The
Census Bureau tells us that American families formed 423,000 new households
during the 12 months ending 3/31/14. 79% of the new households formed (333,000)
were renters and 21% of the new households formed (90,000) were homeowners.
So
we're seeing some household formation - a good thing for lenders and Realtors. Some of them are
buying houses, and some of those are obtaining loans to do so (although cash
purchases account for over 1/3 of home buying!). What is happening on the
licensed originator (non-bank) side of the equation? The recent NMLS report
sheds some interesting light on the subject - not all of it good for LOs.
During 2013, the number of state-licensed mortgage companies remained
essentially flat, but the number of mortgage loan originators grew by 8% and
the number of licenses held by MLO's grew by 28%. Every state saw net growth in
the number of MLOs operating in their state. Mortgage originations by
state-licensed MLOs declined significantly during the 2nd and 3rd quarter of
2013 due largely to a decline in refinance transactions. Federally registered
institutions and mortgage loan originators remained flat in 2013.
While
most state-licensed companies and individuals work in just one state, the
number of entities working in multiple states is growing at a faster rate. The
total number of state-licensed MLOs grew 8% over the past year, while the total
number of MLO licenses grew 28%. The average number of state licenses held by
an MLO in 2013 was 2.54 licenses per MLO, up from 1.8 licenses per MLO in 2011.
The total number of state-licensed companies declined, but the number of
company licenses held grew over the past year.
The
report has some fascinating state-level stats. Let's take a look at one state,
since I was just there yesterday: Washington. Washington saw a 30% increase in
licensed originators last year, up to nearly 12,000. There are 9,200 that are
"Federally Registered." (The population, by the way, is about 7
million.) Last year Washington saw about 46,000 purchase transactions, and the
average loan size was about $248,000. Ladies and gentlemen, I know that I am
simplifying things, but if there are 12,000 MLOs in Washington, and purchase
transactions remain constant at 46,000, that is about 4 transactions per LO for
the year. Don't take my word for it - here is the Industry Report so you
can take a look at your own state.
GSE
reform...I've got good news and bad news. The good news is that Johnson Crapo
passed through the Senate Banking Committee. The bad news is that it still has
to go through the Senate, the House, and the President - all before the
election in six months. Experts think that the odds of that happening are slim at
best. And after the election, well, the make-up of Congress changes.
Suddenly
interest rates are attracting some attention. Yes, companies are still focused
on lowering costs, improving efficiencies, and eking every basis point out of
every loan. But with the U.S. economy seeming to muddle along, rates seem more
inclined to drop than to increase. I was recently speaking with a portfolio
manager who explained to me that the Federal Reserve has an obligation to keep
interest rates low. Maybe, but "obligation" is a strong word. While
most believe that it is likely that the Fed will maintain the current target
range for the federal funds rate for a considerable time, even after the asset
purchase program ends, there is always uncertainty in duration the further out
you look. Keynes said it best, "we're all dead in the long
run." But that doesn't stop "yield chasers" or anyone
looking for reasonable ROI, which is a good place to be if you manage ETF
funds. According to a Bloomberg article earlier this month, investment flowing
into exchange-traded funds focused on real estate this year has already
eclipsed the 2013 total as concern over rising interest rates subsides and
property markets improve. Brian Louis and Alexis Leondis write, "In 2014,
31 percent of money going into U.S. sector-focused exchange-traded funds, or $3
billion through March 6, was for real estate, according to data compiled by
Bloomberg. That's 43 percent more than the net deposits the funds attracted in
all of 2013, and a greater share of total ETF contributions than any time since
at least 2012."
The
Mortgage Bankers Association of the Carolinas sent out a blurb on "What
Small Mortgage Lenders Can Learn from Credit Card Settlement." "The
Consumer Financial Protection Bureau has once again utilized its broadest and
most powerful weapon to levy large fines: the Unfair and Deceptive Acts and
Practices. This time, it was Bank of America that received a $727
million dollar fine for 'illegal credit card practices.' These practices
included alleged deceptive marketing by inaccurately describing the benefits of
certain add-on charges and the billing process for such charges. In particular,
it is alleged that telemarketers 'went off script' in describing the benefits
and charges of certain credit protection plans to coax consumers into receiving
them. Many smaller lenders still utilize telemarketer driven leads for all or
part of their business. Even more lenders rely upon loan officers during
initial conversations with consumers to accurately communicate the benefits and
risks of certain loan products as well as describing the lending process."
But
next we have a warning that keeps banks like Citi, BofA, Chase, and Wells who
have thousands of LOs up at night. "To the extent the CFPB can apply the
unfair and deceptive acts and practices label to 'off script' communications
with consumers, lenders need to give particular attention to being able to
prove what is said, by whom, and when. When it involves
telemarketing-whether it is done by the lenders or a lead company they
hire-lenders need to pay attention to the content of the script and the manner
in which the telemarketer ensures it is followed, as well as a telemarketers'
compliance history (after all, lenders could be held responsible for
independent telemarketers through third-party vendor rules). Addressing
communications directly from internal loan officers, lenders need to rely upon
training and should increasingly consider occasional monitoring to ensure
proper communications are maintained. Better yet, lenders should consider
integrating certain communications systems into the origination process that
ensure the lender is able to document the accuracy of communications with
borrowers. Such processes do not detract from the origination process, but
rather add to it by removing loan officers from the compliance process, and
allowing them to focus on sales and customer service. The last thing
lenders want to consider these days is spending more on compliance. However,
there are new options emerging that protect lenders and assist in origination
efforts. More than ever, lenders should consider new alternatives to avoid the
risks of 'off script' communications."
How
'bout these rates! Sure, MBS prices are the best they've been since
Thanksgiving, but the costs of doing business have increased, and let us not
forget the higher gfees and loan level price adjustments - so the advantage of
refinancing has dropped for existing borrowers. But hey, if rates keep
dropping... Yesterday a combination of weaker than expected Q1 growth in the
euro zone (which increased odds the ECB would announce further accommodation at
its June meeting) and mixed data and poor earnings news in the U.S. pushed
rates lower. But do lenders really want lower rates due to a slow U.S.
economy? Probably not. But for now we'll take the rally: yesterday the
10-yr price improved by .375 (closing at a yield of 2.50%) but agency MBS
prices barely budged due to supply and demand issues. Investors are keenly
aware of whether or not a rate decline will result in more refinancing, pushing
up the supply, which may or may not be absorbed by the tapering Fed and other
investors.
Today
we've seen the dynamic duo of April Housing Starts and Building Permits (they
showed some strength) and will see the preliminary May read on Consumer
Sentiment. Housing starts were above expectations, jumping 13.2% to 1.072
million due to a 39.6% surge in multifamily starts. Single family was only up
0.8%. It was the same story for building permits. Headline permits were up 8%
to 1.08 million also driven by multifamily permits which were up 19.5%. Single
family permits were up 0.3%. The softness in single family build is consistent
with the weak message out of the NAHB index and sluggish new home sales. The
gain in multifamily construction is consistent with the shift toward renting. In the early going we're sitting at about 2.51% and
agency MBS prices are slightly worse on the housing news.
AM Tracking
Quote
FNMA 4.0% 105.35 now -15 bps
09:31 -15
Open 105.50
Should you Lock or Float? Contact me for Lock Advice!
FNMA 4.0% 105.35 now -15 bps
09:31 -15
Open 105.50
Should you Lock or Float? Contact me for Lock Advice!
Executive
Rate Market Report: AM Update
April housing starts and building
permits were better than expected this morning at 8:30. Starts were expected to
be up 3.5% at 980K units; as reported starts jumped 13.2% to 1.027 mil units.
Building permits were thought to be up 3.0% to 1.020 mil but increased 8.7% to
1.080 mil units. April was the best reading since last November. The headlines
are good but when we look solely at single family starts, not so much; the increase
in housing starts was dominated by multifamily construction, such as
condominiums and apartment buildings, which increased almost 40% to a 423,000
annual rate from 303,000 in March. Work on single-family properties rose 0.8
percent to a 649,000 rate in April from 644,000 the prior month. Consumers are
still not stepping up to buy new homes or existing homes; the first time buyer
isn’t there and likely to be reticent to purchase with the economy struggling.
The initial reaction sent bond prices lower and rates a little higher; stock
indexes didn’t react at all to the data.
Tuesday thru yesterday interest rates
fell quickly as investors increasingly realize the US, EU, and China’s
economies are not growing much. Mix in the Ukraine/Russia situation and belief
that the ECB is about to begin a fresh round of buying EU debt similar to the
Fed’s monthly purchase of treasuries and MBSs. Then add in that central banks
have taken a huge amount of tradable notes and bonds out of the market with the
QEs that is leading to a supply shortage. The run-up in prices for MBSs and
treasuries has been excessive recently and likely will spend a few days
consolidating the increases before another round of buying. We expect interest
rates have the potential of further declines in rates, MAYBE the 10 down to
2.30%.
Until May25th when Ukraine holds its
presidential election there is little that will occur in the area. In the
meantime NATO says Putin, who annexed
Crimea in March, still has 40,000 troops on Ukraine’s border and hasn’t
fulfilled a promise last week to pull them back. The U.S. and the U.K. vowed
yesterday to punish Russia with industrywide sanctions if the presidential
election is undermined as the Kiev government’s forces moved to flush out
separatists in the east. UN monitors criticized “repeated acts of violence
against peaceful participants of rallies, mainly those in support of Ukraine’s
unity” as well as “targeted killings, torture and beatings, abductions,
intimidation and some cases of sexual harassment –- mostly carried out by
well-organized and well-armed anti-government groups in the east.” In eastern
Ukraine, government troops eliminated two rebel bases near the towns of
Slovyansk and Kramatorsk, acting President Oleksandr Turchynov said yesterday.
The DJIA opened -5, NASDAQ-1, S&P
unchanged; 10 yr 2.52% +2 bp, 30 yr MBS price -13 bps.
The last of this week’s data; at 9:55
the U. of Michigan mid-month consumer sentiment index. Forecasts were for a
slight increase from 84.1 to 84.5; the index declined to 81.8; weaker but not
likely to have any major impact on markets.
Taking a breather today, the bond and
mortgage markets need a rest. Investors and traders usually don’t want to chase
a market after rapid and large moves such as we have experienced in the bond
and mortgage markets over the last three days. We believe rates will continue
to move lower, however prior to another run lower in rates some rebound can be
expected. It is Friday, nothing is likely in Ukraine over the weekend; we are
not expecting much change in the bond and mortgage markets today.
PRICES @ 10:00 AM
10 yr note: -9/32 (28 bp) 2.52% +2 bp
5 yr note: -5/32 (15 bp) 1.56% +2 bp
2 Yr note: -1/32 (3 bp) 0.37% +1 bp
30 yr bond: -17/32 (53 bp) 3.35% +2 bp
Libor Rates: 1 mo 0.151%; 3 mo 0.225%; 6 mo
0.323%; 1 yr 0.534%
30 yr FNMA 4.0 June: @9:30 105.33 -13 bp (-21 bp frm 9:30
yesterday)
15 yr FNMA 3.0 June: @9:30 103.70 unch (-10 bp frm 9:30 yesterday)
30 yr GNMA 4.0 June: @9:30 106.41 -16 bp (-23 bp frm 9:30
yesterday)
Dollar/Yen: 101.54 -0.04 yen
Dollar/Euro: $1.3717 +$0.0007
Gold: $1291.20 -$2.40
Crude Oil: $101.78 +$0.28
DJIA: 16,454.20 +7.39
NASDAQ: 4061.63 -7.66
S&P 500: 1870.22 -0.63
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