[MBS Commentary] – MBS MID-DAY: Another Day, Another Melt-Down Snowball Rally

MBS MID-DAY: Another Day, Another Melt-Down Snowball Rally

Posted to: MBS Commentary
Thursday, May 31, 2012 11:08 AM

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MBS Live: MBS Morning Market Summary
Rather than stand out as one of those examples of “a major headline event causing a major, sudden shift” in bond markets, today has been more of a determined snow-ball of risk aversion and duration-grabbing, albeit with growing momentum and speed.  In other words, we haven’t seen 10yr yields shoot “straight down” on the heels of any particular headline, it’s just that they’ve moved “relatively sharply down on the heels of almost every headline!”  10’s made it into the 1.53’s, officially an undisputed all-time low.  MBS Hit all time highs with Fannie 3.5’s into the 105’s and Fannie 3.0’s over 102-16.  The whole of “risk” has made similar movements with 10yr yields sharing a high degree of correlation with stock prices, German Bunds, and the Euro.  For their part, MBS could fall several ticks more and STILL be maintaining a rally trend at all time highs.
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
105-01 : +0-08
FNMA 4.0
106-21 : +0-09
FNMA 4.5
107-11 : +0-04
FNMA 5.0
108-14 : +0-02
GNMA 3.5
106-24 : +0-08
GNMA 4.0
109-09 : +0-04
GNMA 4.5
109-24 : -0-01
GNMA 5.0
110-18 : -0-02
FHLMC 3.5
104-25 : +0-07
FHLMC 4.0
106-05 : +0-05
FHLMC 4.5
106-25 : +0-01
FHLMC 5.0
107-22 : +0-01
Pricing as of 11:08 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.

10:03AM  :  Freddie Mac: 15-Year Fixed Rate Mortgage Falls Below 3%

30-year fixed-rate mortgage (FRM) averaged 3.75 percent with an average 0.8 point for the week ending May 31, 2012, down from last week when it averaged 3.78 percent. Last year at this time, the 30-year FRM averaged 4.55 percent.

15-year FRM this week averaged 2.97 percent with an average 0.7 point, down changed from last week when it averaged 3.04 percent. A year ago at this time, the 15-year FRM averaged 3.74 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.84 percent this week, with an average 0.6 point, up from last week when it averaged 2.83. A year ago, the 5-year ARM averaged 3.41 percent.

1-year Treasury-indexed ARM averaged 2.75 percent this week with an average 0.4 point, unchanged from last week. At this time last year, the 1-year ARM averaged 3.13 percent.

9:50AM  :  ECON: Chicago Purchasing Managers Index Weaker Than Expected

* PMI 52.7 vs consensus 56.5

May 2012: The Chicago Purchasing Managers reported the May Chicago Business Barometer decreased for a third consecutive month to its lowest level since September 2009. The short term trend of the Chicago Business Barometer, and all seven Business Activity indexes, declined in May.

Among the Business Activity measures, only the Supplier Delivery index expanded faster while Order Backlogs and Inventories contracted.

The Production index fell to neutral while, inexplicably, measures of Business Policy advanced.

BUSINESS ACTIVITY:
• PRODUCTION and NEW ORDERS lowest since September 2009;
• PRICES PAID lowest since September 2010;
• EMPLOYMENT rate of growth slowed

9:31AM  :  ALERT ISSUED: Bond Markets Open Flat; Turn Stronger Following Data

Despite yesterday being a tough act to follow, both MBS and Treasuries are carving out incrementally stronger record levels after a raft of weaker-than-expected economic data. All across the board this morning, things were in line with expectations or worse:

– Challenger Job Cuts were an 61k vs 40k previously
– ADP Employment was 133k vs a 148k forecast
– Jobless Claims were 383k vs a 370k forecast
– GDP was an as-expected +1.9%, but corporate profits were down 4.1% vs a +1.1% consensus, the largest drop since Q4 2008

All told, it was enough to nudge 10yr yields briefly down to another record low of 1.593 while Fannie 3.5 MBS hit another record high of 104-29+. Fannie 3.0’s also hit a record of 102-14.

Records aside, we haven’t seen any follow through at these levels and markets are moving sideways in slightly less aggressive territory. But with 1.5983 10yr yields and MBS holding at the highs, we’re not exactly looking at a panicked bounce weaker either.

Next piece of domestic data on the calendar is Chicago PMI at 9:45am.

8:40AM  :  ECON: GDP In Line With Expectations

* Headline GDP +1.9 vs +1.9 consensus, previously +2.2
*Consumer Spending +2.7 pct vs +2.9 pct previously

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 1.9 percent in the first quarter of 2012 (that is, from the fourth quarter to the first quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2011, real GDP increased 3.0 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 2.2 percent (see “Revisions” on page 3).

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, residential fixed investment, private inventory investment, and nonresidential 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 deceleration in real GDP in the first quarter primarily reflected a deceleration in private inventory investment, an acceleration in imports, and a deceleration in nonresidential fixed investment that were partly offset by accelerations in exports and in PCE.

8:36AM  :  ECON: Jobless Claims Higher Than Expected

* Claims +383k vs 370k consensus
* 4wk moving ave rises to 374.5k from 370.75k
* Benefit exhaustion leads to fall in continuing claims, lowest since July 2008,

In the week ending May 26, the advance figure for seasonally adjusted initial claims was 383,000, an increase of 10,000 from the previous week’s revised figure of 373,000. The 4-week moving average was 374,500, an increase of 3,750 from the previous week’s revised average of 370,750.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending May 19, unchanged from the prior week’s unrevised rate.

The advance number for seasonally adjusted insured unemployment during the week ending May 19 was 3,242,000, a decrease of 36,000 from the preceding week’s revised level of 3,278,000. The 4-week moving average was 3,263,750, a decrease of 12,000 from the preceding week’s revised average of 3,275,750.

8:18AM  :  ECON: ADP Employment Lower Than Expected

* Private Payrolls +133k vs 148k consensus
* Last month revised down to 113k from 119k

Private-sector employment increased by 133,000 from April to May on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The ADP National Employment Report, created by Automatic Data Processing, Inc. (ADP®), in partnership with Macroeconomic Advisers, LLC, is derived from actual payroll data and measures the change in total nonfarm private employment each month. The estimated gain from March to April was revised down modestly, from the initial estimate of 119,000 to a revised estimate of 113,000.

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.

Brent Borcherding  :  “Nobody is rooting against the economy and there is absolutely nothing wrong with coming to a place like this, staying informed better than your peers, and planning accordingly so that you an provide. Actually it is your obligation.”
Victor Burek  :  “i agree..seems we root against economy, but if it walks like a duck, quacks like a duck..its a duck”
Matthew Graham  :  “i was thinking about saying something to the effect of feeling sort of guilty or “bad” sometimes being an economic bear… I mean, it’s not like we WANT the global economy to be in this desuetude. It just is what it is.”
Matthew Graham  :  “yeah, that… well-said. I was just trying to think of a way to phrase that, but yours is shorter and better”
Brent Borcherding  :  “Hope can blind one from reality, VB.”
Victor Burek  :  “i dont see how anyone didnt see this coming with europe imploding”
Matthew Graham  :  “BB is on that list too”
Matthew Graham  :  “a hearty congratulations to Vic, B-C, JW, and anyone else that called “105” and/or “best-rates ahead this spring” around mid-March. “
Matthew Graham  :  “RTRS – U.S. 30-YR FIXED RATE MORTGAGES RECORD LOW 3.75 PCT MAY 31 WK VS 3.78 PCT PRIOR WK-FREDDIE MAC “
Matthew Graham  :  “two different phenomena anyway… In the case of QE, low rates are a “cause.” In the case of the E-Z crisis, they’re an “effect.””
Christopher Stevens  :  “Let me rephrase that…I think the yld is low enough that the Fed does not have to use QE3″
Matthew Graham  :  uhh… pretty sure they could get it as low as they want. whether or not that’s a good idea is another story.”
Christopher Stevens  :  “the Fed could not have gotten the 10YR this low with QE3”
Christopher Stevens  :  “No need for QE3 with Spain, Italy and Greece doing the work for the Fed”
Adam Quinones  :  “warm the tar and start plucking feathers…”
Matthew Graham  :  “RTRS- JPMORGAN CEO DIMON AGREES TO TESTIFY BEFORE SENATE BANKING COMMITTEE ON JUNE 13 – COMMITTEE “
Victor Burek  :  “150kish
Andy Pada  :  “What is tomorrow’s payroll # forecast?”
Tom Schwab  :  hmmm… the market appears to be endorsing the Mayan calendar and the end of the world.”
Jason Harris  :  “Chris is spot on….I will be interested to see if we get much improvement with capacity already pressed to the edge”
Oliver S. Orlicki  :  “1.59 wow!”
Andy Pada  :  “I guess the parade of horribles has come to town”
Adam Dahill  :  turntimes are horrendous and not getting any better”
Christopher Stevens  :  “banks are in no hurry to lower rates with refi’s at the current levels”
Victor Burek  :  “i still have the 3.5”
Gus Floropoulos  :  “who else has switched their current chart to the fnma 3.0?”
Matthew Graham  :  “RTRS – US Q1 CORPORATE PROFITS DROP LARGEST SINCE Q4 2008 (-26.5 PCT) “
Matthew Graham  :  “RTRS – US Q1 CORPORATE PROFITS AFTER TAX -4.1 PCT (CONS +1.1 PCT), VS Q4 +1.1 PCT (PREV +1.1 PCT) “
Matthew Graham  :  “RTRS- US Q1 CONSUMER SPENDING +2.7 PCT (PREV +2.9 PCT), DURABLES +14.3 PCT (PREV +15.3 PCT) “
Matthew Graham  :  “RTRS – US PRELIM Q1 GDP +1.9 PCT (CONSENSUS +1.9 PCT), PREV +2.2 PCT; FINAL SALES +1.7 PCT (CONS +1.5 PCT), PREV +1.6 PCT “
Matthew Graham  :  “RTRS – US CONTINUED CLAIMS LOWEST SINCE JULY 2008”
Matthew Graham  :  “RTRS- US CONTINUED CLAIMS FALL TO 3.242 MLN (CON. 3.250 MLN) MAY 19 WEEK FROM 3.278 MLN PRIOR WEEK (PREV 3.260 MLN) “
Matthew Graham  :  “RTRS – US JOBLESS CLAIMS 4-WK AVG RISES TO 374,500 MAY 26 WEEK FROM 370,750 PRIOR WEEK (PREVIOUS 370,000) “
Matthew Graham  :  “RTRS – US JOBLESS CLAIMS RISE TO 383,000 MAY 26 WEEK (CONSENSUS 370,000) FROM 373,000 PRIOR WEEK (PREVIOUS 370,000)”
Matthew Graham  :  “RTRS – REUTERS CONSENSUS FORECAST FOR ADP PAYROLL CHANGE FOR MAY WAS FOR INCREASE OF 148,000 JOBS “
Matthew Graham  :  “RTRS – ADP NATIONAL EMPLOYMENT REPORT SHOWS U.S. EMPLOYMENT INCREASED BY 133,000 PRIVATE SECTOR JOBS IN MAY “
Jason Harris  :  “Not sure what was rigt or wrong….but the appraiser in question was in the process of being taken off of our AMC list for shoddy work and bad turn times totally unrelated to value”
Matt Hodges  :  “so, gray area, jason?”
Jason Harris  :  “I have had the same thing….more a request that we use someone else….we sent another appraiser out”
Victor Burek  :  “if thats the case, then cant be done”
Matt Hodges  :  “but remember who instituted HVCC originally”
Matt Hodges  :  “that would be “logical””
Victor Burek  :  “client is paying for it, they should be able to refuse”
Matt Hodges  :  “the FAQs don’t address refusal of assignment by a Realtor or borrower”
Matt Hodges  :  “they ended up doing that, but put up a big stink”
Victor Burek  :  “so the AMC assigned to new appraiser”
Victor Burek  :  “i just had a realtor for a seller refuse an appraiser assignment…she knew the appraiser”
Matt Hodges  :  “can a borrower refuse appraiser assignment, for example because of distance from their office to property location?”
Jason Harris  :  “These times are ridiculous….everyday that I see rates like this I think about how freaking lucky we are. Make as much of this opportunity every day as you can!”

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[MND NewsWire] – Mortgage Fraud Rates Show Some Purchase/Refi Correlation

Mortgage Fraud Rates Show Some Purchase/Refi Correlation

Posted to: MND NewsWire
Wednesday, May 30, 2012 4:56 PM

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Interthinx, a provider of comprehensive risk mitigation solutions, has released its 12th quarterly report and its Mortgage Fraud Index which measures four types of fraud common to the mortgage industry.  The composite index for the first quarter of 2012 which is derived from the four underlying indices, dropped to 139, its lowest point since the second quarter of 2009.  This represented a change of -4.3 percent from the fourth quarter of 2012 and -3.1 percent from one year ago.

Nevada returned to the role of “riskiest state” after being displaced by Arizona in the fourth quarter.  Arizona fell to second place followed by Florida, New Jersey, and California.

Much of the report centers on those metropolitan statistical areas (MSAs) with the highest fraud risk.  Two MSAs in Florida, Cape Coral and Miami occupy the first and second spots with composite risk scores of 248 and 241 respectively.  They are followed by Modesto and Chico, California and Las Vegas. 

The report notes significant movement among MSAs as to the levels of fraud, the types of fraud, and their relative positions in the rankings since the previous quarter.  For example, Stockton, California had been the riskiest city for three consecutive quarters but saw a 24 percent decrease from the fourth quarter of 2011 to drop to 7th place. 

The Property Valuation Fraud Index was 213, down 11.8 percent from the previous quarter and 4.7 percent from one year earlier.  Property Valuation Fraud is perpetrated by manipulating property values to create false equity which can be used for various purposes.  Florida led the nation in this type of fraud with five metropolitan areas (MSAs) in that state making in the top ten.  Cape Coral Florida had an index of 482, more than twice the national value, a major reason why it was also the riskiest MSA overall.  Las Vegas was second with an index of 440, but every MSA in the top ten had an index score of at least 401.  

The Identity Fraud Index was 140, down 2.2 percent from the fourth quarter of 2011 and 24.4 percent from the first quarter of 2011.  Identify fraud is frequently used in schemes to hide the identity of the offender and to obtain a credit profile that will meet lender guidelines.  The hot spot for this fraud was San Jose, California with an index of 293; Detroit was second and Ann Arbor, Michigan was in third place.

The Occupancy Fraud Index finished the quarter at 61, 23.2 percent lower than one year ago and down 2.1 percent from the previous quarter.  Offenders commit occupancy fraud by falsely claiming they intend to occupy the property they are purchasing in order to obtain a mortgage with a lower down payment or a lower interest rate.  Miami was the riskiest for this fraud, moving from second to first place even though its score of 104 was a decrease of 23.6 percent from the previous quarter.  Other MSAs appearing high on this list were Jacksonville, North Carolina; and Flint, Michigan.

The fourth type of fraud is measured by the Employment/Income Fraud Index.  This occurs when a mortgage applicant misrepresents income in order to meet underwriting guidelines.  Nationally this fraud risk has increased 18.1 percent over the last year and 4.5 percent from the fourth quarter of 2011.  Burlington, Vermont leads in this category of fraud risk with an index of 271, 80 points higher than San Diego which was in second place.  Eight out of the remaining nine MSAs in the top ten for this type of fraud are in California.

As interest rates declined the composition of loan applications in the Interthinx database have changed from a nearly 60:40 split between purchases and refinances in Q2 2011 to a 40:60 split in the first quarter of 2012.  The geographic changes that may have been caused by the composition shift were extremely granular in nature; however the type-specific risk indices did show some significant trends, especially in Identity and Occupancy Fraud Risk which saw decreases of 22 and 23 percent respectively and the Employment/Income category which increased 18 percent.  Both indices that decreased have lower values for refinances relative to purchases while the reverse is true for the Employment index.  Interthinx speculates that at least part of the major type-specific trends over the last year may be related to a change in loan composition. 

Interthinx maintains that its indices have proven to be reliable leading indicates of default and foreclosure activity therefore it advises that areas that bear watching going forward are Nevada and Arizona, the two riskiest MSAs in Florida, Cape Coral and Miami, and the New York Tri-State area where risk is rising in all three states, New York, New Jersey, and Connecticut.

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[Pipeline Press] – HARP 3.0 Musings; What these High MBS Prices Mean; Flood Insurance in the News Again?

HARP 3.0 Musings; What these High MBS Prices Mean; Flood Insurance in the News Again?

Posted to: Pipeline Press
Thursday, May 31, 2012 10:04 AM

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Sometimes I wish that I could use swear words in this commentary, but they wouldn’t pass e-mail filters. But if I could, I’d use them here. Why is Congress still “jerking around” with flood insurance? If Congress is concerned enough with protecting borrowers to ram Dodd Frank through and put the CFPB in place, why can’t they even come to an agreement on flood insurance? Instead the can is kicked down the proverbial road: Congress has given itself two more months to come up with long-term solutions for the program. The last full-scale reauthorization of the NFIP, a wing of the Federal Emergency Management Agency, occurred in 2004. Since 2008 the insurance provider has stayed alive through a series of 16 short-term extensions while lawmakers debate how to restore its fiscal soundness.

This time around, a voice vote in the House extended the life of the National Flood Insurance Program for 60 days. Last year the House passed a five-year extension that allowed for increased premiums and ended some subsidies, but the Senate has been unable to get a companion bill to the floor for a vote. The Senate last week passed the 60-day extension after adding a provision by Sen. Tom Coburn, R-Okla., that would gradually eliminate premium rate subsidies for people buying second homes and vacation homes in flood-prone areas. Coburn said that could save the program $2.7 billion over 10 years. I am done ranting, and there is a back story, of course, and that is that the NFIP was largely self-financing until it was overwhelmed by claims from hurricanes Katrina and Rita in 2005. It now owes nearly $18 billion to the Treasury. But still, should ordinary borrowers suffer again due to Congress’ inability to come to a conclusion?

MBA president Dave Stevens, ex-World Savings, ex-Freddie Mac, ex-Wells Fargo, ex-Long and Foster, ex-HUD/FHA, announced that he will soon be ex-MBA.  Dave will be leaving the organization effective June 30, to join SunTrust Bank as president of SunTrust Mortgage. Anyone interested in the vacated spot can send their resume to Michael Young at the MBA…

But here is a different type of opportunity. An experienced, well-financed mortgage banking group is actively pursuing opportunities to purchase controlling or full interest in an established mortgage bank with current annual production in the $50 million to $300 million range. In 2013, the minimum liquid capital requirement will be $2.5 for many types of business. “Our group will provide a minimum of $5 million injection of equity while building a national platform. The mortgage banker MUST have minimum of a New York state license – multi-state license preferred – and must be Direct Endorsed FHA lender and preferably have seller/servicer approval from Fannie and/or Freddie. We would like Chase and/or Wells (preferably both) to be current approved investors, of course other investors are a positive. Our offer will be based on number of state licenses as well criteria mentioned above. All inquiries will be strictly confidential.” Please contact Mr. Kalin at mk@buildaforce .com to discuss further.

Remember HARP 3? I received this note yesterday from New Jersey: “If it is truly the objective of government to protect the masses and offer a fair and balanced unwinding of the mortgage situation, HARP 3 is necessary. At some point, whether it’s a HARP 3, 4 or 5, the basic economics are going to dictate that the ability to refinance into a lower interest rate should be afforded to all Americans. I don’t know if it needs to be a 28th Amendment, but since Congress can’t remember how to build a budget I’d rather not consider the war over a new Amendment. The Real Estate sector accounts almost 19% of the US Economy. Considering how beaten down our economy has been in recent years perhaps something radical is required. HARP 3 needs to be a unified refinance program. Perhaps the FHA or Fannie/Freddie is not the solution, as has been rumored, but the US Government owns another source of funding: the USDA.  Since USDA is exempt from many state laws it’s foreclose process is simpler, thus making it more attractive in the MBS markets – and no MIP, simple and complete.”

Speaking of HARP III, here’s Part II of a little write up, near the top right corner: http://www.stratmorgroup.com.

How do Ops and compliance folks keep up with things? Here are some somewhat recent investor/agency updates. As always, it is best to read the actual bulletin, but this will give one a flavor for what is happening out there. In no particular order…

The FHA has issued a few reminders about the source reference and data elements for 203(k) transactions in FHA Connection for insuring.  The values in “Est. Value of Property” (line C3 on the conditional commitment section of the 203kWS); FHAC, Appraised Value; and FHAC, Escrow Amount should be used to obtain the correct LTV at the time of insuring for Purchases or Refinances.  For more 203(k) loan program resources, there’s an online reference guide at http://portal.hud.gov/hudportal/HUD?src/program_offices/housing/sfh/203k/203kmenu.

Freddie Mac announced that, beginning November 26, the GSEs’ respective electronic delivery systems will deliver a fatal or critical edit when the data for ULDD Sort IDs 525 (appraisers’ state license), 627 (loan origination company), and 634 (loan originator) is not delivered.  Freddie has also issued a reminder that, under Dodd-Frank, the GSEs are all required to publicly disclose information on ABS loan repurchase requests, including the identity of whoever is funding the applicable mortgage.  As such, lenders will need to supply ULDD data points Sort IDs 641.1 (“NotePayTo”) and 641.2 (the name of the entity funding the mortgage as listed on the note).

The ULDD transition period, of which we’re currently in the middle, will come to an end on July 23, when the requirements of Phase I will go into effect for loan deliveries whose applications are dated December 1, 2011 or after.  Freddie encourages making the transition as soon as possible by entering the date on which the application was received along with all data required for Phase I.  All data entered for relevant loans should match the appraisal data entered into the UCDP.  Fannie’s website features a number of resources to help with the transition, including ULDD tutorials (http://freddiemac.sparklist.com/t/410575/4682831/4967/35/), selling and delivery training tools (http://freddiemac.sparklist.com/t/410575/4682831/1627/36/), a list of key program milestones (http://freddiemac.sparklist.com/t/410575/4682831/4747/37/), and an interactive webinar on the new selling system functionality (http://freddiemac.sparklist.com/t/410575/4682831/4876/34/).

Wells Fargo Correspondent has updated its cooperative LTV ratios, reducing the LTV/TLTV/CLTV maximum by 5% for conforming loans on primary residences as of June 18th.  Fannie HomePath Program loans submitted to Wells will not be affected by the changes.

Correspondent clients are reminded that all loans submitted for purchase on or after June 11th must list the originating company’s main company NMLS ID on the Universal Residential Loan Application (a.k.a. Freddie Mac Form 65 and Fannie Mae Form 1003).  Submissions that only list the originating company’s Branch NMLS ID will no longer be accepted.  For companies in Delaware, Maine, and Missouri that don’t have a Company NMLS ID, the appropriate Agency Assigned Code should be used.

As per Uniform Delivery Dataset requirements, Wells is required to report the year that a property purchased with an agency loan was built, regardless of whether an appraisal was conducted for the transaction.  Conventional loans for which the appraisal or loan application doesn’t supply the year built will be suspended.  This applies to conventional Conforming and Non-Conforming loans whose applications are dated December 1, 2011 or after.

Loans received by Wells Fargo Wholesale are required to have The Record of Account (Box 6C) ticked on the 4506-T Transcript of Tax Return.  This is necessary for the loan to move to the Underwriting Department.  Clients are also reminded that the Return Transcript (Box 6A), Record of Account (Box 6C), Form W-2, the Form 1099 series, and Box 8 of the Form 1098 series must all be checked and completed as necessary.

New pricing is in effect for FHA and VA loans that locked or re-locked with Wells Wholesale on or after May 21st; loans locked prior to this should be renegotiated accordingly.  While pricing was previously based on GNMA I or II identifiers, the identifiers are no longer selectable, and there is only one government price on display.  Interest rates are now available in 0.125% increments.  Temporary Buydowns on 15-year fixed-rate FHA and VA loans, previously not allowed, are now being accepted, and the High Balance FHA Loan Program is being allowed with 15-year fixed rate, 30-year fixed rate, 5/1 and 3/1 ARM transactions.  The High Balance VA Loan Program is allowed with 15-year fixed rate and 30-year fixed rate transactions with amortization terms between 20 and 30 years, as well as 5/1 ARMs with margins of 1.75.  The relevant borrowers are required to qualify at the Note Rate apart from exceptional circumstances.

Wells Wholesale has improved the pricing adjusters for Freddie Mac Relief Refinance Mortgage 20-year fixed rate loans with LTVs over 125%.  The adjuster for primary residences has been updated from 1.625 to 1.375; for second home/investment loans, the adjuster has been changed from 3.125 to 2.875.

And rates continue to avoid being a source of complaint from anyone. Yesterday the U.S 10-yr T-note hit 1.63%. Prices on 30-year Fannie 3.0%, 3.5% and 4.0% coupons hit new price highs respectively of 102.25, 104.75, and 106.375 per Tradeweb – and when you add on a little servicing value those are some hefty premiums! And originators should remember that just because agency MBS prices rally doesn’t mean those price moves are passed on to rate sheets – most lenders are being somewhat conservative for reasons discussed a few weeks ago in this commentary. But mortgage rate sheets are almost back to where they were on May 18th – it seems that no points loans at 3.75% for 30-yr and 3% for 15-yr are where the market is. As we all know, Wednesday’s prices were driven by the ongoing crisis in Europe which will be with us for years.

At these lofty price levels, if you were a servicer, would you want to own mortgages with rates above 4.25%? If you were a borrower, would you be waiting to refinance? If you were a lender, would you be worried about the margin calls on your hedged pipeline while also being concerned about fallout/renegotiation? The answers, of course, are “no”, “no”, and “yes”. In the meantime, LO’s and well run mortgage companies can’t believe their good fortune despite all the hassles of actually moving a loan from application to funding.

Continuing with the markets, this morning we had the ADP Employment report of May, always of questionable predictive ability for tomorrow’s government unemployment data, which came in at +133k (lower than expected). And April was revised downward. We also had the weekly Initial Claims (5/26), up 10k to 383k. Other economic news consists of the preliminary reading on Q1 GDP (+1.9%, lower than expected) and at 10AM EST is the Chicago PMI index for May. In the early going the 10-yr is down to 1.60% and MBS prices are better .125-.250.

Puns (Part 3 of 4)
I got a job at a bakery because I kneaded dough.
Haunted French pancakes give me the crepes.

My Dad was a bankrupt doctor right after med school – he had no patience.
Velcro – what a rip off!
Cartoonist found dead in home. Details are sketchy.
Venison for dinner? Oh deer!
Earthquake in Washington — obviously the government’s fault.
Be kind to your dentist. He has fillings, too.
I used to think I was indecisive, but now I’m not so sure.

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[MND NewsWire] – Lenders Approving More Short Sales, Pricing Aggressively

Lenders Approving More Short Sales, Pricing Aggressively

Posted to: MND NewsWire
Thursday, May 31, 2012 7:31 AM

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Sales of distressed properties once again accounted for more than a quarter of all home sales during the first quarter of 2012.   Twenty-six percent of residential real estate sales during the quarter were of homes that were in some stage of foreclosure or bank-owned (REO).  This is up from 22 percent of sales in the fourth quarter of 2011 and a slight increase from the first quarter of 2011 when distressed properties held a 25 percent market share.

RealtyTrac, which released its first quarter Foreclosure Sales ReportTM Thursday morning, said that a total of 233,299 residential properties that were pre- or post-foreclosure sold during the quarter, an increase of 8 percent from the previous quarter and virtually unchanged from one year earlier.

Pre-foreclosures sales, usually short-sales in which the bank agrees to take less than the full payoff of the mortgage, increased 16 percent from the previous quarter and 25 percent on an annual basis.  There were a total of 109,521 pre-foreclosure sales during the quarter, the highest number since the first quarter of 2009, and they accounted for 12 percent of all sales during the quarter.  In the fourth quarter of 2011 these sales took a 10 percent market share and 9 percent one year earlier.  

Banks sold 123,778 homes out of their REO inventory during the quarter, a 2 percent increase from the fourth quarter but down 15 percent year-over-year.  REO sales accounted for 14 percent of all sales compared to 13 and 15 percent of sales in the previous periods.

“Foreclosure-related sales picked up in the first quarter, particularly pre-foreclosure sales where a distressed homeowner is selling to avoid foreclosure – typically via short sale,” said Brandon Moore, chief executive officer of RealtyTrac. “Those pre-foreclosure sales hit a three-year high in the first quarter even as the average pre-foreclosure sales price dropped to a record low for our report. Lenders are approving more aggressively priced short sales, which in turn is resulting in more successful short sale transactions.

“Meanwhile the average price of a bank-owned home is stabilizing and even increasing in some areas where a slowdown in REO activity over the past year has resulted in a restricted supply of REO homes available,” Moore continued. “Still, REO sales did increase on a quarterly basis in 21 states, indicating that lenders are still working through a bottleneck of unsold REO inventory in many areas.”

The average sales price of homes sold pre-foreclosure or out of ORE was $161,214, 1 percent lower than the previous quarter and down 2 percent on an annual basis.  This represented a discount of 27 percent from the average price of non-distressed properties, unchanged from the fourth quarter and down from a 29 percent discount a year earlier.

There was a significant difference between the average price paid pre-foreclosure and for REO.  The average pre-foreclosure or short-sale price was $175,461 compared to $147,995 for a bank-owned property.  The short sale price was down 4 percent from Quarter 4 and 10 percent from a year earlier and was the lowest average price for a short sale since RealtyTrac started tracking them in 2005.   The REO figure was essentially unchanged from the previous quarter and down only 2 percent on an annual basis.

Pre-foreclosure sales typically gave buyers a 21 percent discount from a market-priced home in the first quarter compared to 19 percent and 16 percent in the two earlier periods.  The discount for REO was 33 percent, down from 34 percent and 37 percent respectively.

It took a home that sold pre-foreclosure an average of 306 days to sell once the foreclosure process began compared to 256 days a year earlier.  REOs sold in an average of 178 days after completing the foreclosure process, an increase of less than half a week from the earlier periods.

Pre-foreclosure sales increased on an annual basis in 27 states with dramatic increases in several such as Wisconsin (94 percent), Michigan (81 percent), and Georgia (80 percent.)  REO sales were up in 21 states with Oregon (41 percent), North Carolina (23 percent), and Ohio (21 percent) showing the greatest year-over-year increases.

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[MBS Commentary] – The Day Ahead: Economic Data Ramps Up; Europe Still The Focus

The Day Ahead: Economic Data Ramps Up; Europe Still The Focus

Posted to: MBS Commentary
Wednesday, May 30, 2012 11:21 PM

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Wednesday was quite a day for bond markets–a record-setting day on many fronts.  While we can appreciate that there are some claims that 10yr Yields have been lower (like this one) and other long term charts that tell a different story (like this one), we’re more than content thinking and saying that 10yr yields hit an all time low yesterday.  Not only that, but they crushed the previous low of 1.674, moving down to 1.61.  Some folks have been entertaining the possibility of things moving lower, potentially hitting a 1.5% milestone.  Articles and video clips on WSJ, Bloomberg, CNBC, etc. have been making the rounds for the past 2 weeks re: 1.5%, but of course, THESE possibilities are nothing new.

MBS eked out some record levels as well, but the victory was rather lackluster compared to our big brother Treasuries.  When all was said and done, Fannie 3.5’s notched up to 104-26+ vs a previous high of 104-24+.  Bid yields dropped 0.0105% from a previous record low of 2.9462 2.9357% while Treasuries fell 6 times further (change in 10yr record divided by change in MBS record =  6.095x).

No one knows whether or not things will continue heading in the prevailing direction, so we watch and wait.  Europe continues to dominate in that regard.  More simply: that’s what we’re watching first as the European situation has so overwhelmingly dominated the race to determine what’s moving markets.  That’s frustrating because, frankly, it’s not nearly as easy to dissect European events and extrapolate their market moving suggestions as it is to look at good old-fashioned domestic economic data ‘meeting, beating, or missing’ and deduce a logical and linear movement based on the size of the deviation from expectations and the overall importance of the report.

But even though we give Europe the right of way, domestic economic data increases its presence on the road today (like a bicyclist in a tractor trailer’s blind spot perhaps?).  Due to the shortened week, we’ll get ADP employment this morning as opposed to it’s normal Wednesday release.  It’s preceded by the less important Challenger Layoffs report and followed by Jobless Claims, Preliminary GDP for Q1 and Corporate Profits all at 8:30am.  Chicago PMI waltzes in at a “time to go home yet?” 9:45am, but still matters in the same way most of the domestic data matters: in the sense that it accompanies the preeminent member of its cohort: Friday’s NFP, collectively creating the possibility of shifting sentiments in the June FOMC Announcement.  

 

MBS Live Econ Calendar:

Week Of Tue, May 29 2012 – Fri, Jun 1 2012

Time

Event

Period

Unit

Forecast

Prior

Actual

Tue, May 29

08:30

Midwest manufacturing

Apr

92.2

94.2

09:00

CaseShiller 20 mm SA

Mar

%

0.0

0.2

+0.1

09:00

CaseShiller 20 mm nsa

Mar

%

-0.2

-0.8

0.0

09:00

CaseShiller 20 yy

Mar

%

-2.9

-3.5

-2.6

10:00

Consumer confidence

May

70.0

69.2

64.9

Wed, May 30

07:00

Mortgage market index

w/e

804.9

794.7

07:00

Mortgage refinance index

w/e

4456.4

4388.8

10:00

Pending sales change mm

Apr

%

+0.1

+4.1

-5.5

10:00

Pending homes index

Apr

101.4

95.5

Thu, May 31

07:30

Challenger Layoffs

May

k

40,559

08:15

ADP Employment

May

k

+148

+119

08:30

Initial Jobless Claims

w/e

k

370k

370k

08:30

Continued jobless claims

w/e

ml

3.25

3.26

08:30

Corporate Profits

Q1-Adv

%

+1.1

+1.1

08:30

Real GDP qq SA

Q1-Pre

%

+1.9

+2.2

09:45

Chicago PMI

May

56.5

56.2

Fri, Jun 1

08:30

Personal consump real mm

Apr

%

+0.3

+0.3

08:30

Personal income mm

Apr

%

+0.3

+0.4

08:30

Non-farm payrolls

May

k

+150

+115

08:30

Unemployment rate mm

May

%

8.1

8.1

10:00

Construction spending

Apr

%

+0.4

+0.1

10:00

ISM Manufacturing PMI

May

53.9

54.8

* mm: monthly | yy: annual | qq: quarterly | “w/e” in “period” column indicates a weekly report

* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary Release | Fin: Final Release

* (n)SA: (non) Seasonally Adjusted

* PMI: “Purchasing Managers Index”

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Mortgage Rates Reluctantly Lower Despite Plummeting Treasuries

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May 30, 2012 3:17PM

Mortgage Rates Reluctantly Lower Despite Plummeting Treasuries

Mortgage Rates improved only slightly today despite an aggressive interest rate drop in the broader bond markets. Lenders’ rate sheet offerings are CLOSE but not quite back to their May 17-18 levels which were the best on record. Best-Execution rate for 30yr Fixed Conventional loans was unchanged at 3.75% with the variations in rates vs yesterday being seen in the form of lower closing costs (or higher lender credits, depending on your scenario). (Read More: What is A Best-Execution Mortgage Rate…

May 30, 2012 11:13AM

David Stevens Leaves MBA to Take Position as President of SunTrust Mortgage

Only slightly more than a year after joining the Mortgage Bankers Association as its President and CEO, David Stevens will leave to become President of SunTrust Mortgage, Inc . Stevens will join SunTrust effective July 16 and will be responsible for day-to-day business operations of the company. His new position will report to the bank’s CEO Jerome Lienhard. In announcing the departure of Stevens, MBA said it has already begun a search for his replacement. In the interim, Marcia M. Davies , MBA’s…

Micro News

2:43 PM:

Ongoing Potential, But Limited Incentive For Positive Reprices

11:57 AM:

Pain Trade Continues Grinding Yields Lower, MBS Ground Into Ceiling

10:14 AM:

MBA Announces David H. Stevens to Leave Association

10:12 AM:

SunTrust Names Mortgage Industry Veteran David Stevens to New Role as President

10:00 AM:

NAR: Pending Home Decline in April but Up Strongly From a Year Ago

9:14 AM:

EU Events Catalyze Big Rally Overnight, Holding For Now

8:08 AM:

MBA: Mortgage Applications Fall 1.3%

8:07 AM:

MBA: Mortgage Rates Drop to New Survey Lows

Around the Web

Video News

The Fed’s Role in the US Markets

Homebuyer Interest In Foreclosures Jumped

Al Lewis: Banks Can Default, But Customer Can’t

Today’s Comments

Stan Brody

“Forgive me… “POST CRISIS… my ass… the crisis has been ongoing for some five years… Dr. Shiller and Mr. Case still do not “get it”…”

Ted Rood

“Fundamentals haven’t changed and won’t soon, but the Fed’s intervention in the securities markets (Operation Twist) is scheduled to end in…”

scot shumway

“I find this post slightly amusing actually. There is nothing unconstitutional or illegal about requiring fingerprints for a position (verified by 2 constitutional…”

Today’s Q&A

“Can a loan officer be employed by two or more brokes in arizona?”

“Can I have a co-signer when I refinance to get someone else’s name off a mortgage?”

“Is my name on a mortgage”

<!–

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%…”

Ted Rood

“Loan Scenario View All Post A Scenario Loan State: Washington Loan County: — Loan Type: Refinance (Rate and Term) Loan Amount: $280,000 Property Value…”

Dan Burke

“Loan Scenario View All Post A Scenario Loan State: California Loan County: Los Angeles Loan Type: Refinance (Rate and Term) Loan Amount: $460,000 Property…”

–>

[MBS Commentary] – MBS RECAP: New Record Levels For MBS And Treasuries

MBS RECAP: New Record Levels For MBS And Treasuries

Posted to: MBS Commentary
Wednesday, May 30, 2012 4:06 PM

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MBS Live: MBS Afternoon Market Summary
While “record levels” for MBS have been a relatively common occurrence in the past month as Fannie 3.5’s have progressively taken baby steps into higher and higher territory, 10yr Treasuries hadn’t yet taken out the 9/26/11 “record level” until today. And they obliterated it, falling to 1.617 at the lowest point of the day and not far from that presently, in the low 1.62’s. German Bunds laugh at those “high” US Treasury yields, themselves having traded down to the low 1.26’s today. Yes, Fannie 3.0 production is ramping up currently, and structurally, rates have room to improve. Several lenders repriced positively today, but just as MBS gains pale in comparison to Treasury gains, so too do rate sheet improvements fall short of MBS Price improvements. Diminishing returns at current levels…

On another note, don’t forget that tomorrow begins the two “data-packed” days of the week, though Friday remains the biggie with NFP. Tomorrow is no slouch, however, and although it was easy to lose sight of domestic concerns today, they could be back in the picture tomorrow.

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
104-26 : +0-16
FNMA 4.0
106-12 : +0-10
FNMA 4.5
107-07 : +0-05
FNMA 5.0
108-12 : +0-03
GNMA 3.5
106-16 : +0-16
GNMA 4.0
109-05 : +0-10
GNMA 4.5
109-23 : +0-05
GNMA 5.0
110-20 : +0-03
FHLMC 3.5
104-19 : +0-16
FHLMC 4.0
106-00 : +0-09
FHLMC 4.5
106-24 : +0-05
FHLMC 5.0
107-21 : +0-02
Pricing as of 4:05 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.

2:43PM  :  ALERT ISSUED: Ongoing Potential, But Limited Incentive For Positive Reprices

What a world… MBS are at all-time highs, up about half a point on the day, and rate sheets aren’t even a quarter of a point up on the day. MBS continue protesting: “this is all so… so sudden,” and would probably appreciate a slower pace in the flight-to-safety rally. Even now, 10yr yields have gone flat to slightly higher since noon, and MBS have outperformed.

Ledges of benchmark stability provide footholds for MBS .

One notable reprice so far today, and despite the “limited incentive” environment, positive reprices are possible. We’d also warn that some lenders have a knack for negative reprices near the end of days like today for “pipeline control” reasons. We don’t have any insider information in that regard, but just something to keep in mind if the lender in question is prone to such things.

Fannie 3.5’s are in line with all time highs at 104-24. Fannie 3.0’s have enough volume to mention, and are up 21 ticks on the day at 102-07. 10yr TSYs are down almost 12 bps at 1.6288. The Euro is in freefall, down to 1.238 now, German 10yr TSYs (Bunds) at 1.27.

11:57AM  :  Pain Trade Continues Grinding Yields Lower, MBS Ground Into Ceiling

Remember when 10yr yields hit 2.40-ish just over two months ago? Then remember when there was some uncertainty as to whether or not the 2.10-1.90 range was a thing of the past just before 10’s broke from over 2.2 to under 2.1 in less than an hour? Pain Trade…

Remember when markets tentatively defended a 1.90% floor in 10yr yields in late April/early May, then retreated to defending the 1.80% floor as a “selling opportunity,” only to have a bounce higher from 1.80% look like a good call for about 1 session before falling below 1.80% and never really making it back above, thus gently shattering the conceptions of a broader long-standing 1.80-2.10% range? Pain Trade…

Most recently, do you remember how 1.674 was the previous record low (not counting economic prehistory in the 50’s, yes, we know) from 9/26/11 and that “surely,” if 10’s somehow magically approached 1.674 that it would be another great selling opportunity? And remember how we’ve seen 10yr yields give a half-hearted attempt at a bounce at 1.674 heading into 9am this morning an how we’ve since ratcheted lower, eventually grinding our way to a new low of 1.627 and current yields in the 1.63’s? PAIN TRADE!

Maybe the reason that Treasuries keep acting to prove as many people wrong as possible is that folks are still thinking of them as Treasuries as opposed to how they actually end up trading: as “Diet Bunds.” In other words, UST’s are all about the spillover effect from European Benchmark debt. In that context, things aren’t so painful. The real pain is in watching production MBS with little incentive to move higher from either the primary or secondary markets continue to grind into the ceiling near their all-time highs. For all the gains seen in Treasuries, MBS STILL aren’t back to their mid-May highs… THAT’S painful (not the sort of pain we’d really complain about considering we’re looking at all-time low rates, but still!). There are some charts showing how the two stack up in the MBS MID-DAY, if you missed it:

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.

Gus Floropoulos  :  REPRICE: 4:02 PM – PHH Better
Victor Burek  :  REPRICE: 3:51 PM – Nexbank Better
Michael Tadros  :  REPRICE: 3:33 PM – Provident Funding Better
Adam Quinones  :  “it’s happening for a number of reasons but lower rates won’t help”
Adam Quinones  :  “mandatory adjusters are massive”
Adam Quinones  :  “that is the main reason most LOs think Secondary is “Stealing” loan pricing”
Adam Quinones  :  “(more)”
Adam Quinones  :  “servicing would get hammered!”
Ira Selwin  :  “Imagine what below 3.25 would look like. scary stuff”
Jason Harris  :  “Thanks…makes me feel better”
Ira Selwin  :  “Just look at your price difference between 3.75 and 3.625. Still showing a big buydown”
Matthew Graham  :  “not to say someone wouldn’t portfolio it, but 3.25 is the new 3.75 from a secondary market liquidity standpoint, at least for now.”
Matthew Graham  :  “below that implies 2.5 coupons”
Jason Harris  :  “are you guys able to do better than 3.25% FHA? Not on my rate sheet below that but getting big rebate”
Tom Schwab  :  REPRICE: 3:06 PM – Franklin American Better
Brent Borcherding  :  REPRICE: 3:05 PM – USBank Better
Dan Clifton  :  REPRICE: 3:04 PM – NYCB Better
Matt Hodges  :  “WF approx .25% better”
Clayton Sandy  :  REPRICE: 1:58 PM – Wells Fargo Better
Matt Hodges  :  “our turn time has doubled”
Matthew Graham  :  “”room” to reprice, but “incentive?” Anyone have any anecdotes to share about how capacity issues or how busy certain lenders are?”
Andy Pada  :  “This morning rates were definitely not as as good as 5/17-18, but live pricing now is at least 15 – 18 bps better”
Matthew Graham  :  “feel free to infer a “?” at the end of that last chat if you wholeheartedly disagree.”
Matthew Graham  :  “starting to review rate sheet data for consumer post and it’s looking like we’re not quite back to 5/17 – 5/18 rate sheets based on what I’ve seen so far, but improved on the day.”
Andy Pada  :  “Have to lock in freddie more than 30 days because they don’t allow you to extend”
Andy Pada  :  “Exactly”
Matthew Graham  :  “104-22 is the new 103-22?”
Andy Pada  :  “Locking in 30 – 40 day”
Jason Adams  :  “Its a slow week in my office. It always seems to be slow this time of year as kids get out of school “
Ted Rood  :  “Seems like MBS’s often lag behind treasuries on days treasuries make huge moves. At this point I think it’s all about Europe, doubt jobs # will be a big mover unless ridiculously good or bad.”
Jay Rafuse  :  “so, is the not so generous rate environment today (even with a plummeting 10 yr yield) a function of hedging against Friday’s number perhaps?”
Jason York  :  “not as much interest on 15yr coupons, which is why they don’t move as much”
MMNJ  :  “30’s are scorching yet the 15’s are barely moving…..very interesting”
Matt Devine  :  “no they wont charles. 1% i believe is the max they will allow”
Charles Beasley  :  “Does anyone know if FHA will allow a 3% deductable on the homeowners insurance policy?”
Matthew Graham  :  “volatility into the EU bond market close. EUR= hitting fresh lows as well”
Matthew Graham  :  “must not be a lot of sellers out there”
Matthew Graham  :  “50% takedown is big. usually runs 25-40% Rare to see above 40%”
Matthew Graham  :  “RTRS – DEALERS SUBMITTED $9.42 BLN OF TREASURIES FOR CONSIDERATION IN FED PURCHASE -NY FED “
Matthew Graham  :  “RTRS – FED BOUGHT $4.74 BILLION OF TREASURIES MATURING BETWEEN AUG 2020 AND FEB 2022 -NY FED “

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