Let's start the first full week
of August with something totally un-mortgage related, but something that might
make you say "Wow!" Besides being celebrities, what do the following
four people have in common: Mick Jagger (70 years old), Julie Andrews (78), Whoopi
Goldberg (58), and Martin Sheen (73)? (Answer below, between actual useful
mortgage news.)
Are you an appraiser? Maybe you should be honored: there
are fewer and fewer of you every year, and your ranks are down to 80,500
nationwide. There are fewer now than at the start of the year, but the pace of decline is slowing.
Sometimes real estate agents representing the buyer and seller
in a transaction work for the same broker. Be careful about
dual agency!!!
Last week the commentary discussed Libor, and the possibility
that the Intercontinental Exchange (ICE) may charge a licensing fee for the use
of the index. It turns out that ICE, known for energy trading and its
control of the New York Stock Exchange, is engaged in negotiations to form a partnership
with Mortgage Electronic Registration Systems Inc., (MERS) which documents
the ownership and resale of about half of U.S. home loans. As the industry
knows, MERS is still under a consent order with the U.S. government that it's
operated under since 2011, the result of alleged failures to properly manage
its business. "MERS, a unit of closely held Merscorp Holdings Inc. based
in Reston, Virginia, began operating in 1997 in order to speed up real estate
paperwork -- especially changes in ownership and servicing rights for loans.
Speaking of ICE, I received this from JF on the West Coast:
"Bloomberg subscribers now have to pay an $11/month fee to ICE to get
real time LIBOR as of July 1. Otherwise, 28 hour delayed LIBOR data remains
'free.' 'Free' is if you don't count the $2,000/month cost of a Bloomberg
terminal. Also, I noticed recently that the WSJ suddenly stopped providing the
Libor Swap Curve both in the paper and online version. Maybe the Fed should
charge folks if they want to know what the FOMC target rate is..."
We're in a new environment when it comes to vendors, protecting
borrower information, and counterparty risk. On the vendor side of things, Secure
Settlements announced that vetted agents are now eligible for enhanced
mortgage settlement insurance covering the lender's exposures to borrower's
identity information theft. "Additional Coverage offered through
Certain Underwriters at Lloyds of London designed to address Lender Risk
regarding Data Privacy and Security at the Closing Table. The MSI Policy,
which launched in April 2014, was designed to protect retail mortgage lenders
that utilize SSI's ClosingGuard closing agent
vetting product against losses arising at the closing table from such perils as
fraud, theft and documentation error. Coverage extended to warehouse
banks and secondary market investors including GSEs, and certain consumer
losses at the closing table.
Also on the new product side - Vantage Retail Sites are the
latest addition to Vantage Integrated Production.
Turnkey and ready to launch, Vantage Retail Sites are
fully branded websites specifically designed to drive Internet sales while
increasing lender control over origination compliance. Vantage Retail Sites
allow lenders and individual loan originators to build their brand, and
effectively promote themselves and their products, while providing a great
consumer buying and support experience. Borrowers benefit from relevant, timely
news and information, can complete a short or long 1003 mortgage application,
and check on their application status online. Vantage Sites are
beautifully rendered on any device-desktop, laptop, tablet, or smartphone. And,
all content - once approved -- is archived and auditable from the corporate
office to individual MLO pages for consistency and compliance.
Regardless of the vendor, they typically deal with conforming
and nonconforming loans, agency or jumbo, fixed or adjustable. Focusing on
jumbo loans, apparently business is booming - further highlighting the
difference between the haves and the have-nots. Bloomberg reports that,
"Banks are handing out mortgages of as much as $10 million to the wealthy
in record numbers while first-time homebuyers struggle to get loans. Americans
from San Francisco to Boston are taking out a record number of mortgages in excess
of $1 million while stiff lending standards crimp total loan volume.
The number of loans from $1 million to $10 million to buy single-family homes
in the 100 largest metropolitan areas surged to more than 15,000 in the second
quarter, the highest ever, according to property data firm CoreLogic. (But) In
June, about 28 percent of total existing-home sales involved new buyers
compared with an average of 35 percent since October 2008, according to the
National Association of Realtors.
By the way, for folks who care about historical loan
performance, especially the loan performance from brokered loans, Fannie and Freddie have some nifty
reports.
Answer to the first paragraph: all four of them are
great-grandparents! In fact, according to People Magazine,
which is the gospel, Julie Andrews actually has 3 great grandkids!
Let's keep playing catch-up with some lender and agency specific news:
Donna Beinfeld, President of compliance firm Donnashi, contributes,
"Training on Desktop Underwriter Version 9.1 August update is available
and is considered 'Open Registration.' 'DU Version 9.1 August Update Live
Web Seminars: Join Fannie
Mae for a live web seminar to learn more about the Desktop Underwriter® (DU®)
Version 9.1 Update, scheduled for release the weekend of Aug. 16, 2014. The
webinar will review the updates being made to DU, including foreclosure message
updates, deed-in-lieu of foreclosure and preforeclosure sale message updates,
the addition of a charge-off policy message, 2014 Area Median Income limits, a
special feature code retirement, and updates to align with the Selling
Guide.'"
Plaza Home Mortgage Wholesale weekly updates include
the following: Elite Jumbo Program maximum LTV/CLTV for cash-out refinance
transactions has been increased by 5% points.
Clarifications regarding loan modifications that result in debt
forgiveness are not allowed. Clarification that mortgage ratings must be
provided through the month of the closing date of the new loan. Addition of the
requirement to provide evidence of payment of tax liability if an extension is
filed and Added the requirement for commercial lease agreements when the
property is reflected on Part 1, Schedule E, of the borrower's individual tax
returns. To review product updates visit: Elite Jumbo. Additionally,
Due to system issues, Plaza's Fee-in pricing functionality has been temporarily
removed from PULSE. If you wish to include your administrative fee-in price,
you must enter your request in the Comments section of the Price screen, or you
may contact the Plaza Lock Desk directly and they will apply the price
adjustment to your lock. For any questions, please contact your Plaza Account
Executive.
Weslend Wholesale's newest updates include changes
to Direct Jumbo and WesLend Direct ARMs. If subordinate financing is present on
the loan, the CLTV must be used to calculate the Loan Level Price Adjustment
(LLPA). The daily rate sheet and Broker Connection have been modified to
reflect that the Loan Level Price Adjustments are based on the LTV and/or CLTV
on the loan. Regarding Pre-locks on WesLend Direct Jumbo and WesLend Direct
ARM's, after careful consideration, Weslend has decided to allow forward locks
for a trial period with limitations. Additionally, the LP Super Conforming
pricing adjustments from the Standard Agency Jumbo Program have increased as
follows: LP Super Conforming 30 year adjustment has increased from 0.875% to
1.00%. LP Super Conforming 15 year adjustment has increased from 0.25% to
0.875%. Changes are effective immediately; contact your account executive for
details.
Even though GSE reform (basically Fannie Mae and Freddie Mac,
for the purposes of this article) is pretty much dead until at least 2015 in
Congress, that has not stopped those in the business from moving ahead with
changes. The FHFA, MBA, NAR, home builders, and banks are all pushing agendas
with regard to changes that could and should be made. The message to Congress:
lead, follow, or get out of the way. One area of reform that is receiving a lot
of publicity lately focuses on the secondary markets. Namely, why do we need
two different securities for conventional conforming loans? Historically, there
are differences between a loan underwritten to Fannie's guidelines (through DU)
and Freddie's (LP). Each has programs that the other does not have. And there
are certain guideline nuances exist, typically known to LOs and underwriters.
But these have been gradually disappearing as the FHFA has overseen both
agencies, and tend to issue bulletins where both Fannie & Freddie announce changes
to policies and procedures.
Yes, we're definitely heading toward one security for Fannie & Freddie
loans. The Federal Housing Finance Agency wants to see Fannie Mae
and Freddie Mac issue one set of home-loan bonds and FHFA likely will be
issuing a report on the matter next month, sources say. The issuance of
separate bonds by the two mortgage giants has divided trading, thereby has
reduced liquidity. FHFA Director Mel Watt expected the effort to "improve
liquidity in the housing finance markets," and "reduce costs to the
enterprises, particularly Freddie Mac, since Freddie's securities have
historically traded at a disadvantage." Hey, while we're at it, let's make
the process and structure so that we can throw in FHA, VA, USDA, and jumbos!
But the question will remain: what to do with the trillions of dollars of
existing Freddie and Fannie securities? Will those continue to trade using old
methodologies? Old remittance cycles? Old reps and warrants? These questions,
and a myriad of others, are being answered by the FHFA in expectations of a
proposal that will be great interest to the marketplace.
I head to Albuquerque this morning, thus the early commentary.
But for economic news this week... well, there just isn't much: Factory Orders
tomorrow, some trade figures on Wednesday, Jobless Claims Thursday, and then on
Friday we wrap up with the always rip-roaring Nonfarm Productivity, Unit Labor
Costs, and wholesale trade numbers. And when there isn't much news in the U.S.,
stock and bond prices can easily be influenced by overseas events. But for now,
things are pretty quiet. The yield on the 10-yr T-note Friday afternoon was
2.50% and in the early going today it is nearly unchanged at 2.49% and agency
MBS prices are a shade better.
Daily Market Analysis:
The stock market started better this morning following
the improvement in Europe’s stock markets as the uncertainty about a stock
market correction continues. Although the equity market have experienced recent
selling, at this point if there is going to be a setback it has only just begun
and it isn’t set in cement that it will happen; that said all of our technicals
are presently bearish for stocks. Why should we care? Because if there is real
sustained selling it will support interest rates as investors look to balance
portfolios into treasuries and help mortgages. Early this morning (8:30) the 10
yr traded +3/32 (9 bp) at 2.49% -1 bp; 30 yr MBS prices +3 bps frm Friday’s
close. .
This week, after last week’s full economic calendar, there isn’t
much on the plate. Markets continue to digest the July employment report last
Friday, non-farm job growth was less than expected in July but revisions in
June and May made up the difference. The unemployment rate increased to 6.2%
but markets are not completely convinced the unemployment rate is an accurate
reflection of the job market. The labor participation rate edged fractionally
higher, frm 62.8% to 62.9%, a slight negative for employment as more have
dropped out of the labor market. In that regard though, it is still uncertain
whether its baby boomers retiring or that people are so discouraged many are no
longer seeking a job. Average hourly earnings dipped to +0.1%, a penny; not a
big deal unless it is viewed frm an inflation perspective. In the employment
report it was evident that there was a minor increase in higher wage jobs. All
in all there was something for everyone in the data. .
Other releases last week provided more mixed reactions, The
Chicago purchasing mgrs. index fell hard to 52.6 frm 62.6 in June, the national
ISM manufacturing index increased to 57.1 frm 55.3. The Q2 employment cost ndex
increased 0.7% against 0.5% expected (a negative for the inflation outlook) but
the June PCE increased 1.6% yr/yr after increasing 2.0% in May (a positive for
inflation outlook). June construction spending declined 1.8% against estimates
of an increase of 0.5%. Q2 preliminary GDP report was a lot stronger than
thought, +4.0% against forecasts of +3.1% and Q1 was revised frm -2.9% to
-2.1%..
Those data points last week should continue the volatility in
the stock markets and feed through to the interest rate markets most of the this
week. There are three reports this week that will get attention; the ISM July
services sector index, Q2 productivity and Q2 unit labor costs; the rest of the
data is less interesting. (see calendar below).
At 9:30 when most lenders send out their price sheets; the DJIA
opened +20, NASDAQ +11, S&P +4; 10 yr note rate 2.49% -1 bp, 30 yr MBS
price +3 bps frm Friday’s closes.
Global issues; the potential banking crisis
in Portugal has been cooled with the Portugal central bank taking control of
Espirito Santo bank. Spain’s 10-year yield fell seven basis points to 2.49%
today and Italy’s decreased seven basis points to 2.69% Benchmark German bonds
were little changed, with the 10-year yield at 1.14% after dropping to 1.109%
on July 29, the lowest on record. Israel held its fire in parts of the Gaza
Strip to allow for humanitarian relief while continuing to strike elsewhere in
the Hamas-run territory, as rockets fired by militants slammed into southern
Israel. Ukrainian forces were seeing mixed results in their battle against
pro-Russian separatists in the east of the country on Monday, reporting they
had moved closer to cutting off the separatist stronghold of Donetsk even as a
number of Ukrainian troops surrendered overnight across the Russian border. In
Moscow, an ally of President Vladimir Putin said Russia's business elite won't
put pressure on the president to soften his line on Ukraine despite worsening
Western sanctions. (Bloomberg News).
There has been no mass exodus of US treasuries so far; a lot
of volatility as the chart above clearly shows. The US economy is slowly
improving, all but the housing sector, the argument remains the same as it has
been for weeks now; when will the Fed begin to increase interest rates. The Fed
last week at the FOMC meeting continued with its statement that when is data
dependent, but went on to refrain the comment that rates will continue to stay
low for a lot longer, Yellen reiterated she is concerned that the employment
sector still is underutilized, and worries as we do, that quality isn’t as
sound as quantity in job growth.
This Week’s Economic Calendar:.
Tuesday,.
10:00 am June factory orders (+0.6%).
-July ISM service sector ndex (56.5 frm 56.0 in June).
Wednesday,.
7:00 am weekly MBA mortgage applications (we expect apps will be
better).
8:30 am June trade balance (-$45.0B).
Thursday,.
8:30 am weekly jobless claims (+3K to 305K).
3:00 pm June consumer credit (+$18.3B, +$19.6B in May).
Friday,.
8:30 am Q2 productivity (+1.4%).
-Q2 unit labor costs (+1.6%).
10:00 am June wholesale inventories (+0.7%) .
We have mentioned recently that we are not quite as concerned
about the technical analysis recently as the bond market (10 yr
note) is well contained in a range frm 2.60% and 2.44%, the range began in
mid-May and hasn’t moved out of it. Our short term technicals move frm bullish
to bearish as the 10 rotates. MBSs are in the same state and will only move in a
trending direction when the 10 yr leads the way. Looking at the weekly chart
(longer term view) the 10 yr has yet to break below its 100 week average on its
rate, but is under its 20 and 40 week averages.
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