Yes, the mortgage volume pie is shrinking, but rest assured that the pieces are growing larger for the remaining originators.

Psssst! Want a cool sounding job, where you "will conduct comprehensive investigations that may involve delicate matters, issues, and investigative problems for which there are few, if any, established criteria" and earn $98-148k? Then the CFPB is for you.

Wholesale buyers of reverse mortgages are still alive and well - here's a list, compliments of John Y. at Reverse Mortgage Daily. (Sunwest is not on the list, and here is its site.)

And while we're on lists, each year Builder Magazine publishes local market share data for the leading builders in the top 50 markets, which represent approximately 70% of closings for the top builders. It appears that market share of new home sales for the top 20 builders slightly decreased to 32.6% in 2011 from 34.4% in 2010. (One wonders why, given modern technology, we're in the middle of August looking at 2011 numbers!?) The largest U.S. homebuilder in 2011 was D.R. Horton with unit market share of 5.6%, followed by Pulte Group at 5.0%, and Lennar at 3.6%. The top five permitting markets in 2011 were Houston, Dallas/Fort Worth, New York, Washington, D.C., and Phoenix. Of these markets, top 10 builder market share was lowest in New York at 19.8% and highest in Phoenix at 58.2% versus a 56% average for the major MSAs. Other major markets for the large homebuilders included San Antonio, Miami, Austin, Las Vegas, Orlando, and Atlanta.

Eminent domain news continues to simmer. While the legal challenges of using eminent domain appear to be significant, investment banker KBW believes "that the main flaw with the plan is the fact that the holder of the loan has to be paid fair value. If the trust is actually paid fair value, there would be no loss to the trust but also no gain to the buyers. So, we believe this plan hinges on paying a below-market price and argue that it equates to fair value." I mention this because local residents and mortgage finance experts lined up at a San Bernardino County hearing yesterday to push back against the idea of seizing underwater mortgages through eminent domain. This is similar to the result in Chicago. This approach is not dead by any means, but is faced some warranted setbacks.

(As a quick reminder, Mortgage Resolution Partners, led by Graham Williams, is pushing to use private capital to acquire current and underwater mortgages for less than fair market value, write down principal and refinance them into a Federal Housing Administration loan.)

San Bernardino County CEO Greg Devereaux said they would consider many options, and signaled how unlikely the use of eminent domain could be. "I am certain this board would not approve a proposal that singles out eminent domain as an approach," Devereaux said. "We are not here to look for any one approach. We are here to look for ideas." It was reported that residents in the area are suspicious of the eminent domain proposal and the investor group pitching it. After all, isn't eminent domain a public action, not an action led by a private, for-profit firm? Here is the complete story from the local newspaper.

Yesterday the commentary mentioned some startling banking stats (no new banks were formed in the U.S. last year), and I received this note from Deb Avdelotte, president of Titan Capital Solutions. "See my entry on FDIC statistics and bank declines since the 1980's (link). Also, I've heard that the latest word from Raj Date/CFPB was that Risk Retention/QM/QRM won't be discussed/taken up again until 'sometime after the election.' This translates to late January at the earliest since the congress (and the President?) doesn't get sworn in and working until then." Thank you Deb.

This morning the Wall Street Journal reported that, "The Treasury Department is preparing to revamp the terms of its nearly four-year-old financial backing of Fannie Mae and Freddie Mac in a bid to allay investor concerns that the companies could one day exhaust their federal lifelines, according to government officials familiar with the plans. The renegotiated agreements, which could be announced as soon as Friday, would change the way the firms pay the government for its support, these people said. Currently, the government-controlled mortgage-finance companies make 10% dividend payments to the Treasury every quarter, an arrangement that has forced them to borrow money from the government during periods where they don't turn a large profit. Under the new arrangement between Treasury and the companies' federal regulator, all the firms' quarterly profits would be turned over to the government as a dividend payment; the government wouldn't require such payments in periods when the firms are unprofitable." 

UPDATE: Treasury, FHFA Take Steps to "Responsibly Wind Down" GSEs

The story continued. "The revised terms would also accelerate the reduction of the firms' mortgage portfolios, these people said. The firms will have to shrink those portfolios by 15% annually beginning next year-a change from the currently required 10% annual reduction. That means the portfolios, which can be no larger than $650 billion for each firm at the end of the year, will fall to the final cap of $250 billion by 2018, four years earlier than previously scheduled...The changes are designed to avoid the prospect that Fannie and Freddie could one day exhaust their Treasury support simply because they might not generate enough profits to pay back those dividends. They will also prevent the companies from rebuilding capital, which should tamp down any hopes-or fears-that the firms would one day re-emerge from conservatorship in their old forms."

"While the companies have made profits in recent quarters, they have had to pay such large dividend payments to the Treasury every year-nearly $19 billion between them-that they continue to borrow money from the Treasury in certain periods, even when running a small profit. Requiring larger injections from the Treasury, in turn, increases future dividends." But, per the WSJ's story, "The revised agreements don't suggest any broad shift in the government's approach to the companies. While the Obama administration hasn't made any major effort to overhaul the companies, it has said the companies would have whatever support was needed to ensure they could repay bondholders."

I don't know how this ties in, if at all, with the recent controversy between the FHFA (F&F's overseer) and the Treasury over debt forgiveness. A while back an analysis by Fannie and Freddie that suggests taxpayers could benefit from the implementation of a debt-forgiveness program. The current loss-mitigation approach revolved around reducing balances for some borrowers who owe much more than their homes are worth. The Federal Housing Finance Agency has maintained that the current housing-rescue programs offered by the taxpayer-supported mortgage companies are less-expensive options, with Mr. DeMarco, head of the FHFA, saying the agencies would not participate. The Obama administration, most notably through Treasury Secretary Tim Geithner's letter, has argued strongly in favor of the FHFA adopting the principal-reduction program for Fannie and Freddie, saying it would provide more sustainable loan modifications. In April, the agency said that loan forgiveness would save about $1.7 billion for the companies, relative to other types of relief. Fears exist that more borrowers, upon hearing that Fannie and Freddie are instituting a debt-forgiveness program, might default to seek more generous terms. The Treasury Department rolled out the debt-forgiveness program in 2010 for homeowners who have missed their mortgage payments or face imminent hardship and who owe more than their homes are worth. Fannie and Freddie opted against participating, but the program has been increasingly adopted by mortgage servicers that handle deeply underwater loans which aren't guaranteed by Fannie and Freddie. Freddie currently allows its borrowers who are underwater or who have less than 20% equity to refinance with reduced documentation and fees under the Home Affordable Refinance Program. The coming change will allow all borrowers with loans backed by the company, regardless of their loan-to-value ratio, to benefit from the streamlined program. And as we all know, Fannie had already extended the HARP program to all borrowers, regardless of their equity position.

Darned rates - will they ever go back down and help the folks who didn't lock a few weeks ago? Probably, but let's figure out three reasons why rates have moved up in the last few weeks (1.40% to 1.80% on the 10-yr, and MBS prices moving lower/worse a couple points). First, the sentiment towards Europe continues to brighten - this risk is easing out of Europe. Granted, much of the population is on vacation, but there were three critical speeches/communiqués published in the last 1.5 months out of the EU (6/29 ESM direct bank capital injections, words on July 26 from Mario Draghi, President of the European Central Bank, and an August 2^nd press conference also from Draghi) that have led analysts to believe that the prospect of a material monetary response to the European debt crisis is very possible, something that has never occurred since Greece first became an issue back in 2009.

The second is the impression that the U.S. economy is not falling off a ledge. It has been over a year since S&P downgraded this country, and rates have done nothing but go down - hardly the mark of a country in serious trouble. Housing appears to have stabilized, the jobs market is not strong, but it is not weak either, and many individual statistics show that things are slowly growing.

And the third is that given U.S. inflation is low, and job market is stable, the odds of the third round of Quantitative Easing (QE3) are declining. In other words, things aren't great, but they are not bad enough for further Fed easing and another push for lower rates. That being said, the "looming fiscal cliff" is an issue - politicians created it, so politicians very well may postpone it.

Obviously this uptick in rates causes an initial push in rate locks and refinances, but after that the refi market has the potential for really being knocked down. Investors know this, and may very well bid up agency mortgage-backed securities, with overseas investors continuing to want MBS backed by the U.S. Government.

For market activity on Thursday, in the late afternoon 10-year notes were down/worse about .250 (1.84%), and we continued to see price changes from lenders as MBS prices finished the day worse by .125-.250. The Fed reported it was still buying over $1 billion a day in agency MBS's - over 50% of the perceived supply from originators. And that certainly helps mortgage rates.

Today we'll have the preliminary August Consumer Sentiment reading at 9:55AM EDT, and Leading Economic Indicators for July at 7AM EDT. After those minor numbers, there is no scheduled news until the middle of next week so look for markets to move based on any news from Europe or Asia, or anything unexpected. In the early going the 10-yr is back to 1.80% and MBS have improved slightly.

After a very busy day, a commuter settled down in her seat and closed her eyes as the train departed Montreal for Hudson.
As the train rolled out of the station, the guy sitting next to her pulled out his cell phone and started talking in a loud voice: "Hi sweetheart, it's Eric, I'm on the train - yes, I know it's the six thirty train and not the four thirty but I had a long meeting - no, honey, not with that floozy from the accounts office, with the boss. No sweetheart, you're the only one in my life - yes, I'm sure, cross my heart" etc., etc.
Fifteen minutes later, he was still talking loudly, when the young woman sitting next to him, who was obviously angered by his continuous diatribe, yelled at the top of her voice:  "Hey, Eric, turn that stupid phone off and come back to bed!"