Consumer Financial Services 

Posted To: Pipeline Press

On the heels of the State of the Union address, the MBA has issued its annual State of the Mortgage Industry release, and the assessment is generally positive . The consensus was that states hit hardest by the housing crisis will continue to deal with the aftermath but that 2012 should see some degree of recovery. The MBA pointed to a number of recent upticks. Upheavals in the single family market have actually helped the multi-family market, for one. The rental market has seen some very positive activity, as more lenders, many of them life insurance companies, have moved into the sector. Of course, the residential market and refinancing remain thorns in the industry's side. MBA President and CEO Dave Stevens attributes the dearth of financing to market uncertainty, which has been aggravated...(read more)

Posted To: MBS Commentary

MBS Live : MBS RECAP Open MBS Live Dashboard FNMA 3.5 103-15 : +0-06 FNMA 4.0 105-09 : +0-04 FNMA 4.5 106-19 : +0-04 FNMA 5.0 107-31 : +0-05 GNMA 3.5 105-00 : +0-06 GNMA 4.0 107-22 : +0-06 GNMA 4.5 109-05 : +0-07 GNMA 5.0 110-31 : +0-10 FHLMC 3.5 103-06 : +0-06 FHLMC 4.0 104-29 : +0-02 FHLMC 4.5 106-04 : +0-04 FHLMC 5.0 107-22 : +0-04 Pricing as of 4:04 PM EST Afternoon Market Updates A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard . 2:09PM : ALERT: MBS Stable Into Afternoon. Positive Reprice Potential Increasing As we said earlier in the day, lenders are normally more conservative with positive reprices around the MBS Settlement cycle, not to mention the same is also true for Friday afternoons. So all we can really say is that the shape of...(read more)

Posted To: MND NewsWire

Federal Reserve Bank Chairman Ben S. Bernanke , speaking to the National Association of Home Builders, said that the typical post-recession behavior of the housing market , resurging to help fuel reemployment and rising incomes, has not played out this time and housing remains a key impediment to a recovery. The chairman reviewed the current state of the housing market, telling the builders of a major imbalance between supply and demand with 1-2/4 million homes currently unoccupied and for sale and 2 million more in the foreclosure process. At the same time, factors are constraining demand such as a decline in household formation, high unemployment and uncertain job prospects, and wariness about home ownership as an investment. The availability of credit is another constraint. This imbalance...(read more)

Posted To: Mortgage Rate Watch

With yesterday's increases, Mortgages Rates moved to the edge of their recently long and stable stay at a 3.875% Best-Execution level. While some lenders are still best-priced at 4.0%, the average Best-Execution rate moved back down into 3.875% territory today. Keep in mind that "best-execution" refers to the most ideal possible rate/fee scenario and we track this because it's the most consistent way to benchmark the movement of the broader collection of lender rate offerings. (We explain even more about Best-Execution calculations in THIS POST ). The same thing that has been moving markets and mortgage rates around all week, is once again behind today's general bounce back. Early this morning, one of the leaders of a political party in Greece said that his party could not back the bailout...(read more)

Posted To: Secondary Markets

The latest hot issue in the mortgage markets has been the 10 basis point addition to G-fees mandated by the payroll tax cut passed late last year.  Unfortunately, the media has only recently picked up on the fact that this “tax cut” was financed by a hidden tax on mortgages.  However, since neither Congress nor the President know much about mortgages, details on how this tax would be imposed were not included in the bill.  The legislation did not state, for example, whether the 10 basis point g-fee surcharge was considered part of the guaranty fee or a separate add-on to the loan’s rate. 

Read: Tax Cut Extension Now Officially Raising Mortgage Rates

This ambiguity created a number of issues for lenders.  Most servicing contracts specify that the total amount of interest either bought up or down with the GSEs cannot exceed a fixed sum, i.e., 37.5 basis points (which is fairly standard language).  If the total g-fee (including the surcharge) is increased by 10 basis points, the amount of excess servicing that can be “bought up” is thus reduced by the same 10 bps.  While buy-ups used to be relatively rare (since Freddie and Fannie both assign putrid multiples to the cash flow), the lack of ready buyers for servicing means that another avenue for selling excess servicing has been rendered uneconomical.

The additional fee also has played havoc with loan pricing.  As I understand it, the GSEs’g-fee buy-down multiple (i.e., what they will charge to convert the g-fee into a single payment paid when the loan is pooled) is around 6x.  This means that the 10 bp surcharge is worth around 60 basis points in price (or 0.6% of a loan’s face value).  The uncertainty surrounding the surcharge also threatened to disrupt pooling practices.  To this point, there has been no guidance on whether the entire g-fee (including the surcharge) actually can be bought down.  If it couldn’t, that would mean that 30-year 3.75% loans could not be securitized into agency 3.5% pools, the lowest coupon with good liquidity and well-behaved pricing.  If these loans can only be pooled into Fannie or Gold 3s, this could severely disrupt both the MBS market and loan pricing.  (As I discuss later, heavy originator selling will in turn increase the points required for lenders to offer these loans—or, more simply, make it more expensive for borrowers to obtain low rates.)

I’ve been told that both Freddie and Fannie will have a call today (Friday, 2/10) to clarify the treatment of the surcharge.  As I understand it, the surcharge will be treated as part of the g-fee, meaning that it can be bought down entirely.  This will allow 3.75% loans to be pooled in 3.5% pools; while it will be relatively expensive to buy down the entire g-fee, it does give lenders the option of either pooling down (into 3s) and holding/selling the servicing, or pooling into 3.5s by buying down the g-fee.

This in turn raises the interesting and important issue of how the lower coupons are trading.  There is decent liquidity in 15yr 2.5s, with average monthly issuance of 585mm over the last three months.  However, the market for 30-year conventional 3s remains relatively illiquid, although production seems to be ramping up; according to Fannie Mae, roughly 230mm 3% pools have been created thus far in February.  While the overall price performance of Fannie 3s is better than it has been in the past (when prices could move up or down by a half-point or more on minimal volume), the dollar rolls remain pretty volatile.  A decent origination day will push prices in the back months (April and May) sharply lower, while front months (February and March) remain roughly in line with other coupons, duration-adjusted.  This week, for example, saw the March/April roll (i.e., the price difference between March and April) for Fannie 3s as wide as 30/32s (equal to a financing rate of -7%); the roll is now 21/64s (for a more moderate -0.71%).

There is a complex interactive relationship between a security’s price performance and issuance.  A coupon won’t perform well if its outstanding balance remains small; a small tradeable “float” means that prices can get pushed around on very limited volume.  However, no originators will issue pools for securities with erratic performance.  The biggest factor inhibiting the growth of the market for 30-year 3s is the belief that there is no natural clientele for the security.  Its coupon is too low, and its duration too long, for banks and depositories; insurance companies and pension funds that would buy their long average lives and durations need higher returns on their portfolios.  In my mind, the only natural holder is the government (or, more to the point, the Fed).  A program to purchase 30-year 3s (and 15-year 2.5s, to a lesser extent) would be the most direct way for the government to positively influence the mortgage markets.

...(read more)

Posted To: MBS Commentary

MBS Live : MBS MID-DAY Open MBS Live Dashboard FNMA 3.5 103-17 : +0-07 FNMA 4.0 105-10 : +0-04 FNMA 4.5 106-19 : +0-04 FNMA 5.0 107-29 : +0-03 GNMA 3.5 105-02 : +0-08 GNMA 4.0 107-23 : +0-07 GNMA 4.5 109-04 : +0-06 GNMA 5.0 110-28 : +0-06 FHLMC 3.5 103-08 : +0-08 FHLMC 4.0 104-30 : +0-03 FHLMC 4.5 106-03 : +0-03 FHLMC 5.0 107-19 : +0-01 Pricing as of 11:03 AM EST Morning Market Updates A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard . 10:35AM : ALERT: Bond Markets Doing Their Best To Hold Overnight Gains Things have been fairly calm so far this morning, especially considering the raft of overnight and early morning headlines indicating that one of Greece's political party leaders will not vote to approve the bailout package. 10yr yields...(read more)

Posted To: Pipeline Press

"Fat, drunk & stupid is no way to go through life son." One probably doesn't hear that admonishment much in the halls of the Financial Crimes Enforcement Network (FinCEN), which finalized regulations that require non-bank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and file suspicious activity reports (SARs) , as FinCEN requires of other types of financial institutions. Law firm Ballard Spahr was quick to set up a free webinar for its attorneys to explain the new requirements and discuss the steps non-bank residential mortgage lenders and originators must take now to comply with the new requirements. Mortgage banks, who now have this new regulatory worry on their plate, may want to have someone sit in next Thursday (2/16) from 12-1 EST...(read more)

Posted To: MBS Commentary

How many times must we go through the same motions surrounding the various bailout/solvency/reform issues in Greece? Granted, things are just slightly different each time, but the aspects of "seemingly urgent decisions required" as well as "certain deadlines needing to be hit" or else face the consequences of "almost certain Greek default and probable exit from the Eurozone" feel like they've been present in each iteration of the broader situation that we refer to as "Greek Drama." After all the sturm and drang of the most recent installment of Greece bailout drama, and even after several Eurozone officials said today in several different ways that said drama was resolved, we now have several other Eurozone officials saying that, while the drama is resolved, it actually, possibly, maybe isn...(read more)

Posted To: MBS Commentary

MBS Live : MBS RECAP Open MBS Live Dashboard FNMA 3.5 103-22 : -0-05 FNMA 4.0 105-13 : -0-08 FNMA 4.5 106-19 : -0-07 FNMA 5.0 107-30 : -0-04 GNMA 3.5 105-02 : -0-06 GNMA 4.0 107-24 : -0-07 GNMA 4.5 109-03 : -0-06 GNMA 5.0 110-28 : -0-04 FHLMC 3.5 103-13 : -0-06 FHLMC 4.0 105-00 : -0-07 FHLMC 4.5 106-03 : -0-06 FHLMC 5.0 107-27 : +0-02 Pricing as of 4:02 PM EST Afternoon Market Updates A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard . 2:06PM : ALERT: Treasuries, MBS Attempting to Turn a Corner Following 30yr Auction Volume surged briefly following the 1pm 30yr Bond Auction, but has since died down. In the process, Treasury yields and MBS prices experienced a bit of volatility, but that now seems to be resolving itself in a favorable manner....(read more)

Posted To: Mortgage Rate Watch

Mortgages Rates moved higher today at the quickest pace of the week. For the second time this year, the 3.875% Best-Execution rate on 30yr Fixed Conventional loans is in question. If rates move much higher from here, the average Best-Execution rate across multiple lenders will have risen back to 4.0% and for quite a few lenders, is already there. (We explain more about Best-Execution calculations in THIS POST ). Today got started off on a sour note for rates with the late night news that Greece was very close to finalizing the terms of their most recent bailout. This isn't some surprising game-changer, but has done enough damage to bond markets, which tend to offer lower interest rates in times of economic uncertainty. As a successful bailout relieves some uncertainty, rates generally moved...(read more)