Rob Chrisman | 02-20-2014
If your lock desk was really busy last week, you're bucking the trend. The MBA's survey of 75% of retail lenders showed that apps were off 4.1% with purchases leading the way (-6.3%) but with refis following along (2.7%). The computers that slice and dice the data tell us that the average loan size on refis was $5k lower to $204k, conventional purchases were off 7.3% week over week, and conventional refis were off 1.4%. FHA & VA purchases were down 6% and FHA/VA refis dropped 4%. When it is -8 degrees F., bopping around house hunting is probably low on the priority list.
The residential lending industry is dealing with plenty of unintended consequences and perverse outcomes due to the excesses of the past, and the resulting onslaught of regulation. As an example, two years ago California's legislators agreed to, and Attorney General Kamala Harris trumpeted, a landmark deal with the nation's three largest housing lenders, which agreed to give "beleaguered" California homeowners $12 billion in relief from their underwater mortgages. Now the Sacramento Bee tells us, "Last fall, the monitor that Harris appointed to supervise the agreement reported that the $12 billion promise had become 'an $18 billion achievement,' half in principal reductions for those who wanted to remain in their home and half in short sales for those who wanted out.
"There is, however, a darker side to the situation. That $9.2 billion in principal reductions from the three big lenders, plus those granted by other mortgage firms, is considered to be income to those who received them - an average of $137,281 for first mortgages in the settlement and $91,261 for second mortgages. That means the homeowners who breathed sighs of relief last year could be hit with huge income tax bills. They wouldn't be federal taxes, because Congress exempted principal reductions from taxation. But they would be state taxes for 2013, because a temporary exemption expired at the end of 2012 and the Legislature didn't act last year on an extension due to a behind-the-scenes power play."
As it turns out, now politicians have tagged the tax exemption on to another bill (SB 391) that imposes new fees. The fees would be on real estate transaction documents in an attempt to raise about $300 million a year for low-income housing. It's one of the Legislature's efforts to make up for the money that low-income housing programs lost when it and Governor Jerry Brown abolished local redevelopment programs two years ago.
If you're a member of the Community Mortgage Lenders of America (CMLA) and will be in Phoenix on March 2nd make sure to attend its General Session Meeting from 3-6PM at the JW Marriott Desert Ridge. "CMLA members will have the chance to engage in a lively discussion with two great panels focused on QM, Fair Lending & CFPB Enforcement Actions (speakers include James Brody, Tammy Butler and Ari Karen) and What's Coming Next from Washington (Phil Rasori, Steve Richman, Jack Konyk, and Rob Zimmer make up this panel)." Contact Ken Ferrari firstname.lastname@example.org to register or if you'd like to learn more about the Community Mortgage Lenders of America.
"Rob, are there partnerships between lenders and title companies, or have they disappeared?" No, they have not disappeared - I am sure there are many. One that immediately jumps to mind is between PenFed and Champion Title. Both PenFed Credit Union and Champion Title & Settlements cover a similar footprint in 13 states. As I understand it, if the home is in a place not covered by PenFed/Champion, PenFed has various title companies designated to cover other areas. The key factor is the credit union must designate the title company. Speaking of PenFed, the company just "invented" a new ARM.
Yes, capital is constantly being created and put to work. "Wall Street's latest trillion-dollar idea involves slicing and dicing debt tied to single-family homes and selling the bonds to investors around the world. That might sound a lot like the activities that spurred the global financial crisis in 2007. But this time, there's a twist. Investment bankers and lawyers are now lining up to finance investors, from big private equity firms to plumbers and dentists moonlighting as landlords, who are buying up foreclosed houses and renting them out." Here you go. "Wall Street" continues to be a dirty term.
But plenty of younger folks want to work for investment banks and broker dealers. And those Millennials (age 18-34) need loans. TD Bank's Malcolm Hollensteiner, Director of Retail Lending Products & Services, chimes in with information on what types of loans are millennials obtaining. "At TD Bank, Millennials made up 18% of total mortgage units closed in 2013. Alternately, their 'parents'" made up 47% of the total mortgage units closed in 2013. In terms of type of loans, Millennials make up 15% of TD's total ARMS customers, while their parents make up 50% of the bank's total ARMS customers. The most noticeable difference, aside from the quantity of loan units between the two groups, is apparent in the maturities. Millennials make up just 8% of total 15 year fixed loans, while parents make up nearly two thirds of total 15 year fixed loans, with 59%. In terms of 30-year fixed loans, the gap lessens with millennials making up 22% of the total number of 30 year loans, while their parents make up 42% of the total number of 30 year loans. (TD Bank offers up its Right Step Program as an alternative to FHA-backed loans.)
If I told you that there is mounting evidence that the nine year slide in the homeownership rate is nearing an end, would you believe me? Our dog, Cole, just shook his head. What if I told you that people who are employed by Wells Fargo, and who spend their days toiling away, crushing and processing housing numbers with the brute strength of an Olympic skater (think speed skating, not ice dancing) were the ones who claim that figure is accurate, would that make you a believer? Despite mitigating expectations entering the New Year (after slow December numbers and downward revisions for Q4) Wells' Economic team has assembled a very good February '14 Housing Chartbook. They write, "Despite diminished expectations, we do not believe the underlying fundamentals of the housing recovery have suddenly taken a turn for the worse. We have long held that the housing recovery would be a long, difficult slog and now that investors appear to be backing away from the market, it has become abundantly clear how modestly the underlying fundamentals have actually improved." While I wouldn't categorize their view as 'bullish', I would say they are cautiously-optimistic, in the face of economic recovery.
The banking mergers continue unabated, although one recently announced deal was cancelled (Ohio's deal where the Guernsey Bank was going to acquire The Ohio State Bank). Citizens Business Bank ($6.6B, CA) will acquire American Security Bank ($426mm, CA) for $57mm in cash or about 1.33x tangible book value. Regulators closed St. Francis Campus Employees Credit Union ($51mm, MN) and sold it to Central Minnesota Credit Union ($759mm, MN). First Financial Holdings ($8.0B, SC) said it will consolidate its five banking divisions under the single name of South Sate Bank and change the holding company name to South State Corp. The banking divisions are First Federal Bank, Community Bank & Trust, The Savannah Bank, North Carolina Bank and Trust and South Carolina Bank and Trust. North Shore Bank, a Co-operative Bank ($474mm, MA) will acquire Saugusbank, a Co-operative Bank ($208mm, MA) for an undisclosed sum. Stockman Bank of Montana ($2.6B, MT) will acquire Basin State Bank ($157mm, MT) for an undisclosed sum. And Iberiabank ($13.1B, LA) will acquire First Private Bank of Texas ($350mm, TX) for $64mm, or about 1.64x tangible book. First Federal Bank of the Midwest ($2.0B, OH) will acquire First Community Bank ($102mm, OH) for $12.9mm in cash.
Sandler O'Neill announced that in surfer's heaven Southern California CVB Financial Corp. entered into stock purchase agreement with America Bancshares to acquire American Security Bank in a deal valued at $57 million. ASB will be merged with and into Citizens Business Bank (CBB), the principal subsidiary of CVBF.
In company-specific updates, from Bermuda we learned that Essent Group Ltd. reported net income for the fourth quarter ended December 31, 2013 of $19.0 million. Net income for the full year 2013 was $65.4 million, which included a tax benefit of $7.4 million. "Primary insurance in force as of December 31, 2013, was $32.0 billion, representing an increase of 135% compared to $13.6 billion of insurance in force as of December 31, 2012." "2013 was a landmark year for Essent. We achieved investment grade ratings from both S&P and Moody's and also successfully completed our initial public offering, giving us greater access to capital to support future growth," said Mark Casale, Chairman and Chief Executive Officer. "In addition, our insurance in force growth fueled a significant increase in our top line revenues, resulting in record earnings for the year."
Rates continue to waffle around, up a little, down a little. Yesterday we had a fair amount of news, most of it weak and so improved bond prices initially. January's Housing Starts declined 16% to 880K units, far below the consensus of 950K although the December data was revised higher by 49K units. Building Permits fell 5.4% to 937K, below the consensus of 980K. Analysts continued to talk about the bad weather in parts of the nation. We also learned that inflation at the producer level continues to not be a problem, despite what many "experts" thought would happen with the Fed's Quantitative Easing. Producer prices are up a little over 1% versus a year ago.
Besides the bad housing stats, perhaps of more importance were the Minutes from the January 29 Fed Meeting. Generally, the Fed appears to be content with gradually scaling back purchases and providing less stimulus in the future assuming the economy continues to muddle along. So after a little rally in the morning, after the Minutes the 10-yr, and agency MBS prices, worsened between .125 and .250.
Today's gourmet fare includes Initial Jobless Claims (expected to drop to 335k from 339k, it was 336k), and the Consumer Price Index (expected at +0.1 down from +0.3, core unchanged at +0.1, it was +.1% and +.1%, both in line). At 5AM Hawaii time we have January's Leading Economic Indicators (+0.4 versus +0.1 last) and the February Philly Fed; later we'll hear the Treasury telling us how much it will sell next week of 2-, 5- and 7-year notes and 2-year floating rate notes, a $9 billion 30-year TIPS auction at 1PM EST, and release of the Fed's report on MBS purchases for the week ending February 19 at 11AM PST. Keep track of all that? For numbers, the 10-yr closed at 2.73% and is unchanged so far, as are agency MBS prices.Back to News | View Related Link
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