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Jan. 6, 2010: Why rates are improving; why the value of the dollar impacts originators; news from GMAC, California
Rob Chrisman
Why can't automated answering services at mortgage
companies be more like the one at Nestle Crunch’s Hotline at
800-295-0051? When asked if you want to continue in English or Spanish,
just wait for about 10 seconds, listen to the options and press “4”.
Listen to the options again, and then press “7”. (It is worth trying a
few times if the line is busy.)
"I know what you're thinkin'
We were goin' down.
I can feel the sinkin'
But then I came around."
What do the Foo Fighters know about mortgage banking? Maybe not much.
But bond prices have certainly moved higher (and interest rates lower)
since New Years, as has the stock market. According to one trader, the
10-yr note “caught a bid” on speculation that the Fed will leave rates
low for an extended period of time. Interestingly, the odds of that
happening have been dropping, and now the futures market is pricing in
a 79% chance that the Fed will keep rates somewhere between 0% and .25%
through April. After hitting 3.91% last Thursday, we’re back down to
3.77% this morning (mortgages prices are better by about .125).
Another story making the rounds is that the Fed may/will continue to
buy mortgage-backed securities after its self-imposed March deadline if
needed (the release of the FOMC minutes may help shed some light on
this). Lately, most of their interest has been 4.75%-5.125% mortgages.
Regardless, when you combine continued buying by the Fed, along with
some interest shown by banks & servicers, with slowing supply (some
mortgage banks are crying for new locks), the laws of supply and demand
come into play and the prices go up.
And “crying for new locks” might just be the case industry-wide,
although The MBAA’s weekly index showed that applications filed for
mortgages rose .5% last week from the week before. Refinances were down
almost 2%, and purchases were up almost 4%. Refinancing still makes up
about 75% of all activity - scary.
Why should anyone in mortgage banking care about the value of the
dollar? Doesn’t a falling dollar only hurt foreign exporters, foreign
holders of US securities (like the Chinese with over $1 trillion), or
American tourists? Unfortunately, a falling dollar only benefits
American exporters so far – it can hurt in the long run if
manufacturing companies can reap rewards without improving products or
productivity. And when the dollar rallies back, they will suffer.
Interesting, toward the end of 2009, the value of the dollar was
inversely related to stocks but in the past, the dollar and stocks
usually moved together. (With the global financial crisis the dollar
rallied as a safe haven for investors, and stocks plunged.) With regard
to interest rates, a falling dollar (or any currency) usually leads to
higher inflation and higher interest rates on loans of all types.
During the last 100+ years, the nation often follows what happens in
California. Many originators in other states are hoping that this does
not happen this time. The Department of Real Estate and CFL, via the
SAFE act, will install new licensing requirements this year. Loan
originators must have sound credit, despite the recent economic
downturn, for example. The law impacts any MLO (“Mortgage Loan
Originator”), and, as best as I can tell, requires individuals who are
licensed as Real Estate Agents in CA and who are also originating loans
as an LO must now meet the new NMLS criteria for LO licensing by
obtaining an NMLS account and meeting Federal and State education,
exam, fingerprint, credit and background checks. They must also report
to the state that besides Real Estate deals that they are also working
as LO’s and originating loans by filling out online Form RE 866
(Mortgage Loan Activity Notification) at the website www.dre.ca.gov:
http://www.dre.ca.gov/lic_safe.html#1
A story from the National Mortgage News yesterday highlights the
“plight” of the mortgage banker. “For the past two years, brokers have
taken it on the chin from politicians and regulators, accused of
selling loans to consumers who cannot afford them and pocketing
excessive fees in the form of yield-spread premium payments.” It
appears, according to a quote in the article, that “the only large bank
wholesaler that still believes in brokers is Wells Fargo & Co.,
which also happens to be largest table funder in the nation out of a
field of 40 or so firms.” There is some thought that the loan brokers
that are left standing today are believed to be the most experienced,
motivated and professional. Of course, “a handful of mortgage banking
firms are beginning to gobble up well-managed loan brokerage shops,
turning these operators into retail arms of their companies” – WJ
Bradley, Prospect, and Skyline come to mind.
GMAC Financial Services expects to report a loss of about $5 billion in
the fourth quarter, mostly due to $3.8 billion write down from its
mortgage unit. So far the taxpayer has provided GMAC with over $16
billion of aid, and the government owns 56% of the company. GMAC’s
subsidiary Ally Bank is now allowed to seek brokered deposits, but GMAC
has also come to terms with writing down its mortgage portfolio –
something other large banks have already done to a large degree. (By
classifying its mortgage securities as "held for investment," GMAC was
able to postpone this.) Options for Res Cap include selling it, selling
off its bad assets, or keeping Res Cap and putting it into bankruptcy.
(Warning: PG)
Proof that the economy affects us all........
Two car salesmen were sitting at the bar. One complained to the other,
"Boy, business stinks.
If I don't sell more cars this month, I'm going to lose my a--."
He noticed a beautiful blonde woman sitting two stools away.
Immediately, he apologized for his bad language.
"That's okay," the blonde replied, "I can relate. If I don't sell more
a-- this month, I'm going to lose my car."
Rob
(Check out
http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx.
For archived commentaries, check www.robchrisman.com,
or to
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