May 10, 2013: CA eminent domain update; more on venture capital's impact on housing; more state news; Fannie's profit
Hallmark knows that Mother’s Day is in a few days. The driving force behind Mother’s Day was Anna Jarvis, who organized observances in Grafton, W.Va., and Philadelphia on May 10, 1908. As the annual celebration became popular around the country, Jarvis asked members of Congress to set aside a day to honor mothers. She succeeded in 1914 when Congress agreed on something and designated the second Sunday in May as Mother’s Day.
Just how many moms are there out there? According to our actuarial friends at the Census Bureau, there are about 4 million women between the ages of 15 and 50 (state-related jokes aside, a heckuva big range!) who gave birth in the past 12 months. Using an age range of 15-44, 53% of women are mothers. Utah leads the nation: 2,449 is the estimated number of total births per 1,000 women, and Rhode Island brings up the rear with 1,630 births per 1,000 women. Speaking of “bearing fruit,” the Census Bureau tells us that 20% of all women age 15 to 44 have had two children. About 47 percent had no children, 17 percent had one, 10 percent had three and about 5 percent had four or more. Realtors and underwriters may know that there are about 5 million stay-at-home moms in 2012, down from 5.3 million in 2008, and that about 62% of women age 16 to 50 who had a birth in the past 12 months are in the labor force.
Yesterday I was speaking to a group from International City Mortgage (a solid company on the rise, adding their own servicing, selling to the agencies, etc.) when I received word on a CFPB opinion. Usually I don’t print verbal news, instead preferring to see it in print first. But I thought this reliable eyewitness statement was worthwhile passing along. “I attended the Maryland Mortgage Bankers annual meeting. Brian Webster, CFPB’s originations program manager, was a panel speaker and addressed the fair lending risk with QM. He said that CFPB fair lending has repeatedly weighed in that QM does not create a fair lending risk and that lenders would not be penalized for only originating QM. He also said that an AUs ‘accept’ or ‘approve’ (even if retained in portfolio) would meet the QM test. In addition, he is very interested in attacking the closing complexity (from the consumer standpoint) and wants to eliminate the confusion associated with high level of documentation.” We all wish him the best – 10 pages or 100 pages, no one reads it anyway. (Do you think CFPB folks read rental car agreements before signing them?)
Thanks to Ken S. for passing this article along on the pros and cons of venture capital firms buying up thousands of properties. And there is indeed a pro and a con: http://www.washingtonpost.com/business/economy/wall-street-betting-billions-on-single-family-homes-in-distressed-markets/2013/04/21/ac4bdefc-a2e1-11e2-9c03-6952ff305f35_story.html.
And along those lines, a couple weeks ago John Gittelsohn and Heather Perlberg (Bloomberg) reported that, “Blackstone Group LP bought 1,400 properties in Atlanta, many eligible for federal low-income housing subsidies, in the biggest bulk purchase for the fledgling homes-for-lease industry. The private-equity firm, which has spent more than $4 billion on 24,000 rental properties in the last year making it the largest buyer in the U.S., purchased the residences from Building and Land Technology, said Marcus Ridgway, chief operating officer of Invitation Homes, Blackstone’s single- family rental division. Private-equity firms, hedge funds and individuals are racing to buy into a shrinking pool of foreclosed or distressed homes to rent. They’re seeking to profit as prices remain 29 percent below their 2006 peak and potential homebuyers can’t get mortgages with banks restricting credit.” Get your undervalued house before it’s too late! Operators standing by!
Not one to miss out on the significance of these trends, Donald R. Mullen Jr. (who helped Goldman Sachs Group Inc. profit from the U.S. housing crash) is giving Goldman and its clients a way to gain from the recovery. Mullen has raised almost $1 billion to buy single- family houses to rent since leaving Goldman Sachs last year. His Fundamental REO LLC has already purchased or is close to acquiring almost 2,500 properties through foreclosure auctions, government agencies and even an Arizona non-profit that promotes affordable-home ownership, property records show. Mullen plans to spend as much as $2 billion by 2016, joining private-equity giants including Blackstone Group LP and Colony Capital LLC seeking to take advantage of home prices 29 percent below the 2006 peak and rising demand for rentals from Americans blocked out of homeownership. Investors, including former bankers and bond traders, are rushing to buy and renovate properties, as well as secure Wall Street funding to turn what’s been a mom and pop business into an institutional asset class.
Finishing up on housing, “Between 1998 and 2002, before the housing market went haywire, total housing starts averaged 1.65 million units and the population of the US averaged 282 million persons. Over the next five years the US population will average about 320 million. As a result, I expect housing starts to steadily rise to a plateau of about 1.725 million units. Absent increasing bank regulations, starts would be expected to exceed 1.825 million.” So spoke economist Elliot F. Eisenberg, Ph.D.
Check out CMBA's Weekly Video Update to hear an updated on eminent domain in California: http://www.youtube.com/watch?v=mGAiQVCTTy8.
“Rain on the scarecrow, blood on the plow…” At the most recent FOMC meeting, the minutes show members felt, “Agricultural land prices are veering further from what makes sense” and, “Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates.” I need to remember that terminology “veering further from what makes sense” in dealing with relationship problems and haggling with my kids over money.
On the ING to Voya name, Brian Z. helped clarify something: “This division of ING is not the one that stopped originating mortgages. ING Direct was the US online savings bank that had the TPO platform which was closed when capital one purchased ING Direct last February. They are two completely separate companies – ING Financial is the insurance and wealth management arm of ING based in Amsterdam.” Thank you Brian.
Earlier this week I mentioned some state-specific changes for LOs to be aware of, and I received a few more. Kansas Senate Bill 52 was recently passed to increase the maximum annual interest rate, from its previous limitation of no more than 1.5 percentage points, to no more than 3.5 percentage points above the specified monthly floating cap set by the Federal Home Loan Mortgaging Corporation. This interest rate limitation applies to all first mortgage loans and contracts for deed to real estate, unless the parties agree in writing to make the transaction subject to the uniform consumer credit code. Remember, however, that this bill continues to specifically exclude "a note secured by a real estate mortgage or a contract for deed to real estate where the note or contract for deed permits adjustment of the interest rate, the term of the loan or the amortization schedule."
In Idaho, Idaho House Bill 76 was passed to make corrections regarding trustee sales and the recordation of trustee deeds effective 7/1. The bill states that a trustee deed, when recorded, shall be prima facie evidence in any court of the truth of the recitals and affidavits. Furthermore, the recitals and affidavits contained in the trustee deed will be considered conclusive in favor of a purchaser in good faith, and therefore cannot be rebutted. When a trustee sale is held to be invalid, due to provisions of the bankruptcy code or other court order, a recordation of a notice of rescission shall be recorded. Once recorded, the title will be restored to the condition of record title described in the trustee's deed, and the priority of all lien holders shall return to the status quo as it was prior to the trustee's sale. The notice of rescission may only be recorded by the trustee or beneficiary (or a successor in interest) who initially caused the trustee's deed to be recorded.
First we had Freddie Mac’s solid earnings, and yesterday folks really smiled when Fannie Mae’s came out. Fannie posted net income of $58.7 billion in the first quarter, due largely to a one-time $50.6 billion gain related to tax benefits. In addition, the company reported pretax income of $8.1 billion, which compared with net income of $2.7 billion in the year-earlier period. Still, it resulted in Fannie announcing it will make a $59.4 billion dividend payment to the U.S. Treasury. Fannie's payment will bring to $95 billion the amount of dividends it has paid to the Treasury, compared to $116.1 billion in aid it absorbed between 2008 and 2011. If the profits of recent periods are sustained, Fannie could within the next year return more money to the Treasury than it has borrowed - though its payments aren't going toward the actual repayment of its rescue funding. (Remember that the government took senior preferred shares in the companies that paid a dividend of 10% until this year, when nearly all of the firms' profits are swept away as a dividend payment. But the terms of the government's support of Fannie and Freddie don't provide a mechanism for the firms to redeem the government's shares in the firms, so unless the agreement is re-written Fannie and Freddie are simply making payments on a loan that can't ever be paid off and also aren't allowed to rebuild capital. What does that do for morale?)
But one article I read said, “But Mr. Mayopoulos said he was concerned that Fannie's return to profitability might induce policy makers to shirk from taking action soon to determine the future of the company and the nation's broader $10 trillion mortgage market. ‘The payment of these dividends is not putting private capital in front of the government's current backing of the market,’ Mr. Mayopoulos said. Private capital would ‘not return in large scale’ to the mortgage market ‘until it has some confidence about what the future system will look like,’ he added.
In the past few years, lawmakers have had debates but made little headway on how to restructure Fannie and Freddie, along with the broader mortgage market, to avoid a repeat of the housing crisis. Some want the firms dismantled and replaced by the private sector while others want to replace them with new entities that would provide a limited government backstop to keep markets functioning smoothly during a downturn.
While the fact that Fannie and Freddie are no longer in crisis could facilitate "better decision making than we might have made 4½ years ago," Mr. Mayopoulos warned against further delay. "I am truly concerned with the risk of atrophy and human capital flight if conservatorship continues long term," he said.
Why the heck did rates go up yesterday, causing hand-wringing among folks who didn’t lock earlier in the week? The Jobless Claims data was a little stronger than expected, which didn’t help. Demand was stronger-than-average for the 30-yr Treasury auction, which should have helped. But the news that caught the market’s attention was that the value of the dollar versus the yen rose above 100 for the first time since April 2009.
How credible or reasonable this is remains to be seen and it could very well be the case that investors were simply trying to “fit a story” to the day’s price action. We still have all kinds of problems in Europe – are we forgetting those? The dollar was very strong all day but took an extra lift higher in the final few hours and when the yen finally broke through the psychologically important 100 level. So now we’re focused on Japan? The weakness continued overnight (the yen is at 101.2 so far this morning). The key driver behind the yen weakness was the stronger than expected US claims figures out Thurs morning (which followed the better April employment numbers last Friday).
We also had rumors (rumors only) about the Fed’s end to QE3. I wonder if the Fed’s members just shake their heads reading the morning newspapers, while eating Captain Crunch, when rumors like that swirl. Is the Federal Open Market Committee really looking for justifications to pull back from QE3 purchases as a Credit Suisse research piece noted? Perhaps, but we’re faced with the fact that the 10-yr.’s yield closed at 1.81% on Thursday. There is no scheduled news to change things this morning, and the old saying that “the trend is your friend” seems to be dominant today: the 10-yr is up to 1.85% and MBS prices are worse roughly .250.
Okay, every once in a while I have to sneak in a non-funny note here. We’re in the middle of the basketball play-offs. And with Mother’s Day coming up, sentimentality is running amok. So if you have 3-4 minutes today or over the weekend for a video: http://biggeekdad.com/2013/04/brotherly-love/.
If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “Mortgage Backed Securities: Life After QE3." If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.
(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)