Community Lenders want Smaller GSEs Retained in Secondary Market Role

The Community Mortgage Lenders of
America
(CMLA) is urging policy makers to consider retaining the positive aspects
of Fannie Mae and Freddie Mac
in any future secondary market design.  CMLA is asking that a smaller Fannie and
Freddie be configured to serve 30-35 percent of the overall secondary mortgage
market while being barred from securitizing or investing in anything but plain “vanilla”
mortgages.

The trade association stated its
preferences in a letter to the secretaries of Housing and Urban Development
(HUD), Treasury, and the Acting Director of the Federal Housing Finance Agency
(FHFA) as well as the chairs and ranking members of two congressional
committees which will be involved in the future definition of the market.    

CML said
the two government sponsored enterprises (GSEs) have benefited from the strong
oversight and leadership they have received from FHFA and that has been
reflected in the housing market where credit has remained available primarily
because of their presence.  While the
housing industry, Congress, Treasury, HUD, and the FHFA are seeking clarity on
how the GSEs should perform going forward, CMLA “believes that the housing
industry and the public at large are best served through a sensible and calculated
reformation of the GSEs that reduces their footprint in the industry while at
the same time allowing them to serve their historically critical functions.”

The CMLA endorses a future whereby Fannie and
Freddie shrink to serve 30-35 percent of the overall secondary mortgage market,
and are barred from securitizing or investing in anything but plain
“vanilla” mortgages.

While the FHFA’s October 2011 projections shows
that the balance sheets of the GSE’s are improving, FHFA has also expressed
doubt that they will ever be able to repay the government its investment during
the crisis.  CMLA believes that the
taxpayer can be repaid through creative and thoughtful planning and through
tailoring an increase in guarantee fees to more accurately price risk. 

There are a number of principles that should
inform creation of a fair and effective secondary mortgage market according to
CMLA:

1.  
Standardization reduces
costs

2.  
Liquidity is needed

3.  
Conventional lending
should be protected

4.  
Loss mitigation
procedures should be retained and further enhanced

5.  
Risk must be made
explicit

6.  
Market concentration
should be reduced

7.  
Portfolio flexibility
should be increased

8.  
Proper use of
Guarantee Fees must be required

9.  
Reform must include
standards for the non-GSE Secondary Market.

The letter states that a sensible and calculated
reformation of the GSEs will result in continued liquidity and stability
without an unnecessary disruption
to the secondary market, “or worse, a
concentration of the secondary market within a limited number of large
banks/servicers.”  CMLA sets out the
following steps for the GSEs to complete within a transition time and
recognizing market realities.

  • Pay an explicit
    backstop fee to the federal government;
  • Be prevented by
    statute from securitizing or investing risky mortgages as defined by the
    Qualified Residential Mortgage Rule;
  • Be shrunk and
    normalized to sustain roughly 30 to 35 percent of the secondary market
  • Continue to be required
    to serve lenders of all sizes and to nurture smaller markets in areas of market
    concentration;
  • Continue to provide
    standardization of origination documentation, servicing practices,
    securitization terms and modification/foreclosure strategies as a policy of
    consumer protection;
  • Reduce and maintain
    portfolios over time, but only as transitional market pricing reduces the
    portfolios. Given that the portfolios
    provide a stabilizing influence of mortgage pricing and that the FHFA has said
    the portfolios will only cause 9 percent of overall losses “any forced downsizing
    seems politically motivated to benefit large banks and Wall Street.”
  • Establish a governing
    board to maintain and set a competitive guarantee fee following the public
    utility model with funds generated to be retained in the housing industry for
    the benefit of taxpayers;
  • Regulate
    post-conservatorship executive compensation through a governing board to
    prevent excessive risk-taking.

CMLA says it is the first trade group to call for
the GSEs to remain intact.  Mark
McDougald, Chairman of the organization said, “Our plan is forward-looking
and will result in distinct changes in the secondary market. However, we call
on Washington to move expeditiously and to avoid
drastic, politically-driven changes that will harm small lenders and the small
communities in which they serve,”

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Realtors Show Clout, ‘Protecting The American Dream’ in DC Rally

Realtors® massed on the Washington Mall on Thursday to show their strength in a year in which their trade organization, The National Association of Realtors (NAR) seems anxious on several levels.  An estimated 15,000 Realtors gathered at the foot of the Washington Monument to, in the words of NAR President Moe Veissi “protect the American Dream of homeownership.”

According to a press release regarding the Rally to Protect the American Dream as the event was characterized, “Realtors® are working to ensure that people who want to own a home or invest in real estate and can responsibly afford to do so will continue to have the opportunity to do that.”

NAR is currently concerned about discussions to include a requirement for a 20 percent downpayment in the proposed definition of Qualified Residential Mortgage and proposals being floated to  eliminate or limit the current tax deduction for home mortgage interest.  The association also wants reform of the secondary market and improved liquidity in both commercial and residential lending.

The rally also helped NAR demonstrate its political clout.  The association, at one time the largest trade group in the country before the housing collapse drove many of its members out of the business, has been concerned about its influence especially since the Supreme Court ruled in the Citizens United case.  Last year it raised the political action portion of its dues by $40, a move that did not sit well with many members, citing  the need to compete against the millions in soft money for political advocacy the ruling was expected to unleash.  NAR hoped to raise $80 million with the increase.

According to the Center for Responsive Politics NAR is number four on its list of “Heavy Hitters” with 41.9 million in political donations since 1989.  They were a major force in electing Isaacson to the Senate in 2004 and in his 2010 re-election.

Those who attended the rally heard from former Realtor and Senator Johnny Isaacson (R-GA) and Representative Steny Hoyer (D-MD).  Isaacson told the crowd that homeownership has always been part of the American dream, “It is my hope that this rally encourages Congress and the president to move forward with policies that are supportive of housing, which is vital to job creation and the recovery of our economy,” he said.

Hoyer said, “Stabilizing the housing market remains a central issue for Democrats, who understand we will not have robust economic growth without a vibrant housing market and that access to homeownership remains a critical component of the American Dream.”

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Mortgage Rates Steady At All-Time Lows Thanks To Europe And The Fed

Mortgage Rates are steady to slightly improved today following as Europe’s fiscal woes continue providing downward pressure on US interest rates.  The forces at work keeping rates low were joined today by “minutes” from the most recent FOMC meeting.  All told, several notable lenders are offering their all-time lowest interest rates while others remain close.  

Markets actually got off to a shaky start as far as rates were concerned.  Had it not been for the European headlines and the FOMC Minutes, we’d likely be looking at slightly higher rates today.  Mortgage-backed-securities (aka “MBS,” the most direct influence on mortgage rates) and US Treasuries began the day in weaker territory until news that the European Central Bank had ceased it’s normal interactions with several Greek banks, and the ECB President essentially wasn’t willing to bend over backwards to make sure Greece stays in the Euro-zone.  We discussed the implications of a Greek Euro-zone exit in yesterday’s post.  

The ECB-related news helped bond markets bounce back into stronger territory and FOMC Minutes added to that momentum.  Though there were no major surprises out of the Fed, the Minutes indicated that the Fed remained in sort of uncertain territory with respect to further quantitative easing, which thus far, has been a major boon for rates.

Markets were perhaps guarded against the possibility that the Minutes would indicate a shift AWAY from an accommodative stance.  The fact that the minutes did no such thing, combined with the consideration that this meeting took place BEFORE the most recent bout of Euro-drama was enough for markets to infer a slightly economically bearish bias from the Fed, and the Fed combats economic bearishness by keeping rates low.  

For only the 3rd time since early February, the Conventional 30yr Fixed Best-Execution Rate is arguably straddling 3.75% and 3.875%.  Some lenders’ rate sheets are structured such that 3.75% is clearly Best-Execution.  More have moved down into that territory, though many remain at 3.875%.  (read more about Best-Execution calculations)

Until and unless mortgage rates actually break into NEW all-time lows (which they are very close to doing), we’ll likely keep reiterating that which has already been said:

We see two diametrically opposed forces pushing and pulling on mortgage rates here at these key levels.  The European component is the obvious force pushing rates down, but less obvious is the underlying structure of the Secondary Mortgage Market providing resistance to moving lower.  The latter is what has prevented rates from getting any lower now and in the past.

That said, if the economic outlook remains fairly dim and if European concerns continue to fuel that “flight-to-safety” demand for long enough, the Secondary Mortgage Market CAN slowly evolve to accommodate lower rates.  It remains to be seen whether or not it will actually happen.  Global economic panic is not our favorite justification for thinking rates will move predictably lower.

Investors in the secondary mortgage market have demonstrated that they tend to feel the same way, having clearly avoided a quick move down into uncharted territory with respect to the “buckets” on the secondary mortgage market.  Read more about “buckets” HERE.  Without a more stable motivation for low interest rates, we’d expect ongoing progress in creating a market for even lower rates to continue to be slow and small.  

Today’s BEST-EXECUTION Rates 

  • 30YR FIXED –  3.75-3.875%
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.125 edging down to 3.00%
  • 5 YEAR ARMS –  2.625-3. 25% depending on the lender

Ongoing Lock/Float Considerations 

  • Rates and costs continue to operate near all time best levels
  • Current levels have experienced increasing resistance in improving much from here
  • Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
  • But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn’t always mean they’re done improving.
  • (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

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Making a Mark in Milan

Events within the Salone Internazionale del Mobile are usually cloaked in secrecy, but a mood of collaboration, generosity and transparency was evident at this year’s furniture fair—a sign of the Maker Movement’s influence on design.

Mortgage Rates Stay Low After Friday’s Solid Performance

Mortgages Rates improved very slightly in most cases today, though some lenders’ rates were unchanged.  This follows a strong move lower by most lenders on Friday after a weaker-than-expected Jobs report.  There’s a greater-than-normal variability between lender offerings, but in general, mortgage rates are near their best levels of the month.

The Best-Execution Conventional 30yr Fixed Rate is now in a transitional territory between 3.875% and 4.0% with the latter still constituting the best bang for the buck.  It wouldn’t take many more days of improvement for 3.875% to vie for the Best-Execution title.

More lenders today joined the ranks of those who can offer no-closing-cost loans at 4.0% (assuming perfect circumstances), and 3.875% is increasingly becoming possible.  As always, keep in mind that we track best-execution rates based on an ideal scenario in order to have a static frame of reference to capture the day to day MOVEMENT of interest rates.  

(read more about Best-Execution calculations).  

Market movement today was uneventful to say the least.  More than a few market participants, both at home and abroad, were out for an extended holiday weekend.  Activity is expected to pick up tomorrow and more so into the rest of the week.  But today might as well have been a day off.  Bond Markets including MBS (the “mortgage-backed-securities” that most directly influence mortgage rates) were essentially flat all day long.

Given what we’ve recently witnessed with respect to interest rate movement, we’re of the mind that every day spent near current levels is most safely viewed as an opportunity.  We don’t know which direction rates will go next, but we do know their near historic lows and have had an increasingly difficult time moving much lower.  

We will say, however, that things are not looking as bleak as they were for most of the past 4 weeks.  There’s more room for viewpoints other than “defensive,” but this could be a passing phenomenon depending on how the rest of the week plays out.  Although tomorrow isn’t immune from volatility, we’re looking toward Wednesday’s 10yr Treasury auction as the next major piece of guidance for bond markets in general.

Today’s BEST-EXECUTION Rates 

  • 30YR FIXED –  4.0%, with 3.875% creeping back
  • FHA/VA -3.75%
  • 15 YEAR FIXED –  3.25%-3.375%
  • 5 YEAR ARMS –  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations 

  • Rates and costs continue to operate near all time best levels
  • We’ve recently spent time further away from the very best levels of the past few months having broken away from a long, stable trend.
  • That led us to expect greater volatility, and indeed we got it!
  • But now that volatility MIGHT be depositing us back at the edge of the old, stable range.  Whether it lets us back in or not, is another story.
  • Rates could easily move higher or lower, but given the nearness to all time lows, there’s generally more risk than reward regarding floating
  • (As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

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