“Many can argue that reality is as it is, but my experience is that the oppositre is exactly true, reality is ours for the making” – Asara Lovejoy: Human potential author and coach
RPM ON THE FRONT PAGE OF BUSINESS SECTION OF CONTRA COSTA TIMES
Dodging the debris unleashed by a shattered housing market, RPM Mortgage powered to its most successful year in 2010 and is off to a robust start this year.
Walnut Creek-based RPM generated hundreds of millions of dollars more in mortgage business in 2010 and hired hundreds of new employees over the past two years, a track record that sparkles against the gloomy backdrop of the real estate sector.
“We’ve been very fortunate,” said Robert Hirt, RPM’s chief executive officer. “2010 was the best year in the history of our company.”
The company’s success has been fueled in great measure by its ability to meld its connections to Fannie Mae with a veteran sales force and low interest rates. By being able to sell loans directly to Fannie Mae, RPM has attracted experienced loan officers who can drum up more business.
In 2010, RPM generated $4.55 billion in loan production, up 12.9 percent from the $4.03 billion in loan production in 2009.
The pace is brisk so far in 2011. For the first three months of this year, RPM generated $804 million in loan production, said Elise Watkins, an RPM spokeswoman. That was up 11.4 percent from the $722 million produced in the January-March quarter of 2010.
In contrast, the country’s largest home lender, San Francisco-based Wells Fargo, saw originations for residential loans fall 8.1 percent in 2010 compared with 2009, regulatory filings show. However, in the first quarter of 2011, Wells Fargo’s originations for home loans rose 10.5 percent compared with the year-ago January-March period, the bank said.
NEWS & HEADLINES
NAR released some interesting Realtor profile information.Their median income (half above, half below) declined 4.5% to $34,100 last year, which followed a 3 percent decline in 2009. Members licensed as brokers earned a median of $48,700 in 2010, while sales agents earned $24,900. Per NAR, 16% earned a six-figure income, 14% work less than 20 hours per week, 57% are women. The typical NAR member is 56 years old with only 3% of members being under the age of 30 (22% are 65 or older). NAR had less than 1.1 million members in 2010, a 21.3% decline from the peak in 2006. For all the stats visit NARPress.
Freddie Mac reported that in the first quarter of 2011 fixed-rate loans accounted for more than 95% of refinance loans, regardless of whether the original loan was an ARM or a fixed-rate loan. An increasing share of refinancing borrowers chose to shorten their loan terms during the first quarter. Of borrowers who paid off a 30-year fixed-rate loan, 34 percent chose a 15- or 20-year loan, the highest such share since the first quarter of 2004. We had the MBA’s weekly Mortgage Application Survey this morning. Apps jumped 8% last week, up for the third week in a row. Refinancing was up over 13%, although purchases dropped 3%. Both the overall index and the refinance index reached their highest levels since early December, with refi’s accounting for almost 67% of total apps.
Regardless of debt worries, yesterday the fixed-income market did quite well, and the trend is continuing today. The yield on the 10-yr T-note broke down below 3.15%, making new lows for 2011, and mortgage pricing is going along for the ride. Their prices don’t always move in opposite directions, but once equities slipped into negative territory Treasuries rebounded off the lows on very light activity. The weaker-than-expected housing and Industrial Production data only increased the bid for Treasuries. By the end of the day the 10-yr was down to 3.12% and current coupon mortgage pricing was better by .125-.250 on average mortgage banker selling of MBS’s.
With rates dropping investors sense a short run pickup in refi activity, but also believe that it will be weaker compared to 2010 based on equity issues, LLPA hurdles, and the usual underwriting issues. There’s a sizeable amount of distressed property on the market, credit conditions remain very tight for borrowers, home values keep slipping, existing home owners are having a difficult time selling their homes, and the economy and jobs market aren’t exactly confidence boosters at the moment. All of this puts a damper on lending, as well as homebuilders’ sentiment.
There isn’t much pushing the market today. We had the MBA’s weekly Mortgage Application Survey, noted above. Later we’ll have the release of the FOMC Minutes from the late April meeting at 2PM EST. In the early going here the 10-yr got down to 3.10% (but is now unchanged) and MBS prices are roughly unchanged.
NEW HOMES COMPETING AGAINST FORECLOSURES
Builders broke ground on fewer homes in April as the new-home sector continues to face competition from a glut of foreclosures that in many markets has brought home values down.
Construction on homes and apartments dropped 10.6 percent to a seasonally adjusted annual rate of 523,000 units, the Commerce Department reported on Tuesday. In March, housing starts reached a 585,000-unit pace (an upward revised figure). Residential construction is down 23.9 percent compared to April of last year–its largest drop since October 2009.
Considered the “volatile part” of the new-home market at the moment, construction of multifamily homes (buildings with five or more units) particularly hampered housing starts last month, decreasing 28.3 percent. Single-family home construction–which generally makes up 75 percent of all housing starts–dropped 5.1 percent from a month earlier.
Regionally, the results were mixed. In the South, housing starts dropped 23 percent and 4.8 percent in the Northeast. However, the Midwest posted a 15.7 percent gain in housing starts, as well as the West with 3.7 percent.
Permits for future home construction dropped last month, falling 4 percent to a 551,000-unit pace last month, the Commerce Department reports.
The Distressed Sales Impact
New-home construction is being weighed down by an oversupply of existing homes on the market, particularly foreclosures, experts say. Buyers are increasingly choosing bargain-priced foreclosures and previously owned homes over–in general–pricier new homes.
“Builder confidence has hardly budged over the past six months as persistent concerns regarding competition from distressed property sales, lack of production credit, inaccurate appraisals, and proposals to reduce government support of housing,” NAHB Chairman Bob Nielsen said Monday in statement about the National Association of Home Builder/Wells Fargo Housing Market Index, which shows builders’ confidence about the new-home market remains low.
FEWER BORROWERS PURPOSELY DEFAULT ON MORTGAGE
As home values decreased and more borrowers found themselves underwater, some home owners were opting for “strategic default,” choosing to stop making mortgage payments even though they could afford to pay. But analysts say the trend is on the decline.
In an analysis by JPMorgan Chase into strategic default, analysts found 60 percent of all defaults were strategic by the middle of 2009–that’s more than double the percentage in January 2008.
However, the number has been decreasing. Analysts say that strategic defaults now make up less than 30 percent of all defaults (or 10,000 strategic defaults compared to 20,000 from one year ago) and that borrowers who are delinquent more than 90 days have even “lesser strategic delinquencies.”
“Overall, strategic defaults have stabilized as home prices flattened and initial jobless claims declined,” analysts say.
About 42 percent of underwater borrowers–those who owe more on their mortgage than their home is currently worth–remain current on their mortgage, according to the JPMorgan Chase analysts.
“Of course, the moral hazard of potential strategic defaults in the future is still present,” analysts say. “Even though these borrowers have not been defaulting in large numbers, the event risk remains that they could.”
GAS PRICES IMPACT REAL ESTATE CHOICES
Rising gas prices have spurred homebuyers to look for homes that offer shorter commute times to work, according to a survey of Coldwell Banker Real Estate professionals.
The company conducted the survey online between April 28 and May 3, 2011, and garnered responses from 1,188 Coldwell Banker real estate professionals.
Three-quarters of respondents said the recent jump in gas prices had influenced where their clients chose to live. The main client concern was commute time to work: 89 percent of respondents said buyers look for homes closer to work and 93 percent said a continued rise in gas prices would prompt more homebuyers to choose to live where commute times are shorter.
Almost half (45 percent) of respondents said buyers are choosing homes closer to shops and services as a result of higher gas prices.
According to 77 percent of respondents, more buyers are interested in having a home office compared to five years ago. Of those respondents, 68 percent said the high cost of gas is one reason behind the trend.
“The decision to buy a home has always been tailored around the personal, multifaceted lifestyle needs of each buyer,” said Jim Gillespie, Coldwell Banker Real Estate’s CEO, in a statement.
“Today, rising fuel costs and a person’s decision to commute or perhaps work remotely are additional factors of the decision homebuyers must consider.”
Respondents also attributed a rise in interest in urban living at least partially to increasing gas prices. Some 56 percent of respondents said they had noticed more homebuyers interested in living in cities compared to five years ago.
Of those respondents, 81 percent said a desire to reduce gas spending was a factor, and 93 percent agreed or strongly agreed that the desire for shorter commutes was a factor.
Other reasons noted for the increased enthusiasm for city living were “having everything at your fingertips” (91 percent strongly agreed or disagreed), “being able to walk to places” (76 percent), and “being near public transportation” (52 percent).