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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[MBS Commentary] – MBS MID-DAY: 2/29/2012

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MBS MID-DAY: 2/29/2012

Posted to: MBS Commentary
Wednesday, February 29, 2012 11:19 AM

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MBS Live: MBS MID-DAY
Open MBS Live Dashboard
FNMA 3.5
103-13 : -0-06
FNMA 4.0
105-09 : -0-04
FNMA 4.5
106-20 : -0-01
FNMA 5.0
108-01 : -0-01
GNMA 3.5
104-26 : -0-05
GNMA 4.0
107-21 : -0-02
GNMA 4.5
108-31 : -0-02
GNMA 5.0
110-14 : +0-01
FHLMC 3.5
103-05 : -0-06
FHLMC 4.0
104-31 : -0-03
FHLMC 4.5
106-08 : -0-01
FHLMC 5.0
107-21 : -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.
10:10AM  :  ALERT: MBS, Treasuries Tanking After Chi-PMI, Bernanke. Negative Reprices

After a stronger-than-expected Chicago PMI bond markets began to weaken, but had held within their 2-day range until the release of Bernanke’s prepared speech. Though there were no major surprises in the testimony, Bernanke’s mention of short term inflation increases was not guaranteed. Additionally, there was no reinforcement of the possibility of QE3. Fannie 3.5’s are down 7 ticks to 103-12 but are a moving target at the moment. If you had a rate sheet already, expect reprices for the worse.

10:05AM  :  Bernanke Testimony to Committee on Financial Services

“In the housing sector, affordability has increased dramatically as a result of the decline in house prices and historically low interest rates on conventional mortgages. Unfortunately, many potential buyers lack the down payment and credit history required to qualify for loans; others are reluctant to buy a house now because of concerns about their income, employment prospects, and the future path of home prices. On the supply side of the market, about 30 percent of recent home sales have consisted of foreclosed or distressed properties, and home vacancy rates remain high, putting downward pressure on house prices. More-positive signs include a pickup in construction in the multifamily sector and recent increases in homebuilder sentiment…”

9:54AM  :  ECON: Chicago PMI Higher Than Expected. Strong Internals

  • RTRS – Chicago Purchasing Management Index 64.0 In February (Consensus 61.5) Vs 60.2 In January
  • RTRS – Chicago Purchasing Mgmt New Orders Index 69.2 In February Vs 63.6 In January
  • RTRS – Chicago Purchasing Management Prices Paid Index 65.6 In February Vs Vs 62.4 In January
  • RTRS – Chicago PMI Employment Index 64.2 In February Vs 54.7 In January
  • RTRS – Chicago Purchasing Management Production Index 67.8 In February Vs 63.8 In January
  • RTRS – Chicago Purchasing Management Index At Highest Since April 2011
  • RTRS – Chicago PMI New Orders Index At Highest Since March 2011
  • RTRS – Chicago PMI Employment Index At Highest Since May 1984

The Chicago Purchasing Managers reported the February CHICAGO BUSINESS BAROMETER rose to its highest level in ten months. The barometer also marked a 29th month of expansion and its fourth consecutive month above 60. Increases were seen in six of eight Business Activity Indexes, highlighted by a very large advance in Employment.

9:44AM  :  Fannie Mae Reports $2.4B Loss in Q4, $16.9B in 2011

Fannie Mae (FNMA/OTC) today reported a net loss of $2.4 billion in the fourth quarter of 2011, compared with a net loss of $5.1 billion in the third quarter of the year. The company’s net loss in the fourth quarter reflected $5.5 billion in credit-related expenses, the substantial majority of which were related to its legacy (pre-2009) book of business and due largely to a decline in home prices. These charges were partially offset by a growing percentage of net revenues from the company’s highquality new book of business.

For the full year of 2011, Fannie Mae reported a net loss of $16.9 billion, compared with a loss of $14.0 billion for 2010. The increase in the net loss for the year was due primarily to a $6.1 billion increase in net fair value losses in 2011. This resulted from losses in the company’s risk management derivatives in 2011 caused by a significant decline in interest rates during the year. These fair value losses on the company’s derivatives were offset by fair value gains during 2011 related to its mortgage investments; however, only a portion of these investments is recorded at fair value in its financial statements…

9:06AM  :  ALERT: European LTRO and US GDP Leave Bond Markets In Positive Territory

Roughly 3 hours before this morning’s GDP release, the results were in for the much-anticipated 2nd round of the ECB’s huge 3-yr refi operations (LTROs). The uptake of €529.5 bln was slightly more than expected and also higher than the €489.2 bln at the previous LTRO. The biggest change from last time however, was that 800 banks requested funds as opposed to 523 previously. Treasuries drifted higher to 1.96+ ahead of the news and fell back to 1.92’s for the domestic open. MBS opened slightly higher at 103-21.

Despite the 0.2 pct “beat” on Q4 Preliminary GDP, bond markets are holding their gains. Immediately following the release, Treasury yields briefly ticked higher and MBS fell to 103-19, but that weakness proved transitory as both have regained previously strong levels. 10’s are at 1.92 and Fannie 3.5’s are up 5 ticks on the day at 103-24. S&P futures (June delivery) haven’t exceeded 1368.5 since the LTRO results and bounced there in the initial post-GDP volatility.

The next “biggie” on the horizon is Bernanke’s congressional report beginning at 10am. Before that, the last major manufacturing report of the week, Chicago PMI, is out at 9:45am.

Two big ticket events down and one to go… Given the magnitude of the response both in terms of volume and volatility, it seems clear that markets haven’t yet seen that for which they are waiting.

8:35AM  :  ECON: GDP Revised Slightly Higher on Business Inventory Change

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.0 percent in the fourth quarter of 2011 (that is, from the third quarter to the fourth quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 1.8 percent.

The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 2.8 percent.

The increase in real GDP in the fourth quarter reflected positive contributions from private inventory investment, personal consumption expenditures (PCE), exports, nonresidential fixed investment, and residential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a larger decrease in state and local government spending.

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  “RTRS – BERNANKE SAYS FED HAS NO OFFICIAL POSITION ON MORTGAGE PRINCIPAL REDUCTION “
Ira Selwin  :  REPRICE: 10:54 AM – Chase Worse
Geoff Allison  :  “BAchus reads like my 8 yr old.”
Michael Kelleher  :  “USBank Home Mortgage Consumer Finance first position rate increase effective Wednesday, February 29: 3/1, 3/1 IO, 5/1, 5/1 IO, 7/1 & 10/1 ARMs +.10 bps 15, 20 & 30 year Fixed +.10 bps “
Tony Cardinal  :  “touche MG. “
Michael Kelleher  :  REPRICE: 10:25 AM – USBank Worse
Matthew Graham  :  “seems like “damage control” as opposed to victory”
Tony Cardinal  :  “nah, wouldnt call it a victory then…only after i looked at MBS advanced chart on month long trend you see that 103-16 seems to be the floor of the existing range and we have touched it several times…”
Matthew Graham  :  “would you have said the same thing when MBS were at 103-24 at 9am?”
Matthew Graham  :  “just depends what kind of battle you’re fighting TC. “Victory” is subjective.”
Tony Cardinal  :  “i say so so long as we hold 103-16. you state otherwise?”
Alan Craft  :  “Depends on investor. Mine wants income on 1003 but not verified and ratios ignored.”
Victor Burek  :  “yes..only verify employed..no income”
Daniel Kramer  :  “FHA question for the FHA experts on here. When doing a Streamline, is it true income documents are not needed, just proof of employment?”
Matthew Graham  :  “the look on his face is priceless… I can see his thoughts… “wow… these guys really have no clue…” it’s just funny to him at this point. we’re going to see “authoritative and almost angry Ben” today”
Matthew Graham  :  “RTRS- BERNANKE SAYS FED OFFICIALS DO NOT ANTICIPATE FURTHER SUBSTANTIAL DECLINES IN JOBLESS RATE THIS YEAR, GIVEN EXPECTATIONS GROWTH TO STAY NEAR TREND “
Matthew Graham  :  “RTRS- BERNANKE SAYS FORWARD GUIDANCE INDICATES FED EXPECTS TARGET RANGE OF 0 TO 0.25 PCT TO REMAIN APPROPRIATE AT LEAST THROUGH LATE 2014 “
Matthew Graham  :  “RTRS- BERNANKE – LONGER-TERM INFLATION EXPECTATIONS APPEAR CONSISTENT WITH VIEW THAT INFLATION WILL REMAIN SUBDUED “
Matthew Graham  :  “RTRS – BERNANKE – RECENT SPIKE IN GASOLINE PRICES LIKELY TO PUSH UP INFLATION TEMPORARILY WHILE REDUCING CONSUMERS’ PURCHASING POWER “
Victor Burek  :  “same here”
Alan Craft  :  “3.375 to 3.5 for me nonDURP”
Dean Gorenflo  :  “I would echo my esteemed colleagues sentiments and no DURPs here”
Brent Borcherding  :  “No, not DURP”
Gaius Rossini  :  “bb – those are all through durp i presume?”
Brent Borcherding  :  “Gaius–I mostly am refinancing 30 year Fixed that are High 4s low 5s into new 15 years in the 3.25 to 3.5 range. The 30s are typically 4-8 years old.”
Gaius Rossini  :  “hey all – have you guys been refinancing a lot of 15s in the 3 7/8 – 4% range?”
Matthew Graham  :  “we’re looking at preliminary”
Matthew Graham  :  “err, sorry, from the “advance””
Matthew Graham  :  “it’s not really an issue this time around. actually dropped from the preliminary reading”
Jeff Anderson  :  “GM, all. MG, can you give me the Econ 101 or maybe 201 on the inventory number. Am I correct that the inventory is articially inflating the GDP reading and that’s not a good thing?”
Matthew Graham  :  “RTRS – US Q4 BUSINESS INVENTORY CHANGE ADDS 1.88 PERCENTAGE POINT TO GDP CHANGE”
Matthew Graham  :  “RTRS – US Q4 PCE PRICE INDEX +1.2 PCT (CONS +0.7 PCT), PREV +0.7 PCT; CORE PCE +1.3 PCT (CONS +1.1 PCT), PREV +1.1 PCT “
Matthew Graham  :  “RTRS – US PRELIM Q4 GDP +3.0 PCT (CONSENSUS +2.8 PCT), PREV +2.8 PCT; FINAL SALES +1.1 PCT (CONS +1.0 PCT), PREV +0.8 PCT “
John Rodgers  :  “Sung is right on BBT is your bank for that. “
Sung Kim  :  “jz- BBT and i dont think Wells has the overlay, but it has to score through AUS”
Jason Zimmer  :  “is anyone taking 1 FICO score going FHA?”
Chat Killa  :  “Bernanke talking today”

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[Pipeline Press] – Echo Boomers and Home Ownership; Redwood Trust’s Loss; Thoughts on Agency Condo Policies

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Echo Boomers and Home Ownership; Redwood Trust’s Loss; Thoughts on Agency Condo Policies

Posted to: Pipeline Press
Wednesday, February 29, 2012 8:49 AM

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Happy Leap Year! If you are a real astronomy nut, check out this youtube video. If you are not, don’t bother.

Underwriters and LO’s rarely raise an eyebrow when I say something like, “Studies find that 43% of households have less than $1,000 in liquid savings and 28% live paycheck to paycheck without any savings at all.”  In the wake of the Baby Boomers and Generation X come Generation Y, also known as the Echo Boomers, and 90% of them have less than $1,500 in assets.  Needless to say, $1,500 isn’t much of a down payment, nor does it serve as a great financial safety net, which means that Generation Y is much likelier to face foreclosure.  Rather than homeownership (less than 33% surveyed expressed the desire to own a home), they prioritize further education, living in highly social areas (i.e., in a city versus the suburbs), and the general idea of freedom

This trend, not welcomed by Realtors and those in the mortgage biz, seems to stand in opposition to the “American Dream.” One tends to forget, however, that the Baby Boomers are the first generation to consider home ownership the principal component of the dream, a direct result of the greater universal prosperity enjoyed by Americans in the years following World War II.  Given the economic climate in which many Echo Boomers are coming of home-owning age, it is hardly surprising that this endeavor is not high on their list of priorities.  In addition, many economists believe that homeownership doesn’t actually “pay for itself,” and that a homeowner never recoups the cost of insurance, interest paid on a mortgage, or maintenance. But folks have to live somewhere!

Yesterday someone told me that an analysis found that about 11 million homes are underwater and about 40% of those had home equity mortgages. I don’t know the source, but it is probably not a surprise to anyone in the business. As part of a national settlement over foreclosures, mortgage servicers Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial will receive some relief on their $308 billion in home-equity loans. They will be able to share losses on second liens with bondholders and receive credit toward their cash contributions to the settlement under the arrangement, which aims to eliminate delays in processing loan workouts. Critics, however, fear that putting senior and junior liens on equal footing will inflate the cost of first-lien mortgages as investors add a risk premium to account for the possibility of higher losses

Redwood Trust, who, like many, earn its profits from home ownership and who some in the industry think is the only non-agency game in town, doesn’t always make money. In fact, it lost $3 million last quarter.

Along those lines, the FDIC’s Quarterly Banking Profile for the fourth quarter of 2011 was released yesterday, and shows a modest but steady recovery in the banking industry. A majority of banks reported improved quarterly earnings, but 813 institutions remain on the “Problem Bank List” – 11% of all FDIC insured banks and savings associations. In 2011 the industry had a net income of $119.5 billion, the highest earnings since 2006, and for the fourth quarter made a profit of over $26 billion. But don’t pop the champagne cork yet: although this is the 10th consecutive quarter of earnings increases, virtually all of the earnings increase was the result of lower provisions for loan losses, as has been the case for the past nine quarters. Loss provisions for the fourth quarter totaled $19.5 billion, down by 40% from $32.7 billion in the comparable quarter of last year. The FDIC reported that about 19% of institutions reporting losses for the quarter, but 63% of banks reported an improvement in quarterly net from last year and return on assets (ROA) rose to 0.76% from 0.64%.

Of great interest in the FDIC report was the growth in loan portfolios.  Lending increased by about $130 billion: $63 billion in commercial and industrial borrowing, $26 billion in residential loan balances, and about $21 billion in credit card lending.

It is hard to keep track of the legal actions out there, the latest being the SEC giving Goldman Sachs and Wells Fargo a “Wells notice.” A Wells notice indicates SEC staff plan to recommend that the agency take legal action and gives a recipient a chance to mount a defense. Goldman received its Wells notice on February 24, relating to a $1.3 billion subprime mortgage-backed securities deal in late 2006 that the bank underwrote. On the other side of the nation, Wells Fargo said its Wells notice related to its disclosures in offering documents for mortgage-backed securities. The bank said it is providing information requested by various regulatory agencies in connection with their investigations.

And within the last week consumer complaints have triggered yet another legal problem for Bank of AmericaHUD is charging BofA with discriminating against disabled homebuyers under provisions of the Fair Housing Act. The charges, which have been moved to the Department of Justice, arise out of allegations from two borrowers in Michigan and one in Wisconsin who said they were required to provide personal medical information and documentation regarding their disability and proof of the continuance of the Social Security payments in order to qualify for a home mortgage loan.  HUD alleges that Bank of America first denied the loans to the borrowers who relied on disability income to qualify for their home loans.  The Bank then imposed unnecessary and burdensome requirements as evidence of the continuation of Social Security income including provision of physician’s statements to reevaluate and approve the loans. As we know, the Fair Housing Act makes it illegal to discriminate in the terms and conditions of a loan to an individual based on a disability, including imposing different application of qualification criteria.  The Act also makes it illegal to inquire about the nature or severity of a disability except in limited circumstances.

HUD Secretary Donovan and Acting FHA Commissioner Galante testified yesterday. Nothing much new was said, but there was a little news on the recent FHA changes to future MIP amounts. Originators and investors are particularly interested in any news related to streamline refinancing of GNMAs. Mr. Donovan said “In addition to taking steps to make these refinance loans more widely available, FHA is working on adjusting the premium structure for all Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, to further incentivize refinance activity. These changes will ensure that borrowers benefit from a net reduction in their overall mortgage payment while still ensuring FHA has the resources to pay any necessary claims.” Watch for more details Thursday.

There is more on the recent investor condo move. I received this note from Dave Lewis, Managing Consultant for Con-Serve Capital Consulting: “My thoughts turned to Provident’s bold move in shutting down 3rd party access to Fannie Mae condominium loans.  I like the fact that the surviving aggregators stand up to FNMA and FHLMC when they feel something useless has been offered. In this case, FNMA is burdening a servicer with making insurance evaluations that are generally beyond the servicing manager’s ken.  Rather than do that, FNMA and FHLMC could save the nation a whole lot of trees and trouble by doing the following: 1. Maintain a Master List of Approved Condominium Projects (that’s an approval for lender sales not consumer buys). 2. For those approved, the Agency Master file includes updated budgets, insurance, local or state approvals and other minutia known only to our agency friends.  Any Master Insurance policies have a clause that covers the agency as a named insured on any unit that has been financed with an Agency loan.  The insurers deal directly with the agency, not the originating or servicing lender. 3. The Master File is updated once a month on a date certain.  Additions are posted, deletions noted. (Originators originate loans in approved projects; servicers service loan payments and funds transmittals, FNMA/FHLMC determine which projects are acceptable on a month by month basis. If an insurance renewal comes in on a previously approved project, and the renewal does not conform to the Agency posted insurance standards, then the project falls from the Master List until the matter is rectified). 4. Require home buyers within the project to carry an HO-6 in form acceptable to the agency, and escrow the payment for the renewal of that policy, as you would for any other insurance escrow.  No Ho-6, no loan programs available at the Agency.”

Dave continues: “No originating lender out there wants to maintain insurance policies they can’t read in file cabinets that never get opened after the loan closes.  We have all been there, done that.  Let the agencies hire some high powered insurance staff to interpret what coverages are acceptable from any Master Insurer.  After all, the agencies recently received a nice bonus in the form of increased G-Fees – certainly they need something upon which to spend all that new money.”

Sometimes I am tempted to say, “Rates are about the same – ’nuff’ said.” Although that sums things up for Tuesday (the 10-yr closing at 1.93% and MBS prices about unchanged), there was a little bit of news. The Case-Shiller 20-city index was down almost 4% in the 4th quarter and down about 4% from a year ago, down about 1% from November.

For news today, we learned from the MBA that apps last week dropped .3% from the prior week. Refi’s were down about 2%, but purchases improved about 8%. The four-week moving average for all mortgage applications is now up 0.3%, but refi’s have dropped to about 78% of all application activity. (ARM’s are still at about 5% of all apps.)

Today and tomorrow the press is trying to make a big deal out of Chairman Bernanke’s Humphrey-Hawkins testimony followed by Q&A before the House Financial Services Committee, but many doubt anything new will be said. We had the second revision to the 4th quarter GDP, and it is now +3.0%. It didn’t really move the markets – it is considered old news. Later we’ll have the Fed’s release of its Beige Book. This also rarely moves markets, in spite of it containing economic reports from the 12 Districts in preparation for the upcoming FOMC meeting on March 13. In the early going the 10-yr is up to 1.97% – and MBS prices are lower.

There comes a time when a woman just has to trust her husband.  For example:
A wife comes home late at night and quietly opens the door to her bedroom.

From under the blanket she sees four legs instead of two.  She reaches for a baseball bat and starts hitting the blanket as hard as she can.  Once she’s done, she goes to the kitchen to have a drink.
As she enters, she sees her husband there, reading a magazine.
“Hi Darling”, he says, “Your parents have come to visit us, so l let them stay in our bedroom.  Did you say ‘hello’?”

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at http://www.stratmorgroup.com. The current blog discusses the role of rating agencies in the current environment. 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.

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[MND NewsWire] – HARP Activity Increasing Even as Refinancing Contracts

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HARP Activity Increasing Even as Refinancing Contracts

Posted to: MND NewsWire
Wednesday, February 29, 2012 8:46 AM

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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 adjusted basis from the week ended February 17.  On an unadjusted basis it increased 0.9 percent from the previous week but was 4.3 percent lower than the same week in 2011. The Refinance Index was down 2.2 percent

The four week moving average for the seasonally adjusted Composite was up 0.33 percent and the moving average for the refinance index increased by 0.64 percent.  The moving average of the seasonally adjusted Purchase Index was down 0.96 percent. 

Refinancing accounted for 77.9 percent of all mortgage applications during the week compared to 80.1 the week before.  This was the lowest share for refinancing since December 2 and the first time refinancing dropped below an 80 percent level since December 9.

The government’s Home Affordable Refinance Program (HARP) is starting to take hold in the  applications figures.  According to Michael Fratantoni, MBA’s Vice President of Research and Economics, more than 20 percent of refinance applications last week were for HARP loans. “The HARP share of total refinance applications has increased over the past month,” he said, and “purchase application volume increased over the week, but remains within the narrow and anemic range of activity we have seen since the expiration of the homebuyer tax credit in May 2010.”

In January 86.4 percent of home purchase applications were for 30-year fixed-rate mortgages (FRM), 6.5 percent were for 15-year FRM, and 5.4 percent were for adjustable rate mortgages (ARM).  “Other” FRM with amortizations schedules other than 15 and 30-year terms represented 1.7 percent of all purchase applications.  The percentages of 15-year and ARM mortgages were down from December while the other two categories increased.

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

The average contract interest rate for conforming (balances under $417,500) 30-year FRM decreased from 4.09 percent with 0.53 point to 4.07 percent with 0.51 point and the effective rate decreased from the previous week.  Rates for the jumbo 30-year FRM – loans with balances over $417,500 – increased to 4.34 percent from 4.32 percent but points were down to 0.40 from 0.42.  The effective rate increased.   

Rates for 30-year fixed-rate mortgages backed by the FHA were down one basis point to 3.86 percent, the lowest rate of the year, but points jumped to 0.80 from 0.41. The effective rate increased.

Fifteen-year mortgage rates ticked down from 3.38 percent to 3.36 percent with points increasing to 0.38 from 0.37.  The effective rate decreased from the previous week.

The biggest rate change of the week was in 5/1 ARMs,  This rate decreased to 2.78 percent from 2.94 percent, with points decreasing to 0.38 from 0.44.  This is the lowest 5/1 ARM rate since MBA began tracking the series in January 2011.  The effective rate decreased.  Adjustable-rate mortgages had a 5.0 percent share of activity during the week compared to 5.3 percent the previous week.

 All rates are quoted for 80 percent loan-to-value mortgages and points include the origination fee.

MBA’s weekly survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.  Respondents include mortgage bankers, commercial banks and thrifts.  Base period and value for all indexes is March 16, 1990=100.

 

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