Hensarling posted his August 13, 2013 keynote address at the George W. Bush Presidential Center. His central argument is that “Washington promoted moral hazard by protecting Fannie Mae and Freddie Mac, which privatized profits and socialized losses.”
As discussed earlier, the supply of mortgage-backed securities (MBS) continues to fall behind the potential demand – even with the Fed’s taper in place. New issuance has steadily declined over the past year, with the Fed becoming an increasingly larger…
Compromise On Eminent Domain / Mortgage Seize Logan Mohtashami, Benzinga Contributor December 03, 2013 4:52 PM The use of eminent domain to seize mortgages sound odd? Local government seizing private investments in order to enhance the economic value … Continue reading →
The recent increase in long-term rates is causing major changes in the mortgage markets. Here are some key trends:
1. Refinancing activity continued to decline through Q3. The proportion of mortgage applications for purchase vs. refi has doubled this year (and that’s not because of higher demand for homes).
 |
| Source: DB |
2. A number of lenders who focused on mortgage refinancing such as US Bank, Provident Funding, and Flagstar are struggling (although the largest banks such as Chase and Wells seem to be less affected). This may result in an increase in the number of riskier mortgages.
DB: – Lenders who specialized in refinancing transactions have experienced dramatic loss of market share and either will have to become more competitive on rates in growth sectors such as ARMs to regain market share or loosen credit standards.
3. While a larger number of buyers now prefer ARMs, the dynamic within the fixed rate universe is a greater demand for 30-year mortgages vs. 20 or 15. That’s because the monthly payments on 30-year mortgages are lower (slower principal repayment) and buyers are looking for the cheapest solution.
DB: – As interest rates have risen and volume has dropped, the product mix has shifted sharply … 30-year mortgages are much more popular with homebuyers—more than 50% of 30-year mortgages are used for purchase transactions but less than 20% of shorter-term mortgages. As a consequence, the share of 15-year mortgages fell from 20% in September to 17% in October as the share of 30-year lending rose to 63% from 59%. Meanwhile, the ARM share has doubled to more than 5% since June as HARP’s share of lending has fallen to 3% from a high of 7% this spring.
4. As a result, MBS bond markets are taking a hit in the form of lower volumes. The sharp decline in refinancing activity has reduced the need to issue new agency mortgage bonds. New issuance is the lowest in years.
 |
| Source: SIFMA (note: this includes CMBS but the bulk of the activity is agency MBS) |
Similarly, trading volumes in MBS have dropped off to new lows.
 |
| Source: SIFMA |
Here is a summary on US mortgage markets from Freddie Mac (who, just as Fannie Mae, has been issuing fewer bonds):
Frank Nothaft, Freddie Mac Chief Economist: – With the close of 2013 will also come a major transition in the housing finance industry. For the first time since 2000, we’re going to see the mortgage market dominated by purchase activity as the refinance share drops below 50 percent. And with mortgage rates rising, we’re also going to see the home-sales gains as well as the impressive house price growth begin to moderate to more sustainable levels.
From our sponsor:
www.SoberLook.com
A hedge fund hoping to capitalize on the comeback of Fannie Mae and Freddie Mac claims in a lawsuit the government illegally seized the profits of the two mortgage finance giants.
The suit, filed Sunday by Perry Capital LLC, says the government violated a 2008 law that put Fannie and Freddie into conservatorship, through an amendment changing the terms of the government’s bailout.
The 2007 Federal Open Market Committee (FOMC) transcripts were released last week. Media reports have concentrated on the Fed’s forbearance during the credit meltdown. Implied,…
The chart below shows fixed rate agency MBS issuance since the financial crisis. With the Fed taking out some half of this gross issuance (see post), one would think there should be paper left for other investors, right?Source: JPMorganWrong. The net (…
FHFA Press Release- Washington, DC – U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing…
Harvard conomists are some of the highest paid “professionals” on earth. I guess it’s because they can spew deliberately useless crap like this piece of…
JP Morgan As The New Fannie MaeForbesJP Morgan's recent $2 billion loss on a wild product it created — an index of European credit default swaps (CDS)– might as well be tax payer money.
