HARP Activity Increasing Even as Refinancing Contracts

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Feb 29, 2012 9:35AM

HARP Activity Increasing Even as Refinancing Contracts

Applications for purchase mortgages jumped during the week ended February 24, but the Mortgage Bankers Association’s (MBA) Market Composite Index still finished the week down slightly from the week before. The index, derived from the MBA’s Weekly Mortgage Application Survey decreased 0.3 percent from the previous week on a seasonally adjusted basis and 9.4 percent unadjusted. The week’s results are also adjusted for the Presidents Day holiday. The Purchase Index increased 8.2 percent on a seasonally…

Feb 29, 2012 4:33PM

State of the Housing Market: Case and Shiller Discussion

The original formulators of the S&P/Case-Shiller Housing Price Indices held a press conference on Tuesday to discuss the state of the housing market . The two, Robert Shiller, Professor of Economics, Yale University and Karl Case, Professor of Economics Emeritus, Wellesley College, were generally up-beat about the industry in the conference which coincided with the release of the monthly and quarterly national and city-based indices. Shiller said that a survey he has conducted for years asks…

Micro News

3:42 PM:

HUD Releases Public Database of HUD-Assisted Households

2:07 PM:

Fed Beige Book Released

1:51 PM:

Bond Markets Remain in Weaker Territory Following Bernanke Testimony

10:10 AM:

MBS, Treasuries Tanking After Chi-PMI, Bernanke. Negative Reprices

10:05 AM:

Bernanke Testimony to Committee on Financial Services

9:54 AM:

ECON: Chicago PMI Higher Than Expected. Strong Internals

9:44 AM:

Fannie Mae Reports .4B Loss in Q4, $16.9B in 2011

9:06 AM:

European LTRO and US GDP Leave Bond Markets In Positive Territory

Around the Web

Video News

Bernanke Heads to Capitol Hill

Former Bear CEO on Financial Crisis

Santelli Points to Housing Bargains

Today’s Comments

Stacy Peterson

“I’ve been trying to close on a short sale with Flagstar for over a month now. Flagstar owns my 1st and 2nd mortgage. They have already approved the…”

Frank Ceizyk

“Perhaps Mrs. Duke needs to see some appraisals from homeowners who have refinanced the last 4 years. The real estate industry is very much a “word…”

 Baron Kahle

“Flagstar should be stricken from participating in HUD programs altogether simply due to their unethical and arrogant performances that aroused the investigation…”

Today’s Q&A

“Can I pull my home out of the market if I have it on shortsale”

“How do I transfer ownership of my house to my spouse?”

“my name is on the deed but not the mortgage. what are my rights”

<!–

Today’s Forum Discussions

Anonymous

“Please provide 2009 statistics on why home staging is the future for home sellers. The advantages for the realtor and home stager.”

soa dev

“Loan Scenario View All Post A Scenario Loan State: California Loan County: San Mateo Loan Type: Refinance (Rate and Term) Loan Amount: $495,000 Property…”

yanni raz

“Many of us are thinking about becoming real estate investors these days, because they see the opportunities that are out there. You can buy foreclosed…”

–>

[MND NewsWire] – State of the Housing Market: Case and Shiller Discussion

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State of the Housing Market: Case and Shiller Discussion

Posted to: MND NewsWire
Tuesday, February 28, 2012 3:23 PM

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The original formulators of the S&P/Case-Shiller Housing Price Indices held a press conference on Tuesday to discuss the state of the housing market.  The two, Robert Shiller, Professor of Economics, Yale University and Karl Case, Professor of Economics Emeritus, Wellesley College, were generally up-beat about the industry in the conference which coincided with the release of the monthly and quarterly national and city-based indices.

Shiller said that a survey he has conducted for years asks homeowners a question about the amount of change they expect in house values over the next 12 months and the recent responses are positive. He pointed to Orange County California as illustrative.  When homeowners there were asked that question in 2005 the average expectation was for a 10.7 percent increase, but then it plummeted into negative numbers.  In the most recent survey the expectation was for a 0.4 percent price increase.  A second question is whether or not it is a good time to buy.  In 2005 90 percent of Orange County respondents said yes and even in 2009 that number remained at 79 percent.  It is now back to 92 percent.

Expectations are a major driver and in housing they can become self-fulfilling prophecies but right now people’s long term thinking it that it is time to buy, but short term thinking keeps them in a holding pattern.   Things are looking positive, but not that positive.

Shiller pointed to two leading indicators – the National Association of Home Builders survey on builder confidence and the Census Bureau figures on housing permits.  Both of these peaked in 2005 and then plunged.  Now they are both up, the NAHB figures of buyer traffic is rising rapidly, but remain well below their peaks.  Other indicators such as home prices are still heading down and there is great uncertainty about how close they are to bottom.   

Case said he is constantly asked when and how the market is going to clear.  But there are hundreds of markets across the country and each has dozens of submarkets.  Every MSA has a low income sector, a high income sector, waterfront property, distressed property and MSA and each of its submarkets are subject to a different level of clearing. 

Case said that household formation and housing starts drive the market and presented some statistics about their recent performance.  Housing starts peaked at 2.37 million in 2006 which, he said, sounds like a big number.  But looking back over the last 60 years, starts peaked at about that same number in every housing cycle only to then fall below 1 million.  But only once in the last 60 years did they ever fall below 800,000.  That time it was only for a single month.  This time starts came off the peak and fell below 700,000 and kept going down into the 400,000 range, an 80 percent decline.  They have remained below 700,000 for 40 straight months

This has been devastating to the construction industry but should have provided some stability on the supply side as not only are we not building but there is evidence we are removing homes through large scale bulldozing going on in some cities.  However, household formation has let down the demand side.  Anytime formation has fallen below 1 million it has meant trouble but between March 2010 and March 2011 household formation actually fell into negative numbers.  Then it came roaring back, and has been above 1 million since last march. 

Case said we are still at the middle of the cycle.  Inventories are tightening, demand is coming back while production is not, so we should be working through the problems but there are still bombshells out there.  People can’t get mortgages because of tightened requirements and they can’t get mortgage insurance except through FHA, Freddie Mac and Fannie Mae.  The government is taking all of the risk and this is a problem that probably won’t be tackled until after the election.

Shiller said he was more positive about housing this year than he was a year ago.  Many of the indicators are up and unemployment is down.  But none of the changes have been dramatic, so he is more optimistic than one year ago, but not a lot more optimistic.

A questioner asked each of the professors what they saw as the biggest problem holding back the market.  Shiller pointed to the difficulty in getting a mortgage.  Case said it was the 8.3 percent unemployment and a vague fear about a lot of things; gas prices, the problems in Europe.  But most of all it might be a marked change in the way people think about homeownership.  If you look back historically, he said, people did not believe that prices would ever fall.  That was the American dream and it has become a nightmare.  As a result people are becoming more realistic about their housing choices.

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[MBS Commentary] – MBS RECAP: 2/29/2012

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MBS RECAP: 2/29/2012

Posted to: MBS Commentary
Wednesday, February 29, 2012 4:19 PM

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MBS Live: MBS RECAP
Open MBS Live Dashboard
FNMA 3.5
103-12 : -0-07
FNMA 4.0
105-08 : -0-05
FNMA 4.5
106-19 : -0-02
FNMA 5.0
107-31 : -0-02
GNMA 3.5
104-27 : -0-05
GNMA 4.0
107-22 : -0-01
GNMA 4.5
109-01 : +0-01
GNMA 5.0
110-14 : +0-02
FHLMC 3.5
103-04 : -0-07
FHLMC 4.0
104-29 : -0-05
FHLMC 4.5
106-07 : -0-02
FHLMC 5.0
107-22 : +0-01
Pricing as of 4:03 PM EST
Afternoon Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard.
2:07PM  :  Fed Beige Book Released

– Economic Activity Increased At A Modest To Moderate Pace
– Manufacturing Continued At A Steady Pace
– Nonfinancial Services Activity Remained Stable Or Increased
– Banking Conditions Generally Improved
– Consumer Spending Generally Positive, Outlook Modestly Optimistic
– Housing Market Conditions Improved Somewhat
– Hiring Increased Slightly Across Several Districts
– Wage Pressures Generally Contained
– Prices Stable; Some Pass-Through Of Higher Input Costs

“Demand for residential mortgage loans increased in New York, Richmond, and Kansas City; mortgage demand was flat to moderately stronger in St. Louis and softened in Kansas City. Cleveland noted increases in requests for commercial real estate lending, while contacts in Chicago and San Francisco noted improvement in the availability of credit for this sector. Meanwhile Philadelphia and Kansas City reported flat or steady commercial real estate lending. Demand for commercial real estate loans was flat to moderately stronger in St. Louis.

Overall lending standards remained restrictive in San Francisco and Richmond and were largely unchanged in St. Louis and Kansas City. Lending standards tightened further for commercial borrowers in New York. Credit conditions in Chicago improved slightly, while quality improved in Philadelphia and Kansas City. Delinquencies were steady or declined in Cleveland. Mortgage delinquencies were steady in the New York District but delinquencies decreased in other loan categories…”

1:51PM  :  ALERT: Bond Markets Remain in Weaker Territory Following Bernanke Testimony

For all the apparent drama on the short term charts, today’s sell-off in bond markets is rather orderly in broader contexts. Traders have grown increasingly accustomed to finding opportunities in market movement that is historically narrow. In other words, 2.10 to 1.90 is wide-enough range for buyers near the highs and sellers near the lows.

In that sense, we might reasonably expect that Bernanke would have to have been unexpectedly dovish today in order to get 10yr yields to break lower than 1.90. As he did not, in fact, make any mention of QE3 at all, markets logically went right back from whence they came. 10yr yields returned to the mid-point of their recent range with eerie proficiency and have been grinding sideways there, almost as if it was scripted.

It’s a similar story for MBS. Fannie 3.5’s sought out a highly traveled pivot point in 103-10, which provided resistance in January (ceiling) and support in February (floor). Prices are currently 7 ticks lower on the day at 103-12, but indeed have seen a majority of their supportive bouncing take place at 103-10. That makes a moderate break lower from there seem like an excellent short term lock suggestion.

We’re careful to point out “short term” here as the longer term trends are still very much converging/consolidating, both in MBS and Treasuries. Each market has long term bullish trends colliding with shorter term bearish trends. There’s really no question of the convergence, but the direction of the break and concomitant magnitude of the move are, as yet, undetermined.

Long story short, 103-10 is looking supportive for now, although lenders continue repricing for the worse. This could be one of those afternoons where we see the “early-to-act” lenders come back with a positive reprice if the bounce continues to materialize.

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBS Live Dashboard.
Dan Clifton  :  REPRICE: 1:50 PM – Platinum Mortgage Worse
Dan Clifton  :  REPRICE: 1:49 PM – 360 Mortgage Worse
John Paul Mulchay  :  REPRICE: 1:49 PM – Flagstar Worse
Matthew Graham  :  “RTRS- CME SAYS NO REPORTS OF ERROR TRADES AFTER TRADERS TALK OF “FAT FINGER” FUTURES SALE IN BOND MARKET SELL-OFF “
Matt Hodges  :  REPRICE: 1:20 PM – BB&T Worse
Michael Tadros  :  REPRICE: 12:50 PM – Interbank Worse
Michael Tadros  :  REPRICE: 12:49 PM – Provident Funding Worse
Rob Clark  :  REPRICE: 12:49 PM – Provident Funding Worse
Victor Burek  :  REPRICE: 12:28 PM – Nexbank Worse
Christopher Stevens  :  REPRICE: 12:00 PM – Wells Fargo Worse
Gus Floropoulos  :  REPRICE: 11:40 AM – PHH Worse
John Rodgers  :  REPRICE: 11:28 AM – Fifth Third Mortgage Worse

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[Mortgage Rate Watch] – Mortgage Rates Rise For First Time in Five Days

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Mortgage Rates Rise For First Time in Five Days

Posted to: Mortgage Rate Watch
Wednesday, February 29, 2012 3:02 PM

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Mortgages Rates snapped an relatively long streak of stability, moving higher for the first time in a week after digesting today’s high-risk events.  In many cases, Best-Execution remains at 3.875%, with the effects of today’s weakness merely seen in the form of higher borrowing costs.  But some lenders are better priced at 4.0%.  The lenders that were becoming viable at 3.75% yesterday have noticeably backed off today.

Additional reading: Previous post with more detailed discussion about Best-Execution calculations

This brings up an interesting dynamic in the world of mortgage rates although it can be somewhat complicated to understand.  When bond markets are moving higher in rate at anything but a slow pace, it is the LOWER end of the mortgage rate spectrum that tends to suffer the most.  For instance, if available rates for a particular scenario are in the 3.75 to 4.0 range, on days like today, where the weakening is a bit more brisk, the 3.75 rate would experience a greater increase in associated  borrowing costs than the 4.0 rate.

The underlying reasons for this would take too much space and are too complicated to adequately discuss here, but we can offer a cursory simplification.  In short, when rates are moving up quickly in the broader bond markets, the lower coupon MBS (MBS are the “mortgage backed securities” that are comprised of pools of individual mortgages) are at a greater risk of NOT getting paid off in the time frame investors had been counting on.  Naturally, if you have a 3.75% mortgage and rates keep moving up, there’s little incentive to refinance.

That aversion to refinance means that the investors holding the lower interest rate pools of mortgages are essentially “stuck” holding bonds that are paying a lower rate of return than the rest of the market.  If the broader interest rate landscape is like a “boat,” this would be akin to getting left on shore of a desert island with no means of getting back on the boat.  This isn’t a big problem if the same boat, or even other boats are expected to come back to the island with some frequency.  But when rates are at all time lows, and the MBS coupon that’s stuck on shore was a pioneering effort in low rates in the first place, the fear of being left behind forever is a pretty big motivator to sell.

When investors in MBS are motivated to sell, prices fall, and falling prices mean higher yield or interest rates.  And the lenders that are quoting mortgage rates on a day to day basis are observing the movements of these MBS in order to determine what rates they will offer.  This entire phenomenon is known by short phrases in financial markets such as “negative convexity,” or by saying that MBS investors are afraid of “extension risk” (meaning that the length of time they’d have to hold onto low coupon MBS is at RISK of EXTENDING, thus sticking them with a lower-than-market rate of return). 

I go into this level of detail tonight, not to suggest that this is necessarily happening at the moment, but rather just to serve as a reference piece to explain why the lower rates deteriorate more quickly on the days when rates or costs move higher.  If it’s all a bit confusing, just remember that big investors are ultimately fronting the money for your mortgage.  They like their investments to be A)profitable and B)liquid enough to get out of if they become less profitable.  If an investment’s on the edge of the spectrum, it’s more susceptible to getting left on shore, aka losing liquidity, if the full spectrum moves in the other direction, and thus, is more susceptible to bigger market movements.

Today’s BEST-EXECUTION Rates

  • 30YR FIXED –  3.875% back in control.  Some 4.0%  Some 3.75%
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.25%, more 3.125% availability
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • There are technical reasons for that as well as fundamental reasons 
  • Lenders tend to get busier when rates are in this “high 3’s” level and can throttle their inbound volume by raising rates or costs.
  • While we don’t necessarily think rates are destined to go higher, given the above facts, there seems to be more risk than reward regarding floating
  • But that will always be the case when rates operating near historic lows
  • (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

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[MBS Commentary] – Bond Markets Remain in Weaker Territory Following Bernanke Testimony

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Bond Markets Remain in Weaker Territory Following Bernanke Testimony

Posted to: MBS Commentary
Wednesday, February 29, 2012 2:15 PM

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(MBS Live) – 1:51 PM – For all the apparent drama on the short term charts, today’s sell-off in bond markets is rather orderly in broader contexts. Traders have grown increasingly accustomed to finding opportunities in market movement that is historically narrow. In other words, 2.10 to 1.90 is wide-enough range for buyers near the highs and sellers near the lows. 

In that sense, we might reasonably expect that Bernanke would have to have been unexpectedly dovish today in order to get 10yr yields to break lower than 1.90. As he did not, in fact, make any mention of QE3 at all, markets logically went right back from whence they came. 10yr yields returned to the mid-point of their recent range with eerie proficiency and have been grinding sideways there, almost as if it was scripted. 

It’s a similar story for MBS. Fannie 3.5’s sought out a highly traveled pivot point in 103-10, which provided resistance in January (ceiling) and support in February (floor). Prices are currently 7 ticks lower on the day at 103-12, but indeed have seen a majority of their supportive bouncing take place at 103-10. That makes a moderate break lower from there seem like an excellent short term lock suggestion.

We’re careful to point out “short term” here as the longer term trends are still very much converging/consolidating, both in MBS and Treasuries. Each market has long term bullish trends colliding with shorter term bearish trends. There’s really no question of the convergence, but the direction of the break and concomitant magnitude of the move are, as yet, undetermined. 

Long story short, 103-10 is looking supportive for now, although lenders continue repricing for the worse. This could be one of those afternoons where we see the “early-to-act” lenders come back with a positive reprice if the bounce continues to materialize.

*The preceding text is a live market alert from MBS Live.  For more information on receiving these updates when they’re released, see  THIS LINK.

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[MND NewsWire] – Two More MERS Cases Decided

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Two More MERS Cases Decided

Posted to: MND NewsWire
Wednesday, February 29, 2012 11:56 AM

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Two more courts have upheld the validity of mortgage assignments passed through the Mortgage Electronic Registration System (MERS).  Two judges, both in the U.S. District Court in Hawaii ruled against the plaintiffs in two separate cases challenging foreclosures on the grounds of fraudulent assignments.

In Caraang v. Aurora Loan Services and in Federal National Mortgage Association V. Kamakau the judges each ruled separately that the borrower’s could not dispute the validity of the assignments because they were not party to the assignments of the note and/or mortgage and were not the intended beneficiaries. 

These are the second and third out of five recent cases involving MERS assignments where the decision has hinged on the standing of the plaintiff.

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[MND NewsWire] – Fannie Mae’s Losses Narrow but Treasury Advance Requested

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Fannie Mae’s Losses Narrow but Treasury Advance Requested

Posted to: MND NewsWire
Wednesday, February 29, 2012 11:37 AM

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Fannie Mae is reporting a net loss of $2.4 billion for the fourth quarter of 2011 compared to a net loss of $5.1 billion in the third Quarter.  For the entire 2011 year it reports a net loss of $16.9 billion compared to $14.0 billion in 2010. 

The fourth quarter losses reflect $5.5 billion in credit-related expenses, most of which are related to its pre-2009 book of business and due largely to a decline in home prices.  The increase in net loss from 2010 to 2011 was attributed to a $6.1 billion increase in net fair value losses in 2011 due to losses in the company’s risk management derivatives in 2011 caused by a significant decline in interest rates.  These fair value losses were offset by fair value gains related to mortgage investments, however only a portion of these investments is recorded at fair value in its financial statements.

The net worth of the company had a net deficit of $4.6 billion as of December 31 reflecting the $1.9 billion loss and its payment to Treasury of $2.6 billion in senior preferred stock dividends during the fourth quarter compared to $2.5 billion in Quarter Three.  The Federal Home Mortgage Finance Agency (FNFA), conservator of Fannie Mae, will submit a request to the Treasury Department for a draw of $4.57 billion to eliminate the net worth deficit.  This brings the total obligation of the company to $117.1 billion which will require an annual dividend payment to Treasury of 11.7 billion.  To date the company has paid $19.8 in dividends to the Treasury Department.

Net revenues, primarily Net Interest Income for the quarter was $4.53 billion compared to $5.48 billion in the third quarter and Net Losses and Expenses (including credit-related expenses) were $6.92 billion, down from $10.56 billion.  Net Losses in the two quarters were $2.41 billion and $5.09 billion and the total comprehensive losses were $1.9 billion and $5.28 billion for the third and fourth quarters respectively.

For the year net revenues were $20.44 billion compared to $17.49 billion in 2010.  Net Losses and Expenses were -$37.39 billion compared to -$31.59 billion for a Net Loss of -$16.86 billion, compared to -14.02 billion.  Total Comprehensive loss for the year was -$16.41 billion compared to -$10.57 billion.  The company will have paid $9.61 billion in dividends to the Treasury in 2011 compared to $7.70 billion in 2010.

Fannie Mae reports that 53 percent of its single-family guaranty book of business at the end of the year consisted of loans purchased or guaranteed since the beginning of 2009.  Single-family conventional loans added to the book since that date have a weighted average loan-to-value at origination of 68 percent and a weighted average credit score of 762. 

Single-family credit losses from 2009 through 2011 combined with the amounts the company had reserved for losses as of this report total approximately $140 billion.  By far the largest of these losses were attributable to single-family loans purchased between 2005 and 2008.  The company expects these losses will remain elevated because of further expected defaults in its legacy book of business and resulting charge-offs that will occur over a period of years.  Also, a significant portion of its reserves represent concession to borrowers when loans were modified and will remain in the reserves until the loans are fully repaid or redefault.

The company’s single-family serious delinquency rate has decreased each quarter since the first quarter of 2010, attributable both to its home retention solutions and to its acquisition of loans with strong credit profiles.  The company expects that the delinquency rate will remain elevated due to home price changes, other macroeconomics changes, the length of the foreclosure process and the extent to which borrowers with modified loans continue to make timely payments.

Fannie Mae acquired 47,256 single family homes through foreclosure in the fourth quarter compared to 45,194 in the third quarter.  The company disposed of 51,344 REO properties in the quarter, down from 58,297 in the third quarter.  As of December 31, 1022 the company was holding 118,528 REO properties compared with 122,616 at the end of September and 162,489 on December 31, 2010.  The carrying value of the single-family REO was $9.7 billion compared with $11.0 billion at the end of the third quarter and $15.0 billion at the end of 2010.

The company’s single family foreclosure rate in the third quarter for 1.13 percent annualized compared with 1.15 for the first three quarters of the year and 1.46 percent for 2010. 

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