New report provides insights into opaque secondary market for whole loans
The 1st lien performing and re-performing sectors of the secondary market for residential whole loans continued to be extremely active in the third quarter, sustaining momentum started in the first quarter. Loans with tens of billions of dollars of unpaid principal balance have traded year to date.
Those two points are the lead statements in a new report from MountainView Financial Solutions, a Situs company. The report, Residential Whole Loan Secondary Market Color & Deal Summaries, is updated quarterly by MountainView’s residential whole loan trading desk and transaction advisory teams. MountainView’s report is one of only a few industry sources of insight into a relatively opaque secondary market.
The high level of trading activity for 1st lien performing loans and re-performing loans (RPLs) so far this year is reflected in MountainView’s advisory activity for clients. Performing loans and RPLs were the product type in at least four of the firm’s seven largest closed deals in the first three quarters of 2018, according to the report.
While robust supply and demand in a market would normally sustain or increase prices, MountainView indicates a slight weakening in performing loan and RPL pricing from Q2 to Q3, due to widening spreads in the Treasury market and signs of slowing home prices.
This sector leadership continued a trend started in the third quarter of 2017, according to the report. Before then, in the years following the financial crisis, 1st lien non-performing loans (NPLs) were the most traded product in the secondary market.
Trades of 1st lien mortgages dominate the activity of the secondary market, but MountainView’s report also includes data and analysis on 2nd liens, as MountainView is one a few firms providing transaction advisory and independent valuation services for the loans.
In the Q3 update of MountainView’s report, the firm states that supply of 2nd lien performing loans remained strong during the quarter, with supply since Q1 coming primarily from banks and bond issuers.
Demand for this product is also extremely strong, according to MountainView, elevating prices to their highest point in the last eight years. The report states that part of the demand is from new investors who have seen tightening in the 1st lien RPL and NPL sectors and are now taking a more positive view of the entire 2nd lien asset class.
Active market participants and new entrants to the market are encouraged to download MountainView’s report, which has market color organized by lien and performance status. The market color sections list common loan pool characteristics behind successful trades, general pricing ranges, and key factors that positively or negatively influence the number of bidders and the bid levels received.
The report also includes tables summarizing MountainView’s seven largest closed deals in each of the past four quarters. The summaries, which include product type and prices paid, can serve as pricing benchmarks for investors who are contemplating a sale or performing internal valuations of their loan portfolios.
December is usually the slowest month for home sales, but that might not be the case this year
December is usually the slowest month for the housing market, but this season is not so normal. Some unique dynamics may make this December one of the better times to both buy and sell a home.
First and foremost, mortgage rates are turning what was a red-hot market into a lukewarm market, and that is motivating buyers more than usual. That’s because home prices ran up so far so fast during the recent historic housing shortage, that higher rates are having an outsized impact.
Real estate agent Lynn Fairfield of Re/Max Suburban held an open house Sunday in suburban Chicago, and rates were front and center in the living room conversations.
“I see more people buying right now because they’re afraid rates will be higher in 2019,” said Fairfield.
Read more: CNBC
Senate votes to advance Trump’s consumer bureau pick
The Senate voted last week to advance President Trump’s controversial pick to lead the Consumer Financial Protection Bureau (CFPB) toward a final confirmation vote next week.
Senators voted 50-49, along party lines, to end debate on Kathy Kraninger’s nomination to be the next CFPB director, with no Democrats supporting her. Kraninger is likely to be confirmed this week after a contentious Senate floor debate over her selection.
Trump in June chose Kraninger, an associate director at the Office of Management and Budget (OMB), to lead the CFPB. Kraninger’s boss, OMB Director Mick Mulvaney, has served as the CFPB’s acting chief for a year.
Kraninger is on track to get a five-year term leading the consumer watchdog agency with broad independence and power to police to financial sector. She’s pledged to make the agency less costly and burdensome on the firms it oversees, but has shed little light on her agenda.
Read more: The Hill
Online lending hasn’t removed discrimination, study finds
With more people applying for mortgages online, the lending landscape was expected to become more equitable.
The logic was that lenders couldn’t discriminate against a borrower based on their skin color if they weren’t face-to-face with them.
Yet algorithms can be just as biased as a loan officer sitting across a desk, according to a new study by professors at the University of California, Berkeley titled, “Consumer-Lending Discrimination in the Era of Fintech.”
Online platform Quicken Loans is one of the largest mortgage lenders in the United States, according to the study, and nearly all major lenders offer applications that can be completed entirely online.
Read more: CNBC
What’s driving cash-out volumes?
An analysis of the latest data on Federal Housing Administration (FHA) insured loans and their refinance activity by the Urban Institute revealed that cash-out refinances for FHA-insured loans are on the rise. The FHA’s recently released Mutual Mortgage Insurance Fund (MMI Fund) report indicated a rise in cash-out refinance activity in 2018. According to the report, the number of cash-out refinance mortgages endorsed by the FHA increased from 141,885 in FY 2017 to in 150,883 in FY 2018, a 6.3 percent rise. As a share of total endorsement count, cash-out was nearly 15 percent, compared to 11.4 percent last year.
The analysis pointed out a couple of reasons for the rise in this activity. First was the rising mortgage rates that have significantly curtailed rate refinances loans, which in turn were boosting the share of cash-outs.
Second, according to the analysis was the 85 percent maximum loan-to-value (LTV) ratio for FHA cash-out refinances vs. 80 percent for conventional cash-outs. “In other words, borrowers can extract more equity through an FHA cash-out than a conventional one. Also, FHA cash-out refinances can be more cost-effective than conventional cash-outs for some borrowers because of a lower base FHA mortgage rate and FHA’s non-risk-based pricing,” the analysis said.
Read more: MReport
10 cities where homebuyers are stretched the most
Total household debt has increased by $219 billion or 1.6 percent to $13.51 trillion in the third quarter of 2018, according to the latest Quarterly Report on Household Debt and Credit by the Federal Reserve Bank of New York.
According to an analysis by Realtor.com, these debt burdens vary by the housing market of a city or a region. Keeping this factor in mind, the analysis looked at places where homebuyers were the deepest and least into debt. Realtor.com analyzed the debt-to-income ratios (DTI) that account for all debt owed by mortgage applicants, divided by their pretax income. The team then analyzed mortgages taken out over the first eight months of 2018 and calculated the median debt-to-income ratio for mortgage borrowers in the 200 largest metropolitan areas to get the cities where homebuyers had the most and least debt.
The city with homebuyers with most debt was Honolulu, Hawaii, where the median mortgage borrower’s DTI stood at 45.1 percent. With a median home price of more than $600,000, the analysis found that the median household income in Honolulu was at only $81,300, accounting for this disparity.
With a median mortgage borrower’s DTI at 43.4 percent and a median home price of approximately $389,000 Riverside, California, came in second on the list of cities with homebuyers with the most debt to their name, thanks to a low median income of around $62,000.
Read more: DS News
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