Mortgage Market Weekly: (Edition March 18, 2009) Vol. 91
In This Week's "Good News":
Mortgage Rates Dropping Significantly
Just in (today) -- Mortgage Backed Securities (MBS) are moving aggressively down in coupon after the FOMC (Federal Open Market Committee - the monetary policymaking body of the Federal Reserve) announced they will outlay an additional $750 billion for Agency (Fannie/Freddie) MBS and that they will purchase an additional $300 billion longer term treasury securities!!!
The main thrust of this announcement is: ‘to provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.'
Net result of this announcement, mortgage interest rates are dropping significantly as I am typing this newsletter.
TARP Funds Appear To Be Helping According To Survey
According to a survey just released by the Treasury Department, mortgage loanorigination volume jumped in January among some of the largest banking institutions that have received and are receiving TARP Funds (Troubled Asset Relief Program).
The survey, which covered the top 21 recipients of government investment via the Capital Purchase Program (CPP), found consumer lending originations increased at most institutions between December and January.
"Mortgage origination volume rose significantly in January 2009 reflecting a strong, sustained demand to refinance mortgages, which continues to be driven by lower interest rates," the Treasury said in the release.
"The median percent change in mortgage refinancing was an increase of 110 percent from the December 2008 to January 2009."
Among the leaders were: Wells Fargo, which led the way with $24 billion in first mortgage originations, Bank of America with $22.9 billion and Chase with $9.6 billion. I will note here that the numbers just listed contain both wholesale and retail originations.
Following the leaders were: Citigroup with $7.8 billion, U.S. Bancorp with $4 billion and SunTrust with $3.5 billion.
Home Equity Line of Credit (HELOC) lending was still existent, but showed minimum numbers. Bank of America led with $1.4 billion, followed by Citigroup with $769 million and Wells with $597 million.
In This Week's "Take It How You Will" News:
The New FICO Score
There is a new credit score in the lending arena.
Recently, the Fair Isaac Corp., unveiled a new credit score, the so-called "BEACON® Mortgage Score," which they claim is specifically designed for mortgage lenders and servicers.
The program created with credit bureau Equifax, aims to provide better risk assessment results when addressing loan applications of both current homeowners and potential mortgage borrowers.
"Everyone in the mortgage industry is working hard to manage risk more effectively, which will help address the rising foreclosure rate while allowing servicers to keep their doors open to qualified new borrowers," said Dan Adams, president of US Consumer Information Solutions for Equifax.
Adams went on to state that "The BEACON Mortgage Score is an innovative solution with unprecedented visibility that will provide greater predictive strength at a time when the industry needs it most."
The mortgage credit score will retain the same 300-850 scoring range, minimum scoring criteria, and inquiry treatment as the previous score, but utilizes new, undisclosed data variables to predict mortgage repayment risk.
It has been released that the model includes 15 additional score reason codes to help banks and mortgage lenders more effectively make sense of the scoring so better choices are made when it comes to providing new financing and loan modifications.
Early testing has shown the new score identified 25 percent more of the high-risk mortgages and HELOCS (Home Equity Lines of Credit) that later became delinquent.
The test suggests that the use of the mortgage score could save the industry $1 billion in foreclosure costs and help keep an estimated 115,000 more at-risk borrowers in their homes.
Personally, I think the industry needs to return to good old-fashioned ‘make sense' underwriting.
New FHA Changes to Begin April 1st
As most of the readers of "Mortgage Market Weekly" know, FHA has been under continuous scrutiny as of late, mainly due to first payment defaults and skyrocketing foreclosure numbers, especially compared to standard Conforming loan defaults.
In order to stem the tide of foreclosures, the agency, which previously allowed cash-out refinancing up to 95 percent, will drop that limit to 85 percent, according to a letter recently sent to clients (lenders).
"Effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser's estimate of value," said Brian D. Montgomery, FHA Commissioner.
"Given the continued deterioration in the housing market, and FHA's need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken."
Clearly there are some higher-than-expected losses hitting these high-LTV cash-out refinances, much like the seller-paid down payment assistance loans FHA is grappling with.
Last summer, Montgomery said the FHA saw $4.6 billion in "unanticipated long-term losses" thanks largely to these types of loans, and noted they were three times more likely to go into foreclosure than loans where the borrower provided the down payment themselves.
Recently, James Heist, assistant inspector general for audit with the Department of Housing and Urban Development, recently pleaded for FHA reform before the House Financial Services Committee.
He noted that the agency's large share of origination volume called for increased personnel, training, and oversight, especially in new areas of the country opened up by higher loan limits.
I will note here that the FHA has never relied on appropriations to operate in its 75-year history, but it looks like it will need a tax payer ‘bailout' soon.
In This Week's "Wait and See" News:
This week, thus far, has been very interesting - many bank stocks are the rise, and housing start numbers just released showed an unexpected increase (especially in the northeastern U.S.).
As a result, today's market numbers were up for U.S. markets, with the DOW, NASDAQ and S&P all in positive territory by market closing - DOW ending @ 7486.58 (+90.88), NASDAQ ending @ 1491.22 (+29.11) and the S&P ending @ 794.35 (+16.23).
Of significance for the rest of the week; look for Core Consumer Price Index (CPI) (Today), and Initial Jobless Claims (Mar. 19), to add additional volatility to the U.S. markets.
Of significance next week, look for New Home Sales (Mar. 25), and Personal Income/Personal Spending numbers (both Mar. 27) that will likely cause investors to hedge toward a ‘flight to quality' - bonds, likely good for mortgage rates.
Next week's Economic Calendar:
Week of March 23 - March 27
Date | ET | Release | For | Actual | Briefing.com | Consensus | Prior |
Mar 23 | 10:00 | Existing Home Sales | Feb | | NA | NA | 4.49M |
Mar 25 | 08:30 | Durable Goods Orders | Feb | | NA | NA | -5.2% |
Mar 25 | 08:30 | Durables, Excluding Transportation | Feb | | NA | NA | -2.5% |
Mar 25 | 10:00 | New Home Sales | Feb | | NA | NA | 309K |
Mar 25 | 10:30 | Crude Inventories | 03/20 | | NA | NA | NA |
Mar 26 | 08:30 | Initial Jobless Claims | 03/21 | | NA | NA | NA |
Mar 26 | 08:30 | Q4 GDP - Final for 2008 | Q4 | | NA | NA | -6.2% |
Mar 26 | 08:30 | GDP Price Index | Q4 | | NA | NA | 0.5% |
Mar 27 | 08:30 | Personal Income | Feb | | NA | NA | 0.4% |
Mar 27 | 08:30 | Personal Spending | Feb | | NA | NA | 0.6% |
| | | | | | | |
* Remember, typically, weaker than expected news is beneficial to a mortgage rate decrease and an increase in bond yields, and more positive than expected news will cause mortgage rates to increase and stocks to increase in value.
In This Week's "Not So Good Right Now" News:
National Homebuilder Confidence Still Hovers Near All Time Low for March
According to a report issued this Monday by the National Association of Home Builders (NAH
, confidence among home builders was unchanged in March, remaining near the all time low.
Of interest here is the fact that they remain near the historic low even after the unexpected recent growth in ‘housing start' numbers that were just released.
The housing market index came in at 9 in March, as expected, following the previous reading of 9 in February.
The index, which has a 22-year history, consists of three components: the ‘sales expectations' component was unchanged at 15 in March, while the component for ‘present sales' for single-family homes was also unchanged at 7. ‘Traffic of prospective buyers' fell two points to 9.
I will note here, that over the past three years, the index has fallen from 61 to a record low reading of 8 in January 2009.
Statistically, a rating above 50 indicates optimism by home builders; a reading below 50 indicates pessimism. The all-time low prior to the current credit crunch was 19.
Mortgage Fraud Hits All Time High
In a report just issued by the Mortgage Asset Research Institute (MARI), incidents of mortgage fraud in the U.S. are at an all-time high, increasing 26 percent from 2007 to 2008, and increasing at a staggering rate in 2009.
Leading the way is Rhode Island, ranking first in the country for mortgage fraud with more than three times the expected amount in relation to origination volume.
Interestingly, Florida which ranked first for the past several years dropped into second place, followed by Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.
"With fewer loan originations today, the data suggests that the economic downturn may have created more desperation, causing more people than ever before to try to commit mortgage fraud," said Denise James, LexisNexis Risk & Information Analytics Group director of Residential Mortgage Solutions. "Not only are we seeing traditional fraud trends, such as application fraud, but we are also seeing new types of emerging fraud occur."
Statistically, the top fraud incident type in 2008, representing 61 percent of all reported frauds, was application fraud, according to MARI. Frauds related to tax returns and financial statements were the second most common incident type, accounting for 28 percent of reported frauds in 2008 - a whopping 60 percent increase from 2007 - followed by appraisal or valuations fraud.
The report also recorded frauds related to verifications of deposit, verifications of employment, escrow or closing costs, and credit reports.
And as many know, adding to the growth of mortgage fraud are the foreclosure prevention schemes (with purportedly ‘knowledgeable foreclosure specialists'), identity theft against the elderly and immigrants, and the so-called "builder bail-out" form of fraud in which investors are urged to buy into condo conversion or planned community development projects.
MARI data shows that mortgage fraud is more prevalent today than it was at the height of the boom in mortgage loan originations.
Mortgage Rate Trends:
The Week's Conforming Loan NationalAverages (BankRate avg.):
30 year fixed: 5.11%Down
15 year fixed: 4.71% Down
5/1 ARM: 4.83%Up
30 year Jumbo: 6.89% Down
5/1 Jumbo ARM: 5.40%Down
* Keep in mind that these rates are national averages', rates may be lower in your region of the country. If you would like a ‘real time' quote, give me a call, or drop me an e-mail.
FHA and VA 30 year fixed rate loans - remain very competitive this week. Expect note rates to be in the range of 4.875 to 5.375 percent throughout the rest of the week.
Look for Rural housing rates toremain in the range of 5.25 to 5.50 percent for a 30 year fixed rate mortgage.
If you have a client that you are having trouble getting qualified through your normal channels, or questions/comments regarding any information contained in this newsletter, please feel free to contact me.
Sincerely,
Richard Shreeve, Editor
Direct: 480-332-4547
Toll Free Direct: 1-800-466-1809 (Your AZ Lender of Choice)
The purpose of this newsletter is to help all real estate professionals, their potential clients and current mortgage borrowers stay up-to-date with current market news. So, feel free to post this newsletter to your website (all I would ask is that you post it in its entirety).
The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.