We are opening up with a relatively unchanged market from yesterday’s close and while we are approaching the 2.00% level on the 10yr (1.98% to be exact) I believe all-in-all the bond/mortgages markets are holding up pretty well in light of the recent events. There is still buzz in the air regarding Friday’s NFP monster number and it appears that there will eventually be a resolution on a Greece bail-out plan. Both things would weigh on the bond markets but it would be really hard and irrational complaining about a 2.00% 10yr. This is still an extremely low rate environment and one that is very conducive to loan originations.

In regard to the NFP number the talk is that the Fed might have understated the strength underlying our economy. That is a fair argument considering that the Fed stated they would keep rates low thru at least the end on 2014. There is little doubt that our economy has consistently showed promising signs but the thought here is that the Fed is very concerned about Europe and its impact on our economy. Also they are very much aware of the surplus of foreclosed properties that need to be redistributed before there is any serious thoughts of an true economic rebound. However like I mentioned this is a great environment for originating loans and this week’s MBA Weekly Application Survey clearly shows that. Here are the highlights:

• Applications rose 7.5% from the prior week
• Refi Index increased 9.4%
• Purcahse Index had a marginal increase of .1%
• The refi share increased to 80.5% from 80.0%
• The ARM share increased to 6.0% from 5.6%
• During the month of January the investor share was 6.4% which was a decrease from 6.9% in December
• During the month of January the second home share increased to 5.9% from 5.4% in December
• All average interest rates set records for the lowest rate in the history of the survey.
• The conforming 30yr was 4.05% w/.44pts
• The FHA 30yr was 3.89% w/.78pts
• The conforming 15yr was 3.33% w/.37pts

Like I said….good time to be an originator.

HotPads.com, the national housing search engine, published quite an insightful statistic about how the prices of real estate changed in 2011. Their data showed that the rental price of 2-bedroom units jumped 3.75% in 2011, while the sale price fell by 1.83% in the same period.

“Studio rentals remained the highest growth segment, with a 7.12 percent increase over the year. One and two bedroom rental properties also saw a price increase, 2.59 percent and 3.75 percent respectively, while three bedrooms dipped by .31 percent.”, reports HotPads.

According to their data, popular metro areas like New York, Boston, Miami, San Francisco, Los Angeles, and Chicago had some of the most expensive rental listings in the U.S., as measured by median listing prices of two bedroom properties. Rental listings in San Francisco appeared in particularly high demand, staying active for just 28 days on HotPads, compared to an average of 49 days across other top metro markets.

Here is the list of the 20 hottest markets in the USA:

Detroit, MI

Rent-Buy ratio: 5.33
Median rent 2011: $860
Median sale 2011: $55,000
 

New York, NY

Rent-Buy ratio: 7.74
Median rent 2011: $2,692
Median sale 2011: $249,949
 

Chicago, IL

Rent-Buy ratio: 7.77
Median rent 2011: $1,597
Median sale 2011: $148,900
 

Tampa, FL

Rent-Buy ratio: 7.96
Median rent 2011: $900
Median sale 2011: $86,000
 

Miami, FL

Rent-Buy ratio: 8.77
Median rent 2011: $1,750
Median sale 2011: $182,394
 

Riverside, CA

Rent-Buy ratio: 9.00
Median rent 2011: $1,250
Median sale 2011: $134,975
 

Houston, TX

Rent-Buy ratio: 9.03
Median rent 2011: $1,012
Median sale 2011: $109,700
 

Washington D.C.

Rent-Buy ratio: 9.07
Median rent 2011: $1,700
Median sale 2011: $185,000
 

Minneapolis, MN

Rent-Buy ratio: 9.52
Median rent 2011: $1,050
Median sale 2011: $120,000
 

Atlanta, GA

Rent-Buy ratio: 9.73
Median rent 2011: $899
Median sale 2011: $105,000
 

Boston, MA

Rent-Buy ratio: 9.90
Median rent 2011: $1,925
Median sale 2011: $229,450
 

Dallas, TX

Rent-Buy ratio: 10.11
Median rent 2011: $984
Median sale 2011: $119,450
 

St. Louis, MO

Rent-Buy ratio: 10.82
Median rent 2011: $797
Median sale 2011: $103,875
 

Phoenix, AZ

Rent-Buy ratio: 11.11
Median rent 2011: $899
Median sale 2011: $119,950
 

Seattle, WA

Rent-Buy ratio: 11.33
Median rent 2011: $1,195
Median sale 2011: $162,517
 

Philadelphia, PA

Rent-Buy ratio: 11.45
Median rent 2011: $1,200
Median sale 2011: $164,950
 

Baltimore, MD

Rent-Buy ratio: 11.95
Median rent 2011: $1,290
Median sale 2011: $185,000
 

San Diego, CA

Rent-Buy ratio: 12.75
Median rent 2011: $1,500
Median sale 2011: $229,425
 

Los Angeles, CA

Rent-Buy ratio: 12.91
Median rent 2011: $1,710
Median sale 2011: $264,900
 

San Francisco, CA

Rent-Buy ratio: 15.23
Median rent 2011: $1,600
Median sale 2011: $292,500
 
 

If you opened up your window @ 8:30 this morning you might have heard a big cheer that could be heard all the way from Washington, DC. That would have been President Obama cheering what was an extremely strong payroll report. Aside from pulling a 7 and a 3 in the White House Super Bowl pool, this will be the best numbers he gets all day. If you took the time to read yesterdays update you know that the consensus for the NFP report was a gain of 135k with a range of 100k-189k.

Well these brilliant Ivy-league educated economists were a little off because the number came in at +243k. We will highlight the report but this has caused the bond and mortgage markets to react negatively and are down pretty big on the day especially when you consider what has been a seemingly endless rally. The 10yr has jumped to 1.93% and is leaving many to wonder why we are not @ 2.00% or higher. That may happen by the end of day or in the days ahead but when you consider the strength of this report I guess one can look to the fact that it is not as good a sign for those who want rates to remain low. Here are the highlights of the report:

• Jan job gains were +243k again the consensus was +135k
• Jobless rate dropped to 8.3%. This will get a lot of mainstream attention
• Private payrolls rose 220k with Gov’t jobs down 14k. This is a great sign of “real” job growth when the private sector is creating jobs and not Gov’t.
• Total revision of +60k from the Dec & Nov numbers. Another great sign that jog growth is strong.
• Average hourly earnings +.2%. More people working and those people are making more which spurns the economy through consumer spending.
• Average hourly earnings are up a total of 1.9% from last year. Look for this to be mentioned once or twice by Obama in the coming days.

All-in-all this is as close to a grand slam of a report as it gets. We now have multiple reports of real job growth and a strong argument can be made that we are on track for an economic rebound. The housing market is still in disarray but job growth and having people working is the foundation for that rebound. The big issue in housing is the massive inventory of foreclosures and there is no silver bullet refinance program that Obama can devise that will solve that problem. The only thing that will fix this problem is time. We live in a microwave society but investors need to absorb that unwanted inventory. Those who can need to make sure they can flip the properties for a profit. When people are working there are more buyers and the investors will invest but again this will take time.

One last thing… we have had some recent surprises by what Secondary is charging for some extension fees. For those of you that read our updates regularly then you are not surprised because you know all about the mandated 10bps g-fee increase that the mortgage industry was force fed because of the extension(no pun intended) in the payroll tax. We mentioned it several times but I know there are many who may not read the profound information that we provide. Therefore I will add this excerpt that we wrote in the 1/23 update for those who may have missed it…..

“I also want to encourage everyone to make sure that you not only honor your locks but that you honor your lock expiration date. With the mandated 10bps increase in the G-fee it has caused pricing to deteriorate by about .5pt. over the last few weeks. Therefore if you happen to lock a loan for a shorter lock term that was not affected by this increase, any future lock extension will result in a greater extension fee then you traditionally have received in the past. Please keep this in mind and stay on top of your locked pipeline. Also if and when an extension is required remember not to shoot the messenger but call your local Congressman or Senator to complain.”

(Image courtesy of WhiteHouse.gov)

The markets are quiet today as we lead into tomorrow’s big Nonfarm Payroll (NFP) report (yes, we are still trading at the 1.83% level on the 10yr…1.84% to be exact). Remember that the NFP comes out @ 8:30 and the latest consensus is +135k with a range of 110k-189k. It will move the markets but I really do not see how any number short of a mind-blowing increase (+300k) will change the tone of this market.

President Obama released the details of his latest attempt of a Refinance Plan. Here are the highlights:

• Includes borrowers not backed by Fannie & Freddie;
• These loans which were securitized by private-label securities without any federal backing would be allowed to refinance into FHA-backed loans;
• Eligible borrowers would have to have made their mortgage payments over the last 6 months without a delinquency;
• Loan cannot exceed the FHA loan limit for the area;
• If the borrowers have a ltv >140%, the lender has to agree to reduce the loan balance;
• Borrowers would not have to submit a full file of paperwork for the refi as long as they can verify their employment;
• Enables borrowers who still have equity in their home, up to 20%, to participate;
• The program would be paid by charging a fee to the country’s largest banks so that the plan will not add to the deficit;
• Includes a Bill of Rights for home owners.

All this will require the Republican-controlled Congress to pass. The response to all this yesterday was unanimous…good luck! Even if you are the ultimate optimist and still believe in Santa Claus, this will not take effect for months. However, if you are a realist then this is just another political angle for the President to use as a campaign cry of how he tried to do more for the “good hard working borrowers that played by the rules” but the Republican-controlled Congress did not pass his plan. Either way it is something that originators need to be informed about because consumers will ask questions as this makes it to the mainstream media. If you want to read more about this then click on the link below which was issued by the White House…

The treasury and mortgage markets are opening a little down from yesterday’s closing as we stay perched at the low end of the 3 month range on the 10yr treasury @ 1.83%. Beyond what we mentioned the other day about this range story, we are starting to see some slight weakness in the mortgage market as mortgage spreads (spread vs. the treasury yield curve) have widened over the last couple of days. I do not view this as a big story but worth noting because mortgages have performed very well for the past several weeks and this a small sign that they might just be peaking out. They will continue to trade directionally to treasuries but they might go up less than treasuries or go down as much as treasuries. This is a  very general explanation of mortgage spread widening.

We have a lot of “stuff” going on so let’s go thru them…

First the MBA Weekly Application Survey came out this morning and here are the highlights:

• Mortgage applications are down 2.9%
• The Refinance Index decreased 3.6%
• The Purchase Index decreased 1.7%
• The refinance share decreased to 80.0% from 81.3%
• The ARM share rose to 5.6% from 5.3% (check out those FHA 5/1 ARMs)
• 30yr fixed conforming rate decreased to 4.09% w/.41pts
• 30yr fixed FHA rate decreased to 3.96% w/.61pts
• 15yr fixed conforming decreased to 3.36% w/.41pts
• In Dec 2011 Connecticut refi activity increased 80.1% from Nov 2011 (I thought that was interesting)
• In Dec 2011 Maine saw a 30.8% increase in purchase activity from Nov 2011 (another interesting fact)

I do think this report is a bit interesting because the rates improved be it slightly but the application activity was down. Signs of burnout? Perhaps.

We also got the release of the ADP report which came in slightly worse than consensus @ +170k. The consensus grew to 182K going into this morning. What added to this being a weak number was that there was a downward revision of 32k from December. Obviously the markets do not focus on this number all that much because, fundamentally speaking, this would have caused the bond markets to be up on that news because it signifies a greater weakness in the economy. However job growth is job growth and that trumps any below consensus concerns so that explains it. Also worth noting is that there were gains in small and medium size firms. This is a good sign because many economist believe that it will be these size firms that fuels true economic growth.

Last but not least, President Obama will announce the details of his latest mortgage plan @ 11:00. This follows his general overview that he made at his State of the Union address last week. It is expected that he will want to include non-agency mortgages into this refi plan. These loans in turn will be refinanced thru FHA loans. However, before we all lick our chops, I want to sprinkle a little bit of reality juice on this by stating that this will not get passed by the Republican controlled Congress and is just another form of political grandstanding. Unfortunately, originators have to answer calls from uninformed consumers about this so keep an eye out for the details with the understanding that what he says today is unlikely to happen or if it does is a long way from implementation.

(Image courtesy of nikcname/Flickr)