Are you ready for autumn & winter lending?

http://globalhomefinance.com 

A Harvard study tells us that 35% of American households (both homeowners and renters) spend at least 30% of their pre-tax income on housing costs. I remember back in college a friend of mine lived in a closet...ok, it wasn't actually a closet, but a room without windows is pretty close to one. I guess times have changed, and maybe the logic of student housing, according to Zillow's College Towns: Buy v Rent? In the question of "rent versus buy", it really comes down to the breakeven horizon; Zillow's breakeven horizon figure is the time it takes for the accumulating costs of renting a unit to exceed the costs of having purchased the residence from the beginning. The breakdown of university towns, and their corresponding numbers, incorporates all costs associated with buying and renting, including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, opportunity cost of buying a home, maintenance and renovation costs. It then factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates.

Not everyone is growing. A Bank Director survey of directors and senior bank executives of banks across the country finds 50% of banks with assets > $5B plan to reduce branches vs. 28% for banks $1B to $5B, 6% for banks $500 million to $1B and 9% for banks that have less than $500 million.

Everything being equal, anyone who thinks residential lending is going to skyrocket in the autumn and winter is foolish. Are they hoping for rates to plummet, or a new HARP? (There, I said it, and expect to receive a lot of flak for it.) For practically everyone, loans per branch and LO are generally lower than where they were 6 or 12 months ago. If not - congratulations, you are in the minority. If the U.S. economy continues to muddle along, and nothing too dramatic happens overseas, rates will stay where they are or possibly creep up. LOs, who had low volumes on tight margins when 30-year rates were at 3.50% last year, and still in the business, may have a tough time when rates are at 4.50%. Hopefully (and hope is not a strategy) we'll see some guarantee fee price help, or other loan-level price help, from the agencies. And although they don't directly impact 30-year mortgage rates, overnight Fed Funds tend to influence longer term rates - and psychology. The FOMC is currently projecting the Federal funds rate will be between 1.25% to 1.50% in 2015 and 2.75% to 3.0% in 2016. There are companies seeing stable margins and volumes, but those are mostly the ones that have added branches and staff. But even senior management at those companies has contingency plans for what happens if the industry has another winter like the last one.

Lending to minorities is at a 14 year low, probably for a variety of reasons. Certainly FHA lending has taken it on the chin. Buyback risk and fear of future class action lawsuits are candidates. Many minorities are all cash buyers, and certainly tighter credit standards have impacted things. Industry observers suggest that lenders should expect some sort of response from the Administration, and fair lending enforcement is probably going to be stepped up.

"Do bigger loan files mean better loans?" The MBA's Mortgage Banking magazine noted, "(a) 85% of all loan files contained 400-2,000 pages, (b) in 2010, only 3% of loan files had more than 800 pages, whereas 16% do today, (c) when looking at the number of loans with 500-900 pages, 52% of all conventional loans had them and 77% of VA loans had them." Mr. Joe Garrett, banking consultant and fervent A's fan, writes, "What's really eye-catching is that the 10 biggest loan files in the study contained more than 6,000 pages and the largest, for a jumbo self-employed borrower, had over 8,000 pages. Rules and regulations have led to fatter files, but the two obvious questions are these: (1) Is the borrower more protected now from bad lenders and bad loans, and (2) are these loans going to perform better?  Would anyone possibly answer yes to either question?"

Let's see what some vendors have been up to lately!

It has now gotten simpler to collect digital bank statements almost instantly.  AccountChek and Encompass announced they are partnering to provide Encompass users an automated way to collect and verify account statements and VOD's.  http://www.formfree.com/formfree-announces-integration-with-ellie-mae/.  Kevin Conlon, COO at Mason McDuffie Mortgage Corporation, stated "We are delighted to be using AccountChek, which provides a much needed technology solution to a previously outdated process. The AccountChek integration with Ellie Mae's Encompass will allow us to ensure bank account authenticity and increase originations by automating the collection, verification and analysis of borrower accounts."   Contact George Manolis at george@formfree.com.

Compass Analytics, LLC announced the release of its whole loan, MSR and agency best execution pricing and pipeline risk web services. "To date, pipeline risk, whole loan and MSR portfolio risk systems have worked off of batch processes of entire pipelines or portfolios.  With this new release, Compass's analytics solution, CompassPoint™, will be available on a transactional basis and be callable from most applications across the internet.  Compass clients and their third party vendors will now be able to integrate and access CompassPoint™s library of pricing and risk functions such as MSR value, whole loan value, structured cash flow value, agency best execution pricing, rate sheet pricing, investor eligibility and fair market and gain/loss values, from within their own applications on a loan-level, on-demand basis."

CoesterVMS has enhanced its Encompass integration to allow clients to use the cloud control system as a native application that can be built directly into its workflow and business rules. The interface is also open to CoesterVMS' web services to allow appraisal data to transfer between its system and Encompass. "It's a really solid interface and something that the industry has needed" stated David Marguilies, Executive Vice President, Director Global Sales at American Financial Resources/ELend. The next generation of integrations for LOS systems by service providers can be found at CoesterVMS.

Effective October 6, 2014, Arch Mortgage Insurance Company (Arch MI) is updating the rates for our Non-Refundable Single Premium Lender Paid Mortgage Insurance (LPMI) program, with the goal of enhancing our risk-based pricing. The changes include a new credit score tier for credit scores of 760+, and a further refined rate structure below 680. The new rates reflect lower pricing for high-quality loans, credit scores above 720, as well as some increases in the rates for credit scores below 660.

MGIC published new underwriting guideline effective October 1st. The new Underwriting Guide posted at www.mgic.com/newuwg, incorporates changes and updates for doing business with MGIC under its new Master Policy and has been reorganized into 3 sections for easier reference.

Altisource Portfolio Solutions S.A. ("Altisource" and NASDAQ: ASPS), a premier marketplace and transaction solutions provider for the real estate and mortgage industries, has launched Wholesale One, a new cooperative for the wholesale mortgage industry provide a platform for mortgage brokers, wholesale lenders and related vendors to provide quality loans to consumers nationwide.

National Mortgage Insurance Corporation (National MI), a subsidiary of NMI Holdings, Inc., announced that it has launched a new credit union mobile application (app) as well as a new website specifically for credit unions, cu.nationalmi.com. The mobile app enables users to run rate scenarios, view credit union-specific bulletins, and easily contact National MI personnel. National MI believes it is the first private mortgage insurer in the industry to create a credit union-specific app.

Comergence, a provider of third-party risk-management platforms for the mortgage industry, announces that it is now providing appraiser due diligence and screening services for eAMC, an appraisal management company based in Troy, Michigan.  Comergence offers a full suite of hands-on and automated services for screening and compliance monitoring.

But the big news came from New Home Sales which surged 18% in August to a 504,000 annualized pace, the strongest since May 2008. The one-month increase was the biggest since January 1992. And not helping those renters in the market, the median sales price of a new house climbed 8% from August 2013 to $275,600.

Today at 2:30AM HST we'll have August's Durable Goods (-17.9 expected) and Initial Claims (+300k), and later the government will auction off $29 billion of 7-year notes. In the early going the 10-yr T-note, which ended Wednesday at a yield of 2.57%, is sitting around 2.56% and agency MBS prices are little changed.

 

Executive Rate Market Report:

Headline durable goods orders declined 18.2% in August, a little weaker than -17% expected; ex transportation orders durables were up 0.7% as expect4ed. The overall decline due to aircraft orders being low after jumping 22.5% last month on strong aircraft demand. In the details orders for U.S. business equipment climbed more than forecast in August. A 0.6% advance in bookings for non-military capital goods excluding aircraft followed a 0.2 percent decrease in July that was smaller than previously estimated, data from the Commerce Department showed today in Washington.

Weekly jobless claims were expected to have increased 16K from the huge decline the previous week; as reported claims were up 12K to 293K against estimates of +20K; the 4 wk average at 298.5K frm 299.75K. Employment headlines continue to look good, firings are near lows of ten years ago; but wages are still not moving higher and many of the jobs are in the lower paying service sector. Yellen has made it clear she is worried about the quality of jobs being created.

At 9:30 the DJIA opened -33, NASDAQ -12, S&P -5. The 10 at 2.54%, 30 yr MBS price +19 bps frm yesterday’s close and +7 bp frm 9:30 yesterday.

At 1:00 Treasury will auction $29B of 7 yr notes to complete this week’s borrowing. Yesterday the 5 yr auction didn’t see the demand that has been the case over the last year; the 12 month average on the bid/cover at 2.73, yesterday at 2.56.

Interest rates still unable to crack key resistance levels but equally showing little increase. The 10 continues to fail at its key resistance at 2.53% but doesn’t see enough selling to push above 2.57%, yesterday’s closing level. MBSs of course ride the wave with treasuries. US stock indexes are looking a little shaky but like the 10 yr and all treasuries, still holding in a narrow range. In the Mid-East Obama made a passionate speech yesterday at the UN and his coalition is becoming increasingly more solid. Bombings in Syria and Iraq will slow the expansion of ISIS but if recent history can be relied on, the US and the coalition of the willing will eventually tire of it; Obama talks in terms of years. The situation is not having any noticeable impact on US, European, or Chinese markets.

The key driver that sent interest rates to the lows we had a month ago is no longer a factor; Ukraine/Russia safety moves to US treasuries is now settling into less military and more diplomacy that in the end Putin will achieve his initial goal. The US treasury market is going to continue to experience solid demand at times; our rates are 155 bps higher in rate than German bunds and higher than most good sovereign debt. Interest rates are not likely to increase much as we have noted previously, but equally we don’t expect rates will decline much either. The 10 yr note should stay within a 20 bp yield range through the rest of the year (2.66% to 2.45%).

The rest of the day will be directed by US stock indexes. The equity market rallied yesterday after two down sessions, this morning it is back to selling with the key indexes being hit hard. The 10 at 10:00 once again testing its resistance at 2.53%, MBS prices where they traded Tuesday after declining yesterday.

 

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