Archive for October, 2009
Mortgage rates inched up last week, the third consecutive week of increases, according to two rate surveys.
Freddie Mac’s (FRE: 0.00 N/A) weekly survey put the 30-year fixed-rate mortgage (FRM) interest rate at 5.03% with an average 0.7 point for the week ending Oct. 29, up from 5% in the previous week. A year ago, the rate was 6.46%.
A separate survey of large US banks and thrifts conducted by Bankrate.com put the 30-year FRM at 5.35% with an average 0.37 point. That’s an increase of 1bp from the previous week. One year ago, the rate was 6.77%.
Freddie Mac said the 15-year FRM rate was 4.46% with an average 0.6 point, up from 4.43% last week. Last year, the 15-year FRM was 6.19%.
Bankrate.com said the 15-year FRM was 4.74%, up 2bps from last week.
Freddie said the five-year Treasury-index hybrid adjustable-rate mortgage (ARM) was 4.42% with an average 0.6 point, up from last week when it was 4.4%. A year ago it was 6.36%. Bankrate.com put the benchmark 5/1 ARM down 5bps to 4.64%.
The one-year Treasury-indexed ARM averaged 4.57% with an average 0.6 point this week, up from 4.54% last week. At this time last year, the 1-year ARM averaged 5.38%.
Sales have increased, prices are down and supply is starting to decline, Bankrate.com said. Susan Wachter, a real estate professor at the University of Pennsylvania's Wharton School of Business, said in the Bankrate.com survey the housing market is not at a false bottom.
"These are strong numbers, but not surprisingly strong numbers," Wachter said. “The fundamentals are in place for a recovery — however, a slow recovery.”
Write to Austin Kilgore.
The Financial Services Authority (FSA) fined GMAC-RFC, the UK unit of GMAC Financial Services, £2.8m (US$4.6m) for unfairly treating mortgage borrowers via excessive charges and inappropriate loan solutions.
The UK regulator also secured compensation of up to £7.7m (US$12.79m), plus interest, for more than 46,000 mortgage customers, the FSA announced.
Between Oct. 31, 2004 and Nov. 30, 2008, GMAC-RFC forced excessive and unfair charges for customers and proposed repayment plans that did not always consider individual circumstances. The FSA also found inadequate training of mortgage servicing staff for arrears and repossessions and that GMAC-RFC also issued repossession proceedings before considering alternatives. In the UK, foreclosure is strictly regarded as an option of last resort.
As the FSA concludes its investigation this week, GMAC-RFC is working with the regulator to workout a process enabling customers to receive the compensation as quickly as possible, according to the announcement.
Because of the settlement, the firm qualified for a 30% discount under the FSA’s discount scheme – reducing the fine from £4m to £2.8m.
“This case shows credible deterrence in action. It is an excellent example of what the FSA’s more intrusive approach can achieve for consumers, and it reflects what we said in our Mortgage Market Review last week about unfair mortgage arrears charges,” said Margaret Cole, director of enforcement and financial crime at the FSA.
Write to Jon Prior.
Standard & Poor's Fixed Income Risk Management Services (FIRMS), an analytics and research unit separate from S&P’s ratings business, and Veros Real Estate Solutions, a leading provider of model driven valuations on real property, partnered to provide the market with property valuation information specific to loans underlying residential mortgage-backed securities (RMBS).
The combination of S&P's RMBS loan-level data and analytics with Veros' property valuation data sets should provide a greater depth of loan-level data to the non-agency RMBS market.
Through the partnership, investors will have direct access to S&P loan-level information as well as a wide range of collateral valuation data from Veros including current property value estimates, combined loan-to-value ratios and home price forecasts.
“The goal of this alliance is to provide RMBS investors worldwide greater clarity, transparency, and analytical capabilities when assessing the risk of their US RMBS holdings and their collateral” said David Goldstein, managing director at FIRMS. “This alliance is one more step toward improving the disclosure of information on collateral underlying RMBS, and refining the quality and integrity of information available to investors."
Goldstein added: "The first stage in this strategic alliance will be to offer Veros loan level property information along with Standard & Poor's Global Data Solutions — U.S. RMBS Edition."
Write to Diana Golobay.
The European Commission (EC) approved the legal and capital restructuring plan of UK mortgage lender Northern Rock, a move already praised by Her Majesty's Treasury as a way to strengthen the firm's standing in the mortgage market.
Northern Rock, once the fifth-largest UK lender, ran into capital woes when the UK securitization market dried up, depriving the bank of its main funding source, according to the EC. The bank came into UK government control in February 2008.
The bank will be split under terms of the restructuring into a 'good bank' that will continue economic activities and a 'bad bank' that will run down the remaining assets. Ultimately, the EC intends the restructuring to restore long-term viability to the 'good bank,' which will eventually be sold to a third party, and allow for the orderly liquidation of the 'bad bank.'
The UK government's financial support to Northern Rock includes recapitalization measures of up to £3bn (US$4.9bn), liquidity measures of up to £27bn and guarantees covering several billions of pounds in liabilities.
"The failure of Northern Rock would have had major detrimental effects on the UK mortgage market and the overall financial stability of the UK economy," said European Commissioner for Competition Neelie Kroes in a statement Wednesday. "Important structural changes, including the split of the bank into two entities and a significant reduction of its market presence will allow the bank to become viable in the long-term and limit distortions of competition."
Kroes added: "This decision demonstrates once again that the EU's state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage."
HM Treasury said Northern Rock's restructuring will bolster its capital position and support its return to the UK mortgage market. The back book of mortgages will be managed separately from Northern Rock's other business segments under the terms of the restructuring.
"The Government has made clear that it wants to see a well functioning mortgage market with responsible lending and access to a wide range of affordable mortgages," HM Treasury said in a statement Wednesday. "The approach towards Northern Rock is part of meeting these aims."
Write to Diana Golobay.
Houston and Dallas, Texas’ first and second largest cities, are feeling the effect of the recession to a lesser extent than other major metropolitan areas. Even as unemployment rises, house sales increase on falling average prices.
While the national unemployment rate was 9.8% in September, the two cities in Texas have unemployment of about 8.1% each. While lower than the national average, the two cities have recently seen an steady increase in unemployment throughout 2009, according to data compiled by Movoto.com, a Web-based residential real estate sales firm.
The increase in unemployment moves in the opposite direction as house prices in the two cities.
During Q109, the average price of homes for sale in Houston was $180,373, down from $199,747 in Q108. During the same time frame, unemployment rose to 6.1% in Q109 from 4.4% in Q108. In Q309, the average home price was $213,117 while unemployment was at 8.1%. Those figures changed from $218,672 and 5.1% in Q308.
In Dallas, the average price was $186,167 in Q109, down from $203,433 in Q108. Unemployment was 6.9% in Q109, up from 4.4% in Q108. In the third quarter, the average Dallas price was $205,900 in 2009 and $213,533 in 2008, while unemployment increased to 8.1% in Q309 from 5.2% in Q308.
While prices declined, sales volume increased in Houston. The number of homes sold in Houston in September 2008 was 4,336. But that number increased 30% to 5,654 in September 2009.
In Dallas, September 2008 sales totaled 4,293. Monthly sales hit a bottom of 2,340 in January 2009 and in September this year, 4,010 homes were sold.
Write to Austin Kilgore.
Financial services information and intelligence provider Bank Administration Institute (BAI) launched the BAI & Finacle Banking Confidence Index, which tracks the effect of upheaval in the financial services industry on consumers' views.
The index measures consumer views across five areas: financial stress and the economy, access to credit, fees and disclosure, managing personal finances and consumer trust.
The index's findings, released Tuesday, indicate one-third of consumers feel their financial situation has deteriorated in recent months, but few expect conditions to grow even worse.
Of those surveyed, nearly one-third — or 31% — indicated access to mortgages is worse now than six months ago, while only 5% said it improved. The projections indicate 12% of respondents expected access to improve in another six months, while 15% expect access to worsen.
"In today's fast-changing scenario, consumer opinion counts more than ever before and technology has made the consumer highly empowered," said Haragopal Mangipudi, global head at Finacle, a solution from Infosys (INFY: 54.31 -0.95%). "Presented with diverse and ever-dynamic consumer segments, banks need to anticipate changing requirements and fine-tune business strategy."
The index, to be released biannually, is based on 2,501 interviews conducted across US households in August. Each index will project how consumers expect to feel across all five areas in another six months.
Write to Diana Golobay.
New mortgage loan originations considered "subprime" are taking back their pre-crisis market share levels, according to the most recent economic letter by the Federal Reserve Bank of San Francisco.
As the presence of private-label or non-agency securitization declined with the unfolding of the housing crisis, the market share of Ginnie Mae securitizations — backed by Federal Housing Administration (FHA)-insured loans — swelled.
Since the middle of 2007, non-agency securitization and originations slipped, said San Francisco Fed economist John Krainer. Ginnie Mae, which bears the full faith and credit of the US government, stepped in to fill that gap as FHA activity soared. Ginnie's activity, inlcuding agency securitization by Freddie Mac (FRE: 0.00 N/A) and Fannie Mae (FNM: 0.00 N/A), the agencies own or gurarantee nearly 96% of new residential mortgage lending.
Around 10% of originations in the San Francisco Fed's Q406 sample were labeled by originators as "subprime," according to Krainer. In the total US mortgage market, subprime loans accounted for about 20% of originations in 2006. Despite a nearly zero market share of subprime by Q108, Krainer said, increased FHA lending — identified in the securitization industry by Ginnie Mae's share — revived the subprime segment of the market.
"After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20%, the same share as when subprime securitization peaked in 2006," Krainer said.
Write to Diana Golobay.
Investor enthusiasm for Ginnie Mae pass-throughs has faced two obstacles in recent years: supply-limited liquidity and lumpy, often unpredictably fast prepayments in premium priced pools.
The latter problem – tradable supply – is being repaired in the current environment. FHA lending and its corollary, Ginnie Mae production are currently going gangbusters. FHA’s share of mortgage lending has revived from a moribund 3% in 2006 to about 25% currently. Ginnie production, as low as 5% to 10% of monthly agency pass-through issuance 2005-7, has popped above 40% in recent months and is currently running at 20 to 25% of monthly supply. (The revival of Ginnie Mae is also discussed in my column in this month’s HousingWire Magazine “Ginnie Mae: The Once and Future Queen?”)
The prepayment problem is more intractable and dominates consideration of Ginnie Mae long-term investment values. It can also impact pricing in the short run, as the latest round of prepayment reports proved. The market had been expecting prepayments during September on Ginnie premiums to be fast, but not as fast as materialized. By contrast GSE prepayments were slow (and slow by historical standards as well). Moreover, it was not expecting Ginnie 2s to accelerate significantly more than Ginnie 1s.
The surprise infected market perception Ginnie 1 and 2 premiums alike, causing Ginnie 6s and 6.5s to weaken versus comparable Fannies, higher coupon 30-year Ginnies to weaken versus comparable 15-years and dollar rolls in affected coupons to cheapen.
For example, in August Ginnie 1s originated in 2007 prepaid at 36.1 CPR (an annualized measure of the percentage of principal prepaid in a month). That is, if the monthly rate were sustained for a year, 36% of the principal outstanding August 1 2009 would be prepaid by July 31, 2010. In September the same Ginnie 1 “cohort” prepaid at 41.9 CPR. By comparison, 2007 origination Ginnie 2s prepaid at 32.2 CPR in August, but hit 60.6 CPR in September. Similar wide disparities were exhibited across other recent vintages of 6s and 6.5s.
A little background: Ginnie 1s are the oldest and most homogenous pass-through program, backed by loans from a single issuer, all paying an interest rate 50bp above the pass-through coupon. Ginnie 2 pools may be either multi-issuer or single-issuer and permit wider interest rate dispersion within the pool. For example, mortgages in fixed rate Ginnie 2 pools issued on or after July 1, 2003 must bear an interest rate at least 25 but not more than 75 basis points higher than security interest rate. All else equal, the presence of higher rate mortgages in Ginnie 2 pools should result in modestly faster prepayments in the 2s compared to same coupon 2s. Not surprisingly, all is not equal. In general, the programs are accessed differently by the various segments of the MBS market: Ginnie 2’s smaller pool size, greater flexibility and multi-issuer option favors smaller lenders, while the Ginnie 1 program has superior liquidity (e.g., “better execution” for loans meeting pooling requirements). Similarly, Ginnie 2 pools containing loans from many issuers might be more diverse, geographically and with regard to the servicers’ lending and servicing business practices. That diversity should encourage a more stable prepayment profile over time than in single issuer Ginnie 1 pools.
The sharp acceleration in Ginnie 2 prepayments in September can’t be explained by broader latitude in the rates on pooled mortgages. For example, Ginnie 1 6s are backed by 6.5% mortgages, while the loans backing 2007 Ginnie 2 6s have a weighted average rate of 6.47% (!). The explanation is not a fundamental, interest-rate response. As analysts at Barclays Capital put it, “many investors were spooked by a sharp increase in GN 2 prepayments, which look to have been the result of servicer buyouts.” this case in November.)
Servicer buyouts result from the valuable option granted to servicers to buy delinquent loans at par out of Ginnie pools under certain conditions. In general, for pools issued on or after Jan. 1, 2003, the borrower must miss three consecutive monthly payments. For pools issued before that date, the borrower must be delinquent for three consecutive months OR fail to make up a missed payment over four consecutive payments (in other words, a rolling delinquency). Note that servicers of GSE securities do not have this right; instead, the GSEs will buy delinquent loans out of pools (this, and the impact of buyout on modification, are topics for another discussion).
This option can be quite valuable if the loan can be made to reperform, a feat somewhat easier to perform before the housing/foreclosure crisis and much easier to perform with rolling delinquencies. Beginning in the late ’90s, some servicers began buying delinquent loans out of predominantly premium pools, curing them and reselling at a premium, increasingly into private securitizations. By 2002 it was a very popular practice among servicers and raised serious objections among investors (over the foregone above market interest).
Ginnie audited a number of originators whose volumes of buyout and resale were high, but did not find any apparent abuses. The one outcome was to tighten the rules to eliminate rolling delinquencies.
Profiting on the sale of reperforming loans is just one of servicers’ incentives to buy delinquent loans out of pools before foreclosure. Ginnie Mae requires servicers to maintain delinquencies at levels defined by three ratios: the percentage of loans in the Ginnie Mae servicing portfolio that are 90+ delinquent or in foreclosure, the percentage 60+ or in foreclosure and the ratio of cumulative delinquent P&I payments to total P&I due to the issuer. (For servicers with over 1000 loans those ratios are 5%, 7.5% and 60%, respectively. Smaller servicers have higher thresholds.) Analysts at several firms attributed some of the September jump to rising delinquencies. Analysts at Deutsche Bank, for instance, suggest servicers bought delinquent loans out on a large scale and in many cases may have been able to avoid foreclosures by modifying the loans under the Home Affordable Modification program.
Another factor, noted by analysts at BofA (this research reaches us courtesy an investor who closely follow this research group’s comments), is a requirement specific to FHA loans (Ginnie collateral includes VA, Farm Administration and other government residential mortgage loans). That is, servicers are required to advance scheduled principal and interest payments to investors in securities backed by the mortgage. In turn, the FHA reimburses 100% of principal and interest at a rate set by the FHA (currently thought to be close to a constant maturity 10-year Treasury rate). As a result, in the current yield environment, the servicer must advance several hundred basis points of interest to investors in Ginnie premiums out of their own pockets. This requirement is extinguished when a loan is removed from a pool, a strong incentive to buy the loan out.
Some analysts attributed the prepayment surge in Ginnies to a new factor announced mid-September – impending tighter restrictions for FHA streamline. (Analysts at Deutsche Bank commented that the changes “may well have led some servicers to speed FHA borrowers through the streamline process before the rules are tightened. This latter effect may continue for another month or two until the rules become effective.”
Although analysts understand the general impact of Ginnie and FHA program guidelines on the prepayment behavior of premiums, the disparity between 1s and 2s was less explicable. Barclay’s analysts noted that buying loans out of Ginnie 2 pools
“ … is more discrete because GNMA does not release buyout data by issuers for GN2 pools. Of course, these are only hypotheses and the exact timing of servicer buouts is large idiosyncratic as we have witnessed many times before. A large servicer can single-handedly move aggregate speeds on a GNMA cohort by more than 20 CPR in a month.”
(Buyouts can be confirmed for Ginnie 1s in supplementary pool data published with a one-month lag – in November for September activity. Again, by cohort, MBS analysts mean a specific issuance vintage within a coupon within a specific pass-through program. Across the agencies, there are dozens of programs, but the 30- and 15-year fixed rate programs are by far the most important.)
Barclay’s analysts do expect the Ginnie 1s to catch up. The 2s are unlikely to maintain their “advantage” because 1) they generally have lower delinquencies than the 1s, and 2) a spike in buyouts in September would mean fewer loans in the delinquency pipeline going forward. More generally, they anticipate prepayments to trend up for Ginnies for the next couple of months given the recent rally in mortgage rates since mid-August, the sharp build up in delinquencies and higher dollar prices for premium loans.
By cheapening Ginnie 30-year premiums across the board, the market seems to have agreed. The market may also have been reacting to the unappealing uncertainty and volatility imparted to prepayments by Ginnie and FHA program design, underlined by the unintuitive discrepancy in behavior between the two programs. The uncertainty and volatility have long been a factor otherwise limiting the potential audience for a security backed by the full faith and credit of the U.S. government.
If you’re thinking this is just a problem for MBS investors and traders, think again. Demand for Ginnie Mae pass-throughs sets the price at which lenders can sell their FHA, VA and other government loans as securities, and that price determines the interest rate they charge borrowers. The FHA program in particular has become one of the government’s lifelines to housing markets, particularly for borrowers with less-than-perfect credit. It also has taken on quite a bit of water itself in the foreclosure-housing storm, an issue that could – if program adjustments such as those recently announced can’t bolster capital – come directly back to taxpayers.
[Linda Lowell is a columnist for HousingWire. Her in-depth feature, Kitchen Sink, is published monthly in the magazine.]
[Update 1: As of 4:10 EST, sources for HousingWire claim the Senate will extend the tax credit until April 2010. The credit will remain at $8,000 for first-time homebuyers with a separate $6,500 credit for second home purchases.]
Senate Democrats are close to compromising on a provision that would extend the first-time homebuyer tax credit.
Legislation creating the extension could be included in a bill that will extend unemployment benefits and could go to debate as early as this week, according to numerous media reports.
What remains to be seen is the terms of the extension. Some reports indicate the extension would run through June 2010 and expanded to include all homebuyers, not just first-time purchasers.
Another option would extend the full credit to first-time buyers until April 1, with $2,000 reductions every quarter until it dissolved at the end of 2010.
The National Association of Realtors (NAR) and National Association of Home Builders (NAHB), along with the Mortgage Bankers Association (MBA) continue to lobby federal officials to extend the credit.
According to the latest Department of Housing and Urban Development (HUD) and Census Bureau data, the rate of new home sales declined 3.6% in September. Some have speculated the impending expiration of the credit is contributing to the decline.
The American Credit Union Mortgage Association (ACUMA), a trade group that promotes credit union mortgage lending, also jumped on the tax credit extension bandwagon. In a letter to the chair of the National Credit Union Administration — the credit union industry’s equivalent of the Federal Deposit Insurance Corp. (FDIC) — and other Washington leaders, ACUMA representatives called for the extension and expansion of the credit.
Amid the discussion on the credit’s extension, last week a Treasury watchdog told to House Ways and Means Oversight subcommittee the Internal Revenue Service (IRS) may have improperly paid out millions in fraudulent homebuyer tax credit claims, including credits paid to minors and people who had not yet purchased homes.
Write to Austin Kilgore.
Scott Happ is responsible for strategic direction and executive management of Mortgagebot. He has more than 25 years of financial-services and technology experience in the areas of portfolio management, mortgage banking, systems design and marketing.
For this installment of In This Corner, Scott discusses how lenders and buyers are benefiting in the digital age.
HW: Is home-buying moving more toward an online, digital presence?
Scott: It’s not just moving; it has already moved. We’re in the midst of an unprecedented “sea change” in the way Americans interact with banks and credit unions. In the late 1990s, only a small number of consumers would have considered using the Internet to apply for a mortgage loan.
But now that world has changed: A 2008 Deloitte Consulting study reveals that over 70% of all mortgage applicants (even in rural areas) start their search online. And new research from the American Bankers Association shows that today’s consumers actually prefer to use the Internet to conduct their financial affairs—in fact, they prefer it to every other business channel.
HW: How do Mortgagebot and Mortgage Marvel make business easier for a mortgage lender?
Scott: Banks and credit unions that do mortgage lending want to increase their loan volume without increasing their per-loan costs—so at Mortgagebot, we saw an opportunity.
Mortgagebot automates the application, loan pricing, approval and disclosure functions for more than 900 banks and credit unions nation wide through our PowerSite mortgage point-of-sale (POS) platform. So we created Mortgage Marvel to link lenders and borrowers on a national scale—with Mortgage Marvel serving as a convenient, affordable, value-added online channel that works “24/7” to bring in more loans to hundreds of Mortgagebot clients.
Rather than being limited to their traditional business footprint, Mortgage Marvel lenders gain a additional mortgage point-of-sale channel that gives them access to online borrowers they might have never before been able to reach, such as relocating families, second-home buyers, online mortgage-comparison shoppers, and so forth.
And the lender benefits of Mortgage Marvel are very real: During calendar 2008, Mortgage Marvel generated $239m in application volume for lenders nationwide. And in just the first six months of 2009, Mortgage Marvel generated nearly $240m in application volume.
HW: How is Mortgagebot creating a more educated homebuyer?
Scott: Educated consumers make better mortgage decisions. So our objective in building Mortgage Marvel was to give consumers the Internet’s fastest, easiest, and most responsive mortgage-shopping service. We wanted to turn the traditional online mortgage-shopping model upside down:
Instead of forcing borrowers to complete most of a mortgage application, we designed Mortgage Marvel to provide detailed quotes in seconds.
Instead of requiring consumers to spend 30 to 60 minutes entering reams of personal information, Mortgage Marvel requires only a few fields of non-personal data that are entered on one screen, in just moments.
Instead of selling mortgage “leads” to high-bidding lenders, who then (may or may not) call with offers, Mortgage Marvel provides direct-to-consumer quotes that are completely anonymous, so borrowers can decide when and how to contact the lender of their choice.
Instead of offering day-old “teaser” rates, Mortgage Marvel’s rates and fees are actionable, real-time data feeds—direct from each participating lender’s “live” loan-product database.
But there’s more to Mortgage Marvel than just a fast, consumer-friendly way to get accurate and anonymous mortgage rate-and-fee quotes. The Mortgage Marvel Web site also provides an in-depth Learning Center, with a helpful FAQ section, an interactive “Ask an Expert” forum, mortgage calculators, a Glossary, a current News section, and much more.
HW: What challenges does Mortgagebot face in streamlining online information for mortgage shoppers?
Scott: Regulatory issues are always a big challenge when presenting mortgage-related information to consumers. And with the flood of consumer-focused regulatory change that is inundating the industry, regulatory compliance is a hot issue—not just for lenders, but for technology providers and consumers alike. The good news is that we aggressively monitor the changes in government regulations. Then we carefully enhance and update our PowerSite POS platform to help ensure that our bank and credit-union clients are using mortgage technology that is always up-to-date.
The net result for consumers is that when they use Mortgage Marvel or visit a Mortgagebot-hosted lender Web site, consumer borrowers don’t have to wonder if (for example) the payment information displayed complies with new government regulations—or if the mortgage disclosures they’ve received are accurate and fully legal. Instead, consumers can have confidence that the lender and the Web site they’re dealing with are fully compliant with the latest regulatory changes.
HW: How has Mortgagebot adapted in the current foreclosure crisis?
Scott: Mortgagebot serves more than 6,000 mortgage-origination Web sites for over 900 banks and credit unions nationwide. And because our technology comes into play at the start of the mortgage process, we do not deal with nor are we directly affected by today’s foreclosure situation.
However, foreclosed homes re-enter the real-estate market at more affordable prices. And with today’s low interest rates, our clients are seeing a solid upturn in online mortgage-application volume. For example, the overall volume in mortgage applications that our clients generated through our online technology platform in the third quarter of 2009 was up 43% over the third quarter of 2008.
