Are you positive that rates are going higher? Me neither, and there are reasons why rates may stay here or actually slide back
down a bit. No one has a crystal ball... certainly the demand for mortgages
has fallen since the autumn, but then again, in talking to lock desks they are
seeing signs of life as clients, and LOs, adjust to slightly higher rates. Then
again, the business plans of top lenders and originators are rarely entirely
dependent on rates. Or forecasting them.
In retail product news, "Is there a doctor in
the house? Sierra Pacific Mortgage understands the unique
financial needs of Medical and Dental Professionals who are in a
residency program and/or a clinical fellowship program. That's why they just
released a Medical Loan program aimed at providing new doctors and dentists
with simple solutions to meet their home financing needs. You should contact
your local retail branch for more information about
this loan or joining the team. Your podiatrist needs a place to rest
his feet at the end of a long day. Now he can, in his own home."
HUD
The average person in the residential lending sector would
be hard pressed to say what Julian Castro, the current Secretary of HUD, does,
or what role he serves. (Kind of like asking someone what gluten is.) We should
remember that the Department of Housing and Urban Development is responsible
for programs concerned with the Nation's housing needs, fair housing opportunities,
and improvement and development of the Nation's communities. It has
responsibilities ranging from insuring low-down-payment mortgages to
administering rental assistance for low-income home owners. It does not oversee
Fannie Mae or Freddie Mac, or directly oversee the myriad of residential
loan lenders or investors. It does, however, carry a big stick when it comes to
making sure that lenders and investors who originate its loans adhere to its
policies and procedures. What does the Secretary of HUD do? He or she runs it. (I know - a cop out answer. But if you
click on the link you'll see the pages and pages of job duties that are too
lengthy to list here.)
But everyone sure weighed in on Ben Carson's testimony and
questioning today on Capitol Hill. Others were interested in Ben's choice of
art work, including... a painting of him and Jesus? (That's okay - my kids think I
hung out with Moses.) The topics addressed in yesterday's session should give
you a good idea about HUD.
KBW's Bose George sent, "He acknowledged the growth
in FHA volume since the financial crisis, and said he would explore ways to
reduce that liability to the taxpayer. He said that he was surprised by the
timing of the recent FHA premium cut, and would work with his FHA commissioner
to examine that policy. Carson didn't address any specific policy changes, but
said he supported 'some type of backstop' for the mortgage market. In response
to a question regarding the preservation of the 30-year mortgage, he said,
'there are probably a number of ways to preserve that dream.' Without offering
any specific policy recommendations, Carson said he was 'in favor of
introducing more private entities to the market,' while still providing the
security of a government backstop. President-elect Trump and his cabinet
nominees have only made high-level comments regarding their stance on housing.
We believe, however, the administration is generally in favor of a reduced
government footprint. Any reduction in the FHA footprint should be positive for
the mortgage insurers."
Bloomberg's Joe Light wrote up a description of his
positions. "...He questions the need for a government backstop of the
market for 30-year mortgages, saying the private market could take on much of
the responsibility. Elizabeth Warren asked Carson if he could vow that no
HUD funding would benefit Trump. In response, Carson said he would focus on
whether policies benefit those who need help. 'I can assure you that the things
that I do are driven by a sense of morals,' Carson said, adding that he
wouldn't get in the way if there 'happens to be an extraordinarily good program
that's working for millions of people and it turns out that someone that you're
targeting is going to gain $10 from it.'
Few other countries offer a 30-year mortgage, and will
often say there are few natural buyers of 30-year mortgages. "Carson also
said he believes private companies should play a greater role in the mortgage
market. He said he supports a government backstop in the market, but also said
he believes the 30-year fixed-rate mortgage could continue to exist if that
backstop ceased to exist. 'You can't do it overnight. It has to be a gradual
change,' Carson said. 'We can't do it in a haphazard way.'
"At the hearing, Carson also said he wasn't briefed
by the Obama administration before its decision on Monday to cut premiums the
FHA charges by a quarter of a percentage point. Many Republicans lambasted the
move as fiscally irresponsible, while some Democrats and housing-industry
advocates said the move would help first-time home buyers. Carson said that he
was surprised the administration made the decision on its way out the door and
that he would revisit
the policy, which takes effect on Jan. 27. He didn't say whether
he would reverse the change."
Carson, in his prepared remarks, raised concern that banks
are reluctant to participate in low-down payment loan programs for fear of
getting sued if borrowers default. The wealthy have
'their pick of loans' while those without good credit are
'locked out,' he said.
Last month Democratic Representative Maxine Waters of
California called Carson a frightening choice to lead the agency. Carson
"may be a brain surgeon but he is not qualified to run HUD," Waters wrote in a statement. But four former HUD
secretaries, who served under presidents
Bill Clinton and George W. Bush, support him: Henry Cisneros,
Mel Martinez, Alphonso Jackson, and Steven Preston.
Reporters Megan R. Wilson and Tim Devaney came up with "Four Takeaways from the Carson's Confirmation
Hearing."
Compass Point's Isaac Boltansky thought that the FHA's
recent mortgage insurance premium (MIP) cut is likely to stand. "More
broadly, however, Dr. Carson's commentary regarding the need for more private
capital in the mortgage market suggests that additional pricing changes at the
FHA - either to the MIP or cancelability - are far less likely in the years
ahead.
"In his written testimony, Dr. Carson said, 'Banks are loath to participate
in low-down payment programs through FHA for fear of getting sued if the
borrowers default. We need to make sure HUD and FHA are fulfilling their
missions to help people build up an asset, like a home, which will help them
climb up the rungs of the economic ladder.' We continue to expect the Trump
Administration to shift the enforcement paradigm related to the False Claims
Act, which should lessen lingering legal liability concerns for FHA lenders.
"In response to a question, Dr. Carson expressed his
view that government support would not be necessary to ensure the viability of
the 30-year fixed-rate mortgage. He suggested that the private market would
offer the product following a gradual transition away from a federal backstop.
As a reminder, Mark Zandi estimated that the PATH Act, which proposed
largely privatizing the mortgage market, would have raised the price of a
mortgage by ~90bps."
Mr. Boltansky's thoughts wrapped up with,
"...mortgage finance reform was barely mentioned, which reinforces our
view that the odds of comprehensive reform in this Congress are only ~30%.
Questions relating to the potential impact of HUD policies on the Trump
companies will likely persist in the months ahead. Doctor Carson's
performance was strong and we believe his path to confirmation is clear."
MBA president Dave Stevens weighed in with, "While
clearly we need to find ways to get more private capital back into the housing
system, the role of a government guarantee behind a segment of the mortgage
system is critical to insuring a steady flow of capital in good economies and
in bad. Pulling the rug out could result in a significant disruption to
housing."
The Association of Mortgage Professionals (for some
reason still calling itself NAMB) broadcast, "NAMB and its members are
committed to working with Dr. Carson and HUD in developing policies that will
expand affordable credit, therefore moving more Americans towards the dream of
homeownership," said Fred Kreger, CMC, NAMB President. HUD is integral to
mortgage lending and plays an important role in supporting NAMB's goal of
consumer protection through clear regulation and consumer education. We look
forward to working with Dr. Carson and his team to ensure that HUD continues to
be vital to homeownership. We wish Dr. Carson great success as the new
secretary."
And the National Rental Home Council "shares
Dr. Carson's goals to improve housing security for all Americans and build
stronger, more inclusive neighborhoods. We recognize the important role that
rental housing can play in helping to advance these priorities, which is why
our members are committed to providing many Americans with a quality,
affordable housing option and an excellent resident experience. We look forward
to collaborating with Dr. Carson to ensure America's housing market remains
vibrant and continues to serve the full spectrum of America's housing
needs."
Turning to the capital markets & rates...
Jobs and housing drive the economy, although the weekly
Initial Jobless Claims numbers have been good for so long their impact has worn
off somewhat. They have remained near historic lows all year and only a
sustained upturn is likely to concern investors. Unfortunately, speeches by the
presidents of the various Federal Reserve districts have lost some of their
impact as well: several of them seem to be speaking on any given day. (Of note,
however, was Philadelphia Fed President Patrick Harker saying that the Fed
would have to think about halting the reinvestment of interest income from its
portfolio once the Fed funds rate gets to 1.00%.) Rates barely budged, again,
Thursday.
This morning we've had a spate of bank earnings for the 4th
quarter, and thus all of 2016, for Wells Fargo, JP Morgan, and the Bank of
Italy, uh, I mean America (+43%!). December's Producer Price Index figures
(+.3%, ex-food & energy +.2%, kind of a non-event) and December's Retail
Sales (+.6%, a little lower than expected) and Retail Sales ex-auto (+.2%).
Coming up is the January Michigan Sentiment figure, usually of little
consequence. After this we find the 10-year, which closed Thursday yielding
2.36%, at 2.38% and agency MBS prices worse a shade versus last night. Bond
market is closed Monday.
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