Largest Holders of MSRs Continue to Manage Risk Effectively
Risk management activities for 14 of the largest holders of residential mortgage servicing rights (MSR) produced an average net gain in asset value of 0.4% during the first quarter of 2018, according to the latest MSR Industry Report produced by MountainView Financial Solutions, a Situs company. The largest gain among the 14 companies was 4.6%, and the largest loss was -3.3%.
Net risk management results in the report are calculated as the sum of change in value due to market inputs and assumptions and the corresponding change in hedge values.
MountainView’s report has recorded positive MSR risk management results in 20 of the last 21 quarters; Q4 2017 was the only quarter with negative results. Over this time period, the largest annualized hedge benefit relative to MSR value was 7.9% in Q2 2014, and the smallest benefit (a cost) was -3.2% in 4Q 2017.
An analysis of the average net hedge performance for 18 of the largest MSR holders over the last five years shows the industry on average has produced a 2.6% net return on the MSR asset. The top five companies’ performance has averaged 13%, while the five worst performers have averaged only a 3.6% 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. Thirteen of the 14 companies in the Q1 2018 report are banks and one is a non-bank.
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.
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Big Builders Are Remodeling the Housing Market
One of the big mysteries of the housing market since the financial crisis is why sales of new homes have remained so low despite a strong economy and real-estate market.
One explanation is a major consolidation among homebuilders, which has given surprising power to some of the big publicly traded companies. That is a big change in what has long been a heavily fragmented industry driven at the margins by small-time construction companies that built like crazy during boom years. With its historically low barriers to entry – a bit of capital and know-how were the major requirements for breaking into the business – this marks a major change in the industry.
The housing bust and the financial crisis destroyed many home builders. In the tally of U.S. businesses it conducts every five years, the Census Bureau found that there were 48,261 home builders operating in the U.S. in 2012, about half as many as the 98,067 it counted in 2007. In the consolidation, publicly traded home builders fared much better, with only a handful of small ones going bankrupt, and most of those ultimately remained in business.
Updated Census figures won’t be available for some time, but even as the economy has recovered and demand for homes has risen, the number of homebuilders doesn’t appear to have rebounded. Instead the industry has become more concentrated, with a few big national players dominating major markets like never before. According to data from Builder magazine, the median market share captured by the top 10 builders in each of the country’s top 25 new-home markets was 63% in 2017. That compared with 34% a decade earlier.
While homebuilding is nowhere near as consolidated as industries like airlines, the result has been similar, less supply.
Read more: Wall Street Journal
The Housing Shortage May Be Turning, Warning of a Price Bubble
The most competitive, tightest housing market in decades may finally be loosening its grip, and that could put pressure on overheated home prices. The supply of homes for sale in the second quarter of 2018, the all-important spring market, rose at three times the rate of the same period in 2017, according to Trulia, a real estate listing and research company.
The inventory jump was the largest quarterly improvement in three years and could be signaling a slight thaw in today’s housing market. But it is just a start.
“This seasonal inventory jump wasn’t enough to offset the historical year-over-year downward trend that has continued over 14 consecutive quarters,” according to Alexandra Lee, a housing data analyst for Trulia’s economics research team.
Read more: CNBC
12 Fastest Housing Markets for Renters to Save for a Down Payment
While rising costs to rent are making it more difficult to save for a down payment, some local housing market conditions present more favorable circumstances for renters hoping to make a home purchase.
How long does it take to save up for a down payment? On average, renters spend nearly six-and-a-half years to save enough for a 20% down payment, according to Zillow-owned rental search platform HotPads. But in some cities, where median home and rent values are lower, renters can save for a 20% down payment in close to half that time.
“Home prices are outpacing incomes in many of the country’s largest markets, which makes saving for a home more difficult. On top of that, the current generation of first-time buyers is dealing with unprecedented levels of student debt, making the down payment a major factor keeping young renters out of the housing market even though many young people say they have ambitions to buy,” said Joshua Clark, economist at HotPads, in a press release.
The nation’s most exorbitant markets all lie in California. The Golden State claims six of the top seven cities that take the longest for buyers to accumulate a 20% down payment — reaching upwards of over 35 years in Silicon Valley.
The three fastest markets for affording 20% down payments were Pittsburgh, Cleveland and Detroit.
Read more: National Mortgage News
The Supreme Court Could Cripple an Obama-Era Consumer Finance Watchdog if Agency Critic Brett Kavanaugh Is Confirmed
The Consumer Financial Protection Bureau, established in 2010 to protect Americans from the type of predatory financial practices that caused the financial crisis two years before, is likely to face one of its toughest critics at the Supreme Court if President Donald Trump’s pick, Brett Kavanaugh, is confirmed by the Senate.
Kavanaugh, a judge on the Court of Appeals for the District of Columbia Circuit, has repeatedly ruled that the structure of the consumer watchdog is unconstitutional.
In October 2016, Kavanaugh claimed that the head of the agency, which was founded in the aftermath of the 2008 global financial crisis, had more power than any government official besides the president, and struck down its structure on constitutional grounds even as a dissenting judge said the same result could have been reached more narrowly.
“The concentration of massive, unchecked power in a single Director marks a dramatic departure from settled historical practice and makes the CFPB unique among independent agencies,” Kavanaugh wrote in an October 2016 ruling in PHH v. CFPB. He declared that the director of the CFPB was not just a director, but was the “President of Consumer Finance.”
Read more: CNBC
House Advances Eight Financial Services Bills
The U.S. House of Representatives advanced eight bills from the Financial Services Committee last week, including a bill that provides greater Congressional oversight on international insurance standard negotiations.
The International Insurance Standards Act of 2017 (H.R. 4537), sponsored by Rep. Sean Duffy (R-WI), preserves the state-based system of insurance regulation while ensuring Congressional oversight on international insurance standard negotiations.
Another bill introduced by Duffy, the Housing Choice Voucher Mobility Demonstration Act of 2018 (H.R. 5793), encourages families receiving housing choice voucher (Section 8) assistance to move to lower-poverty areas and expand access to opportunity areas.
“I’m pleased to see these important Financial Services Committee measures pass the House today and applaud the hard work of their sponsors. These bills are vital in achieving the committee’s goal of alleviating burdensome regulations on our nation’s capital markets to help Main Street businesses expand, create jobs, and spark innovation. They also focus on improving access to affordable financial services and products for people and families by expanding housing options for those in lower-poverty areas,” Financial Services Committee Chairman Jeb Hensarling (R-TX) said.
Read more: Financial Regulation News
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