“This one step, choosing a goal and sticking to it, changes everything” – Scott Reed
NEWS & HEADLINES
Here is a NMLS “heads-up” for folks: on June 16 a license deficiency will be placed on companies who have not submitted their Q1 Mortgage Call Report. Over 11,000 companies have successfully completed their Q1 MCR in NMLS. If you haven’t yet, get started: NMLSQ1CallReport.
Last week the commentary discussed REIT’s impact on the residential mortgage market. The total market capitalization, or the aggregate value, of real estate investment trusts could be as high as $42 billion and growing, according to an estimate from investment bank Keefe, Bruyette & Woods (versus $500 million in 1971 and $30 billion by the end of 2010). Real Estate Investment Trusts have special tax exemptions and an ability to hold more capital under upcoming risk-retention rules. So why are REIT’s buying? This is a key reason that spreads remain range-bound despite the news of the Treasury unwinding its MBS portfolio, and the leverage opportunities are very attractive.
Analysts believe that more growth could come as the mortgage market becomes dependent on more capital. Currently, $1.5 trillion in mortgages and MBS sit on Fannie Mae and Freddie Mac balance sheets with another $1 trillion in MBS at the Federal Reserve. Assuming a run-off rate of 10% per year replaced by private capital, the mortgage market could need roughly $110 billion in private capital in the next decade which could double the current $42 billion that REIT’s control. For more information visit REITPrimerAnalysis. And David Akre with Whole Loan Capital has written a presentation for lenders considering a REIT structure.
Yes, there is some inter-day volatility, but with the 10-yr sitting around 3% and 30-yr fixed rates around 4.375%, rates are not the issue. Last week rates closed lower, with the 10-yr at 2.97% and MBS prices slightly better than the previous Friday’s. We have zilch for scheduled economic news today, but tomorrow the pace increases with Retail Sales, the Producer Price Index, and Business Inventories. Wednesday is the Consumer Price Index, Empire Manufacturing, and Industrial Production & Capacity Utilization. Thursday is Jobless Claims, Housing Starts & Building Permits, and the Philly Fed. Friday is a University of Michigan number, and Leading Economic Indicators. Quite a bit! Rates are slightly higher with the 10-yr at 3.01% and MBS prices worse about .125-.250.
HOME PRICES: EVEN MORE CONFUSION
We attempt to keep you abreast of the housing market. When will demand for housing return to historic averages? What impact will foreclosures continue to have? Where are interest rates headed? There are no simple answers to any of these questions. However, the most difficult question to answer seems to be: Where are home prices headed? Yesterday, we read two vastly different opinions on this issue.
Clear Capital claims prices seem to be stabilizing in their most recent Home Data Index Market Report.
“The latest Market Report results through May suggest that home prices are starting to ease back from the heavy declines seen over the winter. We are still far away from the strong demand needed to fully turn things around for the housing market; however, it is clear from the initial spring sales data that prices are softening, suggesting stabilization in the market.”
At the same time, Housing Wire reported that Robert Shiller, the Yale University professor and co-founder of the S&P Case-Shiller Home Price Indices, believes home prices still have a major correction ahead.
“While other people expect home prices to bounce along the bottom for a while without going up much, Robert Shiller is inclined to be more pessimistic.
There is room for home prices to decline another 10% to 25% in real terms over the next five years, according to Shiller.”
40% OF UNDERWATER BORROWERS TOOK CASH OUT OF HOMES
Homeowners with home equity loans are more than twice as likely to be “underwater” as those who didn’t take cash out of their homes, according to statistics compiled by real estate and loan data aggregator CoreLogic.
CoreLogic estimates that at the end of March, 22.7 percent of homeowners with mortgages — about 10.9 million borrowers — owed more on their mortgage than their home was worth. That’s down slightly from an estimated 11.1 million underwater borrowers at the end of December.
Falling home prices can put borrowers who have little equity in their homes underwater. By allowing homeowners to convert equity they have in their homes into cash, home equity loans reduce the cushion borrowers have against price declines.
CoreLogic said that 38 percent of borrowers with home equity loans were underwater at the end of March, compared with 18 percent of homeowners who had no home equity loan. More than 40 percent of all underwater homeowners (4.5 million) have home equity loans, CoreLogic said.
TOO MANY ERRORS FOUND IN LISTING INFORMATION?
Some real estate professionals say they are finding too many errors in property information online and that agents need to do a better job of making sure listing details are accurate and up-to-date.
For example, Troy Deierling, a real estate professional in Sedona, Ariz., recalls a client recently asking him to set up appointments for three homes he viewed online for-sale. However, Deierling discovered all three of the properties had been sold and had been off the market for three months, despite the postings online that indicated otherwise.
While more buyers are turning to online home searches, the information they find may not always have the latest information, such as failing to indicate the latest price cut or even whether the home is still on the market.
Nearly a quarter of the data that real estate professionals individually submit for posting on real estate Web sites is never updated when changes are made to the price or when the property is sold, according to a recent report by Trulia.
While real estate listing Web sites say they try to keep a lookout for errors, many of these sites rely on MLS feeds. As such, real estate professionals need to make sure to keep their listings on the MLS current and listing details accurate, industry experts say.
3 BANKS PENALIZED FOR LOAN MOD FAILINGS
Three major banks have lost federal mortgage modification incentives in delivering a foreclosure relief program until they make big changes to improve their practices.
Obama administration officials have told Bank of America, JPMorgan Chase & Co., and Wells Fargo & Co. that they must make “substantial improvements” to the way they administer the Home Affordable Modification Program, and they will not receive any more federal money from the program until they do so. For example, officials noted that banks need substantial improvement in correctly evaluating borrowers’ incomes, which is a critical component for determining eligibility for the program.
Some of the banks also need to improve how they identify and contact borrowers for the program.
Last month, the banks received $24 million in payments through HAMP, but no more payments will be made until servicers improve their performance, officials warned.
While Bank of America agreed that it needed to improve its practices in the program, JPMorgan Chase and Wells Fargo say they disagree with the poor evaluation. Wells Fargo, in fact, says they plan to contest the administration’s evaluation of how well it’s done with administering HAMP. The review, which examined all 10 servicers who administer the program, found that all 10 were performing below its benchmarks.
This marks the first time the Obama administration has taken major punitive action against banks in the HAMP program, which has been under attack in recent months from some lawmakers and critics who say the program has not done enough to help save home owners from foreclosure.
Republicans in the House of Representatives voted to end the program earlier this year. However, the measure has yet to pass the Senate and the White House already has threatened a veto.
FALLING HOME PRICES CHIPPING AWAY AT EQUITY
On average, home owners now hold about 38 percent equity in their homes, down from 61 percent a decade ago, the Federal Reserve says in citing data from the first quarter of this year.
Despite outstanding balances on loans getting smaller, home owners are losing equity due to drastically falling home prices, which have inched down in many markets since prices peaked in 2006, the Fed reports.
Home equity is an important indicator to the overall health of the economy because the more home equity people have, the more wealthy they tend to feel. Plus, home equity also tends to serve as collateral for other loans.
However, sinking home prices in many markets has caused more home owners to owe more on their home than it is currently worth. About 23 percent of people who have mortgages are underwater and another 5 percent are near that stage, according to CoreLogic.
The average household owes about $119,000 on mortgages, auto loans, credit cards, and other debt, according to the Fed’s report.