Fannie & Freddie 2011 Loan Limit: $729,750. Banks Short On Reserves.
Awaiting Irish Bailout
Mortgage security prices ended Friday about where they started, worse by a few “ticks” (less than .125) on only $800 million of sales. So locks are way down, or everyone sold their pipeline already. Either way, if demand is steady or strong, and fewer mortgages result in less supply, look for mortgage prices to improve relative to Treasury prices. But over the weekend, one interesting thing to note is that apparently Ireland has decided, or is about to, to accept a bailout plan by the International Monetary Fund (IMF), and the euro has improved on the news.
Fannie & Freddie 2011 Loan Limit Stays $729,750
Fannie Mae has announced loan limits for 2011: “The general loan limits for 2011 remain unchanged from 2010 (e.g., $417,000 for a one-unit property in the continental U.S.). High-cost area loan limits for 2011 remain unchanged from the 2010 high-cost area loan limits ($729,750 for a one-unit property in the continental U.S.) for mortgage loans originated on or before September 30, 2011. For mortgage loans originated after September 30, 2011, revised “permanent” high-cost area limits will apply.”
Freddie Mac echoed this. “We are announcing that we are maintaining the temporary maximum loan limits for mortgages secured by properties located in designated high-cost areas through September 30, 2011. Our base conforming loan limits will also be maintained at the current 2010 levels through December 31, 2011, with the maximum loan limit for a 1-unit single-family property in the contiguous United States remaining at $417,000. As a reminder, the loan limits in designated high-cost areas are the higher of the temporary limits established by the Economic Stimulus Act of 2008 (maximum of $729,750 for 1-unit single-family properties in the contiguous United States) and the permanent limits established by the Housing and Economic Recovery Act of 2008 (maximum of $625,500 for 1-unit single-family properties in the contiguous United States). Actual loan limits for a specific high-cost area may be lower than the maximum permitted loan limit…There are no changes to our super conforming mortgage requirements as a result of the extension.”
Banks Short On Reserves
News came out from a study done by Barclays Capital that the top 35 US banks will be short of between $100-150 billion in equity capital (8% of total assets) after the new Basel III global bank regulations are imposed, with 90% cent of the shortfall concentrated in the biggest six banks. The impact on mortgage banks is not lost, and servicing (and the sale of it) is seen as a big wild card. Just last week Chase sold $47 billion in servicing to non-bank IBM. The Basel III reforms will hit banks in two ways: by gradually tightening the definition of what counts as tier one capital and by forcing banks to increase the risk adjustment for certain portions of their businesses. So if you’re a bank, you can respond by increasing your capital through retained earnings or equity issuance, or you can cut your risk-weighted assets through sell-offs and by cutting back on risky business lines.
ARM Volume
What if someone gave a refi boom party, and ARM’s didn’t come? Prepayment speeds for conventional hybrid ARMs were flat in October since faster speeds for lower rates were offset by slower prepayments for higher coupons. 2008-2010 production continues to prepay the fastest, still showing that credit is still a key determinant for prepayment activity. According to a report by Sterne Agee, new issuance of conventional hybrid ARMs was $4.6 billion, up $562 million from September. However, net issuance continues to be negative and therefore the Agency ARM market continues to contract. Falling supply and a Fed with limited ability to lower short term rates further should bode well for the mortgage ARM basis.
Loan Modification Update
HAMP (Making Home Affordable Program, which always confuses some since it that is really MHAP) seems to be rolling along. The report noted that nearly 520,000 permanent modifications were begun, with an average of 37,000 new permanent modifications per month over the last six months. 18 servicers have signed up for the Second-Lien Modification Program (2MP), covering nearly two-thirds of the second-lien mortgage market, and unemployed homeowners may be offered a minimum of three months’ forbearance prior to being considered for a HAMP trial modification. Interestingly, most measures of the program were lower during the latest period, the month ended October 10, than in the period ended in September.