Recently
the commentary noted, "Maybe we should start at the grade school level and
teach kids about money. How to make a budget, manage debt, save for
retirement. Most kids only know how to use their ATM card and check their
balance online. I challenge you to ask a millennial if they balance their
checkbook (or know how).
Speaking
of making a difference, while November marks the beginning of the season of
giving, Academy Mortgage has a
unique platform focused on giving back to individuals, families, and
communities throughout the year. Academy's vision of inspiring hope, delivering
dreams, and building prosperity shines through in all aspects of the
independent mortgage lender's business. For example, unlike other typical sales
incentives, Academy rewards its highest-performing Loan Officers and Branch
Managers with opportunities to participate in Service Expeditions around the
world to help those whose needs are great and whose resources are limited.
The
U.S. top court will hear a Bank of America cases on second mortgages. Yesterday
the Supreme Court agreed to hear arguments on whether homeowners can cancel their
second mortgages in bankruptcy when their properties aren't even
worth the value of the first mortgage.
And
CoreLogic reported that home prices increased 5.6% nationwide in September
2014, compared to a year earlier. The non-distressed index rose 5.2% YOY,
which fell from 9.8% in February of this year. The annualized, seasonally
adjusted month over month home price appreciation increased 6.9%. The year to
date home price appreciation was 3.7%, which increased from 2.9% in June. BofA
Merrill Lynch predicts that the home price appreciation will end the year up
3.6%, a decline from 10.8% YOY in 2013.The only monthly seasonally adjusted
rate that fell was Phoenix, where prices decreased to 0.3% from 1.1% in August,
and Miami had the strongest change in month over month growth greatly
increasing from -5.3% in August to 13.3% in September.
Here's
something to note...The Actuarial Review of the FHA came out and shows that
the FHA is back on more solid financial footing. But some think that the
recovery is occurring at a slower than expected pace which lessens the
likelihood of a significant FHA premium reduction in 2015. If that is what
plays out (e.g., no change in FHA premiums in the near future) it is a positive
for private mortgage insurers and a small negative for mortgage originators and
builders that cater to FHA borrowers. The FHA's well-known fund (the Mutual
Mortgage Insurance Fund) is expected to remain below the
Congressionally-mandated 2.0% threshold until October 2016, so don't look
for any Republicans to support a decision to lower FHA premiums in 2015.
Unless, of course, building and lending really start to falter...
"NAR
is pleased that the 2014 Actuarial Review of the Federal Housing Administration
confirms that the Mutual Mortgage Insurance Fund is healthy and continues its
positive trajectory. The ongoing decline in delinquencies and stabilizing home
values indicate that FHA will stay on track to rebuild its capital reserve fund
and ultimately meet the 2 percent excess reserve amount required by Congress.
Now that the MMI Fund is on a path to recovery, NAR urges FHA to lower its
annual mortgage insurance premiums and eliminate the requirement that mortgage
insurance be held for the life of the loan. Achieving homeownership has
become more difficult with current FHA mortgage insurance premiums. NAR
estimates that in 2013, nearly 400,000 creditworthy borrowers were priced out
of the housing market because of high FHA insurance premiums. By lowering its
fees, FHA could provide greater access to homeownership for historically
underserved groups. To put it in perspective, over the past four years, the
percent share of first-time buyers using FHA-backed loans shrank from 56
percent to 39 percent...NAR is a strong supporter of the FHA and its vital role
in the mortgage marketplace. In light of this report, NAR believes that
Congress should not dramatically change the FHA or redefine its purpose. We
will continue our work with FHA to help make the dream of homeownership a
reality for millions more Americans."
The
MBA summed things up. "FHA released its Summary of the FY 2014
Actuarial Report. Here are a few important highlights: the Fund gained
nearly $6 billion in value over the last year and now stands at $4.8 billion,
the current capital ratio is .41 percent, and improvement in the Fund is a
result of better portfolio performance including delinquency rates dropping 14 percent
and recovery rates improving by 16 percent since last year. The entire report
along with a summary can be found here, and MBA's statement
can be found here."
Compass
Point LLC
opines, "We estimate that 10-12% of FHA production could shift to the PMIs
(private mortgage insurers) if the PMIs offer better financing than the FHA for
>729 FICO loans. This shift would help to offset the loss in PMI market
share that could occur if the FHA significantly lowers its MIPs.
As
noted above, the FHA news might just be good for MI companies. Recently Radian
published its monthly statistics for October with default notices
increasing to 2.1% from September and the ending delinquent inventory declining
to 1.3% from the previous month. The delinquent inventory was down 27.6% YoY, a
slight decline from a year earlier when it was at 32.0% in October 2013. Paid
claims decreased 0.2% MoM and net recessions and denials (R&Ds) were
reported at 175 versus 125 in September.
While
we're talking about MI companies, here's a smattering of recent mortgage
insurance news.
Arch
MI
announced the introduction of two new technology solutions. These new customer
solutions include the launch of Arch MI's new mobile application as well as
system integrations with the Optimal Blue pricing and automation platform.
Arch
Mortgage Insurance and Ellie Mae have announced their partnership through the
integration of Ellie Mae's Encompass® Mortgage Management Solution.
MGIC announced the State of
Florida is terminating the emergency assessment on most property and casualty
insurance premiums, including mortgage insurance premiums on MGIC-insured loans
secured by Florida properties.
Eventually
we'll see more ARM production, but not right now. The Federal Home Loan Bank of
San Francisco announced that the Cost of Funds Index (COFI) for
September 2014 is 0.663%, slightly down from last month's index. Twelve
institutions reported COFI data for September, where the index is calculated
based upon the average of interest expenses incurred by Federal Home Loan Bank
District savings institutions covering Arizona, California and Nevada. Since
the index is calculated each month for the previous month, the index's lagging
pace tends to benefits borrowers when rates rise, but not when they fall.
And
the Libor drama continues as firms and government agencies met to discuss alternatives to using it -
not because ICE is now charging large banks to use it, or because we don't know
whether or not to capitalize all the letters in the acronym, but because of its
recent sketchy history.
Eventually
everyone that is predicting higher rates will be right, but probably not in the
near future:
QE news is fully in the market, and the world's economies aren't doing well
enough to push rates much higher. Yesterday we learned that Industrial
Production was -0.1% in October, following a downwardly revised gain of 0.8% in
September, which had initially been reported as a 1% increase, and Capacity
Utilization, a measure of slack in the industrial sector, decreased to 78.9% in
October from September's revised reading of 79.2%.
Yes,
QE has ended, but that has not stopped the Fed from buying about $1 billion a
day of MBS using money from early payoffs in its portfolio. And thus the Fed is
continuing to provide a "cushion" on the demand side of the MBS price
equation. And on the supply side, well, if MBS sales are any indication of
locks and thus lender volumes, things are pretty steady.
Rate
Market Report:
A much
better open in the bond and mortgage markets this morning, even with October
PPI stronger than forecasts.
Oct PPI expected to be down 0.1% increased 0.2%; the core (ex food and energy)
expected up 0.1% jumped 0.4%. Yr/yr PPI +1.5%, the lowest since last Feb; yr/yr
core up 1.8% from +1.6% in Sept. On the surface wholesale prices are
increasing, at least in Oct. The increase due to the largest gain in services
since July 2013. The cost of services increased 0.5% in October, reflecting a
record gain in margins received at retailers and wholesalers. Prices for goods
dropped 0.4% last month, the most since April 2013, and were up 1.1% since
October 2013. Energy costs dropped 3% last month, the most since March 2013.
The average price of a gallon of regular unleaded gas was $2.89 on Nov. 16, its
lowest level since the end of 2010. Wholesale food costs climbed 1% as prices
of vegetables, eggs and meats increased.
Better
news from Germany this morning,
investor confidence increased for the first time in 11 months. In Japan, after
retreating into recession on increases in taxes, the prime minister today said
he would call for early elections to measure voters confidence and suspended a
sale tax increase. Both the yen and euro currencies rallied this morning.
Europe’s stock markets also trading better.
The 10 yr
note at 8:45 2.32% down 2 bps from yesterday’s close, 30 yr MBS price at 8:45 +14 bps from
yesterday’s close. Treasury yields were two basis points away from a seven-week
high relative to their Group of Seven peers, bolstering speculation the premium
will lure investors to America’s debt. The US 10 yielded 84 basis points more
than the average of their G-7 peers. The premium increased to 86 basis points
yesterday, the widest level since Sept. 30. Foreign ownership of U.S.
government debt rose to $6.07 trillion in August, about half of the $12.4
trillion of publicly traded securities. The 10 22 bps higher than UK 10 yr and
157 bps better than Germany’s 10 yr bund. The reason offered up is with the Fed
closer to increasing interest rates than other central banks, our rates are
higher. This isn’t a new situation, our rates have been higher than G-7
countries for two years. Not that you need another Fed official comment; like
broken records, Fed Governor Jerome Powell said yesterday he expects the U.S. central
bank to increase borrowing costs in 2015, echoing remarks from New York Fed
President William C. Dudley earlier this month.
At 9:30 the DJIA opened -5, NASDAQ +8,
S&P +1; 10 yr at 2.33% -1 bp and 30 yr MBS price +6bps.
At 10:00
the November NAHB housing market index
was thought to be at 55 from 54 in October; the index jumped to 58. NAHB
contributes the improvement to increased consumer confidence. The reaction was
not much, the stock indexes continued to improve from the 9:30 open.
17 days
and still counting;
the 10 yr and MBS markets have not moved. The key 10 has been in a very narrow
range since the end of October, trading between 2.38% and 2.30% with the
majority of trades between 2.36% and 2.32%. All technical we monitor are still
throwing off neutral readings. Early this morning the 10 fell to 2.30% briefly
(5 minutes) but once again didn’t attract enough momentum to crack the
rock-hard resistance. This kind of narrow trading usually leads to a big move
once the narrow range is broken. Most economists remain confident that the 10
and mortgage rates will increase by the end of the year; the reason of course
is that the Fed is going to increase rates sometime in 2015. Most of the
talking head Fed officials are saying that the FF rate will be increased by the
middle of 2015. We have to go with the flow now, however we have not given up
on a major stock market decline soon; maybe not this year, but it is coming.
PRICES @
10:10 AM
- 10 yr note: +4/32 (12 bp) 2.33% -1 bp
- 5 yr note: +2/32 (6 bp) 1.61% -1 bp
- 2 Yr note: unch 0.51% unch
- 30 yr bond: +10/32 (31 bp) 3.05% -1 bp
- Libor Rates: 1 mo 0.153%; 3 mo 0.232%; 6 mo 0.326%; 1 yr 0.563%
- 30 yr FNMA 3.5 Dec: @9:30 103.48 +6 bp (+6 bp from 9:30 yesterday)
- 15 yr FNMA 3.0: @9:30 No data
- 30 yr GNMA 3.5: @9:30 104.57 +7 bp (-6 bp from 9:30 yesterday)
- Dollar/Yen: 116.65 unch
- Dollar/Euro: $1.2508 +$0.0058
- Gold: $1194.00 +$10.50
- Crude Oil: $74.94 -$0.70
- DJIA: 17,687.88 +40.13
- NASDAQ: 4700.36 +29.36
- S&P 500: 2049.09 +7.77
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