LATEST ARTICLES

Friday Wrap: A Look at What’s Ahead for Mortgage Industry

10-year Yield Hits Four-Month High; Mortgage Industry Full Steam Ahead

Pandemic politics continue to drive market volatility on Wall Street as investors keep up the hope of a stimulus plan before the Nov. 3 election, or at least not long after it. Positive news flowing from Capitol Hill about progress in legislation negotiation gave the major indices a much-needed boost.

Thursday night’s Presidential debate also came across as a much more civil affair which added to the positive sentiment. Dow futures rose by about 90 points early Friday with the S&P 500 and Nasdaq 100 futures gaining 0.3% and 0.2%, respectively. The 10-year Treasury note yield also continues to rise, hitting a fourth-month high Friday morning trading at 0.859%. The increase was spurred by progress in the stimulus plan negotiations.

Markets were shaken up earlier this week with a new variable in the mix: Voter registration hacks. Wednesday evening’s report from the Federal Bureau of Investigation confirmed that Iran and Russia had both obtained some voter registration information. Director of Intelligence John Ratcliffe said, “This data can be used by foreign actors to attempt to communicate false information to registered voters that they hope will cause confusion, sow chaos and undermine your confidence in American democracy.”

Investors were already pricing in uncertainty about this year’s election, and Wednesday’s report only made that sentiment murkier. Hopes were lifted Thursday as Speaker of the House Nancy Pelosi said negotiations for a stimulus bill were progressing and, according to her chief of staff, the two sides were “closer to being able to put pen to paper to write legislation.”

Another boost for the market came from strong corporate earnings reports. Tesla reported another profitable quarter, its fifth-straight. Coca-Cola, CSX, Dow Inc. and AT&T also all reported better-than-expected earnings.

First-time unemployment claims went down significantly this week, hitting levels not seen since the beginning of the pandemic-related business shutdowns. However, that data is a touch misleading. While the figure of 787,000 people filing initial claims is well below the expected 875,000, there is a less-than-ideal reason why.

Most people have been filing claims so long that their benefits have run out. You are only allowed to claim unemployment benefits for 26 weeks and many people recently maxed out. Now, most of the people who can’t file claims through traditional channels have moved to applying for the Pandemic Unemployment Assistance emergency compensation program. That program provides 13 extra weeks of benefits. The number of people applying for those benefits increased by more than 500,000 in the first week of October with the total number now well over 3 million.

 

2021 Mortgage Forecast

2020 has its share of issues, but it’s been the best year for the mortgage industry since 2003. That’s in the latest report from the Mortgage Bankers Association. The MBA’s forecast released this week predicts that mortgage originations will increase to $3.18 trillion in 2020. That’s the most since we hit $3.81 trillion in 2003.

2021 is slated to be even better for purchases. The MBA’s experts say “purchases originations are expected to grow by 8.5% to a record $1.54 trillion in 2021. And after a substantial 70.9% jump in activity in 2020, MBA anticipates refinance originations to slow next year, decreasing by 46.3% to $946 billion.” Because of the decrease in refinances, total origination volume in 2021 is expected to decrease. However, if the $1.54 trillion prediction holds, that will eclipse the previous high of $1.51 trillion in purchase originations that the industry hit in 2005.

It’s important to note that the 2021 forecast from the MBA assumes that a vaccine for COVID-19 will help control the pandemic, “leading to a gradual economic recovery that is aided by further fiscal stimulus.”

Meanwhile, the rush to buy has slowed a little over the last month. The MBA’s weekly survey shows a fourth-straight week of declines in home purchases. Compared to 2019, however, applications are still up by 26%. More than half of the weekly mortgage origination activity is still coming in the form of refinances, which made up 66.1% of total applications in the latest survey.

Interest rates continue to support the incredible volume as once again the average rate from Freddie Mac has moved lower. The latest average on a 30-year fixed-rate mortgage is 2.8%, down from 2.81% the week prior. According to Freddie Mac economists, “Mortgage rates today are on average more than a full percentage point lower than rates over the last five years. This means that most low- and moderate-income borrowers who purchased during the last few years stand to benefit by exploring refinancing to lower their monthly payment.”

The low interest rate environment has given purchasers more buying power, but the influx of demand with a severe shortage in supply has resulted in a rapid sale price increase. The National Association of Realtors reports that the median price of an existing home sold in September came in at $311,800. That is nearly 15% higher than home prices in Sept. 2019. Home inventory has been decimated by demand with the NAR reporting just a 2.7 month supply available.

This week the Consumer Financial Protection Bureau issued an indefinite extension to the QM patch until a new version is agreed upon. The QM patch was put into place in 2014 as an exception to the Dodd-Frank Act and is set to expire January 10, 2021. The CFPB’s QM rule created an exemption from the 43% Debt to Income cap for mortgages eligible for purchase by Fannie Mae and Freddie Mac.

Part of the reasoning set out by the CFPB is to ensure a smooth transition to the new qualifying mortgage standard. This summer the CFPB announced it was moving toward removing the DTI requirement and instead proposing an “alternative, such as a pricing threshold (i.e., the difference between the loan’s annual percentage rate and the average prime offer rate for a comparable transaction.)”

 

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized

Missed Payments by Month – Q2 and Q3 – MBA Chart of the Week

This week’s MBA Chart of the Week chart provides fresh third quarter 2020 insights on the Research Institute for Housing America’s (RIHA) special report released in September that highlighted household financial distress during the second quarter—the first three months of the pandemic. The study, authored by Gary Engelhardt of Syracuse University and Mike Eriksen of the University of Cincinnati, used innovative household panel survey data from the Understanding America Study (UAS), an internet panel survey of over 8,000 households specially tailored to study the impact of the pandemic.

Updated analysis of UAS data through the end of September, summarized in MBA’s press release released last week, shows how renters, mortgagors and student loan borrowers fared over the summer.

The downward trend of the proportion of renters that missed payments in the second quarter reversed in July and reached 10.7 percent in August. This coincided with  the CARES Act’s $600 weekly enhancement to unemployment benefits ending on July 31. Despite the payment expiration,, the percent of missed rent payments fell to a six-month low in September (8.5%), with 2.82 million renter households not making their rent payments.

The proportion of mortgagors with missed payments was lower in the third quarter than the second quarter. However, missed mortgage payments in the third quarter still represent $19.4 billion, a significant portion of borrowers.

According to the study, the proportion of student debt borrowers who missed a monthly payment has remained steady since May at around 40 percent. Student loan borrowers are more likely to have missed a rent or mortgage payment in the last six months (e.g., 10 percent of non-student loan borrower mortgagors have missed a mortgage payment since March, whereas over 20 percent of student loan borrower mortgagors have done so). With over 34 million student loan borrowers having missed payments in the second and third quarters, it’s worth watching if there will be auxiliary consequences for the housing and mortgage markets in the coming months.

– Edward Seiler

Source: MBA Research Institute for Housing America tabulations of Understanding America Study data.

For information on other MBA Research products, please visit the MBA Research online or our Chart of the Week page.

Not on the list? Need the link for a friend? Sign up for chart of the week, here.

Friday Wrap: Friday Wrap: Jobs, Brexit, and Rates Still Dropping

Volatile Markets Spurred by Politics; Mortgage Rates Hit Another Low

A heightened concern that the economic recovery might be slowing, with no definitive federal stimulus plan in place, has left investors weary. Thursday marked a third straight day of losses on Wall Street as investors weighed their fading hopes of a stimulus plan before the election against the spreading cases of COVID-19 across Europe.

While the Dow closed down a mere 19.8 points, it had been down by more than 300 points in earlier trading. The S&P 500 and the Nasdaq dipped by 0.2% and 0.5%, respectively. The three-day decline marked the longest losing streak for the major averages in nearly a month. Friday’s Dow futures were up more than 100 points thanks to some extremely positive retail sales data from the Census Bureau.

Consumer spending rose by 1.9% in September. Economists had predicted a comparatively paltry 0.7% increase. Core retail sales, which exclude automobile sales, showed an increase of 1.5% against a 0.4% expectation.

Volatility is typical in October, even coming with a term dubbed the “October Effect” for the trend often seen during the month. That volatility is expected to be a constant theme this month with added worries like setbacks for a coronavirus vaccine and uncertainty about an election that’s just a few weeks away. Treasury Secretary Steve Mnuchin and President Trump say they are adamant that a stimulus deal will get done, laying the blame at the feet of Speaker of the House Nancy Pelosi. Pelosi and House Democrats recently passed a stimulus bill worth $2.2 trillion, while Mnuchin and Trump have touted a $1.8 trillion spending plan. Senate Majority Leader Mitch McConnell has admonished both as being too costly and stands by a $500 billion “targeted” plan.

The back and forth of stimulus talks pushed U.S. government debt prices slightly higher in early Friday trading. The yield on the 10-year Treasury note dipped to 0.729%.

While politicians in Washington haggle over a deal, and Wall Street responds with doubt, nearly 900,000 Americans filed initial unemployment claims this past week. That’s the highest level of claims since Aug. 22. While more new claims come in, the continuing claims keep falling and have dipped by 1.165 million to approximately 10 million in total claims. When you look at the less volatile four-week moving average for continuing unemployment claims, they are currently at 11.48 million.

It’s important to note a few things about the Labor Department’s data collection. There is still a segment of the population that is receiving benefits who normally wouldn’t. Under the Pandemic Unemployment Assistance Program, people who work as freelancers and independent contractors have been able to apply and receive some federal assistance. The number of first-time benefit recipients declined by about 91,000 this past week. Overall, about half of the people receiving unemployment benefits as of Sept. 26 fall under the PUA Program. Moreover, California has stopped processing its claims in an attempt to clear a backlog and prevent fraud. The week that California halted processing its claims, they had reported 225,000 claims. That number has been continued to be used by the Labor Department until California gets back online.

There is also a much more concerning demographic that is increasing with regard to job loss. While there are many people returning to work after temporary job losses, there are a number of Americans whose job loss is turning long-term (6 months) or, worse yet, permanent. The chart below from CNBC shows the contrasting sharp decline in temporary layoffs against the steady increase of permanent job loss.

This week the Labor Department also released the consumer price index numbers, showing the CPI increased by 0.2% in September. That’s the smallest increase since May. Over the last year the CPI has increased by 1.4%. The cost of used cars and trucks saw the biggest increase with a whopping 6.7% month-over-month and 10.3% year-over-year.

 

U.K. Braces for No-Deal Brexit

A self-imposed Oct. 15 deadline came and went for the United Kingdom as negotiators failed once again to come to an agreement on a trade deal for Britain’s exit from the European Union. Prime Minister Boris Johnson said Friday, “Unless there’s a fundamental change of approach, we’re going to go to the Australia solution, and we should do it with great confidence.”

The “Australia solution” Johnson alludes to refers to the trade agreement Australia follows with the E.U. The country does not have a comprehensive trade agreement with the E.U. and most of what they have implemented follows World Trade Organization rules. There are some exceptions where they have specific agreements on certain goods.

Johnson’s comments caused the sterling to drop to a session low against the dollar, trading at $1.2870.

 

Interest Rates Drop Again

Interest rates have dropped to yet another historic low as Freddie Mac reports its 30-year fixed-rate mortgage average at 2.81%. That is the tenth time this year that rates have hit an historic low. This time in 2019, the average rate was 3.69%. In 2018? We saw an average of 4.85%.

While the overall percentage of mortgage applications decreased week-over-week, according to the Mortgage Bankers Association, they do expect the high levels of refinance and purchase activity to stay steady throughout the year. The MBA’s Associate Vice President of Economic and Industry Forecasting, Joel Kan, said in a release, “Applications for government mortgages offset some of the overall decline by increasing 3%, driven by a solid gain in government purchase applications and an 11% jump in VA refinance applications. Refinance and purchase activity continue to run well ahead of last year’s pace, fueled by record-low rates and strong homebuyer demand. Housing supply is a challenge for many aspiring buyers, but activity should continue to stay strong the rest of the year.”

While there are many people who would greatly benefit by purchasing a house or refinancing their current home loan with these historically low rates, the issue of unemployment makes that difficult during these times. During the HousingWire Annual this week, Fannie Mae’s Senior Vice President and Chief Economist Doug Duncan addressed that issue. He said, “At the end of 2019, we were at 3.5% unemployment. We think at the end of 2021, it will be roughly double that, around 6%.”

Duncan added that he expects economic recovery to be slow and plodding, estimating about $1.7 trillion in national income was lost during Q2 of 2020. That’s a huge obstacle to overcome. Duncan further predicted the end of 2021 to be the point where he believes we will be back to the pre-pandemic levels of 2020.

 

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized

 

 

Characterizing the Appetite of Commercial/Multifamily – MBA Chart of the Week

One of the most striking aspects of the pandemic’s impact on commercial real estate markets is the markedly disparate impact it is having on different property types. Looking at rent collections, mortgage originations or loan performance, retail and hotel properties – the property types most immediately and dramatically affected by the virus and our reactions to it – jump out on the negative side, while industrial and multifamily tend to stand out more positively.

A new MBA survey of leading commercial real estate finance firms shows how this is playing out in the mortgage market. The survey looks at the appetites of borrowers to take out – and originators to make – new loans.

CRE mortgage demand is generally on the rise, with four times more firms expecting borrower demand to be “very strong” in the fourth quarter (24%), compared to the 6% who believed demand was “very strong” in the third quarter.  Opinions were mixed, with one-in-four reporting borrower demand in the fourth quarter will be “very strong,” and more than a third, respectively, expecting “strong” and “fair” appetites from borrowers. Relatively equal – and large – numbers of CRE finance firms reported “strong” and “very strong” appetites at their firms to make loans in the fourth quarter (89%) as they saw in the third quarter (83%).

But the market is highly segmented by property type – with more firms reporting strong appetites from both borrowers and their own firms for industrial and multifamily property loans, than appetites for office, retail or hotel properties. Differences also cross capital sources, with stronger appetites to lend coming from Fannie Mae, Freddie Mac and FHA loan products, followed by life insurance companies, investor-driven lenders, CMBS and banks. It is important to note that even within property types and capital sources, there was a wide range of views expressed by firms.

Across fundamentals, capital markets and loan performance, CRE markets continue to adjust to changing conditions, with separate parts of the market behaving very differently.

Reggie Booker, Jamie Woodwell

Source: MBA CREF Market Dynamics Survey, Q4 2020

For information on other MBA Research products, please visit the MBA Research online or our Chart of the Week page.

Not on the list? Need the link for a friend? Sign up for chart of the week, here.

Friday Wrap: Stimulus Hopes, Oil Update, and Housing Outlook

Wall Street Holds Out Hope for Stimulus

Wall Street was on the rise this week, banking on progress in a new round of stimulus talks in Washington D.C. President Trump said Thursday morning that legislators were “starting to have some very productive talks” about a new federal economic support plan to help the millions of Americans who are still unemployed. Trump’s comments on Wednesday about pushing through a new round of aid for airlines gave the markets a jolt resulting in a strong market rally with the Dow closing up 500 points, or 1.9%, pushing it to its best day since July. Right now investors are gaining confidence that no matter who wins the election, there will be some sort of federal fiscal stimulus in the coming months.

The hope helped Wall Street see more gains in Thursday trading, with airlines seeing the largest increase. That is until House Speaker Nancy Pelosi said in a press conference there would be no increased aid for airlines unless it was attached to a larger stimulus package. The Dow immediately dropped its 150 point gain and turned negative after Pelosi’s press conference. The market recovered at the end of trading as the Dow, Nasdaq and S&P closed higher at 0.43%, 0.5% and 0.8%, respectively.

Equity futures were on the rise in early Friday morning trading. Meanwhile treasuries have increased over the week with the 10 Year Treasury note trading at .78%. The yield curve continues to steepen with the 2 year/10 year Treasury yields spread of .62% as markets are starting to price in some successful fiscal aid measures.

Any sort of stimulus would be of relief for the millions of Americans who still find themselves unemployed due to the coronavirus pandemic. The latest jobs report from the Labor Department shows that 840,000 people filed initial unemployment claims last week, which was higher than the 820,000 estimate. Unemployment claims have not fallen below 800,000 since March. Continuing claims are continuing to decrease but still remain above 10 million. What’s more, there are still more than 25 million Americans claiming some sort of unemployment benefits.

Meanwhile, Federal Reserve Chair Jerome Powell continues to strongly voice the need for more Congressional financial aid in order to keep the economy on the right track for growth. Powell says that if Congress takes its foot off the gas now, it would “lead to a weak recovery, creating unnecessary hardship for households and businesses.” Powell added that the risk of overdoing it seems to be much smaller, for now. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” Powell said in his remarks to the National Association for Business Economics. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

 

Update on Oil

OPEC released its annual World Oil Outlook this week outlining the groups medium- and long-term forecasts for the global economy, oil and energy demands. Long-term for OPEC means predicting production and demand out to 2045. While outlining an expected worldwide increase in demand of 10 million barrels per day, the report also shows a downward revision of about 1 million barrels per day compared to the previous forecast out to 2040.

COVID-19 has presented the oil industry with “an existential threat” as lockdowns and fear of contracting the disease has ground travel to a halt. The worry is that the changes in behavior now will carry over to the long-term travel habits thus the long-term demands for oil and gas production. The report also outlined an expected increase in solar energy demand by at least 6.6% per year on average through 2045.

 

Home Prices Rise, Forbearance Falls

Home prices are at their highest level of growth since June 2018. According to the latest CoreLogic Home Price Index, home prices increased by 5.9% annually (Aug. 2019-Aug. 2020) and nearly 1% from July to August of this year. However, the CEO of CoreLogic, Frank Martell, and his team don’t expect home price growth to continue at this pace through early 2021. Right now we are in a period where demand is high and inventory is excruciatingly low, leading to the rapid rise in home prices. As homebuilding activity increases, providing a spike in inventory, the HPI forecast predicts that prices will start to slow and decrease in early 2021.

The data also shows that not all housing markets are experiencing the same growth. For areas the hardest hit by lack of tourism due to the pandemic, like Las Vegas, home prices are expected to decline by 6.5% in August of next year.

As we’ve mentioned in previous weeks, the main thing helping the housing market push back against surging home prices are low interest rates. Once again, the Freddie Mac 30-year fixed-rate mortgage average came in below 3%, sitting at 2.87% this week. Freddie’s analysts seem to feel this could be the bottom as rates have flatlined over the last month. The analysts note that demand is “particularly strong in more affordable regions of the country such as the Midwest, where home prices are accelerating at the highest rates over the last two decades.”

On the flipside of the increase in demand are the issues of forbearance and mortgage delinquencies. The latest data from the Mortgage Bankers Association shows that the forbearance rate fell to 6.8% in September; its lowest rate since mid-April. That rate is still significantly higher than any pre-pandemic forbearance rate. Loans backed by Fannie Mae and Freddie Mac pulled down the overall rate as the forbearance rate for loans backed by Ginnie Mae actually went up to 9.16%.

A statistic that is also concerning is the number of homeowners who are going into a “needless mortgage delinquency.” The Urban Institute reported this week that around 400,000 mortgage borrowers neglected to file for forbearance and have become “needlessly delinquent” on their payments. The report states, “These borrowers may not know they are eligible for forbearance or do know but wrongly fear having to make ‘double payments’ when the forbearance period ends.”

 

 

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized

 

 

Friday Wrap: Jobs Reports Mixed, and Strong Q3 Housing

Politics Weigh on Wall Street Along with Mixed Jobs Report

There is still optimism on Wall Street that we will see a new federal stimulus package before the November 3 election, but that optimism seemed to wane as the week continued. Wednesday’s meeting between Treasury Secretary Steve Mnuchin and Speaker of the House Nancy Pelosi (D) did not result in a coronavirus stimulus compromise. The House delayed its initial vote on a $2.2 trillion plan in hopes of getting more bipartisan support. The House eventually passed the plan Thursday evening. Pelosi and Mnuchin say they continue to discuss compromises, but they are finding difficulty coming to an agreement on some key issues. It might be all for naught, however, as Senate Majority Leader Mitch McConnell (R) has already voiced his opposition.

Without another stimulus package, federal funding for airlines has run out. Starting Thursday of this week, American and United implemented furloughs for 32,000 employees. Both airlines said they would stop the furloughs if they were able to get more funding from the government. Airlines were prevented from making job cuts until Oct. 1 due to a $25 million provision in the federal funding plan.

The optimism heading into Wednesday’s stimulus bill talks helped lift Wall Street with the Dow rebounding more than 300 points. However, September still ended as the first losing month since March due in large part to the correction in tech stocks. Markets closed Thursday’s session slightly higher as many gains on the day were pared by the uncertainty regarding a new stimulus bill. The Dow ended the day up just around 35 points after being up as much as  250 points on the day.

Friday’s futures were down by more than 350 points as the markets digest the news that President Trump, and First Lady Melania Trump, both tested positive for COVID-19. The two will now quarantine in the White House for two weeks. The diagnosis added even more uncertainty about the upcoming election. Tech shares also pulled markets down with Apple and Tesla falling 3% and 5%, respectively.

Investors also have concerns about the upcoming election after the first in a series of presidential debates. Tuesday night’s debate was a raucous event which leads investors to believe the electoral process could be a long, drawn-out affair that will likely not end when the ballots are counted on November 3. There is lingering concern that if there is controversy over the election that will it hit the markets hard in a down trade.

 

Mixed Messages in Jobs Reports

The unemployment rate in America is down to 7.9%, but we only added 661,000 jobs in September, according to the Labor Department’s last jobs report before the election. Economists had expected at least 800,000 non-farm payroll jobs to be added. The details in the report show where there is some progress being made with employment. For example, the number of people reporting being in a temporary layoff declined by 1.5 million. Also, the number of people reporting holding a part-time job for economic reasons fell by 1.3 million.

The private sector jobs report from ADP was better than many economists expected with 749,000 jobs added in September. Dow Jones economists had predicted around 600,000. The biggest jumps in the ADP report were seen in manufacturing as well as trade, transportation and utilities. Leisure and hospitality saw a gain of 92,000 jobs. As more states push further toward reopening (Florida and North Carolina are both in phase 3 of their reopenings) it’s likely we will see this number increase in the coming months. It is important to note that it was companies with more than 500 employees which saw the biggest gains. Small companies, those with fewer than 50 workers, did add jobs back but not nearly at the pace of the larger companies.

Meanwhile, weekly unemployment claims also stayed below 1 million, coming in at a better-than-expected 837,000. The Labor Department’s continuing claims data showed another positive with claims of two weeks or more falling by nearly 1 million to sit at 11.77 million.

 

Housing Steamrolling Through Q3

Housing is moving along at a record pace according to the latest data from the National Association of Realtors. August’s pending home sales increased by 8.8% compared to July. That is a record pace since the NAR began keeping the data in 2001. Annually, pending home sales were up 24.2%. Remember, August of 2019 is when interest rates really started ticking lower, dropping below 3.75% and eventually hitting 3.58% according to Freddie Mac’s records. This week’s Freddie Mac average on a 30-year fixed-rate mortgage is 2.88%. These rates are not only giving consumers more confidence in purchasing and refinancing, but they’re also giving people more spending power. You can see in the chart below from Freddie Mac the downward trajectory of rates from March of this year to today. You can see where the 30-year has basically flatlined over the last couple of months.

“Tremendously low mortgage rates, below 3%, have again helped pending home sales climb in August,” said Lawrence Yun, the NAR’s chief economist. “Additionally, the Fed intends to hold short-term fed funds rates near 0% for the foreseeable future, which should, in the absence of inflationary pressure, keep mortgage rates low, and that will undoubtedly aid homebuyers continuing to enter the marketplace.”

The rates are a welcome reprieve for buyers who are facing intense competition for home purchases. The increased demand has been partially affected by the COVID-19 pandemic as many urbanites seek bigger spaces in the suburbs. That spike in demand, coupled with limited inventory, has pushed prices up by 4.8% (YOY) nationally, according to the S&P CoreLogic Case-Shiller National Home Price Index. Keep in mind when you are looking at this index that it is a three month running average. So August’s numbers combine May, June and July. What we are seeing in August means the next reading will likely be even higher.

Higher prices and lack of inventory may be the main reasons why we are seeing a decrease in mortgage applications. The Mortgage Bankers Association’s weekly survey showed applications down 4.8% from the week prior, but still up 22% annually. Refinances specifically slowed by 7% week-over-week but are still an astounding 52% higher than a year ago. Refinances have been affected by the adverse market fee imposed by Fannie Mae and Freddie Mac. The fee has been pushed off officially until December, but many lenders have already started to incorporate the fee into pricing as most loans that lock now will be sold in December or into Q1 2021.

There is a lingering problem in housing related to the coronavirus: Forbearance. The latest data from Black Knight shows that the number of mortgages in pandemic-related bailout plans rose by 21,000 in the last week. That’s the first increase in six weeks. The type of loan is important to consider as Fannie and Freddie loans in forbearance went down by 9,000. Most of the increases were seen in bank-held and private-labeled security loans; those went up by 28,000. Meanwhile FHA/VA-backed loans saw 2,000 more loans go into a forbearance plan. As of this week, there are about 3.6 million mortgages in a forbearance plan. That represents about 6.8% of all mortgages and around $751 billion in unpaid principal.

 

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized

 

 

QLMS Rebrands to Closer Align with Rocket Name

0

One of the most recognizable brands in mortgage will soon be seen in the broker channel. Quicken Loans Mortgage Services (QLMS) last week announced its complete rebrand to Rocket Pro TPO (the TPO representing “third party origination”). It had been QLMS since its launch in 2010.

Over the next two months, the lender will be changing all naming to align more with the Rocket brand and is making a push to further grow and support its broker partners.

Austin Niemiec, Executive Vice President of the soon-to-be-named Rocket Pro TPO, told Mortgage Media the change represents a commitment that they are “all-in for the broker community.”

“It’s more than a rebrand – it’s not just a name change,” he said. “It’s us raising the bar and committing even harder to the broker community and doubling down on our support to them.”

Rocket Pro TPO  will give its broker partners access to Rocket’s technology, marketing support and leads.

The name change comes as the lender is making a major growth push, recently going public with an IPO. Niemiec said Rocket Pro TPO now has more than 10,000 partners, with close to 50,000 individual loan officers.

“We’ve added 3,000 partners this year alone. People were coming to us in droves,” Niemiec said. “We had to double our team that onboarded brokers. Clearly, we had to work more than ever before to build  and hire folks, but we are able to do it very successfully.”

In discussion with Mortgage Media, Niemiec pointed to the company’s origins 35 years ago as an independent mortgage broker under founder Dan Gilbert.

“We literally started as a broker, building partnerships with big lenders and leaning on our partners’ technology, as well as trying to build a referral network,” he said. “Through hustle, hard work and great partnerships, we went from a small independent mortgage broker to the largest mortgage company in the country, with a market cap bigger than Ford or GM. And we’re in the Motor City.”

According to a press release on the rebrand, the company is driving record originations and revenue. In the second quarter of 2020, Rocket Mortgage’s Partner Channel, which included Rocket Pro TPO, increased its annual revenue by more than 500%.

Eleven Percent of Renters Missed Payments – MBA Chart of the Week

On September 17, the Research Institute for Housing America (RIHA), MBA’s think tank, released a special report on housing-related financial distress during the second quarter –  the first three months of the pandemic in the U.S.  Gary Engelhardt of Syracuse University and Mike Eriksen of the University of Cincinnati, used a new household panel data source, The Understanding America Study (UAS), that is specially tailored to study the impact of the coronavirus, to examine the effects on renters, mortgagors and student loan borrowers. The report provides a rich set of results (highlighted in MBA’s press-release).

Among the report’s findings were that 5.88 million renters, or 11% of the national total, missed, delayed, or reduced payment on at least one rent payment during the pandemic’s first three months, while 5.14 million homeowners, or 8% of the national total, either missed or deferred at least one mortgage payment.

Figure 2.2 in the report plots the percentage of renter households reporting having had a missed, delayed, or reduced payment by week. This percentage remained around 11% over the quarter. For those with permission, frequency of missed payments fell from April to May, then rose again in June.

In the above chart, we extend the weekly data (that was used to create report Figure 2.2) through August, and show that the percent of renters with missed payments has held steady across July and August at the second quarter levels. This constant frequency of missed payments is slowly broadening distress through the population, especially with sluggish labor market recovery, and as of the end of August, 6.97 million renters either missed, delayed, or reduced payment on their housing costs. The pattern is similar for mortgagors, with 6.37 million homeowners having missed or deferred at least one mortgage payment during the pandemic’s first five months.

MBA continues to work with Professor Engelhardt and Professor Eriksen to track the situation using UAS data. Together with RIHA, MBA plans to release real-time updates in October on the impacts of the coronavirus for the third quarter, as they become available. We hope this will provide another gauge of housing market health as the sudden and far reaching impacts of this pandemic has created a greater need for high frequency information.

Source: Research Institute for Housing America tabulations of Understanding America Study data.

– Eddie Seiler

For information on other MBA Research products, please visit the MBA Research online or our Chart of the Week page.

Not on the list? Need the link for a friend? Sign up for chart of the week, here.

Friday Wrap: Choppy Week on Wall Street, but Housing Booming

Tech Volatility Drives Equities Lower as Housing Booms

This week on Wall Street was extremely choppy as a mix of tech rises and falls, paired with uncertainty about the future of the economy, resulted in continued volatility. September has not been kind to tech stocks as Facebook, Alphabet, Amazon and Netflix, along with Microsoft, have lost about 11% of their total value this month. All three major indices dropped on Wednesday with tech leading the way. Tesla dropped by more than 10% with Apple falling 20% from its peak this month.

Tech shares saw a rise on Thursday as Apple traded up 0.7%, only to end the day lower with stocks like Facebook trading 0.4% lower. The constant back and forth was only made choppier with the unknowns about COVID-19 and the pandemic response. Futures rose slightly Thursday evening only to dip again in early Friday trading with the Dow down about 136 points. If Friday ends in another loss, that will mark a fourth-straight losing week on Wall Street. The 10-year Treasury note yield was trading down Friday morning at 0.658%.

Thursday afternoon, House Democrats released a $2.4 trillion fiscal stimulus package in hopes they could reignite discussions with Republicans before the Nov. 3 election. A stimulus package is exactly what the Federal Reserve has pushed for in recent months as the country’s economy sluggishly tries to right itself. Fed Chair Jerome Powell testified before Congress this week, saying “A full recovery is likely to come only when people are confident that it is safe to reengage in a broad range of activities. The path forward will depend on keeping the virus under control, and on policy actions taken at all levels of government.”

Powell remains steadfast that the Fed will use all of the tools at its disposal to right the economy. He continued to stress that while the central bank has lending power, it does not have the crucial spending power that Congress can give to the American people.

As we approach the five week mark for the 2020 Presidential election, investors are expecting that any further fiscal stimulus will not come til at least after the Nov. 3 election and, more likely, not until 2021 if needed.

The weekly jobless claims report from the Labor Department did little to instill confidence for investors. The report shows 870,000 people filed initial jobless claims for the week. That number was slightly higher than what was expected by economists. Economists point to a mixed bag of some folks being incentivized by the lack of the $600 federal stipend, and others struggling to find work that matches their job skills while many businesses remain closed or at limited capacity. Continuing claims, meaning those occurring for two straight weeks or more, dropped to 12.58 million.

 

Home Sales Boom, Will There Be a Bust?

Sales for new and existing homes skyrocketed in August as incredibly low interest rates gave purchasers buying power and a lot of motivation. The Census Bureau’s report on newly built home sales was released on Thursday. It shows a 43% year-over-year increase in the sale of newly-built homes. On a monthly basis, newly built home sales increased by 4.3%. The seasonally adjusted, annual rate of more than 1 million newly built homes sales is a 14-year high.

Meanwhile, existing homes also saw an increase in sales in August. The National Association of Realtors data shows that existing home sales saw an increase for the third straight month, improving by 2.4% monthly in August. On an annual basis, existing home sales are up 10%. When you break it down and just look at single-family homes, sales are up 11% annually and 1.7% monthly.

The issue with both of these reports is the continued dearth of inventory. Right now, the supply for newly built homes and existing homes is 3.3 months and 3 months, respectively. Existing homes inventory is down almost 20% annually.

That clear demand mixed with a dwindling supply has pushed home prices higher on existing homes. The NAR’s report shows that the median price for an existing home across all four regions increased by 11.4% annually to $310,600. Meanwhile the median price for a newly built home was $312,800.

Interest rates are expected to stay at or below 3% for quite some time as the economy slowly builds itself back up out of the pandemic fallout. This week’s average for a 30-year fixed-rate mortgage was 2.9%, according to Freddie Mac.

The Mortgage Bankers’ Association Associate Vice President of Economic and Industry Forecasting, Joel Kan, says “Mortgage applications activity remained strong last week, even as the 30-year fixed-rate mortgage and 15-year fixed-rate mortgage increased to their highest levels since late August. Purchase applications were up over 25 percent from a year ago, and the demand for higher-balance loans pushed the average purchase loan size to another record high. The strong interest in homebuying observed this summer has carried over to the fall.” He continued on, saying “Despite the uptick in rates, refinance applications increased around 9 percent and were almost 86 percent higher than last year. Both conventional and government refinance activity, and in particular FHA refinances, picked up last week.”

 

Contributed by Greg Richardson, MAXEX Managing Director

Greg Richardson

Greg Richardson is Managing Director at MAXEX, LLC, based in Atlanta, GA. He has 30 years of experience in capital markets, including trading, banking asset and portfolio management, mortgage banking secondary marketing and accounting. MAXEX is the only platform in the mortgage industry to offer a centralized clearinghouse that enables buyers and sellers to trade anonymously with multiple counterparties using a single standardized

 

 

The Complications of Non-QM

When the pandemic hit, origination in the Non-QM space practically disappeared.

Newfi Lending’s Steve Abreu, whose wholesale lending operation based in Emeryville, CA, did much of its business in Non-QM, talked with Mortgage Media’s Suresh Ramakrishnan about the change in the market, and the current state of Non-QM.

Abreu describes the market as being in a state of disarray back in March, when investors had left, panicked to some extent. He said about 50 percent of the investors have returned, but not all the players – and only about 10-20 percent of originators have come back.

For most of the industry, the focus is now on the simpler loans, he said. “Yes, jumbo has been coming back, but not Non-QM in any size.”

With secondary margins being so strong on generic products, Jumbos and FHAs, lending has been focused on that business right now.

“You see the Non-QM participants also participating in that space, grabbing after the low-hanging fruit and wider margins on the easier products to originate,” Abreu said.

The cost to produce Non-QM loans is much higher, so the broker community is focusing on the easier products.

Abreu points to how Non-QM business often serve self-employed borrowers. “Coming out of March, April and May, with the employment situation, and particularly with self-employed borrowers having more stringent requirements around them, it’s hard to get those loans approved and packaged up correctly.”

Plus, the note rates a little higher compared to Jumbo loans, which makes underwriting a challenge when looking at 2020 mismatch with bank statements compared to 2019, especially if the borrower’s business had been impacted.

There are different layers of risk post-March versus pre-March, he noted.

Another issue with how to qualify self-employed borrowers was that most of their business had received the SBA’s Paycheck Protection Program loans.

For Non-QM going forward, Abreu said that “the guys now who are in, are in.”

“There’s a higher yielding asset here – so there’s people that want to do these loans. There’s just not a lot of loans to originate to the end buyers. And the yields are higher so not a lot of buyers are going to refinance into higher note rates. It’s really the purchase deals and cash-out deals for the self-employed. It’s a more difficult loan to originate.”

NewFi had to quickly change its approach to the market, putting more of its resources into Agency and Jumbos. “We have Non-QM on the rate sheet as product offering, along with Jumbos, Agencies, FHA and VA. We like to be able to have all products and be ready for any type of market moves. But most of the paper is getting done on the higher credit quality full docs.”