Yesterday the commentary reported on the news that New Traditions
National Bank will become a subsidiary of Old Florida Bancshares, prompting one
punster to write, "Does that make it 'New Old Florida Bank' kinda like
Fifth Third Bank? (Most in the industry know that Fifth Third's name is
the result of the 1908 merger of Third National Bank and Fifth National Bank,
to become the Fifth Third National Bank of Cincinnati. Per good ol' Wikipedia,
"while Third National was the senior partner, the merger took place during
a period when prohibitionist ideas were gaining popularity, and it is legend
that 'Fifth Third' was better than 'Third Fifth,' which could have been
construed as a reference to three 'fifths' of alcohol." In 1969 it was
changed to Fifth Third Bank. Use that one at Happy Hour tonight!)
Not everything that counts can be counted and not everything that can be counted counts. But the U.S. Census Bureau has released its 2011 American Housing Survey, which covers topics ranging from financing, inventory, and vacancies to householder satisfaction, health hazards, and sewage. The data is downloadable via the links on the AHS page (http://www.census.gov/housing/ahs/).
As home prices improve, analysts are now saying (albeit cautiously) that prices bottomed in the first quarter of 2012 and should continue on a slow but steady upward trajectory over the next four to five years. The general consensus is that they'll rise by 3-4% annually, a trend that, if it continued, would put them back at 2006 prices by 2021. Heck, I don't even know where I am eating lunch today - how can someone predict prices out that far? And did these same people predict where we'd be now ten years ago?
For the time being, however, there's still a lot of inventory out there in some markets, and hardly any in others. In fact, a top LO from Northern California and wrote to me, "Given the lack of inventory and sales, my bet is this business cycle weeds out a lot of weak Realtors." Inventory obviously has a bearing on home prices. About 3.3 million homes are seriously delinquent or in foreclosure, but, seeing as foreclosed borrowers still live somewhere, it's the total excess supply that will affect the housing market, and excess units number about 2.6 million at this point. Considering that 200,000-350,000 new homes make their way onto the market and 1.1 new households are formed annually, though, that excess supply is on track to be cleared out in the next few years.
The FHFA's REO program will also likely play a role in clearing vacancies, especially in MSAs like Miami, Phoenix, and Chicago, where rental yields are high and there's a sufficiently dense geographic concentration of REO properties. By bringing government capital into the rental space, the program could result in lower yields, along with creating opportunities for economies of scale. However, the program isn't comprehensive enough to clear out the backlog of inventory on its own, as only 10% of the entire REO inventory held by the GSEs is being rented, and in many areas, the yields on rental properties are too low to spark the interest of private investors.
But the agencies are there for us! At Freddie, Fannie, and to some extent Ginnie, all those higher gfees, salary caps, buybacks, renting economy rather than mid-size cars, etc. are paying dividends. Well, dividends to the government to be precise. Under the "an improving market covers up a lot of ailments" category, a turnaround in housing is also helping drive Freddie & Fannie to profitability, and giving them the right to tell the press and politicians to get off their proverbial back.
Freddie Mac had a $2.9 billion profit in the third quarter, down slightly from the $3.0 billion Q2 number, but it helped keep the company from making any additional Treasury draws. And it is the 4th straight quarter of profits! In addition, Freddie's comprehensive income of $5.6 billion in Q3 allowed it to pay a $1.8 billion dividend on senior preferred stock - the press needs to talk about that! Year-to-date, Freddie Mac's net income and comprehensive income totaled $6.5 billion and $10.3 billion, respectively, at the end of September. The company's net worth was $4.9 billion, up $3.8 billion from Q2. Freddie's inventory of delinquent loans is at the lowest level in two years. The single-family serious delinquency rate is still around 3.4% but heading down, and while the seriously delinquency rate is higher than it was in years prior to 2009 it is significantly lower than the rate for the entire U.S. mortgage market - 7.3% at June 30 according to the MBA's National Delinquency Survey.
Fannie, it earned $1.8 billion from July through September, "helped by
an improving housing market that has lifted home prices," and paid a dividend
of $2.9 billion to the U.S. Treasury and sought no additional federal aid. It
was Fannie's third profitable quarter since being taken over by the government
during the 2008 financial crisis. You and me, and a few million other
taxpayers, have spent about $116 billion to rescue Fannie but they're chipping
away at paying us back: so far, the company has repaid the government $23
billion. Under a new federal policy announced last summer, Fannie and Freddie
have to turn over all profits they earn every quarter to the government. The
change was made to ensure that the companies pay the government back. Something
tells me we won't be seeing that money come back to the taxpayer...
And their sister Ginnie Mae announced that it guaranteed over $39 billion in mortgage-backed securities (MBS) in September. For the second consecutive month Ginnie Mae's issuance is very close to $40 billion. Issuance for Ginnie Mae II single-family pools led the way with more than $31 billion, while Ginnie Mae I single-family pools totaled about $6 billion. Issuance for Ginnie Mae Home Equity Conversion Mortgage-Backed Securities (HMBS), included in Ginnie Mae II single-family pools, came in at $600 million. Total single-family issuance for September was $37.275 billion. Ginnie Mae's multifamily MBS issuance was more than $1.805 billion.
(As a very quick primer, "Ginnie Mae raises capital from investors in the global credit markets to ensure liquidity for affordable rental and homeownership opportunities across the country. Through its MBS, Ginnie Mae finances housing mortgage programs run by the FHA, VA, the Office of Public and Indian Housing, and the Department of Agriculture's Rural Development Housing and Community Facilities Program. It only has about 100 full time employees - always a surprise to those who didn't know that.)
On to some other somewhat recent investor, and MI updates, along with the usual disclaimer that it is best to read the bulletin for full details, but this will give you a flavor for current trends.
All conventional loans locked, re-locked or extended with Affiliated
Mortgage on or after October 29th will be subject to overlays additional to
those set out by DU 9.0. Conforming fixed-rate, LIBOR ARM, and high
balance fixed-rate loans for 2-4 unit primary residences will require six
months' reserves, and the maximum LTV/CLTV/HCLTV for conforming LIBOR ARMs has
been updated. All conforming high balance fixed-rate products will also
be subject to a minimum credit score requirement of 680. And AMC has updated
its Settlement Agent List, which can be viewed in full here.
MGIC is consolidating its two monthly premium plans such that all monthly requests will be processed as ZOMP Monthlies, with no premium required at closing. This does not apply to HARP loans; existing Standard Monthlies for HARP Refi-to-Mod transactions will not be converted to ZOMPs.
MSI is requiring that, for all refinance borrowers formerly involved in bankruptcy proceedings, sellers must verify that the loan being refinanced was not a debt included in the insolvency proceeding and that the subject property was reaffirmed when bankruptcy papers were filed. Credit reports will not be accepted as confirmation of reaffirmed debts. This applies to all loans with immediate effect.
Due to the difficulties associated with assigning jumbo loans after close with DU, MSI is requiring that all jumbo loans be submitted to LP.
As per the Flood Insurance Modernization Act, MSI has clarified that the minimum policy must compensate for any damage or loss on a replacement basis, which must be at least the amount noted on the hazard insurance policy.
SunWest has updated guidance on a number of topics, including manufactured housing; income stability, validation and verification; non-occupying co-borrower restrictions; refinanced mortgages that are included in bankruptcies; appraisal requirements; Power of Attorney and Revocable Trusts; credit reports, credit supplements; and undisclosed debt requirements; strategic foreclosures; and Streamline refinance eligibility restrictions on previously modified mortgages and unemployed borrowers. To view the changes in full, see here.
Edging into the usual market commentary below, I wanted to pass this along first. Tad Dahlke from Banc of Manhattan notes, "The combination of rising dollar prices and weakness in TBA dollar rolls has translated into steady strength in payups. Over the last week we've seen balance pool 30-year 3.5s move another notch higher. 30-year 3.0's are gradually developing a more established market in several categories, while 4.0s remain exceptionally well-bid due to REIT and CMO demand." Sure enough, when one looks at the increase in prices for pools made up of low loan amount loans ($175k or less), refi's above 80%, low FICO, investor, or New York loans, one sees higher prices by as much as 1.5 points (so-called "specified pools"). Of course, mortgage banks, either unable to securitize loans, or those without enough production to form securities, sell suitable loans to the aggregators or to the agencies, and they're the ones who benefit from the price difference. It is a profit motivated world out there!
And looking at the markets, equity markets dominated the news Wednesday with stocks suffering their largest one-day hit in 2012. (We're seeing a bit of a bounce today.) But LO's are cheering current events (unless they locked their pipelines Monday & Tuesday) as 30-year FNMA 2.5% and 3.0% coupons surged "higher and tighter" as investors perceived that QE3 will be alive and well for many months, perhaps years. But investor owning higher coupon MBS got smacked as prices actually dropped: they received a double whammy between President Obama's re-election (FHFA Director DeMarco's days are numbered, and his replacement will want to increase refinancing credit-impaired borrowers who have higher rates), and much faster than expected prepayments in October.
Tradeweb MBS volume came in 122% of its 30-day moving average, but the volumes didn't dampen prices much: prices on 30-year FNMA 3.0s improved about .625 and over .75 on 30-yr 2.5's. How much of that makes it on to rate sheets remains to be seen! Our risk free 10-yr T-note closed at 1.63%.
But that was yesterday. Today we've had Initial Claims (expected to go from 363k to 370k, but actually moved lower to 355k) and continuing jobless claims that also dropped. We also had the International Trade numbers that actually showed a smaller deficit than expected (-$41.5 billion). And later we'll have the final leg of the Treasury refunding with $16 billion in 30-year bonds auctioned at 1PM EST. The 10-yr is currently at 1.68% and MBS prices are better about .125.
The Borowitz Reports observed:
One day after the costliest Presidential election in U.S. history, Americans awoke to the ugly realization that the nation had spent $2.5 billion with absolutely nothing to show for it.
"Four years ago, Barack Obama was elected President of the United States,
and that is still the case," says Professor Davis Logsdon of the University of
Minnesota. "The only difference is that we as a nation are out $2.5 billion."
Mr. Logsdon claims that America's system of egregious political spending "has made us the laughingstock of the world," arguing, "Even Greece would know better than to blow through money like that."
But "not so fast," says Tracy Klugian, President of the Negative Advertising Association of America, which represents the nation's leading producers of political attack ads.
"When people complain about how expensive these political campaigns are, they're forgetting about the millions of Americans who are employed making negative ads," he says. "Say what you will about lies, vitriol and character assassination, they're job creators."
In fact, Mr. Klugian says, America's costly and interminable campaigns are the nation's most reliable source of employment: "They gave a completely unskilled person like Mitt Romney a steady job for eight years."
Acknowledging that the $2.5 billion spent this year was a "tidy sum," Mr. Klugian says, "If we took all the money we spend on political ads and used it to educate our children and feed the poor, we wouldn't be America."