Mortgage Investor Gossip; FICO Scores and Loan Production; "Hardest Hit" State Housing Programs; FHA Mini-Eagles;
Last week was the Western Secondary Marketing conference in San Francisco. On one of the nights I came upon a mortgage banker who'd had a little too much to drink. Way too much, actually, and he was "as blind as a welder's dog", as Australians say. But he had some interesting things to say about the current correspondent investor community. (I will not vouch for the factual nature of his comments, so don't kill the messenger.)
Here's what he told me:
"I used to have lots of investors meetings. But now Chase only wants retail, Citi doesn't seem to know what they want, Wells is so backed up in operations they can't do anything, and BofA is...BofA. PHH is opening up a correspondent division, but they only want credit unions and small banks, like Taylor Bean. (Hiccup.) Union Bank is ok, but BB&T doesn't want to come west. GMAC and Flagstar seem to be buying anything with the word "loan" in it but their pricing isn't great. And everyone else like Franklin American or SunTrust either sell all their loans to the big guys or don't offer much of anything new."
Like I said, don't kill the messenger.
Another secondary marketing VP wrote to me and said, "We've seen a 'basis shift' among investors - they just aren't following the market. Wells and Bank of America have not followed MBS prices, Wells because of capacity issues and BofA because they don't have to. From a hedge perspective, I am more concerned about trusting my investors than brokers pulling loans."
These observations were also discussed onthe Mortgage Rate Watch blog channel yesterday.
There is some expected, but not good, news for mortgage originators wondering why volume isn't better. (This may actually be somewhat good news for investors in existing mortgage-backed securities.) Figures provided by FICO Inc. show that as of April 25% of consumers (about 43 million people) now have a credit score of 599 or below, marking them as poor risks for lenders. This number is up from the historical norm of 15%. At the other end, interestingly, the number of consumers who have a top score of 800 or above has increased in recent years - mostly attributed to them cutting spending and paying down debt. Consumers on the lowest end of the scale are less likely to try to borrow, i.e., buy a house or refinance.
The American Bankers Association (ABA), through its trade group ABA Business Solutions, announced that its members will be able to sell residential mortgages to Wells Fargo Funding under a special pricing arrangement. Wells has been a "preferred" secondary market investor for ABA's mortgage cooperative, Community Bank Mortgage LLC since 2007, but apparently now "nearly 1,000 banks have signed up for the free services offered.
Operators standing by?
Michigan's "Hardest Hit" began yesterday with an auspicious start: the number of callers overcame its phone system, which crashed. The program has $154 million to help up to 17,000 unemployed or underwater borrowers keep their homes, although it is not mandatory for lenders to participate. "State officials emphasized that people must apply for the program through their lenders first. The state will then reimburse individual lenders. READ MORE
Although Fannie & Freddie approved them earlier this year, in the MI sector there's a "new" kid on the street: Essent Guaranty. Essent announced that its parent just received $100 million in additional capital, so that it now has total equity commitments of $600 million. (I wonder if my kids point to me and tell their friends that they are backed by X amount of capital commitments?) The press release noted that "Essent Guaranty also announced substantial progress during the last quarter, including establishing active lender relationships, issuing mortgage insurance (MI) certificates, initiating Essent Online as its business-to-business web portal, and achieving approval to issue mortgage insurance nationwide."
As we know, in May the FHA shifted the burden of overseeing mortgage brokers onto the shoulders of the larger lenders who have a minimum net worth of $1 million. In response, according to an article by Kate Berry of the American Banker, "many lenders have already come up with guidelines to recruit and oversee them and are actively looking to hire. HUD doing away with the "mini eagle" designation not only saves HUD money (they didn't have the resources to oversee thousands of brokers) but also has helped larger lenders in attracting brokers and offices. Brokers are now allowed to originate FHA loans if they are sponsored by an FHA-approved lender (known as a "full Eagle"). Many brokers, however, are still waiting on the larger lenders setting firm criteria for broker & FHA approval - striking a balance between encouraging business and avoiding future buy-back issues.
Lock desks everywhere were a little less busy last week. The MBAA's survey of retail applications showed that mortgage apps dropped about 3%. Grabbing the headlines, however, will be the statistic showing that the number of mortgage applications for home purchases fell to a 13 1/2-year low, and are down over 40% from last year. Rates have helped refi's, of course, and although they were flat last week refi's hit a 14-month high two weeks ago. Interest in ARM's has increased, and they accounted for 5.5% of activity last week.
Most economists agree that the US economy is not "going gang busters". They would like to see the housing market turn around, and the housing market may not see much growth until employment approves. And at this point, it seems most companies will not do much hiring until...the economy turns around! Retail Sales, which came out this morning, was less than expected, and although the portion of retail sales that is counted in GDP represents just about 30% of total consumer spending it is still meaningful. (Other components of spending such as expenditures on services are expected to grow.)
In a repeat of Monday, yesterday rates moved higher for the 5th day in a row. Several investors changed prices after a poor 10-yr auction combined with a strong stock market to push bond prices down and rates up. Favorable earnings news from stocks helped the Dow. The 10-year note dropped more than a half a point in price ending up at a yield of 3.11%, and mortgage selling picked up to the tune of $2.7 billion - mostly 4.5% securities - probably a lot of it hedging all the pipelines out there. Let's hope that there isn't a short squeeze in a few months when all those securities need to be either bought back or rolled to another settlement month! Fortunately the mortgages that are for sale are being soaked up by investors, and MBS prices did better than Treasury prices. (Fannie 4's were "only" worse by about .250, and higher coupon MBS's actually rallied.)
The rest of this week's calendar is full of key measurements. Retail sales, out this morning, PPI and CPI, Industrial Production and Capacity Utilization, and the Philly Fed business index are the big headliners. Also, this week's Treasury auctions began on Monday with a poor $35B 3-year note sale, followed by the poor $21B 10-yr auction yesterday. Today the Treasury will be selling $13B of 30-yr bonds, and we also have the release of the FOMC minutes from the June 22-23 meeting - don't expect much. Tomorrow Chase states its earnings, and on Friday BofA and Citi do the same.
Retail Sales disappointed many, coming out -.5%; ex-autos it was -.1% for June. It is obvious that the consumer, who accounts for a large percentage of GDP, is still hunkering down. Import Prices were -1.3%, and Export Prices were -.2%. After the news the 10-yr yield is hovering around 3.10%, and mortgage prices could be about .125 better than Tuesday afternoon.
Recently, I was diagnosed with A.A.A.D.D. -Age Activated Attention Deficit Disorder. This is how it manifests:
I decide to water my garden. As I turn on the hose in the driveway, I look over at my car and decide it needs washing.
As I start toward the garage, I notice mail on the porch table that I brought up from the mail box earlier. I decide to go through the mail before I wash the car.
I lay my car keys on the table, put the junk mail in the waste basket under the table, and notice that the basket is full. So, I decide to put the bills back on the table and take out the trash first.
But then I think, since I'm going to be near the mailbox when I take out the trash anyway, I may as well pay the bills first. I take my check book off the table, and see that there is only one check left.
My extra checks are in my desk in the study, so I go inside the house to my desk where I find the can of Coke I'd been drinking. I'm going to look for my checks, but first I need to push the Coke aside so that I don't accidentally knock it over.
The Coke is getting warm and I decide to put it in the fridge to keep it cold. As I head toward the kitchen with the Coke, a vase of flowers on the counter catches my eye--they need water.
I put the Coke on the counter and discover my reading glasses that I've been searching for all morning. I decide I better put them back on my desk, but first I'm going to water the flowers.
I set the glasses back down on the counter, fill a container with water and suddenly spot the TV remote someone left it on the kitchen table.
I realize that tonight when we go to watch TV, I'll be looking for the remote, but I won't remember that it's on the kitchen table, so I decide to put it back in the den where it belongs, but first I'll water the flowers. I pour some water in the flowers, but quite a bit of it spills on the floor.
So, I set the remote back on the table, get some towels and wipe up the spill.
Then, I head down the hall trying to remember what I was planning to do.
At the end of the day: The car isn't washed. The bills aren't paid. There is a warm can of Coke sitting on the counter. The flowers don't have enough water. There is still only 1 check in my check book. I can't find the remote. I can't find my glasses. And I don't remember what I did with the car keys. Then, when I try to figure out why nothing got done today, I'm really baffled because I know I was busy all darn day. And I'm really tired. I realize this is a serious problem, and I'll try to get some help for it, but first I'll check my e-mail...