Senior Loan Officers Indicate Tepid Response to HARP 2.0

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Apr 30, 2012 6:15PM

Senior Loan Officers Indicate Tepid Response to HARP 2.0

Respondents to the April Federal Reserve Senior Lending Officers Survey were asked a series of special questions about residential mortgage lending practices at their institutions. These questions, which were in addition to the questions customarily asked on the quarterly survey regarding loan demand and bank standards, covered the banks’ responses to the revised Home Affordable Refinance Program (HARP 2.0), refinancing underwater mortgages outside of HARP 2.0, changes anticipated in the institutions…

Apr 30, 2012 3:54PM

Mortgage Rates Edge Closer To All-Time Lows

Mortgages Rates are moderately improved to begin the week, taking them slightly lower than than April’s best two days (4/10 and 4/23) and as close as they’ve been to all-time lows in several months. This further solidifies the Conventional 30yr Fixed Best-Execution Rate at 3.875%, which had recently shared the stage with 4.0%. Keep in mind that “best-execution” as we calculate it, connotes the no-closing-cost rate for the best-qualified borrowers in the most ideal scenario. ( read more about Best…

Micro News

2:12 PM:

Fed’s Loan Survey Asks New, Specific Questions Re: Mortgages

2:10 PM:

Flatness, on a Whole New Level: 16th Point Range For MBS!

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Jason Harris

“On the Freddie deals that don’t work OA….send them to current servicer as they will almost certainly be able to do manual relief refi.”

Frank Ceizyk

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Harold Crick

“The chances of SB 1470 in its present incarnation becoming law is zip. The California court system is already maxed out – it’s an untenable proposition…”

Today’s Q&A

“bad mortgage deal in tennessee”

“Financing amount over VA limit of $417K”

“What kind of credit score will get me a good mortgage rate. “

<!–

Today’s Forum Discussions

AP

“Hi. I took an FHA loan for $340000 (30 yr fixed FHA) which closed in end of July 2009 @5.125% which I then refinanced in 2009 to a lower rate of 4.75%…”

Anita Kazee

“Looking for a lender that does FHA streamline loans for manufactured homes”

Nelson fred

“The urban housing situation has been deteriorating fast and unless remedial measures are taken with a sense of urgency to improve the housing and environmental…”

–>

[MND NewsWire] – Senior Loan Officers Indicate Tepid Response to HARP 2.0

Senior Loan Officers Indicate Tepid Response to HARP 2.0

Posted to: MND NewsWire
Monday, April 30, 2012 5:40 PM

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Respondents to the April Federal Reserve Senior Lending Officers Survey were asked a series of special questions about residential mortgage lending practices at their institutions.  These questions, which were in addition to the questions customarily asked on the quarterly survey regarding loan demand and bank standards, covered the banks’ responses to the revised Home Affordable Refinance Program (HARP 2.0), refinancing underwater mortgages outside of HARP 2.0, changes anticipated in the institutions’ residential real estate holdings over the next year, and about factors affecting the bank’s ability to originate residential loans, and how the banks’ underwriting standards on key borrower characteristics may have changed since the beginning of the housing crisis.

The Federal Reserve survey is conducted each quarter among senior lending officers and covers, in addition to residential lending, other consumer loans, commercial real estate lending, and commercial and industrial loans.  There were 58 domestic banks and 23 U.S. branches and agencies of foreign banks involved in the current survey.

One set of special questions asked officers how much more or less likely it is, compared with 2006, that the bank would originate a Fannie Mae or Freddie Mac (GSE) eligible 30-year fixed rate mortgage for home purchase to borrowers with FICO scores of 620, 680, or 720 paired with downpayments of either10 percent or 20 percent.  Fifty two banks responded, 32 of which were defined as large banks.

Likelihood of loan Now v. 2006

Underwriting Criteria  FICO Score/Downpayment – as a %

620/10%

680/10%

720/10%

620/20%

680/20%

720/20%

Much Less

 59.6

21.2

7.7

38.5

7.7

0

Somewhat Less

23.1

28.8

15.4

32.7

21.2

9.6

About the Same

17.3

48.1

71.2

28.8

63.5

78.8

Somewhat more

0

0

3.8

0

5.8

1.9

Much More

0

1.9

1.9

0

1.9

9.6

Lenders who answered “somewhat” or “much less likely” to any of the borrower categories were asked to indicate the most important factors leading to their answers:

  • Higher servicing costs if mortgage became delinquent,
  • The difficulty or higher costs of borrower obtaining private mortgage insurance,
  • The difficulty or higher costs of borrowers obtaining simultaneous second liens (piggy-back mortgages),
  • The higher risk of put-backs from the GSEs,
  • Basel III treatment of mortgage servicer rights,
  •  Increased concerns about legislative changes, supervisory actions or changes in accounting standards,
  • Greater concern about the banks’ exposure to residential real estate loans,
  • A less favorable or more uncertain outlook for house prices,
  • A less favorable or more uncertain economic outlook,
  • The prevailing spread of mortgage rates over cost of funds is insufficient to compensate for risks.   

The higher risk of GSE put-backs was citied most frequently by the loan officers with 34.1 percent calling it a very important reason and 25.0 percent calling is the most important reason.  The cost or difficulties of obtaining private mortgage insurance was the second most prevalent reason with 29.5 percent calling it very important and 18.2 percent the most important reason.  An uncertain outlook for house prices was considered somewhat or very important by a majority of lenders as were concern about the bank’s exposure to risk and concerns about other effects of legislative changes. 

Very few respondents indicated that their banks would reduce their holdings of residential real estate holdings over the next year.  Forty percent indicated they expected little change while 43.6 percent said that holdings would probably increase somewhat.

Another special question was to what the extent several factors might be affecting the banks’ ability to originate or purchase additional residential real estate loans.  About a third of the banks cited as a significant or most important factor periodic high loan application volume which exceeded their processing capabilities. Over half said that difficulty in completing timely and accurate appraisals was somewhat or very much a factor and about the same number called timely and accurate underwriting somewhat or very much a factor.  The other three factors – difficulty in securing servicing and loan processing help from other companies, hiring sufficient servicing or loan processing staff at the bank or limited balance sheet or warehousing capacity were never citied as the most important factor and most respondents considered them somewhat a factor or not a factor at all.

Almost a third of respondents said their banks were actively soliciting applications for HARP 2.0 loans and satisfying most demand as it came in.  Twenty-two percent said they were not actively soliciting applications but were satisfying demand and 47 percent said they had very little participation in HARP. 

Based on their experiences to date 9.6 percent of respondents said they expected that more than 80 percent of HARP 2.0 applications would be successfully completed and 23 percent anticipated a completion rate of 60 to 80 percent.  About 9 percent expected that the completion rate would be below 40 percent.

The banks’ willingness or ability to offer additional loans through HARP 2.0 was affected by the risk that the GSE might put back the mortgage, named as a very important or most important factor by 36 percent, the difficulty in obtaining resubordination of a known second lien, cited as very important or the most important factor by 23 percent, and the difficulty of obtaining transfer of private mortgage insurance coverage, 17 percent.  Difficulty is identifying junior lien holders was considered a problem by only one lender.

The other special question addressed the banks’ willingness to refinance underwater loans outside of HARP 2.0 for borrowers who have been current on their existing mortgage for at least 12 months.   Eleven percent said their banks were actively soliciting such loans and satisfying the demand; 37.7 percent said they were not actively soliciting such loans but were satisfying the demand as it came in and just over half said they were doing very little about refinancing such loans outside of HARP 2.0.

The traditional questions asked on the survey indicated that demand for prime residential loans has strengthened moderately and that standards for prime residential loans and home equity lines of credit remain essentially unchanged.

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[MBS Commentary] – MBS RECAP: Late Day Weakness Preserves The Range

MBS RECAP: Late Day Weakness Preserves The Range

Posted to: MBS Commentary
Monday, April 30, 2012 4:07 PM

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MBS Live: MBS Afternoon Market Summary
MBS and Treasuries looked like they might have been drifting into slightly better territory in the first part of the afternoon.  But heading into the 3pm Treasury close, bond markets weakened somewhat, depositing Treasuries (with the exception of 30yr bonds, which got hit a bit harder) right at their earlier morning support levels (mid 1.92’s) and MBS in the same old 2 tick range they’d held all day.  We saw a few brief ticks at 103-24, but 90% of today’s action was 103-26 to 103-28.  That’s really splitting hairs though…  a 4 tick range is as narrow as they come in terms of a daily range of production MBS prices.  With today’s decreased market participation and NFP Friday looming, we’re hoping to see a little bit of a ramp up in activity as the week progresses.  Europe is out tomorrow for May Day and there are more Asian holiday absences in the 2nd half of the week, so it might seem a bit subdued until Europe is back on Wednesday.
MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

FNMA 3.5
103-27 : +0-04
FNMA 4.0
105-25 : +0-04
FNMA 4.5
107-02 : +0-02
FNMA 5.0
108-20 : +0-02
GNMA 3.5
105-11 : +0-04
GNMA 4.0
108-06 : +0-05
GNMA 4.5
109-12 : +0-02
GNMA 5.0
110-25 : +0-05
FHLMC 3.5
103-20 : +0-04
FHLMC 4.0
105-16 : +0-05
FHLMC 4.5
106-20 : +0-03
FHLMC 5.0
108-02 : +0-01
Pricing as of 4:04 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this afternoon.

2:12PM  :  Fed’s Loan Survey Asks New, Specific Questions Re: Mortgages

A set of special questions asked survey respondents about residential real estate lending policies at their institutions. Banks were asked to compare their willingness to originate a GSE-eligible 30-year fixed-rate mortgage loan intended for home purchase today with their willingness in 2006 for borrowers with FICO (or equivalent) credit risk scores of 620, 680, and 720, and down payments of 10 or 20 percent (for a total of six categories of borrowers).

A large majority of banks indicated that they were less likely to originate a GSE-eligible mortgage loan to potential borrowers with a FICO score of 620 and a 10 percent down payment than they were in 2006. Raising the down payment to 20 percent reduced the fraction of banks less likely to originate such a loan somewhat.

A moderate net fraction of banks were less likely to originate loans to borrowers with a FICO score of 680, regardless of down payment size. A modest net fraction of banks were less likely to originate loans to borrowers with a FICO score of 720 and a 10 percent down payment, although survey respondents indicated that they were about as likely to originate loans now as they were in 2006 if such borrowers had a down payment of 20 percent.

Most banks cited borrowers having higher costs for, or greater difficulty in obtaining, mortgage insurance coverage as an important factor contributing to the reduced likelihood of originating GSE-eligible mortgage loans. About as many respondents noted the higher risk of putbacks of delinquent mortgages by the GSEs as an important factor, and that factor was listed as the most important one by the largest number of banks.

Similar fractions of respondents pointed to less favorable or more uncertain outlooks for house prices or for the economy more broadly as factors. A majority of respondents reported as at least somewhat important factors greater concern about their bank’s exposure to residential real estate loans; increased concerns about effects of legislative changes, supervisory actions, or accounting standards; higher servicing costs if mortgages were to become delinquent; the prevailing spread of mortgage rates over cost of funds being insufficient to compensate for risks; and borrowers having higher costs of greater difficulty in obtaining simultaneous second liens.

2:10PM  :  Flatness, on a Whole New Level: 16th Point Range For MBS!

If it’s possible for things to be so far from exciting that they actually become interesting, the past few weeks have been leading up to today as the most interesting day… EVER!

Fannie 3.5 MBS, the coupon that gets by far and away, the lion’s share of the origination volume, is trading in a 2 tick range, at maximum! 2 ticks (or 2/32nds = 1/16th of a point, hence the title). For most of that time and indeed with very few exceptions, the range has been merely 0.5 to 1.0 ticks (1/64 to 1/32 of a point).

10yr Treasuries have been similarly range-bound, holding within a 1.5% range all day. The only really safe bet for expecting this dynamic to change is Friday’s NFP release, but certainly, it can happen sooner. Additionally, 10’s have had a good bit of correlation with stocks today (stock prices moving with TSY yields), so pronounced weakness in stocks could coax bond markets into slightly stronger territory.

But the overriding moral of the story is that markets are thinly staffed, thinly traded, and uninspired at the moment.

Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard’s Live Chat feature, utilized by hundreds of industry professionals each day.

Michael Tadros  :  REPRICE: 3:45 PM – Interbank Worse
Ira Selwin  :  REPRICE: 3:27 PM – Chase Better
Matt Hodges  :  “bottom line profit or loss add back depreciation”
Berton McLain  :  “Borrower has a rental property that shows a 19k loss. I normally add back taxes, insurance, interest, depreciation, and subtract net loss. does anyone do it differently?”
Matt Hodges  :  “if you give us the scenario, i’m *sure* we can all agree on how it *should* be u/w”
Berton McLain  :  “I am hoping I can get a clear answer on this one. Do lenders have different ways of qualifying borrowers based off of tax returns? i.e. adding certain items back in.”
Matthew Graham  :  “RTRS – U.S. TREASURY SAYS EXPECTS TO ISSUE $182 BLN IN NET MARKETABLE DEBT IN APRIL-JUNE QUARTER, DOWN $19 BLN FROM END-JANUARY ESTIMATE “
Matthew Graham  :  “sure Tom, be sure to send me something nice, within RESPA guidelines of course, for marketing assistance!”
Matthew Graham  :  “If the MBS buckets were like the gears in a car, it would be as if we’re just barely going fast enough to shift to the next gear, but if we have any issues maintaining that speed, it will turn out to be a poorly chosen gear ratio and we’ll fall behind in the race.”
Tom Bartlett  :  “i like that MG. Can I copy and send?”
Matthew Graham  :  “there’s a real challenge in getting rates much lower than current levels due to the liquidity constraints created by the coupon structure in MBS Markets.”
Tom Bartlett  :  “I answered this way”If the 10 stays in this territory few more day’s, I expect the secondary dept’s will start feeling better about the stability and start forking over a bit more rebate. Any other tried and true idea’s?”
Jason Adams  :  “give him the link to MBSLIVE :-“
Tom Bartlett  :  “I just had an e-mail inquiry from a financial advisor asking the following…”So how low does the 10yr have to get for us to hit the 3.75% no cost or very low? Any suggestions on how to respond?”
Tony Cardinal  :  “i think so, too. it’s just a wild moving target everybody is trying to hit. Guess the govt is “trying to make it easier for the borrower,” and in turn making it harder for the industry”
Timothy Baron  :  “I’ve had that same issue with LP. It looks to me like DURP values wil cause the same issue going forward.”
Tony Cardinal  :  thats what i am thinking tim, but i havent received any confirmation on that. i had a UW deny a file bc they cap at 125 LTV LP. got an appraisal done, 105 LTV. they decided not to use it, but rather the HVE LP issued and in turn put me above 125, and they wont do it now. had to move to a different investor willing to take 125+ on LP”
Timothy Baron  :  “Not sure if that had been mentioned before.”
Timothy Baron  :  “DU doesn’t require you to use their value, but investor overlays do. At least that’s what I’m seeing out there.”
Tony Cardinal  :  “@ RYAN: 18 Based on the standardized address, Desktop Underwriter estimates the value of the property at $145700.00. This estimated value was developed by internal proprietary models to help determine eligibility for a DU Refi Plus property fieldwork waiver. It is not the result of an appraisal, nor was it developed by a state licensed or certified appraiser. This estimate is intended to be used solely by the lender to underwrite the refinance of the borrower’s mortgage loan. “
Matthew Graham  :  “” Banks were asked to compare their willingness to originate a GSE-eligible 30-year fixed-rate mortgage loan intended for home purchase today with their willingness in 2006 for borrowers with FICO (or equivalent) credit risk scores of 620, 680, and 720, and down payments of 10 or 20 percent (for a total of six categories of borrowers). “”
Matthew Graham  :  “”In response to the second set, banks reported that they were less likely than in 2006, to varying degrees, to originate mortgages to any borrowers apart from those with the strongest credit profiles.””
Matthew Graham  :  http://www.federalreserve.gov/boarddocs/SnloanSurvey/201205/default.htm race to find it first”
Patrick Waldron  :  “”Top-notch credit” here being defined as…?”
Matthew Graham  :  “RTRS – BANKS LESS LIKELY THAN IN 2006 TO ORIGINATE MORTGAGES TO BORROWERS LACKING TOP-NOTCH CREDIT “
Matthew Graham  :  “RTRS- US FED – SMALL RISE IN U.S. BANKS THAT EASED LENDING STANDARDS, EXPERIENCED STRONGER LOAN DEMAND OVER FIRST QUARTER “
Tony Cardinal  :  ryan, yes i had the same thing happen this am. dont know what to make of it yet. i have 2 different ones. one says i need an appraisal but FNMA issued a value to use for the underwrite. another that accepts the value i used, giving the PIW verbage, however ALSO giving a “hve,” which is lower than the estimated value i ran it at.”
Ira Selwin  :  https://www.efanniemae.com/sf/guides/duguides/pdf/current/rndodu83aprupd.pdf
Ira Selwin  :  “Insufficient Information Message The following message will be issued on DU Refi Plus loan casefile where the subject property address cannot be standardized, or Fannie Mae’s databases do not have sufficient information about the property to estimate a value: Based on the address and other information available to Desktop Underwriter, this property is not eligible for a DU Refi Plus property fieldwork waiver.”
bfeigen  :  “only freddie gives the HVE value, DU does not…”
ryan beacham  :  “Has anybody ran the new DU 8.3 today? I ran it on a new file and now it just states that “this property is not eligible for a PIW”. I thought if that was the case DU would give you the recommended value so that you would receive the PIW? “
Jason York  :  ok, thanks”
Victor Burek  :  “my uw says use 5%..but might vary lender to lender”
Paul Carlin  :  “The undewritter and you should calculate a payback rate. I think is is someting like 5% of the balance”
Jill Statz  :  “5% JY”
Jason York  :  “when there is no payment listed”
Jason York  :  “anyone know the % to use for deferred student loans for a VA loan?”
Glenn Setzer  :  “then you can Manage your directory listings here: http://www.mortgagenewsdaily.com/AddOns/BusinessListing/Listing”
Glenn Setzer  :  “update your profiles here: http://www.mortgagenewsdaily.com/AddOns/UserProfile/Manage/Edit”
Matthew Graham  :  “FYI, you need to make sure your profile is fully completed if you want to show up on the directory (specifically the “location” part)”
Matthew Graham  :  “sleepy day all around.”
Matthew Graham  :  “I read something about decent originations earlier in the day, but I haven’t seen confirmation of that. AQ’s “ZZZZ” would be what I would go on for now.”
Victor Burek  :  wouldnt bother me a bit”
Jeff Statz  :  “could be rangebound the whole day”
Adam Quinones  :  “ZZZZZZZZZZZZZZZZZZZZZZZZ”
Jeff Statz  :  “how does volume look, MG?”

Read what our user’s have to say about MBS Live on LinkedIn.
» Start a two week free trial of MBS Live.

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[Mortgage Rate Watch] – Mortgage Rates Edge Closer To All-Time Lows

Mortgage Rates Edge Closer To All-Time Lows

Posted to: Mortgage Rate Watch
Monday, April 30, 2012 3:54 PM

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Mortgages Rates are moderately improved to begin the week, taking them slightly lower than than April’s best two days (4/10 and 4/23) and as close as they’ve been to all-time lows in several months. This further solidifies the Conventional 30yr Fixed Best-Execution Rate at 3.875%, which had recently shared the stage with 4.0%.

Keep in mind that “best-execution” as we calculate it, connotes the no-closing-cost rate for the best-qualified borrowers in the most ideal scenario.  (read more about Best-Execution calculations).  If your scenario is something less than flawless, and you were looking at a 4.0% rate on Friday, there’s a chance that 3.875% will be doable today.  That said, 3.875% today is still a more expensive rate than 4.0% was on Friday any way you slice it.  In other words, 3.875% is still going to require more closing costs (or less lender-credit toward closing costs) than 4.0% did on Friday. 

Despite the improvements in rate sheets today, the broader markets were strikingly flat yet again.  Lots of market participants are out of the office this week for various holidays in Europe and Asia.  Believe it or not, such things do, in fact, have an effect on how busy our domestic trading sessions can be.

We’d expect the level of market activity to pick up as the week progresses, but certainly Friday is the most important day.  Whereas we might see some small movement in either direction throughout the week, things can change abruptly on Friday with the release of The Employment Situation Report.  The fact that rates have been so low and so stable is a negative risk in our view.

 Historically, there’s been limited benefit in floating at current levels, and historically, “big news” that follows “flat markets” creates the potential for huge swings.  This is not at all to say that rates couldn’t or wouldn’t improved if the Jobs report was very weak, simply that there’s no historical precedent to them improving much beyond current levels and that the Jobs report creates the potential for volatility.  

Today’s BEST-EXECUTION Rates 

  • 30YR FIXED –  3.875%
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.125-3.25%
  • 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
  • Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
  • But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn’t always mean they’re done improving.
  • (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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[MND NewsWire] – Vacant Units Decline but so does Homeownership

Vacant Units Decline but so does Homeownership

Posted to: MND NewsWire
Monday, April 30, 2012 12:16 PM

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Vacancy rates for both owner-occupied and rental properties dropped to new recent lows in the first quarter of 2012 according to data released by the U.S. Census Bureau on Monday.  The rental vacancy rate dropped below 9 percent for the first time since the second quarter of 2002 and the homeowner rate was the lowest since the first quarter of 2006.

Rental vacancies were at a rate of 8.8 percent compared to 9.4 percent in the fourth quarter of 2011 and 9.7 percent in the first quarter of 2011.  The rate of homeowner vacancies was 2.2 percent compared to 2.3 percent in the previous quarter and 2.6 percent in the first quarter of 2011.  This is the lowest that vacancy rate has been since the first quarter of 2006 when it was 2.1 percent.

There are an estimated 132.1 million housing units in the U.S., an increase of 486,000 since the first quarter of 2011.  Of these, 114,122 are occupied, one million more than a year earlier and 19.0 million are vacant, down just over one -half million.  At the same time the number of owner occupied houses also decreased by a half million from 75.1 million in Q1 2011 to 74.6 million.

Of vacant housing units 14.4 million or 10.6 percent are considered year-round housing and of those, 4.1 million units are for rent, 2.0 million are for sale and 7.4 million are being held off the market about half for occasional use by the owner or a non-arms length occupant.

Homeownership rates declined again in the first quarter consistent with the pattern of most quarters since the rate peaked at 69.0 percent in the third quarter of 2006.  The current rate is 65.4 percent, down from 66.0 percent in the fourth quarter and 66.4 percent in the first quarter of 2011.   Homeownership declined across all age groups and all ethnic groups covered in the study.

While the declining vacancy rates have been reflected in increasing rental prices, the same is not true for home sale prices.  The median asking rent for vacant units in the first quarter was $721, up from $712 in the previous quarter and $683 one year earlier.  The median asking sales price for vacant units in the first quarter was $133,700, down from $133,800 in Q4 and $143,700 in Q1.

Rental vacancy rates declined in three of the four regions on an annual basis.  Only in the Northeast did the rate increase from 6.8 percent in the first quarter of 2011 to 7.8 percent in the first quarter of 2012.  In the Midwest the new rate was 9.3 percent compared to 10.2 percent; the South was down from 12.5 percent to ‘10.8 percent and in the West the rate declined from 7.3 percent to 6.3 percent.  The rate also declined both inside and outside of Metropolitan Statistical areas.

Homeowner vacancy rates declined in all four regions, from 2.2 percent to 1.8 percent in the Northeast, 2.7 percent to 2.1 percent in the Midwest, 2.8 percent to 2.4 percent in the South, and 2.4 percent to 2.0 percent in the West.  Homeowner vacancies were down inside MSAs but increased 3 basis points to 2.6 percent outside of MSAs.

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[MND NewsWire] – RPX: Investors Amassing Billions to Invest in Distressed Properties

RPX: Investors Amassing Billions to Invest in Distressed Properties

Posted to: MND NewsWire
Thursday, April 26, 2012 1:42 PM

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The RPX Monthly Housing Market Report says that both home sales and home prices increased strongly in the month ended February 16.  The RPX Composite Price which tracks home prices in 25 major metropolitan areas was up 1.9 percent over the previous month, a change which RPX called large relative to changes of the same period in recent years.  There was also a strong increase in home sale transactions in those metropolitan areas.

The RPX composite ended the period at $172.84 per square foot compared to $169.75 per square foot in January.  It is only fair to mention that January set the lowest price for the Composite since July 2002.  February’s Composite price is still 3.18 percent lower than it was in February 2011.

Transactions in the 25 MSAs increased 22.9 percent on a month over month basis through February 16.  RPX says that February is typically a strong month but the increase this time was particularly robust.  Transactions are up 16 percent over those one year earlier.

RPX credits two factors for the strong sales.  One, the warm weather, may have merely moved the market forward in time so February’s strength may be compensated by weakness later in the buying season.

The second factor is of greater import.  The report notes that since 2009 there has been a rapid increase in home sales to corporate investors especially in markets hard-hit by the housing crisis.  In Miami purchases by corporate investors increased 714 percent compared to an 184 percent increase in total sales.  In Las Vegas the increase was 1,300 percent compared to an overall increase of 264 percent.  Corporate purchases were up in other cities as well: New York was up126 percent against 69 percent; Los Angeles 421 percent v 36 percent. 

The impact of this corporate presence has been mixed.  Because investors tend to buy properties at a discount from lenders this has had an initial negative impact on prices which is then carried forward by depressing the comps used for market sales.  On the other hand, investor purchases have helped put a floor under housing prices, particularly at the low end of the market.  Over the last year RPX motivated sale prices which track sales of lender owned real estate have declined 0.7 percent while all prices are down 5.2 percent.  One could argue that investors have stabilized the distressed sale market.

RPX says that now, with home prices at such low levels and rents rapidly approaching all time high levels, large institutional investors are raising funds with which to purchase thousands of mostly distressed properties to convert to rentals, something which the government is facilitating as a matter of policy.  “These large investors are amassing hundreds of millions to billions of dollars to deploy in the rapid acquisition of thousands of residential properties.”  RPX said some buying has begun but most of the capital is yet to be deployed and, when it is it will have to be done quickly so ‘these investors are likely to be less price sensitive than traditional buyers.”

This is likely to have a positive impact on seller psychology and could help, RPX says, to strengthen aggregate home prices to a greater extent than the actual contribution of the investors to the market would suggest.  Sellers, when they see investors buying, may decide to hold or raise prices.

This effect however could be short lived, as once the capital in spent or prices have risen to a point that investors have less incentive to buy the market could return to prior levels.  Investors will not drive a lasting recovery in home prices.  

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[MBS Commentary] – MBS MID-DAY: Slow Start, But Positive

MBS MID-DAY: Slow Start, But Positive

Posted to: MBS Commentary
Monday, April 30, 2012 11:06 AM

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MBS Live: MBS Morning Market Summary
Despite a much weaker-than-expected Chicago PMI, bond markets have generally been content trading in slightly better territory in a very narrow range, and in very low volume.  More than a little bit of the “low volume” portion of today’s equation is courtesy of Asian and European players being out of the game for Holiday-related reasons.  That leaves domestic markets slightly less inspired than they otherwise might be given the presence of a decent round-up of economic data for a Monday morning.  That said, it’s still a Monday morning.  Additionally, there are more holiday-related absences to come, not to mention that NFP is on Friday, meaning that everything else already feels that much less consequential by comparison. 
MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

FNMA 3.5
103-27 : +0-04
FNMA 4.0
105-24 : +0-03
FNMA 4.5
107-02 : +0-02
FNMA 5.0
108-19 : +0-01
GNMA 3.5
105-11 : +0-04
GNMA 4.0
108-04 : +0-03
GNMA 4.5
109-11 : +0-01
GNMA 5.0
110-22 : +0-02
FHLMC 3.5
103-21 : +0-05
FHLMC 4.0
105-14 : +0-03
FHLMC 4.5
106-19 : +0-02
FHLMC 5.0
108-02 : +0-01
Pricing as of 11:06 AM EST
Morning Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

10:51AM  :  Census Bureau Releases Home Ownership/Rental Statistics for Q1

National vacancy rates in the first quarter 2012 were 8.8 percent for rental housing and 2.2 percent for homeowner housing, the Department of Commerce’s Census Bureau announced today. The rental vacancy rate of 8.8 percent was 0.9 percentage points lower than the rate recorded in the first quarter 2011 (+/-0.4 percentage points) and 0.6 percentage points lower than last quarter (+/-0.4). The homeowner vacancy rate of 2.2 percent was 0.4 percentage points lower than the first quarter 2011 rate (+/-0.2) and 0.1 percentage point lower (+/-0.1)* than the rate last quarter (2.3 percent).

The homeownership rate of 65.4 percent was 1.0 percentage points (+/-0.4) lower than the first quarter 2011 rate (66.4 percent) and 0.6 percentage points (+/-0.4) lower than the rate last quarter (66.0 percent).

Charts, Tables, and More Data:

9:56AM  :  ECON: Chicago PMI Much Weaker Than Expected

The Chicago Institute for Supply Management today reported that its Purchasing Management Index fell to 56.2 in April vs 62.2 in March. Economists surveyed by Reuters expected today’s reading to hit 61.0.

Although this is the lowest level for the index since November 2009, a reading above 50.0 indicates that business activity continues to expand, a trend that has remained intact since October 2009.

Drops in New Orders and Production accounted for a majority of the weakness while the Employment component actually improved to 58.7 from March’s 56.3.

market reaction: perhaps even weaker than the report itself with both MBS and Treasuries gesturing toward the morning’s best levels only to shy away rather quickly. That said, the story isn’t over yet. Volumes are still on the low side and further stock selling could have a beneficial effect for bond markets given the low volume and absence of other market moving data.

9:25AM  :  ALERT ISSUED: Bond Markets Slightly Improved After Quiet Overnight Session

Volume and volatility were all but absent overnight as much of Asia was out of commission for the start of “golden week.” European trading did little to move things from Friday’s latest levels despite Spain’s 0.1 pct GDP beat. European participation was also lower as many participants opt for a 4 day weekend through tomorrow’s May Day holiday.

Domestically, things are slightly improved in the first hour of trade with the Incomes/Outlays report having very little impact as expected. Volume has been flat, steady, and low. More to the point, and without consideration of any rallying or selling in bond markets, we can observe 10yr yields bounce at 1.9102 this morning without going lower. This seems to be a validation of uninspired range-trading considering the recent domestic session low on 4/23 of 1.9104.

MBS are 3 ticks higher this morning in Fannie 3.5 coupons at 103-26, a mere eighth of a point off 4/10 highs. That said, the current range is the highest that production MBS have stably been, not to mention the fact that this jaunt is already more stable than previous visits.

The only other scheduled economic data of the morning arrives in about 20 minutes with Chicago PMI. It’s not normally a tremendous market mover, but its impact could be more noticeable today due to light volume.

8:38AM  :  ECON: Incomes Accelerate, Spending Decelerates, Inflation Tame

* Income +0.4 pct vs +0.3 pct consensus
* Spending +0.3 pct vs +0.4 pct consensus
* Core PCE +0.1583 vs +0.2 pct consensus
* Savings rate 3.8 vs 3.7 previously
* ‘Real’ consumer spending +0.1 pct vs +0.5 pct previously

Personal income increased $50.3 billion, or 0.4 percent, and disposable personal income (DPI) increased $42.5 billion, or 0.4 percent, in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $29.6 billion, or 0.3 percent. In February, personal income increased $39.6 billion, or 0.3 percent, DPI increased $29.4 billion, or 0.2 percent, and PCE increased $93.7 billion, or 0.9 percent, based on revised estimates.

Real disposable income increased 0.2 percent in March, in contrast to a decrease of 0.1 percent in February. Real PCE increased 0.1 percent, compared with an increase of 0.5 percent.

Private wage and salary disbursements increased $17.3 billion in March, compared with an increase of $24.1 billion in February. Goods-producing industries’ payrolls decreased $1.3 billion, in contrast to an increase of $1.8 billion; manufacturing payrolls increased $0.1 billion, compared with an increase of $1.6 billion. Services-producing industries’ payrolls increased $18.6 billion, compared with an increase of $22.3 billion. Government wage and salary disbursements increased $1.4 billion, compared with an increase of $0.7 billion.

Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard’s Live Chat feature, utilized by hundreds of industry professionals each day.

Matthew Graham  :  “RTRS- U.S. HOMEOWNER VACANCY RATE FALLS TO 2.2 PERCENT IN FIRST QUARTER FROM 2.3 PERCENT IN FOURTH QUARTER; RENTAL VACANCY RATE FALLS TO 8.8 PERCENT FROM 9.4 PERCENT “
Matthew Graham  :  “RTRS – U.S. HOMEOWNERSHIP RATE FALLS TO 65.4 PERCENT IN FIRST QUARTER FROM 66.0 PERCENT IN FOURTH QUARTER – U.S. COMMERCE DEPARTMENT “
Matthew Graham  :  “i have other news too. it’s actually housing-related which is nice for a change.”
B-C  :  ok i don’t want to get ahead of myself too early on a Monday morning”
Matthew Graham  :  “semi-officially”
B-C  :  “MG can we offically call it the lack of jobs report yet?”
B-C  :  “or LACK of jobs”
Matthew Graham  :  “Reuters Instant Views – TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK “The underlying details slowed rather sharply and while the employment index was up, that is just one factor and does not offset this weak report. More important, this rounds out the round of disappointing regional data we have had. The national ISM is likely to be on the disappointing side. This does not change anything on the potential for QE3, but Friday’s jobs report should be more useful with that”
Matthew Graham  :  “RTRS – CHICAGO PURCHASING MANAGEMENT INDEX AT LOWEST SINCE NOVEMBER 2009 “
Matthew Graham  :  “RTRS – CHICAGO PURCHASING MANAGEMENT INDEX 56.2 IN APRIL (CONSENSUS 61.0) VS 62.2 IN MARCH “
MMNJ  :  “Plaza JUST rolled it — although the way they condition the crap out of 30 LTV 800 FICO conventional loans I would tread carefully….”
Matthew Graham  :  http://tinyurl.com/7l7un86&#8221;
Matthew Graham  :  “New Plaza Jumbo program? $2.5 mln, 80LTV, 700 FICO, Condo eligible, 6% seller-paids
Tony Cardinal  :  “Ha. Thx for the insight. Gotta love the news. “
Matthew Graham  :  “the “in a recession” tidbit is just a way for media to dress up an otherwise uneventful headline”
Matthew Graham  :  “not so much. they actually beat their GDP forecast by 0.1.”
Tony Cardinal  :  “So Spain is announcing they are in a recession. Thats gotta be bond friendly, no?”
Matthew Graham  :  “”While the ‘income’ component is important for evaluating consumer spending, and the “consumption component” or PCE (personal consumption expenditures) is a major contributor to GDP, they’re both a bit backward looking. Given that we already got a preliminary look at Q1 GDP and that today’s PCE is for the month of March (which falls in Q1), it’s not a report that generates a lot of fuss unless it deviates significantly from expectations. “”
Matthew Graham  :  “RTRS – US MARCH PERSONAL INCOME +0.4 PCT (CONS +0.3 PCT) VS FEB +0.3 PCT (PREV +0.2 PCT) “
Matthew Graham  :  “RTRS – US MARCH PERSONAL SPENDING +0.3 PCT (CONSENSUS +0.4 PCT) VS FEB +0.9 PCT (PREV +0.8 PCT) “

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