Archive for the ‘MND NewsWire’ Category

Conventional wisdom, according to the Urban Institute (UI), holds that small mortgages are riskier than large ones.  That may be one reason that only one out of four homes sold for $70,000 or less in 2015 was financed with a mortgage compared to 80 percent of those sold for $70,000 to $150,000. Sarah Strochak and Alanna McCargo, writing in UI's Urban Wire blog say there are more than 600,000 homes for sale nationwide priced under $70,000, but it is hard for buyers to arrange financing because of the perception that the buyers of these homes have worse credit profiles and their loans don't perform as well.

New home sales continued on a winning streak in March, increasing for the third straight month.  The U.S. Census Bureau and the Department of Housing and Urban Development said sales of newly constructed homes were at a seasonally adjusted annual rate of 692,000 units during the month.  This is a 4.5 percent increase over the revised (from 667,000) rate of 662,000 in February and 3.0 percent higher than the March 2018 estimate of 672,000 new homes. Analysts polled by Econoday expected a pullback in March after the strong numbers earlier in the year.  They had forecast sales in the range of 630,000 to 660,000.  Their consensus was 645,000 units.

As profit margins have continued to shrink, mortgage lenders have been seeking to utilize technology to reduce their production expenses which involve in part transmitting large volumes of data among several interconnected parties such as consumers, investors, service provider, and others.  In an article in the Fannie Mae Perspectives blog the company's Vice President for Digital Products, Prabhakar Bhogaraju, writes that "Businesses are increasingly leveraging digital technologies to reduce errors and costs, transact faster, and drive a richer and better customer experience. Over the past few years, technological advancements such as artificial intelligence, APIs, and document digitization have gained traction, enabling digital transformation."

For the second month in a row we find ourselves stating that Fannie Mae's forecast, while still predicting a slowdown in economic growth this year, appears overall more upbeat than in the previous month.  The April report is still predicting that growth will slow from 3.0 percent in 2018 (which is itself a revision from the 3.1 percent estimate that prevailed in March) to 2.2 percent this year.  The boost provided last year by the Tax Cuts and Jobs Act is expected to fade, and business investment and consumer spending to slow.  However, the company's economists expect residential fixed investment to recover from last year's decline.

Continuing declines in interest rates had some impact along the margins of loan originations in March.  Ellie Mae's Origination Insight Report for March reports that 30-year fixed-rate mortgages originated during the month had an average interest rate of 4.77 percent, down from 4.86 percent in February and 5.01 percent in January. The company reported that the share of originations that were for refinancing ticked up 1 percentage point to 35 percent during the month while the share among FHA loans jumped 3 percentage points to 23 percent.  FHA's share of all originations also rose 1 point to 20 percent.  The share of conventional and VA loans remained at 64 percent and 11 percent of the total respectively.

Despite their fourth quarter loss reported last month, independent mortgage banks and bank mortgage subsidiaries still managed, albeit barely, to stay in the black last year.  The Mortgage Bankers Association (MBA) said that banks responding to its survey made an average profit of $367 on each loan they originated last year, down from $711 per loan in 2017.  They lost an average of $200 per loan in the last quarter of the year, only the third quarterly loss since MBA began collecting the data in 2008.

Two New York Federal Reserve Bank economists are asking whether the tax reform act that went into effect at the beginning of 2018 is playing a role in the decline of home sales.  Richard Peach and Casey McQuillan, writing in Liberty Street Economics, say that the broad-based slowing in housing market activity coincided with a roughly 70 basis point rise, from 3.9 percent to 4.6 percent, in the thirty-year fixed-rate mortgage.  During the period in which rates were increasing, from the fourth quarter of 2017 to the third quarter of 2018, new home sales declined 7.6 percent and sales of existing homes dropped 4.6 percent.

In an opinion piece published by MarketWatch, the president of the nation's third largest non-bank lender says institutions such as his could find themselves in a tough situation should liquidity dry up. So tough, in fact, it could endanger the entire financial system.

Sanjiv Das, CEO of Caliber Home Loans, says rising home prices which have made owning a home less affordable has also made life difficult for mortgage lenders. Originations have fallen, and after lenders reduce costs then "they are faced with the decision of whether to lower margins or credit standards. 

A "race to the bottom" such as occurred before the housing crisis isn't the only danger Das sees.  Another is liquidity risk, the inability of a firm to meet short-term financial obligations such as a payroll. This risk is particularly acute in the housing sector because non-bank lenders originate more than 50 percent of home loans compared to 9 percent in 2009 and account for 45 percent of servicing.

Applications for financing new home purchases were up significantly in March.  The Mortgage Bankers Association (MBA) reports that Builder Application Survey (BAS) data for the month shows a 7 percent increase in those applications compared to March 2018 and a 19 percent gain over February.  The application data is not adjusted for seasonal variations.  "With a strong job market, rising wages and lower mortgage rates, housing demand remains strong, as shown by the solid 7 percent growth in new home purchase applications in March," said Mike Fratantoni, MBA Senior Vice President and Chief Economist. 

CoreLogic says mortgage delinquencies in January were the lowest for that month in 20 years.  Meanwhile, in a separate report, they note that non-mortgage consumer debt has been edging up, due in part to a deterioration in lending standards. The company's Loan Performance Insights Report for January puts the national delinquency rate (the percentage of outstanding mortgage loans that were 30 or more days past due including loans in foreclosure) at 4.0 percent, down from 4.9 percent in January 2018.  In 2010, at the height of the financial crisis, the January delinquency rate hit a peak of 12.0 percent. This continues a trend that started last March.