Unexpected Snowball Rally After Consumer Sentiment Data
Snowball moves in markets, by their nature, tend to be unexpected. Today’s was downright surprising, largely because the extent of the “miss” in Consumer Sentiment data was equally surprising. This is not a report that typically accounts for this much movement. Even in today’s case, it was only worth 3bps of improvement in 10yr yields. But that 3bps was enough to prompt short-covering and…
The number of loans in forbearance dropped by 83,000
over the last week. This is on top of a 71,000 loan reduction during the first
few days of August. Black Knight reminds that this type of change is typical at
the beginning of each month as servicers conduct three month reviews of
homeowners to determine if their forbearance plans will be extended. As of August 10, 1.74 million
homeowners, 3.3 percent of those with a mortgage, remain in COVID-19 related plans,
the first time the number has fallen below 1.8 million. The numbers improved
for all loan types. There was a reduction of 43,000 (-7.8 percent) in loans
serviced for bank portfolios and private label securities (PLS), leaving 3.9
percent of those loans in forbearance. The number of GSE (Fannie Mae and
Freddie Mac) loans fell by 15,000 and FHA and VA loans by 25,000. This leaves
1.9 percent of GSE and 5.8 percent of FHA/VA loans in forbearance.
Even though lumber prices have recently declined, the
National Association of Home Builders (NAHB) says builders are facing some of
the fastest increases of other building material costs in history. The latest
Producer Price Index (PPI) from the Bureau of Labor Statistics (BLS) shows an
0.2 percent increase in the prices of goods used in residential construction
(with the exception of food and energy costs) in July. Those costs had
increased 3.0 percent in June. David Logan posted in NAHB’s Eye on Housing blog that
the BLS index shows those building costs have declined only twice since
December 2019 and
have climbed by 19.4 percent over the past 12 months. As an aside, when food and
energy are included, the index is up 22.3 percent year-over-year.
All but one of the 183 metropolitan housing markets
tracked by the National Realtors Association® (NAR) posted annual price
increases in the second quarter of 2021. Twelve of those areas had appreciation
that exceeded 30 percent. The median price of a single family home rose 22.9
percent to $357,900. This translates to an increase of $66,800. All four major
regions had double-digit gains and for once the highest growth was not in the
West. In the Northeast, where Pittsfield,
Mass led with a 46.5 percent increase, the highest in the nation, prices were
up 21.8 percent. It was followed by the South, up 21.0 percent; the West at 20.9
percent, and the Midwest with 17.1 percent appreciation. Home price gains and the accompanying housing wealth
accumulation have been spectacular over the past year, but are unlikely to be
repeated in 2022,” said Lawrence Yun, NAR chief economist. But he added, “There
are signs of more supply reaching the market and some tapering of demand. The
housing market looks to move from ‘super-hot’ to ‘warm’ with markedly slower
price gains.”
It has been under discussion for
what seems like forever, but Fannie Mae will begin to recognize non-reported types
of credit performance in qualifying a loan. On September 18, it will launch a
new feature in its automated underwriting system that will incorporate
consumers’ rent payments in credit evaluations. The process, which will require
borrower consent, will enable single-family lenders to automatically identify
recurring rent payments on an applicant’s bank statements. The company says its
new Desktop Underwriting (DU) enhancement creates new opportunities for
homeownership for qualified renters with limited credit history but a strong
rent payment history while still promoting safe and sound lending, Only consistent rent payments will
be considered. Any records of missed or inconsistent rent payments identified
in the bank statements will not negatively affect the applicant’s ability to
qualify for a loan sold to Fannie Mae. Rent payments that appear in the payment
history of the borrower’s bank account data can be identified, whether made via
check or electronically, such as via a company’s payment portal or other
digital payment solution.
In late June the
Consumer Financial Protection Bureau (CFPB) announced amendments to federal
mortgage servicing regulations to “help protect mortgage borrowers from
unwelcome surprises as they exit forbearance.” Those changes don’t take effect
until August 31 but, with early entrants to the program nearing the end of
their 18 month eligibility for forbearance, CFPB has issued what could be
considered a report card on servicer performance thus far in the pandemic. CFPB surveyed 16 large
servicers, looking at their call management and handling of delinquency rates. Call
management reflects how well servicers are dealing with the volume of homeowner calls. This includes the Average Speed to Answer
(ASA) and Abandonment Rates (AR), a measure of how many borrowers disconnect
from servicing calls prior to completion. Most servicers reported abandonment
rates of less than 5 percent during the reporting period, while others exceeded
20 percent, and one peaked at 34 percent.
The current week fills a corrective role in the bigger picture, helping to officially mark the end of 4 straight months of accelerating improvement (which, itself, followed 4 straight months of accelerating weakness). Now that we’re here in the 1.3’s in 10yr yields, it seems like no coincidence. After all, this is where bonds paused for heavy reflection in 2012 and 2016–each time deciding to move back up to more familiar levels.
This time around, yields are approaching from below, and pausing to see if there’s enough justification to continue higher. They’ll…
As the week winds down, a potentially scary shift into a steeper rising rate trend seems to be averted, for now. Today’s trading was a bit weaker, but yields nonetheless held in line with yesterday’s highs. The 30yr bond auction passed with minimal reaction and the same can be said for the staggeringly high PPI number this morning (core y/y at 6.2 v 5.6 f’cast). Bottom line, after a strong NFP in the previous week,…
Mortgage credit access rose slightly in
July but remains in the nether regions to which it dropped last fall in the
wake of the pandemic. The Mortgage Bankers Association (MBA) says its Mortgage
Credit Availability Index (MCAI) gained 0.3 percent to 119.1 in July. The index
was at 181.9 in January of 2020 and had fallen to 118.6 by the following
September. An increase in the MCAI indicates that lending standards are
loosening while a lower number indicates tightening. The index was benchmarked at
100 in March 2012. The MCAI has four components. In September, the Conventional
MCAI increased 0.8 percent, while the Government MCAI was unchanged. Of the
component indices of the Conventional MCAI, the Jumbo MCAI rose 3.8 percent,
and the Conforming MCAI fell by 3.2 percent.
Yesterday marked “the roll” for 30yr fixed UMBS (what’s this?), but that’s not all that was rolling. The proverbial “good times” began–well, you know… after one of the strongest 10yr Treasury auctions in decades yesterday afternoon. Now on Thursday, we’re watching 10yr yields struggle to avoid losing more than 3-4 bps. Did the good times already stop rolling?
It’s a bit more complicated than that. First off, it’s important to note that the strength of yesterday’s auction had a lot to do with a few uncommon factors. The first is the fact that…