The industry is changing. The first half of 2013 is a distant, fond memory for residential lenders. Subprime, non-prime - what's the diff? Business Week reports on it. And the lender landscape is changing - one East Coast correspondent rep wrote me, "The Johnny-Come-Latelies who were attracted by the huge margins in 2008-2012 are finding that those margins just aren't there anymore, especially with the Agencies in the play. Smaller lenders can't afford compliance and legal staff, and will be exiting. But some of that will be delayed as due to the large amounts of cash and servicing portfolios that some have accrued. But even there, many are currently selling their servicing portfolios for cash to survive, so I expect to see a lot of consolidation in the second half of this year when that runs out." Those are tough words!

For those looking at an accurate read on current events & trends in the biz, Zelman & Associates released the results of its recent polls, including one focused on builders and one focused on lenders. There is definitely some growth in the builder segment! "We have spent the past two weeks talking to builders across the country, with operations spanning more than 30 of the top MSAs, to read the tea leaves on current market activity ahead of our official January Homebuilding Survey. In addition, we recently spent several days in the field touring communities in Phoenix, Las Vegas and Southern California. Although it is still early in the year and winter weather has been a clear headwind in many parts of the country, the majority of builders we spoke to reported a healthy sequential improvement thus far in January and are looking forward to February with cautious optimism, which we believe will be a similar tone voiced by public builder management teams during the upcoming earnings season. Builders reported an acceleration in traffic and activity but at a healthier pace than in the first half of 2013 when a lack of new product and limited labor capacity fostered unsustainable price appreciation. While the true success of the spring selling season will not be known until February and March are in the books, we remain optimistic that year-over-year new order growth is set to accelerate through the year, posting a mirror image of 2013, as new community openings work to slowly regain share from the existing home market, the shock of last summer's spike in mortgage rates fades and economic momentum provides an additional tailwind to consumer confidence, employment growth and household formation."

On the lender side, Zelman & Associates reports, "The purchase mortgage market has become competitive in recent months as refinance activity has plummeted largely due to rate volatility. As such, many contacts have reported that in order to remain competitive, they are sacrificing margins by engaging in aggressive pricing, which has been to the benefit of consumers, and spending heavily on marketing. Additionally, contacts have noted that they are exploring new business channels or considering expanding product offerings to offset declining overall business. As an indicator of the impact of competition on mortgage pricing, we monitor the primary-secondary mortgage rate spread, which measures the difference between the rate lenders offer to consumers (30-year fixed mortgage rate - the "primary" rate) and the rate secondary market investors offer to lenders for those mortgages (the current coupon on a 30-year Fannie Mae MBS - the "secondary" rate)... During December, the primary-secondary mortgage spread tightened approximately four basis points to roughly 94 basis points, suggesting some price competition. This was down considerably from 143 basis points at the peak in September 2012 and the average of 101 basis points during 2013, which benefitted from both elevated refinance activity as well as higher HARP originations which offer outsized economics. Despite the recent tightening, the spread remains well above the historical average of 45-50 basis points, suggesting that borrower financing costs could improve further as competition intensifies among originators, although the approximate 25-30 basis point increase in guarantee fees over the last several years coupled with potential additional increases in fees will limit the extent of compression this cycle, indicating the spread could contract 10-15 basis points before reducing lenders' origination revenue to below-average levels. We would also note that although higher overhead costs for originators could impact historical comparisons, the significant decline in the refinance index would suggest spreads are likely to continue compressing."

(The amount of information is material & significant, and Zelman & Associates is welcoming questions and additional participants in its surveys. For more information, contact Ivy Zelman at

Speaking of input, "The House Financial Services Committee wants to hold the Bureau of Consumer Financial Protection (CFPB) accountable, so it's asking those who have been impacted by the Bureau's work to come forward and tell their story. Starting this week, the committee's website offers individuals a web form to let committee members know how the CFPB has impacted them as consumers, as business owners or how the Bureau has affected their customers. 'Holding Washington accountable to hardworking taxpayers is a never-ending battle.  That's especially true when it comes to the Bureau of Consumer Financial Protection, the most powerful and least accountable government agency in all of Washington,' said Chairman Hensarling (R-TX). 'The Financial Services Committee is committed to true consumer protection.  True consumer protection means you not only protect consumers from 'Wall Street' but from Washington as well.'" Here is the link to tell your story.

In an example of "Regulator Creep" the CFPB has proposed a rule that will give it oversight of the 25 largest nonbank providers of international money transfers, forcing such entities to comply with recent consumer remittance rules.

And I continue to be asked about CFPB-related housing counseling. Start with this - every application must give a list of counselors. And then you see what Quicken has to say on the matter.

PHH has been accused of taking kickbacks from MI companies by the CFPB. The CFPB said it is seeking fines and repayment to customers from New Jersey-based PHH and several of its mortgage-related subsidiaries. The bureau filed the case in an administrative forum at the agency, and it will be tried by an administrative law judge. Here are the facts in the "administrative proceeding."

Turning to some quick vendor and investor news (lots more tomorrow)....

I owe an apology to Richard Donine, since I misspelled his name yesterday. (Richard Donine, formerly of Stearns Lending, Opteum Funding, and Impac, joined First Guaranty as an SVP and National Marketing Director.  He will head marketing for the correspondent, wholesale, and retail lending channels in addition to Capital Markets and warehouse lending.)

The CLD group of Envoy Mortgage announced the following product updates: the minimum loan amount for all products, excluding FHA, is increasing from $30,000 to $50,000; New York CEMA refinance transactions are now eligible; refundable MI on conventional loans is not allowed at this time; Texas Cash-out 50(a)(6) conforming fixed rate product is now available (specific lender approval is required).

Zipping over to the markets, we saw a nice increase in bond prices, and a drop in rates, Wednesday. But few lenders were seen re-pricing for the better - why not? Adam Quinones with Thomson Reuters writes, "A number of reasons can be cited to explain this defiant behavior. It's a chicken or the egg debate. 1) Lenders are protecting pull-through - no need to adjust the hedge. 2) Fallout is a problem but new apps are filling fallout holes - originators would basically be swapping pipelines and migrating down-in-coupon if fallout was an issue, and it is too soon for that approach. Why swap coverage down-in-coupon when prices are still rallying? 3) Whole loans are going directly into the servicing portfolio, likely the case for larger money center banks that originate loans against deposits - which also helps explain the short squeeze: a general lack of supply and stack compression. Lastly, 4) maybe desks are protecting newly acquired MSRs (mortgage servicing rights).

As expected, the Fed cut its asset purchases by $10 billion. Current buying levels from the Fed continue to be supportive, with a Deutsche Bank MBS analyst noting that Fed demand is likely to absorb all net supply well into spring. Through February, buying outright and through reinvestment of paydowns is estimated to average $2.2 billion per day, against originator supply that is running at around $1 billion.

What was unexpected was the major stock markets losing over 1 percent as the bid for risk deteriorated despite efforts from some emerging market central banks (Italy and South Africa) to shore up their currencies by raising benchmark rates. When the closing bond bell rang (there is no actual bell, so don't send me an e-mail) agency MBS prices had improved about .5 and the 10-yr's yield was down to 2.67%.

Today we had our first look at Q4 GDP. Expected at +3.3% following +4.1% in Q3, it came out at +3.2% - about as expected. Initial Jobless Claims were expected higher at +330k from +326k previously, and came out at +348k up from a revised 329k, so down 19k. We'll have some housing-related news with December's Pending Home Sales Index, and we'll also have two auctions: $35 billion 5-year notes and $29 billion 7-year notes. In the early going, after the GDP and Jobless numbers, rates are slightly higher with the 10-yr at 2.70% and MBS prices worse about .125.