Today is a memorable day. If I had a day planner, I would make a note of it. Because today, I didn't find any house price indices in the news!
Honestly, between RealtyTrac, Zillow, S&P/Case-Shiller, CoreLogic, Freddie Mac, NAHB, Fannie Mae, RE/MAX, NAR, DataQuick, not to mention all the local realty indices and my own collection of open house flyers, I have grown numb to whatever price direction housing is going. Prices are measured by part of the nation, state, county, by similar properties that sold last year, versus last quarter, within the same city - my head spins just thinking about it. And the press latches on to whatever report just came out. I need a roof over my head, I will need one until I die (except for when I'm camping), and does it really matter to me if prices are up 2% or down 2% versus a month ago or a year ago? Okay, I'm done with the ranting.... especially after I realized that later this morning we have New Home Sales coming out.
For recent housing news (since we all know that jobs and housing prices are going to be the forces that nudge the economy higher or keep things slow) we learned that Existing Home Sales were up 7.6% in August, much better than July but still near 11 year low. There is still almost a one-year supply of existing homes on the market at the current sales pace, but at least the median sales price is up by a slight 0.8% from one year ago. We also learned that the Conference Board's Leading Indicators rose 0.3% in August, adding to July's unrevised increase. The housing news this week has been good and bad. Housing Starts and Existing Home Sales were stronger than expected, while homebuilder sentiment is still low and home prices as measured by the FHFA HPI declined more than expected.
Anyone on the servicing side of the business, which not only means collecting checks every month but also potentially foreclosing on borrowers, may want to read these three articles from the Washington Post: FIRST ONE - SECOND ONE - THIRD ONE
There has been some recent news about the commercial mortgage market, more specifically converting those loans into bonds. J.P. Morgan Chase has taken an early lead in the race among big banks to revive the business, moving ahead of Goldman Sachs, Wells Fargo, Bank of America, and Morgan Stanley. But according to the WSJ, they are all ramping up or rebuilding their commercial-mortgage-backed securities (CMBS) operations. Wall Street is expected to sell about $10 billion of CMBS this year, versus $230 billion at the peak in 2007 but "way up" from virtually $0 over the last two years. Current deals have fewer loans and tranches, and are more "investor-friendly" by being less confusing. The pickup in the market is good news for owners and developers, along with the banks that collect the fees for securitizing the loans.
Are there parallels between mortgage securities and junk bonds? In a story from the Wall Street Journal, bond markets are growing riskier as investors seeking steady returns bid up prices and ignore some early warning signs similar to those that flashed during the credit bubble. Last week, prices on high-yield, or junk, bonds hit their highest level since 2007, nearly double their lows of the credit crisis, and companies are selling record amounts. We're seeing a declining rate of corporate defaults lately and a belief that, as long as the economy doesn't relapse into recession, default rates will continue to decline. "The financial crisis purged many weak borrowers from the system, and corporate balance sheets are generally stronger today than before the crisis." Interest rates paid by companies with strong credit ratings have tumbled this year, falling to 1.8 percentage points above the yields on comparable U.S. Treasury bonds, which themselves are among the lowest yields in decades.
Most folks in the business come across loans that don't quite fit into a standard box. Right here on Mortgage News Daily you can submit your scenario for feedback. On the right side, under "Site Tools", click on "Loan Scenarios". You can see other scenarios with suggestions, or enter your own and see suggestions for strategies & investors. Or just go HERE
The recent gas line explosion in Northern California, floods, and another hurricane hitting the US (Alex, in Texas) remind us that mortgage companies and investors have policies and procedures for disasters. No investor wants to buy a lien or mortgage against a house that is no longer there, or unlivable (like my son's dorm room at UT Austin). Smaller lenders will typically emulate investor's policies.
Bank of America clients, for example, are reminded to review them in the company's on-line guides. "Correspondent Lending will suspend any loan during the purchase process that does not adhere to the requirements detailed within this section until satisfactory documentation is received. To ensure the property value has not been impacted by the disaster, Correspondent Lending requires property re-inspections before the loan can be purchased. Also, once a disaster has occurred, additional restrictions apply for the use of non-standard appraisal reports."
As a reminder, FHA and VA require that all properties be free from adverse conditions that affect the health and safety of the occupants. Areas such as Toms River, NJ or the Acreage/Loxahatchee area of Palm beach, FL are often mentioned as possible high-risk health areas. (Remember the Love Canal?) Flagstar and other lenders remind originators that appraisers are required to comment on any adverse condition that poses a potential threat to the safety of the occupants. This includes, but is not limited to, cancer cluster areas. In fact, "Flagstar will not permit FHA or VA financing in any cancer cluster area or other health hazard area unless both of the following are obtained: written certification from the local health authority that the property is not affected by the health hazard and written certification from the borrower acknowledging the health hazard and its resolution. Due to elevated rates of pediatric brain cancer and the inability to obtain local health authority certification, Flagstar does not provide FHA or VA financing for any properties located in the Acreage/Loxahatchee area of Palm Beach County, Florida."
On that note, yesterday I commented on the Senate passing legislation to extend the National Flood Insurance Program through September 30, 2011. It still needed to pass a House vote, where the bill is known as "S. 3814 - the National Flood Insurance Program Re-extension Act of 2010". Well it passed the House yesterday. The National Flood Insurance Program has been extended until September 30, 2011. MBA's Chairman, Robert E. Story, Jr, says, "We need to have a flood insurance program in place. Without it, it is doubtful that home and building owners in areas of the country prone to flooding would be able to purchase insurance to protect their property against flood risk. It is critical that we have certainty for lenders and borrowers who rely on this program to insure residential and commercial properties. We look forward to working with policymakers over the next year on a longer term extension."
Despite all of the economic news and statistics, what kind of shape is the economy in? Bill Simon, the head of Wal-Mart's U.S. operations, answered this question when asked about their efforts to serve customers whose spending around payday has been volatile. "And you need not go further than one of our stores on midnight at the end of the month. And it's real interesting to watch, about 11PM., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs, and continue to shop and mill about the store until midnight, when government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher. And if you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they've been waiting for it. Otherwise, we are open 24 hours - come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you are there at midnight, you are there for a reason."
Thursday mortgage prices lagged the initial strong improvement in Treasuries as the yield on the 10-yr neared 2.50%. Not only do we not have the Fed buying MBS's, but buyers seem a little reluctant at these price levels for fear of refinancing, and $2.8 billion seemed a little too much in MBS's for the market. Rate sheet mortgage prices ended the day worse by about .125 and the 10-yr at 2.56% after the better-than-expected Existing Home numbers. This morning, besides New Home Sales, we already had Durable Goods, and most economists believe that the manufacturing recovery that fueled economic growth a little more than a year ago is losing steam as global demand slows and the inventory cycle continues to wind down. Advance orders for durable goods rose only 0.3 percent in July, which was less than expected. Sure enough, Durable Goods were -1.3%, worse than expected, although ex-transportation it was up for the month, and there were also some back-month revisions. Right after the number we find the 10-yr yield up to 2.60% and mortgage prices are worse .250.
1. A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.
2. An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.
3. A statistician is someone who is good with numbers but lacks the personality to be an accountant.
4. An actuary is someone who brings a fake bomb on a plane, because that decreases the chances that there will be another bomb on the plane.
5. A programmer is someone who solves a problem you didn't know you had in a way you don't understand.
6. A mathematician is like a blind man in a dark room looking for a black cat that isn't there.
7. A topologist is someone who doesn't know the difference between a coffee cup and doughnut.
8. A lawyer is a person who writes a 10,000-word document and calls it a "brief."
9. A psychologist is someone who watches everyone else when a beautiful girl enters the room.
10. A professor is one who talks in someone else's sleep.
11. A consultant is someone who takes the watch off your wrist and tells you the time.
12. A committee is a body that keeps minutes and wastes hours.