on: September 01, 2015, 01:07:55 PM
Started by Crafty_Dog - Last post by ppulatie
One of the key issues facing Mortgage Lending is the risk of new Mortgage Loans defaulting. The CFPB and Dodd Frank took action to "reduce" risk by approving new Mortgage Lending rules.
Ed Pinto of the American Enterprise Institute and formerly Credit Risk Officer of Fannie Mae, created a Mortgage Risk Index for new loans being approved. The Index rates the risk of default of both GSE and FHA/VA loans. The methodology he used was similar to what I used with my former partners, though ours was much more "advanced" in metrics. However, the results were similar in nature.
The most recent look at Mortgage Risk for new loans originated in Jul 2014. I have highlighted in bold key points. (The percentages quoted are the percentage of High Risk Default loans for the month.)
National mortgage risk index up slightly in July
Risk has increased every month since January 2014
The composite National Mortgage Risk Index for Agency purchase loans stood at 12.09% in July, down 0.2 percentage point from the average for the prior three months, but up 0.6 percentage point from a year earlier.
The monthly composite, produced by the American Enterprise Institute’s International Center on Housing Risk, has increased year-over-year in every month since January 2014.
Agency loan originations continued to migrate from large banks to nonbanks in July.
This shift in market share has accounted for much of the upward trend in the composite NMRI, as nonbank lending is substantially riskier than the large bank business it replaces.
“Historically low mortgage rates, an improving labor market, and loose credit standards especially for first time buyers, combined with a 35-month-long seller’s market for existing homes, continue to drive up home prices faster than income growth,” said Edward Pinto, codirector of the Center.
Increasing leverage in a seller’s market is pushing up real home prices, now 12.5% above the trough reached in the second quarter of 2012, moving the goal post further away for many aspiring low- and middle-income homebuyers.
The NMRI results are based on nearly the universe of home purchase loans with a government guarantee.
In July, the NMRI data included 264,000 such purchase loans, up 12% from a year earlier. With the addition of these loans, the total number of loans that have been risk rated in the NMRI since November 2012 increased to 6.7 million.
Other takeaways from the July NMRI include:
The NMRI for first-time buyers hit 15.40%, up 0.9 percentage point from a year earlier, and well above the Repeat Buyer NMRI of 9.68%.
The Spring homebuying season has been very strong, buoyed by robust first-time buyer volume driven by an improving job market and increasing leverage.
About 140,000 purchase loans for first-time buyers were added in July, up almost 16% from a year earlier, bringing the total number of first-time home buyer loans in the NMRI to 3.0 million (April 2013 – July 2015).
A non-stop seller’s market since September 2012 has been fueled by historically low mortgage rates and high, growing leverage. As a result, real home prices have been increasing since 2012:Q3, far outstripping income growth and crimping affordability.
Credit standards for first-time home buyers are not tight.
In July, 71% had down payments of 5% or less, 25% had DTIs greater than the QM limit of 43%, and the median FICO score was 709, a bit below the median for all individuals in the U.S.
20.7% of first-time buyers in July had subprime credit (a FICO score below 660), up from 18.9% in July 2014
The reduction in FHA’s mortgage insurance premium cut has boosted its market share to 29.1% in July from 23.7% in July 2014.
This increase has come at the expense of its most direct competitors: Fannie Mae (July market share at 33.5% down from 36.7% in July 2014) and the Rural Housing Service (July market share at 3.3% down from 5.1% in July 2014).
Riskier FHA loans have been used to purchase higher priced homes.
The collapse in large-bank market share continued in July, offset by nonbanks, which have a much higher MRI.
“FHA’s premium cut does not appear to have achieved its goal of increasing access to homeownership,” said Stephen Oliner, codirector of the Center. “Rather, FHA largely has stolen business from other government agencies and has enabled borrowers to buy more expensive homes.”
The percentages represent all of the loans. Broken down:
Fannie Mae High Risk Loans were 14.49%
Freddie Mac High Risk Loans were 9.83%
FHA High Risk Loans were 86.77% (No, that is not a mistake)
VA High Risk Loans were 40.85%
(Medium Risk loans add another 27% to Fannie/Freddie, 32% to VA, and 10% to FHA.)
High Risk loans are based upon three factors
Loan to Value
Debt to Income Ratio
These numbers are frightening to say the least. Yet they are consistent month over month and year over year. That is not to say that all of these loans will default, but given another financial crisis, one could expect that most would do so. (VA is different. Though high risk, VA loans default in record loan numbers. It is likely because VA underwriters using actual Disposable Income and likely also represents the "discipline" that military service installs in a person."
These numbers are generated using comparable loans originated in 2007. What must be remembered is that the first part of 2007 saw lending standards beginning to be tightened, but were still similar to 2006 loans originated.
Given another financial crisis, recession, or other economic event, it is expected that these loans would default in high numbers. That is why, besides the Modification and Delinquent loan data information I post explaining why the crisis has not been alleviated, i expect things to crash again. This is a view shared with many others in the industry.
on: September 01, 2015, 12:38:24 PM
Started by Crafty_Dog - Last post by Crafty_Dog
The ISM Manufacturing Index Declined to 51.1 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
The ISM manufacturing index declined to 51.1 in August, coming in below the consensus expected level of 52.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly lower in August, but all stand above 50. The new orders index fell to 51.7 from 56.5, while the production index moved lower to 53.6 from 56.0. The employment index slipped to 51.2 from 52.7. The supplier deliveries index rose to 50.7 from 48.9.
The prices paid index declined to 39.0 in August from 44.0 in July.
Implications: First things first. Yes, today’s report from the ISM showed the lowest reading for the headline index going back to 2013, but it is important to remember that the index measures the pace of expansion and contraction. Levels above 50 represent expansion, so while August’s reading of 51.1 is lower than July’s reading of 52.7, that does not mean that activity has declined, but that it continues to expand at a slightly slower pace than in recent months. It’s hard to draw many conclusions from the report, other than that the economy continues to grow at a moderate pace. The overall index has now remained above 50 (levels higher than 50 signal expansion) for 32 consecutive months. In addition, each of the major measures of activity showed expansion in August. The new orders index, the most forward looking measure, declined to 51.7 in August from 56.5 in July. This measure accelerated for each of the previous four months, and a temporary slowdown in the pace of growth is nothing to worry about. The production index followed new orders lower, declining to 53.6 from 56.0. In other words, the two key areas of the report focused on actual production took a breather in August, but still show signs of continued growth. With new orders continuing to expand, expect sustained strength in production in the months ahead. While the overall index remains below the peak of 58.1 seen in August 2014, we don’t believe this is anything to worry about. Remember that the economy was unusually strong in the summer of last year as it recovered from bad weather in the first quarter of 2014. The employment index fell in August to 51.2, representing continued growth in hiring, but at a slower pace than in recent months. Combined with recent data on initial and continuing claims, we estimate that jobs expanded by 196,000 in August. On the inflation front, the prices paid index declined to 39.0 in August from 44.0 in July, as falling prices for crude oil and raw metals helped push prices lower for fourteen of the eighteen industries reporting. The prices paid index has now shown contraction in prices for ten consecutive months. Taken as a whole, this month’s ISM report, with modest expansion across the major measures of activity, signals continued plow-horse growth in the months ahead. In other news this morning, construction increased 0.7% in July, while construction was also revised up substantially for June. The gain in July was led by private single family home construction as well as manufacturing facilities.
on: September 01, 2015, 12:27:44 PM
Started by Crafty_Dog - Last post by ppulatie
Such could have been said about Reagan also.
BTW, just had a phone call from the RNC seeking money. Went like this.
RNC: "Hi, Reince Priebus the head of the RNC asked me to personally give you a call. He is counting on your support to win the election in 2016."
Me: "Supporting Rep candidates like Bush, Boenher, McConnell and others?
RNC: Absolutely! Can we count on your support and a donation?
Me: Why would I do that? We have had enough Bushes, and Boenher and McConnell act like neutered pigs.
RNC: They are doing what they can to support Conservative values?
Me: Amnesty, opposing border fences, Common Core, increasing Big Government, Not opposing Obamacare, giving in to Dem positions, Corker giving in the the Iran Agreement, why would I want to support that?
RNC: We need more Conservatives elected to help them, and to get a Republican President to move forward........
Me: Like McCain, Romney, and I am expected to support another loser like Bush, Rubio or Christie? I will give any donations directly to a candidate that I like. In this case, it will be Trump. He speaks to issues that need to be addressed, and not by phonies like Bush.
And, if the GOP and RNC push Bush on me as the nominee, I will not vote, nor will my family. We will not accept Bush.
RNC: But Hillary could be President.....
Me: So what? You are all the same. It is all about power and money. They don't care about me.............
RNC: Hang up............