Monday Morning Cup of Coffee is a quick look at the news coming across the HousingWire weekend desk, with more coverage to come on bigger issues.
The crash of oil prices is a good thing for more than just your commute. Chris Flanagan’s team at BofA Merrill Lynch Global Research says it will benefit agency and non-agency mortgage-backed securities.
“We do not think recent spread widening related to the oil price shock changes our low spread volatility thesis. Lower oil prices mean better fundamentals in non-agency MBS, risk transfer and consumer ABS; buy on recent weakness,” the note to clients says. “Lower oil prices have increased prepayment and supply risk in agency MBS, where we are now underweight.
“We maintain an underweight on the basis as we assign higher probabilities to lower mortgage rates,” the note says. “Trading slowed down this week, as many bonds in for the bid DNT. Pricing in legacy RMBS & SFR was unchanged; CRT was tighter. We continue to recommend down in credit, lower dollar priced bonds with some optionality based on improving collateral. NAIC released updated coverage and price breakpoints today. While positive, we believe the effects to RMBS are small.”
Despite improving economic conditions, mortgage fraud is still a national problem, according to the LexisNexis Risk Solutions.
In fact, mortgage application fraud and misrepresentation has grown for the past three years. Seventy-four percent of loans reported in 2013 involved some kind of fraud or misrepresentation on the loan application compared to 69% in 2012 and 61% in 2011.
Analysis of the data shows that appraisal and property valuation fraud experienced a significant drop from last year, falling to 15% of loans reported with these problems. In 2012, 26% of loans reported had signs of appraisal and property valuation fraud following 31% in 2011 and 33% in 2010. Regulation changes are cited as the reason for this rapid and dramatic decline in appraisal and property valuation fraud.
“When the Home Valuation Code of Conduct went into effect in 2009, lenders could no longer work directly with appraisers,” explained Tim Coyle, senior director, Financial Services, LexisNexis, and co-author of the Annual Mortgage Fraud Report. “This landmark regulation, which disrupted the historical appraisal process, has everything to do with the drop in this year’s appraisal fraud. Although no longer in force, HVCC influenced the Appraiser Independence Requirements now found in The Dodd-Frank Wall Street Reform and Consumer Protection Act.
“In the U.S., fraud across all industries is close to a trillion dollar problem,” said Coyle. “The results of this study clearly demonstrate that the mortgage industry, like other industries, is making progress in combating fraud in some areas, such as appraisal fraud, but still has a lot of work to do in other areas, such as misrepresentation on credit documentation, which leapt from 5% in 2012 to 17% in 2013.”
Despite this being a short week (you may have heard it’s Christmas), there will be some critical metrics coming in.
On Monday we’ll see existing home sales reported. Existing home sales continued to slowly rise in October, gaining 1.5%, following a 2.6% boost in September. The October pace of 5.26 million units topped expectations for 5.15 million units. On a year-ago basis sales posted at 2.5%. Supply declined 2.6% in October after a 2.1% drop in September. Months' supply slipped to 5.1 months from 5.3 months in September.
On Tuesday we’ll get the FHFA house price index for October. The FHFA purchase-only house price index slowed in September according to FHFA, with a 0% posting, following a rise of 0.4% in August. September fell well short of market expectations for a 0.4% boost. The year-ago rate softened to 4.3% from 4.7% in August. Regionally, five Census regions reported gains in September while three declined and one was flat.
Also Tuesday, we’ll see new home sales reported for November. New home sales came in at a lower-than-expected 458,000 pace in October versus 455,000 in September, which has been revised 12,000 lower. August, which was originally reported at 504,000, was revised down a second time, 13,000 lower in the latest report to 453,000. Supply of new home sales for sales was steady, at 212,000 vs 210,000 and 207,000 in the prior two months. On a monthly sales basis, supply was at 5.6 months versus 5.5 months in both September and August.
The FDIC reported that one bank, Northern Star Bank in Mankato, Minn., was closed the week ending Dec. 19.
Merry Christmas and happy holidays from the team at HousingWire.