Poor
Baby Boomers. The industry is so fixated on waiting for the "trophy
generation" Millennials to figure out what they want for housing (see
updates a few paragraphs down) that no one seems too concerned about
older folks. But the National Reverse Mortgage Lenders Association/ Risk
Span Reverse Mortgage Market Index (RMMI) grew for the tenth straight
quarter. The RMMI, which evaluates trends in home values, home equity
and mortgaged debt of homeowners, aged 62 or older every quarter, has
reached its highest level since Q3 of 2007 at 183.87, a 2.5% increase
from Q2 of 2013. The
index indicates that Americans 62 years old and older now have more
equity in their homes since 2007 and senior home values have grown by
more than $97 billion in Q3, whereas collective home equity continues to increase, reaching a total of $3.84 trillion.
Banks...
they just aren't making any more of them, and the numbers are going
down due to M&A. In the last week or two we learned that in Texas
Guaranty Bank & Trust ($1.3B) will acquire Preston State Bank
($122mm) and The First National Bank of McGregor ($149mm) will acquire
Oglesby State Bank ($14mm). One state up, American Heritage Bank ($1B,
OK) will acquire First National Bank in Pawhuska ($31mm, OK) for about
$4.2mm in cash. And for fans of mortgage banking, Elkins, W.Va.-based Citizens Bank of West Virginia Inc. has acquired the business operations of Reliance Mortgage Co.
They
aren't making any more Millennials either. Young adults today, often
called the millennial generation, are more likely to be foreign born and
speak a language other than English at home, compared with young adults
in 1980...and take pictures of themselves and broadcast them over the
internet. The U.S. Census Bureau pegs the Millennial group as age 18-34, thus born between 1981 and 1997. That definition is good enough for me.
Maybe
some of them will go to college for free. Orange County is not exactly
the hot bed of liberalism and progressive thought, and this article
on free junior college proves it. But it does raise some issues about
the cost of a college degree obviously impacting future home buyers.
Because overall, student loan debt lowers the likelihood of homeownership by age 30 or so for a group of individuals who attended college during the 1990s. If you don't believe me, ask the Federal Reserve Bank of Boston which published the most recent comprehensive study on the topic.
Remember,
however, that our government earns income from all those ex-college
students making their debt payments. The last figure I saw came from USA
Today in late November 2013, and it noted that our government ("we're here to help") made a $41.3 billion profit
for the 2013 fiscal year. There are companies out there, however, that
are actively refinancing student debt - such as San Francisco's Social Finance.
Yes,
a frequent news item is the level of student loan debt outstanding. The
claim in the press is that student loans that young adults are saddled
with are preventing them from purchasing homes. What is the current
policy of how student loans are factored into a borrower's ratios? Here
is exactly what FNMA has to say: "Fannie
Mae requires that all deferred installment debt, including student
loans not yet in repayment, be included in the calculation of the
borrower's debt-to-income ratio.
In determining the payment for deferred student loans, Fannie Mae
currently requires that the lender obtain a copy of the borrower's
payment letter or forbearance agreement or calculate the monthly payment
at 2% of the balance of the student loan. Research has shown that
actual monthly payments are typically lower than 2%. In addition, many
student loan repayment structures now use an income-based approach in
calculating changes in the payment due over time. As a result, Fannie
Mae is modifying the monthly payment calculation from 2% to 1% of the
outstanding balance. In addition, for all student loans, regardless of
their payment status, the lender must use the greater of the 1%
calculation or the actual documented payment. An exception will be
allowed to use the actual documented payment if it will fully amortize
the loan over its term with no payment adjustments." Therefore even if
the payment is deferred we still have to factor in either the actual
future payment or use the 1% calculation.
CNBC
reports in 2014 renters paid 4.9% more than they did in 2013. Analysts
say increases like this will eventually push Millennials into home
ownership. Here's a great short video from The RE Source and Dave Savage
of Mortgage Coach on working and winning with Millennials in
Real-Estate and Lending. The guys talk about what matters most, and how
to best communicate with this younger generation that currently makes up
36% of the workforce. Lots of great takeaways in just 4 minutes, "Less is more, like never before" check it out. CLICK HERE TO WATCH THE VIDEO.
Other
countries are dealing with this as well. And they have a few creative
things going on overseas with regard to students and home buying. For
example, this from the UK.
Last
year I attended a school graduation where one of the graduates showed
up to the ceremony wearing prison stripes, holding a ball and chain
strapped to his leg, and a sign that read, "Class of 2014: Part of the
Debt Chain Gang." Some may think it's well within his rights to use the
event to create awareness....I however think a kindergarten school
graduation is no place for political discourse. But the facts are the
facts: young adults are being saddled with harder economic realities
than generations past. Some may even attempt to quantify their
misery...and they have. It's called the Youth Misery Index; the index adds together youth unemployment, average graduating student debt (in thousands), and national debt per capita
(in thousands). Youth unemployment is at 18.1%, one of the highest
levels since World War II. Average graduating student debt has reached
$30,000. National debt per capita is $58,400....add it up and the Youth
Misery Index for 2014 comes out to 106.5. In 2013 the index was
calculated at 98.6; in 2012 it was 95.1; in 2011 it was 90.6; at the
start of the financial crisis the index was 69.3....when the YMI was first
calculated back in 1993, the American youth's misery was 53.1. Fun with
numbers.
Wells
Fargo Securities, LLC Economics Group recently released an article
titled, "Making Sense of Household Formations", predicting that household formations should strengthen along with the economy in the coming years.
Household formation drastically fell during the recession and has
remained low over the past few years. Between 2008 and 2010, only
500,000 new households were formed in the United States, compared to the
typical rate of 1.3 million per year. The downfall of household
formations can be attributed to an increase in loan debt, growth in
college and trade school enrollment, lack of job opportunities and weak
income growth. These factors have led Millennials to move back home with
their parents for a prolonged period of time. Data suggests that of
those aged 25-34 years old, 13.9% live with an older family member, an
increase from 10.8% in 2005, which means more than 1.5 million young
adults are living at home. The sluggish rate of household formations may
be the cause of the slow housing recovery. Fortunately, growth in
household formations should be seen this year, due to an improving job
market. Non-farm employment growth has increased and the unemployment
rate has dropped. Wells Fargo Economic Group predicts that household
formations should rise to 1.5 million in 2015. To learn more about Wells
Fargo predictions, click here.
Turning our collective gaze to the markets, the smartest guys in the room believe that the Federal Open Market Committee (FOMC) will vote to begin increasing interest rates sometimes this year.
The FOMC is made up of twelve voting members, including seven members
of the Board of Governors, the president of the Federal Reserve Bank of
New York and four additional Reserve Bank Presidents who rotate
annually. There are currently two vacant seats, so the voting power of
the FOMC is predominantly in the hands of ten people. At the FOMC's
December meeting, there were mixed reviews of when interest rates should
increase. Some members recommended that interest rates should increase
early this year as the economy should reach full employment by the end
of 2015 or 2016, whereas others believed rates should increase mid
2015-to later in the year as inflation indicates indifferent demand.
That
is all well and good, but there is a lot going on in the day-to-day
security markets. Investors are selling their higher coupon securities
and buying lower coupon securities, resulting in some wild price
movements out there. And overall MBS prices are lagging Treasury
securities - who wants to pay 106 for something that is going to pay off next week at 100 (par) resulting in a 6 point loss?
With 10y rate 1.76%, current coupon basis 60bps, and primary secondary
spread 130bps primary residential mortgages rates are being set
~3.625-3.75%.
The New
York Federal Reserve Bank announced readiness sale for next Tuesday with
four odd lot GNMA pools totaling a max of $23.7 million. Priming the
pumps! And there are certainly thousands of analysts at investors and
Wall Street firms trying to second guess each other on prepayments,
market direction, coupon spreads, how the price of oil will change
things, and so on. Stay tuned!
Today
is a travel day for me to Southwest Florida, thus the early commentary.
But we have a lot of data coming out starting with the Consumer Price
Index (CPI). Then we'll see the Industrial Production and Capacity
Utilization twins, both seen lower from last reads. At 9:55AM EST is the
University of Michigan Sentiment, 93.6 prior. We'll see how all that
impacts rates including our 10-year T-note which closed Thursday down at 1.77% and in the very early going is at 1.73%.
Jobs and Announcements
Under the "companies expanding" banner, a client of Menlo Company (MenloCompany.Com), a leading M&A and production growth management firm, is expanding its Retail Lending Footprint. "Its model organizes regional lending centers,
built on and around your team, to provide a unique and highly service
oriented offering of mortgage services to consumers in your market. So
if your company and/or production team is looking to be acquired (or transitioned) to lead the expansion in your market, contact Rick Roque.
The main requirements are production / LO driven with the leadership to
manage more than $5M per month in volume, be focused on Retail Mortgage
Lending (e.g. not commercial, real estate or insurance), be purchase
focused - but successful refinance teams or companies may be of
interest.
Citibank, N.A. is searching for experienced, high-performing Home Lending Officers (HLOs) in key Citibank retail markets
including New York, Boston, Washington, D.C., S. Florida, Chicago, Los
Angeles and San Francisco. HLOs work with customers to offer lending
solutions that meet their home financing needs and promote Citi and its
financial services. HLOs work as a team with bank branch staff to drive
mortgage originations and will develop key referral relationships with
Realtors, Builders, etc. to develop self-sourced business. "Ideal
candidates will have expert knowledge of lending products, services and
pricing alternatives and the ability to explain them to clients and
referral sources. Citibank offers the best of both worlds
- an established global brand with a 200-year history that operates in
many ways like a small local lender. Citi has exclusive products and
relationship pricing discounts and offers one of the best retail branch
partnership models in the industry."
And congrats to Linda Bomar, who has been named VP of Sales at Indecomm Global Services,
a leader in business process outsourcing, consulting, learning, and
technology solutions to the mortgage industry. Linda will spearhead
Indecomm's sales efforts to the mortgage industry and is joined by John
Feehan, Director of Sales. Both bring their stellar reputations and
solid relationships to expand Indecomm's sales organization and are seeking to add additional talent to their sales team. To learn about the positions available or to submit a confidential resume, contact Linda Bomar.