“A man sooner or later discovers that he is the master-gardener of his soul, the director of his life.”
Last Friday was the first day of spring. Congratulations, you made it through winter – now if only your savings had… What is the word on when the conventional $729,250 will be rolled out? Hah! Call me “out of the loop”, but I have none. There are reports that big banks’ retail operations are already advertising the new limits, but I have seen no information from any other business channels and the reps are probably tired of answering the question with, “When Fannie and Freddie let us know.” . As is becoming standard, the big banks are (and many would argue wisely) supporting their own branch network. For example, as recently as 5-6 years ago, Chase had only 500 branches where they might be able to originate some get retail loans. Now, they have over 5,000 branches – do they and other large banks need a huge broker base to help them with their mortgage volume?
The good news is that the Mortgage Bankers Association boosted its forecast for 2009 home-loan originations to $2.8 trillion due to low rates and a wave of refinancing. They estimate refinancing will total almost $2 trillion this year and purchase originations will increase to $821 billion, which would put 2009 originations in the top 4 years of all-time. The bad news, if you could call it that, is that the costs to the borrower are higher than ever – especially if they want to buy down the rate. Mortgage origination fees are the costliest in eight years, and the positive spread that banks are earning (i.e., the difference between their cost of funds – what they pay depositors – and where they are loaning it out at) is huge. Most mortgage companies are already collecting the Fannie & Freddie “adverse market fee” that they will charge officially beginning April 1. Not only are originators collecting added fee income to their bottom lines, but also increased spread income (unless, in the case of mortgage banks, their warehouse banks are charging high rates).
As an example, commercial and retail banks are looking at overnight Fed Funds near 0%, but conforming mortgage rates are near 5% this quarter. And as I mentioned last week, the average spread between fixed mortgage rates and the 10-year T-note is 2.3%, the highest it has been in over 20 years.
We have seen the residential problems – is commercial next? Banks are reporting increased loan delinquencies from owners of office buildings, casinos, and shopping malls. The country’s 10 biggest banks have $327.6 billion in commercial mortgages, and Wells Fargo and Bank of America account for about half of commercial mortgages owned by these 10. According to a study from research firm Reis Inc., commercial property prices are down almost 20% in the past year. Bank of Hawaii Corp., City National Corp., Comerica Inc. and Sovereign Bancorp Inc. were among the companies put on Moody’s list of lenders with a “negative outlook” last week, partly because of their “risk concentrations” in the commercial market.
AmTrust’s Debt-to-Income Ratios, effective earlier this week, for a LTV/CTLV/HCLTV greater than 80% 41% maximum. For a LTV/CLTV/HCLTV equal to or less than 80%, 55% maximum for conforming products and 45% maximum for Jumbo products. For a manual underwrite (“Non-Traditional Credit”): 41% maximum, regardless of LTV.
FAMC is revising and clarifying credit parameters for Conventional Conforming Fixed Rate and Conforming ARM products. Their minimum credit score for a 1 unit, primary residence cash out transaction has been lowered to 640. The maximum LTV/CLTV was previously reduced to 80/80. (A while back they addressed maximum LTVs on second homes and investment properties and increased the minimum scores > 80% to 680. The minimum credit score has been increased from 580 to 620 for LTV’s < 80%.)
Well, rates improved for a bit yesterday, but then worsened slightly as the day wore on. Can you believe that the 10-yr yield is 25 basis points higher than last week’s lows? Today we have already seen Durable Goods (estimated to be -2.5%, they were +3.4% in February, the biggest increase since December 2007, although January was revised to -7.3% from -4.5%), and later on we’ll have New Home Sales (estimated to be down 3%). Perhaps most importantly, we have a $34 billion 5-yr note auction to get through. The Mortgage Bankers Association released their weekly application figures: last week mortgage applications were +32%! Currently the 10-yr is back up into the mid-2.7% range, and mortgage prices are worse by another .125 versus Tuesday afternoon.
Hospital regulations require a wheel chair for patients being discharged. However, while working as a student nurse, I found one elderly gentleman already dressed. He was sitting on the bed with a suitcase at his feet, and he insisted he didn’t need my help to leave the hospital. After a chat about rules being rules, he reluctantly let me wheel him to the elevator. On the way down I asked him if his wife was meeting him. “I don’t know,” he said. “She’s still upstairs in the bathroom changing out of her hospital gown.”