Posted on May 21st, 2008 in Mr Mortgage's Personal Opinions/Research
Mortgage application volume across the nations wholesale lenders is surging according to survey I just completed. Don’t misunderstand me, it is small compared to levels in 2007 and miniscule to levels prior to 2007. In addition, the lion’s share is coming from more ‘exotic’ 5/1, 7/1 and 10/1 Fannie/Freddie (Agency) interest only product and high loan-to-value FHA product. But compared to previous levels in 2008, volume has definitely increase significantly.
LOOK OUT! I will be doing a piece shortly on the ‘The FHA Dumping Grounds’ and how large funds are buying distressed subprime loans for 20 cents on the dollar, dressing them up and resubmitted them as an FHA refi. Ain’t that pretty! All of a sudden 20 cents turns into $1 at the taxpayers expense.
About three weeks ago, the rates on 5/1, 7/1 and 10/1 Agency interest only conforming (<$417k) product were ratcheted down to levels not seen in a long time (see rates below), which spurred volume at least for most lenders in CA.
For lenders who also offer competitive FHA products, volume is up across the board as well. FHA loans seem to really be getting some traction lately.
However, a survey of three FHA lenders showed that most FHA loans are for the high loan-to-values and at least 95% are for lower loan amounts and not the end-all, be-all jumbo FHA loan amounts. About 60% of all FHA loans are purchases about about 40% of those are coming from REO stock, which jives with what Foreclosure Radar and DataQuick have said over the past several months.
Below is a list of questions I asked three of the nation’s top wholesaler lenders. All of their numbers were in-line so I averaged the results. CONTINUED…
-loan volume increase in the past month: 85%
-percentage of purchase/refi: 40% purchase(I was not able to isolate the number of purchase out of the foreclosure stock but DataQuick still has it running about 40% in the bubble states)
-percentage fixed vs. ARMs: 65% ARMs(5/1, 7/1 interest only make up 90% of the ARMs)
-percentage conf vs new Agency conforming/jumbo: 93% conforming (New Agency Conforming/Jumbo still is not selling well)
-of the fixed, how much is FHA: 50%
-are the new FHA Jumbos selling well: No. Less than 5%(actual loan amounts far lower than were forecast)
-how is the new conf/jumbo is catching on? Still not catching on
-percentage of Agency jumbo increase since the other business has increased?: zero to 10%
-most recent pull-through rates from lock/submission to funding: 65% (this is up sharply from the 40-50% I have reported in recent months)
-locks/loan submissions…are most forward rate locks or floated submissions? 60% are locked after approval. (this helps with funding pull-through rates, which were running below 50% for months until recently)
Below are sample rates from the past 6-weeks quoted at ZERO POINTS to the borrower. Notice how on 5/5 and 5/12 how the 5/1 Interest Only tumbled in pricing. This goes to show yet again, how when interest only mortgage rates get in to the low 5% level, people tend move. That jives with what everyone in the business experienced from 2003-2007. In the past week, rates on those products have come back up a little so it will be interesting to see if this disrupts the surge in business over the next couple of weeks.
30-yr Fixed Conf (4/15 – 6%) (4/22 – 6.125%) (4/29 – 6.125%) (5/5 – 6.125%) (5/12 – 6%) (5/19 – 6%)
5/1 Interest Only (4/15 – 6%) (4/22 – 6.25%) (4/29 – 6.25%) (5/5 – 5.75%) (5/12 – 5.125%) (5/19 – 5.5%)
Again, although the volume is up significantly from the past few months, it is only back to level seen when Bond yields tumbled in mid-January and if you remember, that was a temporary move. Feb, March and April were some of the worst months ever for the mortgage industry.
It is questionable whether the pricing on the more ‘exotic’ 5/1, 7/1 and 10/1 interest only product can hold if the system suffers another ‘disruption’, which I believe to be inevitable, and whether jumbo rates on the new Agency 5/1 Conf/Jumbo will come down enough to spur interest and help out states like CA.
In a nutshell, all increased mortgage volume is great. But, when exotic interest only programs and high loan-to-value FHA programs make up the lion’s share of the volume, you have to be skeptical about the numbers and the quality of the business. -Best Mr Mortgage
This report may contrast with the weekly mortgage bankers survey for many reasons. First, the MBA only surveys the top lenders in the nation and not all may offer the few programs that are getting all of the action. Second, pull-through rates have gone up sharply, meaning the MBA survey could show a fall even if applications rose if fewer people submitted double and triple loan applications. Third, with rates between large banks still so different, perhaps fewer banks are getting a larger percentage of the business in the recent months, which would also skew the numbers.
All information above is from Mr Mortgage based upon personal research.
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