Everyone knows why squirrels swim on their backs. (It's Friday, I couldn't figure out how to tie that joke in with in with any mortgage related news.) To keep their nuts dry.
Here is an interesting note that I received this week. "In Phoenix for the month of June we recorded the highest number of sales EVER, our market is on fire! Almost 12k sales with less than 25k active listings puts us around 2 months' supply at this absorption rate, though with the summer heat sales are likely to drop to 9-10k in the coming months which is still very high. The number of REO homes for sale is at new lows; new notices of trustee's sales have also been declining rapidly over the last 6 months. Many homes are getting multiple offers and selling above asking, it is like the boom all over again minus the rapidly rising prices. In my dealing with clients the general sentiment towards our market is very positive, most if not all buyers are aware that the worst is behind us and now is the last chance you may have to take advantage of these prices."
Up in the San Francisco area, DataQuick reported that home sales rose 14.5% between May and June, but still remain 4.5% below year-ago levels, and that the median sales price also rose sharply between May and June. It hit $377,750, up 1.5% from May but under the $410,000 median from last year.
press continues to point out that while
a record share of Americans want to buy homes, both U.S. government and corporate
policies (often working at cross-purposes) are making it more difficult. Of
course, it is Wells or Chase or the servicer who bear the brunt of the
liability if the loan "goes south," not the newspaper, yet reporters are quick
to point out that "Government-controlled Fannie Mae and Freddie Mac have
boosted standards so high that some people previously considered prime
borrowers no longer qualify. That's limiting a real estate rebound that also
has been damped by a state attorneys general probe into foreclosure practices
and an Obama administration loan-modification program that has fallen short of
expectations." Few want to return to SISA loans being mainstream, but most
agree guidelines need to swing back somewhat.
If the results of Fannie Mae's monthly national consumer survey accurately portray their attitudes, Americans appear to have increasingly realistic expectations of the housing market. Data from the June survey indicate that Americans are resigned to lower house prices and higher rents and have come to expect rock-bottom interest rates. (Fannie's National Housing Survey polls 1,000 home owners and renters each month to assess their attitudes toward owning and renting a home, mortgage rates, homeownership distress, household finances, and overall consumer confidence then compares the results to answers to the same survey conducted monthly since June 2010.)
Lastly, the MBA suggested that the U.S. homeownership rate could fall another one to two percentage points if credit conditions and the economy remain in the same crisis mode exhibited in 2009. Most in the business agree that not everyone deserves to own a home, and the current homeownership rate of 66.4% is in line with historic norms. The peak came in 2004 at 69.2% - so perhaps the press should spend more time wondering why it was so high in 2004, and not why it is falling now? But perhaps we are back to a more sustainable level.
Let's turn to prepayments, which, if you're in the biz, are of interest. After all, if rates drop, investors begin to worry about that mortgage (that they just bought at 102) prepaying. In the past borrowers have been much more sensitive to drops in rate, but now refinancing is limited by cost, underwriting guidelines, and the possibility of a decline in the value of their house. Many Wall Street research firms appear to have bought into the concept that mortgage prepayments are now decoupled from the general level of interest rates (and even mortgage origination rates), as deficiencies in home-owner equity and challenges in the underwriting process keep voluntary speeds quite low. That concept, combined with the view that the Fed remains on hold for the rest of 2011, suggests that investors may not be so shy about owning premium mortgages (at higher rates). And most are skeptical that "vague and amorphous fears" that some new government plan will emerge that enables large segments of the current and potential homeowner base to take advantage of still low mortgage rates in an effort to reduce defaults, will appear. On top of that, it may be "full speed ahead" with the GSE's reducing the maximum conforming loan limits, suggesting that the government is pulling back, rather than growing, the government's mortgage risk.
July prepayment speeds were recently released. Fannie, Freddie and Ginnie prepays were up 15% to 18%, in line with many expectation of a 15% increase in speeds. Overall, prepays on lower coupons were higher than expectations whereas prepays on higher coupons were marginally slower. A majority of this increase occurred on the 2009 and 2010 loans once again highlighting the "refinanceability" of these newly originated loans. Across servicers, Wells Fargo serviced loans saw the biggest jump in prepays followed by Chase and then Bank of America. For the 2009 vintage, having the HARP program include loans before June 2009 helped increase refi's. (An interesting trend was the fact that for the 2009 vintage, prepays on HARP eligible and ineligible Freddie loans were fairly similar whereas there was a significant spike in prepays on HARP eligible Fannie loans. This may be attributed to the LLPAs being charged on HARP refinancings till June.)
Along those lines, traders and investors carefully watch the factors that have been driving Ginnie Mae (primarily FHA & VA loans) and Fannie Mae (conforming conventional) swaps. While many factors can be attributed to the recent run-up in GN/FN swaps, most traders believe it has been primarily driven by: 1) excess supply in conventionals relative to FHA/VA loans, and 2) the recent MIP increases by the FHA which have sharply reduced the "convexity" of Ginnie Mae MBS. But others feel that these factors are transitory and consequently expect GN/FN to weaken, which will change the price spread between the two. Conventional supply has been moderating over the past few months and future supply should remain low relative to Ginnie Mae's. As new production, post MIP increase, moves into securities, they expect the prepayment advantage that Ginnie Mae securities currently enjoy to deteriorate, leading prices to weaken on a relative basis.
A number of lenders sent out price changes (for the worse) Thursday, and MBS prices were worse by .250-.375. Treasury 10-year notes ended the day worse by about .5 in price (2.95%). We had a strong 30-year bond auction which helped (demand & supply), but then rumors of an agreement on the debt plan provided a boost to equities while Treasury prices fell. The problems in Europe, which will go on for a very long time, took a backseat to the drama between the Democrats and Republicans, more clarification from Chairman Bernanke that the Fed was not prepared to add further stimulus at this time, and some favorable economic and earnings reports.
Today is another busy data calendar. The CPI for June was -.2%, with the core rate +.3%. The Empire State Index was -3.76 for July. At 9:15 EST are Industrial Production and Capacity Utilization (Jun), expected at 76.9 and +0.3, respectively, versus 76.7 and +0.1% in May. Finally at 9:55 is the preliminary July Consumer Sentiment report called higher to 72.5 from 71.5. After the first round of news the 10-yr is at 2.94% and MBS prices roughly unchanged.
A Minneapolis couple decided to go to Florida to thaw out during a particularly icy winter. They planned to stay at the same hotel where they spent their honeymoon 20 years earlier. Because of hectic schedules, it was difficult to coordinate their travel schedules. So, the husband left Minnesota and flew to Florida on Thursday, with his wife flying down the following day.
The husband checked into the hotel. There was a computer in his room, so he
decided to send an email to his wife. However, he accidentally left out one
letter in her email address, and without realizing his error, sent the email to
a different address.
Meanwhile, somewhere in Houston, Texas, a widow had just returned home from her husband's funeral. He was a minister who was called home to glory following a heart attack. The widow decided to check her email expecting messages from relatives and friends. After reading the first message, she screamed and fainted.
The widow's son rushed into the room, found his mother on the floor, and saw
the computer screen which read:
To: My Loving Wife
Date: July 15, 2011
I know you're surprised to hear from me. They have computers here now and you are allowed to send emails to your loved ones. I've just arrived and have been checked in. I see that everything has been prepared for your arrival tomorrow. Looking forward to seeing you then!
Hope your journey is as uneventful as mine was.
P.S. Sure is darned hot down here!