April 21: Do Wells' mortgage numbers apply to industry? Sobering MI losses; NMLS Call Report; Startling gov't vs. manufacturing job stats
The percentage of jumbo business that any originator does is, of course, very dependent on location. But what are borrowers thinking when it comes to obtaining a jumbo loan? Here's one take from Linda Stern with Reuters: JumboFuture
Wells Fargo does a decent business in jumbo loans (at least in its retail and wholesale channels), but as analysts continue to look at its earnings numbers, other items stand out that are indicative of the overall industry. Namely, loan growth was flat to down in most loan categories, including a 32% drop in mortgage production. During the first quarter, "Home mortgage applications of $102 billion, compared with $158 billion in prior quarter, home mortgage application pipeline of $45 billion at quarter end, compared with $73 billion at December 31, 2010, home mortgage originations of $84 billion, down from $128 billion in prior quarter, and a residential mortgage servicing portfolio of $1.8 trillion." You can scroll down to page 10 in this supplement for more, including layoffs: WellsEarnings
Generally speaking, in the first quarter the four largest banks here in the US saw average loans outstanding drop 7% from a year earlier, but deposits increase by 5%. From a bank's point of view, the demand for credit has dropped and may not pick up again until the economy shows more improvement. And, as we found out a few years ago, making loans for the heck of it doesn't pay off. For some banks, SBA, auto, and commercial lending sectors are showing some growth, but Chase is dealing with WAMU's legacy, Bank of America with Countrywide's, and Wells Fargo with Wachovia/World Savings'. And so, very basically, they sit on the cash, and earn the spread between what they pay on deposits and earn on loans.
Private mortgage insurance companies, on the other hand, wish they had more cash. MGIC has lost money in 14 of the last 15 quarters. It is the largest MI company in the US, so therefore used as an indicator of the health of the industry. Yesterday's release surprised the market, causing stocks of Radian, PMI, MGIC, etc., to tumble. (For the year, MGIC is down 27%, Radian down 33%, and PMI down 44% - don't look for a lot of free spending at the upcoming conference in NY!) In theory MI companies pay lenders when homeowners default and foreclosures fail to recoup costs - but rescissions are a big issue. MGIC stated that, "The benefit from rejected claims, or rescissions, was about $200 million in the first quarter, compared with annual totals of about $1.2 billion in 2009 and 2010...Rescissions will not continue at the same rates, as a percentage of claims received, we have previously experienced."
I received some notes regarding the LO's comments about Realtors not being impacted by Dodd Frank (yet). "He wondered why Realtors were not targeted under Dodd Frank. The primary reason is Dodd Frank and the Federal Reserve Board have thrown up a smoke screen to make the general public believe that they have the consumers best interest in hand when in fact this has all been done for the big banks - to put them back in the driver's seat. After all, they are the ones who created the FRB in the first place. And we all know how big the Realtors' lobbying group is."
"On the 5-6% commissions thing, I'll leave it to others to know if its apples-to-apples, but the 5-6% is split 4 ways, the two realty firms split the commission and then they split it with their agents. Agents see 1.25-1.5%, not 5-6% (unless they sell one of their own listings then their share doubles). I don't know how that compares to the mortgage broker's complaint. Regardless, again, from close personal observation, if you divide the hours put in by a real estate agent across all the successful, commissioned closes in a year they don't often get to minimum wage. The amount of low-bid-we-didn't-get-the-house-buyers and dead-wood-I-want-2x-value-sellers and failed deals, etc., etc. is quite high, especially in this uncertain market of strained bank accounts."
The hits just keep on coming, as companies' compliance officers are setting up for the quarterly NMLS Mortgage Call Report in May. (Watch for a cottage industry to spring up as companies may want to outsource this.) As most know, is a quarterly report of mortgage activity and company information created by state regulators and administered electronically through NMLS. "The NMLS Mortgage Call Report is intended to be completed by all state-licensed companies and all state-registered companies that employ licensed mortgage loan originators. The Mortgage Call Report comes in two varieties: "Standard" and "Expanded." "The Expanded version of the MCR is for companies that are a Fannie Mae or Freddie Mac Seller/Servicer or Ginnie Mae Issuer. All other companies will submit a Standard MCR. The vast majority (90%) of state-licensed companies in NMLS will complete the Standard MCR." NMLS is offering training sessions on the NMLS Mortgage Call Report, and have produced a practice sheet: PracticeMakesPerfect
For a little wholesaler news, Stearns reminded its brokers to "Let Your Realtor Know About the 3.5% Buyer Incentive on HomePath. Fannie Mae has recently announced a special incentive effective with offers submitted on or after April 11th...Fannie Mae is currently offering buyers up to 3.5% in closing cost assistance through June 30, 2011. The HomePath property buyer must meet the following qualifications to be eligible: Buyers and/or selling agents (the agent representing the buyer) must request the incentive upon submission of initial offer in order to be eligible. The initial offer must be submitted on or after April 11, 2011 and close by June 30, 2011. If an initial offer was made prior to the effective date, the offer is not eligible for the incentive. The sale must close on or before June 30, 2011. No exceptions will be made to this deadline. Only buyers purchasing a HomePath property as their primary residence may receive up to 3.5% in closing cost assistance. Second homes and investment properties are excluded from the incentive. Buyer must sign the Owner Occupant Certification Rider to the Real Estate Purchase Addendum. If a buyer's total closing costs are under 3.5%, the difference will not be available as a credit to the buyer."
GMAC Bank's wholesale group announced Expanded Approval Levels for the DU Refi Plus Fixed Rate product. "All levels of Expanded Approval decisions (EAI, EAII and EAIII) can go to 105% LTV," several without MI. The lender also announced its "Super Jumbo Products will now permit Second Homes: minimum FICO score of 740, maximum loan amount of $1,000,000, maximum LTV/CLTV of 65%, maximum DTI of 35%, purchase and R&T only - no cash out, and for one unit properties." Check the bulletin for appraisal specifics.
Today we had Jobless Claims, and two weeks ago we had the release of the employment numbers. A story from the Wall Street Journal recently noted, "If you want to understand better why so many states-from New York to Wisconsin to California-are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers. Nearly half of the $2.2 trillion cost of state and local governments are the $1 trillion-a-year tab for pay and benefits of state and local employees. Is it any wonder that so many states and cities cannot pay their bills?"
Besides Wisconsin and Indiana, every state in America (including Pennsylvania and Michigan!) has more government workers on the payroll than people manufacturing industrial goods. Wyoming and New Mexico "lead" the nation with more than six government workers for every manufacturing worker.
By the time the dust settled yesterday, not much had happened - again. Volatility is dying down, usually a good thing. The 10-yr ended around 3.40%, and current coupon MBS prices were worse by .125. Per the NAR numbers, sales of previously owned U.S. homes rose more than expected in March, +3.7%. All-cash sales set a record market share at 35% in March; investors accounted for 22% of sales activity, while distressed homes accounted for 40%. Sales rose in the Northeast, South and Midwest, and were down slightly in the West.
Later today we have the Leading Economic Indicators, a measure that tracks changes in the business cycle. In February it rose 0.8%, the seventh consecutive month of improvement in the index. Nine of the 10 components of the indicator were in positive territory for the month. Most economists feel that the LEI is supporting the notion of slow, albeit uneven, growth in the US economy. For today, expectations are for a slight improvement again. With the early bond market close and ahead of tomorrow's market holiday, we had the usual Initial Jobless Claims (which moved from 416k down to 403k), Leading Economic Indicators, the Philly Fed, and another housing price index - the FHFA HPI. We also will have the Treasury's announcement for next week's auction of 2, 5, and 7-yr notes. So far the 10-yr yield is slightly better at 3.38% and agency MBS prices are also a shade better.
After the North American Beer Festival, all the brewery presidents decided to go out for a beer. The guy from Corona sits down and says, "Hey Senor, I would like the world's best beer, a Corona." The bartender dusts off a bottle from the shelf and gives it to him.
The guy from Budweiser says, "I'd like the best beer in the world, give me 'The King Of Beers', a Budweiser." The bartender gives him one.
The guy from Coors says, "I'd like the only beer made with Rocky Mountain spring water, give me a Coors." He gets it.
The guy from Molson Canadian sits down and says, "Give me a Coke." The bartender is a little taken aback, but gives him what he ordered.
The other brewery presidents look over at him and ask, "Why aren't you drinking a Molson's?"
The Molson Canadian president replies, "Well, I figured if you guys aren't drinking beer, neither would I."
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