All Things in Moderation

Vital Statistics:

Stocks are lower this morning as investors continue to fret over the debt ceiling. Bonds and MBS are up small.

The MBA Secondary Conference just finished, and the consensus is that things are rough out there, but the mood seems hopeful that the worst is over. Here is Bob Broeksmit’s comments at the conference. Much of it discussed over-regulation, however he did say some things that give originators a sliver of hope over the spate of Fannie and Freddie repurchases:

Another policy fight we’re actively waging involves loan repurchases. As you’re well aware, Fannie and Freddie are demanding that lenders repurchase more and more loans, including seasoned performing loans, with minor underwriting issues.   

Let’s put this issue in perspective. Many of these issues were the result of the unprecedented number of loans you processed in the early days of the pandemic. They reflect your swift action, during a national emergency, to help as many people as possible, as quickly as possible.   

Not long ago, that action earned you well-deserved praise. Now, for all your heroic efforts, the GSEs are punishing you. They want you to buy back loans when interest rates are twice as high. That would be disastrous, putting further strain on your balance sheets.   

But it doesn’t have to be this way. When it comes to loans with minor issues and seasoned performing loans, you should be allowed to address those issues through steps far short of repurchase. We’re making this point to the GSEs and FHFA regularly, and I’m confident you’ll see relief soon.  

In the face of declining volumes and margins repurchases can put a lender out of business as we saw in 2008.

Mortgage Applications fell 4.6% last week as purchases fell 4% and refis fell 5%. “Mortgage applications declined almost five percent last week as borrowers remained sensitive to higher rates. The 30-year fixed rate increased to 6.69 percent, the highest level since March,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications. Refinance activity remains limited, with the refinance index falling to its lowest level in two months and more than 40 percent below last year’s pace.”

If you look back long-term the state of the mortgage market is the worst in 25 years.

New home sales rose 4.1% on a MOM basis to a seasonally adjusted annual pace of 656,000. New home sales rose 11% on a YOY basis. The median new home price fell 8.2% YOY to $420,800, while the average home price fell 10.9% to $501,000.

Home prices peaked around June of last year, so we should start seeing the decline in prices percolate through to the inflation indices. That said, the Fed seems to be on a mission to take advantage of the robust labor market to build some distance from the zero bound which gives it more breathing room to ease if the economy slows.

The Fed Funds futures are now handicapping a 38% chance of another 25 basis point hike in June.

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