Price Wars, Urban Fatigue, FHFA and Rates

Price Wars? There is some fierce competition in the market especially in third party originations. We have been wondering what is going on here. Are some lenders simply cutting into margin or reserves to maintain their market presence and share during this challenging time? Or, is something more happening here. We had been looking at the Urban Institutes January Chartbook slide on average g-fees being paid to the GSEs and have remained puzzled by the 10bps spread between Fannie Mae and Freddie Mac.

In studying this, we then spoke with lenders and have been looking at the daily pricing being offered by the top lenders in the nation. Mortgage Media is wondering if Freddie Mac is making some pricing deals for select lenders using the cash window and perhaps customized buy-up and buy-downs for a few large lenders in exchange for share. While purely conjecture we have been hearing that Freddie Mac’s concerns for liquidity as they head into UMBS is driving them to push for more market share. Another possibility suggested by one DC think tank is that Fannie Mae is pursuing more high-LTV/low-FICO product through negotiated pricing with some lenders which would contribute to this 10bps spread as those loans come with LLPAs.

If either is true, this could be an example of “picking winners and losers” as was described to us by a senior executive struggling to compete against this market warfare. With these concerns being expressed to us, we wonder about what a released Freddie and Fannie would look like, because prior to the conservatorship, they were famous for discounting fees for the largest lenders solely for market share. At a minimum, a g-fee disparity appears to exist, which raises questions. We look to organizations like the Mortgage Bankers Association to pressure the FHFA for greater transparency on this matter.

See our original analysis of the chartbook here, and the actual “At A Glance” chartbook here.

“Urban fatigue is real”, caught our eye this week. We’ve been wondering when, or if, millennials might ditch their urban addiction for condos or rental units and do what their previous generations all did at some point – move to the suburbs. The Scotsman’s Guide published an interesting look from Ellie Mae at the millennial population and early indicators that they may be trashing the easy access and urban life for more room and a yard that comes from the suburbs. In this interesting piece Scotsman highlights that well known industry expert Joe Tyrrell, executive vice president of corporate strategy for Ellie Mae, noted that millennials are increasingly eschewing the city to find more space for their pets, for example. It’s worth a look and we recommend paying attention to the role of women who are increasingly showing up as the primary breadwinner in the family. “Women are playing an increasingly larger role as the primary borrower”, states Joe. This is no surprise to MM. We have steadfastly believed that due to pets or children, or simply the much higher cost of housing close to urban areas, that millennials would eventually move out to areas with more room at lower cost. The fact is that while homeownership rates have been more delayed in this segment of the population, their desire to own remains high. So slow does not mean no when we look at housing trends as people age. With women achieving higher education outcomes than men, the fact that they are increasingly being relied on as the primary borrower is likely a trend that will continue.

What happens next at FHFA? Mortgage Media recommends that all watch closely as Mark Calabria moves into his new role. Despite a recent joint trade letter to FHFA Acting Director Joe Otting signed by the major housing groups in Washington that called for the FHFA to move cautiously forward and not pull government supports until appropriate consideration for replacement options are considered, these same groups have almost unanimously written support letters for Mark Calabria’s confirmation. Barron’s raised a red flag for housing groups in December when they showed the views of Dr. Calabria in their pointed story about his views on the government’s role in housing. In this article, they state, “Calabria believes this history represents a series of policy mistakes. The government should not subsidize mortgage credit because that doesn’t make housing more affordable. He rightly notes that smaller down payments and lower interest rates make it easier to spend more money on housing, which, in the absence of additional construction, simply raises prices.”

To make matters more challenging for those who have been used to consistent government support for  housing, the conservative think tank, AEI, has been prolific on new policy recommendations to curb the role of government in both single family and multi-family lending. In this policy proposal they recommend tightening multi-family volume, single family volume, and eliminate some perceived redundancies between the GSEs and FHA. Why is this important to MM? It’s because conservative administrations tend to listen to conservative policy advisors. Watching these next months unfold with  Director Calabria will be of keen interest to Mortgage Media.

Rates? Finally, with the ten-year rallying and the yield curve flattening we wonder what is next. The trend tells us that 30-year fixed rates may have stalled and depending on the economic trajectory globally and domestically we may see rates slide slightly further or simply stall. Regardless, the projections for rate rises that were forecast last year based on fed comments clearly has lost its momentum. With the ten and two year treasuries almost flat we remain on the edge of our seats, watching what unfolds next.

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