Mortgage Registry Now Includes all States, Federal Lenders

Fri, 18 May 2012 18:07:45 GMT

The State Regulatory Registry, LLC (SRR) and the Nationwide Mortgage Licensing System (NMLS) have issued an Annual Report for 2011. The report notes that 2011 was the first year that all state mortgage regulatory agencies utilized NMLS to manage mortgage loan originator (MLO) licenses on the system.  In addition, in January the NMLS Federal Registry became fully operational.  By the end of the year the Federal Registry contained active registrations for 11,081 institutions and 375,654 registered MLOs.

According to the report, for the first time almost all of the nearly half-million individual mortgage loan originators (MLOs) along with their license or registration status and other information are now available to the general public on-line through NMLS Consumer Access. 

By the end of 2011 NMLS had registered 17,121 companies holding 22,124 active state licenses.  There were 11,081 depository institutions and subsidiaries registered, and 116,991 individual MLOs holding 226,010 active state licenses in addition to the federally registered MLOs noted above.

Licensing and registration trends show that the number of active companies, institutions and MLOs in NMLS gradually increased throughout 2011 but decreased significantly in January 2011 and January 2012 as entities surrendered or failed to renew by the year-end deadline.  The number of MLO state licenses reached a high of 226,023 on December 31, 2011 but had declined 18.4 percent to 184,345 licenses by the end of January 2012.

As shown in the table below, institutions and MLOs in the Federal Registry represent institutions regulated by five federal entities and a few privately insured credit unions.

The report says that under state supervision, loan origination is still very much a local small business activity.  The vast majority of MLOs, 90,000 or 77 percent, operate in a single state; 13,300 are operating under two state agencies.  Less than 7,000 are operating in more than two states but 3,100 of those are operating in 11 or more jurisdictions.

Companies within the state-supervised mortgage industry conduct a wide range of activities and most employ only a small number of MLOs.  Here is a breakdown of company activities among state-licensed companies.

Realtors Show Clout, 'Protecting The American Dream' in DC Rally

Fri, 18 May 2012 14:20:04 GMT

Realtors® massed on the Washington Mall on Thursday to show their strength in a year in which their trade organization, The National Association of Realtors (NAR) seems anxious on several levels.  An estimated 15,000 Realtors gathered at the foot of the Washington Monument to, in the words of NAR President Moe Veissi "protect the American Dream of homeownership."

According to a press release regarding the Rally to Protect the American Dream as the event was characterized, "Realtors® are working to ensure that people who want to own a home or invest in real estate and can responsibly afford to do so will continue to have the opportunity to do that."

NAR is currently concerned about discussions to include a requirement for a 20 percent downpayment in the proposed definition of Qualified Residential Mortgage and proposals being floated to  eliminate or limit the current tax deduction for home mortgage interest.  The association also wants reform of the secondary market and improved liquidity in both commercial and residential lending.

The rally also helped NAR demonstrate its political clout.  The association, at one time the largest trade group in the country before the housing collapse drove many of its members out of the business, has been concerned about its influence especially since the Supreme Court ruled in the Citizens United case.  Last year it raised the political action portion of its dues by $40, a move that did not sit well with many members, citing  the need to compete against the millions in soft money for political advocacy the ruling was expected to unleash.  NAR hoped to raise $80 million with the increase.

According to the Center for Responsive Politics NAR is number four on its list of "Heavy Hitters" with 41.9 million in political donations since 1989.  They were a major force in electing Isaacson to the Senate in 2004 and in his 2010 re-election.

Those who attended the rally heard from former Realtor and Senator Johnny Isaacson (R-GA) and Representative Steny Hoyer (D-MD).  Isaacson told the crowd that homeownership has always been part of the American dream, "It is my hope that this rally encourages Congress and the president to move forward with policies that are supportive of housing, which is vital to job creation and the recovery of our economy," he said.

Hoyer said, "Stabilizing the housing market remains a central issue for Democrats, who understand we will not have robust economic growth without a vibrant housing market and that access to homeownership remains a critical component of the American Dream."

NAHB, NAR Agree, Homes Never More Affordable

Thu, 17 May 2012 15:37:03 GMT

For the second time in a week a national housing trade organization has shown that purchasing a home is now within the reach of a record number of Americans.  On Tuesday the National Association of Realtors® (NAR) published its affordability index indicating the purchasing power of American households had broken through 200 on its index for the first time in its history.  Today the National Association of Home Builders (NAHB) and Wells Fargo released their Housing Opportunity Index (HOI) which showed that 77.5 percent of all new and existing homes sold in the first quarter of 2012 were affordable to families earning the national median income.  This is up from 75.9 percent in the fourth quarter of 2011.

While NAR used a national median income of just under $61,000 the one used by the NAHB was $65,000, however each study primarily gauged affordability by measuring local home prices against local  prevailing incomes.  

"Homes in this year's first quarter were more affordable than they have been at any time in more than 20 years, yet many potential sales are not happening because of overly tight lending conditions that are keeping hardworking families from obtaining a suitable mortgage," said Barry Rutenberg, chairman of the NAHB. "Without this significant hurdle, the housing and economic recovery could be proceeding at a much stronger pace." 

The most affordable major housing market in the first quarter was Indianapolis-Carmel, Ind., where 95.8 percent of homes sold during the period were affordable to households earning the area's median family income of $66,900.  Other major markets ranking high in affordability were Dayton, Ohio; Lakeland-Winter Haven, Florida and Modesto, California.  New York City and surrounding areas in New York and New Jersey ranked as least affordable for the 16^th consecutive quarter.  Just 31.5 percent of homes sold during the quarter were affordable with the areas' median income of $68,200.  Other largely unaffordable areas were the San Francisco area, Honolulu, and Los Angeles.

Judicial States Continue to Skew Foreclosure Statistics

Wed, 16 May 2012 20:18:10 GMT

There were substantial improvements in delinquency rates during the first quarter of 2012 according to the National Delinquency Survey for the period released this morning by the Mortgage Bankers Association.  At a conference call for media accompanying the release, Jay Brinkmann, MBA's Chief Economist and Senior Vice President of Research and Education said that the combined percentage of loans in foreclosure or at least one payment past due was 11.33 percent, a 120 basis point (bp)  decrease from last quarter and 98  from one year ago.  This was the lowest that this measure has been since 2008.

This improvement was driven by a 62bp  decrease in the rate of loans that were 30 days or more delinquent.  Brinkmann said that the first quarter generally experiences a decline in 30-day delinquencies for seasonal reasons but this year the decrease was even larger and that rate, in fact, has returned to historical norms at 3.13 percent.

There was also a decrease in seriously delinquent loans, down 29bp, and this was not accompanied by an increase in foreclosure starts which, in fact, decreased 3bp on a non-seasonally adjusted basis.  Brinkmann said, looking at the two figures together leads to the assumption that a lot of very delinquent loans are being resolved in a manner other than foreclosure. 

The overall delinquency rate decreased to a seasonally adjusted rate of 7.40 percent, down from 7.58 percent in Q42012 and 8.32 percent in the first quarter of 2011.  Loans 90+ days delinquent were at a rate of 3.06 percent versus 3.11 and 3.62 percent.

Nationally the percentage of loans in foreclosure rose slightly but Mike Fratantoni MBA's Vice President of Research and Economics said the top-line figure covers up a couple of trends.  "First, the percentage of loans in foreclosure is up for prime and FHA loans.  The percentage of subprime loans in foreclosure continues to fall as the subprime loans age and the problems loans are resolved one way or the other.  However, the percentage of loans in foreclosure for both FHA loans and prime fixed-rate loans are climbing and are just below all -time records." 

"The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states," Franantoni said.  While the rate of foreclosure starts is essentially the same in judicial and non-judicial foreclosure states, the percent of loans in the foreclosure process has reached another all-time high in the judicial states, 6.9 percent.  In contrast that rate has fallen to 2.8 percent in non-judicial state, the lowest since early 2009."

The difference in the rates is even more disturbing in certain states.  In Florida the percent of loans in foreclosure is now 14.31 percent.   New Jersey and Illinois are trailing Florida substantially but  still have rates of 8.37 percent and 7.46 percent and, Brinkmann said, their rates are increasing.  Ten judicial states have rates above the national average of 4.39 percent.  On the other hand, among the 29 states using a non-judicial process, only Nevada has a higher rate of loans in foreclosure (6.47 percent) than the national average.

Five state now account for over 52.4 percent of all foreclosures in the country while accounting for only 32.1 percent of the loans services They are Florida, California, Illinois, New York, and New Jersey.

This judicial/non-judicial dichotomy is beginning to play out with FHA loans as well.  The foreclosure inventory for FHA loans is 3.83 percent, an increase of 29bp from the previous quarter.  The rate in judicial states, however is 5.59 percent compared to 2.69 percent.  Fratantoni indicated that this was somewhat the case for  VA loans as well.  "You have to ask yourself, " he said, "who is going to bear the costs of this differential foreclosure rate?  They are being passed on to all FHA borrowers in the form of higher across-the-board increases in insurance premiums, and ultimately to the taxpayers if the FHA insurance fund develops a shortage.

Another problem FHA is encountering is the result of the sharp increase in loan volume they experienced in the 2008-2009 period when other credit dried up.  Those loans are now entering the period in their life cycle most when delinquencies commonly occur.  Right now, while that vintage of loan accounts for 15 percent of all delinquent loans but represents 47 percent of FHA delinquencies.

In answer to a question during the conference call, Brinkmann said that he had seen little impact from the recent settlement agreement with servicers from five major banks.  He said the foreclosure inventory might have built a bit in anticipation of it, but "we know it didn't affect the 90 day bucket."  Any impact now that the agreement has been signed might not be noticed as it would have to differentiate itself from everything else that is going on in the system and it would also be felt largely on a state by state basis rather than nationally.

Brinkmann summed up the NDS report saying,  "Overall it has good news about where  we are going but the bottom line is we are still dependent on the economy."  As the job situation has improved so have delinquency figures and as long as this continues and there are no serious problems, such as a melt-down in Europe, we should see more of the same. 

"Mega-Lenders" Lagging Smaller Ones in Processing Time

Wed, 16 May 2012 18:09:14 GMT

Small and medium-sized lenders and community banks appear to be closing loans for refinancing faster than their "mega-lender" counterparts according to the Origination Insight Report for April released Wednesday by Ellie Mae.  The company, which samples loan applications that are processed through its loan management software, reported that, "While the average refinance going through our platform took five days longer in April than in March, it still only took 47 days."  Ellie Mae contrasted this to a report from The Wall Street Journal  which recently said that the largest retail lenders are now quoting timelines as long as 60 to 90 days for refinancing. 

Insight, which covers approximately 20 percent of U.S. loan originations, reported that the share of refinance applications actually dropped in April to 56 percent from 61 percent.  FHA Loans made up 28 percent of applications, unchanged from March and conventional loans 62 percent down from 64 percent.

Jonathan Corr, chief operating officer, said, "As we move into the spring and summer buying season, there was a significant pick up in the percentage of purchase loans; 44 percent in April up from 39 percent in March.  This is the highest level of purchase loans activity in the last nine months."

The closing rate (defined as the applications received in the preceding 90 days that have closed) or "pull-through" rate for all loans in April was 48.1 percent, up from 46.9 percent in March.  For refinancing the rate was 44.7, up from 42.1 percent while the purchase rate was down from 56.4 percent to 55.2 percent.

The average loan that closed during April had a loan-to-value ratio (LTV) of 80, a FICO score of 745 and a debt-to-income ratio (DTI) of 24/35 compared to an LTV of 77, FICO of 749, and DTI of 23/45 in March. Applications that were denied had an average FICO score of 702, LTV of 87, and DTI of 23/43.  These numbers were all up slightly from the previous month.

There was very little difference between loan quality metrics for purchasing and refinancing with a convention loan, but the differences in FHA loans were significant.  The average FICO for refinancing into an FHA loan was 720 compared to 702 for a purchase.  The LTV was 87 versus 96, and the DTI was 26/39 compared to 27/41.

Loans that closed with an LTV over 95 percent represented 7.1 percent of conventional refis, up from 3.6 percent in March,  Corr said, "This has been slowly increasing since the HARP 2.0 announcement in October 2011, but correspondent lenders have only recently been able to run these loans through Desktop Underwriter and Loan Prospector."

Single Family Construction Strengthens, Multi-family Falls Sharply

Wed, 16 May 2012 15:01:54 GMT

Permits for construction of multi-family housing plummeted in April, offsetting a small increase in single family permits  and dropping the total down 7 percent from revised April figures.  Permits for all privately owned residential construction were issued at a seasonally adjusted annual rate of 715,000, down from the March rate of 769,000.  The March rate was revised substantially upward from the original estimate of 747,000.  The April permitting rate is 23.7 percent higher than that of April 2011 when the annual rate was estimated at 578,000.

Permits for single family authorizations were at a rate of 475,000, up 1.9 percent from the March rate which was upwardly revised from 462,000 to 466,000.  The April figure is 18.5 percent higher than the rate of 401,000 one year earlier. Permits for construction in buildings with five or more units dropped sharply from the April rate of 281,000 (revised from the original estimate of 262,000) to 217,000, a drop of 22.8 percent.   Multi-family permits were issued at a rate 40.0 percent higher than a year earlier.

Building Permits

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Privately owned housing starts rose modestly to 717,000, a 2.6 percent increase from March and a 29.9 percent increase from the April 2011 rate of 552,000.  The March figure was revised from an original estimate of 654,000 to 699,000.

Housing Starts

Click Here to View the Housing Starts Chart

This month the Construction Report produced by the U.S. Census Bureau and the Department of Housing and Urban Development added a non-seasonally adjusted set of data giving the actual numbers for construction activity in the current month.  There were 62,000 permits issued for residential construction during the month, 44,000 for single family houses, and 16,000 for units in building with five or more units.  There were also a small number of permits for units in buildings of two to four units.

Single-family home starts were at a seasonally adjusted rate of 492,000, an increase of 2.3 percent from the March rate of 481,000 and construction starts for multi-family housing were at a rate of 217,000 up from the March rate of 208,000.  Again the April report showed substantial revisions of the March figures.  Single-family starts were revised from the original estimate of 462,000 and multi-family starts from an estimate of 178,000.

There were 64,200 units for which construction was started during the month; 45,800 single family dwellings and 17,800 units in multiple unit buildings. 

The housing completion rate in April was 651,000, a 10.0 percent increase from March and a 20.1 jump from one year earlier when the rates were 592,000 and 542,000 respectively.  Single-family completions were up 11.4 percent to 489,000.

There were 457,000 units under construction at the end of April.

On a regional basis, there were 6,900 permits issued in the Northeast, up from 5,800 in March and 6,200 starts compared to 6,900 the previous month.  There were 10,600 permits and 11,500 starts in the Midwest compared to 10,300 and 8,600 in March.  In the South 30,800 permits were issued, down from 34,300 and 34,100 units were started, up from 29,400.  In the West there were 13,600 permits issued and construction was started on 12,400 compared to 17,000 permits and 12,500 units started in March.

Ending Uncertainty is Prescription for Housing Recovery

Wed, 16 May 2012 13:56:35 GMT

Federal Reserve Governor Elizabeth A. Duke told attendees at a break-out session of the National Association of Realtors® (NAR) Midyear Legislative Meetings that she wished she had, as the session title suggested a "Prescription for Housing Recovery."  "I do see policies that I believe will help reduce the shadow inventory of houses in the foreclosure pipeline," she said.  "I also see policy actions that could be taken to improve credit availability for potential homebuyers and, in turn, demand for houses."

Duke briefly recounted the toll that the housing market had taken on homeowners and the nation's housing stock and some of the signs of recovery such as improving delinquency rates, and declining inventories of unsold and foreclosed homes. 

She said there have also been signs that home prices are stabilizing and even improving.  These modest improvements, she said, can only continue if the demand for homes strengthens or the supply fails to meet the weak demand.  "My Realtor friends," she said, "have taught me that when inventories of houses for sale reach a level equal to six months of sales, then markets are usually in rough balance. And, indeed, just as the inventory of existing homes for sale nationally has approached six months of sales, we have seen a leveling of prices suggesting that some equilibrium is being achieved, albeit at low levels."

The national data, of course, masks differences in regional markets.  She pointed to Miami and Phoenix where there is actually an undersupply of homes while delinquencies and foreclosures are still high.  "For me, this calls into question the notion that housing prices cannot stabilize until the foreclosure pipeline is worked off. I believe that this reduction in inventory, even in the face of a steady supply of foreclosed homes, is a result of a sharp contraction in normal homeowner activity and an equally sharp expansion of investor activity". This could mean that discouraged homeowners have pulled homes off the market or that a significant portion of inventory has been absorbed by investors.

Despite some signs of improvement, demand for owner-occupied housing remains what Duke called "stubbornly tepid."  One driver of demand is household formation which typically falls during economic downturns but has been especially weak in this cycle, running at three-quarters of the normal rate since 2007.  At the same time some homebuyers are delaying home purchases because of uncertainty, others because they expect prices might fall even further.

Some who would like to buy cannot because they are unable to obtain a mortgage.  She pointed to the Feds most recent Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS)  showing that underwriting standards for residential mortgages tightened steadily from 2007 to 2009, "and they do not appear to have eased much since then." 

Obviously lenders are trying to correct for the lax and problematic lending standards in the years leading up to the crash, but Duke listed other factors causing the problem.

Lenders apparently lack adequate capacity. Some lenders have gone out of business and others have cut staff at the same time that requirements for documentation have increased and lenders have become more cautious over fear they might have to repurchase loans.  This has increased the processing time for mortgages from about 4 weeks in 20008 to around 6 weeks in 2010.   Of course if lenders were eager to originate mortgages they could increase staff and invest in systems but Duke believes uncertainty is inhibiting these investments.

Uncertainty is impacting lenders in other ways. Turning first to macroeconomic uncertainty, Duke said so long as unemployment remains elevated and further house price declines remain possible, lenders will be cautious in setting their requirements for credit.  The continuing effects on house prices of the large number of underwater mortgages and of the mortgages still in the foreclosure pipeline remain unclear. In one recent survey, house price forecasts for 2012 ranged from a decline of 8 percent to an increase of 5 percent.

House price uncertainty and the high volume of distressed sales make the job of residential appraisers and lenders more difficult.  Appraisers may lean toward the conservative in setting a home's value and, as long a house prices continue to decline lenders may lean toward more conservative underwriting which, taken together could discourage or even disrupt sales and Duke said she hears of that happening.  

Lenders have tended to be conservative in making some mortgages that are guaranteed by government-sponsored enterprises (GSEs)--loans in which lenders do not bear the credit risk in the event of borrower default--which suggests that issues other than macroeconomic risk are affecting lending decisions.

In the April SLOOS  lenders said they are less likely today to originate loans to borrowers in several different categories than several years ago and when asked why about 80 percent cited the difficulty of obtaining affordable private mortgage insurance.  More than half the respondents cited risks associated with loans becoming delinquent as being at least somewhat important--in particular, higher servicing costs of past due loans or the risk that GSEs would require banks to repurchase or putback delinquent loans, their right when lenders are thought to have misrepresented their riskiness. If lenders perceive that minor errors can result in significant losses from putback loans, they may respond by being more conservative in originating those loans. If technology and data standardization can be used to enhance quality control reviews at the time of purchase rather than after the loans became delinquent, it would allow errors to be corrected much earlier, resulting in better outcomes for taxpayers, borrowers, investors, and lenders.

There is also uncertainty about future standards for delinquency servicing and the associated costs.  This was partially resolved by the $25 billion servicing settlement and the consent orders entered into by 14 large servicers. However these agreements cover only about two-thirds of all mortgages and the new Consumer Financial Protection Bureau (CFPB) has declared it will develop servicing rules for all mortgage loans, The conservator of the GSEs are developing a set of servicing protocols for GSE loans and federal regulators are doing the same for banks they regulate.  Also affecting decisions about investing in servicing are new approaches to servicer compensation under consideration by the FHFA and new international capital standards that change the capital treatment of mortgage servicing rights

Two major areas of uncertainty arise out of regulations being written under the Dodd-Frank Act;  rules that will set requirements for establishing a borrower's ability to repay a mortgage including a definition of a "qualified mortgage" or QM. Mortgages that meet the definition would be presumed to meet the standards regarding the ability of the borrower to repay.  Regulators are also developing a definition for "qualified residential mortgages," or QRMs, a subset of QM that would be exempt from risk retention requirements in mortgage loan securitizations. Each one of these rules will affect the costs and liabilities associated with mortgage lending and thus the attractiveness of the mortgage lending business.

Other big uncertainty is the potential role of the government in the mortgage market, especially the future of Fannie Mae and Freddie Mac still unreserved more than three years after they were put into conservatorship.  Private capital might be reluctant to enter the market until their future is settled.  

Duke concluded by returning to the theme of the session, writing a prescription for housing recovery which she said would include resolving uncertainty about the strength of the economic recovery, especially the labor market which is affecting both homeowners' willingness to buy and lenders willingness to lend. The Federal Reserve remains committed to fostering maximum employment consistent with price stability, which should help reduce some of the macroeconomic uncertainty.

The efforts underway to reduce foreclosures and distressed sales will stabilize home prices and mortgage loan modifications and short sales will cut the homes in the foreclosure pipeline as will reallocating some properties to rental use.  Policy changes that increase opportunities to refinance and neighborhood stabilization efforts are other solutions.   

But, she said, perhaps the most important solution is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market.  She listed the future of the GSEs, how to promote a robust secondary market, the form of crucial regulations, "and it is unlikely that anyone will fully agree with the final decisions that are made. Nevertheless, until these tough decisions are made, uncertainties will continue to hinder access to credit, the evolution of the mortgage finance system, and the ultimate recovery in the housing market. I don't want to diminish the importance of any individual policy decision, but I do believe that the most important prescription for the housing market is for these decisions to be made and the path for the future of housing finance to be set. It's time to start choosing that path.

Refinancing Applications Jump by Double Digits

Wed, 16 May 2012 13:51:54 GMT

Refinancing activity spiked during the week ended May 11, rising 13.0 percent from the previous week's level according to the Weekly Mortgage Applications Survey released this morning by the Mortgage Bankers Association (MBA).   Refinancing represented 74.9 percent of all applications compared to 72.1 percent the previous week.  The increase drove the Market Composite Index, a measure of mortgage application volume, up 9.2 percent on a seasonally adjusted basis and 8.7 percent unadjusted from the week ended May 4. 

Refinancing more than offset a 2.4 percent dip in both the seasonally adjusted and the unadjusted Purchase Indices on a weekly basis. The unadjusted index was 1.0 percent lower than during the same week in 2011.

The four week moving averages for all indices were up.  The Market Index rose 1.77 percent, the seasonally adjusted Purchase Index 1.57 percent, and the Refinance Index 1.88 percent. 

"A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of US Treasury securities last week.  As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result," said Michael Fratantoni, MBA's Vice President of Research and Economics.  "Survey participants indicated that this was not due primarily to HARP volume - the HARP share of refinances fell to 28 percent of refinance applications, down relative to last week and last month, when the share was just above 30 percent in April.  The increase in refinance activity last week was concentrated in the conventional sector, which was up around 14 percent for the week, while government refinance applications were up only 4 percent."Every fixed rate covered by MBA established a new record low during the week and the effective rate of most loans was also down.  The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,500 or less) dropped to 3.96 percent from 4.01 percent, with points decreasing to 0.37 from 0.41.

Purchase Index vs 30 Yr Fixed

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Refinance Index vs 30 Yr Fixed

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The average contract interest rate for 30-year FRM with jumbo loan balances (greater than $417,500) decreased 9 basis points to 4.20 percent with points remaining unchanged at 0.36.

The rate for 30-year FHA-backed FRM fell to 3.75 percent from 3.81 percent, with points increasing to 0.66 from 0.45. This was the only product for which the effective rate increased.

The 15-year fixed-rate mortgage rate decreased to 3.26 percent from 3.29 percent, with points increasing to 0.41 from 0.32.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) decreased to 2.80 percent from 2.83 percent, with points increasing to 0.37 from 0.36.  Applications for all  types of ARMs accounted for 5.4 percent of application volume, down from 5.7 percent. 

All rates quoted are for loans with an 80 percent loan-to-value ratio and points include the origination fee.

During the month of April, the investor share of applications for home purchase was at 5.7 percent, unchanged from March.  The Pacific region has the largest investor share of applications for home purchase at 9.5 percent. In addition, the share of purchase mortgages for second homes decreased to 5.7 percent in April from 5.8 percent in March.

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

NAR: Housing Affordability Index Breaks into Record Levels

Tue, 15 May 2012 16:16:10 GMT

Housing affordability may be at an all time high according to the quarterly Housing Affordability Index for the first quarter of 2012.  The index, issued this morning by the National Association of Realtors® (NAR), hit 205.9, the first time it has broken through 200 since recordkeeping began in 1970. The companion index measuring the ability of first-time buyers to purchase a home also set a record at 135.8.

The index gauges the purchasing power of a household given the relationship between median home price, median family income, and the average mortgage interest rate.  The higher the index, the greater the household purchasing power.

The index assumes, at an interest rate of 4.18 percent, the median income family, earning just under $61,000 could afford a home costing $325,500 in the first quarter.  This is more than twice the national median price for an existing single-family home, $158,100.  The median monthly mortgage principal and interest payment on that median priced home would be $617, only 13.5 percent of gross income.

NAR President Moe Veissi said market conditions are optimal for home buyers.  "For those with good credit, we've never seen better housing affordability conditions or market opportunities than we see at present.  Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means.  This is especially true for self-employed buyers."

Assumptions for the first-time buyer index include an income of 65 percent of median family income ($39,632), a starter home costing 85 percent of the median price ($134,400), and a downpayment of 10 percent.  This index means the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.  Most first-time buyers choose a loan with a lower downpayment, often an FHA-insured loan with 3.5 percent down, and some use the VA program with no downpayment.  The equation also factors in the cost of private mortgage insurance.

Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home.  For all of 2012 the index is projected to set an annual record, averaging 191 for the year.

Builder Sentiment Recovers after April Drop

Tue, 15 May 2012 15:20:57 GMT

After a bad showing in April the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) has rebounded, hitting its highest reading since May 2007.  The index, which measures home builder confidence, rose five points from its April level to 29 in May.

The HMI derives from a monthly survey of its homebuilder members which NAHB has conducted for 25 years.  The survey gauges builders' perceptions of current sales of single family homes as "good," "fair," or "poor,"; their sales expectations for the next six months on the same scale, and asks them to rate current traffic of prospective buyers as "high to very high," "average," or "low to very low."  Each component is scored separately and also used to construct the HMI.  A score of 50 on any of the four indices indicate that more builders view the market as good than poor.

The three components also improved on their declining numbers in April.  The components gauging current sales conditions and buyer traffic were each up five points to 30 and 23 respectively.  This was the highest level for the traffic component since April of 2007.  The component measuring sales expectations rose 3 points to 34.

"Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April," said Barry Rutenberg, NAHB chairman. "It seems we have resumed the gradual upward trend in confidence that started at the beginning of this year, as stabilizing prices and excellent affordability encourage more people to pursue a new-home purchase." 

Three out of four regions registered improving builder sentiment in May. This included a six-point gain to 32 in the Northeast, and five-point gains to 27 and 28 in the Midwest and South, respectively. The West posted a two-point decline, to 29.

"While home building still has quite a way to go toward a fully healthy market, the fact that the HMI has returned to trend is an excellent sign that firming home values, improving employment and low mortgage rates are drawing consumers back," said NAHB Chief Economist David Crowe. "The pace of this emerging recovery could be stronger were it not for the significant impediments that the market continues to face with regard to builder and consumer access to credit, inaccurate appraisals, and more recently, rising materials prices."

FHFA Outlines Strategic Plan, Goals for Next Four Years

Tue, 15 May 2012 14:57:14 GMT

The Federal Housing Finance Agency released a draft of its Strategic Plan:  Fiscal Years 2013-2017 this morning.  The document, which lays out goals for those years and methods for achieving them, is available for public comment until June 13.

In the time available for reviewing the document in juxtaposition with the final Strategic Plan for  2009 - 2013 is was not possible, especially given the different formats, to pick out differences and changes that might reflect a change in policy rather than the passage of time however there were three proposed initiatives that did jump out.  These were among the methods suggested for accomplishing Goal 4, Prepare for the Future of Housing Finance in the United States.   

• Build a single securitization platform to replace current separate proprietary systems. This platform will specifically bundle mortgages into any of an array of securities structures and process and track the payments from borrowers through to investors.
• Develop a new system for document custody and electronic registration of mortgage notes, titles, and liens. The system will take into account local property laws and will seek to enhance the liquidity of mortgages so that borrowers can benefit from a robust secondary market for buying and selling mortgages.
• Expand reliance on mortgage insurance. Although some mortgage insurers are facing financial challenges, deeper mortgage insurance coverage on individual loans or through pool-level insurance policies could expand the amount of risk mortgage insurers carry.

For the remainder, we have summarized the main goals and expanded on some of the other proposed strategies that seem to go beyond government-required management boilerplate.

Goal 1:  Safe and Sound Housing GSE's

• Identify risks and require timely remediation of weaknesses
• Improve the condition of the regulated entities

Goal 2:  Stability, Liquidity, and Access to Housing Finance

• Promote stability and mitigate systemic risk that could lead to market instability.
  

  FHFA said it will explore more private-sector risk-sharing opportunities and will continue to explore options to support a stable transition to a system with greater private sector participation.  While Congress is discussing the form in which this system will emerge, FHFA will concentrate on retaining value in the business operations of the GSEs.

  To this end, FHFA will monitor their use of derivatives by establishing capital and margin requirements for swap transactions that have not been cleared as part of the joint rulemaking process and will monitor the GSEs readiness for and move to central clearing.  This transition will be monitored to determine the cost and effectiveness of interest rate risk management, the level of operation risk, and borrowing costs at the GSEs.

  FHFA will also work with the GSEs to improve improving home retention initiatives and develop alternatives to dispose of real estate owned (REO) by the GSEs.

• Ensure liquidity in mortgage markets
  

  FHFA will monitor Federal Home Loan Banks (FHLBanks) to ensure their liquidity to respond promptly to sudden increases in demand for advances and to ensure  there are no unnecessary impediments to their ability to efficiently and competitively provide liquidity for housing markets through normal or stressed markets and during cycles of expansion and contraction.

  The agency plans to assess and monitor the potential impact on the Federal Home Loan Banks (FHLBanks) resulting from the new capital rules and liquidity required by the Basel III Accord .

• Expand access to housing finance for diverse financial institutions and qualified borrowers.
   
  FHFA will require that the Enterprises avoid and unwarranted policies or practices that favor large institutions to the disadvantage of small ones and will ensure minority and women inclusion in the activities of the GSEs.  It will also examine FHLBanks to ensure they are administering their business fairly and impartially and without discrimination in favor or against any member.
  

FHFA said that the next two goals are established as immediate goals which it plans to achieve within the next two to three years

Goal 3:  Preserve and Conserve Enterprise Assets

• Minimize taxpayer losses during the GSE conservatorships. There are a number of sub goals set out under this immediate goal and some are expansions of the longer term expectations set out above.
• To oversee the staff and compensation structure of the GSEs to ensure the ongoing hiring and retention of qualified people at the lowest target compensation consistent with stability and conserving talent.
• Implement the Home Affordable Refinance Program 2 (HARP 2.0) and implement and refine loan modification and refinancing initiatives as needed.
• Enhance the use of short sales, deeds in lieu, and deed for lease options
• Establish appropriate underwriting standards for mortgages purchased by the GSEs and risk-based pricing of guarantee fees.  To attract private capital to the mortgage market and reduce GSE risk exposure, FHFA will direct the Enterprises to price guarantee fees to levels that align pricing with actual risk and in an orderly manner that does not disrupt markets.
• FHFA intends to evaluate different options for the GSEs to share risk among various parties to a transaction.  Risk-sharing can help inform the GSEs about their guarantee fee pricing and more accurate price discovery would then be established through market competition.
• Assess and resolve remaining reps and warranties repurchase requests pertaining to the pre-conservatorship book of business.  Resolving these claims ensures that the GSEs are appropriately compensated  for but FHFA will work with the GSEs to align and make policies for reps and warranties more transparent.
• Conclude outstanding claims involving private-label mortgage-backed securities (MBS).  There are suits pending against 18 financial institutions which FHFA believes misled the GSEs about the risks of underlying loans.
• The embargoes against new lines of business for the GSEs will continue and FHFA plans to identify operations or business lines that should be shrunk or eliminated, consistent with other strategic goals.

Goal 4:  Prepare for the future of housing finance in the U.S. 

• Contract Enterprise operations
• Establish standards that promote a safer and more efficient housing finance system
• Build new infrastructure for the secondary mortgage market.
  
  The GSEs have bought or guaranteed approximately 75 percent of mortgages originated in the country since entering into conservatorship in September 2008.  The challenge for FHFA is how to reduce that position in the marketplace without comparable private-sector players.  In addition to the three proposals covered at the beginning of this summary and some strategies that duplicate those for Goal 3, the following are the key strategies for accomplishing Goal 4.
  

• Enforce Treasury agreements to shirk retained mortgage portfolios by at least 10 percent per year.
• Complete the implementation of the Uniform Mortgage Data Program
• Identify and implement appropriate changes to servicing compensation.   The Joint Servicing Compensation Initiative is seeking boarder options for compensation to increase competition and to identify options that can be repeated in any future housing finance system.
• Develop and analyze alternative GSE transition Plans
• Contribute to defining the future roles for the FHLBanks.  This will include evaluating the role these banks can support the transition to a new system of housing finance in the U.S.
• Create robust and standardized pooling and servicing agreements.

AG Biden Says $25B Settlement Not the End, Securitization Next

Tue, 15 May 2012 14:31:21 GMT

Delaware Attorney General Beau Biden said recently that the states' attorneys general need to make it clear that the recent $25 billion settlement with five major banks is the beginning not the end of their enforcement actions.   Biden, speaking on MSNBC's Morning Joe said the savings and loan crisis cost the economy $168 billion and 1,000 people went to jail.  "This crisis, which was man made," he said, "cost the economy trillions and I can't really find anyone who has been held accountable."

Show co-host Willie Geist asked Biden who he was focusing on, who did he think should be in jail?  Biden said one area he, New York Attorney General Eric T. Schneiderman and others are looking at is the securitization aspect, "whether or not there were false securities, mortgage-backed securities, sold to investors.  That affects borrowers as well."

He noted that Missouri Attorney General Chris Koster recently indicted DOCX and its CEO Lorraine Brown.  This is relevant, Biden said, because this woman has become famous, on 60 Minutes and so forth, because she signed thousands upon thousands of foreclosure affidavits.  "Chris Costner indicted her for forgery.  That's the kinds of thing we need to begin to do."  He said that investigations need to go beyond robo-signing and that people must be held accountable.  "People are angry," he said.  "Republicans, Democrats, Tea Partiers and 99 Percenters are all angry that no one has been held accountable for something they know is obviously fraught.  And that's my job as AG."

Freddie Mac: Refinancing Homeowners Pick Fixed Rates, Shorter Terms

Mon, 14 May 2012 20:20:07 GMT

Homeowners who refinanced through Freddie Mac in the first quarter of 2012 overwhelmingly picked fixed rate loans and 31 percent chose new loans that would amortize in a shorter period than the old loan.  The information came Monday from Freddie Mac's Quarterly Product Transition Report.

The number of borrowers choosing a one-year adjustable rate mortgage (ARM) was statistically zero in both the first quarter of 2012 and the last quarter of 2011.  Sixty percent of homeowners who had one-year adjustable picked 15-year fixed rate mortgages (FRM) for their new loan.  The shorter term FRM was also extremely popular with borrowers who were refinancing from another 15-year (89 percent, unchanged from the previous quarter) or the slightly longer 20-year (68 percent, down from 73 percent). Only 9 percent of borrowers who were originally in a 15-year moved to a longer-term product.   

Borrowers refinancing hybrid ARM loan either stuck with those loans (32 percent) or moved to a 30-year FRM (57 percent.)  Borrowers also displayed some brand loyalty; 66 percent chose a loan with the same term as the one they had just paid off

Frank Nothaft, Freddie Mac vice president and chief economist said, "Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about three-quarters of a percentage point lower during the first quarter. For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, under the enhanced Home Affordable Refinance Program-HARP-announced by FHFA on October 24, 2011, certain risk-based fees are waived for HARP borrowers who refinance into shorter-term loans."

Deal Cut to Sell ResCap out of Bankruptcy Filed Today

Mon, 14 May 2012 20:08:00 GMT

Ally Financial, formerly known as GMAC, took its residential lending unit into bankruptcy this morning in federal court in Manhattan.  At the same time, Nationstar Mortgage Holdings has agreed to buy substantially all of the mortgage servicing and related assets from the unit known as ResCap for about $2.4 billion including debt.

According to Reuters, the bankruptcy filing has the support of some of ResCap's creditors.  The unit has been a drag on Ally's attempts to recover after the financial crisis during which it accepted $17 billion in federal bailout funds, ceding 74 percent of its stock to the U.S. Treasury.  Ally says it now owes the government about $12 billion and there is speculation that it was government pressure that finally forced Ally to file the court papers.  The bankruptcy and sale will now allow Ally to return to its main auto lending business and put together a plan to pay back Treasury.

ResCap, includes among its assets the company formerly known as Ditech, famous for its TV pitchman who concluded each ad with "Lost another deal to Ditech."

The deal will give Nationstar first bidding rights in the auction that will be held under bankruptcy court rules and Reuters reports that the deal would be 'transformative" for the company which would gain more the $370 billion in loans to service while any liabilities would stay with the estate.  The portfolio contains $201 billion in primary residential servicing rights and $173 billion in subservicing contracts as well as $1.8 billion of related servicing advance receivables and certain other complementary assets.

Of the proposed purchase price, about $700 million is for the servicing rights and $180 million for the advances.  Nationstar, whose principal shareholder is Fortress Investment Group will be putting up half of the cash while the remainder is expected to come from Newcastle Investment Corp, a mortgage REIT managed by Fortress.  If Nationstar does not win the auction there is a $72 million break-up fee and reimbursement of up to $10 million in transaction related expenses.  Other bidders are expected, however Nationstar's positioning and its break-up fee are expected to lead to its success in the auction.

Other banks with troubled mortgage subsidiaries are expected to be watching the ResCap bankruptcy closely as it is a rare example of this type of subsidiary filing in which the holding company has been able to continue operations.

Ally will take a $1.3 billion charge, which covers its $400 million equity investment in ResCap, a $750 million settlement with ResCap to offset any future legal claims against it, and $130 million in reserves for claims related to mortgage-backed securities.

Ally is apparently also seeking buyers for some of its car finance and insurance related assets in Canada, Mexico, Europe, and South America.  Sale of any of these, the aggregate value of which is estimated at about $30 billion, would help it more quickly repay its debt to the Treasury

Industry Groups Send Letter to HUD Speaking Out on MIP Increases

Mon, 14 May 2012 16:11:28 GMT

Twelve groups, principally trade associations, sent a letter on Friday to the Department of Housing and Urban Development (HUD) commenting on a Notice of Proposed Changes to Federal Housing Administration (FHA) Mortgage Insurance Premiums (MIPS).  The changes affect financing for certain multifamily housing and hospital and health care facilities.   According to the Notice, "These MIP increases will not only provide additional protection for the GI/SRI fund and increase receipts to the Treasury, but will also encourage private lending to return to the market by ensuring FHA is not under-pricing its risk."

The following are the proposed changes to MIP by program type.

No increases are proposed for projects financed with Low Income Housing Tax Credits, have project-based rental assistance, or are financed by FHA risk-sharing loans.

The letter, sent to HUD's Regulation Division is signed by the following:

• American Seniors Housing Association
• Committee on Healthcare Financing
• Council for Affordable Rural Housing
• Institute of Real Estate Management
• Leading Age
• Mortgage Bankers Association
• National Affordable Housing Management Association
• National Apartment Association
• National Association of Home Builders
• National Association of Housing Cooperatives
• National Leased Housing Association
• National Multi Housing Council

The group voices its objection to the premium increases on the basis that HUD has not provided compelling justification for them.  The letter notes that the purpose does not seem to be pricing against risk or covering FHA's costs but rather to increase receipts to the Treasury.  The MIP was not intended, the letter states, to raise funds for Treasury and any increase should be supported and preceded by a careful analysis of the need for and impact of the change.

Historically, the letter says, HUD has not used the MIP to generate revenue beyond that needed to cover expected credit losses and associated programs costs.  The current MIP is at a level where the programs will break even providing only a minimal amount of excess income and is based on an economic model that takes into account the risks and costs of the program.  The Notice makes no mention of any technical or actuarial defects in the model.

The Notice says the new MIP would provide funds in excess of that needed to operate the program and these funds would not build a buffer against future loss because there is no segregated fund but would go into the overall federal budget.  The increased MIPs will only add to property owners' costs thereby affecting rents.  The letter's writers say that "such an action sets a precedent for poor public policy making and has a significant negative impact on national housing policy."

Congress did not intend the MIP to be based on what the market would bear.  The original framework resulted in a need for subsidies from Congress for the FHA multifamily programs but better economic modeling has improved the credit subsidy calculations used for the MIP and it has run at a break-even point for most of the last 10 years. 

The default rate used in the calculation has, in fact, gone down.  For example in the new construction program the rate in FY2012 was 19.11 percent and in FY 2013 it was 13.18 and the multi-family rate dropped from 12.64 percent to 4.22 percent.  "The need for an MIP increase in the face of reduced defaults has not been demonstrated and would be a de facto tax on rental housing" the letter says.

Also, FHA is not crowding out the private market.  It significantly increased its role in the multifamily market during the recession as other participants pulled back but many capital providers began reentering the market in 2009 and have steadily increased their presence in 2010 and 2011.  On the other hand, Fannie Mae, Freddie Mac and FHA stayed in the markets and even increased their volumes in 2008 through 2011.

FHA's share of the new construction market increased in 2008 through 2010 the absolute volume as well as the market share decreased in 2011 as other investors returned to the market and there are indications the FHA share has dropped even further in this fiscal year.  This means that FHA is operating as it should, providing liquidity when other market participants are pulling back and increasing market share as they return.

"As conventional lenders have returned to the market, FHA's market share has declined because these financing sources are more flexible and less costly to pursue.  This is occurring naturally, without the need to unnecessarily increase costs through an increase in the MIP."

Rental housing in general is inherently affordable in character and many of the programs routinely financed by FHA-insured loans that target families at 60 to 80 percent of area median income without any subsidies will be disadvantaged by the new fees.  The proposed increases will also disproportionately affect market rent properties in secondary and tertiary markets where access to capital is more limited.  Private capital is focusing lending in the strongest markets and to the most well-capitalized large developers.  As HUD does not differentiate among markets the increase penalizes the borrowers who need HUD financing the most. Market rate properties would be disproportionately damaged by the changes and Congress intends the multifamily insurance programs to have a broad scope rather than a focus on lower-income families. 

The letter concludes with a plea to avoid implementing the changes at a time when demand for rental housing is increasing and preserving and investing in rental housing stock is critical.  "Maintaining mortgage liquidity is important to the housing stock and to support job creation through development and investment in rental housing."