Inside Lending - Aug 2nd, 2010

For the week of August 2, 2010 – Vol. 8, Issue 31 >> Market Update  INFO THAT HITS US WHERE WE LIVE  Last week began nicely with June New Home Sales UP 23.6% to an annual rate of 330,000, well ahead of expectations. This was a sharp rebound from May when New Home Sales sank to record lows not seen since 1963. This volatility of course is all about the homebuyer tax credit (requiring a contract by April 30 and a closing by June 30, now extended to September 30). Consequently, new homes sold at a 422,000 pace in April, fell to a 267,000 pace in May, then went to 330,000 in June. Demographic trends say sales should continue to rebound, as we eventually need to sell new homes at a 950,000 annual rate to meet population growth and replace teardowns. The supply of unsold new homes is now down to 7.6 months, just above the ideal 6-month level. Actual inventories are down to 210,000, their lowest level since 1968, when there were 35% fewer people around. We also saw that home prices rose 4.6% in May, year-over-year, as tracked by the Standard & Poor's/Case-Shiller National Home Price Indices. The 20-city index was UP 1.3% over the prior month, with 19 of the 20 metros showing gains during that period. >> Review of Last Week A HOT MONTH, JULY... The trading month on Wall Street ended Friday with the markets really heated up for July. The Dow Jones Industrial Average was UP 7.1% for the month, while the broadly based S&P 500 finished UP 6.9%. This was the first positive month for U.S. stocks since April. May and June had investors worrying over China's attempts to slow its growth and a European debt crisis which still hasn't had much impact in the U.S. The week had a few negatives to please the bears. For example, the Conference Board's Consumer Confidence Index went to 50.4 in July, its second monthly decline. Yes, consumers are concerned about jobs and the pace of recovery, but the fact is, the economy is growing and businesses are making profits, which they will ultimately invest in more jobs. Gloomy types also jumped on the 1.0% drop in Durable Goods for June, yet "core" capital goods (take out defense and volatile aircraft shipments) were UP 0.2% -- their ninth gain in the past ten months! But the biggest encouragement came from strong second-quarter corporate earnings. With about two-thirds of the S&P500 companies reporting, Thomson Reuters says Q2 operating earnings are on their way to a 36% gain, with revenues UP 9% compared to a year ago. Friday, advanced Q2 GDP came in with real GDP expanding 2.4% annually, UP 3.2% in the last year. So much for the "double-dip" recession. The week ended with the Chicago PMI registering another monthly increase for Midwest manufacturing and University of Michigan Consumer Sentiment also UP from the month before. For the week, the Dow ended UP 0.4%, to 10465.94; the S&P 500 was down 0.1%, to 1101.60; and the Nasdaq was off 0.7%, to 2254.70. Even though July was a good month for stocks, the final week was fairly flat. This sent investors to bonds, bolstering prices. The FNMA 30-year 4.0% bond we follow gained 66 basis points for the week, ending at $102.41. Not surprisingly, Freddie Mac's weekly survey of conforming loans showed national average rates for conforming mortgages down for the sixth week in a row, some hitting record lows. >> This Week’s Forecast THE FED'S FAVORITES...The two things the Fed watches most are inflation and jobs. As long as jobs lag in the recovery, the Fed wants to keep rates down to encourage the economy. But with all the cheap money around, if inflation picks up, the Fed will start hiking rates. Tuesday's PCE readings are expected to show inflation is still not a problem. Friday, we get July's Employment Report, with payrolls forecast to be down, but by a smaller number than in June, and the Unemployment Rate remaining around 9.5%. Tuesday's June Pending Home Sales are expected to be off slightly from their May drop following the expiration of the homebuyer tax credit. Q2 corporate earnings reports continue, including Dow components Procter & Gamble, Pfizer, and Kraft. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of August 2 – August 6  Date Time (ET) Release For Consensus Prior Impact MAug 2 10:00 ISM Index Jul 54.2 56.2 HIGH TuAug 3 08:30 Personal Income Jun 0.1% 0.4% Moderate TuAug 3 08:30 Personal Consumption Expenditures (PCE) Jun 0.0% 0.2% HIGH TuAug 3 08:30 Core PCE Prices Jun 0.1% 0.2% HIGH TuAug 3 10:00 Pending Home Sales Jun –5.0% –30.0% Moderate WAug 4 10:00 ISM Services Index Jul 53.0 53.8 Moderate WAug 4 10:30 Crude Inventories 7/31 NA 7.31M Moderate ThAug 5 08:30 Initial Unemployment Claims 7/31 455K 457K Moderate ThAug 5 08:30 Continuing Unemployment Claims 7/24 4.530M 4.565M Moderate FAug 6 08:30 Average Workweek Jul 34.1 34.1 HIGH FAug 6 08:30 Hourly Earnings Jul 0.1% –0.1% HIGH FAug 6 08:30 Nonfarm Payrolls Jul –87K –125K HIGH FAug 6 08:30 Unemployment Rate Jul 9.6% 9.5% HIGH >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months  The big surprise for economists would be if the Fed touched rates at all from now to November. The central bank first wants to see the economy growing at a far faster rate, with payrolls back on the rise. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Aug 10 0%–0.25% Sep 21 0%–0.25% Nov 3 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Aug 10      <1% Sep 21      <1% Nov 3      <1%

International Monetary Fund Warns of Housing Double-Dip Risk

By Diana Golobay
Signs of recovery in the US economy and housing market are stronger than expected, due to policy response from the federal government, according to the International Monetary Fund (IMF).
While IMF expects US gross domestic product (GDP) growth of 3.25% in 2010 and 3% in 2011, unemployment is projected to remain above 9%.
IMF warned in a statement that "the backlog of foreclosures and high levels of negative equity, combined with elevated unemployment, pose risks of a double dip in housing."
As unemployment declines across the country, resources could be diverted from unemployment aid to targeted measures like credits for hiring, which IMF said could encourage job creation.
The US Department of Labor noted 454,000 initial unemployment insurance claims in the week ending July 3, based on seasonally adjusted data. It marks a 21,000-claim decrease from the previous week but remains historically high. The unemployment rate dropped slightly to 9.5% in June, as the labor force shed 652,000 unemployed workers who — as HousingWire reported — could have stopped looking for work or possibly returned to school.
"In addition, further support for foreclosure mitigation under the existing framework may be needed if the housing market were to weaken," IMF wrote, adding that a worst-case scenario may include reconsideration of mortgage cram-downs within bankruptcy.
The IMF noted that recent reform legislation emphasizes a return to "safe securitization" of assets like mortgages through greater oversight and accountability for ratings agencies, more transparency of the assets, greater emphasis on investor due diligence and "skin in the game" for originators.
"Given the large role that securitization played in the past, and the potential limits to bank balance sheets for creating credit, speedy implementation of these measures would be essential to avoid limits on credit supply that could crimp the recovery," IMF said. "It will also be important to coordinate reforms domestically and internationally to ensure safe securitization and promote a level playing field."
In the meantime, the housing finance system remains "costly, inefficient and complex," according to the note.
Additionally, the IMF recommended a clarification of government-sponsored enterprise (GSE) mandates and a privatization of their retained portfolios. Fannie Mae and Freddie Mac's core bundling and guarantee business lines "should be made explicitly public," the IMF said.

Inside Lending for week of June 8,2010......

For the week of June 7, 2010 – Vol. 8, Issue 23

>> Market Update  INFO THAT HITS US WHERE WE LIVE  The National Association of Realtors (NAR) reported the Pending  Homes Sales index rose in April for the third month in a row, registering a 6% increase over the upwardly revised March figure. This index measures the number of homebuyers signing purchase contracts. April Pending Home Sales hit their highest level since October 2009 and are UP 22.4% year-over-year. Like Existing and New Home Sales the week before, a good part of the gain was put to the tax credit expiration that required a signed contract by April 30. The NAR also forecast new home sales will be UP 18.5% for the year. April construction increased 2.7%, its fastest gain in a decade. This includes commercial, government, and home construction. Home improvements led the residential gain, but new single-family homes were up as well, showing increased confidence among home builders. >> Review of Last Week SUMMER SLUMP... Summer fun starts with Memorial Day but the holiday-shortened trading week ended with a slump in stocks on Friday. This was driven by concerns that Hungary may default on its debt, followed by the May Employment Report, whose payroll numbers were lower than expected and had investors selling off big time. The Dow lost over 300 points on the day and all three major indexes were down for the week. The facts did not actually justify such extreme investor reaction. No U.S. bank has major exposure to European debt and Europe accounts for only a minor percentage of our export business. Yes, the employment report showed a headline payroll number below expectations, with the private sector adding just 41,000 jobs. But the average workweek went from 34.1 to 34.2 hours. If hours per worker had remained the same, that extra labor demand would have created 315,000 more private sector jobs. For the moment, employers are clearly preferring to meet rising labor needs with more hours for existing workers, rather than new hires. Ignored in all the negative hoopla was the DROP in the unemployment rate to 9.7%, which beat expectations. Before Friday's market slide, other economic data had sent stock prices up. We had the great Pending Home Sales gain covered above. The ISM Manufacturing index continued to show strength in that sector, hitting levels not seen since 2004, while the ISM Services index showed non-manufacturing business at its highest level in almost four years. And final Q1 productivity came in at a 2.8% annual growth rate, UP 6.1% from a year ago. For the week, the Dow ended down 2.0%, to 9931.97; the S&P 500 was down 2.3%, to 1064.88; and the Nasdaq was down 1.7%, to 2219.17. Bonds blasted skyward on Friday fueled by the goulash coming out of Hungary, then boosted further by the lower than expected payroll numbers. The flight to safety benefited the FNMA 30-year 4.5% bond we watch, which closed UP 66 basis points for the week, ending at $102.69. National average mortgage rates held at their historic levels for another week, according to Freddie Mac's weekly survey.  >> This Week’s Forecast CONSUMERS WEIGH IN... This is a fairly quiet week for economic data, but we'll have a good look at the consumer's participation in the recovery with Friday's May Retail Sales. The June Michigan Consumer Sentiment index will follow. Expectations are for continued improvements in these numbers. Initial and Continuing Unemployment claims will also be watched closely given last week's jobs report. Thursday's April Trade Balance will show us the strength of U.S. business in the global economy. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Time for the Mortgage Industry to Get Social

by Rick Grant

I think the mortgage industry is finally moving toward the social media tools that other industries have been finding so useful over the past couple of years. I know this because I can hear them kicking and screaming.
I’ll admit that the conservative banking industry probably deserved to be among the last to the party, but it’s been going on for some time now and if mortgage lenders are going to get any benefit out of the new media tools and social networking websites that are all the rage, now is the time to get moving.
Some of the industry’s largest companies have begun work on their new social media policies, which they believe will result in Twitter accounts, Facebook pages and LinkedIn proliferation within their organizations. I hope they’re right, but they’re probably not. Conversations with at least one marketing department tasked with looking into the benefits of a possible Facebook page revealed frustration. They can’t access Facebook from inside the enterprise because management deemed it unnecessary in the past.
There’s also concern that the B2B customers this company serves won’t have access to Facebook either, at least not from work. They’re probably right.
It should be easier on the B2C side, but a conversation I had today with a Florida mortgage originator revealed that since his customers come to him via referral, having a social media website just doesn’t seem worth the investment. Since most of his referrals are coming in from real estate agents, which is an excellent way to prospect for leads in our business, he’s not sure that they would use a Facebook page, say, to share information about his company.
He could be right. Agents are not likely to go online and share their best resources with just anyone who wants to log on. But what about his satisfied customers? They’re all over Facebook.
Now, I realize that back when loan originators pitched a loan over the fence to a closing agent and let the title company worry about fixing the HUD-1 at the closing table, goodwill was not a commodity we saw very often in this industry. But now that the borrower cannot be surprised at closing (unless a fee increase of 5% or less surprises them), customer satisfaction is almost certain to go up. You want those satisfied customers referring you to their friends and family. There’s no easier way to do that than social media.
For those of you are still resisting this, who don’t even know that REO Expo is all over social media this week and information is flowing almost effortlessly from that event out to anyone who knows how to get a free Twitter account or click “like” on the event’s Facebook page, quit stalling.
The time for social media in the mortgage industry is now.

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For the week of May 31, 2010 – Vol. 8, Issue 22

>> Market Update  INFO THAT HITS US WHERE WE LIVE  For the third month in a row, Existing Home Sales beat expectations, UP 7.6% for April and UP 22.8% over a year ago. A lot of the gain was put to the tax credit expiration that required a signed contract by April 30. But buyers have till June 30 to close, so observers feel sales will probably increase for the next couple of months, then take a short break before rising again. Inventories were up from 8.1 to 8.4 months, but this is similar to April gains in prior years, rather than evidence of some huge "shadow inventory" hitting the market. Meanwhile, the median price for an existing home went to $173,000, up 4.0% from a year ago. April New Home Sales shot UP 14.8%, reaching a 504,000 annual rate, their highest level since May 2008. The supply fell to 5.0 months in March and inventories dropped to 211,000 -- their lowest level since 1968, down 63.1% from their mid-2006 peak. The tax credit expiration also contributed to these great numbers. But the fact remains, new homes are now significantly more affordable, thanks to prices that are the lowest since 2003 and extremely low mortgage interest rates. Two home price indicators gave mixed signals. The Case-Shiller index for the 20 top metro areas was down 0.5% for March but UP 2.3% for the year. The FHFA price index for homes bought with conforming mortgages was UP 0.3% for the month but down 2.2% for the year. >> Review of Last Week THANK YOU, CHINA... Call it a somewhat volatile week in the stock markets, as investors continued to fret over Europe's financial health, the Gulf oil spill and North Korea. Then Thursday China stepped in as a solid buyer of Eurozone bonds, giving Wall Street ample reason to calm down, leaving two major indexes up for the week, with the Dow off just 0.6%. We continue to get good factory data, with the Richmond Fed manufacturing index at +26 for May indicating continued expansion in the Mid-Atlantic region. The Chicago PMI manufacturing index also showed growth, though slightly slower than the month before. Durable Goods were UP 2.9% for April and UP 18.9% over a year ago. Especially encouraging, orders for capital goods used in production were UP 7.4% for April and UP 30% over a year ago, one of the steepest annual boosts in the last 20 years.  Real Q1 GDP was revised down slightly to 3.0% annual growth. But Q1 corporate profits grew at a 24% annual rate and are UP 31% over a year ago. Economists expect these profits to boost hiring and business investments. Q1 prices were up only 1% annually, so inflation is still under control. April Personal Income came in UP 0.4% and Personal Consumption was flat, but economists feel it's normal for consumers to take a break every few months. University of Michigan Consumer Sentiment was UP to 73.6. For the week, the Dow ended down 0.6%, to 10136.63; but the S&P 500 was UP 0.2%, to 1089.41 and the Nasdaq was UP 1.3%, to 2257.04. Bonds also had an up-and-down week, finally recovering on Friday to end in pretty good shape. The FNMA 30-year 4.5% bond we watch closed down 13 basis points for the week, ending at $102.03. National average mortgage rates continued near record lows, according to Freddie Mac's weekly survey. Their Chief Economist feels this should soften the effect of the expiration of the homebuyer tax credit. >> This Week’s Forecast LOOKING FOR JOBS... The economic news of the week is dominated by the May employment report on Friday. Expectations are that a substantial number of jobs will be added, but increases in the workforce population will cut the unemployment rate by just 0.1%. On our way to this big news, we'll be interested to check out April Pending Home Sales, which should continue to show gains. Tuesday's ISM manufacturing read and Thursday's ISM Services and revised Q1 Productivity should also provide more support for our continuing recovery.  >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of May 31 – June 4  Date Time (ET) Release For Consensus Prior Impact TuJun 1 10:00 ISM Index May 58.9 60.4 HIGH WJun 2 10:00 Pending Home Sales Apr 3.5% 5.3% Moderate WJun 2 10:30 Crude Inventories 5/29 NA 2.46M Moderate ThJun 3 08:30 Initial Unemployment Claims 5/29 455K 460K Moderate ThJun 3 08:30 Continuing Unemployment Claims 5/22 4.600M 4.607M Moderate ThJun 3 08:30 Productivity–Rev. Q1 3.4% 3.6% Moderate ThJun 3 10:00 ISM Services May 55.5 55.4 Moderate FJun 4 08:30 Average Workweek May 34.1 34.1 HIGH FJun 4 08:30 Hourly Earnings May 0.1% 0.0% HIGH FJun 4 08:30 Nonfarm Payrolls May 500K 290K HIGH FJun 4 08:30 Unemployment Rate May 9.8% 9.9% HIGH >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months  The sense among economists is becoming stronger that the Fed will hold interest rates at current levels through the end of the year, as inflation stays tame. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Jun 23 0%–0.25% Aug 10 0%–0.25% Sep 21 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Jun 23      2% Aug 10      7% Sep 21      11%

Important Update: Mortgage Loan Originator Licensing in Georgia

Important Update on Mortgage Loan Originator Licensing in Georgia

The Georgia Department of Banking and Finance (Department) has just received confirmation from the U.S. Housing and Urban Development (HUD), the federal administrator of the S.A.F.E. Mortgage Licensing Act of 2008, that individuals may continue to conduct business as mortgage loan originators without being licensed until the close of business on July 31, 2010. Therefore, in an effort to minimize possible interruptions in employment the Department will allow loan originators lawfully employed by Georgia mortgage brokers and lenders to continue to work in the industry until the close of business on July 31, 2010, unless they have been notified otherwise by the Department.

Please Note: All complete applications for mortgage loan originator licenses that were received by the Department prior to the close of business on April 16, 2010, will be reviewed and acted upon prior to July 31, 2010. All complete applications for mortgage loan originator licenses received after April 16, 2010, will be reviewed and acted upon on a first come, first serve basis AFTER all the applications received prior to the April 16, 2010, have been processed.

Please be aware that the longer an individual waits to send a complete application to the Department, the greater the likelihood exists that an interruption in his or her employment will occur. All mortgage loan originators that have not had their applications acted upon by this Department by close of business July 31, 2010, must cease operating as a mortgage loan originator until the Department has reviewed and acted upon their applications.

Additionally, it is requested that mortgage loan originators refrain from calling the Department to ask for status updates regarding licensure. The Department is working very diligently to process thousands of applications that have been filed and must direct the full efforts of its limited staff to executing this function. Thank you for your cooperation in this matter.