Monthly Archives: August 2013

Mortgage Rates Stay Flat Over Weekend…

BY MATTHEW GRAHAM
Mortgage Rates Stay Flat Ahead of 3-Day Weekend

Aug 30 2013, 1:44PM

Mortgage rates had an uneventful day, moving sideways on average.  Some lenders were almost perfectly unchanged, while others were slightly higher or lower than yesterday's latest levels.  In virtually all cases, the only thing that would change about a rate quote from yesterday to today would be a slight difference in closing costs (as opposed to a movement in the "note rate" itself).  As such, conventional 30yr Fixed quotes for the most ideal scenarios (best-execution) remained at 4.625% though some lenders are an eighth higher or lower.

It's easy to look at numbers on the computer or TV and think of financial markets as simply being open or closed.  For instance, most radio listeners hear an update on stock market averages in the middle of the day and assume markets are open for business as usual, but some days depart from the usual.

Today is one such day, as it's the last day of summer.  That doesn't seem like it should matter because if markets are open, they're open, right?  The reason it's not quite that simple–and the factor that's easy to overlook unless you've experienced it first-hand or someone tells you–is that markets require the presence of real live human beings to function efficiently.

Especially in the realm of mortgage rates, where the onus for trading the underlying "mortgage-backed-securities" (MBS) falls on a shorter list of key players than, say, stocks or Treasuries, the absence of a few key people from a few key firms can make a big difference.  In this day and age, given how "big and complex" financial markets seem to be, it may seem outrageous that a few people on vacation can change the way the day goes for everyone else in their sector.

Not only is this unequivocally true for the specific sector in question, but due to the highly interconnected nature of similar investments, it can affect other sectors too.  For instance, even if Treasury traders are in more abundant supply on days like today, they might adjust strategy based on something that MBS traders are doing.  In that case, the absence of just a few people has an exponential effect. 

Because of this, there's almost an unspoken agreement among market participants that makes days like today uneventful in all but the most unexpected scenarios.  The economic data was close enough to expectations and the headlines were tame enough that market participants and trading levels were able to file toward the exits in a fairly orderly manner.

All this changes next week as market participation picks up and the massively important Employment Situation Report is released on Friday.  While no single point of data has the power to completely set the tone for interest rates, this jobs report is head and shoulders above any other piece of data.  It can go a long way toward confirming or rejecting the idea that the Fed will taper asset purchases at the September 18th meeting, and such confirmation could put noticeable upward pressure on rates after weeks of calmer consolidation.


Loan Originator Perspectives

 

"I have never been a fan of locking on Fridays, and even less of a fan of locking on a Friday ahead of a 3 day weekend. Lender pricing this morning is a little better than yesterday so if you are happy with the rate and costs being offered, nothing wrong with locking especially if within 15 days of closing. Loans closing in over 15 days, I would consider floating and see what lenders offer on Tuesday morning but this does come with some risk as much can happen over the next few days. " –Victor Burek, Open Mortgage

"Slow, flat Labor Day trading today at MBS desks as the few traders present warily eyed Syria and next week's data. We retained yesterday's gains, which is always a plus. Today marks the end of summer for bond traders, expect more volume and definition next week. Don't expect any decisive moves until August's NFP on 9/6, regardless of "surprise" Syrian developments." –Ted Rood, Senior Originator, Wintrust Mortgage

"Definitely a great way to end the week, the month, and head into the long weekend- FLAT! Overall not a bad week, although the volatility was a bit rough, we ended the week with a net gain. Data has been mixed but primarily weak, and most of the strong data points like 2nd Q GDP is in the rear view mirror. Friday's # is huge, but there is data prior to NFP including ADP, Fed beige book, & ISM to name a few that can influence trading over the course of the week. Floating into next week is extremely dangerous and perhaps suicidal if you are closing within 21 days, however if you have more time I am a believer that the 3rd Q should hold an opportunity for fence sitters and rate watchers (September is the last month of the 3rd Q)." –Constantine Floropoulos, Quontic Bank

Today's Best-Execution Rates

  • 30YR FIXED – 4.625%
  • FHA/VA – 4.25% or 4.75%
  • 15 YEAR FIXED –  3.75%-3.875%
  • 5 YEAR ARMS –  3.0-3.50% depending on the lender


Ongoing Lock/Float Considerations

  • After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
  • Uncertainty over the Fed's bond-buying plans is causing immense volatility in rates markets and generally leading rates quickly higher 
  • Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed indicated their intention to taper bond buying programs sooner vs later
  • The June 19th FOMC Statement and Press Conference confirmed the suspicions.  Although tapering wasn't announced, the Fed made no move to counter the notion that they will decrease bond buying soon if the economic trajectory continues
  • Rates Markets "broke down" following that, as traders realized just how much buy-in there was to the ongoing presence of QE.  These convulsions led to one of the fastest moves higher in the history of mortgage rates and market participants have not been eager to be the among the first explorers to head back into lower rate territory until they're sure they'll have some company.
  • (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).
Hope you find this information helpful.
Best Regards, Chris Mesunas

 

Higher Interest Rates To Blame….

BY JANN SWANSON
Decline in Home Sales Not Yet Concerning; More Homes Need to Be Built – NAR

Aug 28 2013, 

The National Association of Realtors® (NAR) blamed higher interest rates for the slipping home sales numbers reflected in its pending home sales report.   The Pending Home Sales Index (PHSI) figures released today were down 1.3 percent from 110.9 in June to 109.5 in July.  The PHSI is a forward looking indicator based on contract signings.  Completed transactions are generally expected to follow within 60 days.

While recent contract signings are down, the July PHSI is still 6.7 percent higher than its level in July 2012, 102.6.  The index has remained above year-ago levels for the past 27 months.

Lawrence Yun, NAR chief economist, noted the uneven pattern of the index in the various geographic regions.  "The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown.  However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West," he said.  "More homes clearly need to be built in the West to relieve price pressure, or the region could soon face pronounced affordability problems."

The PHSI in the Northeast fell 6.5 percent to 81.5 in July but is 3.3 percent higher than a year ago.  In the Midwest the index slipped 1.0 percent to 113.2, remaining 14.5 percent above year-earlier figures. Pending home sales in the South rose 2.6 percent to an index of 121.5 in July, 7.7 percent higher than a year ago.  The index in the West fell 4.9 percent in July to 108.6, and is 0.4 percent below July 2012.

NAR expects existing home sales to increase 10 percent this year to about 5.1 million units and rise to approximately 5.2 million sales next year.  Due to inventory shortages prices are expected to grow nearly 11 percent from 2012 to 2013 and then moderate to a 5 to 6 percent increase in 2014 as increasing construction of new homes takes some pressure off of prices.

The PHSI is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales.  The index base of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined and, by coincidence a year which fell within the normal range of home sales – 5.0 to 5.5 million.

Hope you find this information helpful.

Best Regards Chris Mesunas. 

 

Reg Z. Appraisal Reminder…Great Questions & Answers…

BY ROB CHRISMAN
Reg. Z Appraisal Reminder; Can LO Commission Change Due to Investor? Do LO Fingerprints Expire?

Aug 26 2013, 7:29AM

Here is an e-mail from Gary B. up in Washington: "Rob, I work for a mortgage bank, and we'd heard that that LOs have to be fingerprinted every three years due to fingerprint requirements for licensed LOs in the Dodd-Frank rules and regulations. Have you heard that?" First of all, no I had not. So I sent a note to someone at the CFPB, who replied, "Odd, never heard of peoples fingerprints changing. Now that would be interesting." Thanks. So I looked at the NMLS site, and, although I am not a compliance person, I think the person took it out of context – it is for someone wanting to be licensed and having fingerprints on file – they must be less than three years old. And Gary did some digging and wrote, "The NMLS doesn't retain fingerprint records past three years. If the state licensing office needs to process a background check and if fingerprints are a required part of that inquiry, then a LO's relicensing will be held up until those prints are processed and posted to the individual's account. NMLS doesn't require them to be updated by themselves. But this could be another example of every state doing something slightly different. Hope that helps the LOs out there." Thanks Gary!

Here is an interesting question. "We are a direct lender and as such, we process, underwrite, close, fund and sell loans to the investor. After a loan is approved and closed, it is shipped to Investor A for purchase. If Investor A declines to purchase the loan, our company must re-lock the loan with another investor, Investor Z, and sell & ship the loan to Z. If the loan is re-locked and the rates have risen, is it legal for the lender to take back the Loan Officer's commission and make the loan a 'House Loan'?" I am not an attorney and don't purport to give legal advice, so take this with a grain of salt, but I'd say generally the answer is "no." Generally, the bank can't pay differently for a "house loan," or portfolio loan, than it would a loan sold to an investor. I believe that the bank will be able to reduce the LO's commission for specific loan quality issues come January 2014 (the regulation gives specific examples like RESPA tolerance cures, but our bank has other things in the contract language like EPDs, early payoffs, and others). One can search the section of Reg. Z that deals with compensation – here's a link. Don't forget to refer to the official commentary at the bottom related to each section. The stuff in red goes into effect next year – the stuff in black is in effect now.

Anytime I get a chance to visit our Nation's Daily Blog, I never hesitate. Earlier this month "the Agencies" as they are referred to (collectively a bouillabaisse of letters: FDIC, FHFA, NCUA, and OCC ) proposed to amend Regulation Z, which implements TILA, and the official interpretation to the regulation. This proposal relates to a final rule issued by the Agencies on January 18, 2013 (2013 Interagency Appraisals Final Rule or Final Rule), which goes into effect on January 18, 2014. The Final Rule implements a provision added to TILA by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act or Act) requiring appraisals for "higher-risk mortgages." For certain mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage, the Final Rule requires creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. The Agencies are proposing amendments to the Final Rule implementing these requirements; specifically, the Agencies are proposing exemptions from the rules for: transactions secured by existing manufactured homes and not land; certain "streamlined" refinancings; and transactions of $25,000 or less.

In other words, as a reminder, since this comes up every once in a while, earlier this year the CFPB issued a final rule implementing the new Dodd-Frank Act appraisal requirements for higher-priced mortgage loans. It also issued a proposed rule to create additional exemptions from those requirements. "This is the product of an interagency collaboration between the Consumer Financial Protection Bureau, Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Office of the Comptroller of the Currency. The proposal provides exemptions to the TILA (Regulation Z) appraisal requirements for the following three types of higher-priced mortgage loans: loans of $25,000 or less, certain 'streamlined' refinancings, certain loans secured by manufactured housing. Read the press release to learn more.  "We are issuing this proposal as part of our ongoing commitment to facilitate implementation of the rules we issued under the Dodd-Frank Act in January. These proposed updates to the mortgage rules provide an opportunity for the prudential regulators and CFPB to address important questions raised by industry, consumer groups, and other agencies."

How about a little bank, agency, and investor news of recent note?

Bank closings have slowed down in 2013, but Friday we had two. Sunrise Bank of Arizona, Phoenix, Arizona, was closed, and opened today as First Fidelity Bank, National Association, Oklahoma City, OK. And Community South Bank, Parsons, Tennessee, was closed and folded in to CB&S Bank, Inc. Russellville, Alabama. On the M&A side, Essex Bank ($1.1B, VA) will sell 4 branches in GA with about $192mm in deposits to Community & Southern Bank ($2.6B, GA) at a premium of 1.33%.

Ginnie Mae is augmenting its loan-level feedback on data delivered for single-family MBS and HECM MBS for all new pool issuances (daily file) and monthly reporting (e.g. loans active in Ginnie pools).  For single-family MBS, forward MBS data will be released for all of the data fields outlined in the MBS Loan-Level Disclosure Layout, Version 1.3, while for HMBS, the elements will be those disclosed in the HMBS Loan-Level Disclosure File Version 1.6 over two phases. 

GNMA issuers are reminded that modification of loan terms that affect the amount or duration of loan payments of loans currently held in pools are not allowed.  Loans must be eligible for buyout and bought out of the pool for modifications to be made.

California lenders are reminded that CalHFA has updated its income limits for the California Homebuyer's Downpayment Assistance Program and Mortgage Credit Certificate Tax Credit Program, replacing the limits previously outlined on August 5, 2011.  See the official CalHFA release for a full matrix of limits by county.

Effective immediately, US Bank is accepting FHA cash-out refinances where USBHM is not the servicer.

US Bank is now offering Freddie's reduced delivery fee of .75 on HomePossible purchase transactions, replacing the previous 1.50 cost.

Affiliated Mortgage retired the 5/2/5 cap structure for all Conventional Conforming 5/1 ARMs as of August 19th, after which point all such loans will be required to have a 2/2/5 cap structure.  This also applies to re-locks and re-negotiations.  The Qualifying Interest Rate must be the greater of the fully indexed rate or the note rate plus 2%, and as a reminder, this must be manually applied to LP and DU Version 9.0 loans.

PennyMac has removed its 95% LTV/CLTV cap on VA transactions in Florida, Illinois, and Nevada, effective immediately.  All applicable loans will now be subject to the standard -1.00 pricing adjustment.

Per Fannie's allowable age of credit documentation guidelines, PennyMac is now requiring that credit documents cannot be more than four months old on the date the note is signed.  This replaces PennyMac's previous requirements, which did not allow credit docs older than 90 days for existing construction loans and 120 days for new construction loans.

MSI has reduced the pricing adjustment for Conventional loans with FICO scores over 740 and LTVs of 60 or less from -.250 to zero, affective for all loans locked on or after August 7th.  In terms of FHA guidelines, MSI has eliminated the 1/1 ARM product and now requires a discharge of Bankruptcy with re-established credit dated a minimum of two years prior to the case number assignment.  Manual underwrites and downgrades will no longer be permitted, as all loans must receive a TOTAL Scorecard Accept or Approve, and for any FHA loans closed in the seller's name, regardless of the underwriter, the minimum acceptable FICO is 640 and the minimum acceptable DTI 49.99, regardless of AUS.  For loans underwritten by and closed in MSI's name, a DTI of 55 is eligible for loans with FICO scores over 680, while 50 will be accepted for loans with scores under 680.

MSI has updated a number of underwriting guidelines and is now requiring underwriters to document all payment history and actual payments for student loans and to report the loan as current, regardless of whether the student loan is in the process of being transferred to a new servicer or not.

Kinecta has adjusted its pricing for wholesale 5/1 and 7/1 Jumbo ARMs of less than $1 million, reducing the adjustment for all such loans with LTVs between 75 and 80 from .375 to .125.

As part of its effort to include more prospective homebuyers, Carrington Mortgage has expanded certain purchase guidelines to allow FICO scores down to 580, manual underwriting of FHA and VA transactions, non-traditional trade lines, and collection/charge-off accounts.  For USDA loans, in addition to the 580 minimum FICO, borrowers are now able to qualify without cash reserves, and the funds can be used to build, repair, renovate, or relocate a home.

WesLend Wholesale has rolled out its Purchase Advantage Pre-Approval program, which allows lenders to submit a credit package for full underwriting review with a "TBD" property address in order to work with listing agents who require pre-approval to accept offers on their properties.  After submission, the underwriter is able to issue the conditional approval necessary to move the transaction forward, and once the borrower has had their offer accepted, the balance of the credit package is submitted to WesLand for disclosures to be issued and the package reviewed.  Apply for the program HERE.  

For all Go! loans that receive a DU Approve/Eligible or LP Accept/Eligible, MGIC is aligning the bulk of its underwriting requirements with those of Fannie and Freddie.  As such, Go! loans are subject to a maximum LTV/CLTV of 97/105%, minimum FICO of 620, cash-out refinance maximum of $150,000, and, for condos and co-ops, the parameters of the Ineligible Projects List.  Investment and 3-4 unit properties remain ineligible, and lender-negotiated waivers or variances apart from co-op share loans, properties in Guam, HomeStyle Renovation, and affordable housing secondary financing require MGIC approval.

With regards to property flipping, MGIC is no longer requiring a manual underwrite if the property being acquired has sold within the last 180 days.

Kansas-based CapWest Mortgage is expanding its secondary market operations to include a wholesale and mini-correspondent platform.  CapWest has begun offering a lender fulfillment program with HELOC and fixed-rate second lien programs and, as part of its wholesale operations, will partner with community banks and credit unions to offer underwriting and closing services.

Economy-wise, the news that New Home Sales had plunged 13.4% in July caught lots of people's attention on Friday. That is its weakest pace since October. Huh? What? Housing not skyrocketing? Well, the numbers are showing what lenders already know, and that is that a) most of the folks who could refinance did refinance, and are very happy with their 3.5% 30-yr loans, thank you, and b) rates do indeed influence the home buying decision. Of course the Fed can't buy all the agency MBS forever, but still…

This is great information hope you find it helpful.

Best Regards Chris Mesunas

 

Mortgage Rates Shoot Lower After Data

Mortgage Rates Shoot Lower After Housing Data

Aug 23 2013, 5:25PM

Mortgage rates shot significantly lower today after the New Home Sales report showed far fewer executed purchases contracts than expected for the month of July.  The move came in phases with most lenders releasing at least 2 rate sheets.  Some offered bigger improvements, while others got back in line with the rest of the pack.  The net effect was nearly a full eighth of a point drop in average rates for ideal scenarios, bringing best-execution down to 4.625% in many cases while some notable lenders remain at 4.75%. 

In a weird way, rates fell today because rates moved so much higher over the past three months.  Actually, it's not very weird at all, but sad and logical.  Though there has been debate on the extent to which rising rates would hinder the purchase market, clues began emerging in late July.  Today's official government figures–despite their penchant for volatility–are so far away from the previous reading and the forecast as to leave little doubt that the rate spike has finally made its way to economic data.

This downbeat data helps interest rates today in two ways.  In the most traditional sense, negative economic data should always be a net positive for interest rates because a weaker economy supports lower growth, which in turn implies a decreased ability to sustain a rise in rates, all things being equal. 

The more direct reason is the data's relationship to the current hot button for financial markets: the Fed's impending reduction in bond buying.  The current consensus is that the reduction or 'tapering' will inevitably happen, but the timing is still debatable.  Most think September, but many believe it will or should be later.  If it is, then interest rates might catch their breath for a few weeks or months. 

Unfortunately, we don't know if tapering is delayed until the Fed has a chance to announce it (or not) on September 18th.  Before then, many market participants will firm up their conclusions based on the September 6th reading of the Employment Situation.  Between now and then, reports like today's New Home Sales help give a decided nudge back in a friendlier direction. 

While this doesn't signify a shift in the long term trend higher in rates, it does keep hope alive for some consolidation before the next major move.  If you attempt to capitalize on these pockets of consolidation, it's important to set limits on how high rates would need to go before you'd cut your losses and lock.  If you're waiting to lock right now for other reasons, this consolidation could continue if next week's economic data is even remotely as downbeat as today's data.

Loan Originator Perspectives

 

"Weaker than expected home sales was a great catalyst for today's bond bulls to enter and stop the bleeding of late. Floating into the weekend is usually a "no-no" however with today's aggressive move we feel next weeks lack of investors/traders, etc (end of summer exodus), should filter into next week.  Some important data to look for plus earnings will be important during the week but dont expect any firm commitment until the Jobs Report in early September.  The consensus is to lock at application, however we are testing the waters here. " -Constantine Floropoulos, Quontic Bank

"Solidly green color today in MBS Land as data confirmed what originators already knew: higher rates in July led to reduced home sales. Who would have guessed it? The miss on new home sales (and some Jackson Hole Fed chatter on MBS purchases) gave us across the board gains on MBS, and positive reprices were common. Unlike Tuesday's "green for little/no reason" gains, at least we can attribute verifiable data to these gains. While all eyes remain on the jobs report after Labor Day, at least we have data in our corner for a change!" –Ted Rood, Senior Originator, Wintrust Mortgage


Today's Best-Execution Rates

  • 30YR FIXED – 4.625- 4.75%
  • FHA/VA – 4.25% or 4.75%
  • 15 YEAR FIXED –  3.75%-3.875%
  • 5 YEAR ARMS –  3.0-3.50% depending on the lender


Ongoing Lock/Float Considerations

  • After rising consistently from all-time lows in September and October 2012, rates challenged the long term trend higher, but failed to sustain a breakout
  • Uncertainty over the Fed's bond-buying plans is causing immense volatility in rates markets and generally leading rates quickly higher 
  • Fears about the Fed's bond-buying intentions were proven well-founded on May 22nd when rates rose to 1yr highs after the Fed indicated their intention to taper bond buying programs sooner vs later
  • The June 19th FOMC Statement and Press Conference confirmed the suspicions.  Although tapering wasn't announced, the Fed made no move to counter the notion that they will decrease bond buying soon if the economic trajectory continues
  • Rates Markets "broke down" following that, as traders realized just how much buy-in there was to the ongoing presence of QE.  These convulsions led to one of the fastest moves higher in the history of mortgage rates and market participants have not been eager to be the among the first explorers to head back into lower rate territory until they're sure they'll have some company.
  • (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

Hope you find this information handy.

Best Regards, Chris Mesunas

Wells Fargo Cutting Jobs Due to a Decline in Refi Share….

BY JANN SWANSON
Wells Fargo Cutting 2300 Jobs Citing 20 percent Decline in Refi Share

Aug 22 2013, 

Wells Fargo Bank confirmed on Wednesday that it will belaying off about 20 percent of its mortgage production staff because of a drop in its refinancing business.  About 2,300 jobs will be cut from Wells Fargo Home Mortgage principally in North Carolina, Iowa, and Alabama. 

The San Francisco-based lender has said it expects its refinancing business to be lower for the rest of the year as higher interest rates cut demand for refinancing.  The company had already announced two smaller reductions to its mortgage staff, 350 announced in mid-July and a 758 person layoff announced on August 7th.  Three hundred additional jobs will be cut over the next 11 to 17 months as the company winds down eight joint ventures.  The company said it had just over 11,400 loan officers at the end of last March.

In a staff memo obtained by a number of news agencies, Franklin Codel, head of mortgage production for the bank, said that refinancing had accounted for about 70 percent of the bank's mortgage applicationsduring the first half of the year but that has now dropped to about 50 percent and was expected to decrease further in upcoming months. 

"We've had to recalibrate our business to meet customers' needs," the memo said, "and to ensure we're operating as efficiently and effectively as possible.  Unfortunately, displacements within our team are necessary."

Employees were given 60 days notice of the layoffs on Wednesday. The banks said it will try to retain as many staff as possible by finding them other positions at the bank. 

Wells Fargo is the country's largest mortgage lender writing and servicing one out of five mortgage loans.  The company has written over $100 billion in home loans in each of the last seven quarters.  However it told analysts on July 12 that it did not expect to repeat that in upcoming quarters as mortgage rates rose.

 

Purchase Originations Overtake Refinances…

BY JANN SWANSON
Purchase Originations Overtake Refinances -Ellie Mae

Ellie Mae said today that loans for refinancing representedonly 47 percent of loans originated in July, dropping from 51 percent in June and representing less than half of all loans for the first time since the company began reporting the data in August 2011.   Refinancing had a 62 percent average market share for all of 2012 while purchase loans, which rose to 53 percent from 49 percent in July averaged 38 percent for 2012.

Jonathan Corr, Ellie Mae's president and chief operating officer noted the decline in refinancing but said the increase in purchase loans is a further indication that housing is improving.   "One part of the refinance market,HARP-related high LTV refinances (95% or more), had a resurgence, rising more than three percent to 11.1% in July 2013, compared to 8.0% in June 2013," he noted.

FHA-backed loans held steady at 19 percent of originations for the third straight month while conventional mortgages were at 71 percent for the second month.  FHA loans averaged 23 percent of all originations in 2012 and had as high as a 28 percent share in March and April 2012.

The average time to close a loan in July was 47 days with loans for refinancing taking an average of 48 days, two more than the average loan for a home purchase. 

To get a meaningful view of lender "pull-through," Ellie Mae reviewed a sampling of loan applications initiated 90 days prior (i.e., the April 2013 applications) to calculate an overall closing rate of 55.4% in July 2013, up from 54.3% in June 2013.   

Seventy-five percent of closed loans had an average FICO score over 700 compared to 83 percent of loans a year ago.  The average debt-to-income ratio rose from an average of 23/34 for all of 2012 to 24/36 in July and the loan-to-value ratio is up two percentage points from the beginning of the year.

"Credit standards continued to ease in July," said Corr. "The average FICO score fell to 737, from 742 in June 2013, and it is now at the lowest level since we began our tracking in August 2011. Similarly we saw slight increases in both loan-to-value and debt-to-income ratios last month-signs that lenders are willing to accept slightly more risk to maintain volume.

Ellie Mae mines its data from a sampling of approximately 44 percent of loans initiated on its proprietary origination platform.  Those loans represent about 20 percent of all U.S. loan applications.

Hope you find this helpful.

Best Regards, Chris Mesunas

 

FHA assisting people with damaged credit…

BY MATTHEW GRAHAM
FHA Throws Lifeline to Those With Damaged Credit During Recession

Aug 19 2013, 2:05PM

The financial crisis took its toll on Wall Street and Main Street alike.  Mistakes were made and bills went unpaid on both sides of the fence, but Main Street sees Wall Street bailouts and asks "where's my bailout?"  Specifically with respect to the housing market, borrowers who have had bankruptcies, foreclosures, deeds-in-lieu, short-sales, or other adverse credit have heretofore been unable to quickly reestablish themselves as worthy borrowers.  That's changing.

Late last week, The Department of Housing and Urban Development on Thursday unveiled a new set of guidelines under the FHA program specifically geared toward homeowners and prospective homeowners adversely impacted by the Great Recession.  The "Back to Work" program, as it's called, doesn't constitute a free pass for those who would otherwise be unable to qualify for financing, but it does reopen the housing market to a great many borrowers who would otherwise have been waiting for 3-7 years to tick off the clock–depending on their initial credit issue–before being able to qualify for a mortgage.  In FHA's words:

"As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage."

The program will require prospective borrowers to thoroughly document the nature of the "Economic Event," that it resulted in derogatory credit, and that there has been a satisfactory recovery from the Event per the new guidelines. 

Lenders will consider the Economic Event to have caused the derogatory credit if:

  • The prospective borrowers had satisfactory credit prior to the event onset
  • The prospective borrowers' derogatory credit occurred after the onset of the event
  • The prospective borrowers have reestablished satisfactory credit for at least 12 months since the the end of the event

Lenders will consider borrowers to have reestablished satisfactory credit if:

  • The borrower has no late housing or installment debt payments for the past 12 months
  • Open mortgage accounts are current and have been paid on time for the past 12 months
  • Borrowers have adhered to the agreement of any open modification plan for the past 12 months
  • Complete a course of Housing Counseling in person, via telephone, via internet, or other methods approved by HUD (who provides a list of Counseling agencies). 

For the purposes of this program, an "Economic Event" is defined as "any occurrence beyond the borrower’s control that results in loss of employment, loss of income, or a combination of both, which causes a reduction in the borrower’s household income of twenty (20) percent or more for a period of at least six (6) months.  The Onset of an Economic Event is the month of loss of employment/income."  Lenders will verify the reduction in income or loss of employment with at least one of the following:

  • A written termination notice
  • Other publicly available documentation of the business closure
  • Documentation of the receipt of Unemployment Income

Additionally, lenders have to verify a 20 percent loss of income due to the Economic Event by documenting borrowers' income prior to the event.  This requirement can be satisfied either with a written "Verification of Employment" form with income details provided by the employer or signed tax returns (or W-2s).

Hope you find this information handy.

Best Regards, Chris Mesunas

 

Falling Mortgage Debt Offsets Rise in Consumer Debt

BY JANN SWANSON
Falling Mortgage Debt Offsets Rise in Consumer Debt

Aug 14 2013, 1:32PM

In spite of a huge surge in auto loans, Americans reduced their overall household debt by $78 billion during the second quarter the Federal Reserve Bank of New York said today. Total household indebtedness fell to $11.15 trillion in the second quarter, a decrease of 0.7 percent from Quarter One and 12 percent below the peak debt of $12.68 billion reached in the third quarter of 2008.

The declining debt was due in large part to a reduction in its largest component, mortgage debt, which fell $91 billion from the first quarter to $7.,84 trillion. Balances of home equity lines of credit (HELOCs) declined as well, by $12 billion to $540 14billion.  Mortgage originations rose for the seventh straight quarter to a total of $589 billion.

While outstanding student loan debt and credit card balances each increased by $8 billion during the quarter it was auto loans that kept overall debt near Q1 levels. Auto originations totaled $92 billion in the quarter, the highest level since the third quarter of 2007 and outstanding auto loan debt increased $20 billion, the ninth consecutive quarterly increase and the largest in that sector since 2006.

The rate of 90+ day delinquencies for all household debt declined to 5.7 percent from 6.1 percent in Q1 and the rate for every individual component of household debt also fell. The mortgage delinquency rate was 4.9 percent, down from 5.4 percent and HELOC delinquencies fell from 3.2 percent to 3 percent. Nonetheless 200,000 individuals had a new foreclosure notation added to their credit reports during the quarter, the first increase since Q1 2012.

 

 

"Although overall debt declined in the second quarter, households did increase non-housing debt, led by rising auto loan balances," said Andrew Haughwout, vice president and research economist at the New York Fed.  "Furthermore, households improved their overall delinquency rates for the seventh straight quarter, an encouraging sign going forward." 

The Federal Reserve Bank of New York's Household Debt and Credit Report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. The report provides a quarterly snapshot of household trends in borrowing and indebtedness, including data about mortgages, student loans, credit cards, auto loans and delinquencies. 

Hope you find this information useful.
Best Regards, Chris Mesunas

 

Linking Interest Rates to Unemployment?

Linking interest rates to unemployment: logical or dangerous?

Published: Tuesday, 13 Aug 2013 | 8:44 AM ET
By: Moorad Choudhry, Department of Mathematical Sciences, Brunel University

Consultants and others who have perfected the art of talking a lot without saying anything (and getting paid for their efforts) are frequently in the habit of referring to "paradigm shifts", even if not everyone is sure what "paradigm" actually means (there's a great Dilbert cartoon on this. In fact, what does it mean?).

We could be observing a paradigm shift in the art and practice of central banking, but (as with all such shifts) without being aware of it. In years to come students of finance may define "monetary policy" simply as the taxpayer underpinning the private sector economy. Certainly that is what appears to be happening, ever so subtly, as we move away from crisis to something approaching more stable conditions, but with no accompanying change in the policy response.

(Read more: BoE's Carney fails to impress with 'Fed 2.0')

The Bank of England has followed the U.S. Federal Reserve and decided to link changes in its base interest rate to the rate of unemployment. The rate is currently at 7.8 percent, but interest rates will not be raised from their current record low until this rate is at 7 percent (usual disclaimers on inflation et cetera, et cetera apply). The business media has looked at the BoE's own forecast on unemployment (clearly disregarding the historical fact that economic forecasting, whoever is presenting it, is generally as accurate as astrologers' predictions) and seen that it isn't due to hit 7 percent until 2016. Ergo, rates are staying flat for three years.

There are a large number of causal factors that drive the unemployment rate. Some of them are significant, for example labor market policy: if the government was to freeze payroll taxes for a year for all new hires, there would be a big impact. And it would have had nothing to do with the cost of borrowing. An econometrician will tell you that one needs a complex multi-factor non-linear model to model unemployment and its causality with something approaching even 50 percent significance. The rate could stay above 7 percent for the next 10 years, while asset prices and inflation race away. This is where the Bank's get-out clause kicks in, it can raise rates if other factors dictate. But by then it would probably be too late to stop an unsustainable boom.

(Read more: Carney unveils Fed-style forward guidance)

It is easy to draw a statistical close correlation between unemployment and interest rates, just as it is to infer one between the number of people who get sunburnt on holiday and interest rates. Linking the two is a departure for monetary policy and one that we should think carefully about. It's meant to be part of the new vogue for "forward guidance" (a superfluity if ever there was one. A bit like "aerial flight" or "wet swimming". Can one have backwards guidance?). But we'll talk about that in a second.

Most students of finance will tell you that a big driver of the last crash was excess cheap liquidity fueling a housing and other asset bubble, and excess borrowing that caused distress when the bubble burst. What do we have now? Excess cheap liquidity that is being assisted (in the U.K.) by a government subsidy for first-time house buyers. And an equity price bubble that is being fueled by quantitative easing and near-zero interest rates. This is all meant to be unwound when the economy "returns to normal", but what's normal? Would you want to bet on central banks getting the timing right?

(Read more: Bank of England's Carney in the spotlight)

Forward guidance is meant to help stabilize markets because it gives them a strong indication that there will be no tightening of monetary policy for a near-explicit period of time. It's going to do that alright, and then some – the period of "stability" is in fact going to be a period of yet another asset bubble growing. We are seeing signs of it now, in house and equity prices and borrowing levels. That's retail borrowing levels mind you , the corporates are sitting on their cash piles. But it's the corporate sector we want to see growth in. And that sector needs as much help from the supply side of things and labor market policy as it does from monetary policy. Monetary policy has done its bit.

Linking the base rate to unemployment seems to be a lessening of an ability to control events. There are any number of factors that drive the employment rate and we need to be careful in tying the two, especially if it's part of some unnecessary forward guidance policy.

If markets can only be stable when one tells them interest rates will be zero for years to come, and experience volatility at any hint that rates may go up, and it has been five years since the crash, then something is going wrong here. A "free market economy" is supposed to be just that, but it looks like our one is morphing into a "taxpayer backed central bank economy". Now that's a serious paradigm shift.

Professor Moorad Choudhry is at the Department of Mathematical Sciences, Brunel University and author of The Principles of Banking (John Wiley & Sons 2012)

I hope you find this information helpful.

Best Regards, Chris Mesunas

HARP on the positive

BY JANN SWANSON
Half-Time Report on HARP Largely Positive

Aug 9 2013, 2:49PM

The Office of Inspector General (OIG) of the Federal Housing Finance Agency (FHFA) has published an assessment of theHome Affordable Refinance Program (HARP) at what is presumed to be the midpoint of its existence. HARP was designed to assist borrowers with existing mortgages owned or guaranteed by Freddie Mac or Fannie Mae (the GSEs) to refinance even where they had little or no equity, were underwater, in their homes.

HARP began in March 2009, a joint project of FHFA and the Treasury Department. To qualify for the program under the guidelines for what is now called HARP 1.0, a borrower had to be current on their monthly mortgage payments and have a loan-to-value (LTV) ration of 105 percent or less (raised to 125 percent in the early days of the program.)

When HARP 1.0 was announced it was anticipated that four to five million borrowers were eligible to refinance under the program, however by September 2011 less than 1 million homeowners had done so. FHFA, the GSEs, lenders, and other stakeholders identified several issues with the program believed to be causing the lackluster results:

  • Loans with LTVs greater than 125% were not eligible for HARP 1.0 refinances;

  • The short program duration of approximately 15 months discouraged lenders from investing resources to market and originate HARP loans;

  • Representation and warranty liability deterred lender originations;

  • Manual property appraisals were required for the majority of originations;

  • Lenders were not permitted to solicit directly HARP-eligible borrowers for refinancing; and

  • Risk-based fees increased up-front borrower costs and diminished the benefit of a lower interest rate.

FHFA directed the Enterprises to collaborate with stakeholders to address these concerns and improve the program. After several modifications were agreed upon, FHFA publicly announced them in October 2011, rebranding the program as HARP 2.0. Changes included removing the 125 percent LTV ceiling, extending the duration of HARP by 18 months, eliminating the requirement for a manual property appraisal, lowering the maximum amount of risk based fees and revising lender solicitation guidelines, and allowing lenders to offer incentives to borrowers. Later modifications to the program included substantial representation and warranty relief for lenders and reduced documentation requirements. FHFA also extended HARP an additional two years, through December 31, 2015.

As a result of the program modifications creating HARP 2.0 and the subsequent changes, refinance volume has substantially increased. As of March 2013 2.4 million HARP refinances had been completed.

 

 

OIG said that the savings realized by borrowers each month through the HARP refinance is an important outcome. By lowering the monthly payment HARP reduces the risk of future default and potentially stimulates the economy. According to Fannie Mae's 2012 data, HARP borrowers saved an average of $250 per month or $3,000 per year.

Another outcome is the effect HARP has had on high-LTV loans. As lenders began to implement the HARP 2.0 changes in early 2012, finance volume for loans with LTVs between 105 percent and 125 percent began to increase. Then in June 2012 the GSEs permitted lenders to include HARP loans with LTVs greater than 125 percent into special mortgage-backed securities (MBS) and refinance volume for these loans dramatically increased.

 

 

HARP was also designed to place borrowers in more stable mortgage and over 75 percent of HARP borrowers refinanced into fixed rate mortgages with terms greater than 20 years while less than 1 percent refinanced into less stable adjustable rate mortgages. Further, a significant percentage of borrowers chose to refinance into shorter term mortgages which allow them to more quickly build equity in their homes.

 

 

Another important dimension for HARP is the impact it has had on the GSEs. OIG looked at the financial impact on them as a function of five variables, credit risk, guarantee fees, retained portfolio investments, representation and warranty relief, and opportunity cost. Some of these variables were found to be positive for the GSEs finances, some negative or neutral.

The credit risk associated with a HARP loan is intuitively lower than that of its original counterpart because the new mortgage has, at minimum, a lower interest rate, a lower payment, or a shorter amortization period than the original and may also have been refinanced into a more stable product. These conditions mean the GSEs are likely to benefit from HARP.

Likewise, guarantee fees are higher today than prior to 2009 and when a pre-2009 loan is refinanced the GSEs are released from the earlier g-fee structure and can securitize the refinanced loan and charge today's higher g-fee.

HARP refinances negatively impact the GSEs' retained portfolios because when HARP eligible loans are refinanced (pre-paid) the GSEs no longer receive interest payments on the original loan but purchase or guarantee a loan with a lower interest rates and thus less value. The effective cost to the GSEs is the difference in value from the net interest rate spread between the original loans and the new loans.

The cost of representation and warranty relief is neutral. The waiver of significant representation and warranty protection mandated by HARP 2.0 may negatively impact the GSEs, however the loans are seasoned loans made to borrowers with demonstrated ability to repay so the actual cost of eliminating the representations and warranties is mitigated by the loan characteristics.

Opportunity costs are foregone because there is no need for HARP eligible borrowers to acquire additional mortgage insurance or add equity to their loans. Thus because HARP exists, the GSEs forgo the opportunity to reduce their credit risk through enhancements or relieve themselves of the loan entirely.

OIG further assessed HARP by looking at FHFA's administration of the program, analyzing performance data and program outcomes, and identifying remaining program barriers. It found that FHFA's administration of HARP had included its active engagement of stakeholders to identify and address program problems including meeting with lenders, the GSEs, and mortgage insurers. To identify issues confronting borrowers Fannie Mae conducted a comprehensive survey of HARP-eligible borrowers in 2012 and the results of this survey was shared with FHFA.

These meetings with stakeholders resulted in the identification and implementation of a number of improvements such as the level of document required, aligning of same servicer and new lender requirements to enhance competition for borrower business, issues with representations and warranties, and aligning GSE requirements.

OIG also noted that FHFA had sought to increase HARP volume by pursuing state-level support for the program – working with state housing finance agencies that receive funds from the Treasury's Hardest Hit Fund.

OIG found that many of the barriers that earlier kept HARP from attaining its goals have been substantially mitigated but there are still some issues remaining related to borrower knowledge and understanding of the program, origination and closing fees, lender placed mortgage insurance, and lender capacity constraints. To address the borrower knowledge issues, FHFA has announced a nationwide public relations campaign to educate borrowers about HARP. The campaign is specifically intended to address the borrower misconceptions identified in the Fannie Mae borrower survey such as believing they are not eligible for the program or that they have to use an unfamiliar lender.

OIG concludes that, with over two years left in the program, it is difficult to project how many HARP-eligible loans ultimately will be refinanced because, among other factors, educating borrowers and encouraging their participation continue to be major challenges.

Hope you find this information helpful.

Best Regards, Chris Mesunas