Skip to content

June Construction Numbers Tried to Hang on, But Failed to Impress

July 16,2019
by admin

The residential construction numbers in June were expected to come in largely in the same neighborhood as in May. Analysts however got it only half right. While starts fell fractionally, permits took a dive, falling by 6.1 percent compared to the previous month.

The U.S. Census Bureau and Department of Housing and Urban Development said permits for residential construction were at a seasonally adjusted annual rate of 1,220,000 compared to a revised 1,299,000 in May. May permits were originally reported at an annual rate of 1,295,000. The June number put the year-over-year results down by 6.6 percent.

Analysts polled by Econoday had expected an annual pace of 1,300,000 for permits. Their forecasts ranged from 1,252,000 to 1,300,000, missing the actual results completely.

Permits for single-family construction did pull out a tiny gain, 0.4 percent, for an annual rate of 813,000 units. The May estimate of 815,000 units was revised down to 810,000. Single-family construction is now lagging on a year-over-year basis by 4.7 percent. Permits for construction in buildings with five or more units fell 20.7 percent to 360,000 and are down 13.3 percent on an annual basis.

On an unadjusted basis there were 110,100 permits issued during the month, 74,100 of which were for single-family houses. In May the relative numbers were 124,300 and 80,600 units. For the year-to-date (YTD) there have been 648,100 permits for residential construction issued, 416,200 of them for single-family homes. During the first six months of 2018 there were 676,900 total permits and 443,400 single family authorizations.

There was a reduction in housing starts of 0.9 percent in June, bringing the seasonally adjusted annual number to 1,253,000 units from a revised (from 1,269,000) May estimate of 1,265,000 units. The June pace remained 6.2 percent higher than a year earlier.

Analysts’ expectations for starts were much more on the money. The forecasts were for numbers between 1,218,000 and 1,280,000 units. The consensus was 1,260,000.

Single family starts were up 3.5 percent from May’s revised 818,000 (originally 820,000) units to 847,000, but they were down 0.8 percent on an annual basis. Multifamily starts were 9.4 percent lower than the previous month at a rate of 396,000 but are 25.3 percent higher year-over-year.

Starts totaled 117,500 on an unadjusted basis compared to 118,400 in May. Single-family starts increased from 78,100 to 81,600. YTD construction has begun on 617,800 residential units against 641,700 thus far in 2018, a 3.7 percent deficit. Single family starts have declined 4.9 percent for the first half of this year to 429,900 units and multifamily starts are off 18.2 percent.

Completions were 4.8 percent lower in June than the prior month at a seasonally adjusted rate of 1,161,000. The May completion rate, which had reportedly dropped by more than 9 percent in May was revised higher, from 1,213,000 to 1,220,000 units. Single family completions were down 1.8 percent for the month to 870,00 for a 1.6 percent annual gain. Multifamily completions were 14.0 percent lower for the month and 17.3 percent for the year.

There were 103,300 units completed during June on an unadjusted basis including 76,000 single-family units. The May numbers were 102,800 and 75,100. So far this year there have been 593,700 residential units completed, 3.0 percent more than during the same period last year. This includes 420,500 single family and 168,700 multifamily units, an increase of 5.4 percent in the first instance and a loss of 2.4 percent in the latter.

At the end of June there were 1,135,000 residential units under construction nationwide. More than half were multifamily units at 605,000. Single-family units totaled 519,000 units. In addition, there were 165,000 permits that had been issued but under which construction had not started. The backlog included 85,000 single and 76,000 multifamily units.

Despite the weak national numbers, the month-over-month figures in the Northeast were all positive. Permitting rose 21.9 percent in June compared to May although it fell 7.1 percent from the June 2018 level. Starts were up 31.3 percent for the month and 4.8 percent on an annual basis. Completions increased by 12.6 percent from May and 48.7 percent from a year earlier.

Permitting in the Midwest declined from the levels of both May and the previous June by 0.6 percent. Starts rose 27.1 percent and 20.1 percent for the two periods. Completions were down 31.7 percent from June and 17.2 percent on an annual basis.

There were 10.4 percent fewer permits issued in the South in June than in May and 9.3 percent fewer than a year earlier. Starts declined 9.2 percent from their May level but were up 12.0 percent annually. Completions rose 0.7 percent for the month but were unchanged year-over-year.

All three measures were down in the West. Permits fell 7.9 percent and 4.0 percent compared to the two earlier periods and starts were down 4.9 and 9.6 percent. Completions were 3.5 percent lower than in May and 14.9 percent fewer than in June 2018

Higher Rates Stunt Post-Holiday Application Volume Recovery

July 16,2019
by admin

Mortgage application activity retreated again during the week ended July 12, although refinancing remained strong. The Mortgage Bankers Association (MBA) said its Market Composite index, a measure of application volume, was down 1.1 percent on a seasonally adjusted basis from the previous week. That earlier week’s data included an adjustment to account for the Independence Day holiday. The non-adjusted Composite Index rose 24 percent week-over-week, more than recovering from its 22 percent decline during the holiday period.

The Refinance Index gained 2 percent compared to the previous week and was 87 percent higher than the same week one year ago. Precisely half of applications received were for refinancing, up from a 48.7 percent share during the week ended July 5.

The seasonally adjusted Purchase Index lost 4 percent. The unadjusted version increased 21 percent compared with the previous week (when it lost 18 percent) and was 7 percent higher than the same week one year ago.

Refi Index vs 30yr Fixed

Purchase Index vs 30yr Fixed

“Mortgage rates increased across the board, with the 30-year fixed rate mortgage rising to its highest level in a month to 4.12 percent, which is still below this year’s average of 4.45 percent,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Coming out of the July 4th holiday, applications were lower overall, with purchase activity slipping almost 4 percent. Refinance applications increased, with activity reaching its highest level in a month, driven mainly by FHA refinance applications. Historically, government refinance activity lags slightly in response to rate changes.”

Added Kan, “Buyer interest at the start of the second half of the year continues to outpace year ago levels, with activity last week up 7 percent.”

The average loan size during the week was $323,400. Mortgages for home purchasing averaged $323,900.

The FHA share of total applications increased to 10.6 percent from 10.1 percent and the VA share declined to 12.9 percent from 13.2. USDA applications accounted to an 0.6 percent share, down from 0.7 percent the prior week.

As Kan said, interest rates rose for all mortgage products during the week, increasing on both a contract and an effective basis. The average contract rate for 30-year fixed-rate mortgage (FRM) with origination balances at or below the conforming loan limit of $484,350 increased to 4.12 percent from 4.04 percent and points from 0.37 to 0.38.

The average rate for jumbo 30-year FRM, loans with balances exceeding the conforming limit, rose 4 basis points to 4.07 percent. Points dropped from 0.27 to 0.21.

Thirty-year FRM with FHA had a rate of 4.01 percent with 0.28 point. The previous week the average was 3.97 percent with 0.30 point.

There was an average increase of 6 basis points in the contract rate for 15-year FRM, rising to 3.48 percent. Points were unchanged at 0.32.

The rate for 5/1 adjustable rate mortgages (ARMs) increased to 3.58 percent from 3.56 percent the prior week while points dipped to 0.27 from 0.28. The adjustable-rate mortgage (ARM) share of activity fell to 4.9 percent of total applications from 5.3 percent the prior week. The share of mortgage applications intended for ARMS has declined by 3 percentage points since early June.

MBA’s Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.

Fannie Mae Sees Economic Slowdown…Slowing

July 16,2019
by admin

This month marks the tenth anniversary of the current expansion. How much longer can it last? Fannie Mae’s July Economics Development report indicates it has a way to go, although likely at a slowing pace.

The second quarter of 2019 has just ended, but Fannie Mae’s ESR Macroeconomic Forecast team expects that growth in real gross domestic product (GDP) probably slowed from the impressive 3.1 percent it posted in Q1. They upgraded last month’s Q2 estimate by one-tenth based on higher expenditures for personal consumption, but still expect growth slowed to an annualized rate of 1.8 percent. They have maintained their previous full-year forecast for 2019 GDP of 2.1 percent. This will slow further next year to an estimated 1.6 percent due to waning fiscal stimulus, continued uncertainty weighing on consumer and business confidence, and eventually a slowdown in consumer spending.

Several key developments in the last month have affected the macroeconomy. Trade negotiations between the U.S. and China resumed after the G-20 summit in June, although tensions remain. Jobs rebounded in June after a weak May report, and both personal income and consumer spending remained solid.

Against these positive developments is a reduction in the target 2.0 percent inflation projections announced at the Fed’s June Open Market Committee (FOMC) meeting. The forecast for PCE inflation this year declined from 1.8 percent in March to 1.5 percent.

Testifying before Congress this month, Fed Chair Jerome Powell abandoned his earlier statements that the weak inflation numbers could be attributed to “transitory” factors and warned that low inflation risks were becoming more persistent.

All and all, Fannie Mae does not expect the Fed to be deterred from cutting the federal funds rate and they forecast quarter-point cuts in July and again in December, replacing an earlier prediction of a single cut in September.

The continued decline in mortgage rates during the second quarter and sustained strength in the labor market should support demand for home sales and construction. While recent housing data has been mixed, it is in part due to the lingering effects of last year’s slowdown, including continued slow growth in new home building. Tempering the pace of the recovery is the limited housing supply which remains a chronic obstacle.

The inversion of the yield curve that began in late May has persisted; the 10-year/3-month Treasury spread was at 19 basis points when the report was written. The Fed has downplayed the inversion’s importance as a recession predictor, but Fannie’s economists say it is widely considered either a sign of overly tight monetary policy or of an expected slowdown in economic activity. It may, therefore, cause further erosion of business confidence and investment. In addition, the current environment of negative longer-term interest rates in many major economies contributes to downward pressure on longer-term rates in the U.S. as well. “The longer the inversion remains, the more likely that it will have direct real effects on growth via tighter bank lending, as banks find it increasingly difficult to profit from borrowing on the short end of the curve and lending on the long end,” the Fannie Mae report says.

As forecast, new and existing home sales moved in opposite directions in May. Existing home sales increased 2.5 percent to the second-highest sales pace of the year. The company is holding to its second-quarter expectations that sales were up about 2.0 percent seasonally adjusted in the second quarter and will gain another 2.0 percent this quarter. Lower mortgage rates and a modest rise in inventories of homes for sale should help support an increase in existing sales.

Purchase mortgage applications have also continued to increase, indicating continued sales momentum during the last half of the year. Those sales are still likely to be tempered, even into 2020, by the chronically short supply of homes for sale, especially those in lower price tiers.

On the other hand, new single-family home sales were down for the second month in May after spiking earlier in the year to near highs for the recovery. That jump was aided in part by builder discounts which attempted to counter mounting inventories during the sales slump at the end of 2018. Much of that supply has been absorbed and Fannie Mae says it continues to view the underlying sales trend as modestly positive and expects a gradual increase in sales for the remainder of the year.

Single-family starts also fell in May and inventories have declined for four months. Permits for single-family construction rose 3.1 percent but this was the first month-over-month increase of the year and the largest since last September. The backlog of permits has risen for two straight months, so Fannie Mae expects starts to increase modestly over the next quarter, but probably faster than sales.

The slowdown in home price gains appears to be pausing, probably due to lower interest rates. The April S&P CoreLogic Case-Shiller Home Price Index measured annual house price growth at 3.5 percent, down only two-tenths from March. The CoreLogic National House Price Index, with a more recent reading from May, accelerated on an annual basis for the first time in fourteen months from 3.3 percent in April to 3.6 percent. Fannie Mae’s forecast for house prices, as measured by the quarterly FHFA Purchase Only Index, calls for growth of 5.4 percent this year, up from its previous forecast of 4.6 percent. Deceleration to 3.7 percent is expected in 2020.

Multifamily construction has remained strong this year. Those starts are notoriously volatile, but the figure surged nearly 11 percent both in April and in May. While permits, which tend to be more stable, pulled back slightly in May, they remained near a one-year high. These developments have prompted a material revision in the forecast for multifamily starts last quarter and more increases for the remaining quarters of this year.

Mortgage rates have now declined for seven straight months and were at 3.75 percent when the report was written, the second-lowest level since November 2016 and more than a percentage point lower than their recent peak of 4.94 percent in November. The sustained decline and higher forecast for price growth have driven an increased forecast for single-family mortgage originations for the remainder of the year. The economic group now expects total originations to rise 7.0 percent from 2018 to $1.75 trillion and refinances to account for 32 percent of total mortgage originations in 2019, up from 29 percent in 2018.

MBS Day Ahead: Bonds Trying to Shake Off Last Week’s Bad Vibes

July 16,2019
by admin

In the day just passed, a strong Retail Sales report kept the pressure on bond markets to remain in the negative trend that prevailed last week. Yields have been moving progressively higher since the June 5th jobs report catalyzed a confirmed break of a narrow, consolidation pattern at multi-year yield lows. Ultimately, however, 2.15% remained intact as a firm ceiling for the 4th straight day and bonds were able to recover a majority of the morning’s losses.

In the day ahead, we’ll see if traders have any inclination to build on that resilience. As seen in today’s chart, modest strength early in the session brings yields right in line with the lower boundary of the current negative trend (the “bad vibes” mentioned in the title). They’d need to break below 2.065–convincingly–to make any profound statement about a shift back toward “good vibes.”

2019-7-17 open

There are no big market movers on tap in terms of economic data. The rest of the week is sparse in that regard as well. Combine that with the fact that it’s mid July and we should expect vacation absences to have some effect on participation among traders. What’s the implication? Nothing necessarily, but lighter volume/participation can give way to movement that doesn’t always make good logical sense based on the fundamental and technical motivations available.

Comp, Broker, Compliance Exam Products; F&F Changes; The Fed and Rates

July 16,2019
by admin

I encounter plenty of people in the mortgage biz, from part-time receptionists to owners, who are focused on helping consumers. It’s a good thing! And they ask me about consumer education. (“Have you ever heard of a class for anyone on home buying or the home loan process?”) One solution, and this is not a paid ad, is to invite them to set up a personalized (branded in your name, look/feel) financial locker through FinLocker, which currently houses over 140 consumer-facing videos and includes goal setting, budget planning and more. Shoot President Brian Vieaux an email to learn more. If it helps just one potential borrower or kid in school, or saves you from creating 140 videos, why not?


Lender Products and Services

“The Customer Experience is critical. Today, everyone has been focused on the Digital revolution taking place within the mortgage life cycle. While speeding up cycle times and lowering costs are important, we must not lose sight of the key element that drives our business. The consumer, how do you lower costs while improving customer experience? That key focus is, ‘Why?’ Lenders and Servicers are partnering with Sutherland. Our Design and Innovation Labs in San Francisco are a customer’s centric think tank that allows us to uncover opportunities to increase our client’s business. Whether you’re trying to reduce withdrawal rates, increase portfolio retention or reduce call center volumes with Conversational AI, our focus is to pinpoint areas of improvement that keep your most precious asset, ‘the borrower.’ If interested in learning more, or obtaining a Whitepaper on how we recently helped a top 5 Lender, please contact Neil Armstrong (919-270-5324).”

Things are continuing to grow out on the farm! RuraLiving is expanding its Hobby Farm and Rural Resident programs in support of rural America. If you are looking to expand your business and markets, you should explore how RuraLiving programs might help your borrowers finance large acreage properties that do not qualify for conventional or USDA programs. Check out their lender update with their new additions to these unique programs.

Caliber Home Loans, Inc. continues to make Non-Agency loans more efficient and effortless for our business partners through innovations and technology. Caliber Smart Start is a game-changing tool that validates loan parameters against Caliber’s portfolio program guidelines with just a few clicks of a mouse. Smart Start also takes the guesswork out of processing and documenting the loan file. This free tool reduces uncertainty and allows you to expand your product offerings and turn your pipelines faster. Fire up your Non-Agency production today by visiting www.CaliberSmartStart.com.

Lenders Compliance Group posted an article on its Mortgage FAQs website titled Compliance Management System – Exam Readiness. One of its subscribers was cited for a deficient compliance management program and asked for some urgent guidance. Jonathan Foxx, LCG’s Chairman, wrote a response that you should read. He lays out the dangers in not being prepared, provides a whole set of important questions for self-assessment, and, as a solution, offers the CMS Tune-up!™ – one of many “mini-audits” that the compliance firm has pioneered – which LCG says is cost-effective, done relatively quickly, and offers “actionable findings.” The article has links for presentations and appointments as well as for scheduling calls and audits. You can read the post HERE.

National mortgage lender, NewRez, recently announced the launch of Preferred Lending Services, LLC (“Preferred Lending Services”), a new Joint Venture mortgage company operating in the Greater Tampa, Florida region. Led by industry veteran Bob Klorer, Preferred Lending Services is the 13th Joint Venture to be established in the NewRez partnership network. “We are thrilled to formally expand our lending footprint throughout the state of Florida with the launch of Preferred Lending Services,” says Randy VandenHouten, SVP, Joint Venture & Retail Lending, NewRez. “Under Bob’s leadership, and backed by the strength and expertise of NewRez and Shelter Mortgage, Preferred Lending Services will prove to be a great asset to the Greater Tampa community.” For more information on the Shelter Mortgage Joint Venture platform, please contact Randy VandenHouten. To learn more about Preferred Lending Services, visit flpls.com.

“July 18th is National Mortgage Brokers Day, brought to you by Association of Independent Mortgage Experts (AIME). Why are we celebrating this day JUST for brokers – and why now? The age of millennial shifts the market towards a more economical versus emotional drive to purchase a home. After a 10-year industry lull, independent mortgage brokers began to rise back to the surface. In doing so, millennial home buyers realized the benefits of researching all of their options and started using brokers for their mortgage needs. This increased the independent mortgage broker share of the housing market from 8% to 15% in just a year and a half, according to data from Inside Mortgage Finance. This year, we’re bringing you a number of ways to get involved and help spread the word that #BrokersAreBetter. See how you can show your support this #NMBD on AIME’s National Mortgage Brokers Day event page.”

Growing your team is a great accomplishment that also multiplies the number and complexity of LO comp plans. After acquiring several banks and absorbing MB Financial Bank’s mortgage division in July 2018, Level One’s own mortgage team doubled in size, spurring the decision to move from manual, spreadsheet-based commission calculation to LBA Ware’s full-featured compensation management platform CompenSafe. Said Level One Bank Executive Vice President, Consumer Banking Officer, Timothy R. Mackay: “CompenSafe created significant efficiencies for our payroll department, saving countless hours of manual labor and eliminating the risk of human error. Additionally, it has improved compensation transparency with our loan originators who now have the ability to login and view their pipeline and payroll information at any time.” Get the full scoop on how Level One leveraged CompenSafe to scale up here.


Conventional Conforming Changes

Fannie MaeAnnouncement SEL 2019-06 outlines changes related to HomeReady® income limits, clarifies requirements for compliance with Office of Foreign Assets Control Regulations, simplifies requirements for signed IRS Form 4506-T, updates its definition of relocation loans and disaster policies reminders.

Wells Fargo Funding announced it will not purchase Freddie Mac CHOICERenovation Mortgages.

A recent Fannie Mae Servicing Guide update outlines its escrow waiver policy and clarifies requirements for compliance with Office of Foreign Assets Control (OFAC) regulations.

Freddie Mac’s Guide Bulletin 2019-7, explains its revised requirements for Home Possible® mortgages to state that, effective July 3, occupying borrower(s) must not have an ownership interest in more than two financed residential properties, including the subject property, as of the note date (or as of the effective date of permanent financing for construction conversion and renovation mortgages).

Plaza offers a One Time Close (OTC) Construction-to-Permanent Conventional Loan Program through its Wholesale Lending Division. Instead of securing separate construction financing AND permanent financing, borrowers can combine them into one single transaction.


Capital Markets

The Fed has publicly stated the concern with ongoing trade tensions weighing on business investment and slowing GDP growth, and easing would be consistent with the Fed making efforts to meet the price stability side of its mandate. But more accommodative policy would help support growth and hiring, putting pressure on remaining resource capacity in the economy and leading firms to raise prices. At issue for the FOMC is that slack is the part of the inflation equation that the committee can influence in the short term, but the undershoot in inflation remains centered in goods and services largely unaffected by slack. Prices in “acyclical” inflation categories have been running lower than cyclical areas in recent years, and are materially weaker compared to historic trends. Fed easing in the coming months should support higher inflation by driving the cyclically sensitive areas of inflation higher. With core inflation running below the FOMC’s target for almost all of the current cycle and inflation expectations drifting lower, the price stability side of the FOMC’s mandate needs all the help it can get. Yet, with acyclical inflation categories responsible for the bulk of the underperformance, rate cuts are unlikely to solve inflation’s persistent shortfall on their own. Look for core inflation to continue to run below 2 percent through the second half of the year, even as the Fed likely provides some additional policy support.

Fed Chairman Powell’s testimony before the House Committee on Financial Services left the markets expecting a rate cut on July 31st. Now the question becomes by how much? There has been discussion that the Fed may choose to go beyond the expected 25bps movement and cut by 50bps, however that may be too aggressive at this point. Most experts seem to believe the Fed will move 25bps this month and cut another 25bps later in the year depending on the prevailing economic conditions. Inflation data in June continued to be below the Fed’s target as the Producer Price Index over the previous twelve months was up 1.7 percent and the consumer price index was up 1.6 percent over the same period. The Fed does not want to see the economy enter a deflationary cycle given that consumer spending accounts for 70 percent of the economy. Combined with the other downside risks surrounding trade and slowing global growth the fed may feel the time is right to give the economy a little boost.

The treasury market took another hit yesterday, including the 10-year closing +3 bps to 2.12 percent following a stronger than expected economic release in the form of June Retail Sales, a recent trend that has seemingly diminished the prospect of a 50-bps rate cut at the July 30-31 FOMC meeting. Despite the largest YoY decline in June import prices in three years, President Trump saying we have a “long way to go” with China on trade (claiming he still has the option to impose tariffs on $325 billion worth of Chinese goods), and dovish-minded remarks from Fed Chair Powell and Chicago Fed President Evans in which both said the Fed will act as appropriate to sustain expansion (read: two potential rate cuts regardless of a China deal), Treasuries seemed to be propelled in slinky-like fashion as they rebounded from recent overselling.

Today began with Mortgage applications decreasing -1.1 percent for last week, according to data from the MBA Weekly Mortgage Applications Survey (adjusted for the Fourth of July holiday). Next up is housing starts and building permits for June (-.9% due to multifamily numbers, and -6.1% respectively), before the afternoon brings remarks from Kansas City Fed President George and the latest Beige Book. And looking at current conditions, Agency MBS prices are up a few ticks versus last night’s close and the 10-year is yielding 2.09%.

Employment

MBA is hiring an Assistant Director of Member Engagement to add to MBA’s dynamic engagement team. The incumbent develops, strengthens and manages personal relationships with executives at the Association’s member companies in order to maximize the value of their MBA membership and engagement. S/he coordinates and facilitates integration in delivering enhanced member value and provides comprehensive account management and support, connecting members to the MBA resources that meets their needs, from engaging on policy issues to leveraging MBA’s conferences, committees, networking groups, education, research and more. Contact Tricia Migliazzo if you have questions, otherwise you can apply here.

“NEXA Mortgage is one of the nation’s fastest growing mortgage broker, leading the way out of retail with growth across the country. If you are a LO, BM, or TL, contact NEXA now to experience why brokering is better. Many of our LOs have doubled their production within the first 3 months due to NEXA’s solid support, compensation, underwriting (you don’t really believe brokers lose control), rates, products, leadership, marketing, technology, and processing (you will love our processing). Mark your calendars now to join our weekly WHY NEXA Zoom meeting, Thursday at 11am PST. Login on to NEXA Support and our support staff will place you in the meeting. If you can’t wait to learn more, login now and ask for Michael Neill (480-643-9161) or email Michael. Currently in 9 states, submitted in 14 more and will add any requested. NEXA Mortgage, the leader in WHY Brokering is Better!”

A leading mortgage technology company is seeking a National Account Manager with a proven track record of success in working with consumer direct lenders. The ideal candidate will have a minimum of 3+ years in selling B2B services and technology. You may work remote, so organization and accountability are a must. Frequent travel across the US to meet and present to potential clients as well as participate in trade show opportunities will be required. Create and deliver effective presentations. Effectively manage pipeline, sales activity, and provide accurate forecasting. You must have a proven track record of success in a high-volume fast paced role. Previous experience in technology sales selling to financial institutions and C-Level executives. Pre-existing contacts in the mortgage and banking industry are a big plus. Send notes of interest to Anjelica Nixt.

MBS RECAP: Late Day Reslience But Negative Trend Remains Intact

July 16,2019
by admin

Bonds began the day in roughly unchanged territory. On the one hand, that was impressive considering the lack of substance underlying yesterday’s rally. On the other hand, that lack of substance meant we were at risk of a bigger reaction to the Retail Sales data.

Retail Sales came out stronger than expected and bonds quickly retreated back in line with yesterday’s weakest levels. Notably, however, bonds never broke through to any weaker territory. In fact, today’s ceiling (2.143% in terms of 10yr yields) was slightly lower than the 2.15% ceiling from the past 3 consecutive sessions).

The rest of the morning’s economic data was a non-event, clearing the way for an asset allocation trade to benefit bonds in the afternoon (selling stocks and buying bonds). Treasuries ended up clawing back more than half of the morning weakness and MBS made it almost all the way back to yesterday’s latest levels.

Mortgage Rates Under Modest Pressure After Retail Sales Data

July 15,2019
by admin

Mortgage rateswere flat to slightly higher today, following a stronger-than-expected Retail Sales report. The bond market (which dictates mortgage rates) was eagerly awaiting the week’s first major economic data. Even though the Fed will almost certainly cut rates at the end of the month, additional cuts depend heavily on the balance of economic data. To whatever extent the data is strong, the Fed becomes less likely to continue cutting rates and the broader financial market becomes less interested in bonds. When investors are interested in buying bonds, it’s good for rates!

Fortunately for prospective borrowers, today’s movement was minimal. In fact, many lenders are effectively unchanged versus yesterday. Moreover, bonds managed to improve throughout the day with those specifically underlying mortgages able to make it almost all the way back to yesterday’s range. Lenders didn’t adjust their rate offerings to reflect the market improvement today as the move wasn’t quite big enough. That means rates should be flat to slightly lower tomorrow IF the bond market manages to hold steady by tomorrow morning.



Loan Originator Perspective

Rates drifted slightly higher today, as retail sales data exceeded expectations. Fed Chairman Powell delivered some dovish remarks, providing some support mid day. There’s not much data to inform rates the rest of the week, so I don’t look for large moves here. I’m locking most loans closing in August. –Ted Rood, Senior Originator

I continue to not like floating in this market. It seems a 50bps cut to the fed fund rate is baked in but i fear we might only get a .25 cut which in my opinion will cause rates to give back some of the recent gains. Only loans i would float over night would be ones where you can lock tomorrow on a shorter time period. –Victor Burek, Churchill Mortgage


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.00%
  • FHA/VA – 3.625%
  • 15 YEAR FIXED – 3.5-3.625%
  • 5 YEAR ARMS – 3.375-3.75% depending on the lender



Ongoing Lock/Float Considerations

  • Early 2019 saw a rapid reevaluation of big-picture trends in rates and in markets in general

  • The Federal Reserve has been a key player, and while they aren’t the ones pulling the global economic strings, their response (and even their EXPECTED response) to the economy has helped rates fall more quickly than they otherwise might.

  • Based on the Fed’s laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad, as well as trade-related concerns. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.
  • 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.

Builder Confidence Holds Steady, Labor Shortages Persist

July 15,2019
by admin

Builder confidence rose slightly in July. The National Association of Home Builders (NAHB) said its Housing Market Index (HMI), which it sponsors with Wells Fargo, gained one point, rising to 65. This marks the sixth consecutive month that sentiment levels have held at a steady range in the low- to mid-60s.

NAHB Chair Greg Ugalde said, “Builders report solid demand for single-family homes. However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes,”

The HMI derives from a survey that NAHB has conducted among its new home builder members for over 30 years. In that survey builders are asked to give their perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three of the component indices improved in July. The measures of both current and future sales conditions rose 1 point to 71 and 72 respectively. The index measuring buyer traffic remains stuck below the 50 benchmark, up 1 point to 48.

“Even as builders try to rein in costs, home prices continue to outpace incomes,” said NAHB Chief Economist Robert Dietz. “The current low mortgage interest rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new home purchases in large metro suburban markets, where approximately one-third of new construction takes place.”

Regional scores are expressed as three-month moving averages. The South moved one point higher to 68 and the West was also up one point to 72. The Northeast remained unchanged at 60 while the Midwest fell a single point to 56.

MBS Day Ahead: Week’s First Meaningful Data Plus Earnings Season in Swing

July 15,2019
by admin

In the day just passed, bonds traversed a sleepy summertime Monday trading session without much volume or liquidity. That dynamic was somewhat exacerbated by the fact that Japanese markets were closed (which means there was no hub for Treasury trading during Asian market hours). This left incidental tradeflows in control with the day’s biggest move seen right after the NYSE Open.

In the day ahead, bonds will digest the week’s first meaningful economic data in the form of Retail Sales at 8:30am. The Fed referred to the consumer segment as one of the parts of the economy it’s NOT worried about. That could make for a bigger reaction if the report is weaker than expected. But any big reaction will continue to fight the “summer doldrums” for financial markets. In short, lighter participation makes for inconsistent trading. Sometimes big moves happen for no reason and other times, things that should cause big moves don’t.

Any weakness in bonds has room to run, to some extent, based on the following chart. Simply put, yields are already challenging the floor of their recent trend channel (yellow lines). They could easily bounce back into the middle (or toward the ceiling) of that range without making a profound comment about the bigger picture.

2019-7-16 open

U/W, Training, Non-QM, Marketing Products; Ginnie’s Growth

July 15,2019
by admin

Although lots of small lenders don’t seem interested in being acquired any longer (“Hey, our pipeline is full and we’re making money again! Autumn is a long way off!”), M&A is alive and well. The latest example comes from Southern California where William Lyon Homes (NYSE: WLH) has bought South Pacific Financial Corp., a retail mortgage banking company based in Irvine. South Pacific has been rebranded as ClosingMark Homes Loans Inc., and is part of a new financial services division being launched by the homebuilder. The unit, ClosingMark Financial Group, will include title insurance, settlement and mortgage services.


Lender Products and Services

As a lending manager, the winding down of home-buying season is the perfect time to re-evaluate your process and determine how technology can help unlock the potential of your business. Taking a step back to look at what you’ve accomplished this home-buying season and how you can improve next time around is crucial for meaningful year-over-year growth. Whether it’s improving your borrower experience, lifting referrals, or increasing back-office efficiencies, digital mortgage providers like Maxwell are an impactful way to push your business forward. Today, Maxwell has 150+ retail-focused lenders on the platform that enjoy increased efficiency — closing loans 45% faster than the national average — and elevated borrower experience, seeing customer satisfaction increase as high as 25%. To experience Maxwell, click here and set up time for your customized demo. It’s not too early to start planning for 2020!

Verus Mortgage Capital, the industry’s premier non-QM investor, helps lenders reach responsible borrowers like the self-employed, foreign nationals and real estate investors who don’t fit traditional credit profiles. Grow your customer base, your margins, and your loan offerings. Learn more about Verus’ correspondent lending opportunities at CMBA’s 47th annual Western Secondary Market Conference July 15-17. Email Jeff Schaefer to schedule an on-site meeting.

Calling all Marketing Managers: How difficult is it to produce compliant marketing that is targeted, localized, and customizable… while meeting your Loan Officer’s deadlines? Usherpa’s custom marketing portal – Launch Pad – was designed for corporate marketing teams so you can design and send materials that align with your unique company vision and brand strategies all in one place. Effortlessly build a library of collateral that is directly linked to all your LO’s databases and integrated with your Loan Origination System. Why switch between multiple systems to build content on demand when you can seamlessly design marketing campaigns within Usherpa CRM? Launch Pad is your one-stop-shop to getting the right messages out at the right time. Don’t hesitate! Learn how Usherpa’s HTML email wizard leverages your efforts while saving an impressive amount of time.

“Just like summer, XINNIX has a deal that won’t last forever! We are providing exceptional Summer Savings to help your referral business grow with two outstanding one-hour classes for one great low price. “Exceeding Realtor Expectations” and “Powerful Presentations” are the perfect combination that will help your business thrive this summer and beyond. Through July, both classes (valued at $498) are being offered together for the low price of $299. Don’t delay! This offer ends on August 1. Register today for our August classes and watch your production grow all season long. For more information about The XINNIX System of performance training, accountability, and coaching, visit our website or click to schedule a call with one of our Account Executives.”

The key to success is to start looking into opportunities to expand your business. As a leading investor in the industry, TMS offers a suite of rehabilitation loan products to maximize your loan offerings. It is currently running a pricing special on FNMA Homestyle, FHA 203k and USDA Combo CTP Pilot loans. Reach out to your TMS CAREspondent VP or sign up to partner with TMS today to learn more.

Simplify your underwriting process with Loan Product Advisorasset and income modeler (AIM). Through the expertise of third-party service providers, AIM automates the manual processes of assessing borrower assets and income. AIM reduces the burden of traditional documentation, speeds up the loan origination process and helps you close loans faster. Freddie Mac is working hard to bring you solutions that create efficiencies for your business and improve the borrower experience – giving you a competitive edge. These capabilities are available now. Gain greater efficiency in your underwriting processes with AIM– get The Freddie EdgeSM.


Capital Markets

Here at the Western Secondary in San Francisco some of the folks were talking about how Ginnie Mae securities (primarily GNIIs, composed of government loans) traded poorly in the selloff amid heightened concerns about more supply following last week’s passage in the House of two bills impacting FHA and VA loans. Investors in mortgages, and mortgage-backed securities, are keenly interested in watching prepayment speeds. Who in their right mind would want to pay 105 (a premium of five points, like paying $105,000 to own the cash flow from a $100,000 mortgage) if it is going to pay off in six months and return $100,000? The exposure of Ginnie, Freddie, and Fannie pools of mortgages are driven by rates and broker exposure. Experts think prepayments, aka “speeds,” will increase this month due to lower rates. But there are other things lenders should know about what is pushing rates and prices around these days.

Ginnie Mae announced that issuance of its mortgage-backed securities (MBS) totaled $44.217 billion in June, the highest since December 2016. A breakdown of June issuance includes $42.785 billion of Ginnie Mae II MBS and $1.432 billion of Ginnie Mae I MBS, which includes $1.014 billion of loans for multifamily housing. Ginnie Mae’s total outstanding principal balance of $2.076 trillion is an increase from $1.971 trillion in June 2018. For more information on monthly MBS issuance, UPB balance, REMIC monthly issuance and global market analysis, visit Ginnie Mae Disclosure.

Credit is the lifeblood of the economy, and it continues to flow, as corporate bond issuance has picked up, and growth in bank credit remains solid. Financial markets encountered a significant amount of volatility at the end of 2018. Not only were there signs of slower global growth, but markets witnessed the Fed tightening monetary policy further, escalating trade tensions with China, a U.S. stock market swoon, and yield spreads on corporate bonds, especially on high-yield corporate bonds, widening noticeably. Tighter financial conditions, if maintained, can lead to slower economic growth, if not to outright economic contraction. Furthermore, new issuance in the corporate bond market slowed to a trickle at the end of last year as there was only $12 billion of new investment grade bonds brought to market in December. There was no new issuance in the high yield market that month, which normally slows toward the end of the year, but December’s outturn was the lowest monthly total in at least 18 years. Corporate bonds are vitally important to the financing of the non-financial corporate sector as they account for two-thirds of its outstanding debt. Activity in the corporate sector could come to a screeching halt if the corporate bond markets remain essentially closed for an extended period of time.

But financial conditions have eased markedly thus far in 2019. Not only has the stock market rebounded, but corporate bond spreads have receded in recent weeks. In addition, new issuance in the corporate bond market has picked up noticeably in the new year. In January, there was $117 billion of investment grade bonds and $17 billion of high yield bonds that were brought to market. The $134 billion of total corporate bond issuance in January was above the average monthly run rate of 2018. Bond issuance may be important for large and some medium-sized businesses, but smaller enterprises rely on bank financing. In that regard, growth in bank credit has strengthened in recent months. Total bank credit was up 5.0% YoY in the week ending January 23, more than a full percentage point higher than just a few months previously. Commercial and industrial loans were up 11.0% relative to the same period in 2018. If there is a weakness in bank credit, it is in real estate loans, which are up only 2.9% on a year-ago basis. In summary, financial markets have bounced back this year, with volatility subsiding and credit continuing to flow to the non-financial sector. Solid growth in credit at present reinforces the conviction that U.S. economic growth will remain resilient in 2019, albeit a bit slower than last year.

Last week we saw that June’s strong payrolls did nothing to change the outlook of the Federal Reserve regarding its economic outlook and the expectations for a rate cut at the end of July. Global economic trade winds as well as deteriorating fundamentals should be enough to compel the members of the FOMC to cut rates as an insurance measure to aid continued economic expansion. At his recent semiannual testimony before Congress, Fed Chair Powell was candid in his assessment that he does not consider labor market as being hot and that it has room to continue to attract people back into the workforce as well as the potential to boost wages. Although as we’ve seen, wage grown has been anemic throughout the expansion. On the other side of the Fed’s dual mandate, inflation continues to remain below the Fed’s target despite recent price index data showing small upticks. Part of the reasoning behind a rate cut is also to bring inflation up to the Fed’s desired levels.

Turning to yesterday’s bond market, which drive mortgage prices, U.S. Treasuries began the week quietly, closing -1 bp to -2 bps across the curve, including the 10-year -1 bp to 2.09 percent on no notable domestic news, though China’s growth figures for Q2 showed the slowest growth rate in nearly three decades. That slowing was expected, and speaking of expectations, Fitch Ratings expects the FOMC to cut the fed funds rate just one time this year. And from Europe, Germany’s Economy Ministry showed that growth weakened in Q2 while manufacturing remained sluggish in its latest monthly report.

Today is much more interesting as far as markets are concerned, with several first-tier releases. We’ve already had earnings reports from JP Morgan, Wells Fargo, and Goldman Sachs, as well as June retail sales (+.7%) and import / export prices (-.9%, -.7% respectively). Ahead are Redbook same-store sales for the week ending July 13, June industrial production and capacity utilization, May Business inventories, the NAHB Housing Market Index, and May TIC data. There are also several Fed speakers during the session to provide further rate cut clarity, including Governor Bowman, Atlanta’s Bostic, Dallas’ Kaplan, Chicago’s Evans, and Chair Powell. The Fed will also publish the minutes from the recent discount rate meetings. But we begin the day with Agency MBS prices worse .125 and the 10-year yielding 2.11%.

Jobs and Franchises

AMCs and Title Companies: Due to continued growth, Accurate Group is looking to acquire appraisal management and title/closing businesses throughout the U.S., with particular emphasis in the Western U.S. By becoming part of Accurate Group, your teams will gain access to the latest digital and mobile technologies and be on the leading-edge of revolutionizing real estate lending processes. Please contact Paul Doman to learn about Accurate Group’s approach to acquisitive growth.

Are you tired of managing a corporate P&L? Then maybe it’s time to start managing your own instead. Introducing Motto Franchising, LLC, the very first national franchised mortgage brokerage network in the U.S. When you join the Motto Mortgage network, you have the freedom and flexibility to run your own business while taking advantage of an out-of-the-box mortgage company solution. We even streamline the process of starting a new business by providing a strong wholesale lender mix, franchisee setup support, LOS training, licensing assistance, marketing tools and more. It’s time to manage your future, on your terms. To learn more on how this innovative model is breaking the mold, contact our team (866.668.8649).