MSR portfolio hedging left asset values unchanged in Q3
Risk management activities for 14 of the largest holders of residential mortgage servicing rights (MSR) held asset values flat for the third quarter of 2018, according to the MSR Industry Report released last week by MountainView Financial Solutions, a Situs company. The largest gain among the 14 companies was 3.6% and the largest loss was -5.6%.
In the report, net risk management results are calculated as the sum of two components: change in value due to market inputs and assumptions, and change in hedge values.
MountainView’s report has recorded positive MSR risk management results in 22 of the last 23 quarters; Q4 2017 was the only quarter with negative results. Over these 23 quarters, the largest annualized hedge benefit relative to MSR value was 7.9% in Q2 2015, and the smallest benefit (a cost) was -3.2% in Q4 2017.
The industry on average has produced a 2.5% net return on the MSR asset over the last five years, according to an analysis of the average net hedge performance for 18 of the largest MSR holders. The top five companies’ performance has averaged 13%, while the five worst performers have averaged only a 3.4% loss. These net results for the largest companies in the industry show that hedges have been performing effectively over the last five years.
MountainView’s MSR Industry Report is produced quarterly using data from press releases of publicly traded companies. The Q3 2018 report analyzes 20 companies in total, including 14 banks and six non-banks.
The report includes additional metrics for industry MSR results, including detailed analyses of MSR risk measures, detailed analyses of MSR values, additional MSR portfolio characteristics and sensitivities, and trends in unpaid principal balances. All of these data points are reported for the industry as a whole and for the individual companies.
To purchase the Q3 report or a quarterly subscription, contact analyst Jason Dekdebrun at MountainView (email@example.com or 303.633.4749).
FHA finances recover despite further reverse-mortgage losses
The Federal Housing Administration’s (FHA) mortgage insurance fund has rebounded notably in the past year despite continued challenges with the agency’s reverse-mortgage program, according to a report on the FHA’s health.
The FHA said last Thursday in its annual actuarial report that the fund’s capital reserve ratio increased nearly 60 basis points to 2.76% in fiscal year 2018, up from 2.18% a year earlier. The previous year’s ratio was originally calculated at 2.09% as the fund took a hit from reverse mortgage losses. The FHA is required by law to maintain a buffer of at least 2%.
The economic net worth of the FHA’s mutual mortgage insurance fund increased to $34.86 billion, which is almost $10 billion more than the figure reported in fiscal year 2017.
However, the FHA reverse mortgage — or home equity conversion mortgage — program continued to hamper the agency’s finances, with the capital ratio of the program declining to negative 18.83%, and an economic net worth of negative $13.63 billion.
Read more: National Mortgage News
Housing market is slumping despite a booming economy
These should be happy times for the housing sector. The economy is booming, with more people working at higher pay, and with the sizable millennial generation reaching prime home buying age.
Instead, the housing market has gone soft, acting as a drag on the overall economy rather than as a force propelling it forward.
Sales of new single-family homes were down 22 percent in September from their recent high in November 2017, and existing home sales in September were down 10 percent. This tepid residential investment subtracted from GDP growth in each of the first three quarters of 2018.
Home prices have not declined nationally, at least according to the most widely followed indexes. But their rate of increase has declined, and more and more home sellers are finding they must reduce asking prices to find a buyer.
Read more: New York Times
More buyers reach for ARMs in high-priced markets
As mortgage rates rise, more buyers in expensive metros are turning to adjustable-rate mortgages to curb costs.
But the potential savings between a fixed-rate mortgage and an adjustable-rate mortgage is narrowing. The average rate on the 30-year fixed-rate mortgage and 5/1 adjustable-rate mortgage have both jumped by about 70 basis points from August 2017 to August 2018, according to Freddie Mac. ARMs, however, still do typically offer a slightly lower initial interest rate that then rises after a set period, such as five or seven years.
ARMs are more common in expensive metros and among home buyers who are borrowing larger balances on their mortgage loans, according to CoreLogic, a real estate data firm. “As ARMs have a lower initial interest rate [than fixed-rate mortgages], buyers see bigger monthly savings in the initial payment, especially for bigger loans,” CoreLogic notes on its Insights blog.
For example, the ARM share is highest in metros like San Jose, which had the highest average sales price. San Jose had the largest share of ARMs in 2018, according to CoreLogic.
Read more: National Association of Realtors
Bidding is on for the most expensive home ever to hit the auction block
The glut of hyper-priced mansions and luxury properties sitting on the market across the country has led sellers to turn to an unlikely solution: auctions.
Real estate auctions, once used for foreclosures and distressed sellers, is moving upmarket. The number of multimillion-dollar homes being sold at auction has nearly doubled in the past year, according to real estate analysts and auction companies.
The most expensive home ever offered at auction came back on the block last week. The property, called Playa Vista Isle, in Hillsboro Beach, Florida, went on the market in 2014 for $139 million, making it the most expensive home listed in the country at the time. It was later listed for $159 million, then pulled from the market in 2016.
It stretches over 58,000 square feet, with 11 bedrooms and 22 bathrooms. It has a private IMAX theater, a 3,000 bottle wine cellar, a 20-car garage and columns and carvings with more than 500,0000 pieces of gold leaf. The pool alone has over 150,000 gallons of water. At over 5 acres, it has 500 feet of oceanfront and two yacht docks.
Read more: CNBC
Northern Virginia property owners are delighted Amazon HQ2 is moving in. Renters, first-time buyers and low-income residents aren’t.
A Crystal City condo that had sat on the market suddenly shot up in price by $20,000. Realtors are fielding cold calls from out-of-state investors eager to snap up properties. “But only if Amazon comes to the area,” one Midwestern woman said.
Anticipation that the online retail giant would open its new headquarters in this Northern Virginia neighborhood of hotels, high-rise condominiums and office buildings set off a flurry of real estate speculation — even before the official announcement from Amazon on last week.
But the coming influx of tens of thousands of highly paid tech workers could exacerbate inequality in the Washington region, making it more difficult for renters and first-time home buyers, warn housing advocates and others.
“It’s [Arlington County] becoming a much less economically and racially diverse county, and a huge employer like Amazon coming in is only going to increase that pressure,” said Philip Tegeler, executive director of the Poverty & Race Research Action Council. “We can’t just keep pushing lower-wage workers farther and farther out into Northern Virginia with longer commute times and develop these monoculture bedroom suburbs.”
Read more: Washington Post
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