Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
What’s the problem for investing in mortgage bonds? Commodities. Well, not directly, but in a domino fashion. Trouble in commodities is spilling over into emerging markets and high yield, which in turn is spilling over into securitized products and agency MBS.
“At a minimum, financial stability goals for policymakers are being challenged, as spread volatility is broadening,” says Chris Flanagan at Bank of America/Merrill Lynch.
And while we in the trade media focus on what the Federal Reserve is going to do with interest rates, it’s what’s happening there that is more concerning for mortgage bond investors.
“A September rate hike by the Fed would seem to pose little direct problem for the economy…but rising spread correlations suggest the same cannot be said for financial markets and financial stability,” Flanagan says. “Against this backdrop, we maintain our neutral view on securitized products and agency MBS. Our neutral view is a compromise between recognition of rising correlations and a sense that the ‘fear factor’ about them, particularly in the context of August illiquidity, may be overdone for now.
Speaking of the Fed, we will get the latest Federal Open Market Committee meeting minutes this week, and Logan Mohtashami has some thoughts on why the focus is too much on a metric that doesn’t matter.
Mohtashami is a senior loan officer at AMC Lending Group and a prolific blogger.
“I always joke around and say they a DUEL mandate which means count the step to 10 and make sure to shoot to kill first,” he says. “So, we are well below their unemployment metric for a rate hike. They need to change their metric because unemployment is lowering too fast due to Labor participation rate and that wage growth won't come really until 2015 based on their data metric of ECI wage inflation metric.”
The Fed is awful comfortable with the current rate of CPI inflation, even if it’s not comfortable for the economy.
“Something years ago I also said they should raise their inflation metric 2.25%-2.50% on CPI,” Mohtashami says. “In any case they haven't. So in reality, keep a close eye on 2's it's itching it break out to a 80 handle. I am sticking to my model that 3% FED Funds and 4.7% on 10's are recessionary rates with some duration after these levels. Those rate metrics would be the lowest rate curve to create a recession post WWII. The best way to counter this call is to get more dollars into labor's pockets.”
How is the Consumer Financial Protection Bureau’s TRID rule affecting our friends in the appraisal world? Brian Coester of CoesterVMS talks about that and much more in a sit-down with the Mortgage Bankers Association.
Here’s a taste:
We’ve already surveyed our customers and found that they fall into two categories. Some of our customers are going to stick to business as usual when it comes to disclosing the appraisal fees to the borrower and then requesting change of circumstances and potentially delaying the closing as a result of TRID requirements. Others are going to want more of an exact quote of the appraisal fee upfront so they can avoid a change of circumstance and a potential delay.
As a result of these findings, we put together a detailed pricing engine that considers the complexity of the appraisal before it’s ordered to get a more accurate appraisal fee quote. It considers things like acreage, square footage, rural and suburban as well as other factors. All of this is based on our previous appraisal data, which is a reliable source of information.
For the full interview, click here.
Judicial states continue to have a higher percent of loans in foreclosure in the United States, according to results from MBA’s National Delinquency Survey.
A judicial state is one that requires a court review to carry out a foreclosure, whereas lenders have a power of sale and do not need to go through the courts in a non-judicial state. Sometimes both processes are used within the same state, depending on particular circumstances and state regulation.
“For states where the judicial process is more frequently used, 3.41% of loans serviced in those states were in the foreclosure process at the end the second quarter, compared to 1.15% in non-judicial states,” say Lynn Fisher and Marina Walsh at MBA. “States that utilize both judicial and non-judicial foreclosure processes had a foreclosure inventory rate closer to that of the non-judicial states at 1.36%.”
They found that while overall mortgage delinquencies and foreclosures have declined, longer-term delinquencies and loans in foreclosure remain elevated in judicial states where procedural backlogs and delays are still pervasive.
For context, judicial states account for around 40% of all loans serviced in the United States, but account for almost 68% of all loans in foreclosure.
Monday kicks off with the ever-popular homebuilder confidence metric from the National Association of Home Builders.
The housing market index is coming off a 10-year high in July at 60 and is expected to add another notch in August to 61. With inventories of new homes thin and with sales going up, optimism among homebuilders has been growing.
We’ll get to see if that confidence and predicted uptick is justified, or at least in line with reality, on Tuesday when we get the report on housing starts for July from the Census Bureau.
Strength for rental units has been driving housing starts and permits sharply higher this year with strength for single-family homes much less pronounced. Forecasters see another rise for starts, up 0.5% to a 1,180,000 annual rate, but a very sharp 8.4% reversal to 1,230,000 annualized rate for permits where the year-on-year rate was up 30% in June.
Probably the biggest indicator for the week will come on Thursday with the existing home sales report from the National Association of Realtors.
Existing home sales surged 3.2% to an 8-year high in June and are expected to ease back 1.6% to a 5.40 million annual rate. Prices in this report have been strong, reflecting a scarcity of available homes for sale and pointing to a seller's market.
However, Auction.com is more optimistic, forecasting existing-home sales in July to continue their upsurge.
According to Auction.com’s report, existing home sales for the month of July will fall between seasonally adjusted annual rates of 5.49 and 5.84 million annual sales, with a targeted number of 5.67 million.
That would be up 3.2% from June and 11.7% from a year ago.
No banks were closed the week ending August 14, according to the FDIC.