Freddie Mac reported that average mortgage rates rose in the week through June 27, with 30-yrs hitting 4.46%, from 3.93% the prior week. This was the largest weekly increase in 26 years. While the survey results are released on Thursday, the timing of the data collection means that the data better reflects changes from Monday to Monday or Tuesday to Tuesday than Thursday to Thursday each week. The Primary Mortgage Market Survey (PMMS) is sent on Monday with a response due back by Wednesday. Most responses are completed and submitted on Monday or Tuesday. The responses are averaged and the results are released on Thursday. The survey results, therefore, reflect the average rate and points borrowers were being offered on Monday and/or early Tuesday. Changes in the market since Monday/Tuesday can make the published data misleading when compared to rates and points actually being offered on Thursday. This week, mortgage rates have improved substantially since the survey period earlier in the week. If the survey were conducted this morning, the results for 30-yr rates would be 20 to 25 basis points lower.
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We have received a few questions today about why mortgage-backed securities (MBS) prices do not show the same drop in prices as seen from the Fannie Mae window. The reason is that Fannie Mae, this morning, built into their whole loan prices an increase in their required guarantee fee (G-fee). Since G-fees are paid from the borrower's loan rate and not by the owner of an MBS, MBS prices are unaffected by a change in G-fees. Most lender rate sheets began reflecting the increase in G-fees over the last few weeks, depending on lock term and delivery method.
FHFA has answered a couple of the questions we raised on Tuesday regarding the Congressionally mandated increase in Fannie Mae and Freddie Mac guarantee fees (G-fees). Effective April 1st all G-fees charged by Fannie and Freddie will be increased by 10 basis points. In addition, FHFA said that during the first part of 2012 they will determine whether the new law will require additional increases in the G-fees. Since G-fees are paid from the interest on a loan, this increase will cause mortgage rates on loans going into Fannie and Freddie mortgage-backed securities after April 1st to rise by a similar amount.
You are an investor and you have money to invest. Do you invest it in the mortgage industry? Those of us who have been here and who have been beat up over the last few years would probably think twice about doing so. We might think about all the rule changes and all the regulations and all the buy backs. We might convince ourselves this is not the right place to invest our money. But there is a lot of money out there that thinks the mortgage industry is a good place to be invested. Let's consider some of the positives that they see. Margins are high, competition is shrinking, good service is rewarded, loan quality has never been better, and collateral values will unlikely fall further. Increasing net worth requirements over the coming months will drive even more competitors from the industry. Those who are left in the industry will be worthy competitors, but they will be honest competitors. As many independent mortgage bankers realize the need to raise new capital they will begin to talk to the investment and will consider giving away substantial percentages of their company to raise the capital. Before they do so, they might [...]
Michael Lau, EVP of Phoenix Capital, a specialist in evaluating and brokering mortgage servicing rights, joined the LykkenonLending blog-talk-radio show this week to provide his opinions on the status of the mortgage servicing market. According to Michael, the market for servicer-to-servicer bulk transfers is just about non-existent. The only portfolios changing hands are done to move servicing of delinquent or distressed loans to special servicers. Fortunately, the market for servicing on newly originated loans is still active. There are a number of servicers buying this servicing, but they are paying very little for it. Michael sees the price paid for flow serving as being between two and four times the service fee. I remember being paid six to seven times the servicing fee on 2003 and 2004 originations. How can servicing on loans that may never pay off (4% note rates) be worth only two to four times? Servicing on today’s loans is worth more. Now is a good time to consider keeping servicing on new production, if you can. Hold on to it for three or four years and then sell it. You need to have cash reserves, experienced people, and quality systems to be a servicer. If you [...]
Mortgage rates have moved higher (mortgage security prices have moved lower) and strangely enough QE2 deserves much of the blame. The Fed intended for the opposite to happen. As they purchase their $600 billion in long-term Treasury securities, the Fed expected the added demand would drive prices higher and rates lower, not only for Treasury securities, but for mortgage backed securities as well. Things have not happened as planned. The Fed began their Treasury purchases on Friday and MBS prices fell 27/32nds. The Fed continued their Treasury purchases today and MBS prices are down another 16/32nds. So what has gone wrong? Some of the issue is that MBS prices rose considerably in the weeks preceding the Fed’s announcement that they were going to buy $600 billion of Treasury securities. The much anticipated announcement had already accomplished much of the expected end result before it even started. After the announcement, sentiment toward the benefits from the plan shifted. Investors worldwide began to doubt the Fed’s ability to control rising inflation when it begins. Foreign investors recalculated their required returns after seeing the value of the dollar fall to recent lows. Political power in the US shifted from the Democrats to the [...]