Is there ever a day that mattresses are not "on sale"? Securities are always for sale. I love this kind of talk: "Agency MBS reversed course this week as much of the coupon stack underperformed against duration hedges." That is what I received from a buddy who works for a large investment bank. What the heck does that mean, and does it mean anything to some broker who has a client waiting for 4.875% to come back? READ the MBS Commentary for more on this topic.
On any given day, investors in fixed income securities have a huge number of options from which to choose. They can buy government securities, corporate bonds, municipal bonds, mortgage-backed securities, the list is too numerous to detail here. At the moment, agency MBS securities backed by Freddie & Fannie loans) are looking fairly priced versus Treasuries. And speaking of Treasury securities, the yields on two-year note yields rose above 1.00% for the first time this month, and the 10-yr Treasury is over 3.50%.
The Fed's MBS program, which many mortgage bankers believe is still the only thing keeping mortgage rates as low as they are, still has the capability to absorb close to $15 billion a week through the end of the first quarter. Whether or not this is enough to soak up the current production remains to be seen. Many banks, however, are selling their holdings of mortgage securities due to the large profits contained in them. Their profits are helped, but it doesn't help current production, although they may go out and buy current production.
What about this new bond program, proposed a week or so ago? Is it going to help the broker or small lender? Probably not: most housing agencies use banks as direct lenders to get to these first time home buyers. So perhaps there will be some peripheral benefits, perhaps not. The program (Homeowner Affordability and Stability Plan, from February) HFA Initiative: Support for State and Local Housing Finance Agencies. How the program will work is that the government will provide temporary financing for HFAs to issue new mortgage revenue bonds. Housing Finance Agencies will originate the loans, which pass through Freddie & Fannie, and then the Treasury will purchase securities backed by these new housing bonds.
And it will take some time: each HFA that desires to participate will be asked to develop a program participation request in consultation with Treasury, Fannie Mae, and Freddie Mac, indicating their desired level of participation. I am not an expert in bond issuance, and it doesn't sound simple. HFA's at the state and local levels receive allocations based on previous issuance history and the submission of requests, and us the money for single or multi-family bonds. HFAs will pay the GSEs and Treasury an amount intended to cover both the cost of financing the newly issued bonds as well as a fee designed to cover risk posed by the HFA, and the rates are set on newly issued HFA bonds to equal a short-term Treasury interest rate for the period in which the proceeds are held in reserve before being drawn down by the HFAs to originate mortgages. Within 30 days of the proceeds being drawn down, the interest rate on the bond will increase to cover Treasury's cost of financing (set at the 10-year Treasury rate) plus the additional fee designed to offset risk to the taxpayer.
Capmark Financial Group, formerly known as GMAC Commercial Holding Corp., filed for Chapter 11 bankruptcy protection. Owned by companies such as Goldman Sachs and KKR, they are one of the largest commercial real estate finance companies - but have $21 billion in debt versus $20 billion in assets. The plan is already in place to divvy up their assets: their $360 servicing portfolio may go to Berkshire Hathaway and/or Leucadia National, for example. The company owes billions to Citibank, Deutsche Bank, and Wilmington Trust.
On to things a little more boring. ING changed up some guidelines, starting 10/23. Namely, the "Trailing Spouse is no longer considered an acceptable source of income", "When used as reserves, the value of stocks, bonds, and mutual funds has been reduced from 100% to 70%", "When used as reserves, the value of retirement accounts vested balance has been reduced from 70% to 60%", and "a loan may not be refinanced for cash out until it has been seasoned for at least 6 months."
GMAC Bank Correspondents should know that for GMAC, all loans, except FHA non-credit qualifying streamline refinances and VA IRRRLs, must contain a completed and signed IRS Form 4506-T in order to obtain the borrowers' tax return transcripts for the two years prior to the loan application date. "The borrower must complete and sign IRS Form 4506-T at time of application and at time of closing. An incomplete 4506-T will prevent a loan from moving into underwriting and eventually funding." GMAC also visited their jumbo & condo guidelines. For jumbo loans, attached condominium property types are no longer eligible for jumbo products. Site condominiums are permitted and are subject to compliance with 1-unit property type eligibility guidelines spelled out by GMAC. (You should consult their guidelines for specifics.)
U.S. Bank Home Mortgage's clients will feel Freddie Mac's additional subordinate financing fees, which are applicable to the HASP Streamline Refinance Open Access loans. After the 28th, higher LTV (90-95%) and lower FICO (below 720) loan prices will get dinged an extra .50, and .250 if above a FICO of 720.
Existing Home Sales on Friday looked pretty impressive, better than forecast. (And those forecasts already include the tax credit for first-time home buyers. Many are hoping the credit is extended, while others feel that it is just delaying the inevitable...) Sales are up almost 25% from the low in January, and 9% higher than a year ago. We're walking into a very full last week of the month for economic news. Today there is zip, but tomorrow we have Durable Goods for September, the Case-Shiller Index which never seems to go up, and Consumer Confidence, which seems to be holding this economy up. On Wednesday we have New Homes Sales, Thursday we have Jobless Claims and GDP, and then on Friday Personal Income and Consumption, the Michigan Consumer survey, and the Chicago PMI. READ MND's The Week Ahead