Here is your word of the day: Monopsony
A Monopsony exists where there is only one buyer of a product, as opposed to a “monopoly” where one seller controls the market. Although there is a minor amount of interest by investors in owning securities backed by mortgages, most would agree that at this point the Fed is the primary buyer, and that we are approaching a monopsony, which, like a monopoly, is rarely good. Use that word tonight during Happy Hour.
Also, looks like they are finally revamping the credit scoring matrix. Maybe they figured out that credit scores are pretty much meaningless. The lenders sure did!
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 30: Don't be the last one on your block to own FICO 08
Are mortgage rates getting you down? Don’t blame the NY Fed – they’re going as fast as they can, to the tune of almost $17 billion last week of MBS purchases.
Fair Isaac has something new to talk about. They will start offering the revamped score, "FICO 08," to lenders. Fair Isaac believes that the new score will do a better job of predicting borrower defaults, be more forgiving of one-time slipups, take a harder line on repeat offenders, and in general will do a deeper analysis of borrowers with poor or thin credit histories. The score will still range from 300 to 850.
Yesterday was not a good day for Treasury or mortgage rates, or the housing industry. New-Home Sales fell 14.7% in December, and are down 45% from December 2007! This represents the 5th straight month of declines. Durable Goods, as I mentioned yesterday, were also down for the 5th month in a row. Regardless, the Treasury auctioned off $30 billion of 5-yr notes, and it did not go as well as hoped. At this point the last thing on the Fed’s mind is inflation, and in fact deflation is on the minds of many.
How about today – do we need more news that the economy is doing poorly? Will the 10-yr Treasury make up some of the nearly 2 points in price that it lost yesterday? We have already seen Gross Domestic Product, which showed that the U.S. economy shrank at its fastest pace in nearly 27 years in the fourth quarter. It dropped at a 3.8% annual rate, the lowest pace since the first quarter of 1982, when output contracted 6.4 percent. For 2008, GDP rose 1.3 percent, the slowest pace of growth since 2001, when the economy expanded 0.8 percent. U.S. employment costs rose last year at the slowest pace on record, with the Employment Cost Index increasing 2.6% in the 12 months to December, down from a 3.3 percent rise in 2007. The numbers indicate that companies have been cutting overtime and reducing workers' benefits like pension contributions. We still have the Chicago Purchasing Manager’s survey and the University of Michigan Consumer Confidence survey later, but for now the 10-yr stands at 2.80% and mortgages are about .250 better in price than yesterday late afternoon.
Rob Chrisman
Friday, January 30, 2009
Tuesday, January 27, 2009
Fannie 4.5’s are trading above 101. What does that mean? For every dollar of debt that gets sold to Fannie Mae at 4.5%, the seller collects a 1% commission for the transaction. So, imagine how much money a lender is making if they sell your loan at 5.25%, at 5.5%, at 5.75%. This is what truly infuriates me about the bailout. The US tax payer has just given the financial sector a transfusion of greenback and how does the financial thank us? They turn around and gauge the consumer with a wide profit margin on the loans that they fund and ultimately sell.
Sound a bit screwy to you? Maybe this explains how Citi actually had the nerve to try and buy a $50 million dollar corporate jet.
Here's your financial vocabulary lesson for today:
"Liquidity" - When you look at your investments and wet your pants.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 27: Wells opens mod program to Wachovia; FHA guidelines starting to tighten; First Fed bails on wholesale lending - who is left?
First Federal of California is the latest lender to close their wholesale channel to brokers. Files received today, January 26, 2009, will be returned un-processed. Files that have not been previously approved (in suspense) as of January 26, 2009 will be declined. All files that are approved and in the funding process must be funded by February 27, 2009, and only files that satisfy all of the Bank’s conditions by such date will be funded. Any fees previously collected on a file that has not been approved will be returned within 30 days.
Franklin American, reflecting the market, adjusted their FHA guidelines. Effective for locks on or after Wednesday, January 28, 2009, all loans must meet the new guidelines as stated below. Minimum Credit Score All FHA and VA loans must have a minimum 600 credit score. All FHA streamline refinances and VA IRRRL’s require the borrower to not have had any late payment on any mortgage account during the last 12 months. Late payments are defined as any 30-day or greater mortgage late.
Are we having fun yet?
Wells Fargo, with their stock down dramatically in recent weeks, will extend its mortgage modification program to customers of Wachovia. 478,000 Wachovia customers, with loans totaling about $120 billion, will have access to the program, and the customers within this portfolio that are being referred to foreclosure or are in foreclosure will receive an extension until Feb. 28 so they can apply for the modification program which includes the goal of reducing mortgage payments to about 38 percent of the size of a customer's income.
Yesterday we had some interesting economic news. The Conference Board’s Leading Economic Index rose .3%, which is the first gain in six months. Four of the 10 indicators the report were positive, unfortunately led by a 0.99 percent increase in the money supply adjusted for inflation, which is due to increased lending and purchases of securities by the Federal Reserve to unclog credit markets and ease borrowing costs. We also had Existing Home Sales unexpectedly rise 6.5% in December, mostly attributed to prices being down and a brisk market in foreclosures.
What is weighing prices down, and keeping rates relatively high given the current state of the economy, is the supply coming on to the market. On top of the $2-3 billion or so of daily mortgage origination, we have a record $40 billion 2-yr note auction today and a record 5-yr note auction Thursday. There are always worries about who will soak up the supply, and the holiday in Asia tends to add to this consternation. The Fed’s meeting today and tomorrow is expected to result in no change to their 0-.25% overnight rates, but analysts will be watching for any change to their language in the post-meeting wrap up. They are exploring the purchase of longer-dated Treasury securities in an effort to push up their price and bring down their yield in order to reduce long-term borrowing costs at a time when the Fed can’t lower short-term interest rates any further because they are effectively at zero. Speaking of rates, the 10-yr is at 2.63% and mortgages are roughly unchanged.
Rob Chrisman
Sound a bit screwy to you? Maybe this explains how Citi actually had the nerve to try and buy a $50 million dollar corporate jet.
Here's your financial vocabulary lesson for today:
"Liquidity" - When you look at your investments and wet your pants.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 27: Wells opens mod program to Wachovia; FHA guidelines starting to tighten; First Fed bails on wholesale lending - who is left?
First Federal of California is the latest lender to close their wholesale channel to brokers. Files received today, January 26, 2009, will be returned un-processed. Files that have not been previously approved (in suspense) as of January 26, 2009 will be declined. All files that are approved and in the funding process must be funded by February 27, 2009, and only files that satisfy all of the Bank’s conditions by such date will be funded. Any fees previously collected on a file that has not been approved will be returned within 30 days.
Franklin American, reflecting the market, adjusted their FHA guidelines. Effective for locks on or after Wednesday, January 28, 2009, all loans must meet the new guidelines as stated below. Minimum Credit Score All FHA and VA loans must have a minimum 600 credit score. All FHA streamline refinances and VA IRRRL’s require the borrower to not have had any late payment on any mortgage account during the last 12 months. Late payments are defined as any 30-day or greater mortgage late.
Are we having fun yet?
Wells Fargo, with their stock down dramatically in recent weeks, will extend its mortgage modification program to customers of Wachovia. 478,000 Wachovia customers, with loans totaling about $120 billion, will have access to the program, and the customers within this portfolio that are being referred to foreclosure or are in foreclosure will receive an extension until Feb. 28 so they can apply for the modification program which includes the goal of reducing mortgage payments to about 38 percent of the size of a customer's income.
Yesterday we had some interesting economic news. The Conference Board’s Leading Economic Index rose .3%, which is the first gain in six months. Four of the 10 indicators the report were positive, unfortunately led by a 0.99 percent increase in the money supply adjusted for inflation, which is due to increased lending and purchases of securities by the Federal Reserve to unclog credit markets and ease borrowing costs. We also had Existing Home Sales unexpectedly rise 6.5% in December, mostly attributed to prices being down and a brisk market in foreclosures.
What is weighing prices down, and keeping rates relatively high given the current state of the economy, is the supply coming on to the market. On top of the $2-3 billion or so of daily mortgage origination, we have a record $40 billion 2-yr note auction today and a record 5-yr note auction Thursday. There are always worries about who will soak up the supply, and the holiday in Asia tends to add to this consternation. The Fed’s meeting today and tomorrow is expected to result in no change to their 0-.25% overnight rates, but analysts will be watching for any change to their language in the post-meeting wrap up. They are exploring the purchase of longer-dated Treasury securities in an effort to push up their price and bring down their yield in order to reduce long-term borrowing costs at a time when the Fed can’t lower short-term interest rates any further because they are effectively at zero. Speaking of rates, the 10-yr is at 2.63% and mortgages are roughly unchanged.
Rob Chrisman
Thursday, January 22, 2009
So apparently things are not as bad as they may seem. JPMorgan Chase has posted a surprise profit for 2008. Huh??? A bank that actually posted a profit for 08? Wall Street was shocked by the bank's radical business plan that included not paying out $100 million in bonuses to failed executives and only lending money to people who could pay it back. Wow, what a concept!
As happy as I am to hear that banks are out there posting profits, I remain skeptical as to the authenticity of these figures. The reality is that most of the industry reform did not take place until 07/08 and there is no way a major lender like Chase could be immune. Something is screwy if you ask me. Maybe some of the accountants from Arthur Anderson (Enron debacle) have resurfaced to help “bail” them out.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 22: a look at our friend the bank, almost as good at keeping money as a mattress.
Yesterday Fifth Third Bancorp, Ohio’s second largest bank, announced that they had lost $2.1 billion in the 4th quarter, they’re third consecutive quarterly loss. They have suspended bonuses, cut the quarterly dividend to 1 cent (so as to not force selling of its shares by funds required to own dividend paying institutions) and sold $3.4 billion in preferred shares to the U.S. government’s TARP. Their stock closed below $4 per share, an 18-yr low, and has lost 80% of its value in the last year.
And while we’re speaking of Ohio banks, KeyCorp also announced their third straight quarterly loss, losing $524 million. Like Fifth Third, KeyCorp cut its dividend, has $2.5 billion of capital from TARP, and its shares are down 72% in the last year.
What is up with banks around the world? Analysts are questioning their viability. If a bank has $100 million in assets and $90 million in liabilities, giving it a net worth of $10 million, but the assets include more than $10 million of bad mortgages, or can’t even be priced, and suddenly the net worth is negative. What are their options? Banks can stay in business and hope for a bailout or other government intervention, hope for a merger or takeover with a stronger bank, hope they muddle through, or go out of business. Some variation of the “Good Bank, Bad Bank” plan continues to gain momentum, which is what happened to the S&L business in the 1980’s. Shareholders were wiped out (the big fear now) and the assets were transferred to the Resolution Trust Corporation.
Tuesday this all reared its ugly head, with many big banks losing 20% of their value, and although yesterday financial stocks rallied (can our largest banks really have no value in the market?) the banks and government are still dealing with this issue. Until the Obama plan is unveiled, investors appear to be bracing for the worst-case scenario, and bank stocks may continue downward. Policy makers are now looking for alternatives to preferred-share investments to help banks build up their equity to give them confidence to begin lending again. What about the 12 regional Federal Home-Loan Banks? They are a big source of funding for thousands of commercial banks, thrifts and credit unions across the country. But several of the home-loan banks have suspended their dividends or warned that they may fall short of capital requirements, which in turn would slow down or stop their lending.
The New York Fed continues to buy mortgage-backed securities, although today’s amount is not known. Origination still appears to be in the $1-2 billion/day range. Certainly this has helped keep conventional mortgage rates somewhat low, although the market wonders if they government is the only buyer out there. Mortgage security prices are back to where they were two weeks ago, at best, but investors have changed margins to slow down lock volumes, or make up some profit ground for losses suffered in 2008. As one Wall Street firm put it, “The current MBS market is not about convexity or extension issues. It's about the Fed's commitment to keep the 30yr mortgage rate as close to 4.50-5.00% as possible for as long as possible…if Treasury rates climb, the Fed will be forced to buy $10-12BB a couple days in a row vs. their recent pace of $3-5BB per day.”
The US Mortgage Applications Index dropped by -9.8% last week, with refinance activity -12.0% and purchases -2.5%. Interestingly, many companies seem fine with this as they are grappling with huge lock volumes from previous weeks. We also had the weekly Jobless Claims, which shot up, and Housing Starts and Building Permits, which shot down. Initial Jobless Claims hit 589,000, higher than expected, and continuing jobless claims also rose, which both point to a weak jobs number in early February. Housing Starts were -15.5% in December, Building Permits were -10.7% in December, hitting their lowest levels in the 50 years of tracking these statistics. Building contractors, and mortgage brokers, would be doing themselves a disservice if they ignored these numbers, or thought that everything was “rosy”. These numbers reminded everyone that the economy stinks, and the 10-yr is chopping around 2.50% and mortgages are better by .250.
Rob Chrisman
As happy as I am to hear that banks are out there posting profits, I remain skeptical as to the authenticity of these figures. The reality is that most of the industry reform did not take place until 07/08 and there is no way a major lender like Chase could be immune. Something is screwy if you ask me. Maybe some of the accountants from Arthur Anderson (Enron debacle) have resurfaced to help “bail” them out.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 22: a look at our friend the bank, almost as good at keeping money as a mattress.
Yesterday Fifth Third Bancorp, Ohio’s second largest bank, announced that they had lost $2.1 billion in the 4th quarter, they’re third consecutive quarterly loss. They have suspended bonuses, cut the quarterly dividend to 1 cent (so as to not force selling of its shares by funds required to own dividend paying institutions) and sold $3.4 billion in preferred shares to the U.S. government’s TARP. Their stock closed below $4 per share, an 18-yr low, and has lost 80% of its value in the last year.
And while we’re speaking of Ohio banks, KeyCorp also announced their third straight quarterly loss, losing $524 million. Like Fifth Third, KeyCorp cut its dividend, has $2.5 billion of capital from TARP, and its shares are down 72% in the last year.
What is up with banks around the world? Analysts are questioning their viability. If a bank has $100 million in assets and $90 million in liabilities, giving it a net worth of $10 million, but the assets include more than $10 million of bad mortgages, or can’t even be priced, and suddenly the net worth is negative. What are their options? Banks can stay in business and hope for a bailout or other government intervention, hope for a merger or takeover with a stronger bank, hope they muddle through, or go out of business. Some variation of the “Good Bank, Bad Bank” plan continues to gain momentum, which is what happened to the S&L business in the 1980’s. Shareholders were wiped out (the big fear now) and the assets were transferred to the Resolution Trust Corporation.
Tuesday this all reared its ugly head, with many big banks losing 20% of their value, and although yesterday financial stocks rallied (can our largest banks really have no value in the market?) the banks and government are still dealing with this issue. Until the Obama plan is unveiled, investors appear to be bracing for the worst-case scenario, and bank stocks may continue downward. Policy makers are now looking for alternatives to preferred-share investments to help banks build up their equity to give them confidence to begin lending again. What about the 12 regional Federal Home-Loan Banks? They are a big source of funding for thousands of commercial banks, thrifts and credit unions across the country. But several of the home-loan banks have suspended their dividends or warned that they may fall short of capital requirements, which in turn would slow down or stop their lending.
The New York Fed continues to buy mortgage-backed securities, although today’s amount is not known. Origination still appears to be in the $1-2 billion/day range. Certainly this has helped keep conventional mortgage rates somewhat low, although the market wonders if they government is the only buyer out there. Mortgage security prices are back to where they were two weeks ago, at best, but investors have changed margins to slow down lock volumes, or make up some profit ground for losses suffered in 2008. As one Wall Street firm put it, “The current MBS market is not about convexity or extension issues. It's about the Fed's commitment to keep the 30yr mortgage rate as close to 4.50-5.00% as possible for as long as possible…if Treasury rates climb, the Fed will be forced to buy $10-12BB a couple days in a row vs. their recent pace of $3-5BB per day.”
The US Mortgage Applications Index dropped by -9.8% last week, with refinance activity -12.0% and purchases -2.5%. Interestingly, many companies seem fine with this as they are grappling with huge lock volumes from previous weeks. We also had the weekly Jobless Claims, which shot up, and Housing Starts and Building Permits, which shot down. Initial Jobless Claims hit 589,000, higher than expected, and continuing jobless claims also rose, which both point to a weak jobs number in early February. Housing Starts were -15.5% in December, Building Permits were -10.7% in December, hitting their lowest levels in the 50 years of tracking these statistics. Building contractors, and mortgage brokers, would be doing themselves a disservice if they ignored these numbers, or thought that everything was “rosy”. These numbers reminded everyone that the economy stinks, and the 10-yr is chopping around 2.50% and mortgages are better by .250.
Rob Chrisman
Wednesday, January 21, 2009
The Wall Street Bailout
Once upon a time a man appeared in a village and announced to the villagers that he would buy monkeys for $10 each.
The villagers, knowing that there were plenty of monkeys around, went to the forest and started catching them. The man bought thousands at $10 each. As supply started to diminish, the villagers stopped their effort.
The man then announced that he would buy monkeys at $20 each. This renewed the villagers efforts and they started catching monkeys again.
Soon the supply diminished and people started going back to their farms. The offer was increased to $25 each and the supply of monkeys became so scarce it became an effort to even find a monkey, let alone catch it!
The man then announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would buy them on his behalf.
The assistant told the villagers: "Look at all these monkeys in the big cage that my boss has already collected. I will sell them to you at $35 and when my boss returns, you can sell them to him for $50."
The villagers rounded up all their savings and bought all the monkeys for 700 billion dollars. They never saw the man or his assistant again, only lots and lots of monkeys!
Now you have a better understanding of how the Wall Street “BAILOUT” plan works.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 21 - a reminder of Fannie's fee increases, along with loan-level identifiers for originators and appraisers
Anyone who owns stocks in financial companies got whacked yesterday. Citigroup, Bank of America, Wells Fargo - no one was immune from losing a large percentage of their value in one day. Is Wells Fargo really worth 25% less than it was last Friday? The overall stock market was down about 4%, and the S&P 500 is already down 11% in the last two weeks! Is this helping interest rates? At some level, yes, although both Treasury and mortgage rates are not doing as well as one would expect given the general economic picture. In fact, this morning the 10-yr is up to 2.46% and mortgage prices are worse by about .250. Generally speaking, investors are questioning whether or not banks’ assets, which contribute toward net worth and stock price, are really worth what banks say they are.
Mortgages continue to be viewed as risky, and even if the base rate is acceptable, loan-level fees are on the rise. For example, effective April 1 Fannie Mae is raising its loan fees. The change was announced December 19, 2008, and impacts risk-based fees known as “loan-level pricing adjustments”. LLPAs aren't just limited to credit score and LTV, and the new Fannie Mae guidelines impact three other loan characteristics: Condo and co-op mortgages over 75% LTV - add 0.750 percent to fee; Interest only mortgages - add 0.250 percent to fee for ARMs, 0.750 for fixed rate; Mortgages under 75% LTV with subordinate financing - add up to 0.500 percent to fee. The loan fees don't have to be paid in the form of cash due at closing, but instead can be financed in the mortgage rate at roughly .25% for every 1 point in fee.
US Bank’s Correspondent Division, for example, will implement these fees beginning tomorrow in spite of Fannie not requiring them until April. Their pricing changes impact FICO/LTV fees, Cashout Refinance fees, IO ARM fees and now specific Condominium fees, and one should expect to pay more for transactions with an LTV > 60% and FICO score <> 90%, and additional .250 point in fee, and condominiums with LTV > 75% will be charged an additional .750 pt. fee.
James B. Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that with mortgage applications taken on or after Jan. 1, 2010, Freddie Mac and Fannie Mae are required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. This is the result of Title V of the Housing and Economic Recovery Act of 2008, the S.A.F.E. Mortgage Licensing Act through which Congress required the creation of a nationwide mortgage Licensing system and registry. With enactment of the S.A.F.E. Mortgage Licensing Act, identifiers will now be available for each individual loan originator.
Rob Chrisman
Once upon a time a man appeared in a village and announced to the villagers that he would buy monkeys for $10 each.
The villagers, knowing that there were plenty of monkeys around, went to the forest and started catching them. The man bought thousands at $10 each. As supply started to diminish, the villagers stopped their effort.
The man then announced that he would buy monkeys at $20 each. This renewed the villagers efforts and they started catching monkeys again.
Soon the supply diminished and people started going back to their farms. The offer was increased to $25 each and the supply of monkeys became so scarce it became an effort to even find a monkey, let alone catch it!
The man then announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would buy them on his behalf.
The assistant told the villagers: "Look at all these monkeys in the big cage that my boss has already collected. I will sell them to you at $35 and when my boss returns, you can sell them to him for $50."
The villagers rounded up all their savings and bought all the monkeys for 700 billion dollars. They never saw the man or his assistant again, only lots and lots of monkeys!
Now you have a better understanding of how the Wall Street “BAILOUT” plan works.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 21 - a reminder of Fannie's fee increases, along with loan-level identifiers for originators and appraisers
Anyone who owns stocks in financial companies got whacked yesterday. Citigroup, Bank of America, Wells Fargo - no one was immune from losing a large percentage of their value in one day. Is Wells Fargo really worth 25% less than it was last Friday? The overall stock market was down about 4%, and the S&P 500 is already down 11% in the last two weeks! Is this helping interest rates? At some level, yes, although both Treasury and mortgage rates are not doing as well as one would expect given the general economic picture. In fact, this morning the 10-yr is up to 2.46% and mortgage prices are worse by about .250. Generally speaking, investors are questioning whether or not banks’ assets, which contribute toward net worth and stock price, are really worth what banks say they are.
Mortgages continue to be viewed as risky, and even if the base rate is acceptable, loan-level fees are on the rise. For example, effective April 1 Fannie Mae is raising its loan fees. The change was announced December 19, 2008, and impacts risk-based fees known as “loan-level pricing adjustments”. LLPAs aren't just limited to credit score and LTV, and the new Fannie Mae guidelines impact three other loan characteristics: Condo and co-op mortgages over 75% LTV - add 0.750 percent to fee; Interest only mortgages - add 0.250 percent to fee for ARMs, 0.750 for fixed rate; Mortgages under 75% LTV with subordinate financing - add up to 0.500 percent to fee. The loan fees don't have to be paid in the form of cash due at closing, but instead can be financed in the mortgage rate at roughly .25% for every 1 point in fee.
US Bank’s Correspondent Division, for example, will implement these fees beginning tomorrow in spite of Fannie not requiring them until April. Their pricing changes impact FICO/LTV fees, Cashout Refinance fees, IO ARM fees and now specific Condominium fees, and one should expect to pay more for transactions with an LTV > 60% and FICO score <> 90%, and additional .250 point in fee, and condominiums with LTV > 75% will be charged an additional .750 pt. fee.
James B. Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that with mortgage applications taken on or after Jan. 1, 2010, Freddie Mac and Fannie Mae are required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. This is the result of Title V of the Housing and Economic Recovery Act of 2008, the S.A.F.E. Mortgage Licensing Act through which Congress required the creation of a nationwide mortgage Licensing system and registry. With enactment of the S.A.F.E. Mortgage Licensing Act, identifiers will now be available for each individual loan originator.
Rob Chrisman
Tuesday, January 20, 2009
I have been asked by many people why the pricing on “conforming jumbo” ($417k - $625k) has such large price swings. Keep in mind that only 10 percent of a mortgage backed security pool (MBS) comprised of Fannie/Freddie product can have conforming jumbo within the pool. Right now, there is more loan volume than the market can handle so based on supply/demand loans are being priced higher. When investors lower the price for conforming-jumbo, it is because they are looking to “fill up” a pool so you see them quickly go in and out of the market.
Also, keep in mind that loan applications are currently running at 2003 levels (Ahh the good old days…) and only 1/3 of the industry is still in the business!
So, aside from Obama taking office, Chrysler inking a deal with FIAT, and oil hitting $33 per barrel, let’s move on to something more relevant to mortgage banking. Enjoy the daily market update.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 20 - industry news, and rates creep up while everyone is focused on the inauguration
Regions Financial lost over $6 billion in the 4th quarter as it took a $6 billion goodwill write-down and sharply raised loan-loss provisions, although non-performing assets fell slightly amid the continuing disposal of problem assets. Regions, located in the Southeast, received $3.5 billion in November from the U.S. Treasury under the Troubled Asset Relief Program.
GMAC will implement a 1.50% price adjustment to FHA High Balance loans.
Banks are racing to modify million of loans by reducing interest rates or lengthening terms. J.P. Morgan Chase is expanding its program to modify mortgages to include not only mortgages the bank owns but also more than $1 trillion of loans the bank sold to investors.
While Freddie and Fannie Mae have suspended sales of foreclosed properties and aren’t locking people out of their homes, they are continuing to initiate court cases against homeowners and pursue existing cases. Freddie is also still filing eviction proceedings against renters, while Fannie says it has suspended all action against tenants living in repossessed homes.
Why don’t the words “cram down” ever have a good connotation? Wednesday afternoon Barclays Capital hosted a conference call for investors to discuss the basics of current bankruptcy laws, developments around proposed bankruptcy cram down legislation and the implications (both intended and unintended) of this bankruptcy reform effort. The proposed changes would enable bankruptcy judges to place the principal value of mortgages down to the value of the underlying property (a power that they do not currently have), leaving all previously secured claims as an unsecured claim that may or may not be extinguished by the judge. Barclays expects that the change could “lead to a surge in bankruptcies that raises estimates for credit card charge-offs from 10% in 2009 to 12%-14%”.
Freddie Mac’s weekly survey showed that average mortgages rates fell below 5.0% for the first time – they came in at 4.96%. Whoever is complaining about mortgage rates should note that it was the 11th consecutive weekly decline and the lowest rate since Freddie started the survey in 1971. In a yield curve lesson, 5-yr hybrid ARM rates are 5.25%; 1-yr Treasury ARM’s averaged 4.89%, and 15-year fixed-rate mortgages edged up to 4.65% from 4.62% a week ago. Brokers know that the two fixed-rate loans required the payment of an average 0.7 point to achieve the interest rate.
How about the current economy? Late last week we saw Industrial Production fall 2.0% for December, but Consumer Sentiment improved slightly in the University of Michigan survey. Economic news releases for the week few and far between. In fact, there is little until Thursday, which at this point is already the day after tomorrow, when we have Housing Starts, Building Permits, and Jobless Claims. Probably more importantly, the Treasury announces three and six month bill, 2-yr and 5-yr note auctions. Interest rates have worsened ahead of this, with the 10-yr up to 2.46% and mortgages worse by .250-.375 in price.
Rob Chrisman
Also, keep in mind that loan applications are currently running at 2003 levels (Ahh the good old days…) and only 1/3 of the industry is still in the business!
So, aside from Obama taking office, Chrysler inking a deal with FIAT, and oil hitting $33 per barrel, let’s move on to something more relevant to mortgage banking. Enjoy the daily market update.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 20 - industry news, and rates creep up while everyone is focused on the inauguration
Regions Financial lost over $6 billion in the 4th quarter as it took a $6 billion goodwill write-down and sharply raised loan-loss provisions, although non-performing assets fell slightly amid the continuing disposal of problem assets. Regions, located in the Southeast, received $3.5 billion in November from the U.S. Treasury under the Troubled Asset Relief Program.
GMAC will implement a 1.50% price adjustment to FHA High Balance loans.
Banks are racing to modify million of loans by reducing interest rates or lengthening terms. J.P. Morgan Chase is expanding its program to modify mortgages to include not only mortgages the bank owns but also more than $1 trillion of loans the bank sold to investors.
While Freddie and Fannie Mae have suspended sales of foreclosed properties and aren’t locking people out of their homes, they are continuing to initiate court cases against homeowners and pursue existing cases. Freddie is also still filing eviction proceedings against renters, while Fannie says it has suspended all action against tenants living in repossessed homes.
Why don’t the words “cram down” ever have a good connotation? Wednesday afternoon Barclays Capital hosted a conference call for investors to discuss the basics of current bankruptcy laws, developments around proposed bankruptcy cram down legislation and the implications (both intended and unintended) of this bankruptcy reform effort. The proposed changes would enable bankruptcy judges to place the principal value of mortgages down to the value of the underlying property (a power that they do not currently have), leaving all previously secured claims as an unsecured claim that may or may not be extinguished by the judge. Barclays expects that the change could “lead to a surge in bankruptcies that raises estimates for credit card charge-offs from 10% in 2009 to 12%-14%”.
Freddie Mac’s weekly survey showed that average mortgages rates fell below 5.0% for the first time – they came in at 4.96%. Whoever is complaining about mortgage rates should note that it was the 11th consecutive weekly decline and the lowest rate since Freddie started the survey in 1971. In a yield curve lesson, 5-yr hybrid ARM rates are 5.25%; 1-yr Treasury ARM’s averaged 4.89%, and 15-year fixed-rate mortgages edged up to 4.65% from 4.62% a week ago. Brokers know that the two fixed-rate loans required the payment of an average 0.7 point to achieve the interest rate.
How about the current economy? Late last week we saw Industrial Production fall 2.0% for December, but Consumer Sentiment improved slightly in the University of Michigan survey. Economic news releases for the week few and far between. In fact, there is little until Thursday, which at this point is already the day after tomorrow, when we have Housing Starts, Building Permits, and Jobless Claims. Probably more importantly, the Treasury announces three and six month bill, 2-yr and 5-yr note auctions. Interest rates have worsened ahead of this, with the 10-yr up to 2.46% and mortgages worse by .250-.375 in price.
Rob Chrisman
Friday, January 16, 2009
What is going on with interest rates? All the indicators are pointing to the fact that mortgage rates should be lower, in fact, much lower than where they currently are. The Jumbo programs aside, conforming pricing now seems to be arbitrary, based on how much profit the lender is looking to make. Maybe this is payback for all the losses incurred during the subprime days. Maybe it’s just greed. Sooner or later however, things are going to have to come back to normal.
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 16: Citi's loss, Fannie's PERS, is the Fed the only one buying mortgages? Bond market closing early, extending locks?
This morning, the Labor Department announced that U.S. consumer prices (CPI) fell by a slightly smaller-than-expected margin in December. CPI was -.7%, and the annual pace of price increases was the slowest in more than 50 years. Core prices, which exclude food and energy items, were flat for the second month in a row in December. That compared to analysts' prediction for a 0.1 percent increase. During the last year consumer prices rose only 0.1 percent, which doesn’t help Social Security recipients and others who have fixed income payments tied to the index. After the news, and even before the news, the 10-yr is at 2.35% and mortgage prices are worse by between .125 and .250.
Citigroup Inc. posted an $8.29 billion fourth-quarter loss, completing its worst year, as the credit crisis eroded mortgage-bond prices and customers missed more loan payments. The U.S. government agreed to invest $20 billion more in Bank of America, using TARP funds, along with guaranteeing an additional $118 billion of their assets.
It would appear that the Fed has been the only real buyer of mortgage-backed securities recently. Will that be enough? Unfortunately, as many agents have seen, mortgages have moved “wider” this week, meaning that mortgage rates are worsening relative to Treasury rates. Nationwide origination has been strong all week at $2.5 to $3 billion per day, and although the Fed has tremendous resources, the market is not convinced that mortgages are the place to put its money. And the market is also worried about the supply of Treasury securities that will need to be sold in order to finance this effort.
I remember when PERS stood for “Public Employees Retirement System”. Now Fannie has introduced PERS: “Project Eligibility Review Service”. In support of Announcement 08-34 - Project Eligibility Review Service and Changes to Condominium and Cooperative Project Policies – Fannie has launched the new Project Eligibility Review Service (PERS) which allows lenders to submit attached condo projects to Fannie Mae to determine eligibility. Lenders are required to use PERS, submitting the information electronically, for all new and newly converted attached condo projects located in Florida.
Rob Chrisman
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 16: Citi's loss, Fannie's PERS, is the Fed the only one buying mortgages? Bond market closing early, extending locks?
This morning, the Labor Department announced that U.S. consumer prices (CPI) fell by a slightly smaller-than-expected margin in December. CPI was -.7%, and the annual pace of price increases was the slowest in more than 50 years. Core prices, which exclude food and energy items, were flat for the second month in a row in December. That compared to analysts' prediction for a 0.1 percent increase. During the last year consumer prices rose only 0.1 percent, which doesn’t help Social Security recipients and others who have fixed income payments tied to the index. After the news, and even before the news, the 10-yr is at 2.35% and mortgage prices are worse by between .125 and .250.
Citigroup Inc. posted an $8.29 billion fourth-quarter loss, completing its worst year, as the credit crisis eroded mortgage-bond prices and customers missed more loan payments. The U.S. government agreed to invest $20 billion more in Bank of America, using TARP funds, along with guaranteeing an additional $118 billion of their assets.
It would appear that the Fed has been the only real buyer of mortgage-backed securities recently. Will that be enough? Unfortunately, as many agents have seen, mortgages have moved “wider” this week, meaning that mortgage rates are worsening relative to Treasury rates. Nationwide origination has been strong all week at $2.5 to $3 billion per day, and although the Fed has tremendous resources, the market is not convinced that mortgages are the place to put its money. And the market is also worried about the supply of Treasury securities that will need to be sold in order to finance this effort.
I remember when PERS stood for “Public Employees Retirement System”. Now Fannie has introduced PERS: “Project Eligibility Review Service”. In support of Announcement 08-34 - Project Eligibility Review Service and Changes to Condominium and Cooperative Project Policies – Fannie has launched the new Project Eligibility Review Service (PERS) which allows lenders to submit attached condo projects to Fannie Mae to determine eligibility. Lenders are required to use PERS, submitting the information electronically, for all new and newly converted attached condo projects located in Florida.
Rob Chrisman
Thursday, January 15, 2009
Just when I thought we were beginning to see the light... This economic mess continues to unfold as the US taxpayer is now the victim of the largest fraud ever conceived. What happened to the "bailout"???
READ ON...
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 15 - ripples from Chase. Banks in the news, and not in a good way...
How are banks doing out there? For big banks, things are not good. B of A is having difficulty absorbing Merrill Lynch, and may soon ask the US Government for more money to aid the process. JP Morgan's earnings for the 4th quarter dropped 76%, although it was apparently better than anticipated. And Citi is breaking itself up. Barclays published their view on bank earnings. Focusing on asset quality, securities write-downs, goodwill impairments, and capitalization, Barclays expects financial performance to be weak due to deteriorating loan quality, continued losses on risky securities, and goodwill impairments. "Economic conditions will cause problems in loan portfolios to migrate from residential-related products to credit cards and commercial real estate, leading to materially higher nonperforming assets and exposing the inadequacy of loan loss reserves, in our opinion".Barclays does go on to say that banks should be ok as long as government intervention continues, especially for Bank of America, JP Morgan, and Wells Fargo, "three banks that have exceptional systemic importance, in our opinion. We remain cautious on regional banks given the continued deterioration in asset quality".
Speaking of deterioration, our housing market is pretty grim. This morning's RealtyTrac report on foreclosures shows an 81% increase for '08, with the December level at 303k -- up 41% year-over-year. RealtyTrac's CEO notes that foreclosure prevention programs offered by banks and some legal delays "have not had any real success in slowing down this foreclosure tsunami." And folks wonder why Treasury rates go down while mortgage rates do not.
This morning we have already seen the Labor Department's Producer Price Index fall for a 5th straight month, -1.9% in December after dropping 2.2% the previous month. Core producer prices, for people who do not heat their homes or eat, increased by 0.2 percent in December. Core producer prices were up 4.3 percent over the last 12 months. Gasoline, which accounts for about 7.4 percent of PPI, fell more than 25%. Jobless Claims shot up by 54,000 to 524k from 470k the week before. The four-week moving average for continuing claims, at 4.498 million, was the highest in 26 years. We still have some news ahead of us later this morning, but for right now the 10-yr is wallowing around 2.22% and mortgages are, once again, roughly unchanged.
Rob Chrisman
READ ON...
Ryan Ogata
Senior Mortgage Consultant
From: Rob Chrisman Subject: Jan 15 - ripples from Chase. Banks in the news, and not in a good way...
How are banks doing out there? For big banks, things are not good. B of A is having difficulty absorbing Merrill Lynch, and may soon ask the US Government for more money to aid the process. JP Morgan's earnings for the 4th quarter dropped 76%, although it was apparently better than anticipated. And Citi is breaking itself up. Barclays published their view on bank earnings. Focusing on asset quality, securities write-downs, goodwill impairments, and capitalization, Barclays expects financial performance to be weak due to deteriorating loan quality, continued losses on risky securities, and goodwill impairments. "Economic conditions will cause problems in loan portfolios to migrate from residential-related products to credit cards and commercial real estate, leading to materially higher nonperforming assets and exposing the inadequacy of loan loss reserves, in our opinion".Barclays does go on to say that banks should be ok as long as government intervention continues, especially for Bank of America, JP Morgan, and Wells Fargo, "three banks that have exceptional systemic importance, in our opinion. We remain cautious on regional banks given the continued deterioration in asset quality".
Speaking of deterioration, our housing market is pretty grim. This morning's RealtyTrac report on foreclosures shows an 81% increase for '08, with the December level at 303k -- up 41% year-over-year. RealtyTrac's CEO notes that foreclosure prevention programs offered by banks and some legal delays "have not had any real success in slowing down this foreclosure tsunami." And folks wonder why Treasury rates go down while mortgage rates do not.
This morning we have already seen the Labor Department's Producer Price Index fall for a 5th straight month, -1.9% in December after dropping 2.2% the previous month. Core producer prices, for people who do not heat their homes or eat, increased by 0.2 percent in December. Core producer prices were up 4.3 percent over the last 12 months. Gasoline, which accounts for about 7.4 percent of PPI, fell more than 25%. Jobless Claims shot up by 54,000 to 524k from 470k the week before. The four-week moving average for continuing claims, at 4.498 million, was the highest in 26 years. We still have some news ahead of us later this morning, but for right now the 10-yr is wallowing around 2.22% and mortgages are, once again, roughly unchanged.
Rob Chrisman
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