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Black Knight and the Case of the Disappearing Equity

We know that home price growth is slowing, and cash-out refinancing has been coming back, still it is a bit of a stunner to find that homeowner equity actually declined in the third quarter of this year.  Black Knight's current issue of its Mortgage Monitor reports that the amount of total equity (home value net of mortgage balance) held nationally by homeowners at the end of the third quarter was down by $160 billion compared to the second quarter of the year and now totals $9.8 trillion. Of that total, $5.9 trillion is considered "tappable," that is equity that can be withdrawn by the homeowner without hitting a maximum 80 percent combined loan-to-value (CLTV) ratio. 

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NAHB Says Second Homes Aren’t Just Vacation Destinations

The stereotype of a second home usually involves a tropical beach, a boat dock on a lake, or skiers whizzing past a picture window, but the National Association of Home Builders (NAHB) says that is not reality. Or at least not all of it.  Na Zhao, writing in NAHB's Eye on Housing blog says there are a good amount of second homes and lots exist in non-vacation-y areas. NAHB estimates there are 7.4 million homes, or 5.6 percent of the total housing stock that qualify for the second home mortgage tax deduction.  That information comes from the Census Bureau's 2016 American Community Survey (ACS.)

 

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Mortgage Rates Lowest Since September After Jobs Report

Mortgage rates held on to their recent improvements today after the important Employment Situation (the big "jobs report") showed November job creation was lower than expected.  In general, weaker job creation is good for interest rates because it speaks to slower economic growth and inflation (both of which are enemies of rates).  This report was particularly important because a strong result would have cast doubt on several speeches from members of the Federal Reserve.  Those speeches have warned about slower economic growth in 2019 and the potential for fewer rate hikes than previously anticipated.  

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New Fannie/Freddie Requirements May Penalize High-Risk Borrowers

Three researchers from the Urban Institute (UI) recently analyzed the new capital standards rule proposed by the Federal Housing Finance Agency (FHFA) for Fannie Mae and Freddie Mac (the GSEs.)  The proposed rule includes two alternative leverage ratio proposals.  Under the first, the GSEs would be required to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees, the second, to hold capital equal to 1.5 percent of trust assets and 4 percent of non-trust assets.  The second approach differentiates between the greater funding risks of non-trust assets and the lower funding risks of the trust assets while increasing the capital requirements for both relative to the current statutory requirements.

 

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Uptick in Home Purchase Sentiment Reflects Increased Confidence

Fannie Mae's Home Purchase Sentiment Index (HPSI) for November rose slightly, but within the 0.5-point increase was some increased confidence about personal finances and the wisdom of buying a home.  The index, which consolidates responses from a subset of questions on the company's National Housing Survey, rose to 86.2 from 85.7 in November. The index is 1.6 points lower than in December 2017. A survey high record was set in the net share of Americans who reported their income was up significantly over the last 12 months.  A 5-point increase brought the net share to 24 percent. Fifty-seven percent of respondents told pollsters it was a good time to buy a home while 34 percent disagreed.  This resulted in net positive responses of 23 percent, up two points from October.

 

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Better Access to Conforming Loans Means More First-Timers in Market

Access to mortgage credit moved higher in November, largely due to improved access to conforming mortgages. The Mortgage Bankers Association's Mortgage Credit Availability Index (MCAI increased 1.1 percent to 188.8. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit.  The Conventional MCAI increased (2.4 percent) and the Government MCAI decreased (0.1 percent). Of the component indices of the Conventional MCAI, the Jumbo MCAI rose 1.1 percent, while the Conforming MCAI gained 4.0 percent.  "The supply of credit continues to drift higher, driven once again by growth in the conventional credit space, while credit supply in government loans was essentially unchanged from the previous month," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. 

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Sluggish Construction Challenges the Housing Market

While there has been a lot of talk since the recovery took hold about the lack resiliency in the residential construction sector, the issue is now moving from an academic discussion to one on the verge of alarm.  As Freddie Mac's Economic and Housing Research Group writes in the company's Insights blog, "The inadequate level of U.S. housing supply is a major challenge facing the housing market in 2018 and likely for years to come." The Insights' authors, Sam Khater, Chief, and Len Kiefer, Deputy Chief Economists, and Ajita Atreya and Venkataramana Yanamandra, both senior quantitative analysts, estimate the U.S. needed 370,000 more than the 1.25 million units that were added to the stock in 2017 to satisfy demand. 

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Mortgage Rates Are On a Tear!

Mortgage rates dropped significantly yet again today, adding to an already impressive week of improvement and bringing most lenders into their best territory since September 13th, 2018.  The average lender improved by more than an eighth of a percentage point in just the past 3 business days and by nearly 3/8ths of a point from the highs seen in early November.  This comes out to roughly $70/month for a $300k loan, or an upfront savings of $4500 if you were to buy your rate down (paying points) back in early November.

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UI Researchers Evaluate Proposed Changes to Fannie/Freddie

In June the Federal Housing Finance Agency's (FHFA) issued a proposed capital standard for the government-sponsored enterprises (GSEs), Freddie Mac and Fannie Mae.  Three Urban Institute researchers have analyzed the rule with an eye to answering two questions: how well it will align risk and capital across the various mortgage attributes and how the capital requirement might vary across the business cycle.  Requiring too much capital raises mortgage rates and reduces homeownership; too little results in insolvency and financial crisis. The proposed rule includes two alternative leverage ratio proposals.  Under the first, the GSEs would be required to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees.  

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Mortgage Applications Bouncing Back

Mortgage rates remained largely flat or even slightly lower during the week ended November 30.  This probably helped to maintain the upward trend in mortgage applications that began the previous week during the Thanksgiving holiday and despite a shortened work week.

The Mortgage Bankers Association (MBA) said its market Composite Index, a measure of loan application volume, moved up 2 percent on a seasonally adjusted basis and after an adjustment to the prior week's report to account for the holiday.   On a non-adjusted basis, applications shot up 42 percent.

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