Rise of Community Lenders, GMAC Rebrands As Ally, Will Rates Rise 1% in 2010?

My boss told me that I should take an “anger management” class in 2010. I told her that I was already angry enough with management.

How much money are mortgage bankers, including management, making? According to the MBAA, average profit per loan is up nicely versus the first quarter moving to over $1,300 on each loan originated in the second quarter. In addition, production volumes were up and average pull through went from 67% up to 73%! Check this out.

Community Lenders Improving Market Share
Although the death of the mortgage banker and broker is greatly exaggerated, a good share of their business has gone elsewhere. Community banks have seen their relative volumes increase, and some believe that they are well qualified to fill the void left by mortgage brokers. These banks are chartered to serve their local markets; their boards are typically influential in the market place, most have adequate capital and can fund their own loans, they have access to seasoned talent pool, inexpensive technology and are not over burdened by regulatory pressure. And many are entering the warehouse business. And what happens to the bulk of their production? They sell many loans to the usual suspects: Wells, BofA, Citi, Chase, etc.

Industry-wide, doesn’t everyone agree that it is a good time to be originating loans? The quality of loans being originated is higher than ever due to market driven property values, and conservative underwriting on simple loan products, with down payments. Not to mention that the lack of competition, historically low interest rates and the yield curve translate to high margins and profitable mortgage businesses.

Mortgage Apps Up
As we thought, mortgage applications last week rose 8.2% after three straight weeks of dropping. Refinancing applications increased 14.5% for the week before Halloween, although purchase applications fell a seasonally adjusted 1.8%, the MBAA reported.

GMAC Rebrands As Ally
Remember the name “GMAC”? It is slowly going away. They told clients that “effective immediately, all note endorsements should be made to Ally Bank instead of GMAC Bank.”

Pulte Homes Earnings
Pulte Homes, now the largest home builder in the US, “only” lost $361 million in the latest quarter, compared to a loss of $280 million a year earlier. On the good side, orders were up 35%. According to the press release, half of the latest quarter’s results included the acquisition of Centex: $164 million in impairment and land-related charges and $87 million in Centex-related charges.

New FNMA Industry-Standard Automated Underwriting
We have about a month and a week until Fannie releases Desktop Underwriter 8.0. One can taste the excitement in the air. Scheduled for the 12th, this release will include changes to the DU credit risk assessment and a number of eligibility guidelines. The maximum allowable total expense ratio in DU will be revised to 45%, with flexibilities offered up to 50 percent for certain loan casefiles with strong compensating factors. If current debts exceed the maximum allowable total expense ratio, the loan casefile will receive an “Ineligible” recommendation. The minimum credit score for Fannie will be 620, with some complicating factors for DU Refi Plus loans. And Fannie clients are aware that DU Version 8.0 will no longer issue EA-II and EA-III recommendations, except on those loan casefiles that were underwritten as DU Refi Plus. EA-I recommendations will continue to be available through DU Version 8.0, and reduced MI will no longer be offered with DU Version 8.0.

Market/Economy Update: Will Rates Rise 1%?
The markets saw some volatility yesterday, with the stock market coming off its lows. Nonetheless, both the DOW and the bond market finished the day down. Factory Orders were up .9% in September, the fifth increase in a row. Rates were higher all day, and gold and oil prices increased. Something has to give: it is highly unusual to have commodity prices going up, leading to inflation, while rates stay low.

One area of concern is obviously the Fed’s continued purchase of mortgage securities, thus keeping prices high, rates low. The government is slated to end its purchases of mortgage securities in the first quarter of 2010 and some analysts are predicting that this will add as much as a full percentage point to mortgage rates. Are you ready for that in your forecasts? Indirectly this, and other government actions, has led to a slow down of foreclosures, but going forward this will depend more on employment and income as it traditionally has. Employment not improving and even worsening, will only add to foreclosures. We will have some help with the first-time home buyer tax credit extension.

Today could be interesting. Not only will the Treasury announce how much it plans to raise in note and bond sales next week, but we hear the results of the FOMC meeting. Overnight rates are expected to stay the same, but watch the language for the Fed’s future plans. The May 2010 fed-funds futures contract is pricing in about a 50-50 chance of the FOMC to raise the funds rate to 0.5% at its late April meeting. Friday’s employment data is still where most of the focus is. Expectations for Friday’s employment report include a rise in the unemployment rate to 9.9%, flat to slightly better hourly earnings, nonfarm payrolls to shrink by about 175K and the average workweek to rise slightly. With all this in mind, the yield on the 10-yr Treasury is back up to 3.50%, and mortgage prices are worse by between .125 and .250.

Daily Humor
The bride was escorted down the aisle and when she reached the altar, the groom was standing there with his golf bag and clubs at his side.

She said: “What are your golf clubs doing here?”
He looked her right in the eye and said, “This isn’t going to take all day, is it?”