Fannie and Freddie Making Some Coin; Ginnie Volumes are Huge; Lack of Inventory to Impact Realtor Ranks?
Yesterday the commentary reported on the news that New Traditions
National Bank will become a subsidiary of Old Florida Bancshares, prompting one
punster to write, "Does that make it 'New Old Florida Bank' kinda like
Fifth Third Bank? (Most in the industry know that Fifth Third's name is
the result of the 1908 merger of Third National Bank and Fifth National Bank,
to become the Fifth Third National Bank of Cincinnati. Per good ol' Wikipedia,
"while Third National was the senior partner, the merger took place during
a period when prohibitionist ideas were gaining popularity, and it is legend
that 'Fifth Third' was better than 'Third Fifth,' which could have been
construed as a reference to three 'fifths' of alcohol." In 1969 it was
changed to Fifth Third Bank. Use that one at Happy Hour tonight!)
Not everything that counts can be counted and not everything that can be
counted counts. But the U.S. Census Bureau has released its 2011 American
Housing Survey, which covers topics ranging from financing, inventory, and
vacancies to householder satisfaction, health hazards, and sewage. The
data is downloadable via the links on the AHS page (http://www.census.gov/housing/ahs/).
As home prices improve, analysts are now saying (albeit cautiously) that
prices bottomed in the first quarter of 2012 and should continue on a slow but
steady upward trajectory over the next four to five years. The general
consensus is that they'll rise by 3-4% annually, a trend that, if it continued,
would put them back at 2006 prices by 2021. Heck, I don't even know
where I am eating lunch today - how can someone predict prices out that far? And
did these same people predict where we'd be now ten years ago?
For the time being, however, there's still a lot of inventory out there
in some markets, and hardly any in others. In fact, a top LO from Northern
California and wrote to me, "Given the lack of inventory and sales, my bet
is this business cycle weeds out a lot of weak Realtors." Inventory obviously
has a bearing on home prices. About 3.3 million homes are seriously
delinquent or in foreclosure, but, seeing as foreclosed borrowers still live
somewhere, it's the total excess supply that will affect the housing market,
and excess units number about 2.6 million at this point. Considering that
200,000-350,000 new homes make their way onto the market and 1.1 new households
are formed annually, though, that excess supply is on track to be cleared out
in the next few years.
The FHFA's REO program will also likely play a role in clearing vacancies,
especially in MSAs like Miami, Phoenix, and Chicago, where rental yields are
high and there's a sufficiently dense geographic concentration of REO properties.
By bringing government capital into the rental space, the program could result
in lower yields, along with creating opportunities for economies of
scale. However, the program isn't comprehensive enough to clear out the
backlog of inventory on its own, as only 10% of the entire REO inventory held
by the GSEs is being rented, and in many areas, the yields on rental properties
are too low to spark the interest of private investors.
But the agencies are there for us! At Freddie, Fannie, and to some
extent Ginnie, all those higher gfees, salary caps, buybacks, renting economy
rather than mid-size cars, etc. are paying dividends. Well, dividends to
the government to be precise. Under the "an improving market covers up a
lot of ailments" category, a turnaround in housing is also helping drive
Freddie & Fannie to profitability, and giving them the right to tell the
press and politicians to get off their proverbial back.
Mac had a $2.9 billion profit in the third quarter, down
slightly from the $3.0 billion Q2 number, but it helped keep the company from
making any additional Treasury draws. And it is the 4th straight
quarter of profits! In addition, Freddie's comprehensive income of $5.6 billion
in Q3 allowed it to pay a $1.8 billion dividend on senior preferred stock - the
press needs to talk about that! Year-to-date, Freddie Mac's net income and
comprehensive income totaled $6.5 billion and $10.3 billion, respectively, at
the end of September. The company's net worth was $4.9 billion, up $3.8 billion
from Q2. Freddie's inventory of delinquent loans is at the lowest level in two
years. The single-family serious delinquency rate is still around 3.4% but heading
down, and while the seriously delinquency rate is higher than it was in years
prior to 2009 it is significantly lower than the rate for the entire U.S. mortgage
market - 7.3% at June 30 according to the MBA's National Delinquency Survey.
Fannie, it earned $1.8 billion from July through September, "helped by
an improving housing market that has lifted home prices," and paid a dividend
of $2.9 billion to the U.S. Treasury and sought no additional federal aid. It
was Fannie's third profitable quarter since being taken over by the government
during the 2008 financial crisis. You and me, and a few million other
taxpayers, have spent about $116 billion to rescue Fannie but they're chipping
away at paying us back: so far, the company has repaid the government $23
billion. Under a new federal policy announced last summer, Fannie and Freddie
have to turn over all profits they earn every quarter to the government. The
change was made to ensure that the companies pay the government back. Something
tells me we won't be seeing that money come back to the taxpayer...
And their sister Ginnie Mae announced that it guaranteed over $39 billion in
mortgage-backed securities (MBS) in September. For the second consecutive
month Ginnie Mae's issuance is very close to $40 billion. Issuance for Ginnie
Mae II single-family pools led the way with more than $31 billion, while Ginnie
Mae I single-family pools totaled about $6 billion. Issuance for Ginnie Mae
Home Equity Conversion Mortgage-Backed Securities (HMBS), included in Ginnie
Mae II single-family pools, came in at $600 million. Total single-family
issuance for September was $37.275 billion. Ginnie Mae's multifamily MBS
issuance was more than $1.805 billion.
(As a very quick primer, "Ginnie Mae raises capital from investors in the
global credit markets to ensure liquidity for affordable rental and
homeownership opportunities across the country. Through its MBS, Ginnie Mae
finances housing mortgage programs run by the FHA, VA, the Office of Public and
Indian Housing, and the Department of Agriculture's Rural Development Housing
and Community Facilities Program. It only has about 100 full time employees
- always a surprise to those who didn't know that.)
On to some other somewhat recent investor, and MI updates, along
with the usual disclaimer that it is best to read the bulletin for full
details, but this will give you a flavor for current trends.
All conventional loans locked, re-locked or extended with Affiliated
Mortgage on or after October 29th will be subject to overlays additional to
those set out by DU 9.0. Conforming fixed-rate, LIBOR ARM, and high
balance fixed-rate loans for 2-4 unit primary residences will require six
months' reserves, and the maximum LTV/CLTV/HCLTV for conforming LIBOR ARMs has
been updated. All conforming high balance fixed-rate products will also
be subject to a minimum credit score requirement of 680. And AMC has updated
its Settlement Agent List, which can be viewed in full here.
MGIC is consolidating its two monthly premium plans such that all
monthly requests will be processed as ZOMP Monthlies, with no premium required
at closing. This does not apply to HARP loans; existing Standard
Monthlies for HARP Refi-to-Mod transactions will not be converted to ZOMPs.
MSI is requiring that, for all refinance borrowers formerly involved in
bankruptcy proceedings, sellers must verify that the loan being refinanced was
not a debt included in the insolvency proceeding and that the subject property
was reaffirmed when bankruptcy papers were filed. Credit reports will not
be accepted as confirmation of reaffirmed debts. This applies to all
loans with immediate effect.
Due to the difficulties associated with assigning jumbo loans after close with
DU, MSI is requiring that all jumbo loans be submitted to LP.
As per the Flood Insurance Modernization Act, MSI has clarified that the
minimum policy must compensate for any damage or loss on a replacement basis,
which must be at least the amount noted on the hazard insurance policy.
SunWest has updated guidance on a number of topics, including
manufactured housing; income stability, validation and verification;
non-occupying co-borrower restrictions; refinanced mortgages that are included
in bankruptcies; appraisal requirements; Power of Attorney and Revocable
Trusts; credit reports, credit supplements; and undisclosed debt requirements;
strategic foreclosures; and Streamline refinance eligibility restrictions on
previously modified mortgages and unemployed borrowers. To view the
changes in full, see here.
Edging into the usual market commentary below, I wanted to pass this along
first. Tad Dahlke from Banc of Manhattan notes, "The combination of
rising dollar prices and weakness in TBA dollar rolls has translated into
steady strength in payups. Over the last week we've seen balance pool
30-year 3.5s move another notch higher. 30-year 3.0's are gradually
developing a more established market in several categories, while 4.0s remain
exceptionally well-bid due to REIT and CMO demand." Sure enough, when one
looks at the increase in prices for pools made up of low loan amount loans
($175k or less), refi's above 80%, low FICO, investor, or New York loans, one
sees higher prices by as much as 1.5 points (so-called "specified pools").
Of course, mortgage banks, either unable to securitize loans, or those without
enough production to form securities, sell suitable loans to the aggregators or
to the agencies, and they're the ones who benefit from the price difference. It
is a profit motivated world out there!
And looking at the markets, equity markets dominated the news Wednesday
with stocks suffering their largest one-day hit in 2012. (We're seeing a bit of
a bounce today.) But LO's are cheering current events (unless they locked their
pipelines Monday & Tuesday) as 30-year FNMA 2.5% and 3.0% coupons surged "higher
and tighter" as investors perceived that QE3 will be alive and well for many
months, perhaps years. But investor owning higher coupon MBS got smacked as
prices actually dropped: they received a double whammy between President
Obama's re-election (FHFA Director DeMarco's days are numbered, and his
replacement will want to increase refinancing credit-impaired borrowers who
have higher rates), and much faster than expected prepayments in October.
Tradeweb MBS volume came in 122% of its 30-day moving average, but the
volumes didn't dampen prices much: prices on 30-year FNMA 3.0s improved about
.625 and over .75 on 30-yr 2.5's. How much of that makes it on to rate
sheets remains to be seen! Our risk free 10-yr T-note closed at 1.63%.
But that was yesterday. Today we've had Initial Claims (expected to go
from 363k to 370k, but actually moved lower to 355k) and continuing jobless
claims that also dropped. We also had the International Trade numbers that
actually showed a smaller deficit than expected (-$41.5 billion). And later we'll
have the final leg of the Treasury refunding with $16 billion in 30-year bonds
auctioned at 1PM EST. The 10-yr is currently at 1.68% and MBS prices are
better about .125.
The Borowitz Reports observed:
One day after the costliest Presidential election in U.S. history, Americans
awoke to the ugly realization that the nation had spent $2.5 billion with
absolutely nothing to show for it.
"Four years ago, Barack Obama was elected President of the United States,
and that is still the case," says Professor Davis Logsdon of the University of
Minnesota. "The only difference is that we as a nation are out $2.5 billion."
Mr. Logsdon claims that America's system of egregious political spending "has
made us the laughingstock of the world," arguing, "Even Greece would know
better than to blow through money like that."
But "not so fast," says Tracy Klugian, President of the Negative Advertising
Association of America, which represents the nation's leading producers of
political attack ads.
"When people complain about how expensive these political campaigns are,
they're forgetting about the millions of Americans who are employed making
negative ads," he says. "Say what you will about lies, vitriol and character
assassination, they're job creators."
In fact, Mr. Klugian says, America's costly and interminable campaigns are the
nation's most reliable source of employment: "They gave a completely unskilled
person like Mitt Romney a steady job for eight years."
Acknowledging that the $2.5 billion spent this year was a "tidy sum," Mr.
Klugian says, "If we took all the money we spend on political ads and used it
to educate our children and feed the poor, we wouldn't be America."