Pi Day; Primer on MBS Issuance; LendingTree Lawsuit; Bank M&A; How About These Rates!
doesn't love a good 'Top 10' list? If it wasn't for top ten lists, and
videos of cats dancing, the internet would be reserved for its intended
purpose: governmental communication after a global thermo nuclear
war....and who wants that? But it is interesting to see the list of
housing markets exploding around the U.S. The data is provided by Core
Logic (the only reason I've included the link), by way of WallStCheatSt.
In percentage order for the last 12 months: 10. Hawaii (11.1), 9. Idaho
(11.1), 8. Washington (11.6), 7. Florida (12.5), 6. Arizona (13.1), 5.
Georgia (13.4), 4. Michigan (13.7), 3. Oregon (14.3), 2. California
(20.3), 1. Nevada (22.2).
Bank of America will lay off 156 employees in its Texas mortgage operations unit.
We want them on that wall; we need them on that wall.....Marines? Maybe, however, I'm referring to Wells Fargo's economics group. In the latest installment of Housing Data Wrap-Up: How Long Will It Take Housing to Shake off the Chills?
The group breaks down season challenges in the housing market. While
California and much of the southwest has been talked to death about the
impending water drought and unseasonably warm weather, much of the
nation has been mired down in abnormally cold storms for much of the
winter. Has this affected the housing market? Maybe, but seasonality has
always been an issue. Wells Fargo writes, "Weather-related weakness will be relatively easy to overcome. November, December, January and February are typically some of the least important months of the year
for home sales and new home construction. While these four months
account for one-third of the year, data for the past 25 years show the
four late fall/winter months accounting for just over one-quarter of new
single family home sales and just under 30 percent of single-family
starts. By contrast, the following three months account for nearly 37
percent of new single-family sales and nearly 38 percent of starts." Much
will be determined in the housing markets in the next six months. While
a lot of effort was expended in Q4 mitigating exposure to QM, one has
to believe as we enter into the traditional purchase market season, that
an equal amount of time and resources will be devoted to the lackluster
step-child: the purchase market.
Mortgage traders report seeing about $1 billion a day from originators - but that is misleading. Looking
at the housing market, remember the large percentage of all cash buyers
- it is huge! But some of the daily trading numbers leave off the
product sold directly to the agencies through their cash windows -
although that is also down for the month. This week BAML reported on
fixed MBS issuance. "Total: $29 billion MTD vs. $61 billion in Feb;
Fannie: $12bn MTD vs. $25bn in Feb; Freddie: $9bn MTD vs. $17bn in Feb;
Ginnie: $8bn MTD vs. $19bn in Feb." Another investment bank reported
that it expects the monthly gross issuance of agency MBS to reach
roughly $90 billion by May/June of this year (up from its average of $67
billion in January and February). The bank also expects the monthly net
issuance of agency MBS to reach $20 billion over the same time frame
(up from $10-$11 billion in January and February).
put some more perspective on this. During the past two months
(Jan-Feb), the gross issuance of agency MBS had averaged only $67
billion per month, while it averaged about $150 billion during the first
half of 2013. The sharply lower gross issuance due to lower originator
selling has been one of the major technical factors supporting the tight
valuations of agency MBS basis over the past several weeks. Think back
to high school econ, and supply and demand: if supply drops, and demand
is steady, the price will increase. In this case, MBS prices have
improved relative to Treasury securities. And in spite of the Fed's
tapering off of MBS purchases, supply has been down, so percentage-wise
the Fed is still buying a dominant percentage.
the monthly gross issuance of agency MBS is going to increase by that
much to $90 billion a month by the summer, where is it going to come
from? Approximately 52% of the total agency MBS issuance, or about $34
billion per month, has been coming from purchase transactions recently
and the seasonality in purchase activity is going to have a substantial
impact on both the gross and net issuances of agency MBS. Over the past
two years (2012-2013), the average existing home sales number from
May-July was about 50-58% higher than that of the prior
December-February time period. A similar seasonality may be noticed in
the monthly agency MBS issuance.
mortgage refi activity contributed about $30 billion agency MBS
issuance per month in January and February. Rates have dropped slightly,
but this decline in mortgage rate hasn't led to any pick-up in the MBA
refinance index nor do experts think we'll see another huge increase in
refis. It really takes a good salesperson to talk someone out of a 3.50%
rate into a 3.75% rate. But we'll still see refi biz pick up a little
bit - there are always some borrowers out there refinancing for some
to legal matters, anytime the press can combine the names Countrywide,
Fannie Mae, Freddie Mac, Bank of America, and lawsuit into one story,
you can bet they will.
And LendingTree was in the press this week over a patent case.
Bank M&A continues unabated. This week Keefe, Bruyette & Woods
announced that Ameris Bancorp, the parent company of Ameris Bank,
announced the signing of a definitive merger agreement under which
Ameris will acquire Coastal Bankshares, Inc., the parent company of The
Coastal Bank, Savannah, Georgia. Upon completion of the transaction, the
combined company will have approximately $4.1 billion in assets, $2.8
billion in loans, $3.4 billion in deposits and a branch network of 74
banking locations across four states. KBW was also involved in news from
Michigan that "the boards of directors of Chemical Financial
Corporation, the holding company for Chemical Bank, and Northwestern
Bancorp, Inc., the holding company for Northwestern Bank, announced the
execution of a definitive agreement for Chemical Financial Corporation
to partner with Northwestern Bancorp, Inc. in an all cash transaction
valued at $120 million."
that is not all. North Dakota's Alerus Financial ($1.4B) will acquire
Private Bank Minnesota ($142mm, MN) for an undisclosed sum. Bank of
America will sell 10 branches in Kansas to banks operating in the state.
FirstMerit Bank ($23.9B, OH) said it will close 26 branches as it seeks
to consolidate networks and adapt to changing customer behaviors (more
online and mobile banking). BBVA Compass Bancshares said it has received
regulatory approval to open new loan offices in Charlotte, NC; Los
Angeles, CA; Nashville, TN; Raleigh, NC; San Francisco, CA and Seattle,
WA. The move follows a similar one last year when Compass opened 12 such
offices in NY, DC and FL.
Let's play catch up with a portion of the agency and investor news from the last few weeks.
How the heck does Freddie Mac do its QC sampling? Well, the video dudes at Freddie just posted a new QC TipCast for its customers.
MountainView Capital Holdings,
a Denver-based firm providing analytic asset management and sales and
trading services to the financial services industry, announced its
acquisition of McGuire Performance Solutions, a Scottsdale-based firm providing asset-liability management services to financial institutions.
Sterne Agee Group's FBC Mortgage,
seeking partnerships with community banks that want to farm out their
single-family mortgage originations, entered into mortgage referral
arrangements with four community banks in Florida, most recently
HomeBanc in Tampa. As part of the HomeBanc deal, FBC hired the bank's
mortgage personnel, who operated in a distinct unit.
Effective for all new locks, EverBank has removed the -.375 pricing adjustor for all 5/1 ARMs with the 2/2/5 cap structure.
EverBank is now accepting mortgage insurance from United Guaranty for all applicable transactions, effective immediately.
has changed its FHLMC Conforming Fixed, Conforming ARM, and Relief
Refinance-Open Access products to remove the Home Value Explorer option
updated its Non-Agency debt analysis guidelines to exclude Federal,
State, and local taxes; FICA or other retirement contributions;
commuting costs; union dues; open revolving accounts with zero balances
(with the exception of HELOCs); automatic deductions to savings
accounts; child care; and voluntary deductions from being included in
the DTI ratio. The
derogatory credit guidelines as they pertain to DU and LP have been
revised to encompass both FNMA and FHLMC guidance on seasoning
Chase has updated its LP and DU overlay matrix to consider health and wellness income an ineligible income source.
FHA guidance has been updated to prohibit the use of real estate tax
credits as qualifying assets to offset the minimum 3.5% down payment
requirement, and while a seller real estate tax credit can be applied
towards the cash to close on the HUD-1, the down payment must be
verified regardless of cash brought to or received at closing.
Effective for all loan programs, Chase has updated its flood insurance requirements. The
minimum coverage required for single family properties, 2-4 unit
properties, and 2-4 unit condos and attached PUDs not covered by a
master policy is defined as the lower of $250,000 (the current maximum
amount available through the NFIP), 100% of the full replacement cost,
or the outstanding principal balance plus the UPB of any other loan
and/or the total line of credit amount secured by the property. Attached
PUDs and five-plus unit condo projects that are covered by master
policies require the lesser of 100% of the full replacement cost or
properties located in Special Flood Hazard Areas, no replacement cost
reconciliation is required if the insurance amount is at least $250,000
or exceeds/equals the outstanding principal balance of the first lien
and all other loans securing the property. If the coverage amount is equal to the replacement cost, Chase may require replacement cost reconciliation.
What the heck? All the smartest guys in the room told us that rates in 2014 were moving higher. We
began the year with the 10-yr.'s yield sitting at 3.00% - easy enough
to remember - and now we're at...2.62%?! Nothing moves in straight
direction, of course. But the reason for the expectations of higher
rates was that the U.S. economy would continue to do better, housing
would appreciate, and job formation would increase, thus leading to more
demand for credit and the Fed lessening their asset purchases.
Of course, we didn't predict the heightened
tensions between Ukraine and Russia causing the proverbial "flight to
quality" into U.S. fixed-income securities, pushing their prices higher
and rates lower. Thursday the market decided to focus on Russian
military exercises near the Ukraine border, and warnings by Europe and
the U.S. that it would place sanctions on Russia starting Monday if
Crimea goes ahead with a vote on Sunday on a referendum to become part
we heading for another refi boom? That would be a real stretch at this
point. But everyone is reporting a pickup in locks and in activity. Some
of that is weather related, but some of it is due to seeing such dismal
January and Februarys that an upswing was practically inevitable. But
hey, we'll take it! Thursday the 10-yr improved by .625 and closed at a
yield of 2.65%, and agency MBS prices (that drive rate sheets) improved
we're not done with the fun. This morning we had the Producer Price
Index - PPI - for February. Inflation hasn't been a problem in many
years, but the index, set in 1982 at 100, is now up around 200. It was
forecast at +.2% with the core rate (which doesn't include volatile food
and energy costs) at +.1%. The numbers actually dropped by .1% and .2%,
respectively. We will have the preliminary March Consumer Sentiment
around 10AM EST. t 9:55 a.m. The 10-yr is down to 2.62% after the anti-inflation news, and agency MBS prices are better by about .125.
In celebration of Pi Day, here's something of interest for you musicians out there.