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Apr. 13, 2011: Electronic appraisal update; how investors view FHA/VA loan pools; JPMorgan Chase earnings; Freddie & Fannie debate comments
Rob Chrisman
(Let me
add a clarification to the Ops Manager job listing from
yesterday. The company is merely shifting responsibilities as
they grow, and the current manager is fully aware of the
situation. I apologize if the confidential listing made scores
of operation managers in California nervous!)
Banks are flush with
cash. Is it helping mortgage lending? Not really: http://money.cnn.com/2011/04/06/real_estate/why_you_cant_get_a_mortgage/index.htm?sectionmoney_topstories.
For the most part,
the industry is glad to see Freddie and Fannie's efforts toward
clean data and accurate appraisals. (What investor wants to buy
a pool of loans that has dubious collateral?) Both agencies sent
notes out updating the news on UCDP: “As we
continue to develop the Uniform Collateral Data Portal, a single
portal for the electronic submission of appraisal data files,
Fannie Mae and Freddie Mac (the GSEs) are announcing the
portal's availability date and introducing resources to assist
lenders in preparing to access and use UCDP. UCDP will be
available for submitting appraisal data files starting on June
27, 2011. To help ensure a smooth transition to electronic
submission of appraisal data files, lenders are encouraged to
begin using UCDP for their live production as soon as it is
available. Fannie posted https://www.efanniemae.com/sf/technology/commitloandel/ucdp/index.jsp
as did Freddie, and they both posted a list of frequently asked
questions: http://www.freddiemac.com/sell/secmktg/uniform_mortgage_faq.html?tab3.
Arguing over these
two institutions will be in the news for quite some time. Last
week a reader wrote to me, “Why do we need a Fannie
AND a Freddie? There was a day when we could all delude
ourselves into believing that they provided ‘competition’ to
each other which had some sort of benefit (it didn't). But
today - they are both puppets of the same regulator and they are
both owned by the taxpayer (the conservatorship is fiction to
keep Fannie and Freddie's eviscerated balance sheets out of
sight of angry voters). There is zero value to having two
broken governmental monopolies. And why is the taxpayer paying
for their sales force – what are they selling? How many sales
people does FHA have?”
But another commented, “Should we really rid
ourselves of Freddie & Fannie? Over the past few
years, even during the toughest times, conventional mortgages
have remained available and affordable. Like it or not, the
agencies play a role in the global markets – investors around
the world know Freddie Mac and Fannie Mae, and borrowers have
access to affordable mortgage funding in any environment and in
all geographic markets. What series of private companies is
going to be able to benefit borrowers as they are doing now – or
would those calling for their elimination be happy with mortgage
rates in the US 4% higher than where they are now due to
liquidity issues?”
Yesterday I mentioned
the upcoming FHA MI changes, and had a brief explanation of
private mortgage insurance. "Usually MI covers mortgage payments
for periods of between 12 months and 5 years, though terms
between three and five years are increasingly difficult to find.
Insurance usually kicks in when the borrower is unable to meet
their mortgage payment obligations because of sickness, injury
or unemployment - MI does not cover fraud." A National
Accounts rep for an MI company clarified, "What you describe is
more like ‘Involuntary Unemployment Insurance’ which does kick
in if a borrower loses their job. Some MI companies offer
'IUI.' PMI (Private Mtg. Insurance) protects lenders if a
mortgage loan goes into default on LTVs above 80%. By helping
mitigate the lender's risk, borrowers can get into homes with
lower down payments."
With the MI increase
Monday, FHA’s market share is expected to drop. It is
interesting to note the difference of how people in the industry
look at the same FHA/VA loans. Originators look at them one way,
which is generally a high LTV loan with decent rates but being
hurt by higher MIP fees. But when you pool FHA/VA
loans, how do investors look at them? The outstanding
balance of GNMA MBS's has risen significantly over the past
three years and is now more than $1 trillion. The $1 trillion is
in CMO’s (collateralized mortgage obligations) - $300 billion,
owned by the Fed - $96 billion, banks and savings institutions,
overseas accounts - $250 billion, and others. And there is
$80-90 billion of current production that is liquid.
The $80-90 billion of
"trade-able" securities are divided between two different
markets: "Ginnie I's" and "Ginnie II's." And then each has 3-4
coupons, or buckets that the loans go into, with buy down loans
or odd coupons historically going into Ginnie II’s. And it is
further divided into 15-year securities, as well as ARM pools.
$80-90 billion sounds like a lot, but Wall Street
traders, and hedging firms, do their best not to be caught
short any of this product. For example, only $5 billion of
Ginnie 3.5's (containing 4% mortgages) were issued - not very
liquid at all. And the increase in MIP fees leads to a drop in
production. With liquidity an issue, even when you’re talking
billions and trillions, companies often use Fannie or Freddie
securities to hedge FHA/VA production, which then leads to
closely monitoring the spread between Ginnie & Fannie
security prices.
JPMorgan Chase’s stock is pointing to
a higher opening this morning after reporting its 1st
quarter numbers that beat expectations. JPM said profit rose 67%
to a record with 1st quarter net income climbed to
$5.56 billion. The announcement is full of various metrics and
numbers that are best seen by looking at the actual
announcement, but focusing on some of them are worthwhile
and indicative of large bank’s current mortgage division
performance. JPM reported a $1.1 billion pretax loss from
mortgage servicing rights asset adjustment for increased costs,
and a $650 million pretax expense for estimated costs of
foreclosure-related matters. “While delinquency trends and net
charge-offs improved compared with both prior periods, the
current-quarter provision continued to reflect elevated losses
in the mortgage and home equity portfolios.” “Mortgage banking
net revenue was a loss of $114 million, compared with net
revenue of $962 million in the prior year, and included $271
million of net interest income and $104 million of other
noninterest revenue, offset by a loss of $489 million for
mortgage fees and related income. Mortgage fees and related
income comprised $259 million of net production revenue, $489
million of servicing operating revenue and a $1.2 billion MSR
risk management loss. Production revenue, excluding repurchase
losses, was $679 million, an increase of $246 million,
reflecting higher mortgage origination volumes and wider
margins. Total production revenue was reduced by $420 million of
repurchase losses, compared with repurchase losses of $432
million in the prior year. Servicing operating revenue declined
3% from the prior year. MSR risk management revenue declined by
$1.4 billion from the prior year, reflecting a $1.1 billion
decrease in the fair value of the MSR asset for the estimated
impact of increased servicing costs.”
Speaking of Chase, its correspondent group saw the Distressed
Market designations for its non-agency product line updated.
Affiliated rolled out its Rural Housing program, designed for properties in
towns removed from urban areas and having less than 20,000
residents. Like Detroit. Seriously, Affiliated notes, "For
qualified borrowers, a Rural Housing loan can provide up to 100%
financing, no monthly MI required, 30-year fixed rate term, no
cash contribution or reserves required from qualified
applicants," etc.
Now the compensation
issue has been put to rest, we can get on with the... comp
issue. Investors and lenders are issuing bulletins
"right and left" clarifying compensation calculations. (I
still keep wondering if this really helping the borrower.)
ING, for example, has
begun sending out a series, with yesterday's "Loan Originator
Compensation Rule Bulletin #1" leading off. It addressed the
pricing and disclosure of Lender-paid Compensation transactions.
(The ING Broker Gateway correctly presents the rate and price
options on both Borrower-paid and Lender-paid loans, except for
Lender-paid loans in
which the maximum or minimum amount applies.)
Provident Funding sent brokers a reminder
saying, "Confused about loan pricing or preparing your GFE under
the TILA compensation rule? Simply check out our Pricing Matrix
Calculator on pfloans.com under the rate sheet!"
NYCB has discontinued its
Conforming Fixed Rate products with 40 year terms.
Fifth Third has been busy
lately. In recent weeks its brokers have received updates on FHA
refinance guidelines for borrower occupancy of a former
investment property, three and four unit properties for FHA
refinances, net tangible benefit clarifications, maximum
insurable loan balances for FHA non-credit qualifying streamline
refi’s, a reminder of the FHA MIP increase, clarification on the
age of credit documents along with registering agency and jumbo
loans under the new comp system, and rolling out a Texas Equity
Program that allows for LTV ratios up to 80%.
Yesterday we saw a
decent market for fixed-income securities right out of the gate.
We had a renewed flight to quality move in part off of Japan’s
news of the escalating nuclear disaster, stocks were down, and
oil prices were down. The $32 billion 3-yr note auction went
well, and the 10-yr (which will see a new issue auctioned off
today) closed better by more than .5 and at a yield of 3.50%.
One trader wrote, “Technicals are certainly in MBS' favor for
this with barely a pulse in mortgage banker selling, including
today, at between $1 and $1.5 billion per day.” For you traders
out there, check out http://www.mortgagenewsdaily.com/mortgage_rates/blog/207199.aspx to see a
write up of market activity from yesterday.
But today is a new
day. The MBA reported what lock desks already knew: last
week’s apps decreased 6.7% from one week earlier. Refi’s
were down almost 8%, and purchases were down about 5%. Overall,
refi’s are down to about 60% of all apps, and ARM share steady
at about 6% of total applications (but over 10% of the dollar
volume).
This morning we had
Retail Sales, which through last month was up for 8 straight
months and certainly helps the GDP figures. Estimates called for
consumer spending to increase by .5-1%, depending on who you
asked, indicating a slower annual pace than in the 4th
quarter. Retail Sales actually came in at +.4%, less than
expected, with it being +.8% ex-auto. Later we have a $21
billion 10-yr auction, and Fed’s Beige Book which will be used
for the April 26-27 FOMC meeting. After the Retail Sales number
the 10-yr’s yield is sitting around 3.53%, and MBS
prices are worse by about .125.
Scientists have
released a report on the adverse effects of different alcoholic
beverages have on the organs of the human body.
Vodka + Ice…….. Damages the kidney!
Rum + Ice……….. Damages the liver!
Whisky + Ice…… Damages the heart!
Gin + Ice………….Damages the brain!
Conclusion: It seems that ice ruins everything!
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