Back in the '00s I remember watching a Discovery Channel show on people summiting Mt. Everest. One of the amateur climbers matter-of-factly said that he financed his THREE attempts by taking out a HELOC on his home. I remember thinking, "I hope I didn't securitize this guy's loan." HELOC's were banished to the preverbal woodshed over the past few years, but now appear to be back. In a recent Bloomberg article about $1,000 faucets () Kathleen Howley writes, "Helocs are making a comeback as the housing market recovers enough to make the junior mortgages a safer bet for banks more than seven years after the beginning of the housing crash that saddled them with billions of dollars of losses. The median price for an existing home probably will gain 11 percent this year, according to the Mortgage Bankers Association in Washington, after plunging about 33 percent during the crash." HELOC originations will increase to $91 billion in 2013 and increase to $97 billion next year, according to an estimate by Moody's. Both are the highest levels they've been since 2008.
The acronym of the day is "FHFA": the Federal Housing Finance Agency. Last week's announcement of the major overhaul of mortgage insurance master policy requirements by Fannie Mae and Freddie Mac turned a lot of heads. Improvements to policy requirements include changes to loss mitigation, claims, assurance of coverage, and communication policies. "FHFA has worked with Freddie Mac and Fannie Mae to revise the MI master policy requirements to ensure consistent and reliable MI coverage, and support our efforts to achieve clarity of coverage, greater operational efficiency, and transparency in the mortgage market. Fannie & Freddie have "confirmed that the MI companies with whom we do business have included the new requirements in their master policies. We anticipate that each MI company will file its revised master policy with the appropriate state insurance regulator by the end of 2013, with an implementation date to be announced by Freddie Mac in mid-2014. The master policies will be effective for all loans originated and sold to us after the implementation date." Although lenders are discussing the changes directly with their MI companies, here is the press release: FHFA press release.
But there was more to come! Any lender that specializes, or at least makes a market in, non-agency and/or jumbo loans, or FHA/VA loans, or private money, received some good news yesterday. At least the 25 basis point adverse market fee is finally going away in most states! "The Federal Housing Finance Agency (FHFA) today took additional steps toward fulfilling the Strategic Plan for Enterprise Conservatorships that FHFA published in February 2012. That Plan established a conservator goal of gradually contracting Freddie Mac and Fannie Mae's dominant presence in the marketplace while simplifying and shrinking their operations. The basic premise behind the 'contract' goal is that with an uncertain future and a general desire for private capital to re-enter the market, the companies' market presence should be reduced gradually over time. When FHFA set forth the 2013 Conservatorship Scorecard in March, it also set an expectation that guarantee fees would continue to be gradually increased in 2013 in furtherance of the strategic plan. Today, FHFA directed Freddie Mac and Fannie Mae to raise guarantee fees in three components: the base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points; the up-front g-fee grid will be updated to better align pricing with the credit risk characteristics of the borrower; and the up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Freddie Mac and Fannie Mae since 2008 is being eliminated except in the four states whose foreclosure carrying costs are more than two standard deviations greater than the national average.
These changes, of course, will be passed on to new borrowers. If any LO out there is complaining about Wells or Chase jumbo rates in their branches being better than conforming rates, just wait until this hits! Remember that jumbo loans don't have specific gfees, and the implied loss on jumbo loans is much, much less than the 50 or 60 basis point loss (in theory) implied by the agencies on their loans. So yes, increasing the guarantee fee will ultimately make it more expensive for lenders to use F&F to back their loans and give them an incentive to use private money instead. I am sure that the FHFA's actuaries have figured out the impact on volumes, and therefore profits, that the combination of higher rates & higher gfees and therefore lower volumes will have.
Let's move on to some relatively recent lender, vendor, and investor updates to obtain a sense of the trends out there!
ARM's are not dead, and here is a sign of the times: Western Bancorp now offers its wholesale partners an option for jumbo borrowers who want an alternative to rising fixed-rate loans. With a 1.125 % start rate, a 6.25% life cap and a low 0.5% per-adjustment cap, this loan provides borrowers with flexibility, cash flow and rapid principal reduction opportunities. Even if this ARM adjusted straight to the life cap (unlikely) it won't reach current Jumbo fixed rates for over 3.5 years. Western Bancorp lends in California, Washington, Idaho and Montana. This product is offered in selected markets. Contact a rep for details on availability in your area.
Affiliated Mortgage is no longer taking locks in Alaska, Delaware, Hawaii, Maine, Maryland, Nevada, New Hampshire, New Jersey, New York, Rhode Island, Vermont, Washington DC, and West Virginia. But they have expanded Conventional Conforming guidelines to allow inter vivos revocable trusts, construction modifications, escrow for completion holdbacks, borrowers with up to ten financed properties, financed PMI, escrow waivers on loans with HO6 walls in coverage, and partial escrows. Appraisal guidelines have been relaxed such that they are not required until 75 days from closing, the interest credit period has been extended to ten days from disbursement, and the time period for proof of payment of taxes/insurance from the closing date has been reduced to 30 days. For FHA and VA loans, Affiliated is now allowing escrow for completion holdbacks, expanded its loan seasoning requirement to 120 days, increased the HPML DTI requirements to 50% (VA only), reduced the time period for proof of payment of taxes/insurance from the closing date to 30 days, and removed the FHA streamline requirement for AVM and the requirement that the borrower names appear in the same order on the mortgage application as the signed closing docs.
Mortgage rates are behaving themselves again. Everyone, and their uncle, knows that the Fed will eventually reduce their buying of fixed-income securities. Friday's, Monday's, and (so far) today's improvements seems to indicate that the markets have become comfortable with tapering - whether it happens this month or early next year, it is going to happen. And it won't be the worst thing to happen. ("In the latest Reuters poll of 63 economists conducted after Friday's employment report, 14 percent said they expect the FOMC to announce a slowing in its pace of asset purchases at the December meeting; 30 percent said January, while 52 percent think it will be in March.")
Aside from a 1PM EST Treasury auction of $30 billion three-year notes, there isn't much going on. (Thursday and Friday we'll see Jobless Claims, Retail Sales, and the Producer Price Index - but when was the last time inflation was a worry?) The yield on the 10-yr t-note, a proxy for rates in general, closed Monday at 2.86% but is down to 2.82% early Tuesday, and MBS prices are tagging along, up/better by about .125.