Monday Morning Cup of Coffee takes a look at news coming across HousingWire's weekend desk, with more coverage to come on bigger issues.
The Federal Housing Finance Agency announced on Friday that it is leaving g-fees largely alone but it is revising requirements for private mortgage insurance companies that insure mortgage loans either owned or guaranteed by Fannie Mae and Freddie Mac.
Urban Institute Senior Fellow Jim Parrott took a look at the new fees and has written a short piece assessing these changes.
He concludes that with these moves and the contemporaneously announced changes to the eligibility requirements for mortgage insurers, the FHFA has managed to both better price their risk and pave the way for a more stable mortgage insurance industry, all without significantly impacting either the GSEs’ bottom line or the cost to the consumer.
Meanwhile, the National Association of Realtors is a little more mixed and less sanguine in its perspective.
“…FHFA Director Mel Watt announced the Government Sponsored Enterprises will repeal the adverse market fees instituted in 2008 as private capital fled the market. NAR has been calling for elimination of the fees since 2011 when local market conditions around the country began improving,” NAR President Chris Polychron said. “While the elimination of the adverse market fees reduces some of the lending costs to average Americans, particularly first-time and underserved buyers, it is coupled with increased guarantee fees for most homebuyers. These increased fees are questionable and unnecessary to protect against risk.
“Instead of bringing more buyers into the market during a time of historically low homeownership rates, increasing g-fees only maintains the status quo without creating incentives for more private sector lending,” Polychron said.
This was a tough week for the economic optimists. Data such as housing starts and retail sales did not get the post-February rebound some had expected. And Fed speakers failed to consistently give the dovish signals that the weak data probably warrant. All in all, this week's events were enough to bring capitulation to mind for those analyzing securitized products.
“In particular, the question for us is whether we should capitulate to the data, or wait for the Fed to capitulate,” writes Bank of America/Merrill Lynch analyst Chris Flanagan, in client note. “We choose the latter option, believing that, although the Fed may want to move forward with tightening, we are still in a bad news is good news world, where the Fed is still the friend of securitized products.
“As a reminder, we think Q2 will be strong for the agency MBS basis, for agency IOs and inverse IOs, in particular, and down-in-credit in non-agency MBS, CMBS and CLOs,” he writes. “Due to our own modest economic optimism, driven in part by our view that the Fed will be forced by the data to adopt a more dovish position (in other words, capitulate), we see volatility coming down further, 10yr yields moving modestly higher (2.20%), and 2s10s steepening by about 20-25 basis points to the 160-165 area. We see all of these as positives for securitized products.”
This week we’ll see a number housing metrics reported. Housing is still sluggish, and we’ll see how sluggish on Wednesday with the FHFA home price index. The FHFA purchase only house price index continued to rise in January but at a slower pace. FHFA house prices advanced 0.3%, following a gain of 0.7% in December.
Also Wednesday we’ll see the existing home sales numbers. Existing home sales bounced 1.2% higher in February to a 4.88 million annual pace which was above January's 4.82 million but still was not that strong. The year, in fact, opened with the two weakest months for existing home sales since April last year.
The year-on-year rate, however, was showing moderate strength, at plus 4.7% in February for the strongest reading since October 2013. Supply was still limiting sales. Existing homes on the market were still on the scarce side, at 4.6 months of supply and unchanged from January. A year ago, the rate was 4.9 months.
Census Bureau reports on new home sales on Thursday. New home sales picked up sharply in February to a 539,000 annual rate. Adding to the good news was a big upward revision to January, to 500,000 from 481,000. These were the first two 500,000 readings going all the way back to April and May of 2008. The gain drew down what was already thin supply on the market, to 4.7 months at the current sales rate versus 5.1 and 5.3 months in the prior two reports.
It’s the end of an era for those of us covering housing. We’ve known for a while that Jed Kolko would be stepping down as chief economist for Trulia, and everyone will miss his clarity, insight, and the sense of humor he brought to what is often a dry subject. And now we have one of the first “sightings” of Trulia’s new housing economist, Ralph McLaughlin. Good luck, Ralph.
No banks reported closed in the week ending April 17, according to the FDIC.