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Aug. 5, 2011: PMI following RMIC? Saxon for sale? REIT prices continuing downward? So many questions for a Friday
Rob Chrisman
If
you want a job, should you go to The Great State of Texas?
(Unofficial motto: "So what if it's a little hot?") Maybe: http://dallasfed.org/research/indicators/2011/tei1108.pdf.
Think
about it. The yield on the US 10-yr is 2.50%. Sometimes I have
to be reminded that this means only earning 2.50% for the next
ten years. So if a 70-yr old retiree saved up $1 million in her
nest egg, and bought a 10-yr risk-free T-note, she'd earn
$25,000 per year in income until she was 80 years old – a little
over 2 grand a month – after saving $1 million during her life.
Will
PMI follow RMIC? PMI
warned clients that it may be unable to continue selling new
policies and could shut down. The stock is already a penny
stock - the company has posted more than $3.5 billion in losses
since 2007 as it paid out claims on foreclosed homes. Now, the
company's main subsidiary, PMI Mortgage Insurance Co., or MIC,
doesn't have enough money on hand to meet the requirements of
regulations in Arizona, where it is based. "The company said the
state's insurance department may as a result move to stop it
from selling new policies in all states and move to rehabilitate
or liquidate the unit. PMI has known such action was a
possibility for some time, and as a backup plan it set up
another subsidiary, called PMI Mortgage Assurance Co., that
could sell mortgage insurance in certain states. However, the
company warned Thursday that the approval to sell policies on
mortgages backed by Fannie Mae and Freddie Mac depends upon MIC
continuing operations. For details go to http://online.wsj.com/article/SB10001424053111903366504576488100257382130.html.
What
do mortgage investors think about these low rates? Many believe that 30-year mortgage rates will need
to drop below 4% and establish new record lows to really pump up
the refi market for some of the lower coupon mortgages that were
originated in 2010/2011. There are still underwriting and equity
issues, and the economic hurdles that were introduced due to
higher MI for FHA loans and higher LLPA for agency loans have to
be crossed. It is also important to note that some of the higher
loan balance loans will not have the economic incentive to
refinance as GSE loan limits are scheduled to be lower effective
Oct 1, 2011. Lastly, at this point higher LTV loans originated
under HARP will not be eligible to participate in this potential
refinancing mini-wave.
And
as the commentary mentioned yesterday, a move in Treasury or MBS
prices may not directly translate into rate-sheet pricing for
loan reps & borrowers – it depends on profit margins
and hedging costs at the company level. But compared to previous
big moves down, lower 10-year rates are translating into lower
mortgage rates in this rally faster – perhaps companies are
going after market share. As one trader put it, “the market
feels very despondent right now, realizing that fiscal policy is
now more restrictive, Fed QE policies have not flowed through to
the consumer, confidence is dropping over European situation,
and so on.”
Pssst
– wanna buy Saxon? Morgan
Stanley has reportedly contacted potential buyers of Saxon
Capital which it bought in 2006 for $706 million. Later,
in the fourth quarter of 2008, Morgan Stanley took a $700
million write down in large part due to Saxon-related charges.
Maybe MS is following Goldman Sach’s lead when it sold Litton to
Ocwen in June.
Recently
the
commentary noted that Fannie is scaling back origination and
home price appreciation estimates for 2011 and 2012, and
received this note: “As you pointed out, Fannie expects that
home prices are expected to decline further this year and next.
Why would this be a surprise to anyone when the crushing
regulatory environment and unforgiving underwriting standards
make it difficult or impossible for many deserving folks to
obtain financing? Every constriction of DTI and LTV will cause
home prices to fall. And while nobody disputes that the
standards were too loose during the housing bubble, many people
who could afford the homes they purchased will be hurt if this
inanity (or insanity, if you prefer) continues.”
“In Congress, there is a room where legislators are meeting to
try to come up with ways to get the housing market moving
again. Down the hall, in another room, other legislators are
meeting to try to find ways to make it even more difficult to
get mortgage financing. Our government doesn’t understand that,
every time it meddles or manipulates one area of the economy,
there are unintended consequences in another area.”
The
residential
mortgage REIT sector of companies has made a renewed name for
itself by being an active buyer of mortgages and paying good
dividends (and, according to Bloomberg, raising more than $14
billion in secondary equity sales and IPO’s). But lately REIT stock prices have
been very volatile – mostly on the down side. The
potential US default pushed values down dramatically, sometimes
as much as 10% in one trading day. Another reason was when the
cost of overnight repurchase agreement, or repo, financing for
government-backed mortgage securities jumped. REIT’s such as
Invesco Mortgage, Hatteras Financial, and American Capital
Agency got hit since repo rates were climbing, the gain was
modest and so-called haircuts, or the down payments required for
the loans, weren’t changing. (In repo financing, securities such
as Treasuries and mortgage bonds are sold to a lender with an
agreement by the borrower to buy them back later. Haircuts
protect lenders against price declines in the collateral, in the
event the borrower defaults.)
Flagstar alerted its
brokers that, "The American Reinvestment and Recovery Act (ARRA)
was signed into law in February of 2009, temporarily increasing
the maximum conforming loan limits. Mortgages with note dates on
or after October 1, 2011, will no longer be eligible for these
higher loan limits. Loans with a mortgage note date on or after
October 1, 2011, will be subject to the permanent high-cost area
loan limits determined according to the Housing and Economic
Recovery Act of 2008 (HERA). Regardless of the area median home
price, the loan limit cannot, in general, exceed $625,500 for a
1-unit property. All loans using the ARRA loan limits but be
locked on or before Thursday, September 15, 2011. These loans
must be closed and funded no later than Friday, September 23,
2011. There are no further delivery requirements. Loans not
meeting the above requirements must use the HERA loan limits."
Starting
today
“Flag” will be changing the price adjustments on all investment
properties for Agency products excluding the Fannie Mae DU Refi
Plus, Freddie Mac Relief Refi and Freddie Mac Open Access
products – making NOO prices worse by .5. Lastly, its delegated
underwriting customers learned that it updated the requirements
for transactions that require an appraisal from an AMC. “An
appraisal from a Flagstar-approved AMC is no longer required for
new construction purchase and construction to permanent
transactions (including construction products) in the following
states with an LTV of 70% or greater: Arizona, California,
Florida, Georgia, Ohio, Michigan, and Nevada.”
Bank of America
notified correspondent clients that it issued a disaster
declaration for Montana due to the flooding.
When I was a kid, I would take care of neighbor's yards when
they went on vacation. If you're doing that while servicing a Fannie Mae loan,
you'd better make sure you follow the rules and allowable
maintenance costs: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2011/ntce080311.pdf.
Obviously
we
can’t see huge drops in rates every day, and besides, most in
the mortgage industry would rather see gradual trends than large
spikes. MBS volumes have picked up as rates have dropped, and
yesterday we saw another: 10-year Treasury prices were better by
another 1.25 (2.46%). Since last Friday, 10’s have gained 3
points and the yield has plunged roughly .375! As the DOW lost
over 500 points (more than 4%), MBS prices were better by .750 –
not all of that being reflected on rate sheets.
(Next
week we have another FOMC meeting. In their last FOMC statement
in June, the Committee said “Information received since the
Federal Open Market Committee met in April indicates that the
economic recovery is continuing at a moderate pace, though
somewhat more slowly than the Committee had expected. Also,
recent labor market indicators have been weaker than
anticipated." In light of the recent events, it will be
interesting to hear what is released Tuesday.)
This
morning
we learned that the employment numbers were slightly better than
expected. Non-farm Payrolls were up 117k, slightly higher than
expected, the Unemployment Rate came in at 9.1% (versus June’s
9.2%). May & June’s numbers were revised by 56k. That does
it for economic news of consequence for the week – and what a
week it’s been. No market moves in any direction forever, and
we’re seeing that in the early going today: stocks are showing a
rally, the 10-yr yield is around 2.48%, and MBS prices are all
over the map – but mostly down/worse about .250.
(Parental discretion advised!)
Ben Bernanke gets drunk and tells all? This was too good to not
pass along: http://www.theonion.com/articles/drunken-ben-bernanke-tells-everyone-at-neighborhoo,21059/
If
you're
interested, visit my twice-a-month blog at the STRATMOR Group
web site located at
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