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Big Landlord Merger Sounds Scary but Probably Isn’t

August 14,2017
by admin

One of the many shifts endured by the housing industry during the Great Recession was the entry of institutional investors into the single-family housing market. Hedge funds and other Wall Street types bought up thousands of single family residences (SFRs), largely from lender inventories of foreclosed homes. There were worries in the moment about the competition this presented to potential owner-occupants, and concerns over how disastrous this might be down the road. The difficulties inherent in scattered site property management could threaten neighborhoods, and what might happen once the housing market recovered and investors took their profits and ran, dumping thousands of properties on the market.

These fears, to all appearances, have been unrealized. The management issues were overcome, and the new owners, by and large, have hung on to their portfolios. Where they have sold, it has typically been to other investors or, in a bit of surprise marketing, to tenants who were interested in buying the homes they were occupying, sometimes with special financing and other inducements.

On August 10, two of the country’s largest single-family landlords, Invitation Homes, and Starwood Waypoint Homes announced a merger. The combined company will own about 82,000 homes in 17 metropolitan areas in a deal valued at $4.3 billion.

According to an Urban Institute (UI) analysis of the merger, this has stirred up new concerns. Homeownership, while it has ticked up slightly in the last few quarters, is near an all-time low and inventories of available homes for sale are at historic lows. UI’s Laurie Goodman quotes the Wall Street Journal’s description of the merger as “a long-term corporate wager “that homeownership will no longer be an essential component of the American dream and that more people will choose to rent.” Goodman said other voices have expressed concern about the plight of renters under landlords who “don’t care about the carpet or the paint color.”

She does not share these concerns.

There are more people renting by choice than there have been in other years and that this is likely to continue as more people delay marrying and starting families until they are well into their thirties, she says. Still, Wall Street’s “bet” is not a sign that “millions of Americans no longer wish to own homes and access the wealth-building benefits of homeownership. And there’s no reason to think renters will be worse off under these landlords.”

She offers four reasons why this merger, or more generally investor-owned single-family homes, pose no threat to either homebuyers or renters.

  • The large-scale investor portfolios account for only “a tiny sliver” of the housing market. Forty percent of the nation’s housing stock, or 17.5 million units, is in the form of SFR. However, so called “mom and pop” landlords, those owning a single unit, hold 45 percent of SFR rentals, while 85 percent are held by those with 10 or fewer units. Institutional investors, like the giant company formed by this recent merger, own, at most, 0.7 percent of SFR rentals, less than 300,000 units.
  • The portfolios of institutional investors are unlikely to grow quickly in the near future. The market sector did explode in the first few years when there was a large-scale availability of bargain-priced homes created by foreclosures. The ability of investors to buy them did serve to stabilize the market and put a floor on plunging prices, but those days are over. Prices are nearly back to their pre-crisis peak, and with the bargains gone, Goodman sees “the next logical step is for investors to seek economies of scale to cushion the fall in profitability.” This will probably mean more consolidation in the SFR market and even the possibility that large investors will start acquiring properties from smaller ones.
  • Most homebuyers would not want to purchase the homes in which investors are interested. Institutional buyers typically acquire homes needing about $20,000 in repairs. Those are the bargains and they have the financial, skills, and labor resources to make those repairs along with the clout to buy materials in bulk. An individual buyer, especially a first-timer isn’t usually prepared to spend $20,000 on immediate repairs and upgrades and wouldn’t be able to get as much bang for those bucks. Goodman says this means that, although institutional investors may have a cash advantage, they generally aren’t competing for the same properties as first-time homebuyers.
  • Institutional investors are likely to be fine landlords. Goodman sees little cause for concern on the part of tenants. These investments don’t push rents higher; rent increases are the result of supply and demand. There is no credible evidence that institutions make worse landlords than the mom-and-pop companies either. Necessity and competition push investors to bring professional standards and methods in to match large apartment-building owners.

The Invitation/Starwood merger should remind policymakers that SFR rentals are here to stay, Goodman says, and they could be an important component of housing strategy. Affordable housing is becoming an imminent crisis, she says, and the government could encourage the SFR sector to help address this crisis. One way could be through more aggressive lending by the government sponsored enterprises (GSEs) in the SFR space, especially Freddie Mac, a major lender in the multifamily market. UI supported Freddie Mac in April when it faced many critics over its decision to back a $1 billion loan to Invitation Homes.

Goodman says we should remember that, despite the benefits that accrue from it, there is no “ideal” homeownership rate. It will ebb and flow with economic, demographic, and other factors. “Our goal should not be to make as many homeowners as possible but to ensure that any creditworthy person can become a homeowner when their financial means and other circumstances make them ready to do so.” She adds that the difficulty of qualifying for a mortgage is one of the biggest impediments to the homeownership dream and, “The merger of institutional SFR investors poses no threat to this dream.”

Mortgage Rates Up Slightly From Long-Term Lows

August 13,2017
by admin

Mortgage rates rose moderately today as weekend news headlines suggested some measure of de-escalation of nuclear tensions between the US and North Korea. To be sure, the news wasn’t resoundingly conciliatory, but investors took solace in it nonetheless.

In general, when headlines suggest the world is less likely to end by Monday, investors will be slightly more risk tolerant. One expression of risk tolerant trading in financial markets is to favor something like stocks as opposed to bonds. If there is net selling pressure on bonds, it creates net upward pressure on interest rates. This was the case this morning.

In the afternoon, comments from NY Fed President Dudley (one of the 3 most important voices at the Fed) kept pressure on rates, which seemed willing to recover in the late morning hours. Dudley affirmed investors’ assumptions about upcoming Fed policy changes. Because these changes are net-negative for bond markets, they put upward pressure on rates. Because investors are quite confident in those assumptions, the upward pressure was very small in the bigger picture. Still, it was enough to prevent most mortgage lenders from considering offering improved rate sheets before the end of the day.


Loan Originator Perspective

New day/week, same deal with bond markets today, as they were virtually unchanged from Friday’s levels. It’s going to take something far more substantial than UN resolutions, threatening tweets, or tepid economic data to motivate rates here. Not sure what that will be, or when, but for now, we’re on hold. If you’re floating, have realistic expectations, best case scenario, your lender credit might improve slightly from day to day. –Ted Rood, Senior Originator


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.00%
  • FHA/VA – 3.75%
  • 15 YEAR FIXED – 3.375%
  • 5 YEAR ARMS – 2.75 – 3.25% depending on the lender



Ongoing Lock/Float Considerations

  • Investors were relatively convinced that the decades-long trend toward lower rates had been permanently reversed after Trump became president, but such a conclusion would require YEARS to truly confirm

  • Instead of continuing higher in 2017, rates instead formed a narrow, sideways range, and held inside until April. Investor perceptions are shifting such that fiscal reforms and other policy developments will need to live up to expectations in order to push rates higher. Geopolitical risks would also need to avoid flaring up (more than they already have)
  • For the first time since the election, we’re in a rate environment where you wouldn’t be crazy not to lock at every little opportunity/improvement. Until/unless it’s broken, the highest rates of early-2017 mark the ceiling, and we’re now waiting to see how much lower we can go from here.
  • 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.

MBS RECAP: Bonds Lose Ground on Various Headlines

August 13,2017
by admin

Bond markets lost ground today, with all of the weakness arriving during the overnight session. The weakness was driven by a general “risk-on” move in financial markets, which tends to favor stocks at the expense of bonds. In today’s case, that was most easily attributable to headlines over the weekend regarding nuclear tension between the US and North Korea. While far from definitive, the headlines made any drastic actions seem less imminent without characterizing the threat as any less serious.

Once US trading hours were underway, bonds were little-changed at first. Shortly after the NYSE Open (which can affect bonds due to ETF trading, among other things) bonds began to improve, albeit only moderately.

Comments from NY Fed President Dudley put an end to the positive drift as he suggested another rate hike in 2017 may be more likely than market participants currently estimate, but that expectations for the Fed to begin trimming its balance sheet in September are “not unreasonable.”

That’s about as clear as the Fed can get in saying they will indeed begin trimming the balance sheet next month, barring unforeseen shocks. Markets almost universally expect this, but additional confirmation is worth a bit of weakness for bonds.

Fannie 3.5 MBS ended the day only 3/32nds weaker (-0.938) at 103-07 (103.219). Treasuries had a tougher day, rising 3.32bps in yield to 2.224% (10/32nds or 0.313bps lower in price).

Don’t Worry, Housing Only “Feels” Unaffordable

August 13,2017
by admin

Housing, at least according to Freddie Mac vice president and chief economist Sean Becketti, isn’t unaffordable. It just feels that way. Becketti, in a recent post on the company’s Perspectives blog, says the media is full of headlines that decry the costs faced by homebuyers today. He cites several, including a recent one from Business Insider, “An affordable-housing shortage in the US is about to get worse,” as an indication of how the current environment feels to most people, but he says, “Housing is at near-record affordability, and I can prove it.”

His proof is the Housing Affordability Index (HAI) developed by the National Association of Realtors (NAR). This is perhaps the most-widely-cited measure of housing affordability and is currently at record highs. This means, Becketti says, “the median-income family has more than enough income to qualify for a mortgage to buy the median-price house.

There are however reasons why homeownership feels out of reach to so many. First, housing is expensive. Nationally, prices are higher than they were in 2006, the peak before the housing downturn and have risen an average of more than 6 percent every year since hitting bottom in 2012. They show no signs of slowing down. In contrast, incomes have not keep pace, increasing only 2.4 percent on average in each of those years.

Second, the tight inventory of existing homes increases the perception that homes are unaffordable. Marketing time is at record lows, lots of sales are all-cash transactions, and bidding wars are common. The problem is exacerbated because many homeowners are reluctant to put their homes on the market for fear they won’t find a new one. The imbalance between the supply of homes and the demand for them drives price increases and serves to transform the perception of unaffordability into actuality.

Homebuyers are uncertain if they can qualify for a mortgage, but Becketti states measuring income against home prices, as the NAR index does, is only part of the story. There is the issue of whether borrowers can document that their income is stable, a problem for the self-employed and those working in the gig economy. What about a borrower’s credit score, is it high enough or does a borrower even have one? There are millions of “credit invisibles” who lack sufficient credit history on which to calculate a credit score.

There are other qualifications as well, the level of debt carried by the borrower (debt-to-income ratios are the most common reasons mortgage applications are rejected). Does the borrower have enough cash for a down payment? Becketti says this is one area where help is available. Freddie Mac’s Home Possible Advantage┬« mortgage that allows borrowers to put as little as three percent down, and that modest amount can be a gift from a family member or a government grant.

Becketti says that despite these hurdles, the HAI is correct, mortgage payments today are more affordable than at almost any time in history.

The EDGE: Week of August 14, 2017

August 13,2017
by admin

The EDGE: July Marks Another Strong Month for Home Sales and Rentals, A Flood of Support is Needed for NFIP and More

Click here to download edge081417



Source: Houston Association of REALTORS®

PR and Subservicer Products; FHA, VA, and Ginnie Updates

August 13,2017
by admin

Time passes by, and we have one week until the first total solar eclipse crossing the US from coast to coast since 1918. Football fans know that the start of the season is fast approaching. There were 786 touchdown passes in the NFL last season, and 785 of them were thrown from right arms. (The one lefty to complete a touchdown pass in 2016 was Dallas Cowboys wide receiver Dez Bryant on a trick play.) What happened to the lefties? Could traditional credit scores go the same way? SALT is a lending program that makes credit scores unnecessary.” Bitcoins, blockchain, and cryptocurrency… truly revenge of the nerds.

FHA, VA, USDA, and Ginnie Mae News

Earlier this month Wells Fargo agreed to pay $108 million to settle a whistleblower lawsuit that claimed it charged military veterans fees to refinance their mortgages and then hid the fees when it applied for federal loan guarantees from the Department of Veterans Affairs. It is unclear how much, if any, of the money went to borrowers.

The issuance of Ginnie Mae’s platinum securities is completely automated and can be processed using the MyGinnieMae portal. Previously, processing of the Platinum product was entirely manual. Moving the platinum submission and pooling process to the Portal will automate the following functions: Submission of Deposit Agreement and Confirmation: Pool Number, Committee on Uniform Securities Identification Procedures (CUSIP) Limited Purpose Account (LPA) in MyGinnieMae Portal. Security CUSIP load to the Federal Reserve Bank of New York (FRBNY); automated integration into Mainframe and Trust Receipt Generation in MyGinnieMae Portal.

Chase Correspondent has discontinued its FHA 10 Year Fixed product line(s).

FHA’s Good Neighbor Next Door Program? It’s a special program operating under the auspices of the Department of Housing and Urban Development (HUD) that is aimed at specific HUD-identified areas. This program allows law enforcement officers, pre-K through 12th grade teachers, firefighters and emergency medical techs buy homes offered for sale by HUD at greatly reduced prices. Those eligible are then to buy one of these homes at half the listed price.

USDA no longer provides a list of ineligible repair items. The Handbook now states that eligible repairs may be determined by the lender, provided the home is habitable. Lenders are reacting. For example, to assist with interpretation of the “habitable”, Pacific Union underwriters will review the repairs included in the Escrow Holdback agreement for health and safety factors and recommend that items related to roof repairs, foundation repairs, repairs to the home’s basic structure, and electric, plumbing and heating fuels systems be well documented at the time of submission for appropriate consideration by the underwriter.

To improve the services to FHA borrowers with credit scores below 640, specialized analysis is necessary to accommodate more home buyers in this end of the credit spectrum. As a result, Sun West has created a set of Comprehensive Credit Review Guidelines to assist in the substantive review of these borrowers.

All Ginnie Mae MBS WEEKLY disclosure files were removed on 7/14/2017. As a reminder, the MBS Pool Daily New Issuance file, “daily.txt”, is published each Tuesday through Saturday per the Data Release Schedule and is cumulative throughout the month. For questions related to this bulletin, please send an email to investorinquiries@hud.gov. Inquiries to this email will be addressed within 2 business days.

Ginnie Mae issued a reminder of August MBS Multifamily loan level new issuance disclosure files.

In late June Ginnie Mae has updated “U.S. AND JAPAN TO COLLABORATE ON AGING IN PLACE: Bilateral research effort to identify new ways to house vulnerable seniors”.

Pacific Union is creating more opportunities for clients to participate in its Non-Delegated Correspondent offering. Effective immediately, conventional products can be delivered to the non-delegated channel from clients who are also approved to deliver conventional products via the delegated channel. Clients can determine which conventional loans are best underwritten by Pacific Union or via their internal underwriting staff. Additionally, Pacific Union will no longer require clients to limit their non-delegated government deliveries by FICO band. Clients approved to deliver government products to the non-delegated channel can choose which loans are best underwritten by Pacific Union and deliver those to the non-delegated channel for underwriting.


Bank Trends, M&A

Global banking regulators (the Basel Committee) said they have postponed their next meeting to discuss global capital rules until Oct, with any potential changes unlikely until 2024 or 2025.

American Banker reports as much as $2.5T in bank deposit growth since the crisis, or about 50% of the total, could be attributable to Fed quantitative easing. That could reverse back out as the Fed continues to raise rates and acts to reduce its $4.5T balance sheet.

The mergers and acquisitions announced during August has not seen any letting up, and consolidation occurs in other ways. For example, Bank of America said in its most recent quarterly earnings report that its total number of financial centers shrank about 3% YOY to 4,542 vs. 4,681 as of the same quarter last year.

In Florida CenterState Banks, Inc. has agreed to acquire HCBF Holding Company, Inc. In Virginia, Atlantic Bay Mortgage Group will acquire Virginia Community Bank ($238mm) in a 100% stock deal. First Financial Bank ($8.5B, OH) will acquire MainSource Bank ($4.0B, IN) for about $1.0B in stock (100%) or about 2.72x tangible book. Valley National Bank ($23.2B, NJ) will acquire USAmeriBank ($4.4B, FL) for about $816mm in stock (100%) or about 2.38x tangible book. In Indiana First Savings Bank ($838mm) will acquire The First National Bank of Odon ($99mm) for about $10.6mm in cash or about 1.32x tangible book. The Bank of Delmarva ($519mm, MD) will acquire Liberty Bell Bank ($150mm, NJ) for about $16.0mm in cash (30%) and stock (70%) or about 1.62x tangible book. In Pennsylvania Advantage Bank will acquire First National Bank of Lilly ($21mm) for 1x tangible book in cash (50%) and stock (50%). Advantage is a new bank set up to acquire other banks.

TBK Bank ($2.6B, TX) will acquire Valley Bank & Trust ($321mm, CO). In Washington Heritage Bank ($3.9B) will acquire Puget Sound Bank ($567mm) for about $126.1mm in stock (100%) or about 2.4x tangible book. People’s Intermountain Bank ($1.7B, UT) will acquire 7 branches from Banner Bank ($9.9B, WA) for an estimated $15.3mm deposit premium. People’s gets $260mm in loans and $180mm in deposits with the transaction. In Maryland Community Bank of the Chesapeake ($1.4B) will acquire County First Bank ($234mm) for approximately $34.3mm in cash (3%) and stock (97%) or about 1.33x tangible book. Out in California Bank of Marin ($2.1B) will acquire Bank of Napa ($246mm) for about $51.0mm in stock (100%) or 1.87x tangible book. Providence Bank ($299mm, NC) will acquire Cornerstone Bank ($107mm, NC) for about $11.2mm in cash (100%). And in Connecticut Patriot Bank ($775mm) will acquire Prime Bank ($75mm) for 1.15x tangible book in cash (100%).


Capital Markets

What is a “green bond?” Fannie Mae is planning to sell up to two more of them soon, backed by payments on mortgages on energy-efficient apartment loans. Among other initiatives Fannie has made a big push into multi-family mortgages with an environmental twist and has been busy educating its lenders to their benefits. And it isn’t small potatoes: the latest is a $873 million bond, called FNA 2017-M10, is backed by 20 seven-year loans originated under Fannie’s Green financing business.

Looking at the bond market, rates were helped, as one might expect, by the turmoil involving North Korea and the United States. This heightened sense of geopolitical caution helped bonds, including those backed by mortgages, start on a higher note Friday while a cooler than expected July CPI and core CPI invited more buying interest, particularly in shorter-dated issues. Still, the 10-yr yield finished at its lowest level (2.19%) since late June while the 2-yr yield slid to levels from late May.

But it’s brand-spankin’ new week around the world, including Japan where it is the peak travel season for Obon (a Japanese Buddhist custom to honor the spirits of one’s ancestors). There is no scheduled news today. Tomorrow is Retail Sales, Import & Export prices, Empire Manufacturing from New York, and August’s NAHB Housing Market Index from the builders. Wednesday, we can look forward to weekly mortgage apps from the MBA for last week, July Housing Starts & Building Permits, and July FOMC Minutes in the afternoon. Thursday, we hardly stand the suspense waiting for Weekly Initial Jobless Claims, August Philadelphia Fed, July Industrial Production & Capacity Utilization, and Leading Economic Indicators. Friday doesn’t have much scheduled aside from a collection of University of Michigan stats about what their team is seeing in the economy.

The week starts with the risk-free U.S. 10-year yielding 2.22% and agency MBS prices are worse .125 versus Friday’s closing levels.


Jobs and Products

U.S. Bank Home Mortgage is looking for a Mortgage Product Management Lead to partner with the executive team and drive expansions and refinements to the company’s broad suite of mortgage products across its retail, correspondent, and wholesale lending channels. This is an excellent opportunity for a strategic capital markets and credit leader to drive meaningful change at a top 10 Bank lender ($56b in 2016) with a long-term commitment to the mortgage business, an innovative, customer-focused transformation agenda, and a collaborative and ethical culture. Please check out the full job description and apply here.

With a culture of recognizing and developing talent from within, WesLend Financial is pleased to announce the promotion of Bryan Levy to Northeast Area Sales Manager. Bryan has a wealth of experience in all areas of loan origination stemming from over twenty-five years in the industry and is now in charge of growing the Northeast territory for the company. For eighteen years, WesLend Financial has specialized in offering a strong product mix including Conventional, Jumbo, FHA (also High Balance FHA loans with FICO scores down to 580), VA, USDA, Reverse Mortgage, and Non-QM products. Expanding rapidly, WesLend is actively seeking experienced wholesale Account Executives nationwide and offers extensive training, aggressive compensation plans and seasoned support from the operations and marketing teams. If you are currently sharing a territory and are seeking a wider footprint, then WesLend Financial has a unique opportunity for you to be a leader in the market! Please contact Thomas Michel (949-681-5254); all inquiries will be strictly confidential.

Offering retail, wholesale, and correspondent, Pacific Union Financial is eager to continue the successful growth of the Southern California region with new Regional Vice President, Tom Jarboe. Tom brings an extensive background in retail sales and managing large sales teams. With his knowledge, leadership skills, and tenacity to succeed, he is sure to help take the Pacific Union Southern California team to new heights. Tom has called Southern California home for more than two decades and is eager to help build the region. If you are interested in joining the growing Pacific Union Southern California region, contact Tom.

What is a subservicing trifecta? It’s when your Subservicer lowers your delinquency rates, increases your revenue, and gives you complete transparency into what they are doing all while using revolutionary servicing technology. The Money Source Subservicing is proud to bring this trifecta to life for the mortgage industry! To learn how you can benefit from the unique TMS approach to Subservicing, click here

Paul Clifford of Simplifile writes: “Last week, Mortgage Professional America unveiled its 2017 Elite Women in Mortgage, and we are proud to recognize Simplifile’s own Vicki DiPasquale, vice president of sales and a thirty-year veteran of the title industry, among those honored. It is rare to see a sales executive honored at such a high level, yet I can think of no one more deserving of recognition than Vicki, whose consultative approach to sales is guided by a sincere passion for sharing her substantial expertise and educating those who stand to benefit most from emerging technologies. Her efforts have had a transformative effect not only on Simplifile’s growth and success but on the evolution of the industries we serve.”

MBS Week Ahead: Risk of Resistance Remains; What Technicals Can Actually Tell Us

August 13,2017
by admin

If you haven’t seen/read my primers on various technical analysis topics, they’re linked at certain points in the text below, and will be helpful in making the most of this post. If you’d like to read them in advance, here they are:

Basic Concepts of Technical Analysis (and some jargon definitions)

Pivot Points

Support/Resistance

Trust the Technicals?

Bond markets have traded inside 2 narrow ranges all year (first 2.3-2.6, then 2.1-2.4, roughly). Narrow ranges are to be expected amid uncertainty. Uncertainty is to be expected when 2 of the world’s biggest central banks are moving to tighten policy against the backdrop of potentially significant fiscal policy changes in the US. Geopolitical risks only add to the uncertainty.

Inside the most recent 10yr yield range (2.1-2.4), the levels of 2.21-2.22 have been an intermediate pivot point of fairly high significance (relative to the narrow range overall). Those were the levels we wanted to see broken if we were to get more optimistic about near-term rally potential.

Early last week, those levels looked certain to hold. The previous Friday saw a strong bounce toward higher yields, followed by a move up to 2.29 by last Tuesday. Then North-Korea headlines changed the tone for the remainder of the week.

Persistent inflation weakness via the CPI data on Friday helped endorse the bond market resilience. But even then, it was the unexpected nuclear headlines that allowed for the break of the resistance in bond markets. Without those, we still would have seen a decent response to CPI, but it would have occurred in the mid 2.2’s, as opposed to 2.18-2.22% (last Friday’s domestic range).

The thing about “technical” breaks of resistance levels is that they require “confirmation.” It’s not enough to simply make a brief move to the other side of the field (what technicians refer to as “tests” or “probes”). Technicians want to see some staying power before declaring the break of a technical level.

With all of the above in mind, it’s somewhat disconcerting to be starting the week with the 2.21/2.22 boundary looking like a resistance threat–at least if you’re predisposed to consider such risks. In this more bearish view, the fear would be another bounce here that ultimately results in a push back up into the 2.1-2.4 range.

2017-8-14 open

The bearish case is bolstered by a “bearish divergence” in momentum metrics. Don’t glaze over just yet. I know how that sounds, but it’s not too complicated. It just means that a the momentum seen in some technical analysis is flat even though the momentum in yields themselves is positive. The theory is that underlying momentum is telling the truth and that yields are moving lower for artificial reasons (see the disparate behavior in the small dotted teal lines above).

Keen eyes will note that longer-term momentum metrics are trending in the same direction as yields. As you might guess, this could be used as a counterpoint to the “bearish divergence.” In addition, this could be paired with a different reading of yields themselves, where last week marked a break below 2.22% and where we’re in a position to hope that holds up as a ceiling this week. With today’s highs at 2.227 so far, and current yields at 2.21%, that’s technically quite possible.

All of this “yeah but…” stuff is part of the “fun” of technical analysis and the impossible task of using it to accurately predict the future. As I always say, it’s highest and best use is to help us observe changes in established trends, rather than make predictions about the next trend. We may well be waiting for next week’s Jackson Hole symposium for the next major jolt of momentum. If we’re not breaking below 2.1 or above 2.4 in the meantime, nothing has changed in the bigger picture. But of course, we’ll continue to dissect the micro-movements that occur well within the confines of that range.

NAHB Says Labor Shortages Worsening

August 13,2017
by admin

About a month ago, the National Association of Home Builders (NAHB) seized on the May Job Openings and Labor Turnover survey (JOLTs) report as an indication that the tight construction labor market might be loosening. The report indicated a decline in the number of unfilled job openings. The shortage of skilled labor has been cited by NAHB as one reason for the slow recovery of the residential construction industry. This month, it is a different story.

Both the June JOLTS report and results of NAHB’s most recent survey of home builders are a cause for concern. NAHB said the report shows “the number of unfilled jobs in the construction industry rising significantly in June.” Their builders survey is more specific.

Economist Paul Emrath writes in NAHB’s Eye of Housing blog that labor and subcontractor shortages had become even more widespread in July of 2017 than they were in June of 2016, the last time NAHB attached similar special questions to its NAHB/Wells Fargo Housing Market Index (HMI) survey. This year the survey asked the Association’s home builder-members questions about 15 specific occupations. The categories were either recommended for inclusion by its workforce development arm, (the Home Builders Institute), or ones NAHB found particularly significant when analyzing recent Bureau of Labor Statistics data. As the figure below shows, there were shortages reported in all 15 occupations, with serious shotages in three carpentry related fields.

While builders are finding difficulty filling their own job openings, the availability of subcontractors is even more problematic. Responses to the July HMI survey indicated greater and more widespread shortages of subcontractors than direct labor in each of the 15 occupations. As an example, NAHB said that 77 percent of respondents reported a shortage of framing employees while 85 percent of builders reported a shortage of this category of subs.

This has not always been the case, Emrath says. Across the nine trades that the NAHB has covered consistently since 1996, labor and subcontractor shortages have historically tracked each other relatively closely. “Since 2013, however, a persistent gap has opened, with the nine-trade shortage for subcontractors running 5 to 7 percentage points higher.”

Emrath sets forth one possible explanation for the subcontractor deficit. Some workers who were laid off during the housing downturn started their own trade contracting businesses, but have now returned to work for larger companies. This would make slightly more workers available for hire while shrinking the pool of subcontractors.

There has been a consistent trend that has carried the nine-trade average shortage for labor from a low of 21 percent in 2012 to 56 percent in 2016, and now 63 percent in 2017. For each of the construction occupations covered in both years, the shortage percentage, for both directly employed labor and subcontractors, increased between 2016 and 2017. The percentage of excavator subcontractors remained roughly the same.

The average shortage across the nine trades is now at its highest since 2000, a year that marked the end of an extended period of strong economic growth and an unemployment rate of 4.0 percent. Emrath says the current shortage seems especially severe relative to housing starts, which have only partially recovered from their post-2006 decline.

The historical pattern has been quite consistent within each of the trades as well, with shortages for most occupations more widespread than at any time since 2000. For some, shortages are the worst since NAHB began tracking them. Shortages of directly employed painters for example is at a record high as are subcontractors in painting, framing, and electrical work. For excavator contractors the 2016 and 2017 shortages are essentially tied for worst all time.

Mortgage Rates Uninspired at 9-Month Lows

August 11,2017
by admin

Mortgage rates held near the lowest levels since November 2016 today, after a key economic report showed subdued inflation. The Consumer Price Index (CPI) is one of the most important metrics relied upon by the Fed when it comes to measuring the impact of its policies. In general, if inflation is increasing or running higher than expected, the Fed will be more inclined to raise rates. Although the Fed Funds Rate doesn’t directly impact mortgage rates, anything that increases the likely pace of Fed rate hikes would also tend to push mortgage rates higher.

With today’s report coming in slightly weaker than expected, rates had no reason to move higher. But true to recent form, they weren’t able to find much inspiration to move lower either. Most lenders remained perfectly unchanged compared to yesterday’s latest levels, though a few were slightly higher or lower.


Loan Originator Perspective

Bond markets slumbered past slightly weaker than expected consumer inflation data today. Once again, we’re seemingly stuck in our present range, and it appears it will take dramatic geopolitical or economic news to change that. My pipeline is locked, with the exception of some new files and loans not closing for more than 30 days. One potential reason to float is locking (with better pricing) for a shorter time frame. If you’ve floated and are now within 30 days or less of closing, ask your originator how much better a 15 day lock is priced. It’s likely the pricing will be at least 125 bps better, which is something to consider. –Ted Rood, Senior Originator


Today’s Most Prevalent Rates

  • 30YR FIXED – 4.00%
  • FHA/VA – 3.75%
  • 15 YEAR FIXED – 3.375%
  • 5 YEAR ARMS – 2.75 – 3.25% depending on the lender



Ongoing Lock/Float Considerations

  • Investors were relatively convinced that the decades-long trend toward lower rates had been permanently reversed after Trump became president, but such a conclusion would require YEARS to truly confirm

  • Instead of continuing higher in 2017, rates instead formed a narrow, sideways range, and held inside until April. Investor perceptions are shifting such that fiscal reforms and other policy developments will need to live up to expectations in order to push rates higher. Geopolitical risks would also need to avoid flaring up (more than they already have)
  • For the first time since the election, we’re in a rate environment where you wouldn’t be crazy not to lock at every little opportunity/improvement. Until/unless it’s broken, the highest rates of early-2017 mark the ceiling, and we’re now waiting to see how much lower we can go from here.
  • 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.

MBS RECAP: CPI Threads Market-Movement Needle

August 11,2017
by admin

Bond markets ultimately ralliedmodestly following today’s much-anticipated CPI data. This is a departure from recent norms as the last 3 reports have generated some of the biggest reactions in each of the past 3 months. Still, the result is understandable given the lack of change in annual core inflation. For the 3rd straight month, it came in at 1.7%. Bond bulls like it because it’s still low. Bond bears like it because it’s not moving lower. Trading ensued accordingly, with multiple lead changes before things finally settled down.

At their best levels, 10yr yields were as low as 2.182. At their highs, they were 2.222–a fairly narrow range given the nature of today’s data.

Fannie 3.5 MBS ended the day up 3/32nds at 103-10. Note: the 2-day chart on MBS Live shows today’s prices lower than yesterday’s. This is due to the monthly settlement process that took place in Fannie and Freddie 30yr fixed MBS yesterday (aka, “the roll”). Push MBS delivery back a month and you push a payment back a month. That makes the trailing month a bit cheaper to buy than the month in front of it. The old front month (August) was retired yesterday and appears on the left side of the chart. The new front month (September) was always trading a bit lower than August. Were we to compare September vs September prices, we would not see the same visual drop in prices on the chart.