In observance of the upcoming Fourth of July holiday, Newswatch will not be circulated next week, but will resume distribution on Tuesday, July 10, 2018.
Geography Quiz: Where Are Residential Mortgages Prepaying the Fastest and Slowest?
The seven states with the fastest prepayment rates for home mortgages are all in the West – Idaho, Colorado, Arizona, Utah, Washington, Nevada and Oregon. That’s according to a report issued by MountainView Financial Solutions, a Situs company, for the 12-month period ending April 30.
According to MountainView’s report, 11.2% of home mortgages in all states had prepayments during the period. Idaho and Colorado had the fastest speeds, at 14.6% and 14.4% of all mortgages, respectively. Not far behind were Arizona (13.7%), Utah (13.5%), Washington (13.2%), Nevada (13.2%) and Oregon (12.9%).
While interest rates and numerous macroeconomic factors determine the pace at which homeowners nationwide are refinancing or otherwise paying off their mortgages earlier than the full term of their loans, local economic conditions, unemployment rates, home prices and home sales drive the prepayment decisions of individual borrowers.
Watching prepayment speeds at a state or even more micro level is essential to investors in mortgage servicing rights and whole loans. Holders of the assets and prospective buyers use pinpointed prepayment data in their valuation and risk modeling.
“Prepayment speeds are where we spend 75-80% of our time in pricing MSRs – it’s that important,” says Mark Garland, Managing Director of Analytics and head of MSR valuations at MountainView. “Servicing is an elaborate bet on how long a mortgage will live. If you can get speeds right and kind of miss some of the other data trends, you’ll be very accurate in determining value. Conversely, if you get all of the other analysis right and you’re off on your prepayment speeds by even a little, your valuation will be blown up.”
States with the lowest rate of mortgage prepayments are at the other end of the risk spectrum in MountainView’s report. Eastern states had the slowest speeds, led by New York (8.3%), Connecticut (8.6%), Maryland (9.0%), Delaware (9.0%), New Jersey (9.1%), Pennsylvania (9.2%), Virginia (9.6%) and Vermont (9.6%).
Why are eastern states slow? According to Garland, one of the contributors is high taxes, and with the new federal tax rule, there also is a smaller mortgage deduction. In addition, in New York, borrowers pay a 1% tax to refinance their loans.
The booming economy is the other contributor to slower prepayment speeds in eastern states. In areas where housing prices were already high before the housing markets took off, affordability and higher interest rates are starting to hurt the refinance market.
In explaining the fast prepayment speeds out West, Garland says those seven states were very affordable 5-10 years ago, and even with their significant home price appreciation they are still relatively affordable in comparison to other states. He says this means that incentives are still in place to refinance a mortgage or pay it off early through a home sale.
MountainView’s report is available for download. Beyond the ranking of states relative to the average prepayment rate nationwide, the report includes state-specific graphs showing the 15-year trends of prepayment rates in comparison to refinance volumes and home price appreciation levels.
Trump’s GSE Plan: Familiar Solution, Familiar Problems
Since not long after Fannie Mae and Freddie Mac were seized by the government a decade ago, policymakers have been circling the same idea for how to revamp the housing finance system.
Broadly speaking, that plan would privatize the two government-sponsored enterprises while providing an explicit federal backstop for the mortgage market.
Such an idea has been around since at least early 2010, and taken up by a wide variety of stakeholders over the years, including most famously Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va. They managed to pass a bill based on the concept out of the Senate Banking Committee in 2014, but it died a quiet death afterward.
While some details are different, the basic gist of the Corker-Warner bill was present in the Trump administration’s surprise proposal on housing finance reform issued last week.
Read more: American Banker
Lennar Sees ‘Solid Fundamentals’ Lifting Operations, Housing Market
Lennar Corp. said strong demand for new homes and higher selling prices drove earnings growth in the most recent quarter, as the nation’s largest home builder reported it has so far shaken off concerns about rising interest rates and construction costs.
Lennar executives worked to assure analysts on its earnings call this week that it wasn’t seeing declining demand in the market, noting that customers are still able to afford homes and that the U.S. economy and job growth have been good.
“While there’s a lot of focus in the press on rates going up … wage growth is real and it’s happening out there,” Chief Executive Richard Beckwitt told analysts. “Confidence is solid. So we put all those things together and we don’t look at the headlines. We operate our business. And the business is strong.”
Read more: Wall Street Journal
Seattle Hits 20 Months as the Nation’s Hottest Housing Market, But Relief for Buyers May Be on the Horizon
Seattle retained its long-running title of the hottest housing market in the country, according to the Case-Shiller national home price report, but there are signs of hope for would-be buyers frustrated by the slim supply in recent years.
Seattle home prices in April rose 13.1 percent over the same period a year ago. Las Vegas and San Francisco held on to their spots just behind Seattle with annual price growth of 12.7 percent and 10.9 percent respectively.
Seattle has been atop Case-Shiller’s index for 20 straight months now, and a combination of a historic population boom and record-low supply of homes for sale has been the primary driver of the city’s skyrocketing prices.
Seattle’s streak is among the longest on record for Case-Shiller’s index. San Francisco had a 20-month run as the fastest growing market between 1999 and 2001, at the heart of the dotcom boom. Portland topped Case-Shiller’s index for 23 straight months from 1990 to 1992.
Read more: GeekWire
UK Housing Market Lull Drags Into Summer, Says Nationwide
The building society said demand from buyers was subdued, while the number of properties coming on to the market was “more of a trickle than a torrent.”
UK house prices rose by 2% in the past year, it said, with prices slightly higher in June than in May.
The month-on-month rise was 0.5%, making the average home worth £215,444 ($282,640).
Robert Gardner, chief economist at the Nationwide, said there had been “little change in the balance between demand and supply in the market” during the last 12 months.
The Nationwide has predicted that house prices will rise by 1% over the course of 2018.
Read more: BBC
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