JD Powers Ranks Mortgage Servicers; YSP & FHA News, $8,000 Tax Credit Warning
The MacArthur Foundation gave out its annual 'genius' awards last week. This year's awards went to a journalist, a mental health scientist, and a couple who sold their house three years ago.
Well, maybe they want to buy it back. Even though the availability for jumbo loans wasn't what it once was, the IRS has apparently decided to give a break to jumbo mortgage holders. More specifically, Forbes reports that the IRS has concluded that a taxpayer can deduct interest on the first $1.1 million of a home mortgage, which is $100k more than an earlier limit. On top of that, taxpayers can file amended returns for the past three years and claim thousands in refunds. Yippee!
When I want a new car, which last happened with my '01 Prius, I think that I took a look at JD Powers surveys of consumer satisfaction. (The Prius was too new to rank.) Most borrowers don't know which company is going to end up servicing their loan, but if they could chose between servicers, they could take a look at the JD Powers customer service surveys.
If I was a betting man, my money would be on Congress voting to extend the jumbo loan amounts, but I would probably not bet on the ARRA's $8,000 tax credit being around forever. The deadline is December 1, and the purchase date is the date when closing occurs and the title to the property transfers to the home owner. U.S. Bank Home Mortgage, for example, is giving their clients plenty of notice that waiting until the last moment is not a good idea. "Given the date of your mortgage loan application and the length of time required for loan processing prior to scheduling a closing, U.S. Bank Home Mortgage cannot guarantee that your mortgage closing will take place prior to December 1, 2009 and therefore it is possible that you will not qualify for the first-time homebuyers tax credit because of the date of purchase deadline."
Lately, believe it or not, mortgage rates are still very good, and helping mortgage prices was a report from the Fed showing that they are indeed considering boosting their purchases of mortgage bonds. So although the Fed stuck with the $1.25 trillion figure, there is talk of continuing/expanding this if the housing market does not improve. "Some members thought that an increase in the maximum amount of the committee's purchases of agency MBS could help to reduce economic slack more quickly," according to minutes of the Federal Open Market Committee's Sept. 22-23 meeting.
By the way, the futures market is pricing in an 85% chance that the Fed keeps rates somewhere between 0% and .25% through late January, which has come down slightly but the odds are still very good.
Many smaller originators and brokers feel somewhat left out of the whole modification and Freddie & Fannie refinance programs. There are some interesting numbers concerning the Freddie programs to note, however. For example, in the first 4 months of 2009, only about 6%-7% of the loans (by outstanding balance) that were refinanced had LTV's greater than 80%, but this percentage had spiked up to 27% by August. And, although refinancing has declined recently, refinancing by high LTV borrowers has shot up primarily due to streamlined refinancing - to the tune of probably $11-$12 billion a month of borrowers with LTV's above 80%.
Any originator who relies strictly on FHA production may be slightly nervous, given all of the changes coming at them after New Year's. For example, FHA has proposed eliminating the "mini eagle" designation, which is what many brokers have, and shifting that responsibility to the funding source. Typically a larger company, the funding source will maintain FHA certification, and a minimum net worth of $1 million to ensure capital is available. However, don't look for larger investors just to rubber stamp brokers - since the FHA is proposing that they take more financial responsibility, they will no doubt continue to pass that along to smaller lenders. In addition, the streamlined refi will, many feel, soon become a full doc loan instead of merely an application and verbal VOE. And yes, look for FHA-related appraisals to mimic the conventional loan's HVCC program.
I have not heard much about the latest news on changing the Yield Spread Premium, other than the public comment period ending on Christmas Eve. Some institutions, however, are formulating their business plan around the assumption that it is a sure thing. A bank in Southern California, for example, is telling their brokers that they will not be able to receive current YSP levels on HUD loans, and therefore their brokers will have three options: earn a maximum of one point, becoming a net branch of this bank, or become a stand-alone mortgage banker. And to sweeten the deal, if a broker signs on with them, the broker will receive $1-2 million in warehouse capacity, therefore in effect becoming a banker. Interesting... unless you're a broker who enjoys being independent.
Besides the Fed buying bonds, are any foreign interests adding to their holdings? Not according to the latest figures (for August). The August TIC data released this morning showed that overseas investor holdings of agency bonds has declined by $5.4 billion in August, and by $319 billion (or by about 20%) since the 3rd quarter of 2008. Fortunately for originators, most of the decline has been in agency debentures and bonds, and not in mortgage-backed securities. According to analysts, while Treasury bond demand is solid, foreign official institutions are not showing much interest in agency bonds and that they are letting their agency bond portfolios runoff. And if push comes to shove, Treasury securities may win out of mortgage securities.
Friday, in mid-morning, we found out that Industrial Production and Capacity Utilization were both stronger for September than expected, although some of the production was attributed to the "cash for clunkers" program. However, a University of Michigan survey of consumer sentiment dropped from its lofty September level - and there are many who believe that this recovery, assuming that we are in one, is driven by psychology rather than fundamentals. In turn, bonds rallied for the first time in three days, and the yield curve flattened for the first time in four.
And minds much better than mine suddenly are saying that they don't see much inflation in 2010. It appears that there is too much excess capacity in the housing and labor markets, not to mention the dismal condition of the commercial real estate market. It seems that every town and city I drive through has "For Sale", "For Lease", or "For Rent" signs up in 30% of the offices and storefronts. The average effective rents for office and industrial space, which include concessions such as periods of free rent and above-standard tenant improvement allowances, have declined by 36 and 35 percent, respectively, from their recent peaks. And according to the Bureau of Labor Statistics, non-residential construction costs have declined by almost 8% over the past 12 months while the average price of a development site has plunged by nearly 60% since 2007 as reported by Real Capital Analytics. Everything would be better if the Federal Government would just stop auctioning off billions of dollars of debt several times a month!
So what's in store for this week? No news today, but on the 20th we have the Producer Price Index, and Housing Starts & Building Permits. Nada for Wednesday, and then on Thursday we have Leading Economic Indicators and Jobless Claims. We finish the week off with Existing Home Sales. We start the day with the 10-yr at 3.43% and mortgages worse by about .125.