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Archive for the ‘Fed and Economy Watch’ Category

Bright Economic Outlook Muted by Housing Data

Fannie Mae's Economic and Strategic Research (ESR) group is still expecting that economic growth will "likely" be solid in the third quarter, but they are otherwise hedging their bets.  In their October Outlook, the economists said the lower job growth in September does not alter their view that the labor market is strong, but GDP growth has probably slowed from its second quarter pace, partly reflecting a deceleration of product investment and consumer spending.

The surge of soybean exports that tried to get ahead of tariffs has subsided and with a strengthening dollar, the trade deficit has probably widened, and residential fixed investment is probably also down, extending that decline into a third straight quarter. Real estate sales commissions are part of that calculation and home sales have declined as interest rates have risen.

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MBA Forecast: Purchase Originations to Remain Healthy as Fed Hikes Rates

Purchase mortgage originations are expected to increase a bit in 2019, but not by enough to offset the continuing decline in refinancing.  A forecast from the Mortgage Bankers Association (MBA), released Tuesday at its 2018 Annual Convention and Expo, predicts a 4.2 percent gain over the 2018 volume of purchase mortgages next year to a total of $1.24 trillion.  However, the association expects refinancing activity to fall 12.3 percent to $395 billion.  The result will be a net decrease of about $1 trillion in total originations to $1.63 trillion.

 

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Home Price Reductions Are Increasing, Especially at High End

Recent research from Trulia shows home price reductions are increasing.  The share of homes for sale that have had at least one price cut since being listed is the highest since 2014.  This, the company says, is more evidence that the market may finally be tilting in homebuyers favor, but the benefits are certainly not evident across the board, or maybe even where they are most needed.

During the first part of this year the share of listings with a price changes stayed much as it was in 2017, but then shot up in July and August. When this is coupled with the slowdown in home price growth that has been noted in most indices, and inventories that are finally creeping up, the increase in price cuts, according to Trulia, could be a critical third confirmation that things may finally be shifting in buyers' favor.

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Freddie Mac Announces More “Big Data” Tools

Freddie Mac is announcing a couple of enhancements to its Loan Advisor underwriting tool.  The additional capabilities will allow lenders to automate the assessment of borrower income and assets to reduce documentation which the company says will significantly speed-up the approval process. The automated collateral evaluation has been available in some form previously and with this announcement appears to be extended to condominium units. It is unclear from Freddie Mac's announcement whether there will be additional capabilities or whether it is being expanded to more locations or properties. What the company says is, "This new capability will speed up and lower the cost of the loan origination process for you and your borrowers. 

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New Home Sales Dip, Still Stronger than Last Year

The Mortgage Bankers Association (MBA) reports a drop in applications for the purchase of newly constructed homes last month.  Those applications fell by 3.9 percent compared to August although they remained 8.2 percent higher than they were the previous September.  The change does not reflect any seasonal adjustment.  The information comes from MBA's Builder Application Survey (BAS) which is conducted among the mortgage subsidiaries of new home builders. Based on the survey data as well as other marketing data, MBA projects that new home sales were running at a seasonally adjusted annual rate of 643,000 units. 

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Mortgage Application Activity Dwindles as Rates Move Higher

Mortgage application activity declined during the week as the 30-year mortgage rate crossed the 5.0 percent line for the first time in seven years and other products moved to new seven or eight year highs.  The Mortgage Bankers Association (MBA) said its Market Composite Index, a measures of application volume, declined by 1.7 percent on a seasonally adjusted basis during the week ended October 5.  On an unadjusted basis the index was down by 2.0 percent. The seasonally adjusted Purchase Index lost ground for the first time in six weeks, decreasing by 1 percent compared to the previous week, and was down by 1.0 percent on an unadjusted basis as well.  

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High LTVs, VA Mortgages Could Aggravate Florence Storm Impact

Hurricane Florence, the storm that tore up much of eastern North and South Caroline in September, may be especially disastrous in terms of VA loans.  Black Knight looks at the possible impact of the storm in its current issue of Mortgage Monitor. In the 34 localities declared as Hurricane Florence disaster areas the Monitor found there were a total of 1.17 million properties, 474,000 of which carry at least one mortgage.  North Carolina bore the brunt of the storm, and 80 percent of the affected mortgages, an estimated 385,000, representing more than 20 percent of both total properties and mortgaged homes, are in that state.  

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Artificial Intelligence Improves Profitability, Efficiency, and Customer Experience

Mortgage lenders have been increasingly reporting tighter margins as costs rise for each actual loan transaction.  In the last few years the principal reason behind this as revealed in Fannie Mae's quarterly Mortgage Lender Sentiment Survey has been increased competition for customers. As the demand for refinancing has fallen, purchase originations have not yet been able to pick up the slack, exacerbating the situation. The survey has found lenders are working to improve efficiency to cut the cost part of the profit equation.

 

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FICO Scores Hit Record High

Lesson learned?  Whether they saw their credit decimated by the housing crisis and the Great Recession or merely watched loan standards tightened beyond their ability to qualify, Americans seem to have taken to heart the importance of their credit scores.  The result, FICO says, is that consumer credit scores have reached a new high, an average of 704 points. Kenneth Harney, in an article for the Washington Post's Writers' Group, quotes FICO Vice President of Scores and Analytics Ethan Dornhelm that Americans are "making more judicious use of credit." This means higher scores on the FICO model that weights them not only in terms of on-time payments but on the length of the credit history, the amount and type of credit a consumer has available, and how much of that available credit is being used.

 

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Freddie Mac Portfolio Up 6.1 Percent in August

Freddie Mac reported today that its total mortgage portfolio increased at an annualized rate of 6.1 percent in August.  The portfolio balance at the end of the period was $2.147 trillion compared to $2.136 trillion at the end of July and $2.052 trillion a year earlier.  Purchases and Issuances totaled $38.413 billion, bringing the 2018 year-to-date total to $254.304 billion, Sales were ($2.569) billion and Liquidations ($26.066) billion in August and totaled ($15.442) and ($189.264) billion respectively so far this year.  The annualized growth rate for 2018 through the end of August was 3.5 percent and the annualized liquidations rate was (13.5) percent. 

 

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