How Many Pages is the Actual QM Rule? Fed Earns Record $89B on MBS and Treasury Holdings
Do you owe any money on your home? Lots of owners do, a lot don't. Usually we see these "free and clear numbers from the Census Bureau, but this week they come to us from Zillow, which tells us that nearly one third of us don't have any debt on their house. (Hey, if you've saved up some money, but are earning 0% on it from the bank...) The highest state for free & clear ownership is West Virginia (45%), the lowest is Nevada & DC at 21% and 20%, respectively. [READ: One-third of U.S. Residences Owned Mortgage-Free]
Yesterday the commentary posted a job listing from Citi and its retail group. ("The Partnership Channel of the Retail Mortgage Division of CitiBank is currently recruiting loan originators and sales managers in the following states: TX, LA, MO, IA, IN, OK, TN, KS, WI, AL, MN, KY, MI, and IL.") The e-mail address of the primary contact person was incorrect, and I received a large number of e-mails from folks (who will remain nameless, of course!) who tried to send a resume but could not. The correct e-mail address for Kenda Rice is kenda.l.rice@citi .com.
"Rob, last week the Fed's minutes showed that several members questioned whether or not the Fed's MBS purchase program would last through the end of the year - and rates shot up. But now we have economists and talking heads trying to figure out how long it will take for the unemployment rate to drop to 6.5 percent. It could be at least half a decade! Here's the story. Who's right?" That is the $64,000 question! It is good to keep in mind that the unemployment rate can change, based not only on employable people working, but also based on the number of people in the labor pool. So it is influenced by those out of work, those who give up looking for jobs, the "under-employed" (have jobs but lower paying), and so on. Although the Fed has based a goal on unemployment, its original purpose was, and still is pretty much, "to provide the nation with a safer, more flexible, and more stable monetary and financial system." This chatter about using the unemployment rate as a metric is new, and critics think that the Fed should not use it due to the inherent problems in measuring and monitoring it. Personally, I think that the purchases will last through the year, if not longer, and think that the industry should be concerned about other things that move rates on home loans (loan level price adjustments, gfee increases, etc.).
It is good to remember that owning mortgage-backed securities, and other Treasury securities, has not been a problem so far. The Federal Reserve paid the U.S. government a record $88.9 billion in 2012, a 17.9% increase from $75.4 billion in 2011. The central bank earned the money from the mortgage-backed securities and Treasury bonds it has bought. The previous record was $79.3 billion in 2010.
Are banks in good shape? Sure they are - until they aren't. But for now, at least, one financially savvy person thinks they are, but of course he has billions at stake if banks turn south.
The full QM rule has come out. Of course, it isn't the final final rule, but it is still +/- 800 pages, introduced by the CFPB simply saying, "We issued the document containing this final rule on January 10, 2013." Here's a link to the final QM document, all 804 pages of it.
Joe Adamatis writes, "QM? More like a Quiet Moment! I agree as there is nothing here that any lender who doesn't want to risk their business isn't doing. Of course there are those originating outside Main Street GL's by eliminating over-lays, but they are far and few between and rarely do they close. Seems to me, that we continue to make a lot out of nothing since no lender in their right mind is offering Liar Loans, etc. Hopefully the private market will eventually address the No Doc for self-employed as currently those folks are being hammered. I remember the days when Greenpoint used to originate these and there were no significant defaults. The program only crashed and burned when those who thought there was a way to capitalize by offering the program to the masses with little of the original guidelines that Greenpoint had. 25% down and hefty scores were a requirement compared to no skin in the game and lackluster scores."
Ted R. asks, "I'd love to know how borrowers (particularly in high cost states) are going to get small loans if the total fees cannot exceed 3% of the loan size. Closing costs here in MO (with an FHA appraisal) run in the $1,700 or so range, and in attorney states can be almost $1K more. If the total fees can't exceed 3%, and if lender credits don't count to offset those fees, the CFPB is basically saying that loans under $50-75K (depending on state) won't be QMs, regardless of rate, loan purpose, or lender fees. Is denying prime rate loans to small loan borrowers sound housing practice? Is it the CFPB's intent to legislate small loans into much higher rates since they may not be QMs?" [Editor's note: I have heard chatter about exceptions already being discussed for loans under $100k, but nothing concrete yet.]
Derek Becker asks, "Here's an interesting question to ponder. With the unveiling of the QM rule, how will it affect the CRM and LMI requirements for banks or is this an opportunity to extort more money from them for complying with QM and, therefore, not making enough CRM and LMI loans. I see that there is a proposed amendment for...' exemptions for housing finance agencies and lenders participating in housing finance agency programs intended to foster community development.' Operative word here is proposed and community development can have many definitions. I thought that when a new regulation is promulgated it could not be in contradiction with existing law or regulation."
Brian B. asks, "Will the Safe Harbor kill privatization? Doesn't the concept of a Safe Harbor place an extra and almost extra-ordinary burden upon all loans that do not fall within the Safe Harbor and further composes a DISPARATE IMPACT on the US Citizens who would require financing outside of the Safe Harbor? The idea is similar to the German's ship Graf Spree during WWII: it was so perfect in the harbor that the Germans became afraid to use it and once it left the Safe Harbor it was the biggest target. Is Redwood worried?" [Editor's note: probably not, as it is working on plans for conventional production.]
The MBA has released a handy-dandy preliminary matrix for the rules.
Wells Fargo's results for the 4th quarter came in. (Hey, if it can come up with results less than two week into the next period, why can't your CFO?) The earnings per share were better than expected. John Stumpf called 2012 an outstanding year. Total loans were up 29% from the fourth quarter of 2011, but there are a lot of moving parts to an earnings release like this. Net interest income and margins were down slightly, about as expected - more tomorrow or Monday on the mortgage side of things
Turning to the eternal markets, mortgage-backed security prices closed "lower and tighter" which means that although they went down in price they didn't do as poorly as Treasury prices. It was busy day in mortgages with Tradeweb reporting volume at 139 percent of the 30-day moving average and10-year T-notes marked lower by 3/8 of a point (1.90%) despite a good 30-year bond auction. Mortgage banker supply remained uneventful at less than $2.5 billion, consisting mostly of 30-year 3.0s. Meanwhile, the latest report from the New York Federal Reserve indicated buying at a pace that equated to $4.1 billion per day over the week ending Jan. 9. In other flows, fast money was a reported buyer, while profit-taking was noted from real money.
The week winds down with three economic releases: Import Prices (Dec) and International Trade (Nov) at 8:30 a.m. and Treasury Budget (Dec) at 2:00 p.m. Import Prices are expected up 0.1 percent from -0.9 percent previously, while consensus on the trade deficit is -$41.3 billion from -$42.24 billion. In the early going the markets are nearly unchanged from Thursday's close, and the 10-yr is hovering around 1.88%.
A blonde walks into a bank in New York City and asks for the Loan officer. She says she's going to Europe on business for two weeks and needs to borrow $5,000.
The bank officer says the bank will need some kind of security for the loan, so the blonde hands over the keys to a new Mercedes Benz SL 500.
The car is parked on the street in front of the bank, she has the title and everything checks out. The bank agrees to accept the car collateral for the loan.
The bank's president and its officers all enjoy a good laugh at the blond for using a $110,000 Benz as collateral against a $5,000 loan.
An employee of the bank then proceeds to drive the Benz into the bank's underground garage and parks it there. Two weeks later, the blonde returns, repays the $5,000 and the interest, which comes to $15.41.
The loan officer says, "Miss, we are very happy to have had your business, and this transaction has worked out very nicely, but we are a little puzzled. While you were away, we checked you out and found that you are a multimillionaire. What puzzles us is, why would you bother to borrow $5,000?"
The blonde replies, "Where else in New York City can I park my car for two weeks for only $15.41 and expect it to be there when I return?"
Finally... a smart blonde joke