Monday Morning Cup of Coffee takes a look at news coming across HousingWire's weekend desk, with more coverage to come on bigger issues.
A measure that would have delayed cuts to the fees that Fannie Mae and Freddie Mac charge lenders to guarantee loans, and used those very fees to fund massive transportation projects, is out. Thankfully.
A highway bill, tortuously named so that they could come up with the acronym “DRIVE Act,” no longer robs g-fees but it does include a measure that would create new mortgage reporting requirements.
(A prize of 50 Internets to whomever can come up with the logical connection between mortgage interest deduction reporting and pot-hole repair.)
The mortgage reporting measure in the DRIVE Act is designed to reduce inaccurate reporting and root out fraud related to mortgage interest deductions.
The measure would require banks and servicers to report the origination date of a mortgage, the property address, and outstanding balance of the loan at the beginning of the tax year.
But at least they left the g-fees out of it, so housing has that going for it. Which is nice.
“We’re gratified that lawmakers have kept g-fees out of highway funding for now, but we’ll be closely monitoring the long-term funding measure that lawmakers are expected to try to resolve in the fall,” said Carrie Hunt, National Association of Federal Credit Unions senior vice president of government affairs and general counsel.
Looking to invest in mortgage bonds? Survey says — strongly neutral.
“We turned neutral on agency MBS and securitized products back in early May,” says Chris Flanagan, with Bank of America/Merrill Lynch. “Total return performance across fixed income sectors since then has been reasonably consistent with expectations. High yield and high-grade corporates, which our corporate strategists recommend underweighting, have been the worst performers while agency MBS, CMBS and fixed rate ABS have been middling performers.
“…(L)egacy non-agency MBS continue to be relatively strong performers within the fixed income market,” Flanagan says. “At least until the Fed finally makes a rate decision, we see little reason to be too bullish or too bearish on agency MBS and securitized products credit. Hence, we remain ‘strongly neutral.’”
How do servicing costs really break down today? Glad you asked. The Mortgage Bankers Association has the answer.
“Following six years of escalation, direct servicing costs in 2014 dropped to $171 per loan among large prime servicers,” says Marina Walsh, vice president of industry analysis at MBA. “Nonetheless, this direct cost is significantly higher than the $89 per loan reported in 2009 when defaults peaked, suggesting a new ‘nor’ for servicing operations.”
Walsh says that the largest component of direct servicing costs was for the servicing of defaulted loans, which comprised 43% of the total, equal to $73 per loan serviced or $1,310 per defaulted loan.
“Even though the 2014 default rate for this sample was only 5.7% of the average servicing portfolio count, default servicing costs were approximately twice as high as in 2009. Default costs include the personnel and other operating costs required for collections, loss mitigation, foreclosure, bankruptcy, claims recovery and other default- related functions. It excludes compensatory fees and any unreimbursed foreclosure and REO losses,” she said.
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The remaining 57% of direct costs ($98 per loan), Walsh writes, includes servicing technology (service provider costs as well as in-house systems and personnel); customer service (call center and borrower communications); executive management; as well as various processing functions.
“The cost of these components was almost twice as high as in 2009, suggesting that all areas of servicing – whether default-specific or not – were affected by the aftermath of the mortgage crisis,” Walsh says.
The U.S. Census will report on construction spending on Monday. Construction spending is expected to rise 0.6% in June, getting a boost from the residential component where starts and permits have been surging. A headline gain would follow May's 0.8% rise and would boost the outlook for both construction and for new home sales, which fell back suddenly and dramatically at the outset of summer.
In the run-up to Friday’s employment report for July, on Wednesday we’ll get Gallup's Job Creation Index. The Index is based on a question that Gallup tracks daily, asking a nationally representative sample of 500 to 600 working adults, aged 18 and older, and reports monthly based on approximately 14,000 interviews.
Gallup asks its sample of employed Americans each day whether their companies are hiring new people and expanding the size of their workforces, not changing the size of their workforces, or letting people go and reducing the size of their workforces.
Then come Friday it’s the big one — will it beat expectations? Will it be another round of more people dropping out of the labor force, and a surge in the kind of part-time and low-paying jobs that has been the hallmark of the past six years? Time will tell.
The employment situation report has not been strong, but has been strong enough to keep up expectations for a rate hike later this year. It’s likely to land somewhere around 200,000, but the question is whether it will be on the low side.
The unemployment rate, which ratcheted 2 tenths lower in June on a devastating decline in the labor force, is expected to hold steady at 5.3%.
Average hourly earnings, which came to a sudden standstill in June, are expected to rebound a moderate 0.2% and will be watched with extra attention for inflation clues on Fed policy.
No banks reported failed the week ending July 31, according to the FDIC.