“Cuz they ain’t makin’ any more of it” is the traditional response to the question about why should anyone buy real estate. But builders, straining to find decent land for houses and decent people to build them, have decided to slice and dice their existing lots into smaller pieces. (Kind of like reducing the size of the cereal box but keeping the price the same.) Lot sizes for new homes are the smallest on record, according to the NAHB, down to 8,600 square feet from 10,000 square feet twenty years ago. (One acre is 43,560 square feet.) Interestingly, the average square footage of new homes has increased by 150 since the real estate bust.

How many new bank officers know about the "Three C's of Credit" - character, capital, and capacity. One measure of this is a credit score... and things are a changin' in the biz. Let's see what is going on out there in terms of credit scores, and how credit is changing the home buying process.

FICO reports the percentage of Americans with subprime credit scores (300 to 599) has declined to 20.7%, the lowest level in 10Ys and the 6th consecutive YOY drop.

But mortgage credit availability decreased in June, according to the MBA's Mortgage Credit Availability Index. Conventional loans had the biggest tightening, while government loans only tightened slightly. A number of investors discontinued conventional high balance 7-year ARMs, while keeping their 5 and 10 year ARMs intact. The survey began in early 2012 at 100, which more or less marks the bottom of the real estate bust. If you use the same methodology to project what the index would have been previously, it would have peaked at about 900 in 2006, compared to 120, where it is today.

NYCB Mortgage updated its guidelines on Jumbo Fixed 30 year effective July 11^th. Updates include changes to Borrower Eligibility, Eligibility Criteria, Property and Appraisal Eligibility and Credit History and Liability Requirements. Details are available in its Jumbo Fixed 30 Year Eligibility Guide [WSL 1195].

Plenty of companies seem to be creeping down the credit curve. How about that SunTrust Bank product which often has same-day funding? Its LightStream product is truly contributing to its bottom line: the "super prime" loan (750+ FICO) comes from its digital consumer lending channel and it is doing about $1.5 billion annually. Delinquencies, as one might guess, are very low although the product is relatively new. LightStream loans are classified under "consumer direct loans" which have grown by 196%, or by $4.2 billion to $6.4 billion since 2012. SunTrust acquired FirstAgain, LLC - a small online lending platform that specialized in unsecured loans to super-prime borrowers over the internet - in 2012.

As we saw from a recent FHFA House Price index, home prices have recouped their losses from the bubble years. Is it time to start worrying about a new housing bubble? Freddie Mac takes a look at real estate prices relative to incomes, credit scores, inventory, and leverage in the system and concludes that it is not yet time to worry. While house prices are indeed stretched relative to incomes, that figure ignores the effect of interest rates. The overall credit profile for new originations has been strong since the crisis, and while we are beginning to see some credit deterioration in the oil states, it is nothing like 2007-2008. Tight inventory remains a huge issue in terms of pricing, and new construction is still well below historical levels. Consumers are increasing mortgage debt but they seem to be using the cash-out refi to pay down credit card debt instead off funding consumption. The froth in the housing market still remains concentrated in the big coastal urban areas like San Francisco and Manhattan, which is driven by foreign demand. 

Purchase loans are the majority of new originations despite the rally in bonds, according to Ellie Mae's Origination Insight Report. Purchases accounted for 62% of all loans. Days to close increased a day to 45 days and average FICO increased a point to 724. 

Genworth Mortgage Insurance released the results of a study conducted on-site at this year's MBA Secondary Conference in May which includes information on credit. Of the 120 executives surveyed on-site, 78 percent believe first time homebuyers will either retain or grow their market share in existing home sales. Inventory is struggling to keep up with this surge in demand, and down payments were identified in the survey as a major obstacle to purchasing a home (64% of respondents). This is leading to a return of alternate solutions such as 80-10-10s (piggybacks), which 49 percent of respondents expressed concern about (up from 38% when respondents were polled at the 2014 MBA Conference). 

Genworth suggests that with increasing demand comes the need for continued disciplined underwriting to ensure prudent and affordable home accessibility. The survey shows surging demand & tighter inventory but with some new opportunities. "Key findings showed that, when forecasting existing home sales, 78 percent of respondents expect first-time homebuyer market share to either continue at current levels or increase by at least three percentage points. This surge in new purchasers has driven demand, leading to tighter inventory. 

"'Our industry, via this year's survey data, acknowledges the first-time homebuyer's rise as a key component of the homeownership mix,' said Rohit Gupta, President and CEO of Genworth Mortgage Insurance. 'To support this demand, we must stay true to the great strides we have made in improving underwriting quality, making private capital available, and expanding the availability of prudent and affordable low down payment mortgages. Under these circumstances, it is important that all industry participants continue work to ensure we have an accessible, efficient, and innovative environment for new mortgage originations.'

"...when forecasting existing home sales, almost eight of every ten (78 percent) respondents expect first-time homebuyer market share to either continue at current levels (47 percent chose this option) or increase by at least three percentage points (31 percent chose this option). Twenty-two percent expect to see a decrease of at least two percentage points. The added demand created by this group has played a factor in the tightening inventory seen in today's housing market. 

"But home accessibility is still an issue...When identifying the top obstacle limiting borrower access to mortgage credit, 64 percent of respondents cited the lack of a sufficient down payment. An additional 16 percent believe a lack of adequate income when applying for a loan was the greatest obstacle. Nine percent indicated home price affordability was the biggest hurdle, and an additional eight percent cited poor borrower credit scores. Only three percent of respondents believe there are not any major hurdles with borrowers' access to mortgage credit in today's environment.

"So lenders are looking for alternative solutions to meet demand...The return of piggyback mortgages (80-10-10s) is a growing concern for industry executives. At this year's MBA Secondary Conference, 49 percent of respondents expressed concern about the return of this vehicle, whereas only 38 percent of respondents voiced the same concern in Genworth's 2014 MBA Annual Conference survey. Of the 49 percent who expressed concern in 2016, 31 percent believe those who sign up for these loans may not understand the full risks involved, and 18 percent believe borrowers run the risk of over-levering themselves. The 51 percent of respondents who do not view piggybacks as a concern believe borrowers are responsible for their own decisions.

The report finished up with a note on technology. "While many firms in the industry have begun investing in improving their technological infrastructure, these investments can carry long lead times before showing a true impact. This seems to be influencing the industry's perception of where it ranks in terms of technological integration. Almost half of respondents (49 percent) believe that technological integration into the home lending process is subpar. Thirty-eight percent of respondents believe that technology integration today is average, and only 13 percent believe technology integration is strong."

Turning to interest rates, now the yield on the 10-year risk-free T-note is above where it was soon after the Brexit vote. Why? First off, the world didn't end. It will take years, possibly decades to resolve. And lots of experts think the impact on the U.S. will be minimal. Tuesday's market activity was attributed to the poor demand for the regular 10-year auction paired up with a huge supply calendar today EGBs, corporate debt being sold, and our $12 billion 30-year bond auction - there's only so much demand, right?

On the agency mortgage-backed security side of things, the Fed did its usual buying of a couple billion a day of current coupon production. For numbers yesterday the 10-year sold off .75 in price but 5-year T-notes only worsened .25. Agency MBS prices sank about .125.

This morning we've already had the MBA's application survey numbers from last week (+7% with refis leading the charge +11% - refis now account for 64% of all applications). We've also had June import prices (+.2%). And don't forget to ante up those pennies for the final leg of this week's mini-refunding when $12 billion reopened 30-year bonds are auctioned. And then, for more thrills and chills, at 2PM the Fed's Beige Book will be released along with the June budget statement.

Tuesday the 10-year closed at a yield of 1.51% and this morning it's back down to 1.47% with agency MBS prices better by .125-.250.

Jobs And Announcements

In ops job news MegaStar Financial Corp. continues to experience steady growth and is seeking experienced Jumbo/Agency/FHA underwriters to work from home or its Denver office. "Maintaining our record of 24-hour underwriting turn times for years is a team effort developed through our culture of accountability and integrity that earn our team members the autonomy they need to be an elite mortgage banker. As a result, we enjoy a 95% retention rate for team members that have a 4+ year tenure. We offer the ability to earn Presidents Club not only to sales, but to all our employees based on quality then quantity. MegaStar Financial Corp. is a retail mortgage banker and servicer headquartered in Denver, CO. We are a FNMA and GNMA direct and have branches across the United States. Inquire and learn more about our culture that provides education, growth and fun. Winning a championship is not as important as the lifelong memories that we create with the customer service and corporate support of our team members." Resumes should be directed to humanresources@megastarfinancial.com.

In retail news Trankie Tiscareno has joined Big Valley Mortgage as the Branch Manager of Fresno -scheduled to open in August. "With more than 20 years of experience in the mortgage industry, Trankie is thrilled to have the opportunity to lead the Fresno team while bringing BVM's vision and culture to the Fresno community. According to Senior Vice President, Michael Pankow, 'We are excited and well-positioned to expand the BVM brand into Fresno. With Trankie leading the team, I strongly believe that our core values and our commitment to customer service will resonate well with consumers, realtors, and loan officers within the Fresno community.' Big Valley Mortgage, founded in 1990, funded over $770 million last year and is a DBA of American Pacific Mortgage which ranked #15 in the nation according to the 2015 Mortgage Executive Magazine with $8.01 billion in loan volume. 

And on the TPO side of things Franklin American Mortgage, one of the nation's top ten wholesale lenders, is seeking experienced account executives for several US cities. Franklin American Mortgage Wholesale Lending is seeking highly-motivated, experienced sales professionals to serve as account executives in the following cities: Atlanta, Baltimore, Charleston (SC), Chicago, Cleveland, Jackson (MS), Los Angeles, Salt Lake City, and Trenton (NJ). Responsibilities include developing prospective accounts, maintaining loan production from active accounts, and educating both prospective and active accounts about product changes and updates. For more information on these positions and to apply online, please visit FAMC Jobs or e-mail Jennifer Rader for more information. Franklin American Mortgage is FHA Direct Endorsed (DE), VA Automatic and LAPP Approved, FNMA/FHLMC and GNMA approved seller servicer.

If you're interested in measuring borrower satisfaction, the folks at MortgageSAT, part of the STRATMOR Group, are at it again. They had such good response to their customer satisfaction webinar in February they decided to do it twice a year and share their perspective on borrower satisfaction. You are probably aware they work with a variety of lenders, but maybe not aware that they have received over 115,000 completed surveys since the beginning of 2015. Those lenders have multiple origination channels (retail, wholesale, consumer direct, builder, etc.) which gives MortgageSAT great understanding on what drives borrower's satisfaction. They are having two free webinars next week on borrower satisfaction in the first half of 2016. Contact Tim Ryan with any questions.