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Jun. 11, 2009: Signs of life in mortgages! Demand, DAP's, broker comments, but rates don't help
Rob Chrisman
"Deja Moo" is defined as "the feeling that
you've heard this bull
before". Rates have gone up because the "economy is doing well", yet
there are numerous signs that the economy is a) either not doing well,
or b) about to sink even farther. Unfortunately for mortgage bankers,
ALL rates have gone up, including
Treasury rates, and thus we find ourselves with rates back in the high
5% range. Certainly the "end of the world" feeling from the banking
sector is gone, at least for the time being, which is a good thing.
There are certainly signs out, however, there that things are doing
better with regard to the demand for mortgages. Yes, the Fed has been
in buying $5-6 billion in mortgages per day, rain or shine, and this
will continue for quite a while.
Remember the old days, when there was demand for loans from private
parties, and pools were actually put together and sold? Well, the
parties will remain nameless
although astute observers may know them, but a large
investor filled an order recently for 5/1 ARM product with a Wall
Street firm. The investor used correspondent, wholesale, and retail
channels to fill it. (Given the nimbleness of the broker
channel, it is believed that they were most successful in helping to
fill it.) The point of this is that there are signs of demand out there!
For example, CitiMortgage reminded their customers that they have over
a hundred Down-payment Assistance Programs
(DAPs) available for all wholesale brokers to use. "With these programs
you can assist your borrowers with the purchase of a primary residence
via a gift, a loan, or a second lien mortgage for down payment and/or
closing costs assistance. Features may include: zero or reduced
interest rates, zero or reduced monthly payments, and forgivable loans.
Benefits include second lien funding with an affordable
mortgage, allowing up to 105% CLTVs, and not being subject to declining
markets
policy in many areas."
Brokers and agents have written to me saying some positive things. For
example, in Florida, "home sales have risen dramatically in recent
months.
The number of units currently under contract is the highest in over 2
years...resulted in a
dramatic
decrease in inventory as we currently have 7.5 months of inventory on
the
market as opposed to 20 months in May '08....the median sales price has
leveled off and
actually
increased slightly over the last 3 months. These figures
certainly point
to the start of a recovery or at the very least a signal that the
market has
stopped declining."
Another wrote, "Business is going well,
especially looking back
the past 60-90 days, although the purchase market in my area is very
slow. Those months definitely helped make up a little
for the last 18 months of instability. These last 2 weeks have seen a
big slowdown in volume and I am sure has everyone scratching their
heads in terms of forecasting volume, human capital needed to process
volume, etc."
Lastly, "As far as
business taking loans and locking them are easy, closing
them is tedious at best. Customer service from the investors is
non-existent, satisfying conditions is maddening, HVCC is frightening,
turn
times are excruciating,
rates going higher and possibly staying there is possible, pricing
overlays to
720 FICO's is crazy, new individual loan officer licensing requirements
which are long overdue, but other than that I wouldn’t want to be doing
anything else!"
And this from the Washington Post: "Foreclosure filings fell in May
compared with the previous month, but remain at elevated levels,
according to data from RealtyTrac released today. The firm counted
321,480 filings nationally, which can range from default notices to
bank repossessions. That was down 6 percent from April, but an increase
of nearly 18 percent from May 2008. RealtyTrac, a private firm, says
its data include more than 90 percent of U.S. households."
Tuesday's $35 billion 3-yr auction went
well (as was called
"ham-on-rye" by one trader), but the $19 billion 10-yr yesterday was
not so smooth. Today we have $11 billion in 30-yr's to sell. With the
yield on the 10-yr near 4%, one could argue that we should see good
demand for the bonds being sold - let's hope so. The 30-yr mortgage
rate is now in the high 5's versus in the 4's in April and May.
Certainly if anyone believes that the economy is doing poorly, now
would be a good time to buy!
I love surveys. The latest one shows that higher unemployment (like
10%) would cause a decline in consumer spending. Hopefully someone paid
pollsters lots of money to come up with that finding! Many economists
feel that the jobless rate will
climb to 10 percent by the end of 2009, 1.6 percentage points higher
than projected at the start of the year, according to the median
forecast of 62 economists surveyed from June 1 to June 8. Household
purchases will drop this year more than previously estimated. They
predict that fewer jobs, lower home values,
limited credit and shrinking retirement
funds will prompt Americans to save, blunting the
Obama administration’s stimulus efforts. Still, government
infrastructure projects, smaller stockpiles and stabilization in
residential construction will help the economy start growing in the
second half of this year.
Are whole loan trades assignable? In warehouse lending, if the loan has
to be pre-committed to an
approved investor takeout those takeout commitments are part of the
collateral pool for the warehouse line. Does that mean if the
mortgage company has a commitment to deliver a loan best efforts to
the investor, that commitment is the property of the warehouse lender
between
funding and the receipt of the purchase advice from the investor? I
don't know the answer frankly, but I believe that it
depends on the Bailee Agreement that the Warehouse lender sends with
the Note, and of course on whether or not the investor will agree
to accept those terms.
For economic news today we had the usual Thursday Jobless Claims, which
fell more than expected last week "pointing to an easing of labor
market weakness". They were down 24,000 to a seasonally adjusted
601,000 in the week ended June 6, which is the fourth straight week the
number of claims declined or was unchanged. The 4-week moving average
for new claims fell to its lowest level since mid-February. We also had
Retail Sales come out as expected, +.5%. This is the first increase in
five months, and was helped by gasoline and building material
increases. Ex-autos the number was also +.5%, compared to -.2% last
month. After the news we find the 10-yr at 3.96% and mortgage prices
(you guessed it) worse by about .125.
Jim died.
His will provided $40,000 for an elaborate funeral.
As the last guests departed the affair, his wife Sharon turned to her
oldest
and dearest friend. "Well, I'm sure Jim would be pleased," she said.
"I'm sure you're right," replied Brenda, who lowered her voice and
leaned in close.
"How much did this really cost?”
"All of it: $40k," said
Sharon.
"No!" Brenda exclaimed. "I mean, it was very nice, but $40,000?”
Sharon answered, "The funeral was
$6,500. I
donated $500 to church. The whiskey, wine and snacks were another $500.
The
rest went for the Memorial Stone.”
Brenda computed quickly. "$32,500 for a Memorial Stone? How big is it?”
“5 carats.”
Rob
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