Lenders charge an interest rate commensurate with the risk, and potential for not being paid back. But disasters and taxes can complicate things. Mortgage News Daily points out that, “In 2007…Congress put a temporary policy in place to exclude forgiven home mortgage debt from any tax obligation. That exclusion has been extended several times… The National Association of Realtors (NAR) has long advocated for making the exclusion permanent, maintain that taxing forgiven debt as income adds an additional burden on an individual or family just as they have actually experienced true economic loss, and when they are unlikely able to pay additional taxes.”
Capital Markets
We’ve been hearing that rates will eventually go up for quite some time. And they have. The sudden jolt this year has LOs and originators wondering how high they’ll go. It is important to know what is moving rates in order to think about future rates.
The 10-year Treasury note is steadily approaching 3 percent as less central bank easing, a weakening dollar, and rising oil prices strengthen the case for rising interest rates. Now that the debt ceiling issue has been resolved, net Treasury issuances are likely to increase since the Treasury has been using extraordinary measures to keep the US under the borrower limit for the last couple months as well as due to an expectation of increase budget deficits. Markets will be paying attention to where the Treasury issuance is focused along the yield curve and whether there will be a shift to longer maturities which could cause the curve to steepen and for longer rates to rise. On the short end of the curve, the market is pricing in a high probability for the FOMC to raise the Fed Funds target at the next meeting in March.
The consumer obviously helps drive the economy, and the US consumer continues to be bullish on the economy as seen in the continued strength in the consumer confidence index as well as the strong performance of real personal consumption expenditures over the past year. This has occurred despite a lack of growth in real disposable income with consumer opting to fund their consumption with a reduced savings rate as well as by utilizing part of their accumulated wealth. If the recent uptick in average hourly earnings (+2.9 percent in January year-over-year) can be maintained, however, it would be a bullish signal for the upcoming year. Additionally, the lowering of income tax rates will begin to permeate through the economy in the coming months which could add a bump to consumption. While higher interest rates and inflation could put a damper on the current pace of consumption, those risks are not presently seen as significant as during the pre-recession era.
Weeks vary in terms of the amount of economic news that is put out by various private and government entities. When there is little news, and rates move in a certain direction, that is a sign. Two weeks ago, for example, Treasury yields continued to rise and dominate the market's attention. Existing home sales disappointed again this month as tight supply continues to hold back sales. Even though the inventory of existing homes rose in January, it remains 9.5 percent below last year's level. The tight supply continues to put upward pressure on prices which are up 5.8 percent on a year-over-year basis.
The main narrative remains the upward trend in Treasury rates despite 10-year note rates moving down 4 basis points on Friday. Much of the talk around Treasury yields has centered around the expectations for increased supply. When the Treasury published the latest refunding announcement at the end of January, they announced an increase in auction sizes to account for larger budget deficits and the reduction in reinvestments of the Federal Reserve's portfolio. The latest bi-partisan budget deal is also expected to add to already increasing deficits and it also suspended the debt ceiling until March 2019, which will allow the Treasury to replenish its operating cash. All of this puts pressure on the supply-side of the Treasury market and has likely led many investors to increase their short positions in anticipation of expected future supply.
Yesterday the commentary noted, “If you sell loans for cash, Freddie Mac and Fannie Mae will be offering a new business opportunity with its introduction of a 10-year mortgage product. With the implementation of the Single Security coming in Q2 2019, Lender will have access to distinct pricing specifically for a 10-year mortgage that can help with best execution decisions. You'll no longer receive pricing for a 15-year mortgage, as you currently do, when you deliver a 10-year loan. Loans with special characteristics, such as high LTV ratios and super-conforming, will also receive distinct 10-year pricing for cash executions.”
Fannie’s trading desk relayed, “A quick note on the 10-year comment. We already offer a 10-year execution for both whole loan and MBS. The Fannie Mae MBS prefix is CN and trades a handful of ticks to nearly 1 point through the 15-year depending on the coupon. Freddie does not currently offer a 10-year MBS product. Just wanted to clarify for your readers as we feel it is important to support liquidity in that product to provide borrowers more options and have done so for years.”
Put another way, Fannie Mae has always had a separate 10yr mortgage (CN prefix) product. Freddie Mac may be exploring its own 10yr product / prefix as part of single security, but capital markets folks should distinguish that Fannie has always had this product to support investor demand and aid in lender execution.
(If readers are interested, the Single Security document’s language discussing a 10-year product launch for Freddie is on pages 43-44.)
Angel Oak Capital Advisors announced the completion of a “first of its kind” fix and flip securitization. “Not only is this a big deal because of the underlying loans, but because this deal really caught the attention of the market due to its short duration and revolving structure. With this deal, Angel Oak is pioneering what can be done post-crisis with these transitional loans.”
Looking at Thursday’s bond market, it was another non-volatile day. A couple 2nd tier numbers were released from later in the day. The NAHB Housing Market Index for March dropped to “70,” below both expectations and last month’s downwardly revised number. Freddie Mac’s Primary Mortgage Markets Survey for the week ending March 15 showed fixed mortgage rates falling for the first time in ten weeks with the average 30-year and 15-year rates declining 2bps and 4bps, respectively, vs. the previous week to 4.44% and 3.90%.
Today’s economic calendar kicks off with new residential construction for February with expectations for housing starts and building permits to decline to 1.280 million and 1.300 million vs. 1.326 million and 1.320 million previously. They actually came out at -7%, most of the weakness due to multifamily, but permits also dropped – not good. February industrial production and capacity utilization will come out, forecast to be +.7% and 78.0% vs. -0.1% and 77.5% in January. There will be two releases at 10AM ET: March University of Michigan Sentiment Index, and January JOLTS job openings rounding out the week. We start Friday with the 10-year yielding 2.83% and 30-year agency MBS prices, once again, nearly unchanged from Thursday’s close.
Employment, Products, Promotions, and Management Changes
National MI is pleased to announce the addition of Robert Villalon to its sales team in the Southeast Region. He is the new Account Manager for the East Florida territory and will join Carrie Callahan in providing industry-leading service to their lenders. Robert is an industry veteran and trusted partner in the Florida mortgage market and brings more than 20 years of sales, customer service and account management experience. He has been active both the Mortgage Bankers Association of South Florida and the Mortgage Bankers Association of Florida, holding several key leadership positions; and in 2016, he was awarded the MBA of Florida’s President’s Award for his efforts in support of the mortgage industry. Email Robert or call him at 510-788-8574.
Since implementing Loan Vision a little over two years ago, Village Mortgage have not only seen tremendous back office efficiency gains, but also major advances in the depth of data it uses to run the business. “We’re able to make decisions more quickly, our profitability has jumped tremendously, and for the past three months, we’ve had our financials closed out completely and issued within 3 business days,” stated Justin Girolimon, Senior Vice President & CFO at Village Mortgage. To learn more about how Loan Vision can help reduce cost and increase business insight, contact Carl Wooloff.
“With all the turmoil in the markets today, isn’t it good to know there is a partner you can trust? AFR Wholesale is in its 11th year of operation and continues to expand its staff with account teams based in over 25 states. We are committed to our client's success by introducing new programs, expanding our guidelines and making available additional technologies to meet you and your clients’ needs. Come and talk to us today about our many programs, such as our world-class one time close program, our broad-based renovation program and our recently expanded low down payment program. We’d love to hear from you … and needless to say we are a proud sponsor of BRAWL and AIME.”
Michael Gallo is now Executive Vice President of Wholesale National Operations at Pacific Union Financial. “With his more than 25 years of mortgage operations experience, Michael has been charged with revitalizing the Wholesale Operations team at Pacific Union. Most recently he was EVP of Wholesale Fulfillment at a large TPO lender. Pacific Union is creating a top-notch employee and customer experience in 2018, so if you are ready to be part of a rock star winning team email Pacific Union today for more details.”
Last week, Freedom Mortgage Corporation (FMC), NMLS 2767, launched Freddie Mac’s new coverage solution Integrated Mortgage Insurance (IMAGIN), as part of a limited group of lenders. “We are extremely pleased with the high level of interest and early success that IMAGIN has provided”, said Keith Bilodeau, SVP Freedom Mortgage Wholesale. “We are excited to be among the first in the industry to offer our clients this new and alternative structure for securing mortgage insurance”, said David Sheeler, EVP Freedom Mortgage Correspondent. IMAGIN streamlines underwriting by eliminating the need for separate mortgage insurance company approvals and MI certifications. Full MI cost is paid “upfront” through the associated LTV/FICO-based loan level price adjustments. Contact your Freedom Mortgage Sales Representative today to learn more: Correspondent Lending | Wholesale Lending.
The Wholesale division of Caliber Home Loans, Inc., announced more enhancements to its Reconnect program. Reconnect provides opportunities for broker associates working with Caliber Wholesale to reconnect with shared borrowers at precisely the right time. Since Caliber services around 96% of the loans originated through its wholesale, retail and consumer direct channels, this provides Caliber with several strategies for keeping post-closing relationships alive. Reconnect’s broker alerts are one of these strategies. Reconnect sends real-time email alerts to originating brokers when Caliber’s powerful analytics model detects actions that suggest a shared customer may be looking at their financing options within 24 hours to 90 days. Reconnect alerts provide brokers with the intel required to approach established borrowers at the appropriate time. Knowledge is power and Reconnect puts both squarely in the brokers’ hands. For more questions about Caliber Reconnect, contact us.
Congrats to Art Yeend whom The Barrent Group, a leading provider of mortgage loan due diligence, quality control and consulting services, has named its business development director. Yeend comes to The Barrent Group with over 30 years of experience in capital markets, sales and production in the mortgage industry and on Wall Street and will be responsible for developing new client relationships and nurturing existing ones.
At Impac Funding, Joe Tomkinson will be stepping down from the position of Chairman and CEO, as of July 31, 2018. Mr. Tomkinson will remain a director on the Company’s Board of Directors. Recall that William Ashmore, President, had elected not to renew his contract, which expired at the end of 2017. Impac announced that the Board of Directors has appointed George Mangiaracina as President. At the time in which Mr. Tomkinson steps down, the Board of Directors, anticipate appointing Mr. Mangiaracina as CEO. Rian Furey is its Chief Operating Officer, in addition to his current role with the Company.
BankFirst Financial Services in Columbus, Miss., has acquired HomeFirst, a mortgage services company in Oxford, Miss. The $958 million-asset BankFirst said in a press release Thursday that it will retain all HomeFirst's employees, including executives Tonquin Stovall and Brian Sistrunk. The transfer of HomeFirst’s customer accounts to BankFirst should be completed this month.
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