Opposing Views of FHA's Health; MERS Keeps on Truckin'; JPM and Wells Earnings
Entities like title companies, real estate agencies, home inspection services, etc. don't mind this statistic, but lenders sure do: the National Association of Realtors reports all-cash buyers accounted for 32% of existing home sales in August versus 27% in the prior year. But heck, if you're earning about 0% on your money in the bank, may-as-well "catch the wave" and buy some real property, right? In my opinion, I see a lot of change coming up, the majority of it not good. It is already happening, and as a quick example we have Sound Mortgage over in Washington. Employees received, "Due to Sound Mortgage's inability to fund loans at this time, your position with Sound Mortgage is being eliminated effective October 10, 2013. In the event that funding resumes and we have a position available, you will be contacted by Sound Mortgage." This came from Stacy Evans, VP of Operations. Good luck to those impacted; it is no consolation that you will not be the last - there are just fewer loans out there. Be sure to check out the STRATMOR survey below.
Remember when the entire industry was watching the MERS lawsuits, wondering if servicing (and loans) was being transferred legally, and what would happen to lenders and the capital markets if MERS went away? Certainly the company is involved in a myriad of lawsuits, probably consuming personnel from entire law school classes. But the policies, procedures, and legality of MERS seems to be holding up very well in court. The latest from Macon County, Illinois enforces that view of things where MERS won a dismissal of a recording case. "Rejecting entirely the plaintiff's claims, U.S. District Court Judge Michael McCuskey adopted the recommendation of U.S. Magistrate Judge David Bernthal who wrote, 'Defendants lawfully recorded and paid recording fees for the original mortgage, naming MERS as nominee. At that time, first-lien priority attached to the recorded mortgage pursuant to state law. Defendants lawfully chose not to record intermediate transfers. Thus, they did not owe recording fees for those transfers. None of this conduct is wrongful...'" The MERS memo describes over victories in AZ, CA, GA, KS, MI, OH, OR, TN, TX, and WA. "For descriptions of cases and other materials, please visit www.mersinc.org." This is good, because folks need a room to sit in at major conferences!
Thank you to Tanya Themistokleous, Chief Marketing Officer for Closeline Settlements, who wrote, "I wanted to pass along a recent article I wrote in regards to vendor partners and the CFPB guidelines, and specifically the vetting of title insurance agencies." Thank you!
FHA has gone back to the government for more money - an appropriation. So what does the future hold for the favorite agency for new home buyers? Here is one view: "The Federal Housing Administration may need a $1 billion draw from the U.S. Treasury to cover a budget short fall. But that estimate by the Office of Management and Budget is based on the performance of FHA-insured loans back in December and does not recognize recent improvements, according to one consultant. Since December, FHA's performance has only gotten better in terms of loan loss severity rate, loan delinquencies and home prices, according to mortgage consultant Brian Chappelle. 'If OMB did a re-estimate, FHA would be $5 billion to $10 billion better off,' Chappelle said. 'There would be no issue.' But OMB is 'stuck' with the December estimate, he explained. Under the budget rules, a draw is technically necessary because OMB cannot update its December estimate, according to the founding partner of Potomac Partners. However, 'the FHA fund is in better shape than implied by the draw. And it is a positive harbinger for the actuarial review,' Chappelle said. HUD is slated to release the annual FHA actuarial review in early November, which is used to determine FHA's capital ratio. It is prepared by independent auditors who review the performance of FHA's entire loan portfolio."
Ed Pinto, longtime observer of the FHA, begs to differ. "Carol Galante announced that FHA would be "taking a mandatory appropriation of approximately $1.7 billion on September 30, 2013. Under FHA's congressionally sanctioned government accounting principles, FHA is permitted to count as current capital the present value of its future net earnings, something no other financial institution is permitted to do. Even under this creative accounting practice, as of September 30, 2012 FHA was found to have a negative economic worth [negative capital] of -$16.3 billion (includes both the forward and reverse insurance programs). This was the fourth consecutive year the FHA had failed to maintain a congressionally mandated capital level of 2%. This seriously overstates FHA true financial condition. As reported last week by FHA Watch, the FHA's estimated net worth at August 31, 2013 under private generally accepted accounting principles (GAAP) was estimated at -$26.68 billion, up from -$30.41 billion in September 2012, and down from -$20.87 billion in September 2011. The FHA's capital shortfall stands at $47 billion (using a 2 percent capital ratio) and $67 billion (using a 4 percent capital ratio applicable to the private sector). The Denial Dial shown below was set to -2.43 percent. The monthly tracking of FHA's insolvency may be found below the Denial Dial. Note: these totals are for the forward insurance program only, and would be worse if reverse mortgages were included. Over the period 1975 to 2011, more than 3 million, or 1 in 8 FHA-insured families will suffer a foreclosure-a record of failure made worse by the fact that lower-income and minority families have suffered even higher foreclosure rates. FHA has now grown to over $1.1 trillion in insurance risk-in-force covering nearly 8 million loans."
We'll see how things pan out at the FHA. Back in August, the guys and gals over at Wells Fargo Securities Economics Group did a well written commentary entitled "Too Soon to Worry: The Housing Market is Simply in Transition." In October, they have reiterated this belief with a well written and informative piece in which they argue that housing recovery has reached a 'key turning point' in this "transitional economy". They write, "The housing market is transitioning away from a rebound driven primarily by speculative forces to one where the underlying fundamentals will be much more important. Over the past few years investor purchases have been the primary driver of the housing recovery, helping clear inventories of foreclosed and lender-owned properties and pulling home prices dramatically higher." With a diminishing housing inventory, mainly attributable to speculators and real estate developers, what is standing in the way of growth? Well according to Wells' Economic Group, the housing recovery will now depend more on that most elusive element-homeowners. Put simply, the housing market, and the general economy, need more of them. In order for that to happen, overall employment conditions need to improve further. Is it still too soon to worry? Check it out.
With all the political and intra-company tumult, we're lucky the rate markets are not more volatile. The Republicans have offered to extend the government's borrowing authority for about six weeks, but so far remained at an impasse regarding the fiscal budget which would keep the government shut down. Stocks sure liked the news yesterday, but aside from a little intra-day volatility, rates didn't do much. Certainly you'd expect this partial shutdown to negatively impact the economy, and thus push rates lower. We'll see, but certainly talk of any tapering off of QE3 points to something way in the future.
We did have the JPMorgan Chase earnings, which truly were a mixed-bag ($.4 billion loss, but without the $6.2 billion in the 3rd quarter of litigation and reserve release costs). And we'll see Wells Fargo earnings - and the mortgage industry will be following the results.
The week closes out ahead of a three-day weekend with just the preliminary October Consumer Sentiment reading at 9:55 a.m., as the government shutdown prevents release of the other scheduled key releases of PPI, Retail Sales and Business Inventories. Sentiment is called lower to 76.0 from 77.5. The yield on the 10-yr closed at 2.68%, and that is where we find ourselves today, unchanged, and ahead of Monday's bond market holiday. (Don't look for great rates on Monday - the MBS market, which determines rate sheet pricing, is closed, so pricing becomes a little more of an art than a science.)
One day a florist went to a barber for a haircut. After the cut, he asked about his bill, and the barber replied, "I cannot accept money from you since I'm doing community service this week."
The florist was pleased and left the shop.
When the barber went to open his shop the next morning, there was a 'thank you' card and a dozen roses waiting for him at his door.
Later, a cop comes in for a haircut, and when he tries to pay his bill, the barber again replied, "I cannot accept money from you; I'm doing community service this week. The cop was happy and left the shop.
The next morning, when the barber went to open up, there was a 'thank you' card and a dozen doughnuts waiting for him at his door.
Then a Member of Congress came in for a haircut, and when he went to pay his bill, the barber again replied, "I cannot accept money from you. I'm doing community service this week."
The Member of Congress was very happy and left the shop.
The next morning, when the barber went to open up, there were a dozen members of Congress lined up waiting for a free haircut.
And that, my friends, illustrates the fundamental difference between the citizens of our country and the politicians who run it.