First Time Homebuyer Blues! GSEs Will Charge 5% To Purchase Loans From Lenders For First Time Homebuyers

According to the GSEs, they will charge a loan-level price adjustment of 500 basis points (5%) for loans where the borrower is a first-time homebuyer. For all other loans, the GSEs will charge 700 basis points (7%).

That means it will cost lenders either 5% or 7% of the loan’s value to sell the loan in forbearance to the GSEs.

That’s a steep cost. On a $200,000 loan to a first-time homebuyer, for example, it would cost the lender $10,000 to sell the loan, meaning the lender is losing money on that loan. And for a loan that touches the GSEs’ loan limit of $510,400, a lender could have to pay nearly $36,000 for a GSE to buy the loan.

On the other hand, the alternative would be for the lender to keep a delinquent loan on their books. This solution at least allows the lender to sell the loan and preserve some liquidity, as the FHFA noted.

Like Abner Jay, first-time homebuyers are so depressed.

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JPMorgan Chase To Raise Mortgage Borrowing Standards As Economic Outlook Darkens

So much for The Fed’s attempts to lower rates and stimulate borrowing.

JP Morgan Chase is running away from the storm .. sort of.

NEW YORK (Reuters) – JPMorgan Chase & Co (JPM.N), the country’s largest lender by assets, is raising borrowing standards this week for most new home loans as the bank moves to mitigate lending risk stemming from the novel coronavirus disruption.

From Tuesday, customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20% of the home’s value.

In other words, JP Morgan Chase is returning to good, old-fashioned lending standards … at least for the moment while jobless claims skyrocket.

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JP Morgan Chase’s mortgage origination

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Of course, JPMC can always originate a conforming mortgage that can be sold to Fannie Mae and Freddie Mac. I assume that their new underwriting standards apply to loans held in portfolio..

Speaking of darkening economic outlook …

This is beginning to look like Fannie Mae and Freddie Mac are the last men standing.

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Is Redwood Deadwood? Jumbo Mortgage REIT Redwood Got Clear-cut

Times are tough for non-GSE firms like Redwood, one of the leading jumbo mortgage companies. Redwood Trust, a REIT, has fallen from around $18 per share in March to just $3.08 today.

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Of course, plunging EPS is the primary culprit (loan payment delays, forbearance) are on the rise with growth in US job loss.

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A YoY earnings growth rate of -33.3% is devastating.

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Redwood is joined by other niche financial companies in hovering around less than $10 per share.

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Lumberjacks ready for some more clear-cutting?

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Mortgage Apps Crash Most Since 2009 (Covid-19 Lockdown Edition)

(Bloomberg) — U.S. loan applications for buying and refinancing homes plunged last week by the most since the global financial crisis, amid coronavirus shutdowns and related financial turmoil that pushed borrowing costs higher.

The Mortgage Bankers Association’s index of applications fell 29.4% in the week ended March 20, the biggest decline since early 2009. Home-purchase applications dropped by 14.6% while refinancing applications plummeted 33.8%.

The average contract rate on a 30-year fixed mortgage increased 8 basis points to a two-month high of 3.82%, despite the Federal Reserve cutting the benchmark interest rate to near zero.

The decline in applications is an early sign suggesting home sales will slow and that refinancings are coming off a spike. That follows other data indicating a precipitous dropoff in business activity this month as stores and schools shutter to prevent the spread of the virus.

Yes, MBA mortgage applications fell the most since 2009 and the financial crisis.

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Mortgage rates actually rose last week (yellow line) but will likely decline this week.

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The biggest decline came in mortgage refinancing applications, down 33% WoW.

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Mortgage purchase applications dropped 14.64% WoW.

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Gold Trading Hits Record High As Treasury 10 Yield Near All-time Low (Swaption Vol Escalates, Fannie’s 30Y Current Coupon Falls Below 2%)

Its a wonderful day in the financial neighborhood! … NOT!

Gold trading hits record high.

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As gold keeps on rising.

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S&P 500 futures are down 3.201%.

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USD Swaption vol is escalating.

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The US Treasury 10-year yield is down another 20 bps.

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Fannie Mae’s 30-year current coupon just fell below 2%.

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What up with that?

Limbo Rock! US Treasury 10Y Yield Falls 12.6 Basis Points To 0.926% As Dow Drops 800 Points

The Washington Post had a howler of a story yesterday: “U.S. markets post big gains as Joe Biden’s Super Tuesday surge offers coronavirus respite”

It that was true, it was a very short-term effect given that the Dow dropped 800 points this morning.

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Or was it something else … like the IMF throwing $50 billion at the Coronavirus. And more stimulus from Central Banks like The Federal Reserve? But those effects were short-lived too.

The US 10Y Treasury yield fell another 12.6 basis points this AM to 0.926%. The lowest in history.

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And Freddie Mac’s 30Y mortgage survey rate (green line) continues to follow the 10Y Treasury rate down the rabbit hole.

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How long will rates go?

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I want to thank Rick Sharga for remembering that I was one of the few that predicted what is happening today with interest and mortgage rates while most others predicted mortgage rates would rise above 8%.

Rebound! Case-Shiller National House Price Index Increased 3.8% YoY In December (Phoenix AZ Faster Growing, NYC and Chicago Slowest Growing)

Yes, it is February 25th, and the Case-Shiller repeat sales house price index is out for … December. 1096960_CSHomePrice-Release-0225

The report shows that US home prices continue to rebound after a period of slowing.   The CS National house price indexed increased 3.8% YoY in December 2019.

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The slowest growing US cities? High tax metro areas Chicago, IL and New York, NY.

The fastest growing? Phoenix, AZ.

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Yes, the CS National home price index keeps on rising along with The Fed’s soft monetary policy.

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But at least the CS National HPI YoY is around the YoY growth in hourly earnings.

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US Existing Home Sales RISE 9.64% YoY As Mortgage Rates Plunge, Inventory Remains MIA

Today’s headlines scream “Existing home sales decline 1.3% MoM in January!!” True, but on a YoY basis, US existing home sales are up 9.64%.

A big reason? The 30-year mortgage rate plunged faster than a paralyzed falcon. Mostly due to slow global economy and the Corona-virus fears.

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Now look at the median sales of existing homes. It continues to be low helping drive up existing home prices.

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Notice that EHS inventory increased with median price during the housing bubble, but after 2012, they went their own ways.

I hope the housing market remains Corona-virus-proof!

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Mortgage Hedging Sputters, Sapping Energy Behind Treasuries (Fed Tapped Out)

I had to read this Bloomberg headline several times: “Locust Swarms Ravaging East Africa Are the Size of Cities”

Are the swarms the size of cities or the locusts? If so, those are some pretty big locusts!

But on to Treasury / MBS news.

(Bloomberg) — The mortgage market helped fuel U.S. Treasury yields as they rocketed toward historic lows in 2019. Don’t expect a repeat in 2020 because that propellant appears to be tapped out.

Homeowners refinanced loans in droves last year as they sought to lock in lower rates. As the original loans disappeared, investors in mortgage-backed securities bought swaps to get their newly out-of-whack portfolios back in order. Such convexity hedging tends to drive Treasury yields down. That dynamic was especially prominent in March 2019 as rates on 10-year notes sank 31 basis points after a surprise Federal Reserve policy shift.

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Today, the relationship appears to have weakened. A Bloomberg Barclays index of MBS portfolio duration has fallen since the beginning of this year, but longer-dated swap spreads have held steady. This decoupling is evidence that hedging flows are now not likely to crater yields. The index closed down at 2.65 on Tuesday, a third consecutive daily drop.

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So, The Fed seems tapped out.

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And is having trouble making markets dance.

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