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MBS RECAP: Stock Losses Helped But Bonds Had Their Own Limits

March 19,2018
by admin

Bonds entered the domestic session feeling a bit down on their luck. There was some general weakness early in the overnight session, but just before 8am, European Central Bank (ECB) sources were quoted (anonymously) as generally approving of the market’s consensus for policy tightening. Specifically, the sources didn’t push back on the view that the ECB should stop buying bonds later this year or that it should execute its first rate hike of this cycle some time in 2019.

Granted, that wasn’t huge news (after all, it was the market’s “consensus” that the ECB sources were responding to in the first place), but it was enough of a development to leave 10yr yields several bps weaker to begin the day.

Relief came from heavy losses in stocks which pulled bond yields lower as investors sought safer havens. Headlines focused on Facebook–something I only bring up to suggest a certain absence of permanence or fundamental significance behind this particular sell-off. Bonds may agree with that cautious assessment as they broke away from stocks around noon and refused to move any lower in yield after 10yr Treasuries began edging into positive territory on the day.

Bonds then sold off modestly into the close with 10yr yields ending around 1bp higher and MBS down less than an eighth of a point. Due to the timing of morning rate sheets, most lenders ended up repricing for the better with the late morning gains.

In the bigger picture, all of the above fits nicely into the same old narrative of “consolidation ahead of Wednesday’s FOMC events.”

Future Housing Market at Mercy of Young Adults

March 18,2018
by admin

Freddie Mac’s economists headlined their March Outlook economic report “Adulting is Hard.” The newest crop of young adults may find this to be truer than others. They have been slow to reach life’s milestones like getting married, starting families and living independently, but with some valid reasons. Many came of age in the midst of recession; wage growth has been weak, and housing, education, and healthcare costs have risen rapidly. Average annual expenditures for adults aged 25 to 34 in 2016 are 36 percent higher than those faced by those the same age in 2000, while costs for health care and education have more than doubled.

The U.S. Census Bureau says the 25-to-34-year age group contained 45 million people in 2016, 4 million more than the next older age group (35 to 44). But instead of fueling the housing market, they have been slow to form households. As of 2016, 15 percent of young adults were living with their parents, 5 percentage points more than did so in 2000. When they do strike out on their own, they often double up with a roommate. The rate of heading a household (headship rate) for young adults in 2016 was 3.6 percentage points below that of young adults in 2000. If these young adults had formed households at the rate of those in 2000, there would have been 1.6 million additional households in 2016.

The lower headship rate has had a major impact on the economy and housing markets, with implications for homeownership, residential investment and wealth building (chicken or egg?). Even relatively small percentage changes affect millions. The question is, will these young adults pick up the pace and make up for lost time in forming households.

The decision (or capacity?) to form a household depends on one’s stage in life, such as age, marital status, and whether one has children. It also depends on the cost of living independently, such as choice of geography, housing costs, and an individual’s ability to pay these costs-which is affected by education, income, employment and debt. The current crop of young adults is different from those in earlier generations in several ways. Freddie Mac picks five variables and compares Americans who were age 25 to 34 in 2000 and in 2016.

In 2000, 54 percent of young adults were married, and 52 percent were raising children compared to 41 and 42 percent in 2016. The marriage rates coincide with the increased number of young adults living with their parents.

More of the younger group live in central cities, 34 to 29 percent, where the cost of living is high. And they are facing higher home prices, a median of $270,000 compared to $210,000.

The younger group is far better educated, 44 percent have a bachelor’s degree compared to 34 percent of their predecessors and they are carrying higher rates of student loan debt. They don’t make all that much more money however; a per capita income of $38,500, up from $37,800. They are also slightly less likely, by 3 percentage points, to be in the workforce; 18 percent are not, although the authors say many of these may be employed by the gig economy.

In addition to these factors, young adults are more racially and ethnically diverse. Household formation rates tend to vary by race and ethnicity so a shift in the composition of the population could drive household formation rates.

Which of these factors have most impacted the headship rates for young adults? Freddie Mac constructed a model using person-level records from the U.S. Bureau of Labor Statistics’ Current Population Survey. That model, while controlling for a variety of factors, predict the likelihood of a person heading their own household.

As expected, increases in housing costs decrease the likelihood of young adults forming households, accounting for 28 percent of the gap in that rate. Real median house prices increased by 29 percent, but per capita income rose by only 1 percent over the same period. This imbalance increased the ratio of home prices with income from 5.6 in 2000 to 7.0 in 2016.

A one percent increase in house prices decreases the likelihood of household formation by almost five percent. Higher incomes and higher education levels perhaps provide young adults confidence to form their own households and, all else being equal, a one-percent increase in personal income increases the likelihood of household formation by a little over three percent.

Another 23 percent of the gap is due to differences in labor market outcomes, including income and employment. Particularly important is labor market participation. Persons outside of the labor market and with zero or negative income are much less likely to form a household that those in the labor market, even with a modest income. Almost half of the gap between the generations is due to housing costs and labor market outcomes.

Differences in marriage and fertility rates account for 18 percent of the headship gap and demographics such as race, ethnicity, age, and gender account for 12 percent. Education and geography favor the younger generation, offsetting the gap by 13 percent. Overall, the variables that can be controlled in Freddie Mac’s model explain about two-thirds of the decline in headship rates.

Sixty-three percent or 986,000 of the of the 1.6 million lost households are accounted for above. Exhibit 4 (below) demonstrates the bite taken by each of the variables. The remaining 590,000 households, or 37 percent are unexplained by Freddie Mac’s model. They may be the result of debt, credit, underwriting standards, increased costs for medical care and education, even shifts in tastes. above.

The bottom line is what this all means for the future. How will these factors influence future housing demand? How will young adult household formation evolve by 2015; will it catch up with 2000 or continue to lag? How will those young adults show up in the 2025 housing market? Sheer numbers mean more households, but how many more.

The historic numbers of households give some clue. In the 1970s, the 25-34-year cohort headed 11.7 million households and after 10 years, increased that to 14 million. The 1990 crop of 25-to 34-year-olds headed 20.5 million households, 24 million by 2000.

How might today’s young adults contribute to household formation by 2025? Freddie Mac analyzes those two factors with the greatest impact to date, housing costs and labor market outcomes, assuming the current trends in economic, sociological, labor market and housing market factors persist over the next 10 years. The baseline scenario which reflects a relatively static economy provides a view on the effect of evolving demographics on household formation.

Their most optimistic take is that economic conditions will improve over that period, keeping housing costs fixed but matching the 1990s experience where real personal income increases 15 percent for all age and race/ethnicity groups. They also push labor force participation and unemployment rates to 2000 levels.

Their pessimistic outlook keeps labor market and income fixed but presents a deteriorating housing scenario. Housing supply persists in falling short of demand and real home prices increased an additional 10 percent. Overall young adults will confront a cost of living 20% higher than that of today’s young adults.

Using the variable values and their influence on household formation on the projected population, Freddie Mac came up with an estimate of the number of households that might be formed. Those young adults aged 25 to 34 in 2016 could add between 4.2 and 4.5 million net new households while future young adults (ages 15-24 in 2016) could add between 15 and 16 million households.

Given the relationship between household formation and housing demand, it is important, Freddie Mac’s economists say, to track the former to predict and prepare for the latter.

Housing costs are a major factor holding back young adults’ household formations, and Freddie Mac’s analysis indicated that 28 percent of the decline in household formation is due to those costs. That factor will suppress household formation by 600,000 over the next decade if those costs continue to rise. Alternatively, if costs stabilize and the labor market improves, there could be 300,000 more new households relative to the baseline.

Freddie Mac’s analysis concludes, “There is substantial pent-up demand for household formation from today’s young adults. That demand will tax a housing market that is struggling to produce enough supply to meet demand under current conditions. Rising housing costs along with the substantial pent-up demand will add pressure to housing markets and increase the urgency for solutions that provide affordable housing.”

Mortgage Rates Maintain Flat Trajectory Ahead of Fed

March 18,2018
by admin

Mortgage rates have been on a tear recently, moving sideways with reckless abandon. Since the middle of February, the “effective rate” (based on actual rate sheet offerings and upfront costs) has held inside a narrow range of 4.52% and 4.58%. This lies in stark contrast to the persistent move higher during the first month and a half of 2018 which saw the same effective rate rise from roughly 4.0% into the 4.5% range.

When rates are as flat as they are on the approach to a key market event like this Wednesday’s Fed announcement. We often see a break in that narrow range after the key event. For now, there’s no reason to believe Wednesday WON’T be such a day this time around. Even if Wednesday turns out to be a dud in terms of its impact on rates, it’s always safest to plan for the risk (or opportunity) of a sharper move in rates for better or worse.

Loan Originator Perspective

Bonds recouped early losses today, despite a lack of meaningful data. There’s no meaningful data on the economic calendar before Wednesday’s Fed decision and statement. Both treasury yields and MBS prices are still squarely within recent ranges. I’m continuing to lock early until I see improvement lasting more than a day or two. –Ted Rood, Senior Originator

Today’s Most Prevalent Rates

  • 30YR FIXED – 4.5-4.625%
  • FHA/VA – 4.375%
  • 15 YEAR FIXED – 3.875%
  • 5 YEAR ARMS – 3.5-3.75% depending on the lender

Ongoing Lock/Float Considerations

  • 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016.

  • While rates remain low in absolute terms, they moved higher in a more threatening way heading into the beginning of 2018

  • The scariest part of the move higher looks like it ended as of early February, and rates have been generally sideways since then

  • Even so, the potential remains for more weakness (i.e. higher rates). It makes more sense to remain defensive (i.e. more inclined to lock) until we’ve seen a more convincing shift lower.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

The EDGE: Week of March 19, 2018

March 18,2018
by admin

The EDGE: Houston City Council to Vote on Floodplain Ordinance, Houston Market Movements and more

Click here to download edge031918

Source: Houston Association of REALTORS®

Tax and Sales Products; Mergers Continue; Fed Meeting This Week

March 18,2018
by admin

For me the last seven days included California, Texas, Nevada, and Illinois. What am I seeing? Some companies are doing well. Others aren’t, and unfortunately, probably more fall into this latter category due to margins and volumes both dropping. Here’s a note from a warehouse rep in the Southeast. “Rob, everyone knew, at some point, rates were going to head higher, and that refis were going to slow. We’re seeing plenty of independent mortgage bank owners who seem to be eternally optimistic, talk about how technology will change their business, believe their profits will rebound, believe they will outlast their competition. Those same people are lousy at knowing when to sell their company. But we’ll see plenty of that this year, I think, more than in 2017.”

Products and Training

CMPS Institute has announced the release of a new web site, as well as the creation of a new parent company called Momentifi. “Since 2005, we’ve had the honor and privilege of training and coaching over 8,000 of the nation’s top loan originators,” says Gibran Nicholas, CEO and founder of CMPS and the Momentifi companies. “Now we’re expanding our training and coaching to sales professionals, team leaders and CEOs from all walks of the financial and housing industry.” The Momentifi strategic coaching retreats are all-inclusive, and they take place in 5-star, world-renowned resorts such as the Auberge du Soleil in Napa Valley, and the Esperanza resort in Cabo San Lucas, Mexico. “Momentifi Coaching incorporates the six key ingredients that are crucial to creating and maintaining positive momentum in any business,” says Gibran. Click here to learn more at the free orientation scheduled for this Thursday, March 22.

It’s mid-March. And we all know what that means—we’ve pretty much abandoned our New Year’s Resolutions. Spending time multitasking without getting much done. With the market at record lows, this is not a time to fall back into old habits. That’s why on Thursday, March 22nd from 10-11 AM PST/1-2 PM EST, Sierra Pacific Mortgage is offering a free, engaging, and info-training webinar entitled “The Top 9 Most Effective Time Management Tips You’re Not Using.” This unique webinar covers more than time management; it provides the scientific reasons why we revert to old habits as well as how to turn our goals into highly productive, life-enhancing, awe-inspiring habits! Click here to register. Talk about time well spent.

With the busy season returning, it’s worth rethinking your approach to self-employed income calculation. LoanCraft now has more than 250 banks, mortgage companies, and credit unions using its innovative Tax Return Analysis. This is a report service, not software. LoanCraft does the work of scanning the data from returns and setting up the file. Simply upload tax returns and receive a full income analysis within four hours for a standard price of $25. It’s a great way to improve the output and accuracy of the production team. By the way, LoanCraft will have a booth at the upcoming MBA Technology conference in Detroit. Contact Ron George or visit LoanCraft.

Built Technologies, the leading provider of secure, cloud-based construction lending software, has formed a strategic alliance with Baker Hill, the #1 provider of member business lending services. The alliance will expand access to Built’s construction loan administration software and Baker Hill’s latest lending and risk management solution, Baker Hill NextGen. “Through this strategic alliance, Built and Baker Hill are making it easier than ever for financial institutions to drive productivity and profitability in all areas of construction lending, including consumer, home builder finance, and commercial,” said Chase Gilbert, CEO and co-founder of Built. This strategic alliance is the latest step in Built’s continued focus on bringing construction lending into the digital age.

Capital Markets

Remember several months ago every day the yield curve would flatten? That trend ended, but we saw a flattening of the yield curve last week as market participants kept an eye on this week’s FOMC meeting. Wednesday the Federal Reserve is expected to raise the target range for the fed funds rate by 25 basis points, from 1.50% to 1.75%, yet the real news will be if the accompanying interest rate projections show a median estimate of four rate hikes this year versus three currently.

Looking back to the end of last week, the University of Michigan’s preliminary Index of Consumer Sentiment for March jumped to 102.0 in March from 99.7 in February, well above expectations. The March reading is the highest level for the index since April 2004. The Index was driven entirely by households with incomes in the bottom third. Near-term inflation expectations increased to their highest level in several years. Elsewhere, January Job Openings were 6.312 million, after the prior reading was revised to 5.667 million from 5.811 million.

Looking to this week, the Fed Trade operation will see the desk purchase up to $815 million of 30YR conventional 4% ($515mn) and 4.5% ($300mn) today. Outside of the Fed, the U.S. calendar for scheduled news is non-existent until Wednesday when we received the MBA’s application data for last week, Existing Home Sales, and the FOMC rate decision (look for another increase). Thursday has Initial Jobless Claims and the FHFA House Price Index. Friday holds Durable Goods and New Home Sales. We start the week with rates up a shade from Friday’s close: the 10-year is yielding 2.87% and 30-year agency MBS prices are worse .125-.250.

Mergers and Acquisitions

The last big announced merger in the lending biz was, of course, Florida’s Ocwen Financial and PHH Corp (with its mortgage servicing platform) for about $360mm in cash. The combined company will service 1.9 million loans with unpaid principal balance of $328 billion. (A huge servicer but still dwarfed by Wells’ $1.5 trillion.)

There were 245 bank mergers among U.S. banks in 2017, marking a 2% increase over 2016. Plenty of banks are doing well on their own. For example, Bank of America said it will open 500 new branches in various markets around the US over the next 4 years, as it pushes into new regions.

Not that they would merge, but reports say that Amazon is looking for bank partners to target younger customers with a checking account-like service soon. Amazon hopes to cross-sell their Prime membership to bank customers to grow that business, with the chatter saying JP Morgan is one of the banks being considered.

What has been happening in recent weeks in terms of bank mergers? In Massachusetts Salem Five Cents Savings Bank ($4.7B) will acquire personal and commercial insurance agency Cape Ann Insurance. The Evansville Teachers Federal Credit Union ($1.5B, IN) will acquire American Founders Bank ($113mm, KY). Heritage Bank ($4.1B, WA) looked south and will acquire Premier Community Bank ($401mm, OR) for about $88.6mm in stock (100%) or about 2.22x tangible book. Civista Bank ($1.5B, OH) will acquire United Community Bank ($543mm, IN) for about $114.4mm in cash (100%) or about 1.61x tangible book. RCB Bank ($2.8B, OK) will acquire Central Bank and Trust Co ($323mm, KS). In New York Medina Savings and Loan Association ($54mm) will merge with and into Generations Bank ($292mm) for fair value as determined by a third-party appraisal as the transaction is structured as a merger with a mutual entity. In Iowa United Bank of Iowa ($1.5B) will acquire First Trust & Savings Bank ($38mm). In Missouri recently formed Stark Bancshares Inc. will acquire Farmers State Bank ($63mm).

Skyline National Bank ($548mm, VA) will acquire Great State Bank ($139mm, NC) for about $14.5mm in stock (100%). In California First Choice Bank ($904mm) will acquire Pacific Commerce Bank ($536mm) for about $110.4mm in stock (100%) or about 1.9x tangible book, Citizens Business Bank ($8.0B) will acquire Community Bank ($3.7B) for about $878.3mm in cash (20%) and stock (80%) or about 2.47x tangible book, Bank of Southern California ($480mm) will acquire Americas United Bank ($235mm) for about $44.1mm in cash and stock. In Missouri OakStar Bank ($700mm) will acquire First National Bank ($194mm). In Michigan Eaton Federal Savings Bank ($295mm) will acquire SSBBank ($66mm).

“Mortgage origination company owner/operators are inherently ‘serial entrepreneurs’ who are reluctant to forego their independence. After running their own show for a long time, will they be happy reporting to a boss? “We frequently hear that cultural incompatibility with the buyer organization might drive away key producers; ‘big risk that I cannot bring across my originator sales force.’ There is a widespread concern that the buyer will impose material changes to originator compensation and disrupt the seller’s proven successful business model.

“Retaining the seller’s current management team is often mentioned as an issue. The buyer’s consolidation of redundant functions will mean elimination of jobs for ‘loyal managers who were instrumental in getting us to where we are.’”

“Then there is always the industry scuttlebutt that mortgage company acquisitions fail more often than succeed; ‘the amount of the proposed up-front premium amount is not sufficient to compensate me for the risk of a failed transaction.’

“We frequently hear that cultural incompatibility with the buyer organization might drive away key producers; ‘big risk that I cannot bring across my originator sales force.’ There is a widespread concern that the buyer will impose material changes to originator compensation and disrupt the seller’s proven successful business model.”

With the rise in rates, decrease in volume, and decrease in compression, the residential lending environment has changed. Dr. Rick Roque, founder of Menlo Company and a key figure responsible for over $3.5 billion in retail mid-market mortgage banking acquisitions, predicted in the Summer of 2017 – , “The collapse in refinance production volume and driving margin compression for mortgage banking firms leaves many $500M-$2B retail platforms seeking acquisition or financial partnerships to either grow more aggressively with less risk, or no risk at all.”

And Marissa Vest, Sr. Mortgage Banker who took over Menlo in July 2017, wrote, “Companies seek acquisitions opportunities for different reasons. For example, Alamo, CA-based RPM acquired several firms entering new markets and increasing market-share around companies who have 20+ year track records in their respective markets. Such acquisitions were performed not from a position of weakness, but one of strength with tremendous growth opportunities that lay ahead. Another such example of this is Silverton Mortgage Specialists and its newly announced relationship with Berkshire Hathaway. Such a deal will enable Silverton to continue its rapid growth while retaining its name, leadership and corporate identity.”

Jobs and Promotions

“At Mason-McDuffie Mortgage we are looking for talented, entrepreneurial Loan Officers, Teams, and Branches to join our growing family. We are excited to be putting the finishing touches on our new SWIFT Success platform, designed for the modern Loan Officer. This new platform includes our SWIFT App powered by Blend, SWIFT CRM powered by Jungo, and our BOOST Coaching just to name a few. We have created a new customer success team focused on helping our Loan Officers take full advantage of this new platform. We were proud to be recently named as a Top 10 Mortgage Company in Customer Satisfaction by SocialSurvey, along with being a Top Workplace by the Bay Area Newsgroup. Those interested in learning more about our award-winning social media, concierge service, creative technology, and culture designed to help you succeed, please visit us here.”

In correspondent job news, a well-known, fast growing, national Top 20 correspondent lender (offering delegated best effort and mandatory products that are 100% retained) seeks a strong AE for its Northern California and Pacific Northwest region. Candidate must live in the sales territory and have existing correspondent relationships. Confidential inquiries should be addressed to me for forwarding on to the principals.

Plaza Home Mortgage, Inc. has a rare opportunity for a qualified Account Executive role in the Mid-Atlantic region with a strong producing territory. This individual will have access to an existing client base that offers substantial income and has even more untapped potential. Join a growing team with a very competitive compensation plan, top-rated training in the industry, real-time marketing support and a regional operations center with unmatched support! For more information on this opportunity, please contact Deborah Robertson, (917-680-6506). Plaza is an EEOC employer and follows all laws relating to fair employment. Company NMLS #2113

Capsilonhas tapped Ginger Wilcox as SVP Marketing where she will be responsible for leading marketing, brand positioning and growth for all Capsilon products. As CMO and Chief Industry Officer, Wilcox led brand marketing, customer acquisition, communications and strategic partnerships.

MBS Week Ahead: Absolutely No Significant Data Ahead of The Fed

March 18,2018
by admin

If it weren’t for the Fed Announcement on Wednesday, this would look like a prime vacation week for market participants as there is a distinct lack of relevant economic data. In fact, there’s only one top tier report: Friday’s Durable Goods.

Making the dearth of data even more striking is the fact that there aren’t even any 2nd tier reports on the first 2 days of the week. It’s not until Fed day (Wednesday) that we get our first sniff of econ data in the form of February Existing Home Sales, and that’s not a report that tends to be much of a market mover. All of the above places an inordinate amount of market movement potential with Wednesday afternoon’s Fed festivities.

There are 8 Fed meetings/announcements on the schedule every year. 4 of them are limited strictly to the release of the policy statement. The other 4 include “economic projections” (where Fed members predict several economic components, but most importantly, their own outlooks for rate hikes) and a press conference with the Fed Chair. This week’s announcement is one of these special 4 with the bonus events.

In an environment where Fed Funds Futures (the market’s assessment of future rate hike potential) have been surging to their most pessimistic levels every week this year (with the exception of the big stock sell-off in early Feb), an updated read on the Fed’s outlook is significant. Think about the amount of ground covered in rates since the last time we got updated Fed forecasts in mid-December. There’s a certain amount of additional rate hike expectation that is now priced into current interest rates. Wednesday’s Fed forecasts will let markets know how warm their porridge is. If it’s “just right,” there doesn’t need to be a huge reaction. But “too hot” or “too cold” and bonds could respond in a fairly big way.

How do we define “big?” The first lines of defense, for better or worse, are clearly jumping off the medium term rates charts. Particularly, recent highs of 2.91-2.92% in 10yr yields have been a frequent and fairly reliable ceiling. The floor/resistance at 2.80% has been even more pronounced. These are the first levels we’d be looking for yields to break if the Fed ends up definitively helping or hurting bonds (granted, this may change by Wednesday, but we’ll discuss new levels if that happens).

2018-3-19 open

MBS RECAP: Typically Boring Consolidation Ahead of The Fed

March 16,2018
by admin

There were quite a few economic reports on tap today, and that made for some entertaining market watching! Reason being, every time a report came out, bonds were in the middle of one of their periodic sideways plateaus that followed what little market movement we actually witnessed. That actual market movement was almost entirely a byproduct of traders cleaning up their positions for the end of the week.

The preceding paragraph is the sort of thing I might have read 15 years ago and incredulously wondered “sure buddy, but how do you know such things and why would I take your word for it?!”

Don’t take my word for it. Just look at this chart of 10yr yields and the yield curve. It doesn’t really matter which line is which (yellow line is 10s) because we’re focused on the purple-ish volume (10yr Treasuries futures) at the bottom. Then simply consider that there is absolutely nothing else going on in the market at 8:20am besides the opening bell of CME pit trading (the unofficial bond market open due to Treasuries options). Or consider the other volume spike after 10am–another time of day when nothing else was going on besides Treasuries traders simply DECIDING to hold the line at the 2.86% technical level that we laid out as a ceiling quite some time ago.

2018-3-16 close

Bottom line: this is a consolidation ahead of the Fed. Granted, there can also be a lead-off in one direction or the other, but any major movement will depend on what the Fed actually has to say next Wednesday (unexpected tape-bombs notwithstanding).

Mortgage Rates Just Barely Higher, But Lower This Week

March 15,2018
by admin

Mortgage ratesrose modestly today, but many lenders were essentially unchanged compared to yesterday’s latest offerings. Moreover, rates ended the week slightly lower compared to last Friday’s latest levels. That’s no small victory in 2018, despite the fact that it is a small victory in general.

Part of the motivation toward slightly higher rates over the past 2 days could be the looming Fed announcement next week. Oftentimes, bond markets (which underlie rates) don’t want to move too far outside recent ranges when there’s a risk the Fed may say or do something to redefine that range.

In the current case, Wednesday’s improvement brought average rates to their best levels in roughly 3 weeks. Traders aren’t eager to explore anything lower without the Fed’s blessing. But at the same time, they also must consider that the Fed could say something HELPFUL for rates. For that reason, we didn’t see any major challenge to the recent rate highs, thus keeping everything in a very narrow range. Look for that to change by the end of next week, for better or worse.

Loan Originator Perspective

Yesterday’s gains vanished as quickly as Arizona’s March Madness hopes, and treasury yields failed to breech resistance at 2.80%. It’s going to take something dramatic for rates to drop below recent levels, and there’s no guarantee when that will happen. I’m still locking early, until said drama develops! –Ted Rood, Senior Originator

Today’s Most Prevalent Rates

  • 30YR FIXED – 4.5-4.625%
  • FHA/VA – 4.375%
  • 15 YEAR FIXED – 3.875%
  • 5 YEAR ARMS – 3.5-3.75% depending on the lender

Ongoing Lock/Float Considerations

  • 2017 had proven to be a relatively good year for mortgage rates despite widespread expectations for a stronger push higher after the presidential election in late 2016.

  • While rates remain low in absolute terms, they moved higher in a more threatening way heading into the beginning of 2018

  • The scariest part of the move higher looks like it ended as of early February, and rates have been generally sideways since then

  • Even so, the potential remains for more weakness (i.e. higher rates). It makes more sense to remain defensive (i.e. more inclined to lock) until we’ve seen a more convincing shift lower.
  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are “effective rates” that take day-to-day changes in upfront costs into consideration.

Management Changes; New Securitization; The Economics Moving Bond Markets

March 15,2018
by admin

Lenders charge an interest rate commensurate with the risk, and potential for not being paid back. But disasters and taxes can complicate things. Mortgage News Daily points out that, “In 2007…Congress put a temporary policy in place to exclude forgiven home mortgage debt from any tax obligation. That exclusion has been extended several times… The National Association of Realtors (NAR) has long advocated for making the exclusion permanent, maintain that taxing forgiven debt as income adds an additional burden on an individual or family just as they have actually experienced true economic loss, and when they are unlikely able to pay additional taxes.”

Capital Markets

We’ve been hearing that rates will eventually go up for quite some time. And they have. The sudden jolt this year has LOs and originators wondering how high they’ll go. It is important to know what is moving rates in order to think about future rates.

The 10-year Treasury note is steadily approaching 3 percent as less central bank easing, a weakening dollar, and rising oil prices strengthen the case for rising interest rates. Now that the debt ceiling issue has been resolved, net Treasury issuances are likely to increase since the Treasury has been using extraordinary measures to keep the US under the borrower limit for the last couple months as well as due to an expectation of increase budget deficits. Markets will be paying attention to where the Treasury issuance is focused along the yield curve and whether there will be a shift to longer maturities which could cause the curve to steepen and for longer rates to rise. On the short end of the curve, the market is pricing in a high probability for the FOMC to raise the Fed Funds target at the next meeting in March.

The consumer obviously helps drive the economy, and the US consumer continues to be bullish on the economy as seen in the continued strength in the consumer confidence index as well as the strong performance of real personal consumption expenditures over the past year. This has occurred despite a lack of growth in real disposable income with consumer opting to fund their consumption with a reduced savings rate as well as by utilizing part of their accumulated wealth. If the recent uptick in average hourly earnings (+2.9 percent in January year-over-year) can be maintained, however, it would be a bullish signal for the upcoming year. Additionally, the lowering of income tax rates will begin to permeate through the economy in the coming months which could add a bump to consumption. While higher interest rates and inflation could put a damper on the current pace of consumption, those risks are not presently seen as significant as during the pre-recession era.

Weeks vary in terms of the amount of economic news that is put out by various private and government entities. When there is little news, and rates move in a certain direction, that is a sign. Two weeks ago, for example, Treasury yields continued to rise and dominate the market’s attention. Existing home sales disappointed again this month as tight supply continues to hold back sales. Even though the inventory of existing homes rose in January, it remains 9.5 percent below last year’s level. The tight supply continues to put upward pressure on prices which are up 5.8 percent on a year-over-year basis.

The main narrative remains the upward trend in Treasury rates despite 10-year note rates moving down 4 basis points on Friday. Much of the talk around Treasury yields has centered around the expectations for increased supply. When the Treasury published the latest refunding announcement at the end of January, they announced an increase in auction sizes to account for larger budget deficits and the reduction in reinvestments of the Federal Reserve’s portfolio. The latest bi-partisan budget deal is also expected to add to already increasing deficits and it also suspended the debt ceiling until March 2019, which will allow the Treasury to replenish its operating cash. All of this puts pressure on the supply-side of the Treasury market and has likely led many investors to increase their short positions in anticipation of expected future supply.

Yesterday the commentary noted, “If you sell loans for cash, Freddie Mac and Fannie Mae will be offering a new business opportunity with its introduction of a 10-year mortgage product. With the implementation of the Single Security coming in Q2 2019, Lender will have access to distinct pricing specifically for a 10-year mortgage that can help with best execution decisions. You’ll no longer receive pricing for a 15-year mortgage, as you currently do, when you deliver a 10-year loan. Loans with special characteristics, such as high LTV ratios and super-conforming, will also receive distinct 10-year pricing for cash executions.”

Fannie’s trading desk relayed, “A quick note on the 10-year comment. We already offer a 10-year execution for both whole loan and MBS. The Fannie Mae MBS prefix is CN and trades a handful of ticks to nearly 1 point through the 15-year depending on the coupon. Freddie does not currently offer a 10-year MBS product. Just wanted to clarify for your readers as we feel it is important to support liquidity in that product to provide borrowers more options and have done so for years.”

Put another way, Fannie Mae has always had a separate 10yr mortgage (CN prefix) product. Freddie Mac may be exploring its own 10yr product / prefix as part of single security, but capital markets folks should distinguish that Fannie has always had this product to support investor demand and aid in lender execution.

(If readers are interested, the Single Security document’s language discussing a 10-year product launch for Freddie is on pages 43-44.)

Angel Oak Capital Advisors announced the completion of a “first of its kind” fix and flip securitization. “Not only is this a big deal because of the underlying loans, but because this deal really caught the attention of the market due to its short duration and revolving structure. With this deal, Angel Oak is pioneering what can be done post-crisis with these transitional loans.”

Looking at Thursday’s bond market, it was another non-volatile day. A couple 2nd tier numbers were released from later in the day. The NAHB Housing Market Index for March dropped to “70,” below both expectations and last month’s downwardly revised number. Freddie Mac’s Primary Mortgage Markets Survey for the week ending March 15 showed fixed mortgage rates falling for the first time in ten weeks with the average 30-year and 15-year rates declining 2bps and 4bps, respectively, vs. the previous week to 4.44% and 3.90%.

Today’s economic calendar kicks off with new residential construction for February with expectations for housing starts and building permits to decline to 1.280 million and 1.300 million vs. 1.326 million and 1.320 million previously. They actually came out at -7%, most of the weakness due to multifamily, but permits also dropped – not good. February industrial production and capacity utilization will come out, forecast to be +.7% and 78.0% vs. -0.1% and 77.5% in January. There will be two releases at 10AM ET: March University of Michigan Sentiment Index, and January JOLTS job openings rounding out the week. We start Friday with the 10-year yielding 2.83% and 30-year agency MBS prices, once again, nearly unchanged from Thursday’s close.

Employment, Products, Promotions, and Management Changes

National MI is pleased to announce the addition of Robert Villalon to its sales team in the Southeast Region. He is the new Account Manager for the East Florida territory and will join Carrie Callahan in providing industry-leading service to their lenders. Robert is an industry veteran and trusted partner in the Florida mortgage market and brings more than 20 years of sales, customer service and account management experience. He has been active both the Mortgage Bankers Association of South Florida and the Mortgage Bankers Association of Florida, holding several key leadership positions; and in 2016, he was awarded the MBA of Florida’s President’s Award for his efforts in support of the mortgage industry. Email Robert or call him at 510-788-8574.

Since implementing Loan Vision a little over two years ago, Village Mortgage have not only seen tremendous back office efficiency gains, but also major advances in the depth of data it uses to run the business. “We’re able to make decisions more quickly, our profitability has jumped tremendously, and for the past three months, we’ve had our financials closed out completely and issued within 3 business days,” stated Justin Girolimon, Senior Vice President & CFO at Village Mortgage. To learn more about how Loan Vision can help reduce cost and increase business insight, contact Carl Wooloff.

“With all the turmoil in the markets today, isn’t it good to know there is a partner you can trust? AFR Wholesale is in its 11th year of operation and continues to expand its staff with account teams based in over 25 states. We are committed to our client’s success by introducing new programs, expanding our guidelines and making available additional technologies to meet you and your clients’ needs. Come and talk to us today about our many programs, such as our world-class one time close program, our broad-based renovation program and our recently expanded low down payment program. We’d love to hear from you … and needless to say we are a proud sponsor of BRAWL and AIME.”

Michael Gallo is now Executive Vice President of Wholesale National Operations at Pacific Union Financial. “With his more than 25 years of mortgage operations experience, Michael has been charged with revitalizing the Wholesale Operations team at Pacific Union. Most recently he was EVP of Wholesale Fulfillment at a large TPO lender. Pacific Union is creating a top-notch employee and customer experience in 2018, so if you are ready to be part of a rock star winning team email Pacific Union today for more details.”

Last week, Freedom Mortgage Corporation (FMC), NMLS 2767, launched Freddie Mac’s new coverage solution Integrated Mortgage Insurance (IMAGIN), as part of a limited group of lenders. “We are extremely pleased with the high level of interest and early success that IMAGIN has provided”, said Keith Bilodeau, SVP Freedom Mortgage Wholesale. “We are excited to be among the first in the industry to offer our clients this new and alternative structure for securing mortgage insurance”, said David Sheeler, EVP Freedom Mortgage Correspondent. IMAGIN streamlines underwriting by eliminating the need for separate mortgage insurance company approvals and MI certifications. Full MI cost is paid “upfront” through the associated LTV/FICO-based loan level price adjustments. Contact your Freedom Mortgage Sales Representative today to learn more: Correspondent Lending | Wholesale Lending.

The Wholesale division of Caliber Home Loans, Inc., announced more enhancements to its Reconnect program. Reconnect provides opportunities for broker associates working with Caliber Wholesale to reconnect with shared borrowers at precisely the right time. Since Caliber services around 96% of the loans originated through its wholesale, retail and consumer direct channels, this provides Caliber with several strategies for keeping post-closing relationships alive. Reconnect’s broker alerts are one of these strategies. Reconnect sends real-time email alerts to originating brokers when Caliber’s powerful analytics model detects actions that suggest a shared customer may be looking at their financing options within 24 hours to 90 days. Reconnect alerts provide brokers with the intel required to approach established borrowers at the appropriate time. Knowledge is power and Reconnect puts both squarely in the brokers’ hands. For more questions about Caliber Reconnect, contact us.

Congrats to Art Yeend whom The Barrent Group, a leading provider of mortgage loan due diligence, quality control and consulting services, has named its business development director. Yeend comes to The Barrent Group with over 30 years of experience in capital markets, sales and production in the mortgage industry and on Wall Street and will be responsible for developing new client relationships and nurturing existing ones.

At Impac Funding, Joe Tomkinson will be stepping down from the position of Chairman and CEO, as of July 31, 2018. Mr. Tomkinson will remain a director on the Company’s Board of Directors. Recall that William Ashmore, President, had elected not to renew his contract, which expired at the end of 2017. Impac announced that the Board of Directors has appointed George Mangiaracina as President. At the time in which Mr. Tomkinson steps down, the Board of Directors, anticipate appointing Mr. Mangiaracina as CEO. Rian Furey is its Chief Operating Officer, in addition to his current role with the Company.

BankFirst Financial Services in Columbus, Miss., has acquired HomeFirst, a mortgage services company in Oxford, Miss. The $958 million-asset BankFirst said in a press release Thursday that it will retain all HomeFirst’s employees, including executives Tonquin Stovall and Brian Sistrunk. The transfer of HomeFirst’s customer accounts to BankFirst should be completed this month.

Democrats Pitch in to Roll Back Dodd-Frank

March 15,2018
by admin

The Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155) passed the Senate Wednesday on a bipartisan basis. Sixteen 16 Democrats and one independent joined 50 Republicans in voting “yes.” The bill rolls back some of the provisions of the 2009 Dodd-Frank Wall Street Reform and Consumer Protection Act, especially some of the regulations aimed at smaller banks.

The bill must now pass the House, where Financial Services Committee Chairman Jeb Hensarling (R-TX) has demanded many of the bills loosening other regulations that earlier passed the House be included in the Senate version. The President has already announced he will sign whatever passes both chambers.

The bill raises the size of institutions deemed systemically important, i.e. “too big to fail,” from $50 billion to $250 billion, relieving many local and some regional banks from stricter Federal Reserve supervision. In addition, restrictions on trading with their own capitol contained in the Volker Rule would no longer apply to banks with less than $10 billion in assets and the provision in the rule that keeps hedge funds from sharing names with affiliated banks was eliminated completely.

The vote was delayed at one point on Wednesday to allow the Senate to review and debate more than 100 last-minute amendments, so the final content of the bill are not totally clear. Among those that did pass, according to a release from the Mortgage Bankers association were, “SAFE Act amendments which provide mortgage loan originators with 120 days of transitional authority to originate when moving from a federal depository to a non-bank (or across state lines), subjecting Property Assessed Clean Lending (PACE) or property retrofit loans to Truth In Lending Act consumer protections, extending critical consumer protections to U.S. veterans who use the VA Home Loan program, clarifying the High Volatility Commercial Real Estate rule to help promote sustainable construction and development, and targeted TILA/RESPA Integrated Disclosure fixes.”

Among the measures that Hensarling says he will insist be added to the bill before house passage is one that would except banks with less than $50 billion in assets from Consumer Financial Protection Bureau supervision.

Democrats who voted for the measure have, in many cases, been strongly criticized by their peers for doing so. Several have stated they will not vote for any bill that emerges from the process to reconcile the House and Senate versions if substantial changes are made to the latter. With John McCain (R-AZ) not available to vote, some Democratic support is necessary to pass anything in the Senate.