American consumersrnare now defaulting on their mortgages in even greater numbers than they arernwalking away from credit card debt. rnAccording to FICO's® Score Trends Service,rnthis is a phenomenon that is historically unique.
FICO said the mortgagerndefault risk for consumers with high FICO scores now exceeds their credit cardrndefault risk, even though most credit cards are unsecured credit and mortgagesrnare secured by real estate. There is arnparallel rise in mortgage delinquencies for these high scoring consumers.
The company saidrnthat their analysis of trends in FICO scoring shows that recent repaymentrnbehavior has shifted significantly from what has historically beenrnexpected. In 2005 bankcard accounts werernmore than 3 times more likely to become seriously delinquent, that is 90+ daysrnlate, than were mortgages. During thernperiod 2008 to 2009 that number slipped to 1.6 times as likely. Borrowers at the high end of FICO's scoringrnrange of 300-850 were even more likely to become seriously delinquent. In 2009, 0.3 percent of consumers withrn760-789 FICO scores defaulted on real estate loans; only 0.1 percent defaultedrnon bankcards.
"We're identifying lending industry situationsrnin FICO Score Trends that to our knowledge have never been seen before," saidrnDr. Mark Greene, CEO of FICO. "Economic instability is creating unknown risk inrnlenders' credit portfolios as well as counter-intuitive trends in consumerrnbehavior. While the FICO 8 score continues to prove its unprecedented power inrnrank-ordering consumers for risk, even low-risk consumers are changing thernvalue they give different credit lines." rnDr. Green made his statement in late February and noted that thernupcoming implementation of the CARD Act would likely create "additional,rnunhelpful pressures on the banking business."
The company found thatrnlenders had tightened their lending criteria in 2008-2009 and beganrn"cherry picking" their new borrowers. rnAs a result mortgages granted between April and October last year usedrnsignificantly higher standards that those granted earlier. In 2005, borrowers with FICO scores below 700rnconstituted 46 percent of new mortgage customers but by last year that numberrnhad dropped to 25 percent. In the bankcardrnsector, 51 percent of new customers had scores under 700 in 2005, 38 percentrnhad scores in that range in 2008.
The most dramatic shift inrnthe mortgage/bankcard ratio occurred in the Pacific region where bankcards arernnow only 1.3 times more likely to be defaulted than mortgages, down from 6.4rntimes more likely in 2005. In thernMidwest where the smallest change occurred the ratio slipped from 2.5 times torn1.5.
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The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending March 5, 2010.
The survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole. Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.
From the release:
The Market Composite Index, a measure of mortgage loan application volume, increased 0.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1.2 percent compared with the previous week. The four week moving average for the seasonally adjusted Market Index is up 0.8 percent.
The Refinance Index decreased 1.5 percent the previous week. The four week moving average is up 1.0 percent for the Refinance Index. The refinance share of mortgage activity decreased to 67.2 percent of total applications from 69.1 percent the previous week. The refinance share is at its lowest level since it was 66.1 percent in October 2009.
The seasonally adjusted Purchase Index increased 5.7 percent from one week earlier. The unadjusted Purchase Index increased 7.2 percent compared with the previous week and was 10.7 percent lower than the same week one year ago. The four week moving average is up 0.7 percent for the seasonally adjusted Purchase Index,
The average contract interest rate for 30-year fixed-rate mortgages increased to 5.01 percent from 4.95 percent, with points decreasing to 0.82 from 0.99 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to 4.32 percent from 4.27 percent, with points decreasing to 0.88 from 1.36 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year ARMs increased to 6.80 percent from 6.77 percent, with points increasing to 0.3 from 0.29 (including the origination fee) for 80 percent LTV loans.The adjustable-rate mortgage (ARM) share of activity increased to 5.1 percent from 4.8 percent of total applications from the previous week. This is the highest ARM share since November 2009 when it was 5.3 percent.
I wish I had some great news to pass along to you in regard to a noteworthy increase in loan application activity….but I don't. Most housing and mortgage market participants don't need an MBA survey to tell them that though. There is one bright spot I can call attention to…
Since this survey was compiled, benchmark Treasury yields have risen over 10 basis points. Yet mortgage rates have held relatively stable. WHY?
The Federal Reserve's MBS Purchase Program isn't over yet.
The gradual slowdown in loan production we've witnessed since the hey-days of 2009 has been beneficial to mortgage-backed security valuations and mortgage rates. The still shrinking pool of qualified borrowers has served to slow the pace of new MBS coupon supply. Less new MBS coupon supply (float) has allowed the Federal Reserve to continue to reduce their daily spending totals, all without having any effect on mortgage rates!
Plain and Simple: less new loan supply (qualified borrowers) requires less MBS investor demand to keep mortgage rates (MBS valuations) stable.
What happens when the Fed exits the MBS market?
Mortgage rates will rise relative to Treasury yields…but not as much as many expect. This is a message that is now starting to be broadcast by the mainstream media. I posted a very clear explanation as to why we do not think rates will skyrocket when the Fed exits the TBA MBS market. I know its a bit long, but I believe it covers all necessary bases and provides a firm foundation to formulate your own opinion— ITS A MUST READ
The downside to this outlook is it assumes housing and mortgage professionals are not likely to see a significant pick up in business over the next few months, tax credit or not. The reality of the "new normal" is settling in over the housing sector. Only the strong will survive.
That dims the "bright spot" of relatively stable mortgage rates doesn't it?
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Investors this morning await the first real data to be released this week. But wholesale trade inventories isn’t a major market mover, nor is the afternoon’s budget statement, so it could be a quiet day if investors prefer to postpone trading until retail sales figures hit the headlines on Friday.
One hour before the opening bell, the market is pretty flat. Dow futures are down 1 point at 10,563 and futures on the S&P 500 are up 0.00 points to 1,140.50
Meantime, WTI crude oil is up 31 cents to $81.80 per barrel, and Spot Gold is trading $5.15 higher at $1,127.00.
Earlier today the Mortgage Bankers Association said its index of mortgage application rose 0.5% in the first week of March, but it remains down 12.5% from last year.
Key Events Today:
10:00 â€
Commercial and multifamily mortgages continue to have the lowestrnrates of charge-offs of any loan types at banks and thrifts and perform betterrnthan the overall loan portfolios at those institutions according to thernMortgage Bankers Association (MBA).
In response to what it referred to as a great deal ofrndiscussion and conjecture about those loans in recent months, MBA updated an earlierrn"DataNote" analysis of commercial and multifamily mortgage data fromrnthe 4th quarter of 2008 with data from the same period in 2009.
The report states that 56 percent of the assets held by banksrnand thrifts at the end of 2009 consisted of loans and leases, a category thatrnincludes 1-4 family mortgages, home equity loans, credit cards and otherrnconsumer loans, commercial mortgages, multifamily mortgages, constructionrnloans, and commercial and industrial loans. rnOne to four family residential loans constitute the largest part of thisrncategory of bank holdings at $1.9 trillion or 26 percent of the total; commercialrnand commercial mortgages represent another $1.1 trillion or 15 percent, andrncommercial and industrial loans $1.2 trillion or 17 percent. Multifamily mortgages are a much smallerrncomponent at $211 billion or 3 percent of the portfolios but these are the onlyrncategory of loan to have grown over the last year.
From the release:
The overall 30+ day delinquency rate among all loans in thern4th quarter of 2009 was 7.30 percent. Commercial mortgages had a 5.06 percent delinquencyrnrate during the quarter and multifamily mortgages loans 5.64 percent. The best rates were recorded byrncommercial/industrial loans at 4.39 percent and, surprisingly, home equityrnloans at 3.15 percent. It should bernnoted that about 45 percent of the commercial mortgage category is comprised ofrnbusiness loans backed by owner-occupied property and supported by the income ofrnthose businesses rather than by income producing rental property.
Construction loans had the highest 30+ day delinquency ratesrnamong the various loan types, spiking from around 5 percent in the 4thrnquarter of 2007 to 18.6 percent by the 4th quarter of 2009. The report said that this increase was drivenrnmainly by poor performance among single-family related land and constructionrnloans. Single-family mortgages werernsecond with a 12.49 percent rate, and credit cards were third at 6.28 percent.
Delinquency rates increased across most categories withrnoverall delinquencies among all loans and leases up by 0.44 percent from thernthird quarter of 2009 to the fourth. Commercial mortgages increased 0.5 percentrnand multifamily mortgages were up 0.9 percent. rn Single-family mortgagesrnincreased by 1.3 percent and construction loan delinquencies were 0.7 percentrnhigher.
As is historically the case because of the value of the underlyingrnsecurity, commercial and multifamily mortgages had the lowest charge-off ratesrnof any type of loan at commercial banks and thrifts during 2009. 0.8 percent of commercial mortgages and 1.1rnpercent of multifamily mortgages were charged-off during 2009 compared to 1.7rnpercent of 1.4 family residential loans, 2.4 percent of commercial andrnindustrial loans, 2.9 percent of home equity loans and 9.1 percent of creditrncard loans.
In dollars, the charge-offs of commercial and multifamilyrnmortgages are also low in relative terms. rnOver the last two years banks and thrifts have charged off $105.5rnbillion in loans to individuals, $83 billion in residential loans, $51 billionrnin commercial and industrial loans, and $47 billion in construction loans butrnonly $11 billion in commercial mortgages and $3 billion in multifamilyrnloans. MBA makes the assumption that hadrnbanks lent the money they have given to commercial and multifamily mortgages tornother types of loans instead, they would have suffered roughly $36 billion inrncharge-offs during 2008 and 2009 that they have not seen.
The MBA report points out commercial and multifamilyrnmortgages have, like other parts of the economy, been negatively impacted byrnjob losses, consumer restraint and manufacturing declines. The relatively stable performance and lowrncharge-offs of commercial mortgage through the recent recession, however, havernhelped rather than hurt the stability of banks and thrifts.
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ThernDepartment of Housing and Urban Development (HUD) has released the results of thernfirst stage of its increased oversight and enforcement of job creationrnrequirements under Section 3 of the Housing and Urban Development Act of 1968.
In arnpress release on Monday HUD said that more than 3,100 state and localrngovernment agencies that receive HUD funds have responded to its campaign tornexpand hiring and contracting opportunities for low-income persons and threernout of four of HUD-funded state andrnlocal agencies had submitted their annual reports. HUD said that this was the largest responsernsince HUD made such reporting mandatory.
UnderrnSection 3, state and local governments that receive funding from HUD in excessrnof $200,000 for activities involving housing construction, demolition, rehabilitation,rnor infrastructure projects such as roads, sewers, or community centers arernrequired to document how those funds are used to hire low income individualsrnand residents of public housing projects. They are also required, to thern"greatest extent possible" to contract with companies who hire thesernindividuals and to report on those efforts. The latter requirement applies to contractorsrnand subcontractors who are awarded a contract for more than $100,000. Reporting is required only where funds usedrnfor construction and covers new employment made available under the funding.
Agenciesrnrequired to file the reports include recipients of funds from CommunityrnDevelopment Block Grants, Neighborhood Stimulus Program, Homeless Assistance, andrnEconomic Development Initiative. Thernrequirement covers entities such as state and local governments, NativernAmerican tribes, property managers, mortgagors, and public private non-profit organizations.rn
HUD sentrnletters to more than 3,500 agencies last October reminding them of theirrnreporting obligations. This is therninitial step in what HUD describes as "an aggressive two-year Section 3rnImplementation Plan to increase hiring and training opportunities.
"HUD'srnmission is to invest in people as well as buildings," said John Trasviña, HUD'srnAssistant Secretary for Fair Housing and Equal Opportunity. "This initiative isrna huge step toward creating job opportunities for low- and very low-incomernindividuals and ensuring that state and local governments partner with HUD.
HUD said that in 2008 its fundingrngenerated more than 17,000 new employment and training opportunities forrnSection 3 residents and facilitated the award of more than $340 million inrnHUD-funded construction contracts to Section 3 businesses. The funding alsornenabled about 3,600 Section 3 businesses to receive contracts to complete workrnon HUD-funded projects.
In addition, HUD's Officernof Fair Housing and Equal Opportunity has trained thousands of HUD recipients,rnresponded to hundreds of requests for technical assistance from state and localrngovernments, and published new guidance materials on its Web site. Futurernactivities will include awarding eight competitive grants ranging from $50,000rnto $100,000 to help local governments hire Section 3 coordinators.
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Equity futures are firmly lower this morning following a mixed session yesterday.
The Dow looks to open 31 points lower at 10,507 while futures on the S&P 500 are off 4.25 points to 1,132.75.
“The mood in global markets is towards risk aversion with no apparent trigger,” said Benjamin Reitzes from BMO.
MND's Adam Quinones says weakness in stocks and the flight to quality into Treasuries is a factor of overnight news from Fitch Ratings that warned against a downgrade of the credit ratings of the United Kingdom, France, and Spain.
Confirming that risk isn’t on the table this morning, WTI crude oil is down $1.25 to $80.62 per barrel, and Spot Gold is trading $6.32 lower at $1,117.23.
As one would expect, the US dollar is stronger against a broad array of currencies. The US$ index is at 80.78, a 36-basis point improvement.
Looking to the day ahead, no major economic data is scheduled for release, but three Treasury Auctions will be held and markets will be looking for headlines from a 9:30 speech by regional Fed president Charles Evans.
Lastly, the Wall Street Journal notes that today is “the one-year anniversary of the beginning of the stock market's rebound from its lows last year.” Markets don’t appear to be celebrating though, so leave the party hat at home.
Key Events Today:
9:30 â€
ThernMortgage Bankers Association (MBA), American Bankers Association (ABA), and thernAmerican Financial Services Association (AFSA) joined with 11 state and localrnmortgage lending groups on Friday to send a letter to the U.S. Department of Housingrnand Urban Development expressing concerns about the way in which HUD isrnproposing to implement the 2008 SAFE Act.
The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing), was passed in July 2008rnas part of the Housing and Economic Recovery Act. It directs states to adopt licensing andrnregistration requirements for loan originators that meet minimum standards establishedrnby the act in lieu of HUD establishing nationwide standards. It also encourages the Conference of StaternBank Supervisors (CSBS) and the American Association of Residential MortgagernRegulators (AARMR) to set up a nationwide residential mortgage licensing systemrnand registry.
Thernletter from MBA and others expresses concern that HUD is proposing to exceed thernauthority granted to it by SAFE by establishing a backup system and determiningrnwhether individual state laws meet the minimum requirements established byrnSAFE. The specific concern of thernwriters is that HUD may require persons, usually those employed by servicers,rnwho undertake to perform loan modifications as though they were loanrnoriginators and thus subject to the licensing requirements of SAFE. This, the letter stated, could "significantlyrncurtail the ability of servicers to complete loan modifications until theirrnemployees are registered or licensed."
Although HUD indicates it is continuing to consider the matter of whether to require the states to treat servicer employees engaged in loan modifications as originators, the groundwork is laid by the proposed definitions for just such an outcome.
HUD'srnProposed Rules for implementing the act, posted in the Federal Register onrnDecember 15, 2009 answered a question regarding the applicability of therndefinition of loan originators to individuals who modify existing residentialrnloans, saying in part;
…given the extent to which today'srnloan modifications can be virtually indistinguishable from refinances, HUD seesrnthe reasonableness of covering these individuals under the definition of loanrnoriginator and has advised that it is inclined to require the licensing ofrnindividuals who perform loan modifications for servicers."
The letter states that requiring additional licensing and registration under the SAFE Act for loan modification specialists would "unnecessarily lessen the availability of loan modification specialists and increase servicing costs"
The MBArnet al letter said that the chief objective of SAFE is to establish uniformrnstandards for loan originators of state-regulated lenders throughout the nationrnand that HUD can and should do considerably more to achieve the goal by, forrnexample, "clearly indicating that the SAFE law does not preclude andrnshould, in fact, encourage the recognition of out-of-state licenses andrnprovisional licensing of federally registered and other originators pendingrnlicensure
Thernparties that joined MBA, ABA and AFSA in signing the letter are state and localrnmortga"ge lending organizations representing California, Colorado, Indiana,rnMichigan, Missouri, thernCarolinas, Florida, GreaterrnWashington (DC), Ohio, Texas and Virginia.
HERE is the letter
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Mortgagernrates reversed course yet again during the week ended March 4 with the 30-yearrnfixed-rate mortgage (FRM) once more falling below 5 percent. According tornFreddie Mac's Primary Mortgage Market Survey, the 30-year FRM averaged 4.97rnpercent with an average of 0.7 point compared to an average rate of 5.05 percentrnwith 0.7 point the previous week.
Thern15-year FRM averaged 4.33 percent, down from 4.40 percent the week before. Fees and points remain unchanged at 0.7rnpoint.
Thern5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) had an averagernrate of 4.11 percent, down from 4.16 percent during the week ended Februaryrn25. Fees and points also declined fromrn0.6 point to 0.5 point.
Thernone-year Treasury-indexed ARM was the lone exception to the downwardrntrend. The average rate for that productrnwas 4.17 percent with 0.6 point. A weekrnearlier the rate was 4.15 percent also with 0.6 point.
"30-year fixed mortgages fell below 5 percent to match levels seen twornweeks ago and are helping to maintain affordable home-purchasernconditions," said Frank Nothaft, Freddie Mac vice president and chiefrneconomist. "In fact, monthly principal and interest mortgage payments forrna typical family buying a median-priced home of $163,800 were just $709 inrnJanuary, the lowest amount since February 1998, according to the NationalrnAssociation of Realtors®. For first-timernhomebuyers, the fourth quarter of 2009 was the third most affordable quarterrnsince 1981 behind the first and second quarter of 2009.
"The federal tax credit for homebuyers, which expires on April 30th, mayrnmake housing even more affordable for some families already in the middle ofrnthe home buying process. In fact, the Federal Reserve's March 3rd regionalrneconomic review noted that several districts attributed stronger home sales tornthe homebuyer tax credit."
FanniernMae reported that its weekly yields had experienced a similar decline. Thernconventional 30-year FRM had an average yield of 4.70 percent during the weekrnended February 26 compared to 4.82 percent a week earlier. The 15-year FRM dropped to 3.98 percent fromrn4.11 percent and FHA/VA guaranteed loans averaged 5.40 percent compared to 5.49rnpercent the previous week. The one-yearrnARM slipped slightly to 2.44 percent from 2.46 percent.
AllrnFannie Mae yields are quoted on a net basis. rnServicing fees are not included.
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Equity futures are moderately higher ahead of a fairly light week of economic data.
Dow futures are trading 18 points higher at 10,563 and S&P 500 futures are up a 2 points to 1,138.
Commodities are also edging slightly higher with WTI crude oil up 33 cents to $81.83 per barrel and Spot Gold up 54 cents to $1,135.19.
Meantime, the US dollar is a bit lower against the euro since France’s Nicolas Sarkozy said the continent would help Greece: “if it were necessary, the states of the euro zone would fulfill their commitments.”
In terms of data the week ahead doesn’t quite begin until Wednesday afternoon when the Treasury releases its budget statement. On Thursday, weekly jobless claims will be accompanied by the monthly trade balance. Friday’s retail sales index is the highlight this week.
Key Events This Week:
Monday:
8:35 â€
Via email, I recieved the following guidance from the FHA this morning:
Subject: Guidance for Currently FHA-Approved Loan Correspondents Regarding Renewal of FHA Lender Approval for 2010
As proposed in a November 30, 2009 via 74 FR 62521, HUD is seeking to eliminate FHA approval for loan correspondents. Because this rulemaking is still in process and a final rule has not yet been issued, FHA is extending the deadline for the submission of audited financial statements for loan correspondents seeking renewal of their FHA lender approval for 2010.
For loan correspondents with a fiscal year end of December 31, and that would ordinarily be required to renew their FHA approval by March 31, 2010, HUD is providing these lenders with an additional 30 days in which to submit their audited financial statements. These loan correspondents must continue to comply with existing requirements for the submission of their Annual Certifications and renewal fees, but will be given until April 30, 2010, to submit audited financial statements. Again, the deadline for the submission of the Annual Certification and renewal fee has not been changed.
Loan correspondents that do not complete their renewal in accordance with the deadlines as specified above will no longer be FHA-approved as of the effective date of the final rule that follows the November 30, 2009, proposed rule.
Here is the verbiage from the Federal Register about the proposed change that would eliminate the need for brokers and correspondents to gain direct approval from the FHA:
FHA proposes to no longer approve loan correspondents as approved participants in FHA programs.
Mortgagees would be required to ensure that their loan correspondents meet applicable requirements. The FHA approved mortgagee will, in turn, act as sponsor as it has in the past. However, in using a sponsor/correspondent relationship, the sponsoring mortgagee must agree to assume responsibility for any loan correspondent that works with the mortgagee in the FHA insured loan, and assume liability for the FHAinsured loan underwritten and closed in the name of the FHA-approved mortgagee.
This was first announced on September 18, 2010
If you have questions regarding this issue, please contact the FHA Resource Center by email at info@fhaoutreach.com, or by telephone at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).
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