Category Archives: News

MBS Day Ahead: So Much of The Recent Volatility Has Been Building Toward Today

Powell’s speech last week at the Economic Club of New York marked the beginning of an official shift.  Until then, while the Fed had its dovish dissenters, the consensus was “steady as she goes” with respect to regular rate hikes in the coming quarters.  The only uncertainty was whether or not the Fed would hike 2 more times in 2019 before leveling off (maybe it would be 3 times, maybe 1 time…).

But seemingly overnight, the consensus is now that we’re only likely to see one hike in December, and perhaps NO hikes in 2019.  This has been a big adjustment for financial markets.  You might think that  stocks would enjoy this shift (after all, the news has been eager to tell you that stocks are tanking because of rates), but no…  This move was actually led by the longer end of the yield curve–it happened well before Fed rate hike expectations shifted.  

That mystery rally suggests there’s been a huge amount of year-end reallocation out of stocks and into bonds as a general defensive positioning.  Traders are preparing for the economic realities associated with an absence of Fed hikes.  That means there’s been some adjustments to be made to stock/bond balances.

If today’s NFP confirms the underlying motivations for that “risk-off” shift (or if it soundly rejects them), the reaction could be very big.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/888625.aspx

Warehouse Products; Vendor/Service Provider Directory; Yield Curve Primer

The year has sped along, and here we are at Pearl Harbor Day already. Although mortgage rates have lagged, what has pushed Treasury rates down? Released earlier this week, the Federal Reserve’s latest report on economic conditions, known as the Beige Book, says most of its 12 regions achieved satisfactory growth in November but also says there is “increased uncertainty” among businesses over the influence of U.S. tariff policy. The report highlights rising costs for manufacturers and problems for farmers due to counter-tariffs imposed by China and others. (The Trump Administration’s trade fight with China has been particularly hard in Nebraska, with its Farm Bureau estimating that retaliatory tariffs let to a loss of more than $1 billion so far in 2018, which is about 11 to 16 percent of the entire value of Nebraskan agricultural goods. Factor in labor income losses and the total economic hit to the state is $859 million to $1.2 billion.)

 

Lender Products and Services

Get on point with BluePointMtg into 2019! “At BluePointMtg we are pleased to present several new products to our Broker Partners and offer Rate Improvement specials as we close out 2018! Free appraisals for any loan over 300k till the end of the year as well. (Except reverse loans.) A .25 rate improvement incentive on non-Agency loans 500,000, and a .375 rate improvement on Non-Agency loans over $2 million. (Applies to Leverage Product and Pivot Product only!) BluePointMtg is positioning itself to be a go to lender for Government loan options, conventional Loans, and Non-Agency loan options. Newly released is a VOE loan. New pricing on FHA 700+ credit scores as well this month! Highlights this month is a MIC DROP campaign where BluePointMtg has highlighted all files Submission to CTC with our Broker Partners of 15 days or sooner! Sign up today to expand your product mix, gain incentives monthly and get your own MIC DROP on your next loan! Contact your AE or marketing@bluepointmtg.com for details.”

Guaranty Bank Trust (GBT) “is proud to announce the promotion of Nikki Maimone to Vice President of Warehouse Lending. In addition, we are pleased to announce Nicole Haba joining our team as Operations Manager of Warehouse Lending. Collectively, Nikki and Nicole have over 40 years’ experience in mortgage and warehouse lending. GBT is working hard to earn your business and become a leading provider of mortgage warehouse servicesVeronica Soto (214.710.2340).

Carrington Mortgage Services launches its non-delegated Correspondent Lending Division. Carrington Mortgage Services, LLC (CMS), one of the nation’s largest privately held non-bank lenders with over $60 billion in servicing, announced the launch of its Non-Delegated Correspondent Lending Division to complement CMS’s full portfolio of loan origination channels which include Wholesale and Retail. “We have diligently planned and built the Correspondent Division and we’re now ready to make our presence known throughout the industry,” said Raymond Brousseau, President of CMS. “We are committed to delivering a high level of transparency and timeliness to the non-delegated correspondent lending process. We understand that it’s all about providing our sellers with the ability for further growth and profitability.” CMS’s wide program offers today’s non-delegated sellers with Fannie Mae and Freddie Mac products, FHA and VA products, and Carrington Advantage Products for underserved borrowers. To qualify, correspondent lenders should have a strong reputation of profitability in the industry.

PrimeLending Joint Ventures = Excellent Customer Experience + Increased Profitability for Home Builders.  You already know PrimeLending as a powerhouse mortgage lender providing an excellent home loan experience to customers across the U.S. Its proven joint venture model is no exception, providing home builders with a dependable formula for success, including an easy-to-use, fully-digital mortgage process, a huge range of loan options, an award-winning operations team, and solid backing from Hilltop Holdings Inc. and all its subsidiaries. If you are a home builder considering the next step to increase your profitability and give your customers a better mortgage experience, watch our videos and get more information at www.primelendingventures.com or contact Mike Matthews.

This is an offer you won’t want to miss! TMS partnered with Mortgage Educators to offer brokers extremely discounted rates on industry-required continuing education and pre-licensing courses. And the part that shocked me the most—they’re exclusively offering it at 73% off! The industry-required CE courses include the 2018 Online 8 Hour SAFE Comprehensive CE and NMLS 20 Hour SAFE Pre-license Bundle. To get started, go here.

PlainsCapital Bank National Warehouse Lending, a subsidiary of Hilltop Holdings (NYSE: HTH), is looking for mortgage bankers and lenders that offer renovation products and programs. PlainsCapital Bank National Warehouse Lending currently funds multiple renovation programs and products with little to no additional requirements. “Whether it is a FNMA HomeStyle, FHA 203K Full, Limited or even an USDA Rural Housing renovation loan, PlainsCapital Bank National Warehouse Lending wants to be your preferred warehouse provider for these programs and products. Please ask us about our competitive rates, utilization and deposit incentives and other ways that we can reduce costs and time to exceed your loan funding needs in 2018.” If you are interested in learning more, please contact Deric Barnett, EVP National Warehouse Lending.  

Vendor Updates

Floify and Equifax have joined forces to expand the features and functionality of the industry’s leading mortgage point-of-sale system. This groundbreaking partnership integrates the power of the Equifax Trended Credit*Hi-Lite™and The Work Number® with Floify’s flexible and feature-packed mortgage automation solution. Now, LOs who use both solutions to originate loans can instantly obtain and sync tri-merge credit reports via Trended Credit*Hi-Lite™ and VOE and/or VOI via a secure integration with The Work Number® directly with an application or loan file in Floify. Additionally, with GSE validation programs, such as Day 1 Certainty® from Fannie Mae, LOs can help mitigate risk and limit underwriting cycle times by reducing lenders’ reliance on applicant-provided W-2s, pay stubs and other income-related documentation. To experience the power of Floify’s Trended Credit*Hi-Lite™ and The Work Number® integrations, request a live demo.

The Mortgage List, LLC., the most inclusive directory of all facets of the mortgage industry, announced at the National Association of Mortgage Professionals (NAMB) Annual Conference, its official launch of their online directory and community. The Mortgage List is literally, a “Who’s Who” featuring thousands of listings and resources including industry associations, organizations, vendors, service providers and publications. The directory alone is the “go to” guide for mortgage professionals which includes attorneys, accountants, NMLS course providers, wholesalers, compliance companies, trainers, marketing companies and much more. Founded by long time industry professional, Ginger Bell, The Mortgage List’s goal is to become the hub for the mortgage industry. You can register for its webinar on Wednesday, December 12th to find out more.

Flood and Disaster Updates

Will Congress ever “man up?” With Congress moving to keep the government funded through December 21, the National Flood Insurance Program is again extended, this time for two whole weeks. Realtors point out that, “This is the 43rd extension of the NFIP since 1998, and the 41st short-term deal made to avoid a lapse in the program over the past 20 years. NAR is relieved to know that the NFIP was again extended before a lapse could occur. Flooding is a constant, unavoidable threat to Americans living in both coastal and inland communities across the country, however. As such, NAR urges the House and Senate to continue working towards responsible, long-term reauthorization that includes meaningful reforms, as the current process of continuous short-term extensions is simply not sustainable.”

Fannie Mae announced the Fannie Mae’s Disaster Response Network™: a comprehensive case-management service for disaster-affected homeowners with Fannie Mae-backed mortgage loans. Homeowners may access this program, a supplement to the post-disaster mortgage relief options currently offered, by visiting Know Your Options or calling 1-800-2FANNIE.

Regarding the California fires, and disaster areas in general, most lenders have a policy that says all impacted areas will require an internal escalation review to determine current containment percentage, evacuation status, and property distance from current burn zone prior to drawing loan documents. All impacted files have been conditioned appropriately (to include but not limited to photos of property and a disaster affidavit). No one wants to lend money on a house that isn’t there.

Mountain West Financial (MWF) is committed to helping its customers during the recovery process in areas impacted by the massive California fires. Re-inspection requirements for properties in FEMA-declared disaster areas are as follows: Conventional, VA and USDA loans require an exterior-only disaster inspection report to certify that the property was unaffected by the disaster. Conventional loans with property inspection waivers, VA IRRRLs and USDA Streamline loans will require re-inspections if the property is in a FEMA-declared disaster area. FHA requires an interior and exterior disaster inspection report and photos. FHA Streamlines do not require re-inspection. VA requires both the lender and the veteran to certify the property is not damaged.

The Camp Fire (Butte County) and Woolsey Fire (Los Angeles and Ventura Counties) have been 100% contained. The following loanDepot Wholesale processes are in place for properties in impacted areas: Conventional Loan fundings have resumed for Butte, Los Angeles, and Ventura Counties. All files in impacted zip codes have been conditioned appropriately based on requirements for properties in FEMA declared areas. Regarding FHA Loans, Re-inspections are required, however cannot be ordered until FEMA issues a Disaster End Date. Funding exception requests can be submitted through your Account Manager.

Capital Markets

The MIAC Capital Markets Group is pleased to announce its offering of $365mm of new origination whole loans. The collateral consists of 100% ARM Loans originated by a Bank as a portfolio product with an alt-doc component. The portfolio is concentrated in MI FL with approximately 640 loans potentially qualifying for CRA credit. Loans 80 LTV are covered by PMI; this product has experienced near zero defaults over the history of the program. Parties should contact their MIAC sales representative at 212-233-1250 or Steve Harris for additional information.

There is chatter out there about the yield curve inversion – right up there with the coming of the Four Horseman, the Apocalypse, the Detroit Lions winning the Super Bowl, that kind of thing. There are different portions of the U.S. government securities yield curve (that graphs yields on the Y axis and maturity – overnight Fed Funds all the way to 30-year bonds) that one can compare. When long-term yields are lower than shorter-term yields, it typically reflects expectations of slowing growth, or a possible recession.

But the inversion between two-year and five-year Treasury yields could be temporary as it was in 1998. Everyone knows that, due to Quantitative Easing, the Fed continues to purchase long-term maturity securities, raising prices and keeping longer-term rates low. And LOs should know that inverted curves don’t cause recessions. They simply reflect a market assumption that growth will slow based on current economic information.

Yesterday was a volatile day for the Treasury market, which rallied strongly this morning when the SP 500 was down as much as 2.9%, spurred by trade concerns which stemmed from the controversial arrest of Huawei Technologies’ CFO in Canada on allegations the company violated U.S trade sanctions on Iran. The arrest and reported extradition to the U.S. would get in the way of the U.S. and China striking a trade deal, coupled with potential retaliatory action against U.S. companies doing business in/with China. After hitting a low of 2.82% intraday, the U.S. 10-year closed the day at 2.87%.

The flight to safety in the Treasury market saw support from the drop in oil prices and remarks from Dallas Fed President Kaplan and Atlanta Fed President Bostic, who suggested the target for the fed funds rate is close to neutral. Oil prices dropped on reports Saudi Arabia oil minister floated a proposal to cut daily production by 1 million barrels per day, less than the market was thinking, though no formal agreement has been reached yet. Finally of note, JPMorgan Chase CEO Jamie Dimon told CNBC in an interview that if there is a bubble anywhere, it is in U.S. government bonds.

Today began with the November employment data: Nonfarm Payrolls +155k (less than forecast, and with a back-month revision lower), the Unemployment Rate steady at 3.7%, and Hourly Earnings +.2%. At 10AM ET the University of Michigan Sentiment Index is seen falling in both current conditions and expectations, and October wholesale inventories and sales are due. Fed Governor Brainard speaks on financial stability before a luncheon just after noon. And October consumer credit will be released and is expected to rebound from September. After the employment data we have the 10-year yielding 2.87% and Agency MBS prices better a smidge versus last night’s close.

Jobs

GSF Mortgage Corporation is pleased to promote our Direct Originator Partnership Program for originators who are interested in a low expense and best execution opportunity in today’s market, while playing a critical role in delivering an exceptional customer experience during every step of the home lending journey. The program has no branch or lender fees, translating to better pricing and compensation for the originator. With access to management, technology, and a comprehensive set of products, we give you the tools to succeed and help you build solid and long-lasting relationships and engage all customers in a positive manner, ensuring the customer’s best interests are your number one priority. Originators participating in this partnership have enjoyed a 28-percent production increase – all while operating in a challenging market.” Please reach out to VP of Retail Lending, Frank Papaleo.

Mortgage Possible is expanding across the United States and has named Ty Kerns Senior Managing Director of National Production. With 25 years of industry experience, Senior Managing Director of National Production, Ty Kern, is leading the expansion of Mortgage Possible across the US. Kern has been in business leadership positions for 15 years and his experience makes him an excellent fit for the role of Senior Managing Director. Kern came to Mortgage Possible after a role as Senior Managing Director of National Retail Production elsewhere. He leads the channel to significant growth and profitability gains by overseeing the implementation of significant technology improvements and a reduction in cost structure. “It’s an honor to be a part of the expansion process with Mortgage Possible,” said Kern. “Our leadership team has what it takes to make a positive impact in the mortgage industry across the country.” Visit https://mortgagepossible.com/ for more information.

 

Article source: http://www.mortgagenewsdaily.com/channels/pipelinepress/12072018-primer-on-yield-curve.aspx

Uptick in Home Purchase Sentiment Reflects Increased Confidence

Fannie Mae’s Home Purchase Sentiment
Index (HPSI) for November rose slightly, but within the 0.5-point increase was
some increased confidence about personal finances and the wisdom of buying a
home.  The index, which consolidates responses
from a subset of questions on the company’s National Housing Survey, rose to
86.2 from 85.7 in November. The index is 1.6 points lower than in December
2017.

 

 

A survey high record was set in the
net share of Americans who reported their income was up significantly over the
last 12 months.  A 5-point increase
brought the net share to 24 percent.

Fifty-seven percent of respondents told
pollsters it was a good time to buy a home while 34 percent disagreed.  This resulted in net positive responses of 23
percent, up two points from October.

The other component of the HPSI that
increased, by 1 point, were expectations that mortgage rates would go
down.
  That component, long in negative
territory, rose to a net of -56 percent.

Those positives were largely offset
by expectations that home prices would no longer continue to go up.  Net positive responses declined for the
second straight month, down 4 points to 33 percent. The net share of
respondents who were not worried about losing their job was down 1 point but
was still at 77 percent.  The component
representing those who think it is a good time to sell a home was unchanged at
35 percent.

“The HPSI has moved within a tight
range over the past five months, as positive sentiment regarding the overall
economy continued to offset cooling housing sentiment,” said Doug Duncan,
senior vice president and chief economist at Fannie Mae. “Consumers’
perceptions of growth in their household income reached a survey high this
month, helping to absorb some of the impact of increasing mortgage rates on
housing market activity. Meanwhile, the net share of consumers expecting home
prices to increase over the next 12 months continues to moderate, dropping by
13 percentage points since this time last year.”

While not components of the HPSI,
survey respondents are also asked about their expectations for the degree of
increases or decreases in both home purchase and rental prices.
  Among the 60 percent who said they do expect
rents to go up, the average amount of the anticipated increase rose from 4.3
percent to 4.4 percent.  The 46 percent
who still expect home prices to continue higher also lowered their expectations
from a 2.6 percent annual increase to 2.5 percent.

The Home Purchase Sentiment Index
(HPSI) distills information about consumers’ home purchase sentiment from
Fannie Mae’s National Housing Survey® (NHS) into a single number. The HPSI
reflects consumers’ current views and forward-looking expectations of housing
market conditions and complements existing data sources to inform
housing-related analysis and decision making. The HPSI is constructed from
answers to six NHS questions that solicit consumers’ evaluations of housing
market conditions and address topics that are related to their home purchase
decisions. The questions ask consumers whether they think that it is a good or
bad time to buy or to sell a house, what direction they expect home prices and
mortgage interest rates to move, how concerned they are about losing their
jobs, and whether their incomes are higher than they were a year earlier.

The NHS, from which the HPSI is
constructed, is conducted monthly by telephone among 1,000 consumers, both
homeowners and renters.  Respondents are
asked more than 100 questions to track attitudinal shifts.  The November 2018 National Housing Survey was
conducted between November 1 and November 2, 2018, but primarily during the
initial two weeks of that period.

Article source: http://www.mortgagenewsdaily.com/12072018_national_housing_survey.asp

Mortgage Rates Lowest Since September After Jobs Report

Mortgage rates held on to their recent improvements today after the important Employment Situation (the big “jobs report”) showed November job creation was lower than expected.  In general, weaker job creation is good for interest rates because it speaks to slower economic growth and inflation (both of which are enemies of rates).  This report was particularly important because a strong result would have cast doubt on several speeches from members of the Federal Reserve.  Those speeches have warned about slower economic growth in 2019 and the potential for fewer rate hikes than previously anticipated.  

There were no clear winners or losers at first–probably because job creation is still historically solid.  Additionally, the unemployment rate remained ultra low, and wage growth remained above 3.0% on an annual basis.  Markets were indecisive at first, but stocks and bond yields eventually began to move lower.  Multiple mortgage lenders offered small improvements on rate sheets in the afternoon, after the bond market gained enough ground.  Today’s mortgage rates are the lowest in months and current trends are about as strong as they’ve been in more than a year.


Loan Originator Perspective

Bond markets had scant reaction to today’s “less than robust” NFP report.  That wasn’t surprising, given this week’s prior gains, but could indicate it’s unlikely we drop much further.  Stocks’ sell-off continued, and have certainly contributed to bonds’ rally.  Borrowers closing within 30 days may want to pull the trigger here, but I’m not opposed to floating loans closing over 30 days out. -Ted Rood, Senior Originator


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.75%
  • FHA/VA – 4.25%
  • 15 YEAR FIXED – 4.25%
  • 5 YEAR ARMS –  4.375%-4.875% depending on the lender


Ongoing Lock/Float Considerations
 

  • Headwinds that had plagued rates for most of the past 2 years are slowly dying down.  The rising rate environment could flare up again, and some headwinds remain in effect, but the broader tone has taken a more optimistic shift.

  • Highest rates in more than 7 years in Oct/Nov.  Lowest rates in more than 2 months as of early December

  • This is a bit of a crossroads.  We may look back at Oct/Nov and see a long-term ceiling, or we may look back at early December and see a temporary correction before more pain.  Either way, it’s one of the more hopeful positions we’ve been in for several years.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

Article source: http://www.mortgagenewsdaily.com/consumer_rates/888758.aspx

MBS RECAP: Bonds Think it Over After NFP, Then Finally Decide to Rally

This morning’s trading–both before and after NFP came out–basically acted as additional time for debate.  Both MBS and Treasuries bounced quickly, but symmetrically around yesterday’s closing levels before finally choosing a direction.  Actually, the direction may have been chosen for them to some extent, as it was the stock market that made the first move.

To bonds’ credit, they didn’t lose their cool in the first hour and a half of trading as stocks moved higher.  Once it became clear that equities were heading down and out, bonds finally followed.  10yr yields hit their lowest closing levels since late August.  MBS haven’t bounced back quite as much relative to late-summertime levels, but they’re getting close.

NFP itself didn’t seem to matter much, although I suspect that would have been different if it was clearly much weaker or stronger.  As it stands, the miss in the payroll count (155k vs 200k) was the only real gripe, and that’s not even a big miss by historical standards.  With unemployment holding at a low 3.7%, and average hourly earnings holding 3.1% year-over-year, this wasn’t anywhere close to the confirmation of a major economic shift that some investors were worried about (or hoping for, in the case of interest rate bulls).

One step at a time from here on out as we see where 2018’s strongest bond market momentum takes us.  Expect a token bounce soon–at least for one day.  It’s what happens afterward that will be the most telling.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/888768.aspx

New Fannie/Freddie Requirements May Penalize High-Risk Borrowers

Three researchers from the Urban Institute
(UI) recently analyzed the new capital standards rule proposed by the Federal
Housing Finance Agency (FHFA) for Fannie Mae and Freddie Mac (the GSEs.)  The proposed rule includes two alternative
leverage ratio proposals.  Under the
first, the GSEs would be required to hold capital equal to 2.5 percent of total
assets and off-balance sheet guarantees, the second, to hold capital equal to
1.5 percent of trust assets and 4 percent of non-trust assets.  The second approach differentiates between
the greater funding risks of non-trust assets and the lower funding risks of
the trust assets while increasing the capital requirements for both relative to
the current statutory requirements.

On
Thursday
we summarized their analysis of how well the rule might align risk and capital
across the various mortgage attributes. In this second part we look at their
evaluation of how the capital requirements vary across the business cycle and
the conclusions reached by the UI team.

The
analysis of mortgage attributes focused on the capital requirement as of 2016,
but the UI researchers point out that the housing environment was “benign” at
the time, with housing appreciating at an average of 7 percent a year. FHFA and
the GSEs won’t be able to count on such an environment at every point when a mortgage
is purchased.

The authors
computed the capital requirements based on the housing environment for every
year since 2002 and found a range from 2 percent to 6 percent, an average of 3
percent.  As illustrated by Figure 1, the
changes can be dramatic.  The requirement
doubled between 2006 and 2008.

 

 

This obviously makes
planning difficult.  As an example, the
paper provides a scenario that assumes the average capital requirement of 3
percent occurs half the time; bad times (a 6 percent requirement), a quarter of
the time, the remaining 25 percent is good times requiring 2 percent.  The expected capital requirement over that
time frame is 3.5 percent, significantly higher than today’s 2 percent.

In addition, that
3.5 percent represents only one component of the capital requirement.  As explained in Part 1, FHFA’s computations
include an operational risk and going-concern buffer which, in this scenario,
adds another 0.82 percent, bringing the requirement to 4.3 percent.  An operational cushion might require the GSEs
to operate at around 5 percent if not more. 
This standard could be lowered a bit with credit risk transfers which
grant the GSEs a half percent credit which might increase to 1 percent. But the
authors point out these transfers carry a cost in that the GSEs must give up g-fee
income.

The real issue
here is not that the GSEs would have trouble managing capital, particularly if
they emerge from conservatorship, but that the capital requirement, to the
extent it is reflected in pricing, might be out of sync with need.  Figure 1 shows the lowest capital over the
time period was required in 2005 and 2006; g-fees would have been the lowest during
the run-up to the housing crisis.

The authors
conclude that the FHFA proposal aligns with capital in many aspects.  For certain high-risk mortgages, those with
low FICO scores, mortgage insurance, or with layered risk, requirements tend to
be too conservative (i.e. high) and could result in unnecessary capital charges. 
These issues are magnified by the requirements
procyclical nature – it will be difficult for the GSEs to manage a requirement
that could double in two years, also an issue that hits high risk mortgage more.  Doubling from a 1 percent to a 2 percent
requirement for a low risk loan is quite different than doubling from 4 to 8
percent for a high risk one.  The authors
express concern that it would limit credit for potential homebuyers who may be
riskier on average but still creditworthy.  It might also extend credit at the wrong point
in the cycle.

The paper
speculates that some of the problems foreseen by the authors may be built into FHFA’s
modeling assumptions.  First, they did
not include g-fees in the analysis. 
While ignoring future income is common for regulators because of its
uncertainty, g-fees are different because it is an interest-only strip on
GSE-owned mortgages.  It is unreasonable
to assume that 100 percent of mortgages default or prepay immediately so FHFA
could include a reasonable estimate of future income.  This would disproportionately benefit
high-risk mortgages that pay higher fees. “Put another way, if the GSEs are
going to implement more granular risk-based pricing” to reflect higher risk,
those borrowers “should at least get the benefit of what they are paying for.”

Second, FHFA did
not take into consideration the many post-recession mortgage improvements such
as improved appraisals, required income verification, and other aspects of tightened
up origination and underwriting. These show up in lower early default rates and
are easily tracked. Again, this omission disproportionately penalizes higher
risk mortgages.

Third, the authors
disagree with the flat capital charge levied for prepayment risk.  That risk affects not only the debt-funded
mortgages in the GSE portfolios but also aspects of the securitization business
such as future g-fee income, float and security performance.  Riskier mortgages are less likely to prepay
and thus to create prepayment risk.  This
means their g-fee income is a longer and more stable cash flow stream. It would
be better to modify the proposal to reflect higher capital charges on low
credit risks and lower for the riskier ones.

 

 

Incorporating
these three changes into FHFA’s calculations would better align capital with
risk while meeting the policy objective of providing creditworthy borrowers
affordable homeownership opportunities, the authors assert. 

In addition to better
aligning capital with risk, the paper says FHFA should consider ways to reduce
the cyclical volatility.
As a regulator and conservator, it can use its
discretion to alter any of the capital components, but it is not always obvious
when that discretion should be employed. 
Instead, FHFA could set minimums and maximums on the risk-based
requirements which could guide capital directives if risk becomes
unreasonable.  Alternatively, the risk-based
requirement as a share of the assets could be a moving average of results over
the previous two years.  FHFA might also
consider relying on the original LTV ratio. 
“In short, something needs to limit the effects of the standard’s
cyclical nature while preserving its ability to align capital with risk.”

The authors
conclude, “while the FHFA proposal is a step forward, our analysis suggests improvements
could be made to protect taxpayers and promote sustainable homeownership.”

Article source: http://www.mortgagenewsdaily.com/12072018_gse_conservatorship.asp

MBS RECAP: Huge Day For Bonds, For Better and Worse

Without discussing what tomorrow may bring for bond markets, we can safely say that today was big.  Both in terms volumes and outright trading levels, we haven’t seen a bigger combo since the big stock sell-off in early October, and that came near the top of the rate range.  Today was arguably much more significant because it occurred as rates were already pushing multi-month lows.  

Today was big in a good way in the sense that yields made it all the way down to 2.826%.  But the same level raises risks of a technical bounce.  After all, 2.82% is the resistance level we’ve been watching for the past 2 sessions and we bounced fairly hard there today (10’s ended at 2.89%).

At the risk of stating the obvious, a lot could be riding on tomorrow’s jobs report.  We have NFP built up to pass some sort of judgment about the nature of the economic cycle and the current state of Fed policy.  While it can’t do the former, it could play a part in the latter.  Even if it doesn’t move markets, if that absence of movement follows a much stronger NFP number, it would tell us that bonds are highly determined to remain at these lower levels–at least until the Fed has its say in a week and a half.  If an absence of movement follows a weaker number, it would suggest this leg of the bond market rally has run its course.  No matter how things actually shake out, the important point is that tomorrow’s NFP has much greater than normal potential to create volatility.

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/888531.aspx

MBS Day Ahead: Quick Recap of How/Why Rates Have Rallied So Apparently Quickly

Good times are rolling in the bond market, even if they’re rolling much more for Treasuries as opposed to MBS.  Nonetheless, MBS will continue to benefit as long as Treasuries are rallying, and the latter is beginning the day at new multi-month lows.

Seeing 10yr yields under 2.9% may feel sudden, but it’s actually quite logical.  We know rates had been moving higher in general due to 3 main problems: increased Treasury issuance, increased growth/inflation risk, and a Federal Reserve that had no qualms about continuing to remove accommodation.  We know that rates had been trading in this 2.8-3.0% range all summer.  Then in September and October, they were pushed higher by surprisingly strong economic data (some of which, like average hourly earnings, pointed toward inflation) and even tougher talk from the Fed.  

It’s hard to say how high rates may have gone without intervention from a stock market sell-off.  The fact that 10yr yields were willing to push back up to 3.25% even after the first barrage of stock selling says a lot about entrenched bond market bearishness.  Things changed in November though.  Some of the econ data began to soften.  Democratic control of the House decreased risks of an acceleration in Treasury issuance.  Ultimately, the Fed began to sing a very different tune by the end of the month.

Is all of the above not worth at least a return to the range that existed before Sep/Oct?  Hindsight is 20/20 there, but keep in mind that we began to talk about “the conversation being opened” (about a bigger picture shift) right after that 2nd bounce at 3.25%.  The fact is that bonds were actively searching for a long-term ceiling and it would have required consistently stronger growth/inflation data or an incrementally more hawkish Fed, or a GOP sweep of the House and Senate to push that search into even higher rate territory.

All that having been said, it’s still a bit too soon to declare that the ceiling has been found (back up at 3.25% in Oct/Nov), but definitely not too soon to say it will take a serious turn of events to convince bonds to move back up and push that ceiling even higher.  That’s only a comment on the long-term ceiling, mind you.  It remains a risk/possibility that bonds could still move back up.  After all, they’re only just now getting to that long-term trend line that we’ve charted a few times (seen below in yellow).

Tomorrow’s NFP may be the flashpoint that informs a break or bounce at that line.  If yields move lower, the next key test would be at 2.82%, which had come into play multiple times as the summertime floor.  From a short-term strategy standpoint, we’re still floating with caution until we see short-term momentum clearly spike back up from overbought levels (the lower blue line in the chart where the “warnings” have emerged).

Article source: http://www.mortgagenewsdaily.com/mortgage_rates/blog/888380.aspx

Mortgage Rates Deeper into 2 Month Lows as Stocks Swoon

Mortgage rates technically hit their lowest levels in exactly 2 months yesterday.  Today merely takes them deeper into that territory.  The size of the improvement is less impressive and less meaningful compared to that “lowest in more than 2 months” talking point.   That said, taken in conjunction with the last 4 business days, the average lender is roughly an eighth of a percentage point lower.  That comes out to $7/mo for every $100k financed (or $21/mo on a $300k loan).

On a somewhat frustrating note, mortgage rates didn’t experience nearly as big of a move as the broader bond market.  For instance, 10yr Treasuries–the most widely-used benchmark for longer-term interest rates) dropped 0.05% today.  Mortgages only managed to drop by 0.02% in terms of effective rates. 

The bigger improvement in Treasuries is a multifaceted issue, but was due in large part to big losses in stocks.  Both sides of the market are closed tomorrow for a day of mourning in honor of the late George H.W. Bush.  This results in a concentrated dose of economic data on Thursday and Friday.  If it’s weaker than expected, rates could easily continue lower, but if it surprises to the upside, the bounce back in rates could be somewhat abrupt.


Loan Originator Perspective

Bonds profited from stocks’ swoon today, as treasury yields continued downward.  MBS posted smaller gains, but at some point (soon?) should catch up with treasuries.  Seeing gains like these, with no meaningful data today and NFP looming on Friday, is a bullish sign for bonds.  I’m willing to cautiously float new applications, particularly those closing over 30 days out.  -Ted Rood, Senior Originator


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.875%
  • FHA/VA – 4.375%-4.5%
  • 15 YEAR FIXED – 4.375%
  • 5 YEAR ARMS –  4.375%-4.875% depending on the lender


Ongoing Lock/Float Considerations
 

  • Headwinds that had plagued rates for most of the past 2 years are slowly dying down.  The rising rate environment could flare up again, and some headwinds remain in effect, but the broader tone has taken a more optimistic shift.

  • Highest rates in more than 7 years in Oct/Nov.  Lowest rates in more than 2 months as of early December

  • This is a bit of a crossroads.  We may look back at Oct/Nov and see a long-term ceiling, or we may look back at early December and see a temporary correction before more pain.  Either way, it’s one of the more hopeful positions we’ve been in for several years.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

Article source: http://www.mortgagenewsdaily.com/consumer_rates/888085.aspx

Mortgage Applications Bouncing Back

Mortgage rates remained largely flat or
even slightly lower during the week ended November 30.  This probably helped to maintain the upward
trend
in mortgage applications that began the previous week during the
Thanksgiving holiday and despite a shortened work week.

The Mortgage Bankers Association (MBA)
said its market Composite Index, a measure of loan application volume, moved up
2 percent on a seasonally adjusted basis and after an adjustment to the prior
week’s report to account for the holiday.  
On a non-adjusted basis, applications shot up 42 percent.

The seasonally adjusted Purchase Index
extended its increases to a third week, rising 1 percent from the week ended
November 23.  The unadjusted index was up
36 percent and was 0.2 percent higher than the same week in 2017.

The Refinance Index rose by 6 percent from
the prior week, but more notably the share of refinancing increased from 37.9
percent of total applications to 40.4 percent, the largest since March.

“Treasury rates continued to slide last
week, driven mainly by concerns over slowing global economic growth and U.S.
and China trade uncertainty. The 30-year fixed-rate fell for the third week in
a row to 5.08 percent and has declined a total of nine basis points over this
span,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry
Forecasting. “Application activity increased over the week for both purchase
and refinance loans, and were 10 percent and 7 percent higher, respectively,
than the week before the Thanksgiving holiday. Additionally, we saw a decrease
in the average loan size for purchase applications to the lowest since December
2017 ($298,000 from $313,000). This is perhaps an indication that there are
fewer jumbo borrowers, or maybe first-time buyers are having better success
reaching the market as we close out the year.” 
The average size for all loans also declined, from $294,500 to $284,200.

The share of FHA loan applications increased
to 10.2 percent of the total from 9.6 percent the prior week and the VA share
ticked up to 10.0 percent from 9.9 percent.  The USDA portion dipped to 0.6 percent from 0.7
percent the previous week.

As Kan indicated, the average contract
interest rate for 30-year fixed-rate mortgages (FRM) with origination balances
at or below the conforming loan limit of $453,100 decreased to 5.08 percent
from 5.12 percent.  Points declined to
0.44 from 0.46 and the effective rate was also lower.  However, the rate for jumbo loans, those with
balances above the conforming limit, increased slightly, from 4.88 percent to
4.89 percent.  Points moved down to 0.30
from 0.31 and the effective rate remained at the previous week’s level.

The average contract interest rate for
30-year FRM backed by the FHA dropped to 5.05 percent from 5.11 percent, with
points decreasing to 0.62 from 0.63. The effective rate moved lower.  

Fifteen-year FRM saw an average decline in
the contract rate of 3 basis points to 4.50 percent.  Points increased to 0.60 from 0.51 so that effective
rate was unchanged.  

The average contract interest rate for 5/1
adjustable
rate mortgages (ARMs) increased to 4.33 percent from 4.29 percent,
with points decreasing to 0.21 from 0.42. The effective rate decreased from
last week. The adjustable-rate mortgage (ARM) share of activity fell to 7.4
percent of total applications from a recent high of 7.9 percent the previous
week.

MBA’s Weekly Mortgage Applications Survey
has been conducted since 1990 and covers over 75 percent of all U.S. retail
residential mortgage applications Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100 and interest rate information is based on loans with an 80
percent loan-to-value ratio and points that include the origination fee.

Article source: http://www.mortgagenewsdaily.com/12052018_application_volume.asp

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