(If you only want to read good news, skip to another paragraph.) It appears that, as the summer winds down, mortgage agents and brokers are taking a look at their pipelines. It seems that at many originators, a strong a June & July has been followed by a slightly weak August, funding-wise. Locks are generally down, leading many agents to wonder what September will hold. And generally, mortgage volume doesn’t skyrocket in the later months of the year. By most indications, rates will stay about where they are, changes to underwriting guidelines have slowed, and borrowers are waiting to see what property values do. Those agents that are doing “ok”, or “better than ok”, are those that have re-focused their business, typically toward conventional conforming business, or FHA/VA production. And those companies that are doing well have done the same, and in addition have added new agents or branches, keeping volumes at acceptable levels.
The news about Fannie & Freddie has died down somewhat, but is still a major concern for the industry. The secondary markets for mortgages have been damaged enough, and it is important to keep F&F alive and functioning, probably through some type of government take-over. Maybe this will be temporary, maybe permanent – the GSEs have been nationalized in the past, and then broken up and turned into publically-held companies. They hold $5 trillion of outstanding mortgages, and $1.6 trillion of outstanding debt – is anyone going to buy those without full government backing?
Congress granted the Treasury authority to provide assistance to the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac, but how? Remember that the United States Government has $5.44 trillion in outstanding debt, and if you add the GSEs combined debt of $1.64 trillion and their guarantee on $3.7 trillion in mortgages, the combination is the same size as the U.S. debt! But the Treasury’s debt is backed by its ability to collect revenue through taxes, and GSE debt is backed by income-generating (one hopes) mortgages. Most experts agree that there are four courses of action: take no action, change their capital requirements, have the Treasury buy mortgage-backed securities, or directly inject capital into F&F. Or some combination of these.
HIGHER FHA FEES
Speaking of government-related mortgage issues, don’t forget that the FHA raised the premiums it charges for insuring that mortgages will be repaid. Effective October 1st, the FHA said the upfront premiums charged to most borrowers will be 1.75% of the loan amount, up from the 1.5% that was in effect until July 14, when the FHA adopted a “risk-based” pricing system that created a range of charges depending on borrowers’ credit scores and the amount of the down payment or equity they owned in the homes.
Thornburg Mortgage has received some favorable news lately. Their stock has moved up recently after it reported better-than-expected earnings due to big one-time gains from the sale of assets and the effect of a new accounting rule, which requires Thornburg to record the $536.9 million decline in the value of its liabilities as an earnings gain. (Without the added benefit of the new rules, Thornburg would have only brought in $22.7 million.) Thornburg Mortgage reported earnings of $412.3 million. This is respectable considering the firm’s aggressive fund-raising tactics, which increased the number of outstanding shares to 484.6 million common shares in the 2008 quarter from 119.3 million in the 2007 quarter.
Where’s the market today, not that rates really seem to matter as much as they used to? Although we saw a slight improvement yesterday from some investors, this morning rates are a touch worse after a strong Durable Goods number. Today we have a $32 billion 2-yr auction. Durable Goods jumped 1.3% in July, unexpectedly strong. Transportation orders rose 3.1 percent in July, the largest gain since February, on a 28% rise in civilian aircraft orders. (Perhaps my order for a personal jet helped.) The MBAA reported that applications last week rose .5% after three weeks of negative numbers – nice to see! After all of this the 10-yr is at 3.83% and mortgage prices are worse by less than .125 in price.
JOKE OF THE DAY
Thank you to Neil B:
A man wanting to rob a downtown Bank of America walked into the branch and wrote, “this iz a stikkup. Put all your muny in this bag.”
While standing in line waiting to give his note to the teller he began to worry that someone had seen him write the note and might call the police before he reached the teller’s window. So he left the Bank of America and crossed the street to the Wells Fargo Bank.
After waiting a few minutes in line he handed his note to the Wells Fargo teller. She read it and surmising from his spelling errors that he wasn’t “the brightest light in the harbor” told him that she could not accept his stickup note because it was written on a Bank of America deposit slip and that he would either have to fill out a Wells Fargo deposit slip or go back to Bank of America.
Looking somewhat defeated the man said, “OK” and left. He was arrested a few minutes later as he was waiting in line back at Bank of America.