THE BASIS POINT

Wells Fargo & Suntrust Earnings, Interpreting Latest Home Sales Data, Tax Credit Deadline Coming Fast

Interpreting Latest Existing Home Sales Data
Everyone has an opinion about home sales. But most agree that new home sales are at record lows and will be slow to recover until inventory of existing homes and the foreclosure overhang are worked off in many locations around the US. Some indicators for existing home sales, however, including pending home sales and purchase applications, are showing small signs of a pickup, at least on a regional basis. The ending of the Fed’s MBS purchase program did not lead to a skyrocketing of mortgage rates, and it does appear that economic conditions are improving. The MBAA’s economist believes that the recession ended in June 2009. Heck, nobody told me!

But existing home sales have shown signs of weakness in recent months. Housing sales fell 0.6% in February, the third consecutive monthly decline, which boosted the number of months’ supply to 8.6 months. Tomorrow we will have some sales numbers, and an expectation that they will remain in the recently established narrow range increasing to a 5.25 million unit pace in March. Sales will likely continue to gain positive momentum in coming months due to the spring home buying season and the second scheduled expiration of the tax incentives in late April.

Mortgage Apps Up Most in 7 Weeks
The housing market is “hanging in there”, at least based on applications taken last week. Mortgage applications in the U.S. rose by the most in seven weeks, up 13.6%, which analysts attributed to the approaching end of the homebuyer tax credit. The MBAA’s index of purchases climbed 10.1%, and refinancing shot up 15.8%, the first gain since the end of February.

Wells Fargo & Suntrust Earnings
The earnings train continues to roll. SunTrust reported a much smaller first-quarter net loss and beat analysts’ expectations as its loan problems showed early signs of stabilizing. Its net loss narrowed by 74% to $229 million versus a year-earlier $875 million. Revenue declined 14% to $1.9 billion; non-interest income declined 38% to $698 million, amid lower mortgage origination, and was partially offset by a net interest income increase of 10% to $1.2 billion. Wells Fargo’s stock is under some pressure this morning after its earnings were announced (although it is up almost 80% in the last year). First quarter earnings dropped 16%: Wells reported a profit of $2.55 billion versus the $3.05 billion it earned a year ago. Revenue was up 2% to $21.45 billion. Wells’ non-performing assets increased to 3.49% from 1.25% a year ago and 3.12% the prior quarter. Lastly, Morgan Stanley earnings-per-share beat expectations at 78 cents versus 57 cents. Its net income was $1.4 billion versus a loss of $578 million a year ago, and net revenue was $9.1 billion.

Fraud Insurance For Lenders
The Prieston Group (TPG) has teamed up with First American CoreLogic to offer a comprehensive fraud prevention and insurance program to mortgage lenders. First American CoreLogic’s fraud tool apparently is combined with TPG’s risk management services, indemnity programs and training. The result is that TPG will help lenders establish business rules and guidelines and employ the First American CoreLogic LoanSafe Fraud Manager tool to enforce those policies in the lender’s daily operations, and lenders who use this joint solution will be insured against fraud losses by Lloyd’s of London.

Which Lenders Can and Can’t Do FHA Loans
HUD officially published the “Final Rule”, which after May 20 no longer requires loan correspondents (mortgage brokers) to obtain FHA-approval to participate in FHA loan programs, but instead will need to be sponsored by FHA-approved mortgagees. The “Final Rule”, entitled, “FHA: Continuation of FHA Reform-Strengthening Risk Management through Responsible FHA Approved Lenders,” will also increase net worth requirements from $250,000 to $1 million ($500,000 for small businesses). (Let me go on the record here that personally, I take “small businesses” to be less than 500 employees, but it is best to check with HUD over what they mean by it.) “2009 audited financials are not required to continue originating loans, however all current FHA-approved mortgage brokers must recertify and pay the applicable fee through FHA Connection to maintain FHA-approval through December 31, 2010, as made acceptable in the Final Rule.” Here’s the summary and here’s the actual ruling.

Homebuyer Tax Credit Deadlines Fast Approaching
As a reminder, the first time homebuyer credit of $8,000 and existing homebuyer’s credit of $6,500 are nearing the mandatory program expiration date: the homebuyer must enter into a binding contract to purchase a home no later than April 30 and they must close the loan no later than June 30. Many investors, such as US Bank, are letting correspondents and brokers know that they are not going to guarantee closing any loan prior to June 30. Period. So borrowers are better off being informed of the deadlines. Here’s a link to the details for Fed and CA tax credits, and also here’s a link about why CA tax credit may run out in a few weeks.

Market Recap
Yesterday, by most accounts, was a pretty quiet day in mortgage-land. Mortgage yields widened out a little on Monday as mortgage banker selling picked up, but yesterday that spread was stable. For the time being, the 10-yr seems content around 3.79%, and it helps that the continuing Treasury auctions are in a lull period, and there is little news from the Fed since we are within the one-week “quiet period” ahead of the meeting next week. Today there is little news, and tomorrow we have the usual Initial Jobless Claims. The 10-yr is hovering around 3.78% and mortgage prices are better by about .125.

Daily Humor
One day my housework-challenged husband decided to wash his sweatshirt. Seconds after he stepped into the laundry room, he shouted to me, “What setting do I use on the washing machine?”

“It depends,” I replied. “What does it say on your shirt?”

He yelled back, “OHIO STATE!”