Mortgage & Refinancing Information

Posted To: MBS Commentary

The line-up of economic data in the week ahead is one of the lightest of the year. Monday is essentially data-free. The following two days of the week are focused on housing with Existing Home Sales on Tuesday and New Home Sales on Wednesday. Those same two days also kick off the Treasury Note auctions for the week though Tuesday's 2yr Notes are generally not moving markets these days. Wednesday's 5yr auction has more potential to affect MBS, but the result would have to be a pretty big surprise in one direction or another. The data shifts away from housing on Thursday with Durable Goods and Weekly Jobless Claims, both moderately important data sets, though not 'high risk' events. Thursday also rounds out the Treasury auctions for the week with 7yr Notes at 1pm. While there is data on Friday...(read more)

Posted To: Pipeline Press

London plans to use a painfully "High-Pitched Sound Generator" to disperse large crowds at the Olympics. Observers note that it will be Cindy Lauper's first paying gig since '86. Speaking of high-pitched noises (and no, this is not a lead in to a Taylor Swift joke), the constructive clamoring about the CFPB's flat fee continues . "The CFPB for consumer finance, in my opinion, is the same thing as the CFTC for commodity trading overseeing Future Commission Merchants and the SEC for stock broker/dealers. Both the futures and stock brokerage industries have formed self-regulating entities. The National Futures Association for commodities and the Financial Industry Regulatory Authority (FINRA) for stocks. The mortgage industry would be well served if the industry itself through the MBA or other...(read more)

Posted To: MBS Commentary

MBS Live : MBS Afternoon Market Summary 104-16 Turned out to be an important level for Fannie 3.5's today. There's more than the usual amount of content in the 'alerts and updates' section below if you're looking to get caught up on how it played out. Long story short, bond markets held up quite well on a Friday that mostly saw money flowing OUT of both sides of the market (i.e. equities and fixed-income both lower in price today). But even the late day volatility left the 104-16 technical level intact through 4pm. From now until MBS go out for the day, it's not out of the realm of possibility to see illiquidity take things a bit lower, but whether or not lenders react to that depends on the lender in question. If it were us, we'd call it a week. MBS Pricing Snapshot Pricing shown below is...(read more)

Posted To: Mortgage Rate Watch

Mortgage Rates improved marginally from yesterday's new all-time lows. Without any major scheduled events to digest, bond markets were left to their own devices and paid a decent amount of attention to a sell-off in stocks. When yields in the broader bond markets move lower, MBS (the "mortgage-backed securities" that most directly influence lenders' rates) tend to move lower in yield as well, allowing lenders to off lower costs, lower rates, or a combination of the two. With the recent move lower to a 3.75% Best-Execution level for 30yr Fixed Conventional loans, today's improvements were seen more in the form of decreased borrowing costs, or increased lender credit, as the case may be. If you're a first-time or even frequent reader looking for a bit more clarity on "best-execution," we just...(read more)

Posted To: MND NewsWire

The State Regulatory Registry, LLC (SRR) and the Nationwide Mortgage Licensing System (NMLS) have issued an Annual Report for 2011. The report notes that 2011 was the first year that all state mortgage regulatory agencies utilized NMLS to manage mortgage loan originator (MLO) licenses on the system. In addition, in January the NMLS Federal Registry became fully operational. By the end of the year the Federal Registry contained active registrations for 11,081 institutions and 375,654 registered MLOs. According to the report, for the first time almost all of the nearly half-million individual mortgage loan originators (MLOs) along with their license or registration status and other information are now available to the general public on-line through NMLS Consumer Access. By the end of 2011 NMLS...(read more)

Posted To: MBS Commentary

MBS Live : MBS Morning Market Summary As the trading day progresses, things are shaping up to be increasingly uneventful even though MBS are down 6/32nds. Reason being: everything has been well contained, and what little weakness we've seen has occurred in a rather orderly fashion and without major volume spikes. Bond markets are staying reasonably connected to stocks, given the lack of market-moving data and European headlines. In short, today looks like the "wind down" that we thought yesterday might have been. We're not completely out of the woods as far as potential volatility is concerned. But as far as coasting into the weekend with minimal losses, it's "so far so good." MBS Pricing Snapshot Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is...(read more)

Posted To: MND NewsWire

Realtors® massed on the Washington Mall on Thursday to show their strength in a year in which their trade organization, The National Association of Realtors (NAR) seems anxious on several levels. An estimated 15,000 Realtors gathered at the foot of the Washington Monument to, in the words of NAR President Moe Veissi "protect the American Dream of homeownership." According to a press release regarding the Rally to Protect the American Dream as the event was characterized, "Realtors® are working to ensure that people who want to own a home or invest in real estate and can responsibly afford to do so will continue to have the opportunity to do that." NAR is currently concerned about discussions to include a requirement for a 20 percent downpayment in the proposed definition of Qualified...(read more)

Posted To: Pipeline Press

Facebook...Facebook...Facebook...I guess the financial press is tired of discussing things like Europe's woes. ( Even today's closing paragraph at the bottom is about Facebook. ) Say what you want, but it is influencing real estate down in San Francisco . To help keep things in perspective, I received this note about small improvements in the price of real estate in various markets: "If I reduce your wages by $1,000 a month for 5 years but finally, in one month, give you a raise of 0.2% in February ... would you really consider that positive overall? It does not address the overreach of price declines that the banks fire sales have caused. That little problem will take decades to resolve at 0.2% a month increase." I agree, and good point. We'd all agree, however, that at least the .2% improvement...(read more)

Posted To: MBS Commentary

With so many unprecedented and hefty considerations, markets might enjoy today's complete absence of scheduled economic data as some sort of chance to seek its own equilibrium. That sentence was actually lifted from an article we wrote in July 2011 when European drama was first beginning to collide with impending Fed policy changes. The first four days of the week contained plenty of events informing both of those heavy hitters and markets attempted to reconcile those versus the decreasingly significant scheduled econ calendar. Back then, we thought that the data-less Friday looked like a decent opportunity for markets to "trade it out," but as it happened, things didn't move too much until two weeks later when 10yr yields dropped about 60bps in 5 days in the run up to NFP. Interestingly enough...(read more)

Posted To: MBS Commentary

MBS Live : MBS Afternoon Market Summary Two of our favorite made-up terms joined forces today to carry MBS to yet another all-time high and 10yr yields to the high 1.6's! The day looked as if it would be a deceleration in terms of volume and volatility this morning, but we turned out to be quite wrong about that, although rates moved in the right direction for MBS watchers. The culprits were overnight headlines in Europe that noted a similar "run on the bank" going on in Spain as the one just seen in Greece. Even if the news and events themselves weren't responsible for subsequent all-time lows in German Bund yields, they certainly reminded investors that there are bigger fish to fry regardless of how Greece plays out. Then there was the Philly Fed data, which in and of itself, isn't cause...(read more)

Posted To: Mortgage Rate Watch

Mortgage Rates hit new all-time lows today. In most cases, lenders' offerings are just slightly better across the board than they were in late January, the last time we officially noted "new all-time lows," though some lenders are not quite back to their previous best levels. A much weaker-than-expected reading on a widely followed report on business conditions in the mid-Atlantic region gave rates markets a bit of an early jolt lower. From there, an absence of additional data gave way to technical momentum, helping rates even lower. Markets are facing tremendous uncertainty over the eventual outcome of Greek elections in June as well as the fate of the Spanish banking sector. Today, Spain saw their own version of the "run on banks" that occurred in Greece yesterday, reminding traders that...(read more)

Posted To: MND NewsWire

For the second time in a week a national housing trade organization has shown that purchasing a home is now within the reach of a record number of Americans. On Tuesday the National Association of Realtors® (NAR) published its affordability index indicating the purchasing power of American households had broken through 200 on its index for the first time in its history. Today the National Association of Home Builders (NAHB) and Wells Fargo released their Housing Opportunity Index (HOI) which showed that 77.5 percent of all new and existing homes sold in the first quarter of 2012 were affordable to families earning the national median income. This is up from 75.9 percent in the fourth quarter of 2011. While NAR used a national median income of just under $61,000 the one used by the NAHB...(read more)

Posted To: MBS Commentary

MBS Live : MBS Morning Market Summary The main market-mover of the morning was the release of the Philadelphia Fed Survey, the chief component of which fell from 8.5 last month to -5.8 today. This happens occasionally with regional manufacturing reports and particularly, we're reminded of the August Philly Fed Index that fell to -22 from a +6.2 in July. Although that instance constituted a bigger discrepancy, today's is arguably as much of a surprise considering the recent relative stability of the data (or even "uptrend" with the exception of last month's minor pull-back). Amazingly, it kicked off the biggest hour of volume of the week by a small margin over y'day's hour following the Greece/ECB news. MBS hit another all time high albeit by a small margin and 10yr yields now trade under 1...(read more)

Posted To: Pipeline Press

Accenture Credit Services announced that, "Low interest rates, less competition, more regulation and tighter credit standards have pushed the time it takes the biggest mortgage lenders to refinance a mortgage loan from 45 days a year ago to more than 70 days now." Underwriters, who in the past could underwrite 6-8 files a day, now do 2-3 - and they've turned into auditors instead of underwriters . And the borrower, of course, is the one who pays the cost of the longer time frames and the higher overhead. But refinancing cures all evils, right? Wrong: "The number of FHA-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later." More on that HERE . Speaking of loans heading south, to complicate...(read more)

Posted To: MBS Commentary

If the calendar of upcoming events and y'day's volume are any indication, it's possible that Wednesday was the climactic final scene before the intermission. Volume ramped up steadily on the first three days of the week, hitting it's best levels since mid-March. 10yr Treasuries hit their best levels since October, stocks their lowest since January, and MBS hit all-time highs yet again (and took down a big chunk of originator production in the process). All "that" seemed to come to a head with today's FOMC minutes and obligatory Greek headline(s). On the surface, tomorrow looks much calmer by comparison. Apart from the standard weekly Jobless Claims, forecast at 365k vs last week's 367k (not really on our radar as a big market mover at the moment), there's really only the Philly Fed index at...(read more)

Posted To: MND NewsWire

There were substantial improvements in delinquency rates during the first quarter of 2012 according to the National Delinquency Survey for the period released this morning by the Mortgage Bankers Association. At a conference call for media accompanying the release, Jay Brinkmann, MBA's Chief Economist and Senior Vice President of Research and Education said that the combined percentage of loans in foreclosure or at least one payment past due was 11.33 percent, a 120 basis point (bp) decrease from last quarter and 98 from one year ago. This was the lowest that this measure has been since 2008. This improvement was driven by a 62bp decrease in the rate of loans that were 30 days or more delinquent. Brinkmann said that the first quarter generally experiences a decline in 30-day delinquencies for...(read more)

Posted To: MBS Commentary

MBS Live : MBS Afternoon Market Summary We characterized yesterday as "logical and well contained" with the benefit of some hindsight. While today's session wasn't "well contained," it was rather logical in that it went where you'd expect it to go given the events. Merkel surprisingly supportive of Greece remaining in the Euro-zone? Bond markets selling = logical. ECB wires saying certain MoPo operation with certain Greek banks is on hold? Bond markets bouncing back = logical. FOMC Minutes from a meeting that took place BEFORE the recent round of Euro-drama ramped up showing no incrementally hawkish viewpoints? Bond markets inferring Fed must be that much more willing to stimulate given recent events = logical. All in all it led MBS to all-time highs yet again, and bond markets were generally...(read more)

Posted To: Mortgage Rate Watch

Mortgage Rates are steady to slightly improved today following as Europe's fiscal woes continue providing downward pressure on US interest rates. The forces at work keeping rates low were joined today by "minutes" from the most recent FOMC meeting. All told, several notable lenders are offering their all-time lowest interest rates while others remain close. Markets actually got off to a shaky start as far as rates were concerned. Had it not been for the European headlines and the FOMC Minutes , we'd likely be looking at slightly higher rates today. Mortgage-backed-securities (aka "MBS," the most direct influence on mortgage rates) and US Treasuries began the day in weaker territory until news that the European Central Bank had ceased it's normal interactions with several Greek banks, and the...(read more)

Posted To: Secondary Markets

One of the themes discussed at the MBA’s recent conference in New York was the idea of “a merger” of the mortgage-backed securities issued by Fannie Mae and Freddie Mac.  The FHFA itself now lists one of its goals to "build a single securitization platform" in the Strategic Plan for 2013-2017 this morning.  MBA President David Stevens recently addressed the concept, expressing concerns about the growing price and economic disparity between Fannie Mae and Freddie Mac securities.

Before continuing, it will be helpful to discuss the differences between the Fannie and Freddie securitization programs. Since it takes time for cash to be passed from servicers to the GSEs to and then to investors, both types of securities (as well as Ginnie Maes) pay investors after a “delay.” This is fairly simple in concept. All securities have a “record day” which determines who is the “holder of record” at any point in time. For agency MBS, the record day is always the 30th of the month. The actual cash (principal and interest) owed to the investor is then remitted to investors in the following month.

Fannie Mae always pays bondholders on the 25th day of the month following the record date; Freddie Golds pay on the 15th day of the following month. (Freddie Mac pools originally paid on the 15th day of the second month after the record date. In the late 80s/early 90s Freddie Mac created the Gold program, which moved the payment date up a month for fixed-rate pools; note that Freddie ARMs are still issued under the “green” program and have the old payment structure and delay.)

Because time has value, the shorter delay for Gold pools means that they should trade at a higher price than Fannies, assuming they are priced to the same yield and prepayment speed. At current levels, the constant-yield price of 30-year Gold 3.5s is roughly 2+ ticks higher than Fannie 3.5s. (The economic value of the delay difference is a function of a number of factors, including the pool’s coupon and yield.)

Despite the shorter payment delay, however, Gold pools have almost always traded at a concession to Fannies rather than at a premium. The differential is largely due to the liquidity difference between the two agencies’ securities. According to the MBA, daily trading volumes for Fannie MBS are 20 times larger than those for Freddie Golds. The relatively impaired liquidity of Golds implies wider bid/ask spreads, making trading in the securities more expensive; it also means that prices are more apt to be impacted by heavy trading volumes and/or increases in market volatility.

As a result, it is significantly more expensive for investors and issuers to trade in Golds, meaning that they need to trade at a concession to Fannies in order to compensate for their reduced liquidity and higher trading costs. The price differential between the two programs is also growing, as illustrated by the following chart showing the pricing difference between Freddie Mac Gold and Fannie Mae 3.5s over the last few years.

The 60-day moving average of the concession has widened from 2-3 ticks in the fall of 2011 to its current level of 9-10 ticks; as of the close on Monday 5/14 the spread was 9/32s. Keep in mind that this shows only the actual price difference; the economic difference (i.e., including the delay difference) is roughly another 2+ ticks wider over time.

There is an unfortunate circularity to the price/liquidity issue. The lower prices paid for Gold securities means that originators pricing to Gold execution are at a significant disadvantage relative to those using Fannies as their benchmarks; in order to offer comparable rates, they must factor lower profit margins into their pricing. As a result, fewer originators create Gold securities, which results in reduced float for the securities, which serves to further impair liquidity.

Interestingly, Stevens’ comments included one questionable statement. He was quoted following the speech as saying “…(A)nd the taxpayer subsidizes the lender for the difference between the two. Taxpayers will be saved hundreds of millions of dollars because the execution will no longer be subsidized." In the current market, with comparable g-fees for Fannie and Freddie, the cost of the price concession and inefficient execution is borne by the originators creating Freddie Mac pools.

However, without action to either combine the securities of Fannie and Freddie or somehow eliminate the price concession, the price and liquidity disparity is likely to grow worse, and issuance of Freddie pools will continue to shrink. The true cost to taxpayers will come in the future; over a longer horizon, it’s easy to imagine that the government will be forced to continue supporting an increasingly uncompetitive enterprise.

...(read more)

Posted To: MND NewsWire

Small and medium-sized lenders and community banks appear to be closing loans for refinancing faster than their "mega-lender" counterparts according to the Origination Insight Report for April released Wednesday by Ellie Mae. The company, which samples loan applications that are processed through its loan management software, reported that, "While the average refinance going through our platform took five days longer in April than in March, it still only took 47 days." Ellie Mae contrasted this to a report from The Wall Street Journal which recently said that the largest retail lenders are now quoting timelines as long as 60 to 90 days for refinancing. Insight , which covers approximately 20 percent of U.S. loan originations, reported that the share of refinance applications actually dropped...(read more)

Posted To: Pipeline Press

Obama played golf with Joe Biden last weekend. They were kicked off the course because every time Obama yelled "Fore", Biden screamed - "More Years!" But the mortgage industry is more concerned with another Biden: Joe's son Beau, who is Delaware's Attorney General. Officials wonder why banks aren't excited about residential lending, yet the industry faces Biden's comments that the states' attorneys general need to make it clear that the recent $25 billion settlement with five major banks is the beginning not the end of their enforcement actions . "This crisis, which was man made," he said, "cost the economy trillions and I can't really find anyone who has been held accountable." And apparently he and his ilk will their attention to mortgage securities: "whether or not there were false securities...(read more)

Posted To: MBS Commentary

MBS Live : MBS Morning Market Summary The main market-mover this morning was a CNBC interview with Angela Merkel. In it, the German chancellor offered an increasingly supportive tone on Greece remaining in the Euro-zone, saying that Germany would be open to Greece seeking additional stimulus. This was a net-negative for bond markets and generally soothed broader markets, though Treasuries and MBS maintained supportive ledges. Moments ago, news hit that the ECB would be stopping some monetary policy operations to some Greek banks. This follows earlier statements from ECB President Mario Draghi that point to a line in the sand that the ECB will not cross in order to keep Greece in the EZ--a decidedly different tone than the Merkel interview. Bonds bounced back somewhat, and in the heaviest volume...(read more)

Posted To: MND NewsWire

Permits for construction of multi-family housing plummeted in April, offsetting a small increase in single family permits and dropping the total down 7 percent from revised April figures. Permits for all privately owned residential construction were issued at a seasonally adjusted annual rate of 715,000, down from the March rate of 769,000. The March rate was revised substantially upward from the original estimate of 747,000. The April permitting rate is 23.7 percent higher than that of April 2011 when the annual rate was estimated at 578,000. Permits for single family authorizations were at a rate of 475,000, up 1.9 percent from the March rate which was upwardly revised from 462,000 to 466,000. The April figure is 18.5 percent higher than the rate of 401,000 one year earlier. Permits for construction...(read more)

Posted To: MND NewsWire

Federal Reserve Governor Elizabeth A. Duke told attendees at a break-out session of the National Association of Realtors® (NAR) Midyear Legislative Meetings that she wished she had, as the session title suggested a " Prescription for Housing Recovery ." "I do see policies that I believe will help reduce the shadow inventory of houses in the foreclosure pipeline," she said. "I also see policy actions that could be taken to improve credit availability for potential homebuyers and, in turn, demand for houses." Duke briefly recounted the toll that the housing market had taken on homeowners and the nation's housing stock and some of the signs of recovery such as improving delinquency rates, and declining inventories of unsold and foreclosed homes. She said there have also been signs that home...(read more)

Posted To: MND NewsWire

Refinancing activity spiked during the week ended May 11, rising 13.0 percent from the previous week's level according to the Weekly Mortgage Applications Survey released this morning by the Mortgage Bankers Association (MBA). Refinancing represented 74.9 percent of all applications compared to 72.1 percent the previous week. The increase drove the Market Composite Index, a measure of mortgage application volume, up 9.2 percent on a seasonally adjusted basis and 8.7 percent unadjusted from the week ended May 4. Refinancing more than offset a 2.4 percent dip in both the seasonally adjusted and the unadjusted Purchase Indices on a weekly basis. The unadjusted index was 1.0 percent lower than during the same week in 2011. The four week moving averages for all indices were up. The Market Index...(read more)