Jun 24, 2014

Sales of New Homes Surged in May to Highest Since 2008

Another day, another source, similar news !!! Purchases of new homes in the U.S. rose in May by the most in 22 years, indicating the industry is rebounding from a winter-induced lull at the start of the year.Sales increased 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed today in Washington. The reading exceeded all forecasts in a Bloomberg survey of 74 economists and was the strongest since May 2008.

Today’s report, following data yesterday that showed a pickup in existing home sales, shows housing is gathering momentum as employment improves and borrowing costs stabilize. Builders such as Hovnanian Enterprises Inc. are optimistic the recovery is on track after harsh weather in early 2014 hurt demand.

“Housing is beginning to revive,” said Stephanie Karol, an economist at IHS Global Insight, the top forecaster of new home sales in the past two years, according to data compiled by Bloomberg. “It’s a step in the right direction. The job market is helping, and there was an expansion of supply the past couple of months.”

The job market directly helps push the housing market up ... and we also predict that the uncertainty in the global crude oil prices (reaching high levels due to the Iraq crises) will help propel transportation costs of goods manufactured in China so high that it would make them more attractive to be manufactured in the US itself. That could help the economy considerably.

Peoples Privo Processing supports the American dream by helping lenders and brokers close loans faster. (www.peoplesprocessing.com)

Existing home sales up 4.9%; best gain since '11

In what could be exciting news for both loan originators and contract mortgage processing companies, there are reports that existing home sales rose for the second-straight month in May — climbing to their strongest pace since fall — as more homes on the market helped draw buyers.

Sales of single-family homes, townhomes, condos and co-ops hit a seasonally adjusted annual rate of 4.89 million, up 4.9% from April's revised 4.66 million rate, the National Association of Realtors said Monday. The monthly percentage gain was the highest since August 2011. Last month's sales rate also beat economists' median forecast of 4.73 million in Action Economics' survey.

"The long-awaited spring bounce in home sales looks to have finally appeared," said RBS Markets chief U.S. economist Michelle Girard in a research note.

Both sale prices and inventory improved last month, which is a good sign, said Stephanie Karol, of IHS Global Insight.

"As long as sellers feel assured of making a profit, they will feel emboldened to list their homes; and as buyers feel they have a good selection of well-located properties to choose from, they will continue to look and bid," she said in a research note.

Despite sales' improving trend the past two months, they are still weaker than last year. In May 2013, the annualized sales rate was 5.15 million.Through May, sales are down 8.2% from the first five months of last year.

The market also continues to be difficult for buyers with modest financial resources, such as first-time buyers. Their share of sales declined to 27% in May, down 2 percentage points from April and from April 2013.

Although single-family home sales rose 5.7% from April, they're also down 5.7% from a year ago.
Compared with last year, the lower-priced end of the market looks weakest. Sales of homes under $100,000 and from $100,000 to $250,000 fell in every region of the country last month compared with May 2013. But sales of homes priced at $1 million and above rose everywhere but the Midwest.

The median existing home price was $213,400 in May, up 5.1% from a year earlier.
Still, more homes on the market, prices that are rising more slowly than in 2013 and recent declines in mortgage rates should create better conditions for more buyers, said Lawrence Yun, chief economist of the National Association of Realtors.

Freddie Mac reported last week that the U.S. average for a 30-year mortgage was 4.17%. That compares with an average 4.48% last December and 3.93% a year ago.

This year's declines in interest rates are likely to be temporary. Rates are expected to tick up as the Federal Reserve pares the monthly bond purchases it launched in 2012 to hold down long-term interest rates.

The Realtors group said total housing inventory at the end of May rose 2.2% to 2.28 million existing homes available for sale. That's 6% higher than a year ago.

At May's sales rate, there's a 5.6-month supply of homes for sale, which is still below the 6-month inventory that's considered a balanced market between buyers and sellers.

More data on the housing market is due Tuesday when Standard & Poor's releases the Case-Shiller Index of home prices for April, and the government reports on new home sales for May.

Any positive news is always welcomed by LO's and mortgage processing companies - like Peoples Privo Processing (www.peoplesprocessing.com).

May 29, 2014

Mortgage Rates Drop Abruptly; Now Approaching 4%

After tying the record for most consecutive days with no change, mortgage rates moved significantly lower today.  The significance isn't due to the size of the move--as far as day to day changes go, there have been bigger.  Rather, the impressive part of today's rally is that it occurred while rates were already effectively at the lowest levels in 11 months, further extending an already strong move lower over the past two months. 

Through yesterday, rates had been giving the impression that the string of recent improvements was leveling-off and waiting for more important information on the horizon.  In that context, today was an utter blindside.  It wouldn't have been as surprising if rates merely began drifting lower ahead of those key events.  They sometimes do that after leveling-off in such a manner, but today was anything but a drift.
The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) is already close to 4.0%.  Some lenders are there already while others are offering substantially lower costs at 4.125%.  After today's move, few lenders remain competitively-priced at 4.25%.  For imperfect loan files, however, 4.25% is still a sweet-spot in terms of up-front cost vs contract interest rate.

While today's drop in rates is encouraging, markets will now be more sensitive to data and events that suggest a move in the other direction (such as a stronger-than-expected GDP revision tomorrow).  Despite that sensitivity, the first move higher in rate after this rally runs its course isn't likely to be the biggest one.  That affords some decision-making time to those inclined to float (but who also accept that they might be faced with the decision to lock at slightly higher rates than the previous day.  

May 26, 2014

Fixed rates hit low for year

According to Mortgage Professionals America...Fixed mortgage rates hit new lows for the year this week, according to data released by Freddie Mac.

“Mortgage rates continued to decline this week as industrial production slipped by 0.6 percent in April, below the market consensus forecast,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “Meanwhile, housing starts jumped 13 percent in April to a seasonally adjusted annual rate of 1,072,000 units, well above expectations. Permits rose to a seasonally adjusted annual rate of 1,080,000 in April, also above expectations.”

The average rate for the 30-year fixed-rate mortgage dropped to 4.14% this week from last week’s average of 4.20%. The 15-year FRM averaged 3.25% this week, down from last week’s 3.29%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.96% this week, down from last week’s average of 3.01%. The 1-year ARM held steady at 2.43%.

May 13, 2014

Wells Fargo Joins TD Bank in Easing Credit Standards

Wells Fargo & Co., the biggest U.S. home lender, two weeks ago cut its minimum credit score for borrowers of Fannie Mae- and Freddie Mac-backed loans to 620 from 660. The step followed moves by smaller lenders, such as the U.S. unit of Canada's Toronto-Dominion Bank, which lowered down payments to 3% without requiring mortgage insurance for some loans. The impact of these moves points to a couple of factors in the market - one, that banks like Wells Fargo are looking to broaden their portfolio horizon; the other is that these banks might have increased confidence in the economy.

Banks ratcheted up borrowing requirements after the most severe housing crash since the Great Depression, preventing as many as 1.2 million loans from being made in 2012, according to an Urban Institute paper. Lenders rode a wave of refinancing until a spike in borrowing costs last year gutted demand, forcing the biggest banks to cut more than 25,000 mortgage jobs. Now they're removing barriers to mortgages for some borrowers in hopes of reviving a shrinking market.

"We threw the baby out with the bathwater because we had to," said Rick Soukoulis, chief executive officer of San Jose, Calif.-based lender Western Bancorp. "From there, you start to inch back. If you keep selling only what isn't selling, you're just dead."

Contract Mortgage Processing in all 50 states
Lowering standards - good for home buyers. Hope it does not go to new lows !! 

In March, credit standards were the loosest in at least two years, according to a Mortgage Bankers Association index. The measure, based on underwriting guidelines, rose to 114 from 100 when it started in 2012. The index would have been at about 800 in 2007, meaning credit was eight times looser that year, before standards were tightened.

Home buyers with higher debt and lower FICO credit scores are now a growing minority among borrowers of loans backed by Fannie Mae and Freddie Mac, the government-owned mortgage giants.
Almost 16% of the mortgages for home purchases in March went to borrowers with monthly debt obligations exceeding 43% of their pay, according to data compiled by Morgan Stanley. That's up from 13.4% in mid-2012. Federal rules deployed in January expose lenders to liabilities if their mortgages without government backing require payments that, when combined with other debts, exceed 43% of the borrower's income, without proof they can be repaid.

More than 23% of the mortgages in March went to property buyers with credit scores less than 720, an above-average measure on Fair Isaac Corp.'s scale that ranges from 300 to 850. That's an increase from 15.6% in mid-2012, according to Morgan Stanley.

After housing values collapsed in 2008, banks raised their credit standards to the highest level in more than two decades. By 2011, the average credit score of an approved mortgage reached 750, according to mortgage processor Ellie Mae. Fannie Mae required only a score of 620 after raising its minimum from 580 in 2009.

"The pendulum swung too far," said John Taylor, CEO of the National Community Reinvestment Coalition, a Washington-based organization that brings credit and banking services to middle- and low-income consumers. "They over-tightened the standards to the point where qualified borrowers couldn't get access to credit."

The banks boosted requirements partly to stem the costs of having to repurchase soured mortgages. As defaults soared, Fannie Mae and Freddie Mac used a clause in their purchase agreements that let them return loans to lenders if they went bad after faulty underwriting.

In 2009, Fannie Mae asked lenders to buy back $12.4 billion of mortgages, according to a regulatory filing. The number soared to $23.8 billion in 2012, eating into banks' earnings, before dropping to $18.5 billion last year, according to filings.

Franklin Codel, head of production for San Francisco-based Wells Fargo, said clearer communication with Fannie Mae and Freddie Mac about underwriting rules is now allowing the bank to widen credit availability.

"We have more confidence that should the loans go into default we've done our job properly and we aren't going to get a repurchase," Codel said.

While Fannie Mae and Freddie Mac borrowers with lower credit scores must prove the ability to sustain homeownership, Wells Fargo will look for "compensating factors" to close the loan, Codel said. That may include requesting an explanation of a credit history event, reviewing the strength of income and the stability of employment, he said.

Lenders are also relaxing requirements in response to a drop in demand for mortgages. In 2013, a surge in borrowing costs undercut the refinancing boom. Interest rates on 30-year fixed-rate mortgages rose from a record low of 3.31% in November 2012 to 4.58% in late August, according to Freddie Mac surveys. Rates fell last week to 4.33%.

Home prices that have risen 28% since a 10-year low in 2012 have also stymied lending, particularly to first-time buyers. Cash purchases mostly by investors have filled the void, accounting for 33% of sales in March compared with 12% in mid-2009, according to the National Association of Realtors.
In April, Mortgage Bankers Association Chief Economist Mike Fratantoni lowered his forecast for home-purchase loans in 2014 to $626 billion. That compares with $652 billion last year. He also reduced his forecast for total originations this year by $100 billion to $1.07 trillion. In 2013, lenders originated $1.76 trillion in mortgage credit.

As mortgage volumes decline, lenders are suffering losses. Only 58% of independent mortgage banks and bank home-loan units were profitable in the final quarter of 2013, according to a Mortgage Bankers Association survey. JPMorgan Chase & Co., the second-biggest U.S. mortgage lender, said in April that its origination business lost money last quarter and would again do so in the second period.

To increase lending, Wells Fargo has made it easier for borrowers who would have limited equity to include gifts from relatives as part of a downpayment, Codel said. In January, the bank began to accept borrowers with credit scores of 600, down from 640, for FHA loans.
Wells Fargo also will increase its loan-to-value ratios, permitting larger mortgages relative to the worth of the property, in several states this month, Codel said, declining to provide more details. Raising maximum LTVs lowers the requirements for downpayments or minimum home equity that must be maintained in refinances, measures meant to protect lenders or insurers in the case of defaults.

Western Bancorp started offering mortgages with "alternative income verification" at the beginning of the year. So far, the loans are only available to borrowers putting down at least 35%, though the lender hopes to lower that to 30% soon, CEO Soukoulis said.

The lender, which sells the mortgages to community banks, skips the examination of tax returns and pay stubs by using software to vet the income of a self-employed applicant. The technology turns information on their bank statements into data, and then analyzes what it says about their cash flow. The process boils down to "rational" old-school underwriting, Soukoulis said.

The TD Bank unit, which mostly holds mortgages on its balance sheet, in April lowered the downpayment requirement for some loans to 3% from 5%. These mortgages don't force borrowers to take out private or FHA insurance, a typical requirement for loans that account for more than 80% of a home's value. The downpayment can be covered by gifts from family, a government program or a nonprofit.

Peoples Privo Processing is looking to increase its share of the contract mortgage processing business as a direct result of these moves by large banks. www.peoplesprocessing.com