[MBS Commentary] – MBS RECAP: Buoyed By AM Data, Beaten Back By Stress Test Results

MBS RECAP: Buoyed By AM Data, Beaten Back By Stress Test Results

Posted to: MBS Commentary
Friday, September 28, 2012 4:07 PM

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MBS Live: MBS Afternoon Market Summary
After opening in stronger territory and continuing some of that strength through the first round of morning data, bond markets began selling off just before 9am.  Even before the 9:45am release of the Chicago PMI data, we managed to find some footing as markets ostensibly waited for the report.  The weaker-than-expected headline and Employment component of the report helped Treasuries and MBS move away from their holding pattern at the weakest levels of the morning.  Mid-day brought Bank Stress Test results out of Spain, suggesting that only €60 bln out of the tentatively allocated €100 bln in potential bailout funds would be needed in a worst-case-scenario.  We’re wondering if the same quantitative minds that measured the size of Spain’s worst case also had a hand in measuring the Eiffel tower in the new iPhone maps (screenshot).  Whatever the case, bond markets didn’t like it, giving back most of the day’s gains by 1pm and re-engaging cruise control from there.
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
107-08 : +0-04
FNMA 4.0
107-24 : +0-03
FNMA 4.5
108-06 : -0-02
FNMA 5.0
109-01 : -0-04
GNMA 3.5
109-19 : +0-04
GNMA 4.0
110-08 : +0-04
GNMA 4.5
109-24 : +0-01
GNMA 5.0
110-03 : -0-04
FHLMC 3.5
107-07 : +0-05
FHLMC 4.0
107-16 : +0-03
FHLMC 4.5
107-18 : -0-01
FHLMC 5.0
108-11 : -0-04
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.

2:41PM  :  ALERT ISSUED: MBS Bounce Back In Late-Day Flurry Of Activity

Trading was fairly slow from 1-2pm and has recently ramped up a bit as bond markets bounce back from the weaker levels of the day. MBS are back in the green with Fannie 3.0s up 3 ticks on the day to 105-17. 10yr yields are off their 1.65 highs and back down to 1.63’s.

Whether or not the bounce back in MBS will be sufficient for POSITIVE reprices likely depends on the lender. Negative reprices were still coming in even after the bounce began to materialize.

At lease we can say that reprice risks are more balanced now. While negative reprices are still possible, and equal case could be made for positive reprices among lenders who repriced for the worse just after noon.

12:31PM  :  The never-ending story of the Euro crisis

A few days old now, but so good that it will continue to transcend the datestamp for the near-term foreseeable future.

Counterparties: The Never-Ending Story Of The Euro Zone Crisis

The pattern of Euro crisis flare-ups is getting very familiar:

Step 1: News of political turmoil in ailing European Country X raises questions about their dedication to austerity. This is often be accompanied by missing deficit targets, riots and/or burgeoning political change.

Step 2: The bond market freaks out, which raises borrowing costs for European Country X. Wonks, politicians and pundits quickly chime in.

Step 3: The can is thoroughly kicked down the road. Concessions are made for Country X, negotiations are held, quotes are given/intentions leaked.

Step 4: After some period of time, the crisis appears again.

Spain, like Greece, is is back in the Euro crisis spotlight today, as the country is gripped by massive protests over budget cutbacks and rising borrowing costs. Greece, of course, has been through this process before; Spain has now proceeded to step 2.

Read the rest here:

12:16PM  :  ALERT ISSUED: Biggest Pop Of The Day On Spain Stress Tests. Bad News For MBS

Essentially, the results of Spain’s Bank stress tests indicate that the amount of bailout funding currently being discussed (€100 bln) would be more than sufficient to recapitalize a “worse-case-scenario” (€60 bln according to today’s stress tests). This has stocks on the rise and bond markets on the run at the quickest pace and highest volumes of the day, not to mention the fact that it shows where markets’ attention continues to be most directly focused.

MBS fell further from earlier lows, hitting 105-10 at the trough, but up to 105-12 presently. Definitely well into negative reprice territory here.

11:53AM  :  ALERT ISSUED: More Pronounced Weakness Now As MBS Approach Negative Territory

Fannie 3.0s are only up 1 tick from yesterday’s closing levels now, and those closing levels represented a drop-off from much of the day’s action. We’re now at the lowest levels since Tuesday morning painting a picture of broader consolidation of the post-QE3 rally. Negative reprice risk is incrementally increased on this most recent downtick, not to the extent that every lender will reprice, but upgraded from a “heads up” status.

11:28AM  :  ALERT ISSUED: MBS Hit Lows Of The Morning, Underperforming Treasuries

In much the same way that it wasn’t a good idea to pay much attention to Treasuries just after the QE3 Announcement, it’s not such an informative thing today either. Whereas 10yr yields are mid range and in decidedly better territory than most of yesterday, MBS are at their lows and decidedly in line with their weakest levels yesterday.

This is more of a heads up than a reprice alert, thanks to the big slide in prices from 9am to 9:45am. Fannie 3.0s moved from 105-26 to 106-18 during that time, which led up perfectly to rate sheet generation times.

We bounced up to 105-22 at 10am, but that still leaves the current prices only 3-5 ticks weaker than rate sheet time (assuming the most aggressive outlying tick in prices is the baseline for those rate sheets). That should offer a fair amount of insulation against reprice risk, but falling through the morning lows would naturally increase those risks. As for now, we’re livin’ on the edge.

The fact that Treasuries are not exhibiting the same weakness lets you know that we’re not dealing with a major, underlying market-mover here, and more likely the weakness is related to month-end tradeflows and another potentially big day of supply for MBS.

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.

Matt Hodges  :  “USB rp .375% worse… victor’s advice is sage”
Victor Burek  :  “if your lender repriced worse, i would float..if you have morning pricing still, i would probably lock it despite not liking to lock loans on friday”
Oliver S. Orlicki  :  “VB, talk to me”
Oliver S. Orlicki  :  “refi closing in 10 days, float or lock?”
Victor Burek  :  REPRICE: 2:46 PM – Nexbank Worse
Michael Tadros  :  REPRICE: 2:18 PM – Stearns Lending Worse
Michael Tadros  :  REPRICE: 2:17 PM – Provident Funding Worse
Michael Mitchell  :  REPRICE: 2:06 PM – Suntrust Worse
Ross Miller  :  REPRICE: 1:00 PM – NYCB Worse
Ross Miller  :  REPRICE: 12:59 PM – MSI Worse
Josh Stika  :  REPRICE: 12:38 PM – Provident Funding Worse
Matthew Graham  :  “Great article AH. The thesis is and has been one of the most important things to understand about the EZ crisis: that it’s political as much as economic. Another good find! (I remember you linked that last night, but I wasn’t clinically awake at the time, so didn’t read it).”
Andrew Horowitz  :  “MG did you read Jubak’s piece last night?”
Ira Selwin  :  REPRICE: 12:26 PM – Chase Worse
Eric Franson  :  REPRICE: 12:18 PM – Wells Fargo Worse
Matthew Graham  :  “RTRS – EU COMMISSION SAYS SPANISH BANKS’ RECAPITALISATION NEEDS ANNOUNCEMENT A KEY STEP IN RESTORING SOUNDNESS OF THE SECTOR-STATEMENT “
Matthew Graham  :  “Cue the generic atta boy’s from the EU”
Jodi White  :  REPRICE: 12:15 PM – BB&T Worse
Matthew Graham  :  “i’d link this thing every day. I’d print it on a T-shirt if I could: http://blogs.reuters.com/felix-salmon/2012/09/26/counterparties-the-never-ending-story-of-the-euro-crisis/”
Victor Burek  :  “it is getting quite comical”
Victor Burek  :  “ref to that felix blog mg..going back to step 2”
Matthew Graham  :  “”up to 100 bln” on the table in terms of bailout funds”
Jeff Anderson  :  “What were expectations? Any idea? Is that better or worse than expected?”
Matthew Graham  :  “RTRS – SPAIN SAYS 7 BANKS HAVE CAPITAL NEEDS, 7 DO NOT “
Matthew Graham  :  “RTRS- SPAIN SAYS BANK SYSTEM’S CAPITAL SHORTFALL IS 59.3 BLN EUROS IN STRESSED SCENARIO “
Victor Burek  :  “stress test says they only need 60b euros”
Matthew Graham  :  “Spain time apparently”

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[Mortgage Rate Watch] – Mortgage Rates Rise For 2nd Day, But At A Slower Pace

Mortgage Rates Rise For 2nd Day, But At A Slower Pace

Posted to: Mortgage Rate Watch
Friday, September 28, 2012 3:34 PM

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After breaking an impressive streak of improvement yesterday, Mortgage rates are higher again on Friday, but at a slower pace.  Additionally, there’s an increased level of stratification between lenders.  Some rate sheets are actually flat to improved today while others are significantly higher.  The more aggressive lenders remain safely in 3.5% Best-Execution territory for 30yr Fixed Conventional Loans, while others have drifted up toward 3.375%

(Read More:What is A Best-Execution Mortgage Rate?)

Market events were surprisingly well-connected to market movements today with the morning economic data playing a role as well as headlines regarding Spain’s bank stress tests.  The most relevant piece of data this morning was a weaker read on employment in a widely followed regional manufacturing report.  That weakness helped rates markets hold their ground earlier in the day.  

But that was soon trumped by news that Spain’s “worst case scenario” bailout needs were less-than-expected according to newly released stress test results.  Stocks rallied and interest rates climbed as the news suggested investors move in a slightly more risk-tolerant direction.

Markets will get an even better look at employment data in the week ahead, with various jobs-related pieces of data available every day of the week, culminating in the all-important Employment Situation Report on Friday.  Given that the Fed’s purchasing of MBS is driving rates lower, and that the Fed has been clear in linking that stimulus to employment data, AND the fact that the stimulus is open-ended, Friday’s data could have a major impact on the recent foray into all-time low interest rates.

Long Term Guidance: While the recently high degree of uncertainty remains very much intact, the Fed’s decision to specifically target Mortgage-Backed-Securities in a third round of Quantitative easing provides a supportive undertone for mortgage rates.  We’d still advocate not trying to get too far ahead markets.  In other words, we wouldn’t try to guess how low or how high rates might go before changing course.  For now, the trend is supportive and positive for rates, but we’re watching it closely for the same sort of paradoxical responses that occurred in 2010.  Things look different this time around, but a lot of that has to do with Europe.  Rates remain near all time lows and risks of volatility remain high.  Those factors suggest that you stay vigilant regarding the day-to-day swings in mortgage rates.  If you’re floating, set a limit as to how high rates would have to go before you cut your losses and locked.  Similarly, set a target of how low rates would have to get before you lock.

Loan Originator Perspectives

I’ve been floating this week, but I think that bias will change next week. Also, be patient with your loan officer as they are covered up and turn times are extended. Off the wall requests can be the norm, but just remember you’re getting a great rate so you probably won’t need to go thru this process again. never say never though.  ” –Mike Owens, Partner with HorizonFinancial, Inc.

Today’s Best-Execution Rates

  • 30YR FIXED – 3.25%
  • FHA/VA – 3.25% (varies more between lenders than conventional 30yr Fixed)
  • 15 YEAR FIXED –  2.75%
  • 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
  • Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
  • This 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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[MBS Commentary] – MBS MID-DAY: MBS Continue Struggling To Hold Gains

MBS MID-DAY: MBS Continue Struggling To Hold Gains

Posted to: MBS Commentary
Friday, September 28, 2012 11:07 AM

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MBS Live: MBS Morning Market Summary
Bond markets improved overnight but began giving up ground shortly after 9am.  The weakness wasn’t tied to data as the 8:30am Income And Outlays report (essentially “consumer spending“) didn’t have much of an impact.  Chicago PMI at 9:45am, however, did have some impact, helping MBS and Treasuries to stem the tide of selling pressure.  Things have been languishing since then, much the same as they did yesterday.  All of the week’s relevant data has printed and now any remaining month-end/quarter-end trading considerations will be the primary motivator, barring a significant headline out of Europe.
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
107-08 : +0-05
FNMA 4.0
107-23 : +0-03
FNMA 4.5
108-09 : +0-01
FNMA 5.0
109-04 : -0-01
GNMA 3.5
109-19 : +0-04
GNMA 4.0
110-08 : +0-03
GNMA 4.5
109-26 : +0-03
GNMA 5.0
110-11 : +0-05
FHLMC 3.5
107-08 : +0-06
FHLMC 4.0
107-15 : +0-03
FHLMC 4.5
107-19 : +0-01
FHLMC 5.0
108-14 : -0-02
Pricing as of 11:07 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.

10:04AM  :  ECON: Consumer Sentiment Just Slightly Lower Than Expected

The Thomson Reuters/University of Michigan Consumer Sentiment Index Fell to 78.3 vs a preliminary reading of 79.2. Economists surveyed by Reuters expected the index to print at 79.0 this morning

In terms of the report’s internal components, one of this bigger departures from estimates was the “Current Conditions” index which came in at 85.7 vs 88.0 estimates. Other components were closer to estimate with “Expectations” at 73.5 vs 73.0 and the “12-Month Outlook” at 87 vs 88.

Inflation expectations remain broadly in check with the 1-year outlook at 3.3 pct (vs preliminary readings of 3.5 pct), and the 5-yr outlook in line with initial estimates at 2.8 pct.

9:54AM  :  ECON: Chicago PMI, Weaker Than Expected, Employment Falls

– Headline 49.7 vs 53.0 Consensus
– Employment Component 52.0 vs 57.1 Previously, Lowest since March 2010

From ISM Chicago:
The Chicago Purchasing Managers reported the Chicago Business Barometer fell to 49.7, its lowest level in three years. Among the Business Activity measures, five of seven posted declines as New Orders fell below 50 and Order Backlogs contracted for the fourth of the past five months. Prices Paid showed the biggest gain in nearly two years and Supplier Deliveries moved back above 50.

9:23AM  :  ALERT ISSUED: Bond Markets Improve Overnight; Off Post-Data Highs

European bond markets (core bond markets, that is) rallied overnight on lingering concerns over Spanish bank stress tests as Spain’s 10yr yields rose over 6% again. German Bunds spiked lower just before 5am New York time as rumors circulated that Spain is ‘secretly’ up to €150 bln in bailout/recapitalization needs.

The microscope on Spain, along with month-end/quarter-end asset allocation buying was enough to get Treasuries in the door at lower yields than yesterday’s best levels. MBS opened higher as well, even though they couldn’t muster a similar pivot off y’day’s highs. Gains extended slightly as Incomes/Outlays showed that higher gas prices led consumer spending and that inflation-adjusted spending only grew 0.1 pct in August vs 0.4 pct in July.

But the gains were short-lived. 10’s moved briefly under 1.61 and are now back over 1.62, in line with their 5am-8am range. Fannie 3.0 MBS moved as high as 105-26 after opening at 105-23, but have since fallen to the lows of the morning at 105-19. Mortgages continue to look tired compared to Treasuries.

As discussed in The Day Ahead, we’re slightly more interested in the data arriving later in the morning as it covers more recent time periods and has EMPLOYMENT components. This assumes, of course, that yesterday’s selling after the 8:30am data was an admission that markets were trading Jobless Claims over Durable Goods based on the Fed’s focus on Employment-related data.

Chicago PMI at 9:45am and Consumer Sentiment at 9:55am. Beware some increased selling pressure as this alert has been written. Although specific levels are referenced, markets have definitely been in transit over the past 20 minutes and in an exclusively weaker direction for MBS.

8:40AM  :  ECON: Consumer Spending As Expected, Incomes Slightly Weaker

– Spending +0.5 vs +0.5 consensus
– Income +0.1 vs +0.2 consensus
– “Real” Consumer Spending +0.1 vs +0.4 in July
– Savings Rate falls from 4.1 to 3.7

Personal income increased $15.0 billion, or 0.1 percent, and disposable personal income (DPI) increased $12.5 billion, or 0.1 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $57.2 billion, or 0.5 percent. In July, personal income increased $18.5 billion, or 0.1 percent, DPI increased $15.4 billion, or 0.1 percent, and PCE increased $45.4 billion, or 0.4 percent, based on revised estimates.

Real disposable income decreased 0.3 percent in August, in contrast to an increase of 0.1 percent in July. Real PCE increased 0.1 percent, compared with an increase of 0.4 percent.

Personal outlays — PCE, personal interest payments, and personal current transfer payments — increased $60.0 billion in August, compared with an increase of $48.2 billion in July. PCE increased $57.2 billion, compared with an increase of $45.4 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.

Gus Floropoulos  :  “it depends if ur u/w or doing prior approvals….we u/w so its 49.9 with 12 months reserves…u can get away with 6 months if you have a low LTV and high FICO. “
John Rodgers  :  “anyone know the WF DTI on high balance conv “
Andrew Horowitz  :  “think your theory will hold some water today MG, employment employment “
Victor Burek  :  “big miss on chicago pmi “
Victor Burek  :  “looking a lot like yesterday “
Matthew Graham  :  “RTRS – US AUG PERSONAL SPENDING +0.5 PCT, LARGEST RISE SINCE FEB 2012 (CONSENSUS +0.5 PCT) VS JULY +0.4 PCT (PREV +0.4 PCT) “
Matthew Graham  :  ” hard to say who’s following who for sure, but Bunds (green) look to have led the bounce. http://screencast.com/t/9VQr0sDsU. not seeing anything domestically to drive levels, and light-ish volume on month/quarter-end means that “the unseen hand” can easily push bond markets around and not be burdened with the need to explain itself. in other words, month/quarter-end portfolio allocation adjustments can cause a lot of movement that isn’t linked to any readily observable cause&effect in data or events. “

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[MND NewsWire] – Fed Study Points to Wisdom of Further HARP Enhancements

Fed Study Points to Wisdom of Further HARP Enhancements

Posted to: MND NewsWire
Tuesday, September 25, 2012 3:30 PM

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Economists have been debating the value versus risk of expanded refinancing opportunities since the early days of the housing crisis. Proponents argue that refinancing would free up homeowner money for spending elsewhere to the benefit of the economy, opponents fear that since the Federal Housing Administration and the government sponsored enterprises (GSEs) are realistically the only source of refinancing currently available, any risk inherent in refinancing will disproportionately fall the government. 

To clarify an issue that is of interest to homeowners, policy makers, and taxpayers, the Federal Reserve Bank of New York has just published a report, Payment Changes and Default Risk:  The Impact of Refinancing on Expected Credit Losses by staff members Joshua Abel, Joseph Tracy, and Joshua Wright that looked at whether refinancing lowers the risk of default.

Earlier studies have looked at defaults after loan modifications which reduce rates and/or payments.  One study found that for a sample of modifications to securitized subprime mortgages a 10 percent reduction in the monthly payment was associated with a 4.5 percentage point reduction in the 12-month redefault rate.

Extrapolating earlier studies to suggest that expanding the government’s Home Affordable Refinance Program might result in lower defaults is suspect because the one study mentioned concerned only subprime borrowers while HARP involves prime borrowers with much stronger initial credit profiles and those borrowers who were given modifications were already seriously delinquent while HARP requires homeowners to be current with a relatively clean payment history over the previous 12 months.    

The ideal study would link together the prior mortgage with the HARP-refinanced mortgage so that one could measure the percent reduction in the monthly payment and estimate how HARP impacts the likelihood that the borrower will default on the refinanced mortgage. With such a linked HARP mortgage data set, one could control for other important factors, such as the borrower’s updated loan-to-value (LTV) ratio, when estimating the impact of the payment change on the default risk. However, no such linked data set on HARP-refinanced mortgages exists, making it difficult to estimate the effect of lower monthly payments on the population of HARP-eligible borrowers.

The New York Fed study approached the issue by studying the impact of refinancing adjustable rate mortgages (ARMs).  While these are significantly less common than fixed rate mortgages, this methodology provided some advantages for estimating the impact of refinancing on fixed-rate borrowers such as allowing the researchers to compare similar borrowers in terms of their credit profiles when their mortgages were originated.  As rates have dropped, the rate resets on many ARMS resulted in lower monthly mortgages payments, mimicking refinances, and the percentage reduction in the mortgage payment from origination date to the most recent reset date can be used to help explain subsequent default behavior by the borrower.  This approach also addresses the issue of pre-existing delinquency raised by using mortgage modifications in a study.

The authors used a sample of over 173,000 prime ARMS originated since 2003 and on which there were an aggregate of 6.5 million monthly payments and controlled for a number of factors that might affect a default rate such as the original FICO score, the updated LTV ratio, employment data, and home price changes.

Focusing on borrowers with an updated LTV of 80 or higher who would be candidates for refinancing under the HARP program, the authors found that a 26 percent reduction in the monthly mortgage payment, which they estimated would be the average reduction through a HARP refinancing, would result in a 3.8 percentage point reduction in the five-year cumulative default rate. Combining this with an estimate of the likely losses given a default on these mortgages, the results indicate that borrowers who refinance under HARP have an estimated reduction in projected credit losses of 134 basis points, or for every billion dollars in agency mortgage balances that refinance through an improved HARP, the estimated reduction in credit losses would be $134 million. This reduction would primarily benefit taxpayers, although private insurers of the underlying mortgages would also receive some benefit.

The authors note that enhancements such as removing the previous 125 percent LTV ceiling were made to HARP last October and further enhancements are being debated.  They argue that improving HARP will provide benefits to the economy by increasing the disposable income to households that refinance and saving taxpayers money by reducing credit losses by Fannie Mae and Freddie Mac.

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[Pipeline Press] – Could Congress let Mortgage Forgiveness Debt Relief Act Expire? ICON Residential sold; LO Compensation Comments Due

Could Congress let Mortgage Forgiveness Debt Relief Act Expire? ICON Residential sold; LO Compensation Comments Due

Posted to: Pipeline Press
Friday, September 28, 2012 8:43 AM

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It is good having a roof over your head. But sometimes even well-known TV actresses find themselves without one. What would The Fonz do?

Maybe Erin should apply to the CFPB for a job, perhaps in the “public comment” section. (Okay, that was a stretch.) But LO’s are keenly interested in the comments on compensation – and who wouldn’t be interested in thousands of people determining how they will be paid? Industry comments regarding the Consumer Financial Protection Bureau’s proposed rules governing loan originator compensation must be submitted by October 16. The proposal contains clarifying amendments to definitions set forth in the current TILA compensation restrictions. For example, the proposal aims to clarify that clerical employees of creditors and loan originators who do not “arrange, negotiate, or otherwise obtain an extension of credit for consumers” are not covered by the rule, while producing managers who meet the definition of a loan originator are subject to the compensation restrictions. Here is the place to comment on this and other proposals.

Given the agency sales caps, here’s one industry observation: “To heck with Basel III, and its consequences of bringing more assets to the largest of banks. That will take years. The mortgage industry should be more focused on the unintended consequences playing out a little closer to home: Fannie (and Freddie?) delivery caps will result in an increase or at least maintenance of risk concentration as opposed to a disaggregation of it. Whether or not it is policy for all sellers and servicers, or just a few (we got our addendum letter this week, so anyone who thinks it is a myth is wrong), the trend under the heading ‘counterparty risk’ is an issue among others in our peer lending group. The chatter is, ‘Any agency would much rather deal with 20 counterparties than 2,000’ and it is reminiscent of a derivation of Warren Buffett’s investment advice: “Put all your eggs into a few baskets and watch those baskets very carefully.”

How well do you know your own real estate or mortgage company’s ethics? There are two days left to participate in Innoveta Strategies’ survey – which will result in a white paper on restoring trust in the financial services industry.  Go here to participate.  They thank you for your time and comments.

Regarding underwriting trends and appraisals, Michael Cleveland with Stratis Financial writes, “I really don’t feel that the guidelines via Fannie and Freddie are such a big issue. The folks that qualify and are willing to provide the needed documentation can take advantage of the artificially low interest rates. The main issue we see is the use of AMC’s and the non-accountability of the appraisers themselves. To open refinances up to those who do not qualify is no answer – it is back to the state of mind that ‘homeownership is a right.’ Well, it’s not, it’s a privilege! A privilege to those who operate their lives and finances correctly. Sure, if guidelines were scaled back I could double my income. It would also bring the industry back to the days were we had elementary school students producing mortgages and selling homes. To be successful in the current market place, you need to be smart, work hard and provide a value to your customers.”

And another comment: “Given the current underwriting (auditing) environment, we’re not seeing an increase of people getting declined. But we’re seeing more and more ‘ticked off’ customers when I have to ask them what was that $200 deposit you made into your bank account a week ago? Especially when we’re doing a rate and term refinance and they’re NOT coming in with any money at closing. It’s frustrating when I take a file to ——— Funding and the wife, who’s NOT even on the loan, has to make sure her $500 W-2 matches the tax returns even when her husband makes $150k on a W-2. It’s frustrating to customers when I have to ask to see what the terms of your 401k withdrawal procedures are. The typical answers I hear in Arizona are, ‘Trust me, if I lose my job and I am $50k+ underwater I will NOT be pulling money from my 401k loan to keep this house afloat.’  Or when I need to ask for a CPA to write a letter of explanation that the client, who’s pulling money from his business account to pay down his mortgage, will not lose his business by doing that. How does the CPA know better than Joe, who owns Joe’s Crab Shack? It’s just more and more ridiculous BS that we’re asking for. It’s not that people aren’t getting approved, it is all the work and hurdles getting them to the closing table.”

In a little non-mortgage financial news, the Postal Service is about to miss another multi-billion dollar payment. Unfortunately it must rely on Congress to help fix it – and they’re all out scrambling for their jobs. It can’t even cut Saturday deliveries without a vote.

Here’s something else that Congress probably won’t act on: the clock is ticking on the Mortgage Forgiveness Debt Relief Act – it expires on December 31. The San Francisco Chronicle reports that “Before the housing downturn hit, ‘forgiven debt’ on home mortgages could be taxed as income. For instance, if your lender lopped $50,000 off what you owed (a type of loan modification called principal reduction), if you short-sold the property for $50,000 less than your mortgage or if your lender foreclosed on a property worth $50,000 less than you owed, the $50,000 would be treated as income, adding up to a potential big bill for state and federal taxes.  But with millions of struggling homeowners in such situations, both the Congress and the California Legislature passed bills to exempt forgiven home debt from taxes.” Remember that it only applies to the mortgage you originally got to acquire the home or to a refi used to improve the home – no cash out. I guess that anyone thinking of short-selling their homes have a pretty good reason to act on that thought process sooner rather than later.

How about some M&A, investor and lender updates? These are from recent weeks, and will give you a flavor for what is going on out there.

US Bank has announced a new 7-day lock period for all new locks or float to locks taken on or after September 4, 2012 on closed loan files ready for purchase or delivery.  Loans that haven’t yet expired may be granted an 8-day extension using the original rate sheet 15-day price and expiration date.  Loans that have already expired may be granted a 15-day relock where the pricing is the worse of the original rate sheet 15-day lock price or the 15-day price on the date of relock.

Stearns Lending spread the word to clients that, ” As a result of the new FHFA mandated G Fee increase, any lock that may require an extension, may be subject to an additional 50bps cost (for 30yr, 25yr, and 20yr amortizations) and 25bps cost (for 15yr, and 10yr amortization terms) in addition to the current relock or extension charges. New locks or Relocks taken BEFORE October 1st AND extended on or after November 1st will be subject to Stearns current rate lock policy, extension policy plus any additional charges incurred.”

As of September 7th, Stearns Lending has retired its DU Refi Plus High Balance and DU Refi Plus programs, effective for all amortization types.  DU Refi Plus will remain available through the Agency Retained DU Refi Plus programs, which are less restrictive than the generic programs.  Existing pipeline loans may be locked under the retired codes until September 21st.   If not locked by this date, they must be changed to the applicable Agency Retained program.

New Jersey’s Grand Bank announced today it has signed an agreement with Rushmore Loan Management Services, in which Rushmore will purchase the business of Grand Bank’s ICON Residential Lenders. Terms of the transaction were not disclosed. We all know California’s ICON as a national wholesale mortgage originator and servicer which sources loans through a nationwide network of over 1,400 mortgage brokers. The company is an approved Fannie Mae seller and servicer and Ginnie Mae issuer of mortgage-backed securities, and has a strong FHA and VA niche loan business. The closing of the transaction is subject to regulatory approvals as well as other customary closing conditions, and is expected to close in the fourth quarter of 2012 or the first quarter of 2013.

Kinecta has revised the qualifying rate for 5/1 Jumbo ARM loans.  As of September 5th, the rate is either the fully indexed, fully amortizing rate or the note rate plus 2%, whichever is larger.  The qualifying rates for 3/1, 7/1, and 10/1 Jumbo ARMs are not impacted.

West Coast wholesaler Pinnacle Capital has added guidance on conforming loans stating that leaseholds on Native American land are not eligible. Guidance on asset documentation requirements and the disaster policy for FHA loans has been updated as well. The 10-year warranty requirements for USDA loans have been changed to indicate that they must be purchased by a USDA-approved company, and the Jumbo loan limit for VA loans has been increased to $1.5 million for borrowers with FICO scores over 700.  Superfund site guidance for conforming, FHA, USDA, and VA loans has been amended as well.

In the wake of Hurricane Isaac, M&T Bank is requiring that all properties located in the Louisiana and Mississippi counties indicated by FEMA be re-inspected, provided that their appraisals were completed before August 26, 2012.  The inspection should include a photo of the exterior, a certification that the property is free from damage and in the same or better condition than it was when it was first appraised, and commentary on any conditions that may negatively affect its marketability. 

Following the USDA’s announcement that it would once again be issuing conditional commitments for refinance transactions, Plaza has resumed funding, purchasing, and accepting locks for Rural Housing refinances.  Purchase transactions remain unaffected.

As part of its efforts to combat fraud, MSI has tightened its policy on verbal verification of employment for self-employed borrowers.  The borrower’s business should be verified at least five calendar days prior to the note date through a letter from the CPA or copy of the current business license in addition separate documentation from yellowpages.com, supersearch.com, or searchbug.com.  Sources where business owners are permitted to add their own information will not be accepted.

MSI has updated its LP Relief Refinance policy to state that sellers who select Option Two for their appraisal must enter and resubmit the HVE value to LP as an estimated value, which ensures that the final finding discloses the correct LTV.  The LP feedback certificate containing the HVE value should then be included in the loan file.  Sellers should note that they no longer have the option of using the HVE value to calculate the LTV/TLTV if an appraisal has already been obtained; instead, they are required to use the appraised value, even if it is less favorable.

Sellers in Alabama, Florida, Louisiana, and Mississippi whose loans closed or were delivered to MSI after August 26th must document that the property hasn’t been damaged by Hurricane Isaac as per MSI’s disaster policy.

ACT Appraisal was added to MSI’s list of acceptable AMCs and began receiving new order placement along with the rest of MSI’s AMC roster as of August 24, 2012.

Rate-wise, Treasuries opened in New York Thursday morning slightly softer, with traders blaming talk of Chinese stimulus. We saw a little improvement after the weak numbers in the U.S., but never really went anywhere. (For housing, Pending Homes Sales declined 2.6% in August, but we’re still nearly 11% above 2011’s levels. In fact, the index shows 16 consecutive months of year-over-year increases, and that has translated into a higher number of closed sales.) Lock desks and hedgers were busy, as volumes picked up way above the recent daily averages. Still, the Fed is buying more than that every day. By the end of the day agency MBS prices were worse nearly .5, snapping a long winning streak and the 10-yr closed at 1.64%.

This morning we’ve had Personal Income for August (expected +.2%, it was +.1%) and Personal Consumption/Spending was +.5% (just as expected). Later we’ll have the Chicago PMI for September (expected unchanged) and the University of Michigan survey for September. Early on, rates are little changed, and the 10-yr is now at 1.62% and MBS prices better by about .125.

An amateur group of Islamic film makers have posted a video on YouTube which mocks Christianity and Jesus Christ.
It is believed to be so offensive that St Peter’s church in Shrewsbury, England has postponed their tea and cake morning until next Wednesday, and Dorothy Green from Margate has written in to the BBC.
When will the madness end?

 

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[MBS Commentary] – The Day Ahead: Looking For Employment Data Cues On Month-End

The Day Ahead: Looking For Employment Data Cues On Month-End

Posted to: MBS Commentary
Friday, September 28, 2012 12:43 AM

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After stringing together 8 sessions closing unchanged or improved vs the previous close, Treasuries and MBS both gave up some ground on Thursday.  We also saw a bit of a clash between the morning data and European headlines to determine which had more right to move markets.  For the Euro and for stock markets, it was clearly the Spain news around noon, while bond markets seemed preoccupied with stronger-than-expected Jobless Claims. 

The latter came as a bit of a surprise to the conventional wisdom that views Durable Goods as the more significant piece of data, but the logic would be consistent with the Fed’s ever-more-clearly-delineated stance on QE being tied to employment.  We’ve moved from Fed generalities about employment being important a few months ago to the present day where several Fed speakers have recently laid out hypothetical specific targets for unemployment, under which QE3 would cease or wind down.

This raises the obvious question: “so… what’s going on today that might speak to employment?”  We can first narrow down best-bets based on timeliness.  To that end, the September reports later in the morning trump the August reports in the 8:30 time slot.  It’s not that the mighty consumer spending report isn’t important.  Indeed a surprising result has plenty of potential to move markets, but by the time we account for the fact that it has no employment component, it’s older timestamp costs it the “most likely market mover” title.

What Incomes and Outlays (consumer spending, essentially) lacks, Chicago PMI makes up for.  Yes, Chicago PMI.  Although it’s relevance can be hit or miss, it is at least timely, and it contains an employment component.  Printing near the end of the month, it historically serves as one of the first reasonably correlated pieces of data with the Employment Situation Report that generally follows shortly thereafter on the first Friday of the following month.  Let’s go to the chart:’

Apart from the domestic economic data in the morning, today is also the end of the month and the quarter.  This can create a lot of behind-the-scenes motivations for buying (and selling) to adjust month-end portfolios and/or balance sheets.

MBS Live Econ Calendar:

Week Of Mon, Sep 17 2012 – Fri, Sep 21 2012

Time

Event

Period

Unit

Forecast

Prior

Mon, Sep 24

08:30

National Activity Index

Aug

-0.13

Tue, Sep 25

09:00

CaseShiller 20 mm SA

Jul

%

0.8

0.9

10:00

Consumer confidence

Sep

62.6

60.6

10:00

Monthly Home Price mm

Jul

%

0.7

Wed, Sep 26

07:00

MBA Purchase Index

w/e

185.7

07:00

Mortgage refinance index

w/e

4765.3

10:00

New home sales-units mm

Aug

ml

0.380

0.372

10:00

New home sales chg mm

Aug

%

3.6

13:00

5-Yr Treasury Auction

Thu, Sep 27

08:30

Durable goods

Aug

%

-4.4

4.1

08:30

Initial Jobless Claims

w/e

k

378

382

08:30

GDP

Q2

+1.7

+1.7

10:00

Pending sales change mm

Aug

%

0.0

+2.4

13:00

7-Yr Note Auction

Fri, Sep 28

08:30

Personal consumption mm

Aug

%

+0.5

+0.4

08:30

Personal income mm

Aug

%

+0.2

+0.3

08:30

Core PCE price index mm

Aug

%

+0.1

+0.0

09:45

Chicago PMI

Sep

53.0

53.0

09:55

U Mich sentiment

Sep

79.0

79.2

* 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 Move Higher For The First Time In Two Weeks

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Sep 27, 2012 3:10PM

Mortgage Rates Move Higher For The First Time In Two Weeks

Mortgage rates finally broke their unprecedented winning streak on Thursday as rates moved higher for the first time since the Fed announced it’s third round of quantitative easing on September 14th. The 10 straight sessions of improving rates crossed into new all-time low territory earlier this week, and even after today’s weakness, it’s still the 3rd best day in the history of mortgage rates. Best execution levels continue hovering firmly at 3.25% for 30yr Fixed Conventional Loans. ( Read More…

Sep 27, 2012 10:23AM

Mortgage Metrics Report Shows Increase in “Seasonal” Delinquencies

The performance of mortgages serviced by banks regulated by the Office of Comptroller of the Currency (OCC) declined in the second quarter but was improved over the same period one year earlier according to the OCC Mortgage Metrics Report for the Second Quarter of 2012 released Thursday morning. OCC called the quarterly change in delinquency rates “seasonal.” The report covers 30.5 million first-lien mortgages with $5.2 trillion in outstanding balances, about 60 percent of all first-lien mortgages…

Micro News

1:21 PM:

Despite Decent 7yr Treasury Auction, Bond Markets Struggle

12:33 PM:

Tricky Bit Of Weakness Here. Potential Negative Reprice Risk

10:10 AM:

ECON: Pending Home Sales Decline In August

9:29 AM:

Paradoxical Reaction As Bond Markets Fall On Weaker Data

8:56 AM:

ECON: Biggest Drop In Durable Goods Since Jan 2009

8:46 AM:

ECON: Jobless Claims 359k Vs 378k Consensus

8:45 AM:

ECON: GDP Rises 1.3 Percent Versus 1.7 Percent Consensus

2:02 PM:

Bouncing Back From Previous Weakness After Strong 5yr Auction

Around the Web

Video News

‘Fed Courting a Disaster’

Climbing the Property Ladder

Santelli: Europe ‘Systemically Important’

Today’s Comments

Robert Kirk

“Now that was the most enlightening thing I have seen in a long time. You can’t imagine how many times, and how much time I have spent separating whites…”

Frank Ceizyk

“So the 3.8% is not a sales tax, it is a 3.8% capital gains tax for wealthy people…which, is still a tax, right? A myth generally infers there is no truth…”

Frank Ceizyk

“It is remarkable how little vision there is from the Romney campaign on housing. I didn’t vote for the incumbent President, but I can say if the only…”

Today’s Q&A

“home loan for 95% on cost”

“Loan Officer locks mortgage rate without client”

“Can refinance done with the only a month old title insurance?”

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Today’s Forum Discussions

akaagassi

“Consumers, This why you should consider a mortgage through a local mortgage bank or Credit Union rather than one of the big banks: “In September 2011…”

matthewj07

“I am in the process of building a residential real estate portfolio and I am trying to find the best way to leverage my equity to purchase a new property…”

Steven Brown

“We are happy to provide all provisional and legal information, forms for California hard money borrowers and investors alike. Our loan programs include…”

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