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Mar. 29, 2011: Big day for QRM fans; primer on inflation expectations; opinion on borrower's well-being; news from Green Tree, Wells, 360, etc.
Rob Chrisman
How much
house is too much house in Michigan? http://www.stamfordadvocate.com/business/article/Rapper-50-Cent-s-Farmington-estate-price-cut-1279674.php.
Today the FDIC Board will vote on a credit risk-retention
proposal that is required under the Dodd-Frank bill. A
joint release yesterday from the Federal Reserve, HUD, FDIC,
FHA, OCC and SEC said all the agencies this week "are
considering for approval a notice of proposed rulemaking that
addresses section 941 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act." If all the agencies approve, the
proposal will be published in the Federal Register for public
comment. Look for the proposed thresholds on banks retaining 5%
of mortgages unless excluded by being "Qualified": purchase with
at least 20% down, no cash out refi with 25% down, cash out refi
with 30% down, with minimum income standards and no borrower who
fell two months behind within the previous two years could get a
qualified mortgage. Just conjecture…
How is the jumbo
market doing out there?
In the 4th quarter of 2010 roughly $33 billion of
jumbo mortgages were funded. This is higher than 2009’s fourth
quarter by 57% according to survey figures compiled by National
Mortgage News' Quarterly Data Report. The industry is hoping
more and more of the production goes into well-received
securities…
When I speak to
different groups, occasionally I am asked a pretty simple
question, but one that has important implications: "Do
rates tend to go up both on inflation and
fears of inflation?" Remember that the real interest rate
includes both inflation and the nominal rate of interest. In the
case of a loan, it is this real interest that the lender
receives as income. If the lender is receiving 3.5% percent from
a loan and inflation is at 3.5% percent, then the real rate of
interest is zero because nominal interest and inflation are
equal.
But what is more
important, the actual inflation rate, or what people perceive
is the actual inflation rate? The predominant view
at the Federal Reserve remains that the underlying rate of
inflation is not on the verge of a dangerous acceleration, but
mounting public concern about inflation has increased markedly,
and yes, this can cause rates to creep higher in a preemptive
fashion. The Fed is more attuned to high unemployment (although
it is not the Fed's responsibility to increase jobs), a
depressed housing market, relatively sluggish economic growth
and downside risks to the expansion. Many are quick to point out
that conducting monetary policy when the economy is sluggish is
difficult. But when inflation, or fears of inflation, begins to
pick up is very difficult - the futures market
believes that the odds of the Fed leaving overnight rates near
0% through August are higher than 90%. One can look for
continued Fed pronouncements that the risk of inflation is
low... until it is not.
So is the borrower
really better off now? An
originator from San Jose writes, "To be honest and I hate to
admit it but the bottom line was when these changes were
implemented it made it even more difficult for the consumer to
shop me. Lenders are still confused by the paperwork and
calculations - think of how bad it is for borrowers! LO's will
all figure out how to make the most money on each transaction as
usual, only this time the government is giving us the tools to
veil the consumers' view of the actual cost. Take a consumer
from 2005 and one from right now and see who understands the
cost of the transaction by translating the GFE and rate
fluctuation and who doesn’t, Mr. 2005 will BUT he had the
benefit of shopping around because it is easy to understand a
column of numbers and not the new 3 pages of numbers shoved
together that have been shoved down their throat by Barney Frank
and Chris Dodd. Heck, who wouldn't prefer to rent with all of
this going on?"
Walter Investment Management, a mortgage
servicer and investor based in Florida, is purchasing GTCS Holdings (Green Tree of MN) from
Centerbridge Capital Partners LLC for $745 million as it expands
loan servicing. The entire transaction, including debt, is
valued at $1.065 billion. Green Tree provides services such as
billing and collection on a $37 billion portfolio, including
residential mortgages, manufactured housing loans and consumer
loans.
In the last week, Wells Fargo's wholesale group has been busy. It
has come out with announcements and changes on the Home
Affordable Refinance Program (HARP) being extended into next
year, a Verbal Verification of Employment (VVOE) clarification
for FHA and VA Loans, a CEMA process change, a reminder that
wholesale reverse mortgage loans ended on 3/26, a Home Equity Appraisal Independence
clarification, timelines for the new compensation and
anti-steering rules, a handy-dandy alphabetical, 3 page sheet on
new compensation terms, and update on Wells’ incomplete GFE
policy, a note to brokers reminding them of the 4/18 appraisal
requirements on FHA Loans with Case Numbers six or more months
old, and requirements for submitting compliant TIL’s for various
broker types. Also, starting 5/23, Wells Fargo Funding will
begin doing business as Wells Fargo Funding, a division of Wells
Fargo Bank, N.A. (rather than Wells Fargo Funding, Inc.). Phew!
Flagstar, which may be
becoming the #1 warehouse lender in the US, announced an FHA
funding request deadline (the published 24-hour turn time for
funding approval will be enforced on all FHA loans at the end of
the month), starting 4/4 Flagstar is lowering the minimum credit
score requirements for FHA transactions to 600, noted some
changes to excessive lender and/or seller credits, reminded
sellers that the Freddie Mac Home Possible Program is being
suspended, recognized that the Federal Reserve issued its final
rule amending Regulation Z providing a separate higher rate
threshold (2.5 percentage points) for coverage of the escrow
requirement for jumbo loans (but Flagstar Bank will continue to
require escrows for any HPML loan exceeding the published APOR
in excess of 1.5 percentage points). Flagstar also noted that
electronic signatures from DocuSign can now be accepted on
purchase agreements for conventional loans, and rolled out its
“Advantage Select Program” (not eligible for the delegated UW
channel).
360 Mortgage told its brokers
that it considers an online 360 TIL generation as a valid
mortgage application. The company also announced a new lock
policy: "When locking loans after April 1 that are not subject
to the LO Comp Rule, brokers must use Borrower Paid...no rates
locks are allowed prior to 360 MG receiving an application. For
all loans subject to the FRB Comp Rule, the following amended
Lock Policy will apply: All loans will have a 30 day lock period
available only. Should an extension be necessary, a free 15 day
extension will be granted automatically." (After that it goes to
market.) “Brokers may select compensation levels from an amount
as low as .50% to a high of 3.00% in .25% increments…Brokers
will be able to establish their compensation level on a monthly
basis,” and given a 7-day period to establish their new
compensation plan for the following month…brokers will have the
ability to choose between Lender Paid and Borrower Paid
compensation for each loan. The selection will be made at time
of rate lock for each transaction. If Lender-Paid is selected,
the plan that will be used is the plan in effect at time the
application was received by 360 MG.” 360 Mortgage Group also has
a series of Webinars to discuss 360 MG’s policies to meet the
requirements of the FRB Loan Originator Compensation Rule this
week.
EverBank rolled out a couple
new programs for its “Preferred Non-Conforming Fixed Rate” and
LIBOR ARM product. A 6 Month LIBOR ARM product is now available
for new originations where the margin is variable depending on
the pricing selected from the daily pricing options. It has an
initial IO period of 10 years and full amortization over a 30
year term, no initial or annual rate adjustment caps, and a
lifetime rate cap of 12%.
NAR came out with its
Pending Home Sales Index yesterday, viewed by some as a leading
indicator for the housing sector since it measures sales
activity based on sales of units where contracts have been
signed but the transactions have not closed. Nationwide the
number was +2.1% month over month, but down over 8% versus a
year ago. We also learned that Personal consumer spending rose
by 0.7% in February, and Personal Income increased 0.3%.
Inflation is increasing as the overall PCE price index went up
1.6% from February 2010, compared with a 1.2% gain in the 12
months ended in January. The Fed’s preferred price measure is
core PCE, which excludes food and fuel, rose 0.2% for a second
month, and was up 0.9% from a year earlier.
But the recent
improvement in US Treasury prices, and the corresponding drop in
rates, has been erased as we are now at March 10 levels – the
same as prior to the Japanese earthquake. The 10-yr closed at
3.45%, and MBS prices closed flat to 3 ticks higher,
respectively, on 5s down through 3.5s, while 5.5s and 6s were a
plus to a tick lower on relatively light trading volume. REITs are steadily emerging as a key source of
levered demand for agency MBS, which is helping to keep
mortgage rates low relative to Treasury rates (spread).
The Treasury
auctioned $35 billion of 2-yr notes (a weak auction), will do
$35 billion of 5-yr notes today and $29 billion of 7-yr notes on
Wednesday. Today is another report on housing - S&P
Case-Shiller HPI for February at 6AM PST. We also will have
Consumer Confidence for March 9AM CST, along with the $35
billion 5-yr auction. So far the 10-yr is roughly
unchanged at 3.45% and MBS prices are also roughly unchanged.
A duck walks into a post office and asks the postal clerk, "Got
any 4.5% 30-yr mortgages?"
The clerk replies, "No, this is a post office; loans aren't done
here."
The duck walks out, but this brief dialogue is repeated daily
for several weeks. Finally, the clerk snaps: "If you ask for a
loan one more time, I'll nail your beak to the ceiling!"
The next day the duck asks, "Got any nails?"
The clerk is fuming. "NO!"
The duck pauses. "Got any 4.5% 30-yr mortgages?"
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