Plenty of LOs and lenders rely on the FHA's programs for their livelihood. (FHA loans account for about 10% of all applications, VA 11%, USDA 1%.) Is the FHA's financial situation really improving? For those who care, this short report - which analyzes the FHA's book of business and insurance premiums - is worth five minutes of your time. "The issue is really how quickly the new forward books of business should be required to make up for both the unprofitable reverse mortgage business and the unprofitable 2001-09 forward book of business, when forward premiums were too low and when lending standards were too lax."

Ocwen, and certainly its stock price, have been beat up after its CEO resigned and it agreed to sell its government MSR portfolio as part of a settlement. The stock is down 77% over the past year. The big question is whether they have a business going forward, and what, if it has to sell all its servicing and fails, this will do to servicing values. Other non-bank servicing-centric companies have been hit as well. For example Stonegate's stock, which has been over $18 per share, is now in the mid-$11's, down over 30%.

While we're on servicing, "Hey Rob, have you been missing MSR sales, or do you still include them in your commentary? " I do, and although the last few weeks of 2014 saw very little supply, 2015 is here and I'm starting to see more activity. For example MountainView Servicing Group announced its advisory role for the sale of a $4.2B Freddie Mac and Fannie Mae MSR portfolio; the package is 100 percent fixed-rate and first lien product, WaFICO 752, WaLTV of 75%, WAC of 4.19%, average loan amount of $245k, low delinquencies, with top states of California (51.3%),  Arizona (8%), Texas (5.9%), and Colorado (5.2%).

The "smartest guys in the room" think that 2015 residential volume will be pretty close to 2014 - maybe a shade higher due to increased purchase volumes. But how many independent mortgage banks have a "strategic plan"? For depository banks, the OCC indicates strategic plans should cover at least a 3 year period, contain a comprehensive assessment of risks that currently impact the bank or could impact the bank during the period covered under the plan, articulate overall mission statement and strategic objectives for the bank and how it will achieve those objectives, include an explanation of how the bank will update, as necessary, the risk governance framework to account for changes in its risk profile projected under the plan, and be reviewed, updated and approved as necessary, due to changes in the bank's risk profile or operating environment that were not contemplated when the plan was developed. Here's a good primer.

For some good news the mortgage industry is seeing signs that young people are returning to the housing market as the labor market improves.

That is indeed good news for lenders since it seems so much weight is being put on Millennials. Let's see what some lenders have been up to lately.

First a note from the Appraisal Review Department at Flagstar Bank. "Your comment related to Flagstar removing AMC implies that we've completely removed all AMC's.  We only removed three from our panel.  We still have other approved AMC's on our panel and utilize these AMCs for our Retail, Broker and non-compliant Correspondent customers." Thank you for the clarification.

While we're on Flagstar, it has expanded offerings to the Freddie Mac Super Conforming program. Additionally, effective for sales contracts executed on or after January 1, 2015, properties being sold within 90 days of the seller's acquisition are ineligible for FHA financing per FHA's published FHA Info 14-73 announcing the expiration of the property flipping waiver in effect since 2010.

Premier Nationwide Lending has announced the 97% conventional loan availability for eligible consumers with FICO scores down to 620.

Ditech Mortgage Corp. has updated certain one-unit primary, fixed rate and rate/term refinance programs to reflect acceptable 97% LTV ratio loans. Updates apply to case files underwritten thru DU 9.2.

NYCB Mortgage Company updated its Jumbo 30 Year Fixed Guidelines to remove Asset Depletion as an acceptable source of income.

Fannie Mae's 97% LTV program throughout the mortgage world:

Effective Friday, December 19, 2014, Flagstar is pleased to announce the implementation of Fannie Mae's expansion to allow 97% loan to value. Flagstar will be updating the Fannie Mae Fixed Rate, Doc. #5301 and Fannie Mae MyCommunity Mortgage, Doc. #5325 programs to reflect this change.

As part of the FNMA DU 9.2 release enhancements, Mountain West Financial has Conventional Financing available up to 97%. Its Conventional Product Matrix has been updated.

Peoples Bank announced, effective January 2nd, it will offer FNMA's new 97% LTV loan programs.

Franklin American Mortgage Company updated its information regarding QM points and fees. Effectively immediately, loans discovered to exceed the QM points and fees limit will be reviewed on a case by case basis for the opportunity to cure. The loan will be suspended accordingly.

LDWholesale has posted a new weekly announcement which includes information regarding Property Flipping, LDW Overlay Document, and Credit Report Resubmission.  To view its recent announcement click here.

With this down move in Treasury rates originators and investors are wondering what is in store for them. Bank of America Merrill Lynch released some informative research news on the topic. The topic revolves around "convexity": what will the refi response be as the 10-year UST yield went below 2%? Current data shows that this translates into a 3.8% primary mortgage rate given p/s (primary-secondary spread, or the difference between the bond market and what borrowers actually see on their rate sheet) of 115bps and the nominal basis to the 10-year UST of 65 basis points. "Three takeaways: On convexity hedging needs, estimate at least $25 billion in 10-year equivalents.  We estimate at least $25 billion in 10-year equivalents for convexity hedging needs from pipeline hedging and the potential for an additional; $35-40bn from MSR (though this is contingent on servicer recapture rates). On supply/demand, net supply estimates stand to double from $65 billion at 2.25% to $120 billion at a 1.75% 10-year UST yield.  This holds the potential to close the supply/demand imbalance led by the $150 billion underinvestment by the money managers. On refi response, data shows $785 billion of the outstanding $5.5 trillion in outstanding MBS universe within the 3.80-4.10% gross mortgage rate (GWAC.)  The Freddie Survey rate as of last week is 3.87%; a drop this week should reflect the UST rally indicating a potential refi response from these borrowers."

The trader noted what every lender already knows: broad-based borrower response is also contingent on individual lenders, how much a servicer is trolling through their own portfolios, the credit scores of the borrowers, LTV's, and the cost versus benefit of refinancing. The latest dramatic move down in rates has caused the spread to widen, i.e., the borrower is not yet seeing the total benefit. The last time we were at these levels in the p/s spread was mid Oct '14 when mortgage rates were around 3.85%, and an immediate selloff to a 4.12% mortgage rate occurred. Now we're around 3.75%-3.875% on rates sheets around par. If originators decide to improve their pricing and thus close the p/s gap, even without a further rate move, mortgage rates have the potential to drop another 5-10 bps to remain in line with recent trends which will help to draw some more supply. Let's hope there is demand for it.

Some of the Friday numbers involve hourly earnings. One thing lacking in the recovery has certainly been wage growth despite considerable improvement in the labor market. In fact many economists say that growth in wages is downright disappointing. One reason is that many firms were unable to reduce wages during the recession, and they must now work off a stockpile of pent-up wage cuts. This pattern is evident nationwide and explains the variation in wage growth across industries. Industries that were least able to cut wages during the downturn and therefore accrued the most pent-up cuts have experienced relatively slower wage growth during the recovery." But don't take my word for it: the Federal Reserve Bank of San Francisco put out a nice research piece on it.

Unfortunately the news overnight and this morning are dominated by the tragic shooting in Paris. The uncertainty in Europe, Russia, and Asia has caused the flight to quality here in the United States. Will Greece default or exit from the euro? What will central banks do, or what will happen politically especially as a result of this shooting? When you add these things to issues in Asia such as Japan and China dragging along and the price of oil plummeting, we have problems for economies - and few LOs really want lower rates that are caused by a poor economy.

We do have some news here in the States. First up the MBA informed us that mortgage application data fell sharply over Christmas week and rebounded slightly last week. The Market Composite Index decreased by 9.1 percent on a seasonally adjusted basis from two weeks earlier. On an unadjusted basis, the Index decreased by 37 percent compared to two weeks ago. The Refinance Index decreased by 12 percent from two weeks ago. The seasonally adjusted Purchase Index decreased by 5 percent from two weeks earlier, while the unadjusted Purchase Index decreased by 33 percent compared to two weeks ago. The Purchase Index was 8 percent lower than the same week one year ago. Confused? Me too. But know that refis are at 65% of apps and ARM loans are at about 5%.

We've also had the December ADP (Automatic Data Processing) employment change, always of questionable predictive ability to the government's number Friday since it doesn't include government jobs. It was predicted higher from the +208k print prior but was only up 106k. We've also had the International Trade Balance numbers for November (last month it showed a $43.4 billion deficit, it is now at an 11 month low at $39 billion). Later today we'll see the FOMC's minutes for December 16-17's meeting. For those setting rate sheets we had a 1.96% close on the 10-yr Monday, and in the early going we're at 1.98% with agency MBS prices slightly worse.

Jobs and Announcements

Looking at jobs, expanding across the country, Paramount Residential Mortgage Group (PRMG) is actively hiring experienced Correspondent / Wholesale Account Executives / Originators in the western United States, including Northern and Southern California, Oregon, Washington, Utah, Colorado and Alaska.  PRMG is a national leading lender and was ranked no. 2 of the 50 Best companies to work for in America.  To learn more about PRMG in this region contact Paul Lucido, National Marketing Director. For inquiries and/or questions about other markets, please email you@prmg. net.

Congrats to Gino Blefari. HSF Affiliates LLC announced that he has assumed the role of chief executive officer at HSF Affiliates, which operates Berkshire Hathaway HomeServices, Prudential Real Estate and Real Living Real Estate.

Also congrats to US Mortgage which is celebrating its 20 year anniversary. These days in residential lending twenty years are a long time for anything.