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Higher 2010 Rate Forecasts All Wrong
At the start of the year, not only were the smartest guys in the room talking about how mortgage rates would go up when the Fed ended their $1.2 trillion purchase program, but that rates would be going up in general given the expected economic rebound. Of course, neither turned out to be true and every originator can’t believe their good fortune by experiencing yet another refi boom, assuming their rolodex has borrowers with equity and decent credit.

Treasury Auctions Next Week
Yesterday’s economic news did nothing to suggest that higher rates will arise in the near future – assuming foreign investors don’t mind the US’s level of debt compared to GDP. The US Treasury said it will sell $109 billion of government debt next week, not far off analysts’ expectations for issuance of $107 billion to $108 billion. The Treasury will sell $7 billion of reopened 30-year TIPS on Monday, then $37 billion of 2-year notes on Tuesday, $36 billion of 5-year notes on Wednesday, and $29 billion of 7-year notes on Thursday. more…

How To Leave Your Underwater Home
Fannie Mae launched a new consumer website, KnowYourOptions.com, to educate homeowners about their options to avoid foreclosure and how to get help. There’s an accompanying site for lenders who want marketing materials to promote these KnowYourOptions features.

Treasury Auctions Next Week
The Treasury will sell $34 billion of 3-yr notes next week, down from $38 billion at its last quarterly refunding, $24 billion of 10-yr notes, and $16 billion of 30-yr bonds on Aug. 12. (The U.S. Treasury again cut the size of debt offerings, citing stronger tax revenues, but warned it may not be able to keep trimming sales at the same rate due to doubts about economic recovery.) By the end of the day, 10-yr Treasuries were down almost .5 in price to 2.96%, and current coupon mortgage security prices were worse by about .125. Originators sold $2.9 billion – mostly 4% – a little more than recent volumes. more…

NMLS Resource for Loan Agents
For anyone in the lending industry who need some clarity on National Mortgage Licensing System requirements and deadlines, this is a good site.

European Bank Stress Tests And Other Market Factors
How about that market yesterday? Tuesday night fixed-rate securities had “a decent bid”, in trader talk, Asia was quiet, and stocks were pretty quiet. But then, as Wednesday progressed, things changed. News came out about stress tests on European banks, a poor German factory orders number & mediocre bund auction, etc. Economists were talking about all the cash still “sitting on the sidelines”, which certainly makes a lot of sense seeing the current credit and underwriting environment.

Consumer Credit is declining, although last quarter the net percentage of banks reporting an increased willingness to make consumer installment loans totaled 14%, up from 9.6% in Q1 2009 and up sharply from the cyclical low of -47.2% in Q4 2008 when real consumer outlays fell at over a 3% annualized rate. The current willingness to extend credit is the highest since Q2 2006. It would appear that many households are paying down older, higher interest bearing debt. more…

Short Sales Take 6-13 Months
A study put out by Deutsche Bank ranked GMAC ranked as the top servicer among all prime mortgage servicers based on short sale timelines – six months! The investment bank’s survey showed that a short sale generated a higher recovery than an REO sale. For “prime” short sales, GMAC was the fastest, followed by CitiMortgage (7.5 months) and Wells (8 months). DB’s study showed that BofA was the slowest with a 13 month short sale timeline. For “subprime” Wells came in first (15 months), followed by HomEq and then Saxon. Option ARM short sale speedsters were EMC, Aurora, and GMAC.

Can Foreclosed Borrowers Get New Loans?
Fannie Mae issued a bulletin on Underwriting Borrowers with a Prior Foreclosure, to modify the waiting period that must elapse before a borrower is eligible for a new mortgage loan after a foreclosure. Originally a seven-year waiting period after a prior foreclosure will apply for all borrowers, unless the foreclosure was the result of documented extenuating circumstances, which requires a three-year waiting period with additional eligibility requirements. Fannie also includes a maximum LTV ratio of the lesser of 90% or the LTV ratio per the Eligibility Matrix for all transactions – best to check their grid. more…

Signs of Life In Jumbo Mortgages
There are definitely signs of the ice cracking in non-agency (or Jumbo) lending. For example, folks in the biz know that Quicken Loans is the largest online mortgage lender. But in recent weeks Quicken, who is also the 4th largest FHA lender, has moved into “private-label” originations. PHH, according to an article in American Banker, is the largest private-label originator (and which handles originating mortgages for Charles Schwab and Merrill Lynch) expanded into correspondent and wholesale lending. An executive with PHH stated that most clients prohibit PHH from selling servicing, especially to one of the competitors.

Will FHA Down Payments Go To 5%?
From Washington DC: the House is taking up HR 5072, the FHA Reform Act. While it seems that mortgage industry organizations are in favor of the Act, which provides the FHA with resources to manage risk, there are a few amendments that are raising some eyebrows. The first is the Garrett Amendment, which raises the minimum FHA down payment to 5%. The second is the Price Amendment that would limit FHA’s market share to 10% of the housing finance market. Third, the Turner Amendment would reduce FHA’s loan limits, which were “temporarily” increased in 2008. Stay tuned… or call your Congressman ASAP. more…

Why You Shouldn’t Give Out Your Social Security Number On The Radio
Does the name “Todd Davis” ring a bell? He is the CEO of a company called LifeLock, and he made the news a while back by broadcasting his Social Security Number in radio ads to show confidence that his identity couldn’t be stolen. Phoenix New Times reported that, based on police reports, Davis appeared to be the victim of identity theft at least 13 times, which was 12 more times than previously known. LifeLock’s current ad slogan is “Real Protection. Real Peace of Mind.” But folks apparently rose to the challenge of using his identity! The article is a little sensationalized, but the moral of the story seems to be what I tell my kids: Don’t give out your social security number on the radio.

Reinventing Ratings Agencies
Lookout Moody’s, S&P, and Fitch – there’s a new kid on the street. Jules Kroll, founder of Kroll and current principal of K2 Global Partners, plans to launch Kroll Bond Rating this summer. The man credited with modernizing the intelligence and security sectors will target mortgage-backed securities (MBS). For those playing at home, there has been 1 (one) non-agency MBS issued in 2010. His plan is that instead of relying on the issuer-paid model for running the rating agency, a consortium of institutional investors will own 30% to 40% of the company and before investing in a product will require a Kroll bond rating. Institutional investors would include public pension funds, corporate pension funds, endowments and universities, with each owning a small segment of the company. Issuers such as Redwood Trust will have to pay for the rating up front, with the actual rating based more on due diligence and auditing rather than basic assumptions used in the past by existing rating agencies. more…

Oil Down, But Are Gas Prices?
Scientists say they have developed a car that can run on water. The only catch: the water has to come from the Gulf of Mexico. That aside, it is interesting how the price of oil has gone from over $80 per barrel down below $70 per barrel, and, as best I can tell, the gas at the pump has perhaps come down a few cents. This is despite the Gulf of Mexico leak. As I seem to recall, in previous years any time there was the slightest bit of strife near the Nigerian oil fields, or an upcoming OPEC meeting, crude oil prices would rise $10 per barrel we would certainly see it the next morning at the local station. Apparently the potential slow down in the European economy and its impact around the world is overshadowing any lost supply concerns. Economics is an interesting topic when you see it every day in big numbers at the corner station.

Mortgage Rates Not Quite Following Record Mortgage Bond Prices
How about this market?! The price of 5% MBS’s, composed mostly of 5.25-5.625% 30-yr mortgages, is at or near all-time highs. What investor wants to pay 103 for a loan that is going to pay off in two months with another refi boom expected? Mortgage prices have been lagging for this very reason, as one would expect. more…

Pick One: Better Economy Or Lower Rates
Are mortgage originators and customers rooting for a strengthening economy, or lower rates? Pick one, since the two usually don’t go “hand in hand”. The Federal Reserve sounded cautiously more upbeat on the U.S. economic recovery and jobs as it renewed its promise to keep interest rates low for an “extended period.” Consumer and business spending were picking up steam, and inflation is subdued. “Economic activity has continued to strengthen and … the labor market is beginning to improve,” the central bank said. They pointed out as well, however, that housing starts are still depressed and bank lending continues to contract. There was nothing mentioned about asset sales (read: $1.25 trillion of MBS’ earning the Fed about 5.25% on its money). Analysts point to gains in output being linked to productivity improvements and limited job increases, the fabled “jobless recovery”.

Effect of Stimulus on Home Prices
When you bring a gal flowers, the results are usually positive – but eventually it wears off. All of the federal housing stimulus effects are significant in the scenario simulations. The fixed effect indicates that the home prices are increased by federal stimulus all else held equal, and the trend effect indicates that the positive influence has declined over time. The scenario with federal stimulus in the form of the tax credit expiring in April 2010 (as it is expected to do), shows a forecasted year-over-year decline of 4.2 percent in February 2011. If, alternatively, the tax credit is again extended (continuing federal stimulus of the housing market), the one-year forecast shows a fairly strong positive increase in the HPI of 4.1 percent. In other words, the federal housing stimulus has had a meaningful effect on home sales and prices, but that effect has exhibited diminishing returns as the time since implementation has progressed. See this report for details on the effect of stimulus on home prices. more…

The US Producer Price Index, which measures inflation at the business and manufacturing levels of the economy, was 0.7% in March and 6% year-over-year through March. Excluding volatile oil and food costs from the readings, “Core” PPI for March was 0.1% and 0.9% YOY through March. The “Core” numbers were very close to last month and considered tame, but the YOY March number of 6% is cause for concern. Rates initially ticked up on the news this morning, but have since evened out on stock weakness caused by: higher than expected jobless claims (456k actual vs. 450k expected) and a worse than previously reported number on Greece’s budget deficit. Looking forward today, Treasury will announce the amount of securities to be auctioned off next week: 2-yr, 5-yr, 7-yr, and 5-yr TIPS. And also President Obama will be speaking shortly on regulatory reform.

See the BLS charts for producer prices below; you can see how volatile this monthly inflation report is, and this is why markets shift so much each month as it’s released. Also you can automatically create charts and download historical PPI data by scrolling to our data section on the right side of the site, or visiting our Data page. And you can see all stats on our Economic Calendar page, and click each release title for the definition of what each stat means.