– Rising Home Equity and Employment Support Delinquency Decline
– March Foreclosure Rate Declined 0.2 percentage Points Year Over Year
– Early-Stage Delinquency Rates Were Unchanged from March a Year Ago
CoreLogic released its monthly Loan Performance Insights Report. The report shows that, nationally, 4.3% of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in March 2018, representing a 0.1 percentage point decline in the overall delinquency rate, compared with March 2017 when it was 4.4%. As of March 2018, the foreclosure inventory rate – which measures the share of mortgages in some stage of the foreclosure process – was 0.6%, down 0.2 percentage points from 0.8% in March 2017. Since August 2017, the foreclosure inventory rate has been steady at 0.6%, the lowest level since June 2007, when it was also 0.6%. The March 2018 foreclosure inventory rate was the lowest for that month in 11 years; it was also 0.6% in March 2007. Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To monitor mortgage performance comprehensively, CoreLogic examines all stages of delinquency, as well as transition rates, which indicate the percentage of mortgages moving from one stage of delinquency to the next. The rate for early-stage delinquencies – defined as 30 to 59 days past due – was 1.7% in March 2018, unchanged from March 2017. The share of mortgages that were 60 to 89 days past due in March 2018 was 0.6%, also unchanged from March 2017.
The serious delinquency rate – defined as 90 days or more past due, including loans in foreclosure – was 1.9% in March 2018, down from 2.1% in March 2017. The March 2018 serious delinquency rate was the lowest for that month since 2007 when it was 1.5%. “Unemployment and lack of home equity are two factors that can lead to borrowers defaulting on their mortgages,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Unemployment is at the lowest level in 18 years, and for the first quarter, the CoreLogic Equity Report revealed record levels of home equity growth with equity per owner up $16,300 on average for the year ending March 2018.” Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 0.7% in March 2018, up from 0.6% in March 2017. By comparison, in January 2007, just before the start of the financial crisis, the current- to 30-day transition rate was 1.2%, while it peaked in November 2008 at 2%. “As we enter the summer, the risk of hurricane and wildfire damage to homes increases as does the risk of damage-related loan default,” said Frank Martell, president and CEO of CoreLogic. “Last year’s hurricanes and wildfires continue to affect today’s default rates. Serious delinquency rates are more than double what they were before last autumn’s hurricanes in Houston, Texas, and Naples, Florida. The serious delinquency rates have also quadrupled in Puerto Rico.”
Producer prices up 0.5% from April, 3.1% in past year
US wholesale prices last month posted the biggest 12-month gain since January 2012, a sign that the strong economy is beginning to rouse inflation. The Labor Department said Wednesday that its producer price index— which measures inflation before it reaches consumers— rose 3.1% from May 2017. The index rose 0.5% from April, biggest one-month increase since January. In April, producer prices rose just 0.1%. Energy prices, pulled higher by surging gasoline prices, rose 4.6% last month from April, the biggest jump in three years. Food prices rose just 0.1%, and seafood prices fell a record 13.1%. Core wholesale prices — which excludes the volatile food and energy sectors — rose 0.3 from April and 2.4% from May 2017. The Federal Reserve is expected to raise short-term interest rates Wednesday for the second time this year and the seventh time since December 2015 as inflation hits the central bank’s annual 2% target. On Tuesday, the Labor Department reported that consumer prices rose 0.2% in May, largely on soaring gasoline costs, and 2.8% over the past year, fastest 12-month jump since February 2012. But core consumer prices have risen a milder 2.2% over the past 12 months.
MBA – mortgage credit availability increased in May
Mortgage credit availability increased in May according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool. The MCAI increased 1.5% to 180.6 in May. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI increased (up 2.0%) and the Government MCAI increased (up 1.0%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 2.2% while the Conforming MCAI increased by 1.9%. “The expansion of offerings across all loan types drove credit availability to its highest level in three months. In particular, the conventional index and jumbo index both rose to their highest levels since March 2011. This was mainly caused by increased investor interest in jumbo loans and high balance conforming loans,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. The MCAI increased 1.5% to 180.6 in May. The Conventional MCAI increased (up 2.0%) and the Government MCAI increased (up 1.0%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 2.2% while the Conforming MCAI increased by 1.9%
The Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk/availability for their respective index. The primary difference between the total MCAI and the Component Indices are the population of loan programs which they examine. The Government MCAI examines FHA/VA/USDA loan programs, while the Conventional MCAI examines non-government loan programs. The Jumbo and Conforming MCAIs are a subset of the conventional MCAI and do not include FHA, VA, or USDA loan offerings. The Jumbo MCAI examines conventional programs outside conforming loan limits while the Conforming MCAI examines conventional loan programs that fall under conforming loan limits. The Conforming and Jumbo indices have the same “base levels” as the Total MCAI (March 2012=100), while the Conventional and Government indices have adjusted “base levels” in March 2012. MBA calibrated the Conventional and Government indices to better represent where each index might fall in March 2012 (the “base period”) relative to the Total=100 benchmark.
Small business optimism jumps to second-highest level ever; tax cut cited
– The NFIB’s small business optimism index rose 3 points to 107.8 in May, the second-highest level in the index’s 45-year history.
– Within the index, expectations for business expansion and reports of positive earnings trends hit record highs.
– Reports of compensation increases also hit their highest in the history of the index.
Small business optimism rose in May to its highest level in more than 30 years, helped by all-time highs in some key index components, the National Federation of Independent Businesses said Tuesday. Expectations for business expansion and reports of positive earnings trends hit record highs, while expectations for strong increases in real sales reached their highest since 1995. Reports of compensation increases also hit their highest in the history of the index. Small businesses account for about 40% of total hiring and are a good indicator on overall economic activity, Joseph Lavorgna, chief economist for Americas at Natixis, said in a note Tuesday. The% of firms in the NFIB survey expecting higher real sales tends to lead GDP by one quarter, which indicates second quarter growth should pick up to at least 3%, Lavorgna said. The US economy grew at a 2.2% annualized rate in the first quarter, according to the second estimate from the US Department of Commerce. “Small business owners are continuing an 18-month streak of unprecedented optimism which is leading to more hiring and raising wages,” NFIB chief economist Bill Dunkelberg said in a statement. “While they continue to face challenges in hiring qualified workers, they now have more resources to commit to attracting candidates.” Overall, the small business optimism index’s reading of 107.8 in May marked an increase of 3 points from the prior month and the second-highest level in the index’s 45-year history. The record high hit in 1983 is just 0.2 points more at 108.0. “The new tax code is returning money to the private sector where history makes clear it will be better invested than by a government bureaucracy,” a commentary in the NFIB report said. “Regulatory costs, as significant as taxes, are being reduced.”
Olick – weekly mortgage applications drop 1.5% as rates turn higher again
– Rates are on the move higher again, and that caused mortgage application volume to drop 1.5% last week.
– Volume was 15.4% lower than a year ago, according to the Mortgage Bankers Association.
– Refinance volume turned back to bleeding, down 2% for the week and off nearly 34% from a year ago.
The mortgage market found some new energy for a few weeks, when interest rates suddenly dropped, but it was remarkably short-lived. Rates are on the move higher again, and that caused mortgage application volume to drop 1.5% last week from the previous week and 15.4% than a year ago, according to the Mortgage Bankers Association’s seasonally adjusted report. Refinance volume, which saw a significant gain the previous week, turned back to bleeding, down 2% for the week and off nearly 34% from a year ago, when interest rates were lower. Refinance demand is most sensitive to even the smallest moves in interest rates. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.83% from 4.75%, with points increasing to 0.53 from 0.46 (including the origination fee) for 80% loan-to-value ratio loans. Mortgage rates loosely follow the yield on the 10-year Treasury bond. “Despite lingering uncertainty over a potential trade war, investors moved away from Treasurys, pushing yields up for the week,” said Joel Kan, an MBA economist. “Overall mortgage application activity declined as rates rose, but government applications increased, driven largely by increases in FHA applications, reflecting stronger demand by first-time homebuyers.”
FHA, the federal insurance entity that backs home loans, allows for down payments as low as 3.5%. First-time homebuyers have been struggling to find affordable homes, as housing continues in a supply crisis. The FHA share of total applications increased to 10.6% from 9.7% the week before. The severe shortage of homes for sale is more of an issue for homebuyers than interest rates and continues to weaken purchase demand. Mortgage applications to buy a home fell two% for the week and were 0.2% lower than the same week one year ago. Purchase applications have largely been higher on a year-over-year basis, so this drop could signal more weakness ahead. Home prices continue to rise, and the gains in some market are getting bigger, as supply falls. More homes came on the market for the spring season, but they were quickly bought up by hungry buyers, often in bidding wars. Homes are spending less and less time on the market, meaning buyers have less time to secure financing, especially if they need more than they expected. Mortgage rates are now sitting near seven-year highs again, but that could change swiftly on upcoming economic news. The policymaking Federal Open Market Committee is expected to raise its lending interest rate on Wednesday afternoon, but comments from members could move mortgage rates as well. “The Fed announcement could push rates quickly higher or lower in the afternoon. Less than 24 hours later, the European Central Bank is out with their own hotly anticipated policy update,” said Matthew Graham, chief operating officer of Mortgage News Daily. “In both cases, investors aren’t wondering about rate hikes (we already know the Fed will and the ECB won’t). Rather, it’s the accompanying details that run the risk of causing significant volatility for rates.”
Merrill Lynch ordered to pay $15.7M for cheating customers in mortgage bond trades
Merrill Lynch will pay $15.7 million to settle allegations that its employees misled mortgage bond customers and overcharged those customers residential mortgage-backed securities trades during a three-year period from 2009 through 2012, the Securities and Exchange Commission announced Tuesday. According to the SEC, an investigation found that Merrill Lynch RMBS traders and salespeople tricked the bank’s customers into overpaying for mortgage bonds by lying about the price Merrill Lynch paid to acquire the securities. For those unfamiliar with RMBS trading, mortgage bonds are not publicly traded on an exchange and pricing information for the bonds is not publicly available. Therefore, RMBS buyers and sellers use broker-dealers to execute individually negotiated transactions. In its investigation, the SEC found that Merrill Lynch RMBS traders deceived customers about the prices of mortgage bonds, raising the prices in order to make more money on the deals. “During the Relevant Period, Merrill personnel who purchased and sold non-agency RMBS made false or misleading statements, directly and indirectly, to Merrill customers and/or charged Merrill customers undisclosed excessive mark-ups,” the SEC said in its order. “By engaging in this conduct, Merrill personnel acted knowingly or recklessly.”
According to the SEC, Merrill Lynch’s RMBS traders and salespeople illegally profited from excessive, undisclosed commissions, which, in some cases, were more than double what the customers should have paid. The SEC also stated that Merrill Lynch had policies that prohibited traders from making false or misleading statements and the ability to monitor traders’ communications for such statements. But the SEC stated that the company failed to “reasonably” implement procedures to monitor and prevent those types of “false or misleading” statements. “Merrill also had policies that prohibited excessive mark-ups and procedures to monitor for excessive mark-ups on transactions in non-agency RMBS, but the policies and procedures were not reasonably designed and implemented,” the SEC said. “Due to these deficiencies, Merrill failed reasonably to perform a meaningful review of potentially excessive mark-ups on certain non-agency RMBS transactions, including transactions that are the subject of the Order.” The SEC found that that the Merrill Lynch traders violated antifraud provisions of certain federal securities laws and that Merrill Lynch failed to reasonably supervise the traders. “In opaque RMBS markets, lying to customers about the acquisition price can deprive investors of important information,” said Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “The Commission found that Merrill Lynch failed in its obligation to supervise traders who allegedly used their access to market information to take advantage of the bank’s own customers.” As part of the settlement agreement, Merrill Lynch will pay a fine of $5.2 million to the SEC and will repay more than $10.5 million to its customers. Merrill Lynch neither admits to nor denies the SEC’s findings, but agrees to be censured by the SEC. In a statement provided to HousingWire, Merrill Lynch said these issues have long since been remedied. “We have addressed issues raised in this matter, which occurred between 2009 and 2012, and taken steps to improve our procedures,” the company said in its statement.