Refinancing Apps Rise on Record Low Rates

Mortgage
rates broke another set of records during the week ended February 3,
establishing several new historic lows. 
In response, the seasonally adjusted Mortgage Bankers Association’s (MBA)
Market Composite Index, a measure of mortgage application volume, rose 7.5
percent and 8.7 percent on an unadjusted basis. 
  

The increases were
driven solely by refinancing which represented 80.5 percent of total applications for the week,
up from 80.0 percent the previous week. 
The Index measuring applications for refinancing increased 9.4 percent over
that of the week ended January 27 but the seasonally adjusted basis the
Purchase Index ticked up only 0.1 percent. The unadjusted Purchase Index was 6
percent higher than in the previous week and 4.1 percent lower than during the
same week in 2011. 

The four-week
moving averages for the seasonally adjusted Market and Purchase Indices were up 4.88 percent and 0.65 percent respectively and
the moving average for the Refinance Index rose 5.72 percent. 

Statistics for the
month of January indicate that investors played a slightly smaller part in the
purchase mortgage market than in December with the investor share of applications
for home purchase at 6.4 percent compared to 6.9 percent in December.  In
addition, the share of purchase mortgages for second homes increased to 5.9
percent in January from 5.4 percent in December.  The investor share of applications declined
in the West and East North Central regions. 

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

Both the average
contract interest rate and the effective rate for all types of mortgages with
loan-to-value ratios of 80 percent declined for the week and all fixed-rate
mortgages (FRM) reached new lows. 

  • Rates for 30-year FRM with onforming loan balances of $417,500
    or less
    decreased to 4.05 percent from 4.09 percent, with points increasing to 0.44 from 0.41 including the
    origination fee. 
  • Jumbo 30-year FRM, those with loan
    balances greater
    than $417,500,
    had averages
    rates of 4.29 percent with .43 point compared to 4.33
    percent with 0.41 point.
  • The rate for 30-year fixed-rate mortgages backed by the
    FHA decreased to 3.89 percent from 3.96 percent, with points increasing to 0.78
    from 0.61. 
  • Fifteen-year FRM had an average
    rate of 3.33 percent, down 3 basis points from the previous week and points decreased to
    0.37 from 0.41. 
  • The rate for 5/1 adjustable-rate mortgages (ARM) decreased to
    2.91 percent from 2.94 percent, with points increasing
    to 0.40 from 0.39. The ARM share of mortgage
    applications was up to 6.0 percent from 5.6
    percent the previous week.

MBA’s Weekly
Mortgage Applications Survey 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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Industrial and Multi-family Loans Drive Annual CRE Increase

The Mortgage Bankers Association
(MBA) reports that commercial and multifamily loan originations were down 7
percent in the fourth quarter of 2011 compared to the third quarter but were 13
percent higher than originations in the fourth quarter a year earlier.  The year-over year change was driven by
originations for both industrial and multifamily properties which increased 43
percent and 31 percent respectively from Q4 2010.  On the negative side, retail loans were down
8 percent, loans for healthcare properties fell 24 percent, office properties
were down 29 percent and hotel originations decreased 44 percent.

Quarter over quarter results were
mixed.  There was a 153 percent jump in
originations for health care properties; industrial loans were up 51 percent
and multifamily properties increased 29 percent.  Originations for healthcare properties fell 52
percent, office properties were down 39 percent, and retail property loans
decreased 24 percent.

Looking at lending by investor groups,
commercial bank portfolios were up by 122 percent compared to the fourth
quarter of 2010 and Freddie Mac and Fannie Mae (the GSEs) increased lending 17
percent.  Life insurance companies and
conduits for commercial mortgage backed securities (CMBS) decreased lending by
23 percent and 50 percent respectively.

 On a quarter-over-quarter basis only the GSEs
increased their loans, which rose 34 percent to an all time high.  Conduits for CMBS were down 26 percent, life
insurance companies decreased lending by 23 percent, and commercial bank
portfolios declined by 16 percent.  

“MBA’s Commercial/Multifamily
Mortgage Bankers Origination Index hit record levels for life insurance
companies in the second and third quarters of 2011,” said Jamie Woodwell,
MBA’s Vice President of Commercial Real Estate Research. “In the fourth
quarter, multifamily originations for Fannie Mae and Freddie Mac hit a new
all-time high. While the CMBS market continued to be held back by broader
capital markets uncertainty during the past year, others – like the GSEs, life
companies and many bank portfolios – increased their appetite for commercial
and multifamily loans.”

Commercial/Multi-family
Originations by Investor Types

Investor
Type

Origination Volume Index*

% Chg

Q4-Q4

Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011

Conduits

42

31

-50

30.5

23.9

Commercial
Banks

169

143

122

11.8

7.8

Life
Insurance

282

216

-13

20.5

14.0

GSEs

176

236

17

13.8

14.3

Total

138

129

13

14,9

11.6

*2001 Ave. Quarter = 100

Commercial/Multi-family
Originations by Property Types

Investor
Type

Origination Volume Index*

% Chg

Q4-Q4

Average Loan Size ($millions)

Q3 2011

Q4 2011

Q3 2011

Q4 2011

Multi-family

140

181

31

13.2

13.5

Office

91

56

-29

19.1

11.7

Retail

222

169

-8

20.9

12.3

Industrial

142

214

43

12.4

16.2

Hotel

231

110

-44

39.0

20.1

Health
Care

91

229

-24

7.2

12.4

*2001 Ave. Quarter = 100

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Drop in Refinancing Curtails Application Volume

The Mortgage Composite Index, a measure of loan application
volume, was down 6.7 percent on a seasonally adjusted basis and 6.6 percent
unadjusted during the week ended June 29 compared to the week ended June
22.  The Mortgage Bankers Association
(MBA) released the Composite and other results of its weekly Mortgage
Applications Survey this morning.

The decrease in mortgage volume was attributed to a drop of
8 percent in the Refinance Index which was in turn driven by a drop in
applications for government-backed refinancing loans.  The share of refinancing applications was 78
percent of all applications, down one percentage point from the previous
week.  Applications for HARP refinancing
which is available only to current Freddie Mac and Fannie Mae borrowers have represented
a quarter of all refinancing applications for the last two weeks.

The seasonally adjusted Purchase Index was up one percent
from the previous week.  The unadjusted
Purchase Index rose only slightly from the previous week and was down 7 percent
from the same week in 2011.  

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

Both the contract interest rate and the effective rate for
all loan types decreased during the week and several rates hit new all time
lows
.   The average contract rate for 30-year fixed
rate mortgages
(FRM) with conforming balances ($417,500 or less) decreased to
3.86 percent with 0.41 point from 3.88 percent with 0.40 percent, the lowest
rate for those loans since MBA began tracking them. 

Jumbo 30-year FRM (balances over $417,500) dropped four
basis points to 4.08 percent with points up to 0.38 from 0.35.  This was the second lowest jumbo loan rate in
MBA’s history.   

FHA-backed 30-year FRM also set a new benchmark low with an
average rate of 3.69 percent with 0.46 point compared to 3.71 percent with 0.46
point.   

Fifteen-year FRMs set a new low at 3.20 percent with 0.47
point.  The rate the previous week was
3.24 percent with 0.44 point.

The average 5/1 adjustable rate mortgage (ARM) rate fell to 2.76
percent with 0.45 point, down from 2.81 percent with 0.41 point.  Applications for ARMs represented only 4
percent of all mortgage applications.

All rate quotes are for loans with an 80 percent
loan-to-value ratio and points include the application fee.

The MBA’s weekly survey 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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OCC Notes Fewer Banks Tightening Underwriting Standards

The Office of Comptroller of the Currency
(OCC) recently completed its 18th annual “Survey of Credit
Underwriting Practices
.” The survey seeks to identify trends in lending
standards
and credit risks for the most common types of commercial and retail
credit offered by National Banks and Federal Savings Associations (FSA).  The latter was included for the first time in
this year’s survey.

The survey covers OCC’s examiner
assessments of underwriting standards at 87 banks with assets of three billion
dollars or more.  Examiners looked at
loan products for each company where loan volume was 2% or more of its
committed loan portfolio.  The survey covers
loans totaling $4.6 trillion as of December 31, 2011, representing 91% of total
loans in the national banking and FSA systems at that time.  The large banks discussed in the report are
the 18 largest by asset size supervised by the OCC’s large bank supervision
department; the other 69 banks are supervised by OCC’s medium size and
community bank supervision department. 
Underwriting standards refer to the terms and conditions under which
banks extend or renew credit such as financial and collateral requirements,
repayment programs, maturities, pricings, and covenants.

The results showed that underwriting
standards remain largely unchanged
from last year.  OCC examiners reported that those banks that changed
standards generally did so in response to shifts in economic outlook, the
competitive environment, or the banks risk appetite including a desire for
growth.  Loan portfolios that experienced
the most easing included indirect consumer, credit cards, large corporate,
asset base lending, and leverage loans. 
Portfolios that experienced the most tightening included high
loan-to-value (HLTV) home equity, international, commercial and residential
construction, affordable housing, and residential real estate loans.

Expectations regarding future health of
the economy
differed by bank and loan products but examiners reported that
economic outlook was one of the main reasons given for easing or tightening
standards.  Others were changes in risk
appetite and product performance. Factors contributing to eased standards were changes
in the competitive environment, increased competition and desire for growth and
increased market liquidity. 

The survey indicates that 77% of
examiner responses reflected that the overall level of credit risk will remain
either unchanged or improve over the next 12 months.  In last year’s survey 64% of the responses
showed an expectation for improvement in the level of credit risk over the
coming year. Because of the significant volume of real estate related loans,
the greatest credit risk in banks was general economic weakness and its results
and impact on real estate values.   

Eighty-four of the surveyed banks (97
percent) originate residential real estate loans.  There is a slow continued trend from
tightening to unchanged standards with 65 percent of the banks reporting
unchanged residential real estate underwriting standards.  Despite the many challenges and uncertainties
presented by the housing market, none of the banks exited the residential real
estate business during the past year however examiners reported that two banks
plan to do so in the coming year.  Additionally,
examiners indicated that quantity of risk inherent in these portfolios remained
unchanged or decreased at 81% of the banks.

Similar results were noted for
conventional home equity loans with 68% of banks keeping underwriting standards
unchanged and 18% easing standards since the 2001 survey.  Of the six banks that originated high
loan-to-value home equity loans, three banks have exited the business and one
plans to do so in the coming year

Commercial real estate (CRE) products
include residential construction, commercial construction, and all other CRE
loans.  Almost all surveyed banks offered
at least one type of CRE product and these remain a primary concern of examiners
given the current economic environment and some banks’ significant
concentrations in this product relative to their capital.  A majority of banks underwriting standards
remain unchanged for CRE; tightening continued in residential construction and
commercial (21 percent and 20 percent respectively).  Examiners site cited the distressed real
estate market, poor product performance, reduced risk appetite and changing
market strategy as the main reasons for the banks net tightening.

Nineteen banks (22 percent) offered
residential construction loan products but recent performance of these loans
has been poor and many banks have either exited the product or significantly
curtailed new originations.

Of the loan products surveyed 17% were originated
to sell, mostly large corporate loans, leveraged loans, international credits,
and asset based loans.  Examiners noted
different standards for loans originated to hold vs. loans originated to sell
in only one or two of the banks offering each product.  There has been continued improvement since
2008 in reducing the differences in hold vs. sell underwriting standards and
OCC continues to monitor and assess any differences.

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Congress Hears Different Views on Appraisal Regulation

Among those testifying at a hearing of the House Committee on Financial Oversight’s subcommittee on
Insurance, Housing, and Community Opportunity were William B.
Shear
, director, Financial Markets and Community Investment, Government
Accountability Office (GAO) and Sara
W. Stephens, president of the Appraisal Institute.  Shear restated GAO’s earlier recommendations
that federal regulators set minimum standards for registering Appraisal
Management Companies (AMC)
before a hearing on
Thursday while Stephens countered
that non-congressionally mandated regulations are threatening to hamstring and jeopardize the real estate appraisal
profession altogether.

Shear presented results of a GAO
study on appraisal oversight which confirmed that appraisals remain the most
popular form of property valuation used by Freddie Mac, Fannie Mae (the GSEs) and
major lenders.  While other valuation
methods such as broker opinions and automatic valuation models (AVM) are
quicker and less expensive, they are also considered less reliable and are not
generally used for loan originations.   While GAO did not capture data on the
prevalence of approaches used to perform appraisals, the sales comparison
approach is required by the GSEs and FHA and is reportedly used in nearly all
appraisals.

Charges of conflict of interest have
changed the ways in which appraisers are selected and raised concerns about the
oversight of AMCs which often manage appraisals for lenders, GAO said.  The Dodd-Frank Act reinforced earlier
requirements and guidance about selecting appraisers and prohibiting coercion
and this has encouraged more lenders to turn to AMCs.  This in turn has raised questions about the
oversight of these firms and their impact on appraisal quality.

Federal regulators and the
enterprises said they hold lenders responsible for ensuring that AMCs’ policies
and practices meet their requirements but that they generally do not directly
examine AMCs’ operations.  Some industry
participants voiced concerns that some AMCs may prioritize low costs and speed
over quality and competence. The Dodd-Frank Act requires state appraiser
licensing boards to supervise AMCs and requires other federal regulators to
establish minimum standards for states to apply in registering them. Setting
minimum standards that address key functions AMCs perform on behalf of lenders
could provide greater assurance of the quality of the appraisals those AMCs
provide GAO said, but as of June 2012, federal regulators had not completed
rulemaking for such standards.

The Appraisal Subcommittee (ASC)
established in 1989 by the Title XI of the Financial Institutions Reform,
Recover, and Enforcement Act (FIRREA) has been monitoring the appraisal function
but its effectiveness has been limited by several weaknesses which include failing
to both define the criteria it uses to assess state compliance with Title XI and
the scope of its role in monitoring the appraisal requirements of federal
banking regulators.

ASC also lacks specific policies for
determining whether activities of the Appraisal Foundation (a private nonprofit
organization that sets criteria for appraisals and appraisers) that are funded
by ASC grants are Title XI-related. Not having appropriate policies and
procedures is inconsistent with federal internal control standards that are
designed to promote the effectiveness and efficiency of federal activities.

Appraisals and other types of real
estate valuations have come under increased scrutiny following the mortgage
crisis
and Dodd-Frank codified several requirements for the independence of
appraisers and expanded the role of ASC. 
It also directed GAO to conduct two studies which were the source of Shear’s
testimony before the committee.

GAO recommends that federal
regulators consider key AMC functions in rulemaking to set minimum standards
for registering AMCs, that ASC clarify the criteria it uses to assess states’
compliance with Title XI of FIRREA and develop specific policies and procedures
for monitoring the federal banking regulators and the Appraisal Foundation.  ASC and regulators are either taking steps to
implement these recommendations or considering doing so.

Although she was not speaking directly
to the GAO report, Stephens in a written statement told committee members that,
although appraising is the most heavily regulated activity within the mortgage
and real estate sectors
, regulatory agencies are planning to enact further
changes that would threaten to tie the hands of appraisers, curtail innovation
and increase regulatory burdens on appraisers and financial institutions.

Stephens was testifying directly
against The Appraisal Foundation’s creation of a new Appraisal Practices Board
delving into appraisal practice matters without Congressional authorization.
The Foundation does not have authority to codify appraisal methods and
techniques, she said, and called it a dangerous and unjustified move.  “The regulatory burden for appraisers is on
the cusp of being expanded exponentially.”

“Appraisal methods and techniques
require judgment by the appraiser. It is assumed that the appraiser has
been thoroughly trained to judge appropriate situations. The choice of methods
and techniques are the responsibility of the appraiser in the development of
his/her scope of work” she said. For instance, whether to use reproduction cost
or replacement cost or when and how to adjust for sales concessions are
dependent on the actions of the marketplace and should not be mandated by a
body such as the Appraisal Practices Board. Hard “rules of thumb” do not work
within valuation because there always is an exception to the rule, she said.

The Appraisal Institute offered a
long list of recommendations
to Congress including that they:

  • realign the appraisal regulatory
    structure with those of other industries in the real estate and mortgage
    sectors
  • Protect the independence of the
    appraisal standards-setting process and require that standards for federally
    related transactions be issued by an entity that does not develop or offer
    education for appraisers.
  • Establish limitations around the
    Appraisal Practices Board specifying that no tax dollars be used to fund the
    venture, voluntary guidance be truly voluntary, and meaningful oversight over
    the de facto regulatory action of the Foundation be established.
  • Reiterate that the Foundation does
    not have legislative authorization in the area of “methods and techniques” and
    “appraiser education.”
  • Authorize the GSEs and other agencies
    to halt purchase or guarantees of loans in states that maintain deficient
    appraiser regulatory regimes and ensure that ongoing federal support for the
    GSEs or any replacement maintains consistent appraisal rules.

The Institute said states should be restricted from
codifying voluntary guidance into state law or regulation and the Appraisal
Standards Board prohibited from specifically
referencing its works within the Uniform Standards of Professional Appraisal
Practice and laws should be established to empower state boards to investigate
and prosecute complaints involving appraisers.

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