Do you owe any money on your home? Lots of owners do, a lot don’t.
Usually we see these “free and clear numbers from the Census
Bureau, but this week they come to us from Zillow, which tells us
that nearly one third of us don’t have any debt on their house.
(Hey, if you’ve saved up some money, but are earning 0% on it from
the bank…) The highest state for free & clear ownership is
West Virginia (45%), the lowest is Nevada & DC at 21% and 20%,
respectively:
http://www.zillow.com/blog/research/2013/01/09/free-and-clear-american-mortgages/.
Yesterday the commentary posted a job listing from Citi and its
retail group. (“The Partnership Channel of the Retail Mortgage
Division of CitiBank is currently recruiting loan originators and
sales managers in the following states: TX, LA, MO, IA, IN, OK,
TN, KS, WI, AL, MN, KY, MI, and IL.”) The e-mail address of the
primary contact person was incorrect, and I received a large
number of e-mails from folks (who will remain nameless, of
course!) who tried to send a resume but could not. The correct
e-mail address for Kenda Rice is
kenda.l.rice@citi.com.
“Rob, last week the Fed’s minutes showed that several members
questioned whether or not the Fed’s MBA purchase program would
last through the end of the year – and rates shot up. But now we
have economists and talking heads trying to figure out how long it
will take for the unemployment rate to drop to 6.5 percent. It
could be at least half a decade! Here’s the story:
http://www.cnbc.com/id/100366753.
Who’s right?” That is the $64,000 question! It is good to keep in
mind that the unemployment rate can change, based not only on
employable people working, but also based on the number of people
in the labor pool. So it is influenced by those out of work, those
who give up looking for jobs, the “under-employed” (have jobs but
lower paying), and so on. Although the Fed has based a goal on
unemployment, its original purpose was, and still is pretty much,
“to provide the nation with a safer, more flexible, and more
stable monetary and financial system.” This chatter about using
the unemployment rate as a metric is new, and critics think that
the Fed should not use it due to the inherent problems in
measuring and monitoring it. Personally, I think that the
purchases will last through the year, if not longer, and think
that the industry should be concerned about other things that move
rates on home loans (loan level price adjustments, gfee increases,
etc.).
It is good to remember that owning mortgage-backed securities, and
other Treasury securities, has not been a problem so far. The
Federal Reserve paid the U.S. government a record $88.9 billion in
2012, a 17.9% increase from $75.4 billion in 2011. The central
bank earned the money from the mortgage-backed securities and
Treasury bonds it has bought. The previous record was $79.3
billion in 2010.
Are banks in good shape? Sure they are – until they aren’t. But
for now, at least, one financially savvy person thinks they are,
but of course he has billions at stake if banks turn south:
http://www.bloomberg.com/news/2013-01-10/buffett-says-banks-cleared-of-excess-risk-pose-no-threat-to-u-s-.html.
The full QM rule has come out. Of course, it isn’t the final final
rule, but it is still ± 800 pages, introduced by the CFPB simply
saying, “We issued the document containing this final rule on
January 10, 2013. View the full document as issued.
Joe Adamatis writes, “QM? More like a Quiet Moment! I agree as
there is nothing here that any lender who doesn’t want to risk
their business isn’t doing. Of course there are those originating
outside Main Street GL’s by eliminating over-lays, but they are
far and few between and rarely do they close. Seems to me, that we
continue to make a lot out of nothing since no lender in their
right mind is offering Liar Loans, etc. Hopefully the private
market will eventually address the No Doc for self-employed as
currently those folks are being hammered. I remember the days when
Greenpoint used to originate these and there were no significant
defaults. The program only crashed and burned when those who
thought there was a way to capitalize by offering the program to
the masses with little of the original guidelines that Greenpoint
had. 25% down and hefty scores were a requirement compared to no
skin in the game and lackluster scores.”
Ted R. asks, “I’d love to know how borrowers (particularly in high
cost states) are going to get small loans if the total fees cannot
exceed 3% of the loan size. Closing costs here in MO (with an FHA
appraisal) run in the $1,700 or so range, and in attorney states
can be almost $1K more. If the total fees can't exceed 3%, and if
lender credits don't count to offset those fees, the CFPB is
basically saying that loans under $50-75K (depending on state)
won't be QMs, regardless of rate, loan purpose, or lender fees. Is
denying prime rate loans to small loan borrowers sound housing
practice? Is it the CFPB's intent to legislate small loans into
much higher rates since they may not be QMs?” [Editor’s note: I
have heard chatter about exceptions already being discussed for
loans under $100k, but nothing concrete yet.]
Derek Becker asks, “Here’s an interesting question to ponder. With
the unveiling of the QM rule, how will it affect the CRM and LMI
requirements for banks or is this an opportunity to extort more
money from them for complying with QM and, therefore, not making
enough CRM and LMI loans. I see that there is a proposed amendment
for…’ exemptions for housing finance agencies and lenders
participating in housing finance agency programs intended to
foster community development.’ Operative word here is proposed and
community development can have many definitions. I thought that
when a new regulation is promulgated it could not be in
contradiction with existing law or regulation.”
Brian B. asks, “Will the Safe Harbor kill privatization? Doesn't
the concept of a Safe Harbor place an extra and almost
extra-ordinary burden upon all loans that do not fall within the
Safe Harbor and further composes a DISPARATE IMPACT on the US
Citizens who would require financing outside of the Safe Harbor?
The idea is similar to the German’s ship Graf Spree during WWII:
it was so perfect in the harbor that the Germans became afraid to
use it and once it left the Safe Harbor it was the biggest target.
Is Redwood worried?” [Editor’s note: probably not, as it is
working on plans for conventional production.]
The MBA has released a handy-dandy preliminary matrix for the
rules:
http://mba.informz.net/MBA/data/images/publicaffairs/preliminary_chart_final_qm_requirements.pdf.
For its part, “NAMB Calls for SBA Small Business Panel to Examine
Impact of CFPB’s Qualified Mortgage Rule” and released this: “The
Association of Mortgage Professionals applauds the efforts of the
Consumer Financial Protection Bureau (CFPB) to finalize the
Ability-to- Repay rules mandated by the Dodd-Frank Act, also known
as Qualified Mortgages (QMs). NAMB has, and continues to be, a
proponent of ensuring that consumers have an ability to repay
mortgage loans. NAMB applauds the CFPB’s efforts to reach out to
the industry for feedback regarding these rules as the Bureau has
been tasked with the very difficult job to create a rule to
protect consumers from poorly-designed loans, such as pay-option
ARMs and no-doc loans. Yet, the CFPB also cannot limit consumer
choice by creating an uneven playing field between the “Too Big to
Fail” institutions and the thousands of small businesses
originating loans today. The primary concern of NAMB with the QM
rule surrounds the Dodd-Frank Act’s mandate of a three percent cap
on points and fees. “We believe permanently removing certain loan
programs with risky features such as no- doc loans to W-2
borrowers will help the housing market in the long run,” said NAMB
Government Affairs Committee Chair John H. P. Hudson. “However,
arbitrary caps on points and fees which do not impact a consumer’s
ability to repay, without any clear definitions, will ultimately
harm consumers by reducing competition, raising borrower costs and
promoting the policies of “Too Big to Fail” institutions. The
congressional intent of the Ability-to-Repay Rule was not to put
the CFPB in a position of picking industry winners and losers.”
NAMB feels that the CFPB’s QM rule can potentially promote a bias
against non- creditor mortgage companies. The three percent cap on
points and fees not only has the potential to discriminate against
small business entities, but it has the potential to limit access
to credit for lower loan amount consumers which typically are
considered low- to moderate-income consumers.”
Wells Fargo’s results for the 4th quarter came in. (Hey, if it can
come up with results less than two week into the next period, why
can’t your CFO?) The earnings per share were better than expected.
John Stumpf called 2012 an outstanding year. Total loans were up
29% from the fourth quarter of 2011, but there are a lot of moving
parts to an earnings release like this. Net interest income and
margins were down slightly, about as expected - more tomorrow or
Monday on the mortgage side of things
Turning to the eternal markets, mortgage-backed security prices
closed “lower and tighter” which means that although they went
down in price they didn’t do as poorly as Treasury prices. It was
busy day in mortgages with Tradeweb reporting volume at 139
percent of the 30-day moving average and10-year T-notes marked
lower by 3/8 of a point (1.90%) despite a good 30-year bond
auction. Mortgage banker supply remained uneventful at less than
$2.5 billion, consisting mostly of 30-year 3.0s. Meanwhile, the
latest report from the New York Federal Reserve indicated buying
at a pace that equated to $4.1 billion per day over the week
ending Jan. 9. In other flows, fast money was a reported buyer,
while profit-taking was noted from real money.
The week winds down with three economic releases: Import Prices
(Dec) and International Trade (Nov) at 8:30 a.m. and Treasury
Budget (Dec) at 2:00 p.m. Import Prices are expected up 0.1
percent from -0.9 percent previously, while consensus on the trade
deficit is -$41.3 billion from -$42.24 billion. In the early going
the markets are nearly unchanged from Thursday’s close, and the
10-yr is hovering around 1.88%.
A blonde walks into a bank in New York City and asks for the Loan
officer. She says she's going to Europe on business for two weeks
and needs to borrow $5,000.
The bank officer says the bank will need some kind of security for
the loan, so the blonde hands over the keys to a new Mercedes Benz
SL 500.
The car is parked on the street in front of the bank, she has the
title and everything checks out. The bank agrees to accept the car
collateral for the loan.
The bank's president and its officers all enjoy a good laugh at
the blond for using a $110,000 Benz as collateral against a $5,000
loan.
An employee of the bank then proceeds to drive the Benz into the
bank's underground garage and parks it there. Two weeks later, the
blonde returns, repays the $5,000 and the interest, which comes to
$15.41.
The loan officer says, "Miss, we are very happy to have had your
business, and this transaction has worked out very nicely, but we
are a little puzzled. While you were away, we checked you out and
found that you are a multimillionaire. What puzzles us is, why
would you bother to borrow $5,000?"
The blonde replies, "Where else in New York City can I park my car
for two weeks for only $15.41 and expect it to be there when I
return?"
Finally... a smart blonde joke
If you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at
www.stratmorgroup.com.
The current blog discusses the role of the IRS and REMIC's in the
current credit crisis. If you have both the time and inclination,
make a comment on what I have written, or on other comments so
that folks can learn what's going on out there from the other
readers.
Rob
(Check out
http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx
or
www.TheBasisPoint.com/category/daily-basis.
For archived commentaries, go to
www.robchrisman.com.
Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid
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Rob Chrisman.)
