Mortgage Pros, Inc.

The MBA Weekly Mortgage Applications Survey: The Market Composite Index increased 8.8%, Refinance Index increased 12.6%, and Purchase Index decreased 3.3%. “Amid continuing financial market volatility, mortgage rates dropped again last week, with rates on 15-year loans reaching a record low for the MBA survey. Refinance applications jumped in response, but remain at about half the level seen in the spring of 2009,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Purchase applications declined for the seventh time in the last eight weeks, keeping the purchase index near 13-year lows.” The refinance share of mortgage activity increased to 76.8% of total applications from 73.8%, the highest refinance share since April 2009, and the ARM share of activity decreased to 4.7% from 4.9%. The average 30-year rate decreased to 4.67% from 4.75%, and the average 15-year rate decreased to 4.06% from 4.19%.

ADP Employment Report: Private-sector jobs in the U.S. increased by 13,000 in June, the fifth consecutive monthly gain. However, over these five months the increases have averaged a modest 34,000. Recent ADP Report data suggest that, following steady improvement through April, private employment may have decelerated heading into the summer. The BLS Friday will probably report June total payrolls dropped by 110,000, following a jump of 431,000 in May, and the unemployment rate is projected to edge up to 9.8% from 9.7%, according to economists surveyed.
Institute for Supply Management-Chicago Inc. Business Barometer fell to 59.1 in June, the Ninth Month in expansion territory above 50. The employment index climbed to 54.2 from 49.2 in May, and the production gauge rose to 64.2, the highest level since February, from 61. The gauge of new orders decreased to 59.1 from 62.7. The index of backlogs fell to 50.7 from 52.7. The gauge of inventories dropped to 46.5 from 56.4, which was the highest level since November 2006.
Treasury Two-Year Yield Advances From Record Low on European Bank Optimism Treasury two-year note yields rose from a record low as banks sought less cash from the European Central Bank than economists forecast in a sign the financial institutions are stronger than investors had estimated. Yesterday, fears about the pace of global growth hit financial markets hard, with stocks sliding and investors rushing to the safety of the dollar and U.S. government bonds. The Dow industrials fell 265.87 points, or 2.62%, and the S&P 500 fell 33.20 points, or 3.1%, to its lowest closing level of the year. The benchmark 10-year Treasury yield fell to its lowest level since April 2009, while the 30-year bond’s yield fell below 4% to its lowest point since October 2009 and the two-year yield fell to a record low.
Realty Trac: Foreclosure Sales Account for 31% of All Residential Sales and Sell at 27% Discount as Supply Grows. A total of 232,959 homes sold in 1Q10 had received a default or auction notice or were seized by banks, down 14% from the fourth quarter and 33%. The average price of a distressed property was $171,971. As lenders have begun repossessing homes at record levels over the first half of 2010, it will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration.”
Mortgages Face New Rules. Some Worry About Higher Costs, Fewer Choices for Borrowers. The Dodd-Frank financial-regulatory overhaul bill is expected to pass the House this week, Another key provision of the bill tries to make compensation of mortgage brokers and loan officers more transparent. It bans any sort of payment based on steering the consumer to a particular type of loan or rate. Appraisers may get some help too as the bill stipulates that lenders must compensate appraisers “at a rate that is customary and reasonable.” The legislation includes $1 billion to establish a program that would offer short-term loans to unemployed homeowners at risk of foreclosure. The bill also provides an additional $1 billion in funding for the Neighborhood Stabilization Program, which helps local organizations buy and repair foreclosed and vacant homes.
House votes to extend homebuyer credit 3 months, which would only apply to people who signed purchase agreements by April 30, and now It now goes to the Senate.
What Finance Reform Means for Mortgage Pay. Originators can be paid only by base salary or by percentage of the loan amount, or from a bonus if the employer chooses, and can’t be paid based on the type of loan. Origination fees may be capped at 3%, and consumers can decide to pay those fees up front or have them built into the interest rate. Before, borrowers sometimes had to pay both upfront and the fees embedded into the interest rate. The bill will also require lenders to retain a 5% stake in risky loans, and will be exempt from retention requirement for require rigorous verification.
MBA’s 2009 Mortgage Bankers Production Survey: Production Profits Rebounded in 2009. Independent mortgage bankers and subsidiaries made an average profit of $1,135 on each loan they originated in 2009, compared to $305 per loan in 2008. The survey said the increase was driven by a drop in total loan production expenses to $3,685 per loan in 2009 from $4,717 per loan in 2008. Total loan production income dropped slightly to $4,820 per loan in 2009 from $5,023 per loan in 2008. The average profit rose to 61.3 basis points in 2009 from 15.4 basis points in 2008, but differed widely by company type. Profits for mortgage subsidiaries of banks and thrifts averaged 79.5 basis points, but only 54.9 basis points for independent mortgage companies.

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Personal Income Rose 0.4% in May, Consumer Spending Grew 0.2%. The savings rate increased to 4 percent last month, the highest level in eight months. Wage income grew 0.5% for the second consecutive month. The report showed inflation was stabilizing. The inflation gauge tied to spending patterns increased 1.9 percent from May 2009 after a 2 percent increase in the 12 months through April.
Chicago Fed National Activity Index fell to 0.21 in May from a downwardly revised 0.25 in April (previously 0.29), consistent with an economy in the early stages of a tepid and still-fragile recovery. Moreover, the index is consistent with subdued inflation.
Treasury 10-Year Yield Drops to Lowest Since 2009 on G-20’s Deficit Stance Treasuries rallied, pushing the yield on the 10-year note to the lowest level since April 2009, on concern the economic recovery will remain slow. Mortgage securities backed by 5.5% are widening on Fed announcement they will begin coupon swap program tomorrow.
Group of 20 Responds to European Debt Crisis With Deficit-Cutting Target Group of 20 leaders responded to the European debt crisis with deficit-reduction targets and agreed to pursue higher capital requirements for banks once economic recoveries take hold.
New York Fed Releases Statement Regarding Timely Settlement of Federal Reserve’s Agency Mortgage-Backed Security Purchases: The Fed will start the trades as soon as tomorrow and doesn’t expect to do more than $9.2 billion of the swaps, the amount of its unsettled Fannie Mae 5.5 percent bond trades. The Desk plans to swap unsettled Fannie Mae 30-year 5.5 percent coupon securities (Fannie Mae 5.5) for other agency MBS that are more readily available for settlement. The operations will begin on or around Tuesday, June 29, will be conducted as expeditiously as market conditions allow, and are not expected to exceed the unsettled amount of $9.2 billion in the Fannie Mae 5.5. In addition, the Desk may continue to arrange dollar roll transactions as needed to facilitate settlement. For more details on agency MBS purchase operations, see the program’s frequently asked questions.
MBA Responds to Conference Committee Agreement on Risk Retention, Mortgage Underwriting and Appraisals. “We believe the progress that the conferees have made on risk retention and mortgage underwriting and home appraisals reflect an improved shift from what could have been much more harmful legislation,” said MBA Chairman Robert E. Story, Jr., CMB. “Mortgage lending is going to change as a result of this legislation. There will be increased costs associated and new regulatory burdens that will impact consumers and lenders. As the regulators begin work on the details, during the coming year MBA will continue to push for improvements to ensure a balance is struck between ensuring a safe, robust US financial system, protecting consumers and avoiding negative impacts on credit availability.”
Housing Expert: ‘The Suburban Century Is Over’. Over the next decade, four demographic groups will fuel the housing market: older baby boomers increasingly are moving back to the central city, while younger baby boomers are finding it more difficult to relocate for jobs because they cannot sell their suburban houses. Meanwhile, millennials are more environmentally aware and will seek urban lifestyles, and immigrants who cannot afford large suburban houses to shelter multiple generations will increase demand for rentals.

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Economic Indicator News Release Calendar for the weeks ahead
Monday, June 28
United States
Date Value Consensus Forecast Previous
8:30 AM Chicago Fed National Activity Index May n/a n/a 0.29
8:30 AM Personal Income May n/a n/a 0.4%

Tuesday, June 29
United States
Date Value Consensus Forecast Previous
7:45 AM Chain Store Sales Snapshot 6/26/2010 n/a n/a -0.8%
9:00 AM S&P/Case-Shiller® Home Price Indexes April n/a n/a 2.3
10:00 AM The Conference Board Consumer Confidence June n/a n/a 63.3
5:00 PM ABC News/Washington Post Consumer Comfort Index 6/27/2010 n/a n/a -45

Wednesday, June 30
United States
Date Value Consensus Forecast Previous
8:30 AM ISM – NY Report June n/a n/a 449.3 index
9:45 AM ISM-Chicago June n/a n/a 59.7
10:30 AM Oil and Gas Inventories 6/25/2010 n/a n/a 365.1 mil barrels

Posted in MORTGAGE NEWS, THE FED | 1 Comment »

RISMEDIA, June 14, 2010—(MCT)—The U.S. economy is in a moderate recovery and should continue growing through next year, but the unemployment rate is expected to remain higher than usual, and it will take “a significant amount of time” to replace the jobs that have been lost in the recession, Federal Reserve Chairman Ben Bernanke said recently.

In testimony before the House Budget Committee, Bernanke offered a mix of optimism and reality check. He pointed to numerous signs of improvement in the economy, but cautioned that improvement in the vital housing sector has been shallow and remains vulnerable.

The Fed’s release of the Beige Book, a survey of economic conditions conducted by its district banks, later confirmed Bernanke’s views. The survey found all 12 Fed districts reporting economic growth, the first time that’s happened since a deep recession began in December 2007.

Private forecasters shared Bernanke’s growing optimism.

Mark Zandi, the chief economist for Moody’s Analytics, recently released a report on economic conditions in the nation’s largest metropolitan areas that was encouraging.

“The economic expansion is broadening out across the country, with nearly two-thirds of the nation’s metro areas now out of recession,” Zandi told McClatchy Newspapers. “The strongest areas are mostly in the South and Midwest, as the economy is benefiting from the strong turn in manufacturing activity, a solid farm economy and more stable housing markets.”

In another positive sign, the Labor Department reported that job openings leapt in April to their highest level in 16 months, signaling that the private sector is ripe for a return to hiring.

“We’re still expecting that the job machine gets cranked up and pushes the unemployment rate a few tenths of a percentage point lower by the end of the year,” said Chris Varvares, the president of Macroeconomic Advisers LLC, the influential St. Louis forecaster. The firm expects 3.7% growth this year and unemployment, now at 9.7%, to dip to the low 8% range next year.

The Fed expects the economy to grow in the range of 3.5% this year, Bernanke said, and faster next year as stimulus spending by the government gives way to business and consumer demand for goods and services.

“This pace of growth, were it to be realized, would probably be associated with only a slow reduction in the unemployment rate over time. In this environment, inflation is likely to remain subdued,” Bernanke said. He later added, “In all likelihood, however, a significant amount of time will be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009.”

The economy has been growing steadily, and the nation has added jobs in five of the last six months. There also have been less publicized improvements. “Real consumer spending has risen at an annual rate of nearly 3½% so far this year, with particular strength in the highly cyclical category of durable goods,” Bernanke testified. “Consumer spending is likely to increase at a moderate pace going forward, supported by a gradual pickup in employment and income, greater consumer confidence and some improvement in credit conditions.” That’s all likely to increase the demand for goods and services, fueling further economic growth in what economists call a virtuous cycle, he suggested.

“Looking forward, investment in new equipment and software is expected to be supported by healthy corporate balance sheets, relatively low costs of financing of new projects, increased confidence in the durability of the recovery, and the need of many businesses to replace aging equipment and expand capacity as sales prospects brighten,” Bernanke said. “More generally, U.S. manufacturing output, which has benefited from strong export demand, rose at an annual rate of 9% over the first four months of the year.”

For all the positive signs, however, a dark cloud remains over the real estate and construction industries. The temporary boost from a home buyer tax credit is likely to fade now that the April 15 deadline for the program has passed.

The Fed chairman said that “looking through these temporary movements, underlying housing activity appears to have firmed only a little since mid-2009, with activity being weighed down, in part, by a large inventory of distressed or vacant existing houses and by the difficulties of many builders in obtaining credit.”

As if to cement that point, the Mortgage Bankers Association reported that mortgage applications fell last week to their lowest level since 1997. It was a clear sign that the expiration of tax credits reduced incentives for home sales.

Things aren’t much better in commercial real estate, Bernanke suggested, as spending on nonresidential buildings has been curtailed because of high vacancy rates, low property prices and difficulty in obtaining loans.

“Meanwhile, pressures on state and local budgets, though tempered somewhat by ongoing federal support, have led these governments to make further cuts in employment and construction spending,” he said.

Bernanke expressed confidence that the growing debt crisis in Europe won’t slow growth in the United States and pitch the economy back into recession, suggesting that events in Europe will have only a modest impact so long as the U.S. economy continues to grow.

Mounting government and private-sector debt in Europe has led to concerns of default in several European Union countries, and, given the swelling U.S. federal budget deficit, Bernanke warned lawmakers to get U.S. borrowing under control.

Once economic conditions have returned to normal, Congress and the president must address the structural problems in the nation’s health and welfare programs as baby boomers, the 75 million Americans born from 1946 to 1964, enter retirement and strain government programs, Bernanke said.

Posted in HEADLINE NEWS, MORTGAGE NEWS | 3 Comments »