's quality control plan requirements and be prepared for VA to scrutinize this process in future Lender Monitoring Unit Audits. This initiative is consistent with VA auditing an increasing percentage of loans to refine its targeted sampling methodology."

Overall interest rates continue to be range-bound. Lots of people don't mind the lack of volatility, but LOs notice that mortgage rates have been improving - yesterday agency MBS prices improved over .250 in price. (Whether or not that was passed onto rate sheets remains to be seen.) Yet the 10-yr T-note was virtually unchanged. We're really seeing the supply & demand dynamics play out with plenty of demand for MBS, and supply dropping. Deutsche Bank MBS analysts noted that as a result of the weak production, the Fed may be able to exit QE without putting too much pressure on MBS spreads (prices relative to Treasury securities).

Fed Chair Yellen, in her written testimony today before the Joint Economic Committee, suggested the longer term outlook may not be as worrisome as has been feared despite the Fed's tapering. Although she didn't say anything surprising, she noted that recent indicators pointed to a rebound in the economy from a weak first quarter that was adversely impacted by weather. Yellen did not give any clarity on what the Fed means by a "considerable time" when referring to how long rates will remain near zero after QE purchases end, or about when reinvestment of paydowns would stop and when the Fed's portfolio would start to normalize.
Here we are on Thursday already. Besides a spate of government financial officials speaking, and a $16 billion 30-year bond auction, the only economic news is Jobless Claims, expected to drop slightly. For a gauge of rates, the 10-year T-note closed Wednesday at 2.59% and is sitting at 2.62%, and agency MBS are off slightly.

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