December Housing Starts and Permits Figures Sag

Building permits and housing starts in
December were both below levels reported in November ‘according to data
released this morning by the Department of Housing and Urban Development (HUD)
and the Census Bureau.  Both statistics
were, however, well above the levels one year earlier.

Building permits for privately owned
housing units were at a seasonally adjusted annual rate of 679,000, 0.1 percent
below the revised November rate of 680,000. 
Permitting activity was 7.8 percent higher than in December 2010 when
the pace of permits was 630,000.  The
November figure was revised downward from the 681,000 originally reported.

Permits were issued for single-family
houses at the rate of 444,000, up 1.8 percent from the 436,000 reported in
November.  Multi-family authorizations
(permits in buildings with five or more units) were at a rate of 209,000
compared to 223,000 in November.

The report estimates that there were 611,900
housing units issued during the whole of 2011, a 1.2 percent increase over the
604,600 issued in 2010.

On a regional basis, permitting
increased month-over-month in the Midwest by 5.8 percent and was up 13.4
percent on an annual basis.  Permits in
the West were unchanged from November and down 1.2 percent year-over-year.   Permitting fell 6.5 percent in the Northeast
and was 36.8 percent below that of one year ago while the South had a
fractional -0.6 percent change since November but permitting was still up 31.1
percent for the year.

Building Permits

Click Here to View the Housing Permits Chart

Privately-owned housing starts in
December were at a seasonally adjusted rate of 657,000, 4.1 percent below the
revised November estimate of 685,000 but a 24.9 percent increase from the
December 2010 rate of 526,000.  
Single-family starts were at a rate of 470,000, up 4.4 percent from the
previous month’s pace of 450,000 and 11.6 percent higher than in December 2010. 

There were an estimated 606,900 housing
units for which construction was started in 2011 compared to 586,900 in
2010.  This is an increase of 3.4

There were strong regional differences
in housing starts.  The Midwest saw a
jump of 54.8 percent in housing starts since November and a year-over-year
increase of 121.5 percent.  The other
regions did not fare nearly as well.  The
Northeast was down 41.2 percent for the month and 1.7 percent since December
2010.  The change in the South was -3.0
percent for the month and 19.0 percent for the year, and the West was down
-17.6 percent since November but up 1.5 percent annually.

Housing Starts

Click Here to View the Housing Starts Chart

Housing completions in December were at
a seasonally adjusted annual rate of 605,000, up 9.2 percent from the upwardly revised
(from 542,000) November figure of 554,000. 
Single family completions were at a rate of 448,000, a -0.9 percent monthly

An estimated 583,900 housing units were
completed during 2011, 10.4 percent below the 2010 figure of 651,700.  At year’s end there were an estimated 78,800
permits that had been issued but for which work had not yet been started.  More than half of these permits (43,100) were
in the South.

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Freddie Mac: Speedy Recovery Seems Unlikely in 2012

“Perspectives on the housing market
depend on where you sit,” according to Freddie Mac’s U.S.
Economic and Housing Market Outlook

for January.  The monthly forecast noted
that existing home sales increased in November, the inventory of unsold homes
decreased to a six to seven month supply, and Freddie Mac’s economists predict
home sales will grow between 2 and 5 percent in 2012. 

there is “a historically large gap between sentiments of buyers and sellers.”  Nearly 80 percent of American households
believe it is a good time to buy a home, but sellers are not as happy, with
only 7.6 percent who responded to a Mortgage Bankers Association survey
believing that it is a good time to sell. 
If this gap doesn’t narrow, Freddie Mac’s economists say, the
housing-market recovery will be delayed.

The monthly report titled Toasting the New Year with a Glass Half Full
concludes that, while the economy is undoubtedly in a better place that the
same time a year ago, a speedy recovery still seems unlikely this year. 

Other highlights of the Outlook

  • Economic growth will likely
    strengthen to about 2.1 percent in the first quarter.
  • The current U.S. unemployment rate
    of 8.5 percent is likely to increase after seasonal gains are reversed.
  • Mortgage rates are projected to
    remain very low, at least in the beginning of 2012.

Frank Nothaft, Freddie Mac, vice
president and chief economist said, “With the new year comes a sense of
cautious optimism. There are some positive signs in the job market and consumer
confidence; housing is starting to raise hopes for continued gradual economic
recovery. But the economy still is giving some mixed messages.”

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Wells’ Mortgage Earnings Indicative of Industry? HUD to Limit Appeals?; CFPB Appraisal Fees

Federal Reserve does other things besides keep overnight Fed Funds at 0% for
years at a stretch. It releases some interesting stats on mortgages that, if
you need a filler for a presentation you’re doing, might come in handy – you’ll
notice mortgage debt dropping.

I don’t think that many in the business have an awareness of how Basel III will
impact banks
, and therefore mortgages and servicing, and therefore mortgage pricing for consumers.” I
tend to agree, although I am trying to alert folks about the possible

Basel III
is expected to be the norm for banks around the world, which brings up the
question, “How do borrowers finance
their homes in other countries?
” There is an in-depth look at this –
click on the link near the top right of this page.

Yesterday Citigroup missed estimates, reporting
disappointing earnings although net credit losses fell 40% as full-year net
income grew 6%. Citi Holdings (the bank’s operation set up to handle its toxic
debt remnants) saw its revenue fall $6.4 billion, but Citi released $1.5
billion in loan loss reserves, a 35% decrease from 2010 – nice to see.

Wells Fargo beat estimates with a 2011 net income
up 28% from 2010, helped by a release of $600 million from loan loss reserves
during the 4th quarter. Wells has tended to focus on the consumer
(as we’ve all noticed, given its 30%+ mortgage market share) and not on
investment banking as other banks have done. Wells Fargo said its bucket of
nonperforming loans in the fourth quarter declined roughly 20% from the period
a year earlier. Its loan total grew to $770 billion in 2011 from $757 billion at
the end of 2010, and profit in the
community banking division, which includes Wells Fargo’s retail branches and
mortgage business, soared 30 percent
. New mortgages rose 35% to $120
billion from the prior quarter, and net interest margin, the difference between
what the bank pays for funds and what it earns on loans and securities, climbed
to 3.89% from 3.84%.

banking non-interest income stood at $2.4 billion for Q4, up $531 million from
third quarter 2011, on $120 billion in originations, compared to $89 billion in
originations in Q3. Mortgage banking non-interest income in Q4 included a $404
million provision for mortgage loan repurchase losses, compared with $390
million in the third quarter (included in net gains from mortgage loan
origination/sales activities). Net mortgage servicing rights (MSRs) results
were a $201 million gain, compared to a $607 million gain in Q3 of 2011. The
ratio of MSRs to related loans serviced for others was 76 basis points and
the average note rate on the servicing
portfolio was at 5.14 percent
. Wells Fargo’s unclosed pipeline as of Dec.
31 was $72 billion, compared to $84 billion at Sept. 30, 2011.

Wells is seeing what many mortgage
banks are seeing in the FHA/VA sector
Yes, government loan production has increased, but so have delinquencies. By
the end of the fourth quarter, $19.2 billion of these loans were more than 90 days
past due, up from $16.4 billion the previous quarter and $14.7 billion at Dec.
31, 2010. (Wells became the top FHA and VA mortgage originator in the country
after 2010 and originated more than $112 billion worth of these guaranteed

Here is an
interesting note related to Wells’ FHA update. “Rob, I have a quandary that maybe you or one of the readers can help with.
We are a small mortgage broker shop incorporated in 1991. Up until recently we
were a mini-eagle when HUD/FHA eliminated that particular category. This is the
first part of the problem. We are no longer able to track the loans we
originated. We can see the general numbers up to last year when we were no
longer able to order case numbers with our ID. The previous loans’ performance,
however, is still being tracked within the two year time frame. And here is the
issue: our compare ratio is way out of
. As you know the compare ration is the percentage of loans that are
delinquent compared to the total number of loans originated. The problem has two parts. First the
lenders want explanations for the loans that are being shown as in default but
we can no longer find out who they are. So there is no way to do an
explanation. Second, the compare ration is only comparing the loans upon which we
ordered the case number, so the list for the last two years is becoming smaller
and smaller every month as the loans form this year are not being added, but of
the three loans one was late last year. So my compare ratio has gone from under
100 to 100 to 150 to 200 and is now 250! Eventually, just before they are all
over 2 years old it will be over 1,000. I
can’t be the only broker that this is happening to!
Multiple calls to the
FHA resource center have only ended in frustration as all they can tell me is
how to get the number. What should I do?”

One list
that neither Wells or Citi find themselves on is the list of four Wall Street banks who will be bidding
on the $7 billion mortgage-related securities previously owned by AIG
are due to be auctioned tomorrow by the Federal Reserve Bank of New York. Goldman Sachs, Barclays Capital, Bank of
America and Credit Suisse will bid on the debt
, which was acquired by the
New York Fed as part of the bail-out of AIG in 2008. The auction is being
managed by BlackRock Solutions. The $7 billion is part of a $20 billion portfolio
housed in a special purpose vehicle called Maiden Lane II. If the Fed obtains a
good price, subprime debt could rally because the sale will remove a
significant amount of supply that has been hanging over the market, investors
said – prices of subprime debt fell last week as rumors of the Maiden Lane II
sale circulated among traders and investors. Stay tuned…

All these
loans began their lives as applications, and the MBA’s study, representing 75%
of retail originations, showed that apps
were up 23% last week
. Purchases were up over 10% and refi’s were up over
26% – accounting for over 82% of all applications (the highest refinance share
since October 2010).

If you want to complain about HUD loan limits, you’d better hurry. HUD has proposed eliminating maximum loan
limit appeals.
Late last week HUD published a proposed rule to eliminate
the process by which interested parties may appeal the maximum allowable loan
limit for a geographic area. Noting the modern availability of
sales-transaction data at the county level, HUD states that there is no longer
a need to allow requests for alternative limits. Further, the appeals disrupt
HUD’s overall loan limit determination process, and, by eliminating appeals,
HUD will be able to release annual loan limits earlier, thereby providing more
certainty to the market. HUD also noted that, because of the availability of
transaction data, it received zero requests for appeal of the 2011 loan limits. Copy of the proposal

Have you ever wanted to see how a rating agency looks at a residential MBS? Kroll recently rated one of Redwood Trust’s
, and here is all the nitty-gritty.
The mortgage loans were originated by First Republic Bank (55%), PrimeLending
(19%), PHH (11%), Wintrust (3%), Flagstar (8%), Sterling Savings Bank (2%),
Cole Taylor Savings Bank (1%) and Guardhill Financial Corporation (1%). 
The mortgage loans will be serviced by First Republic Bank (55%), Cenlar (19%),
PHH (11%) and Select Portfolio Servicing (15%).

news, its “Rule” appears to “have eliminated
the commentary language included in the Fed’s version which allowed appraisal
management companies (AMCs) to include the fees
they have been paying
appraisers to comply with Dodd-Frank’s “customary and reasonable” appraiser fee
requirement. ASA has repeatedly stated its belief that the Fed’s interpretation
and the massive loophole it created ran contrary to the plain language and
clear intent of Dodd-Frank.” Maybe it is a deliberate decision by the Bureau to
reject the Fed’s dubious and troubling interpretation, maybe not.
Fortunately with all this, rates are doing very little. The 10-yr T-Note seems
content around 1.85%, mortgage prices did very little yesterday while Thomson-Reuters
reported that mortgage banker selling appears to have been between $1.5 and
$2.0 billion, which was partially offset by the usual Fed support. Perhaps mortgages
may struggle a bit more than they have so far this year as some investors
believe that much of the tightening in the event of QE3 has been priced in.

morning we’ve already seen the Producer Price Index for December -.1%, ex-food
& energy +.3%; the -.1% is better than expected. At 9:15AM EST are
Industrial Production and Capacity Utilization, expected +0.5% and 78.1%
respectively, and finally at 10AM EST homebuilder sentiment is gauged with the
NAHB Index (Jan) called unchanged at 21.0. After
the PPI interest rates are basically unchanged from Tuesday’s close.

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Refinance Applications Surge 26.4% as Rates Set New Lows

Mortgage applications jumped 23.1
percent on a seasonally adjusted basis during the week ended January 13,
2012.  The increase in the Market
Composite Index, a measure of loan application volume maintained by the
Mortgage Bankers Association (MBA) reflected improvements in both the purchase
and refinance business following the traditionally slow Christmas and New Year
holiday period.  On an unadjusted basis
the index increased 38.1 percent.

The Refinance Index increased 26.4
from the week ended January 6 to its highest point since August 8,
2011.  The seasonally adjusted Purchase
Index rose 10.3 percent, returning to pre-holiday levels.  The unadjusted Purchase Index was up 28.4
percent from the previous week and was 2.2 percent higher than during the same
week in 2011.

The four-week moving average for each
index also increased; the Composite Index increased by 5.99 percent, the
seasonally adjusted Purchase Index by 1.96 percent and the Refinance Index by
7.0 percent.

Refinancing took an 82.2 percent share
of all application activity, up from 80.8 percent the previous week and the
highest share since October 22, 2010.  Applications
for adjustable rate mortgages (ARMs) constituted represented a 5.6 percent
share of applications, up two basis points from the previous week.

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

dropped last week due to continuing anxieties regarding the fragile
economic situation in Europe,” said Michael Fratantoni, MBA’s Vice
President of Research and Economics.  “With mortgage rates reaching
new lows, refinance volume jumped and MBA’s refinance index reached its highest
level in the last six months.  Purchase activity also increased as buyers
returned to the market after the holiday season.”

the exception of jumbo loans (with balances over $417,500) interest rates continued
their downward trend. Three of the rates, in fact, hit the lowest level in the
history of the MBA applications survey.  The
jumbo rate – for 30-year fixed-rate (FRM) loans – increased to 4.40 percent
from 4.34 percent with points decreasing to 0.37 from 0.47 point.  The effective rate also increased.

FRM with conforming (under $417,500) balances hit a new low, decreasing to 4.06
percent with 0.48 point from 4.11 percent with 0.41 point. The effective rate
also decreased.

for FHA guaranteed 30-year FRM were
at 3.91 percent with 0.59 point, the lowest FHA
rate in the history of MBA’s application survey, down from 3.96 percent with 0.72 point.  The effective rate also decreased from the previous week.

third all-time low is the 3.33 percent rate with 0.39 point for the 15-year FRM. 
This was a drop from 3.40 percent with 0.37 point rate the previous week.  The effective rate also decreased.

average contract interest rate for 5/1
ARMs was unchanged at the record low 2.90 percent established the previous
week.  Points decreased to 0.45 from 0.49.   The
effective rate also decreased from last week.

rates quoted are for 80 percent loan-to-value originations and points include
the application fee.

 MBA’s covers
over 75 percent of all U.S. retail residential mortgage applications, and has
been conducted weekly since 1990.  Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100.

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Credit Defaults Increase, Led by Mortgage Markets

Bank cards were the only type of
consumer debt to see a decline in defaults during December according to data
released today by S&P Indices and Experian. 
The S&P Experian Consumer Credit Default Indices showed increased
defaults in both first and second mortgages and in auto loans.  Driven primarily by the increase in mortgage
defaults, the national composite index rose from 2.22 percent in November to
2.24 percent in December, the highest rate since April of 2011.  In December 2010 the Index stood at 3.01

The default rate for second mortgages increased
from 1.26 percent to 1.33 percent, auto loan defaults rose to 1.27 percent from
1.17 percent and first mortgage defaults increased to 2.19 percent from 2.17
percent.  The default rate for bank cards
however dropped from 4.91 percent to 4.60 percent.  All rates have improved from those of one
year earlier when the default rate for second mortgages was 1.74 percent; first
mortgages, 2.93 percent; auto loans, 1.69 percent; and bank cards, 6.73

“Led by the
mortgage markets, the second half of 2011 saw a slight reversal of the two-year
downward trend in consumer credit default rates,” says David M. Blitzer,
Managing Director and Chairman of the Index Committee for S&P Indices.
“First mortgage default rates rose for the fourth consecutive month, as did the
composite. Since August, first mortgage default rates have risen from 1.92% to
the 2.19%. The composite also rose those months, from 2.04% to 2.24%.  The
recent weakness seen in home prices is reflected in these data.  Bank card
default rates, on the other hand, were favorable, falling to 4.6% in December.
This is more than a full percentage point below the 5.64% we saw as recently as
July 2011.

S&P Experian data highlighted
five Metropolitan Statistical Areas (MSAs). 
Three of the five showed increases in default rates for the month: Miami
increased from 4.47 percent to 4.73 percent; Dallas from 1.38 percent to 1.56
percent, and Los Angeles to 2.54 percent from 2.53 percent.  Chicago was unchanged at 2.84 percent and New
York decreased from 2.21 percent n November to 2.13 percent in December. 

Blitzer said
of the MSA data, “Given what we know about the mortgage markets, it is likely
that these cities are seeing this recent weakness because their housing markets
have still not stabilized.”


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