Signs of life in mortgages! Demand, DAP’s, Broker comments, but Rates don’t help

June 11th, 2009 · No Comments




“Deja Moo” is defined as “the feeling that you’ve heard this bull before”. Rates have gone up because the “economy is doing well”, yet there are numerous signs that the economy is a) either not doing well, or b) about to sink even farther. Unfortunately for mortgage bankers, ALL rates have gone up, including Treasury rates, and thus we find ourselves with rates back in the high 5% range. Certainly the “end of the world” feeling from the banking sector is gone, at least for the time being, which is a good thing. There are certainly signs out, however, there that things are doing better with regard to the demand for mortgages. Yes, the Fed has been in buying $5-6 billion in mortgages per day, rain or shine, and this will continue for quite a while.

Remember the old days, when there was demand for loans from private parties, and pools were actually put together and sold? Well, the parties will remain nameless although astute observers may know them, but a large investor filled an order recently for 5/1 ARM product with a Wall Street firm. The investor used correspondent, wholesale, and retail channels to fill it. (Given the nimbleness of the broker channel, it is believed that they were most successful in helping to fill it.) The point of this is that there are signs of demand out there!

For example, CitiMortgage reminded their customers that they have over a hundred Down-payment Assistance Programs (DAPs) available for all wholesale brokers to use. “With these programs you can assist your borrowers with the purchase of a primary residence via a gift, a loan, or a second lien mortgage for down payment and/or closing costs assistance. Features may include: zero or reduced interest rates, zero or reduced monthly payments, and forgivable loans. Benefits include second lien funding with an affordable mortgage, allowing up to 105% CLTVs, and not being subject to declining markets policy in many areas.”

Brokers and agents have written to me saying some positive things. For example, in Florida, “home sales have risen dramatically in recent months. The number of units currently under contract is the highest in over 2 years…resulted in a dramatic decrease in inventory as we currently have 7.5 months of inventory on the market as opposed to 20 months in May ‘08….the median sales price has leveled off and actually increased slightly over the last 3 months. These figures certainly point to the start of a recovery or at the very least a signal that the market has stopped declining.”

Another wrote, “Business is going well, especially looking back the past 60-90 days, although the purchase market in my area is very slow. Those months definitely helped make up a little for the last 18 months of instability. These last 2 weeks have seen a big slowdown in volume and I am sure has everyone scratching their heads in terms of forecasting volume, human capital needed to process volume, etc.”

Lastly, “As far as business taking loans and locking them are easy, closing them is tedious at best. Customer service from the investors is non-existent, satisfying conditions is maddening, HVCC is frightening, turn times are excruciating, rates going higher and possibly staying there is possible, pricing overlays to 720 FICO’s is crazy, new individual loan officer licensing requirements which are long overdue, but other than that I wouldn’t want to be doing anything else!”

And this from the Washington Post: “Foreclosure filings fell in May compared with the previous month, but remain at elevated levels, according to data from RealtyTrac released today. The firm counted 321,480 filings nationally, which can range from default notices to bank repossessions. That was down 6 percent from April, but an increase of nearly 18 percent from May 2008. RealtyTrac, a private firm, says its data include more than 90 percent of U.S. households.”

Tuesday’s $35 billion 3-yr auction went well (as was called “ham-on-rye” by one trader), but the $19 billion 10-yr yesterday was not so smooth. Today we have $11 billion in 30-yr’s to sell. With the yield on the 10-yr near 4%, one could argue that we should see good demand for the bonds being sold - let’s hope so. The 30-yr mortgage rate is now in the high 5’s versus in the 4’s in April and May. Certainly if anyone believes that the economy is doing poorly, now would be a good time to buy!

I love surveys. The latest one shows that higher unemployment (like 10%) would cause a decline in consumer spending. Hopefully someone paid pollsters lots of money to come up with that finding! Many economists feel that the jobless rate will climb to 10 percent by the end of 2009, 1.6 percentage points higher than projected at the start of the year, according to the median forecast of 62 economists surveyed from June 1 to June 8. Household purchases will drop this year more than previously estimated. They predict that fewer jobs, lower home values, limited credit and shrinking retirement funds will prompt Americans to save, blunting the Obama administration’s stimulus efforts. Still, government infrastructure projects, smaller stockpiles and stabilization in residential construction will help the economy start growing in the second half of this year.

Are whole loan trades assignable? In warehouse lending, if the loan has to be pre-committed to an approved investor takeout those takeout commitments are part of the collateral pool for the warehouse line. Does that mean if the mortgage company has a commitment to deliver a loan best efforts to the investor, that commitment is the property of the warehouse lender between funding and the receipt of the purchase advice from the investor? I don’t know the answer frankly, but I believe that it depends on the Bailee Agreement that the Warehouse lender sends with the Note, and of course on whether or not the investor will agree to accept those terms.

For economic news today we had the usual Thursday Jobless Claims, which fell more than expected last week “pointing to an easing of labor market weakness”. They were down 24,000 to a seasonally adjusted 601,000 in the week ended June 6, which is the fourth straight week the number of claims declined or was unchanged. The 4-week moving average for new claims fell to its lowest level since mid-February. We also had Retail Sales come out as expected, +.5%. This is the first increase in five months, and was helped by gasoline and building material increases. Ex-autos the number was also +.5%, compared to -.2% last month. After the news we find the 10-yr at 3.96% and mortgage prices (you guessed it) worse by about .125.

Jim died.
His will provided $40,000 for an elaborate funeral.
As the last guests departed the affair, his wife Sharon turned to her oldest and dearest friend. “Well, I’m sure Jim would be pleased,” she said.
“I’m sure you’re right,” replied Brenda, who lowered her voice and leaned in close.
“How much did this really cost?”
“All of it: $40k,” said  Sharon.
“No!” Brenda exclaimed. “I mean, it was very nice, but $40,000?”
Sharon answered, “The funeral was $6,500. I donated $500 to church. The whiskey, wine and snacks were another $500. The rest went for the Memorial Stone.”
Brenda computed quickly. “$32,500 for a Memorial Stone? How big is it?”

“5 carats.”

Rob Chrisman

Tags: Commentary · Mortgage Market · Rob Chrisman

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