The Nitty-Gritty on the HUD & FHA changes & How Lenders Handling them

http://globalhomefinance.com

One never knows what will cause mass hysteria. Maybe the storm hitting the Northeast? I doubt Ocwen's troubles will cause it, but the industry has watched its stock plummet and chairman resign, its battling with regulators in New York and California, it being prohibited from buying a block of servicing from Wells Fargo, adding a pastor to its board of directors, and now Reuters tells us it seems that large investors are lining up to sue it. Calgon, take me away!

FHA posted information regarding Borrowers' Notification and Full-Months Interest. As a reminder, last August a Federal Register final notice (Docket No. FR-5360-F-02) was published regarding the elimination of post-settlement interest for Federal Housing Administration (FHA) mortgages with an effective date of January 21, 2015. This rule revises FHA's regulations that currently allow an FHA-approved mortgagee to charge the mortgagor interest through the end of the month in which the mortgage is being paid. The final rule allows mortgagees to charge interest only through the date the mortgage is paid and prohibits the charging of interest beyond that date. Mortgagees may use the applicable revised Model Prepayment Disclosure Statement language in meeting their annual prepayment disclosure requirements.

There is a certain amount of confusion out there with FHA lenders, especially with those that service FHA loans, on the interest charges. One wrote, "Based on the FHA update received yesterday though it does indicate that FHA is giving lenders a way to still charge the interest on loans originated prior to January 21st. So who gets this additional interest charged when it is included in the payoffs generated? In my case the payoff was with Wells. They were adamant that the new rule only applied to loans originated after January 21st. If the interest is reimbursed to the borrower with the return of their escrow I suspect it is not quite as big of a deal than if the servicer is still sending the monies to FHA. I would just like to give my borrowers good insight on this and now that it is in place it seems that some are charging and some are not. On the payoff I received the MIP was also charged for the full month and I wonder if that should also be prorated. Maybe not but the payoff from Wells referenced the proration of the MIP. I haven't heard squat about that!"

 

According to the publications we received  FHA loans "closed after January 21, 2015" would no longer have interest charged through the end of the month. But even veteran LOs trying to decipher that wondered about what "closed" meant. Was the loan originated and closed after January 21, 2015 or was the loan originated prior to January 21, 2015 and paid off and closed after January 21, 2015? It is the former: "For FHA-insured loans which originally closed before 1/21/15 (as in origination closed), the amount of interest collected will depend on the servicer's policy and may include interest through the end of the month. Due to the variance between servicer's, all demands need to be carefully inspected by underwriting and funding to determine the interest amount that will need to be collected." In English that means if your seller's loan closed (originated) before 1/21/15 you would be wise to include a full month of interest in their net sheet. 

And then we have the MIP change. Hopefully the announcement by HUD, which includes "frequently asked questions", addresses that but also includes a warning. "Due to the expected high volume of case number assignments beginning Monday, January 26, 2015, lenders may experience slower than normal processing times.  FHA Connection (FHAC) peak times are between 11:00 AM and 3:00 PM (Eastern). As a reminder-if the new case number is replacing an old one; the old case cancellation must have been completed before the system will permit a new case number assignment. FHA will monitor processing times and, if necessary, provide updates through the FHAC Message Board, which lenders can access after FHAC log in. For Frequently Asked Questions (FAQs) regarding MIP reductions and case cancellations, go to the FHA Resource Center's online knowledge base and search by Keyword ML 15-01." 

Recently HUD released the January edition of the HUD Housing & FHA Monthly Review, which provides an overview of recent single-family and multifamily policy changes by the Agency. Topics of discussion include the MIP reduction, the expiration of the FHA's property flipping waiver, 2015 FHA loan limits, and guidance for HECM program counselors. If you currently do not receive the Monthly Review and would like to do so, please email FHA.Commissioner@hud.gov and request to be added to the distribution list. 

FHA reissued Mortgagee Letter 2015-01 which introduced the 50 basis point reduction for the annual MIP, and now includes additional information about rates for mortgages with amortization terms less than 15 years. The reissued letter clarifies that the MIP reductions do not apply to mortgages with terms less than 15 years.  All the other policies outlined in the initial letter remained unchanged.
FHA also released Mortgagee Letter 2015-2, which outlines new HECM requirements and supersedes Mortgagee Letter 2014-07. The letter defines "ineligible non-borrowing spouse," provides new model certification language mortgagees must use at origination and throughout servicing, includes language to update HECM model documents, contains clarifications on acceptable documentation for seasoning requirements, and allows a 30-day cure to reinstate a deferral period for an eligible non-borrowing spouse.In order to allow mortgagors to take advantage of the reduced MIP rates, Plaza Home Mortgage will continue to accept new FHA loan submissions; however, Plaza will not order case numbers for new FHA loan submissions until on or after 1/26/15. New loans will be underwritten prior to Case Number assignment and will be conditioned accordingly. Loans in process with Case Numbers assigned prior to 1/26/15 will need to have the Case Numbers cancelled and a new Case Number obtained to receive the new MIP rates. For FHA loans in process, Plaza will cancel existing Case Numbers and obtain a new FHA Case Number if the loan is to close on or after 1/26/15. Please contact your Plaza Regional Office for handling of these requests. FHA loans closing before 1/26/15 are not affected by this change and will continue to have MIP rates at existing levels. Note: HUD has indicated that appraisals obtained under a Case Number that was cancelled will be acceptable under the new Case Number once the new case number is obtained. Specific requirements related to the use of appraisals obtained under cancelled Case Numbers will be provided as more information becomes available.

U. S. Bank Home Mortgage Correspondent Division is committed to following HUD's direction regarding the reduction of FHA Annual Mortgage Insurance Premium. Some guidance points are as follows: There is no need to change the case numbers on existing appraisals. Lenders can hand write the new case number on the appraisal. FHA will allow appraisals to be ordered without case numbers as you will have to wait until January 26th to order the new case number. Regarding Lock Expirations, Improvements to Annual MIP may require additional time for loan processing and lock extensions. It is the Correspondents responsibility to acquire any lock extensions if your borrower chooses to take advantage of this opportunity. If USBHM is underwriting the loan file, please allow additional time for resubmission and re-approval of the new terms.

Flagstar is handling FHA case cancellations on a bulk basis on FHA SO and FHA SO AA loans only. FHA Direct Endorsed and FHA Authorized Agent Lenders may request case cancellations directly from FHA as described in the Mortgagee Letter. Effective Friday, January 16, 2015, Flagstar Bank announced the ability to select lender paid mortgage insurance (LPMI) on the Freddie Mac Super Conforming ARM products. Additionally, the FL Tax price adjustment on loans with LPMI in the state of Florida will be removed on new locks as of Friday, January 23, 2015.

 

Switching to the markets, is it Monday again already? We have quite a bit of news to digest - some of it even inside of this country. Although we have zip today, tomorrow is the volatile Durable Goods, the S&P/CaseShiller 20-City Index with its two-month lag, New Home Sales, and Consumer Confidence. Wednesday afternoon will be the FOMC rate decision (don't look for any change). Thursday is Initial Jobless Claims and Pending Home Sales. We wrap up Friday with the Employment Cost Index, Gross Domestic Product, the Chicago Purchasing Manager's Survey, and the University of Michigan Consumer Sentiment numbers.

 

For those quantitatively inclined, we closed the U.S. 10-yr at 1.82% and this morning we're at 1.80% with agency MBS prices a shade better.

Executive Rate Market Report:

Over the weekend the Greek election results were as expected; the Syriza party won by what is thought to be a wide margin. The importance, the vote was a rejection to the EU austerity policy and a vote for stimulus. The election victory is likely to embolden populist movements and a voter revolt against austerity in other Eurozone countries. Five years of austerity dropped on the EU after the financial crisis in 2008. The election results were already discounted in recent trading within the EU and globally; what now has not been discounted and it is another problem for the European Union. Some conjecture that Greece may leave the EU and other countries may also consider the serious austerity placed on countries in the euro.

The 10 yr note opened +1 bp and MBS prices started down 15 bps before settling down into the 9:30 stock market open. NY is bracing for a blizzard that may drop as much as 3 feet of snow and winds to 65 mph, the Mayor telling people to stay home today ad work at home. Trading may get thin as the day wears pending the progress of the storm.

Nothing on the calendar today. Crude oil a little higher in early trading.

At 9:30 the DJIA opened -38, NASDAQ -12, S&P -5; 10 yr note 1.81% +1 bp. 30 yr MBS price at 9:30 -6 bps.

This is a critical week for the bond market. The FOMC will begin its meeting tomorrow, the policy statement will come at the conclusion on Wednesday at 2:00 pm. Treasury will auction $90B of notes beginning tomorrow with a 2 yr, Wednesday a 5 yr and Thursday a 7 yr auction. Friday we get the advance look at Q4 GDP expected at +3.2%, down from +5.0% in Q3.

Based on the reaction to the Greek election in currency markets, it looks as if markets are not too concerned. The euro currency hit an 11 yr low on Friday, this morning trading a little higher. While European equities fluctuated, amid speculation fallout from the election of the anti-austerity Syriza party in Greece will be contained. U.S. stocks declined with gold.

The high level of volatility is not so far affirming our weak economic outlook for Europe, China, Japan and the US. The US stock market has and is continuing to attract high levels of investments in US equity and interest rate markets. Likely it will continue since there is not much alternative compared to other global markets. That however, is not going to save the coming decline in key stock indexes this year and lower interest rates.

The FOMC meeting is likely going to be a doozy with serious debates concerning when the Fed will begin increasing interest rates. At the Dec meeting there were three regional Fed Presidents that voted against the policy that was released. In the meantime more discouraging economic reports from around the globe may cause the Fed to hold of the lift off of rates presently expected mid-year. Dec US retail sales were quite weak, inflation is exceptionally low her and even worse in Europe and Asian economies. Will the Fed ignore that or send an encrypted message (Fedspeak) that the increase in rates may be pushed back?

This Week’s Calendar:

Tuesday,

• 8:30 am Dec durable goods orders (+0.7%, ex transportation +0.8%)
• 9:00 am Nov Case/Shiller 20 city home price index (+4.3% yr/yr, in Oct the index +4.5%)
• 10:00 am Jan consumer confidence index from the Conference Board (92.6 from 96 in Dec)
• Dec new home sales (+2.9% to 452K units)
• 1:00 pm $26B 2 yr note auction
  Wednesday,
• 7:00 am weekly MBA mortgage applications
• 1:00 pm $35B 5 yr note auction
• 2:00 pm FOMC policy statement (no press conference after the release)
  Thursday,
• 8:30 am weekly jobless claims( -7K to 300K)
• 10:00 am NAR pending home sales (+0.9%)
• 1:00 pm $$29B 7 yr note auction
  Friday,
• 8:30 am Q4 advance GDP (+3.2%, down from Q3 at +5.0%)
• Q4 employment cost index (+0.5%)
• 9:45 am Jan Chicago purchasing mgrs.. index (57.7 from 58.3 in Dec)
• 9:55 am U. of Michigan consumer sentiment index (98.2 unch from mid-month)

PRICES @ 10:10 AM

• 10 yr note: -5/32 (15 bp) 1.81% +1 bp
• 5 yr note: -4/32 (12 bp) 1.37% +7 bp
• 2 Yr note: -2/32 (6 bp) 0.52% +2 bp
• 30 yr bond: -8/32 (125 bp) 2.39% +1 bp
• Libor Rates: 1 mo 0.168%; 23 mo 0.256%; 6 mo 0.357%; 1 yr 0.622%
• 30 yr FNMA 3.0 Feb: @9:30 102.67 -6 bp (+7 bp from 9:30 Friday)
• 15 yr FNMA 3.0 Feb: @9:30 104.70 -3 bp (+7 bp from 9:30 Friday)
• 30 yr GNMA 3.0 Feb: @9:30 103.23 +8 bp (+14 bp from 9:30 Friday)
• Dollar/Yen: 118.24 +0.47 yen
• Dollar/Euro: $1.1271 +$0.0067
• Gold: $1283.60 -$9.00
• Crude Oil: $45.48 -$0.11
• DJIA: 17,640.75 -31.85
• NASDAQ: 4753.23 -4.65
• S&P 500: 2048.93 -14.22

http://globalhomefinance.blogspot.com

MBA Calls for Folks to Write to CFPB re: Rate Checker;Executive Market Report

http://globalhomefinance.com

A new JPMorgan Chase report indicates that summer jobs for young adults have significantly declined. Less than half of young people (46%) who applied for summer employment were enrolled in 2014 and it's projected that tens of thousands of low-income youths looking for employment in the major 14 U.S. cities surveyed will come up short in the approaching summer months. In JP Morgan Chase's "Building Skills through Summer Jobs: Lessons from the Field" report, there has been a 40% decline in summer youth employment over the past year and only 26% of this age group held a paying job in 2011. This employment deficiency particularly impacts economically disadvantaged youth. In the summer of 2013, low-income teens (family income less than $20,000), were 20% less likely to be employed than high-income teens (family income greater than $60,000). As job opportunities for youth wane, it's imperative that they develop the necessary skills to be competitive in the job market.

Speaking of software, "While Mr. Obama and our elected representatives play political kickboxing over the 50 bp drop in the FHA insurance premium, the folks at LoanScoreCard want you know that they can save you up to 70% on your FHA AUS costs without 'an act of Congress,' so to speak - nice to be able to save that kind of percentage on anything in our business these days. And when the kickboxing match is over, and the broken ribs are counted in Obama's favor, we could see FHA volume tic up by 20%. LoanScoreCard says that their FHA AUS is a better, less expensive way to get FHA TOTAL Scorecard output than using DU or LP. In fact, Elva Johnson, Director of Production at Ontario-based, retail-wholesale lender First Mortgage Corporation signed up with LoanScoreCard, and is seeing annualized savings of 'around $90,000, in just their retail channel so far.'  She says it is designed specifically for FHA TOTAL Scorecard findings "the way they were meant to be," rather than through an agency AUS engine actually designed for agency use. Elva says it is much more accurate and useful, and saves a significant amount of money on every loan.  First Mortgage Corporation is now in the process of rolling out the use of LoanScoreCard with the broker channel to increase the savings and benefit. LoanScoreCard has built this cool model that you can tinker with, and download, to let you plug your own numbers in, to see how much value proposition LoanScoreCard can deliver for you on your FHA AUS.  Nice.  You get to sell yourself on the idea; no pressure, just bottom line numbers."

 

The MBA is asking its members to contact their Senators and Representative to ask them to contact the CFPB and ask them to remove the "rate checker" tool from its website AND meet with industry and other stakeholder representatives at the earliest date to ensure that this project benefits the consumers we all seek to serve. "The CFPB should take this misleading tool down and instead focus on providing a resource that encourages borrowers to shop more than one lender and makes certain they understand the base rate and all other costs and terms. Please click HERE below to go to the MAA homepage and click on the "Take Action" button to get started. Please contact MBA's Associate Director of Political Affairs, Annie Gawkowski, at 202-557-2816 if you need assistance."

Recently the Independent Community Bankers of America called on the FHFA to withdraw its proposal to restrict access to Federal Home Loan Banks. The ICBA wrote that "the agency's plan to require FHLB members to hold between one percent and 10 percent of their assets in home mortgage loans at all times contradicts Congress and will restrict access to mortgage credit." Community bankers view access to FHLB's as vital to the overall health of their banking community, and proposed "restrictions" would deter their serviceability in the surrounding communities. ICBA Senior Vice President of Mortgage Finance Policy Ron Haynie wrote. "Without ready access to the low-cost advances provided by the FHLBs to community banks, many of those banks would be forced to severely curtail home mortgage lending in the communities they serve." The exact sticking point with community lenders is the FHFA's proposal to implement an ongoing asset test to retain FHLB membership, which would force community banks to either hold more mortgage-backed securities in portfolio,  or have some have suggested, possibly force banks to pass up opportunities to make other types of consumer, small-business or agriculture loans. How is the Federal Home Loan Bank system faring? Well, total outstanding debt climbed to $847.2B in 2014, from $766.8B in 2013, which constitutes the highest year-end total since 2009 when members began running off FHLB borrowing tapped during financial crisis.

 The move in rates (and yes, mortgages are lagging considerably, but still...) has really given a shot in the arm to applications and locks, and residential lenders across the nation are licking their chops over February and March volumes. (Let's hope margins hold up!) In fact this morning the MBA gave us last week's application numbers echoing what everyone was thinking. Apps hit a 17-month high for a second straight week, up 14% with refis jumping 22% although purchases dropped 2.5%.

 

For more market news, the "benchmark" 10-year T-note closed Tuesday at 1.81% and is within 2.5 basis points of its lowest close since May 2013. And we may just hit it this week, given all the problems overseas. In this country we did have the Housing Starts and Building Permits duo: Starts were +4.4%, hitting its highest level in over six years, but Permits were -1.9% (single family +4.5% but multi-family was -11.9%). In the early going the 10-yr is at 1.78% and agency MBS prices are roughly unchanged.

Executive Rate Market Report:

Last night the President did his State of the Union message; you can read all about it in other commentaries and in the print media but as far as markets are concerned there was nothing of importance for the immediate consumption. Treasuries and MBSs opened abut unchanged this morning, early trade in stock indexes were slightly lower from yesterday’s generally unchanged levels.

At 8:30 the lone data point today; Dec housing starts and permits. Starts were expected up 1.25%, as reported starts increased 4.5% to 1.089 mil units. Nov starts were revised higher, from 1.028 mil to 1.043 mil making the increase in Dec even better. Dec building permits were thought to be up 2.4%, permits declined 1.9% to 1.060. As with starts Nov permits were revised better, from 1.035 mil to 1.052 mil. Dec. strength was in the single-family component. Housing starts rebounded 4.4% after declining 4.5% in November. Expectations were for a 1.041 million pace for November. The 1.089 million unit pace was up 5.3% on a year-ago basis. Single-family permits rose 4.5% while multifamily permits fell 11.8%.

MBA said mortgage applications increased again; applications increased 14.2% from one week earlier. The Refinance Index increased 22% from the previous week. The seasonally adjusted Purchase Index decreased 3% from one week earlier. Conventional refinance applications increased 21% relative to the previous week, while government refinances increased 29%. The increase in government refinances was driven by a 57% surge in applications for FHA loans, which also boosted the FHA share of refinance applications to 5.2% from 4.1% the prior week. The refinance share of mortgage activity increased to 74% of total applications, the highest level since May 2013, from 71% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.80%, the lowest level since May 2013, from 3.89%, with points increasing to 0.29 from 0.23 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 3.86%, the lowest level since May 2013, from 3.88%, with points remaining unchanged at 0.23 (including the origination fee) for 80% LTV loans.

Tomorrow will be a watershed day for the European Central Bank, as it decides whether to launch large-scale government bond purchases, known as quantitative easing. Will the ECB sets an explicit target amount for QE, or leaves it vague? So far since the financial collapse in 2008 the ECB has disappointed each time there was a stimulus of any kind presented to markets. With each attempt to fight the debt problems using stringent austerity policies it wasn’t enough and southern Europe’s economies continued to falter. In the last three years global markets have been disappointed on every ECB decision. The WSJ just said the discussion going on is for $700B of purchases debt over the next year at $58B a month.

Greek elections three days after the ECB meets that could determine the country’s future within the Eurozone. The ECB probably wouldn’t want to buy Greek debt under these uncertainties. The bank could get around this by setting a minimum, investment-grade threshold that would leave Greece and Cyprus out for now. If the current Greek ruling party loses there is a fear that Greece may leave the EU. Greece can’t handle the austerity put on it by the ECB, its debt is choking the country; non-performing loans (90 days), $89.4B The economy has shrunk 25% since its peak in mid-2008.

The DJIA opened -96, NASDAQ -16, S&P -7. The 10 at 9:30 -1 bp to 1.79%; 30 yr MBS price -3 bp.

The session is starting with high volatility, no driving news today so far. The technical picture still looks good but a corrective move back to 1.90% for the 10 yr (1.78% currently) cannot be ruled out. Not happening today but tomorrow and again next Monday on the Greek elections may pose high hurdles to overcome. The 10 and MBSs are both overbought in the near term. We have support on the 10 yr at 1.90% and 102.00 for Feb FNMA coupon -60 bp from the present price.

PRICES @ 10:10 AM

• 10 yr note: +4/32 (12 bp) 1.78% -1 bp
• 5 yr note: +1/32 (3 bp) 1.1,28% unch
• 2 Yr note: unch 0.50% unch.
• 30 yr bond: +17/32 (53 bp) 2.36% -2 bp
• Libor Rates: 1 mo 0.168%; 3 mo 0.256%; 6 mo 0.355%; 1 yr 0.611%
• 30 yr FNMA 3.0 Feb: @9:30 102.61 -3 bp (-8 bp from 9:30 yesterday)
• 15 yr FNMA 3.0 Feb: @9:30 104.62 +3 bp (-7 bp from 9:30 yesterday)
• 30 yr GNMA 3.0 Feb: @9:30 102.90 -5 bp (-33 bp from 9:30 yesterday)
• Dollar/Yen: 117.48 -1.34 yen
• Dollar/Euro: $1.1602 +$0.0052
• Gold: $1301.70 +$7.50
• Crude Oil: $47.54 +$1.11
• DJIA: 17,456.73 -58.50
• NASDAQ: 4652.77 -2.08
• S&P 500: 2022.08 -0.47

http://globalhomefinance.blogspot.com

ALTA's opinion of "Know Before You Owe"; Piece on CFPB's Enforcement Actions

http://globalhomefinance.com

 

Pretty much everyone knows that today is considered a legal holiday and cannot be included in the 3-day rescission period. The bond markets are closed, but plenty of lenders are open with their workers commuting in. If you think that the oil price decline is all rainbows and unicorns, think again. Yes, it is cool to spend less than $50 to fill up a gas tank. But its impact will be felt in many states such as Alaska, Texas, North Dakota, and Alabama. And around the world things will change - just last week this caught my eye: "Oil industry supplier Schlumberger to axe 9,000 jobs" - it seems the company is having a workforce reduction of 7% following big spending cuts by energy customers.

But wait! "ALTA Says New CFPB Mortgage Forms Disclose Inaccurate Fees"! "The American Land Title Association (ALTA), the national trade association of the land title insurance industry, released the following statement from Chief Executive Officer Michelle Korsmo in response to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray's speech at the Brookings Institution:

 

"'ALTA and its members support Director Cordray's efforts to help consumers gain greater control and understanding of their real estate transaction, however, we remain concerned with the Bureau's new Closing Disclosure, which goes into effect Aug. 1, 2015, and replaces the current HUD-1 Settlement Statement. The Closing Disclosure misleads consumers about the actual price of their title insurance policies,' said Michelle Korsmo, ALTA's chief executive officer. 'We urge the CFPB to take swift action to ensure consumers receive the most accurate information about their mortgage costs, including title insurance premiums and settlement services.'

 

"'Unfortunately, the current Know Before You Owe forms will create confusion at the closing table for many consumers. In nearly half of the country, title companies are required by state law to charge title insurance premiums and discounts in a manner different than the Bureau would have them disclose those fees to the consumer. The Bureau must take steps to disclose accurate costs of title insurance premiums and settlement services to meet their goal of educating consumers of the true costs of owning a home.'

 

"Title and settlement agents will have to provide additional disclosure forms to consumers at closing to show the actual title insurance premiums charged and to prove compliance with state law governing industry-filed rates. We support a cleaner real estate transaction but not at the expense of consumers understanding of their actual mortgage costs.'

 

"'We agree with Director Cordray that an educated consumer is a more confident and empowered consumer. Our economy can speed up its recovery if we provide more stability, growth and affordability in the mortgage market. We will continue to work with the CFPB and our industry partners toward commonsense solutions that decrease consumer uncertainty and bring demand back into housing market.'"

 

Vin Biscoglio with Village Mortgage writes, " regarding the CFPB and the Rate Checker tool,  One would wonder, if the CFPB had spent money to develop a tool called 'Cost to Rehab Our New Headquarters' Building' prior to them spending $114 - $145 million to renovate their downtown HQ, how much they would have been able to save? This agency continues to show their cards as to what their agenda truly is.  By selecting only chosen companies and not disclosing costs and APR's, a suspecting taxpayer should wonder where the protection is from the agency started to do just that.

 

Yes, there is a lot going on and the Collingwood Group has a new survey to help monitor things regarding the state of the Federal Housing Administration. With news breaking last week that President Obama has directed FHA to cut mortgage insurance premiums, FHA loans are poised to become more prominent in the housing market. What are your most pressing concerns for FHA moving forward? Here is the link.

Keeping on with what's going on, we have conferences coming up:

Join Texas Mortgage Bankers Association (TMBA) for the Southern Secondary Market Conference scheduled on February 2nd-3^rd. This 5-session event will cover the following topics: New Product Strategies, Perspectives on the Market for Mortgage Servicing Rights, GSE and MI Update, The New Normal of Secondary Marketing, and Demystifying Affordable Housing Finance.  Click the link for registration.

Attend MBA's National Advocacy Conference on April 14 & 15 to find out what the industry issues are, learn how they affect your business, and get tips and talking points for discussions with lawmakers. Then join your colleagues on Capitol Hill for a day of democracy in action. Click the link for more information.

Turning to the markets... there are none! Many lenders are closed for the holiday. So take any rate sheet pricing with a grain of salt since most lenders will take Friday's closing prices, incorporate what happened in Europe (like Moody's downgrading Russian credit to near-junk bond ratings), put in a little cushion, and send it out.

http://globalhomefinance.blogspot.com

 

Student Debt & Millennial's Impact on Housing

http://globalhomefinance.com

Poor Baby Boomers. The industry is so fixated on waiting for the "trophy generation" Millennials to figure out what they want for housing (see updates a few paragraphs down) that no one seems too concerned about older folks. But the National Reverse Mortgage Lenders Association/ Risk Span Reverse Mortgage Market Index (RMMI) grew for the tenth straight quarter. The RMMI, which evaluates trends in home values, home equity and mortgaged debt of homeowners, aged 62 or older every quarter, has reached its highest level since Q3 of 2007 at 183.87, a 2.5% increase from Q2 of 2013. The index indicates that Americans 62 years old and older now have more equity in their homes since 2007 and senior home values have grown by more than $97 billion in Q3, whereas collective home equity continues to increase, reaching a total of $3.84 trillion.

They aren't making any more Millennials either. Young adults today, often called the millennial generation, are more likely to be foreign born and speak a language other than English at home, compared with young adults in 1980...and take pictures of themselves and broadcast them over the internet. The U.S. Census Bureau pegs the Millennial group as age 18-34, thus born between 1981 and 1997. That definition is good enough for me.

Maybe some of them will go to college for free. Orange County is not exactly the hot bed of liberalism and progressive thought, and this article on free junior college proves it. But it does raise some issues about the cost of a college degree obviously impacting future home buyers.

Because overall, student loan debt lowers the likelihood of homeownership by age 30 or so for a group of individuals who attended college during the 1990s. If you don't believe me, ask the Federal Reserve Bank of Boston which published the most recent comprehensive study on the topic.

Remember, however, that our government earns income from all those ex-college students making their debt payments. The last figure I saw came from USA Today in late November 2013, and it noted that our government ("we're here to help") made a $41.3 billion profit for the 2013 fiscal year. There are companies out there, however, that are actively refinancing student debt - such as San Francisco's Social Finance.

Yes, a frequent news item is the level of student loan debt outstanding. The claim in the press is that student loans that young adults are saddled with are preventing them from purchasing homes. What is the current policy of how student loans are factored into a borrower's ratios? Here is exactly what FNMA has to say: "Fannie Mae requires that all deferred installment debt, including student loans not yet in repayment, be included in the calculation of the borrower's debt-to-income ratio. In determining the payment for deferred student loans, Fannie Mae currently requires that the lender obtain a copy of the borrower's payment letter or forbearance agreement or calculate the monthly payment at 2% of the balance of the student loan. Research has shown that actual monthly payments are typically lower than 2%. In addition, many student loan repayment structures now use an income-based approach in calculating changes in the payment due over time. As a result, Fannie Mae is modifying the monthly payment calculation from 2% to 1% of the outstanding balance. In addition, for all student loans, regardless of their payment status, the lender must use the greater of the 1% calculation or the actual documented payment. An exception will be allowed to use the actual documented payment if it will fully amortize the loan over its term with no payment adjustments." Therefore even if the payment is deferred we still have to factor in either the actual future payment or use the 1% calculation.

CNBC reports in 2014 renters paid 4.9% more than they did in 2013. Analysts say increases like this will eventually push Millennials into home ownership. Here's a great short video from The RE Source and Dave Savage of Mortgage Coach on working and winning with Millennials in Real-Estate and Lending. The guys talk about what matters most, and how to best communicate with this younger generation that currently makes up 36% of the workforce.

Other countries are dealing with this as well. And they have a few creative things going on overseas with regard to students and home buying. For example, this from the UK.

Last year I attended a school graduation where one of the graduates showed up to the ceremony wearing prison stripes, holding a ball and chain strapped to his leg, and a sign that read, "Class of 2014: Part of the Debt Chain Gang." Some may think it's well within his rights to use the event to create awareness....I however think a kindergarten school graduation is no place for political discourse. But the facts are the facts: young adults are being saddled with harder economic realities than generations past. Some may even attempt to quantify their misery...and they have. It's called the Youth Misery Index; the index adds together youth unemployment, average graduating student debt (in thousands), and national debt per capita (in thousands). Youth unemployment is at 18.1%, one of the highest levels since World War II. Average graduating student debt has reached $30,000. National debt per capita is $58,400....add it up and the Youth Misery Index for 2014 comes out to 106.5. In 2013 the index was calculated at 98.6; in 2012 it was 95.1; in 2011 it was 90.6; at the start of the financial crisis the index was 69.3....when the YMI was first calculated back in 1993, the American youth's misery was 53.1. Fun with numbers.

Wells Fargo Securities, LLC Economics Group recently released an article titled, "Making Sense of Household Formations", predicting that household formations should strengthen along with the economy in the coming years. Household formation drastically fell during the recession and has remained low over the past few years. Between 2008 and 2010, only 500,000 new households were formed in the United States, compared to the typical rate of 1.3 million per year. The downfall of household formations can be attributed to an increase in loan debt, growth in college and trade school enrollment, lack of job opportunities and weak income growth. These factors have led Millennials to move back home with their parents for a prolonged period of time. Data suggests that of those aged 25-34 years old, 13.9% live with an older family member, an increase from 10.8% in 2005, which means more than 1.5 million young adults are living at home. The sluggish rate of household formations may be the cause of the slow housing recovery. Fortunately, growth in household formations should be seen this year, due to an improving job market. Non-farm employment growth has increased and the unemployment rate has dropped. Wells Fargo Economic Group predicts that household formations should rise to 1.5 million in 2015. To learn more about Wells Fargo predictions, click here.

Turning our collective gaze to the markets, the smartest guys in the room believe that the Federal Open Market Committee (FOMC) will vote to begin increasing interest rates sometimes this year. The FOMC is made up of twelve voting members, including seven members of the Board of Governors, the president of the Federal Reserve Bank of New York and four additional Reserve Bank Presidents who rotate annually. There are currently two vacant seats, so the voting power of the FOMC is predominantly in the hands of ten people. At the FOMC's December meeting, there were mixed reviews of when interest rates should increase. Some members recommended that interest rates should increase early this year as the economy should reach full employment by the end of 2015 or 2016, whereas others believed rates should increase mid 2015-to later in the year as inflation indicates indifferent demand.

That is all well and good, but there is a lot going on in the day-to-day security markets. Investors are selling their higher coupon securities and buying lower coupon securities, resulting in some wild price movements out there. And overall MBS prices are lagging Treasury securities - who wants to pay 106 for something that is going to pay off next week at 100 (par) resulting in a 6 point loss? With 10y rate 1.76%, current coupon basis 60bps, and primary secondary spread 130bps primary residential mortgages rates are being set ~3.625-3.75%.

Yes, mortgage rates are mostly influenced by supply and demand. Not only are lenders producing lots of mortgages, but (again) the New York Federal Reserve Bank announced readiness sale for next Tuesday with four odd lot GNMA pools totaling a max of $23.7 million. Priming the pumps! And there are certainly thousands of analysts at investors and Wall Street firms trying to second guess each other on prepayments, market direction, coupon spreads, how the price of oil will change things, and so on. Stay tuned!

Rate Market Report:

Prior to 8:30 the 10 yr yield was at 1.71%, slightly lower than yesterday’s 1.72% close. MBS prices early on were down 20 bps from yesterday’s close. CPI hit at 8:30; the overall price index was down 0.4% right on most forecasts, when food and energy are eliminated CPI was unchanged from Nov. Yr/yr overall consumer price index +0.8%, yr/yr core +1.6%. The decline was the biggest since Dec 2008, most due to collapsing oil prices, the core is a more reliable picture. No sniff of inflation in prices, similar to yesterday’s producer price index. The initial reaction the 8:30 report pushed the 10 yr up to 1.74% and MBS prices down 23 bps. The Fed has poo-pooed the decline in crude; Yellen’s comments that the drop in fuel won’t reverberate through the economy. Most all data released recently, here and global, continue to show that inflation fears are wasted. Deflation remains a major fear in Europe and in the US the Fed has not been able to pull inflation close to its target.

No matter how you cut it, inflation is a myth. The Fed is expected to begin increasing rates my mid-year based on Yellen’s recent press conference. The decline in energy prices and no pricing power in any industry is troubling the Fed now; increasing the FF rate too soon may derail the economy. All of that bullish talk coming from the Street that everything is good has been questionable, now reality may sway the Fed to hold rates low much longer than most expect. Federal Reserve Bank of Boston President Eric Rosengren said this week that he wants to hold off on raising rates until there is more evidence of firming inflation. “We need to see evidence to make us confident that it’s going to move back,” he said on Wednesday. “Based on the data right now, I’m not particularly confident.”

Dec industrial production declined 0.1% as was expected. Dec capacity utilization at 79.6% from 80% in Nov. The two reports at 9:15 had little influence in the markets. At 9:55 the U. of Michigan consumer sentiment index, expected at 94 from 93.6, as reported sentiment.

The price of crude oil has stabilized in the last few sessions, as it settles interest rate markets won’t decline much more before a round of long covering will push rates back up a little. Any decline in prices in treasuries and MBS markets won’t alter the wider bullish outlook. The same technical observation is occurring in the stock market. Stocks and bonds are currently stretched to excess; we are looking for both markets to reverse in the next few sessions.

The trade today is positioning for the long three day weekend; MLK birthday. Already the 10 yr note rallied earlier driving the yield to 1.70% earlier this morning but now +4 bps to 1.76%. Stock indexes were trading down 70 points in pre-opening trade. In less than 30 minutes the index that opened lower, down 17, the index rallied to +50, reversed again and at 10:10 -55.

High volatility in financial markets is a catharsis for traders and investors as stocks decline along with interest rates. High levels of uncertainty will not abate for weeks. Both stocks and bonds and MBSs are presently overdone, we expect interest rates will move a little higher as a result, we see the same thing for equity markets. Mortgage prices very volatile; lenders won’t pass on all of market gains.

We haven’t changed our bullish outlook but as noted yesterday and again here; the rate markets are about to reverse with prices working lower before the bullish trade resumes.

PRICES @ 10:15 AM

• 10 yr note: -14/32 (44 bp) 1.77% +5 bp
• 5 yr note: -11/32 (34 bp) 1.23% +6 bp
• 2 Yr note: -3/32 (9 bp) 0.46% +0.5 bp
• 30 yr bond: -26/32 (81 bp) 2.40% +4 bp
• Libor Rates: 1 mo 0.168%; 3 mo 0.253%; 6 mo 0.358%; 1 yr 0.622%
• 30 yr FNMA 3.0 Feb: @9:30 103.00 -30 bp (-33 bp from 9:30 yesterday)
• 15 yr FNMA 3.0: @9:30 104.81 -39 bp (-16 bp from 9:30 yesterday)
• 30 yr GNMA 3.0: @9:30 103.71 -47 bp (+1 bp) from 9:30 yesterday
• Dollar/Yen: 117.26 +1.09 yen
• Dollar/Euro: $1.1544 -$0.0089
• Gold: $1268.10 +$3.30
• Crude Oil: $47.12 +$0.87
• DJIA: 17,268.26 -52.45
• NASDAQ: 4569.72 -1.10
• S&P 500: 1990.61 -2.06

http://globalhomefinance.blogspot.com