I had my standard “beginning of the year” meeting with the family. My soon-to-be 18-yr old son reported that this time in his life is “unprecedented” for him, and that he is working on his “exit strategy” from high school. He then said that this would be an “historic opportunity” for me to provide him working capital. My 15-yr-old daughter (going on 25) said that although she is seeing “green shoots” in the economy, she will need to continue to spend in order to assist her Personal Consumption and that I shouldn’t let “uncertainty” keep that from happening. My wife thought that we should “circle back after the first quarter”, during which we can continue to “reach out” to our partners and vendors. Is this kind of talk the “new normal”?
Private MBS Investors To Replace Fed
OK, eventually the Fed will either end their $1.25 trillion mortgage-security purchase program, or extend it. Everyone, including the shoeshine boy, knows this – don’t pay any high priced consultants to tell you that. And rates will react accordingly. But heck, not only do we have several more months of the program, but we also have the possibility that either they will extend it, or that an investor-based market will re-develop – just like “the old days”. Let’s cheer for the private investors coming back in.
Housing Recovery Depends On Banking
Do you have money in the bank? Probably. Do banks and money managers have lots of capital? Sure they do. Most recognize that the core of the problem is not a lack of capital, but rather a lack of willingness to deploy/invest it. If everyone is saving for a rainy day, they’re happy just to have the return of their capital rather than earn a good return on their capital. And a solid housing recovery relies on mortgage credit, decent rates, and a private mortgage market.
Warehouse Lending Update
Where does warehouse lending stand these days? A few years ago one couldn’t swing a dead cat around without someone offering you a line. Now, many mortgage banks have either signed captive agreements with some warehouse banks/investors, or are actively staying on the good side of the 10-15 who are still left and trying to stay above the $3 million minimum net worth that some require. Some doubt that Freddie or Fannie will offer lines as long as they are under government conservatorship, in spite of the two agencies continuing to be active in buying loans from qualified clients. (I believe that at this point, a minimum net worth of $2.5 million is required.) Capital requirements are going up for those who exclusively originate on a wholesale basis (an increasing number of warehouse lenders and correspondent investors will not even consider a new application from a company that is strictly wholesale) and no one can deny that the percentage of mortgage broker business has declined.
Thornburg Selling 17,000 Loans
Do you remember when everyone in the business was hoping that Thornburg would survive, and continue to offer “make sense” loans? At this point non-government “make sense” deals seem to be in the realm of private money lenders, and Thornburg, who is bankrupt, is trying to sell its $11 billion (almost 17,000 loans) servicing portfolio. Formal bids are due by January 28th. They no longer originate, purchase, or securitize loans, and many in the industry are viewing the sale of the servicing portfolio as a gauge of interest out there for the potential revival of the secondary market.
Economy & Market Roundup
For economic news yesterday we had the ISM Manufacturing Index, which rose to 55.9 in December from 53.6 in November, growing for the fifth consecutive month and the highest reading since April 2006. (On Wednesday we will have the ISM service report.) Construction Spending in U.S. Decreased 0.6% in November. To balance that number we had Construction Spending total $900 billion in November, the lowest level since July 2003 and down 19% from a year earlier. But 10-yr yields are still near the highest level since June, and 30-yr mortgage rates are still well above 5% – not bad by historical standards, but it won’t get a recent borrower much admiration at the cocktail party.
Helping rates is news that the New York Fed purchased $9.3 billion in agency mortgage-backed securities the week before last. Yesterday, to start the year, traders reported that volumes continued to be light. Ahead of us today we have Factory Orders for November (expected to rise) and Pending Home Sales, both at 10AM EST, but anyone who cares is waiting for Friday’s unemployment data. Most analysts feel that economic readings are showing improvements and that in many markets the housing sector may have found its bottom. We’re seeing, so far this morning, a bit of an improvement in rates. 30-yr mortgage prices are better by about .250, depending on the coupon, and the yield on the 10-yr is down to 3.79%.
Correction To Yesterday’s Commentary
Apologies to Caliber, who yesterday I called “Caliper” at one point but also muddled the condo/FHA news somewhat. My mention of the condo requirements does not relate to FHA loans, but is in fact saying that FHA Condo approvals are no longer accepted for CONVENTIONAL loans.
Lender Guideline Roundup
Late last week Chase made some changes to their pricing and to their credit & and collateral (appraisal) policies. More specifically on the pricing side, Chase made an improvement to their Agency conforming 10-year loans (interesting…) On the appraisal side, on the 18th Chase will require that all conventional loan appraisals be performed by a Certified Appraiser. Of interest is that appraisals performed by Stated Licensed Appraisers will not be acceptable, and that “Chase-approved AMCs have been instructed to use only Certified Appraisers on loans being originated for or sold to Chase.” In addition, Chase is eliminating their appraisal classifications only to have one status: Ineligible (any type of appraisal report or other related appraisal work will not be acceptable to Chase). Chase is following HUD’s FHA appraisal changes, noted in mortgagee letters.
Starting yesterday, “Chase Correspondent is eliminating the option of using FHA condominium project approvals on conventional loan transactions” and “all Non-Agency loans must be sold to Chase Correspondent under a non-delegated status, and as such all individual loans must be underwritten by Chase and all condominium projects must be reviewed and approved by Chase’s Project Approval Group.”
Wells Fargo’s wholesale channel came out with some adjustments to the HELOC program starting 1/16. (Yes, there are still HELOC’s out there.) But for wage income, 1099s will no longer be considered an acceptable form of income documentation. And income from commission, where the commission income makes up <25% of the total qualifying income, will require a current pay stub(s) with year-to-date earnings (should not be handwritten) and a few years of W-2’s or 1040’s. And for self-employment income, 1099s will no longer be considered an acceptable form of income documentation – the borrower will need, for non-employment income, a 1040 tax return and either the most recent bank statement or most recent account statement or distribution letter.
I was walking past the mental hospital the other day and all the patients were shouting, “13….13….13.”
The fence was too high to see over, but I saw a little gap in the planks. I looked through to see what was going on, and someone poked me in the eye with a stick!
Then they all started shouting, “14….14….14…”