The Federal Reserve Bank of New York, the same folks that buy all those agency MBS every week, tells us that the total outstanding balance of student loans reached $1.03 trillion as of 9/30/13 and the delinquency rate (defined as at least 90 days delinquent as weighted by dollar) is nearly 12%. (The delinquency rate was just 6% in 2003.) As a comparison, there is $10+ trillion in outstanding mortgages here in the US of A, and as of September 30^th, 1 out of every 10.3 home mortgages (9.8%) are either delinquent or are in the foreclosure process. To put that in perspective, at the end of 2009 1 out of every 6.7 home mortgages (15.0%) was either delinquent or was in the foreclosure process. For you who love numbers with lots of zeros after them, thanks to the NY Fed here you go.

Twenty seven business days until QM…tick tock…

Planning on giving out a few things for the holidays to special clients? Think twice about it! Ken Perry writes, “Hey Rob, as we get closer to the holidays we think about presents, parties, and RESPA! I am always surprised to see so many LO’s getting ‘confused’ around the myth of $25 gifts being OK for referral partners. We need to remember that anything given in exchange for, or anticipation of, a referral can get you in hot water with RESPA. We recommend additional training on holiday gifts and parties for all loan officers to be reminded of the laws that regulate their relationships. We have a video our Knowledge Coop clients use as a 3 minute reminder.” Here you go.

Continuing on the “non-written word” theme, a few weeks ago the American Law Group and AllRegs hosted a webinar on QM but unfortunately the AllRegs webinar system was not working out given the volume of participants (they could not mute those who were logging in late) and the whole webinar had to be cancelled.  Regardless, the moment it ended, sound technicians went ahead and recorded the whole webinar and have sent the recording to all those people who registered along with the PowerPoint presentation. Here, for your listening pleasure, is the recording.

Back, say, in the 1980’s when you wanted to know the exact time to set clocks or a wrist watch, you could pick up the phone and dial a number to get an automated response. In Northern California, for example, it was known as “Popcorn”...“at the tone, the time is……and 20 seconds." Alas, in 2007 this public service was discontinued in most of the United States due to a lack of demand. Are ARMs going the way of “popcorn”? Probably not, but demand for adjustable rate residential mortgages has slipped due in large part to ARM borrower profiles since the housing crisis, and restrictive underwriting policies imposed by the GSEs. Is this helping borrowers’ options? Ask most lenders, and their share of ARM business is easily less than 10%, and the MBA’s application numbers show new apps around 5-7%. Apparently fixed rates are still pretty darned good.

Looking at the securities side of things, over the first ten months of 2013, the gross AND net issuance of Hybrid ARM pools has totaled around $37.5B and -$30B, respectively. Although the importance of the hybrid ARM sector in the agency MBS market has declined due to the current low levels of issuance, it had presented some very attractive relative value trading opportunities to investors throughout the year. The issuance of Fannie and Freddie pools was about $15B per GSE while the issuance of GNMA pools totaled $7B YTD 2013. The GNMA share of aggregate issuance (approximately 20%) continues to remain elevated from a historical perspective. However, GN 3/1 issuance has declined sharply over the past few months following the exit of Mortgage Investors Corporation (MIC) from the origination business. The Hybrid ARM sector has also witnessed negative net issuance for the second consecutive year, likely because borrowers refinanced into fixed rate loans to take advantage of the historically low rates. Additionally, a major portion of the recent ARM issuance has come from refinance loans. Analysts estimate that around 70% of aggregate ARM issuance over the past few years has come from refinance loans and there has been a steady decline in the share of ARMs in total agency MBS issuance.

According to a few mortgage market papers I have read in the past few weeks, domestic banks own close to 27% of all outstanding agency MBS. Okay, believe it or not I don’t read any “mortgage market papers”, but at these levels of ownership it goes without saying that their participation in the MBS market is going to have a decisive influence on the direction of MBS spreads after the Federal Reserve ends QE III. From July 2010 to March 2012, domestic bank holdings of MBS increased by $358B, however, since, purchasing has remained flat even as the bank deposit base has increased by more than $700B. In addition, the securitization rate of mortgage loans originated by banks had also increased recently which is one important reason behind the sharply higher than expected net issuance of agency MBS in 2013. Finally, agency MBS in the trading accounts of banks have declined sharply over the second and third quarters of this year. It is likely this decline has occurred as the uncertain outlook for QE III program and the rates market drove banks to reduce their trading activity in Treasuries and agency MBS. Many analysts believe there is more uncertainty about bank demand for agency MBS now than at any time over the past several years even though bank balance sheets have very high levels of cash assets at the moment. These same analysts expect domestic bank holdings of agency MBS in their portfolios (for 2014) will remain flat, as long as the Fed continues to add MBS under the existing QE III and spreads remain at their current tight levels.

Let’s take a quick look at some vendor and agency news & training.

Secure Settlements (SSI) has designed an enterprise risk management surveydesigned to assist lenders in evaluating their regulatory, compliance and risk management controls throughout the mortgage process. This will not be limited to third party vendor management. “It covers everything from origination through post-closing and servicing. If you are interested in taking this 7 page survey, SSI analysts will review the responses and provide you with a confidential free report and recommendations. You do not have to be an SSI client to take advantage of this offer - simply email us at info@securesettlements.com with your request and we will send you the survey.  Responses will be provided within 7-10 days after receipt, depending upon the complexity of responses and the substance (or lack thereof) in your answers. January 10, 2014 is fast approaching…with CFPB and OCC regulations set, and audits beginning, you need to know where you stand and we are here to help.

Before I forget, as a clarification of some lender news last week regarding using gift funds for down payment money, HomeBridge allows the 5% down payment portion of a 95% LTV FNMA transaction – to come from gift funds. I had mentioned its wholesale division, but HomeBridge Correspondent also offers this ability and transaction..

Fifth Third Bank spread the word to clients “Introducing Freddie Mac’s Greater Purchase Certainty initiative, which can provide you with more confidence that the loans you sell Fifth Third meet Freddie Mac risk and eligibility requirements. As part of Freddie mac’s ongoing technology enhancements and focus on providing you with greater purchase certainty, they are implementing a series of Loan Prospector updates to help create greater efficiencies in your loan process.  Exclusively for Fifth Third Correspondent Lenders! Join Fifth Third and Freddie Mac for a FREE 60 minute webinar training session to learn more about Freddie Mac’s Loan Prospector enhancements.” LP is “being enhanced to provide you with more detailed feedback on risk assessment, loan eligibility requirements, and underwriting rules earlier in the loan origination process. Learn about the different types of Loan Prospector Feedback you’ll receive and what these results mean to you.” The session is tomorrow (12/3) at 11AM EST and Wednesday at 2PM EST. Register here.

Speaking of Freddie, it sent out a memo last week addressing the terrible tornado damage in Illinois. “When a disaster like the Illinois tornadoes occurs, Freddie Mac provides you with options to proactively offer temporary relief to impacted borrowers who are trying to pay their mortgages. We ask all Freddie Mac Servicers to be responsive to any request for assistance from affected borrowers using the options available to you through our Single-Family Seller/Servicer Guide (Guide). Servicers should immediately begin following the disaster relief requirements outlined in Guide Chapter 68 if the mortgaged premises is located in a presidentially declared Major Disaster Area where federal Individual Assistance programs have been extended (an "Eligible Disaster Area"), which include: obtaining quality right party contact as soon as possible, placing a borrower on forbearance, thereby suspending collection and foreclosure proceedings for up to 12 months to help accommodate financial hardship, based on each borrower's specific circumstances, not assessing late charges or reporting to credit repositories for impacted borrowers on a forbearance plan or paying as agreed on a repayment or Trial Period Plan, helping provide borrowers with information about options for local, state, or federal disaster assistance, and monitoring and coordinating the insurance claim process.”

Freddie’s bulletin went on. “If you need to respond to requests for assistance from impacted borrowers who are not in an Eligible Disaster Area, refer to the general mortgage relief policies in Guide Chapters A65, B65, and C65. You should also begin determining the number of impacted properties and assessing the extent of the damage caused by the Illinois tornadoes. Please review these resources or contact your Freddie Mac representative to prepare for borrower inquiries. Here is the press release.

Holy smoke there is a lot of news this week! Monday: ISM Manufacturing Survey, and the September & October Construction Spending tally. Wednesday: the ADP Employment Change, Trade numbers, more ISM numbers, New Home Sales, and the Fed’s Beige Book. Thursday: Challenger Job Cuts, Initial Jobless Claims, GDP, the Personal Income and Consumption duo, Factory Orders, and the Core PCE Index. Friday: Nonfarm Payrolls, the Unemployment Rate, Hourly Earnings, the Personal Income and Spending duo, a bunch of PCE numbers that economists love, and the University of Michigan Confidence number. Whew! Rates have moved higher since Friday: the 10-yr T-note closed Friday at a yield of 2.74% and this morning we’re at 2.79% and agency MBS prices are worse .125-.250.