HomeServices Lending – 2011 Summit
Mortgage Market Update
Joe Rogers, EVP
Sales and Service Systems Office
October 4, 2011
“Coming together is a beginning. Keeping
together is progress. Working together is
success.”
Henry Ford
Today’s Topics
Consumer Trends
Products and Programs – Issues and Opportunities
Political/Regulatory Issues
Tools You Will Use
Interest Rates, Opportunities and Fun Facts
Q&A
2
ECONOMIC UPDATE
CONSUMER
&
HOUSINGTRENDS
3
Employment Growth: Faster than 2010, but still slow.
Employment growth has come to a virtual standstill during the past several
months. To date in 2011, 872,000 payroll jobs have been created, compared with
553,000 during the same period last year.
Nonetheless, job creation is not sufficient to bring down the unemployment rate
significantly.
Absolute Monthly Employment Growth
600
August 2011
400
200
0
Thousands of Jobs
-200
-400
-600
-800
Source: Bureau of Labor Statistics Initial Claims Peak
-1000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
4
Unemployment rate is making slow progress. . .
The unemployment rate has declined from a peak of 10.1% at the end of the Great
Recession to 9.1% in August 2011. Labor force growth will prevent the
unemployment rate from falling rapidly, despite better employment growth.
Unemployment Rate
11.0
August 2011
10.0
9.0
Percent of the Labor Force
8.0
7.0
6.0
5.0
4.0
Source: Bureau of Labor Statistics
3.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
5
. . .but only because the labor force has declined.
The unemployment rate has declined from a peak of 10.1% at the end of the Great
Recession to 9.1% in May 2011.
But the labor force has declined 0.8% since its peak, so were the labor force
unchanged, never mind growing as it should be, the unemployment rate would
now be 9.9%--barely changed from its peak.
Labor Force
156000
August 2011
154000
152000
1% per year -0.4% per year
150000
148000
Thousands
146000
144000
142000
140000
138000
136000
Source: BLS
134000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
6
Sensitive indicator: No double dip.
Despite this poor employment record, the best single guide to recession (when this
measure pushed above 12%) is not indicating another downturn.
Growth in the Number of Unemployed
140%
August 2011
Source: BLS, our calculations; shaded
areas represent recessions.
120%
100%
80%
Percent Change Year-Ago
60%
40%
20%
0%
-20%
-40%
-60%
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
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1995
1996
1997
1998
2099
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
11
19
7
Consumer spending is growing slower than norms.
Consumer spending has decelerated since the end of 2010, when it was growth at
about a 3% real rate. The current growth is 2%.
The comparison is the long term average of 3.3% per year.
Real Personal Consumption
8.0%
Expenditures--July 2011
6.0%
4.0%
% Change from Year Ago
2.0%
0.0%
-2.0%
Source: Bureau of Economic Analysis
-4.0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
8
The personal savings rate has taken a recent hit.
Declining real income has caused the savings rate to decline as well in
order to help support spending levels. In the past several months has
dropped from 5.3% to 4.5% since June 2011.
The decline in debt service is also responsible for improving credit quality.
Household Financial Obligations Ratio
2011Q1
19.0
18.5
Percentage Points of Disposable Income
18.0
17.5
17.0
16.5
16.0
15.5
Source: Federal Reserve
15.0
80
81
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9
Consumer confidence: Lagging Indicator.
Consumer confidence is still mired in recession territory. The outlook of the
consumer sector is still bleak.
Consumer Confidence
August 2011
160
140
120
Long-Term
Average
100
Index
80
60
40
Source: Conference Board
20
80
81
82
83
84
85
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10
Consumer sector is still deleveraging.
Most of the deleveraging is occurring in revolving debt and
home equity lines.
Consumer Revolving Installment Debt Home Equity Lines at Commercial
Outstanding--July 2011 50%
Banks--July 2011
25%
20%
40%
15%
30%
% Change vs. Year-Ago
% Change vs. Year-Ago
10%
5% 20%
0%
10%
-5%
0%
-10% July 11: -6.1%
Soruce: Federal Reserve July 11: -3.7% Source: Federal Reserve
-15% -10%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
90
91
92
93
94
95
96
97
98
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00
01
02
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11
Total mortgage debt is declining relative to income.
As part of deleveraging in the consumer sector, mortgage debt outstanding,
including both junior and senior liens, relative to personal income is declining
after a huge run-up that began in 2001.
The most recent data, released earlier this month for Q2, still show mortgage
debt too high for the underlying income support.
Mortgage Debt To Income Ratio
2011Q2
100%
90%
80%
70%
Percent of Personal Income
60%
50%
40%
30%
20%
10%
Sources: Federal Reserve Z.1 and BEA.
0%
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
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2099
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2008
2009
2010
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12
Single family home sales are stuck.
August housing numbers rose sharply to just under 4.5 million units.
Pending home sales don’t offer much encouragement, despite all-time
high affordability.
Pending Home Sales Index - U.S.
140
July 2011
120
100
Index (SA): 2001=100
80
60
40
20
Soruce: NAR
0
13
Affordability is near an all-time high.
The combination of lower prices and historically low mortgage rates are responsible for
creating favorable housing affordability.
Since mid-2008, the index has been running in the 160 to 195 range, compared with a range
of 120 to 140 during the 1992 to 2004 period. It is now near 178.
But this historically high affordability has not yet boosted home sales meaningfully.
Housing Affordability Index
195
July 2011
180
165
150
Index Value
135
120
105
Source: NAR
90
90
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95
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02
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Ja
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Ja
Ja
Ja
Ja
Ja
14
Because of excess supply, new construction will be low.
Construction of new homes will be, and should be, low for some time yet.
Too much existing product, built during the boom, is on the market at
very attractive prices.
Too many houses exist for the underlying demographic demand.
Single Family Housing Starts MF & SF Housing Stock / Households *
August 2011 2011Q1
2000 1.160
1800 1.150
1600
1.140
1400
1.130
000s Units (AR)
1200
Ratio
1.120
1000
1.110
800
1.100
600
1.090
400
*Households not living in mobile homes
Source: Bureau of the Census
1.080
200
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
n-
n-
n-
n-
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n-
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n-
n-
n-
n-
n-
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n-
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ja
Ratio Average 70-02 Projection
15
As a result, sales of new homes is still weak.
Sales of new homes (298,000 unit annual rate in July 2011) are historically low,
and will remain low until the housing stock has aligned more closely with the
underlying demographic demand.
Builders are not building; buyers are not buying.
New Single-Family Homes Sold
1,400
July 2011
1,200
1,000
Thausands of Units (AR)
800
600
400
200
Source: Bureau of Census
0
90
91
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In absolute terms, inventories have declined steadily.
In absolute terms, the inventory level of new homes has more than fully
corrected. (2.898 SF inventory today)
The inventory of existing homes for sale is still elevated by a minimum of
750,000 units.
Neither of these measures include the REO inventory.
For Sale Inventory-New Homes For Sale Inventory-Existing Homes
July 2011 4500
July 2011
700
600 4000
500 3500
Thousands of Units (SAAR)
Thousands of Units (SAAR)
400 3000
300 2500
200 2000
100
1500
Source: Bureau of the Census Source: NAR
0
1000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20
17
REO inventory is about unchanged versus a year-ago.
The REO inventory according to First American is down sharply from its peak in late 2008,
and now totaled about 230,000 units at mid-year.
Late in 2010, REO units in inventory rose as foreclosure legalities were brought into question.
With this issue now resolved, REO inventories have come down.
REO Inventory
400
June 2011
350
300
250
Thousands of Loans
200
150
100
50
Source: First American
0
Ja 5
Ja 6
Ja 7
Ja 8
Ja 9
Ja 0
Ju 6
Ju 7
Ju 8
Ju 9
Ju 0
1
M 6
M 6
M 7
M 7
M 8
M 8
M 9
M 9
M 0
M 0
M 1
M 1
05
Se 6
N 6
Se 7
N 7
Se 8
N 8
Se 9
N 9
Se 0
N 0
0
0
0
0
1
1
-0
-0
-0
-0
l-0
-0
-0
-0
l-0
-0
-0
-0
-1
0
0
-0
l-0
-0
-1
-1
0
-0
l-0
0
-1
l-1
1
-1
n-
n-
n-
n-
n-
n-
p-
p-
p-
p-
p-
p-
ov
ov
ov
ov
ov
ov
ay
ay
ay
ay
ay
ay
ar
ar
ar
ar
ar
ar
Se
N
18
House prices have over-corrected.
House prices have over-corrected with respect to both income and rent.
Good prices relative to income should boost the first-time-buyer market;
good prices relative to rents should boost the investor market.
Although investors are back in the market, total sales are still weak.
Median House Price vs Avg. HH Income Median House Price vs CPI Rental Component
WFC Mild Recovery May 2011 July 2011
2.5 140
130
2.0
120
1.5 110
Ratio (1981 = 100)
Ratio
100
1.0
90
0.5 80
Sources: History-NAR, Census Bureau, BEA; Forecast-Wells Fargo Bank NA
70
Sources: NAR and BLS; computations are ours.
0.0
60
81 -82 -83 -84 -85 -86 -87 -88 -89 -90 -91 -92 -93 -94 -95 -96 -97 -98 -99 -00 -01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11
n- n n n n n n n n n n n n n n n n n n n n n n n n n n n n n n
Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja
19
US House Prices
The Core Logic price indices (blue and green) indicate that prices are
falling on an all-transactions basis and are about stable excluding
distressed sales.
The implied index for distressed sales (my calculation) shows sharply
falling prices.
FACL House Price Indices --
US July 2011
250
200
150
100
50
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
All Transactions Excluding Distressed Implied Distressed
20
30-Day Delinquency Rates for First Mortgages: Falling.
The 30-day delinquency rate by vintage shows a marked improvement
since 2007. In each successive vintage, the peak delinquency rate has
been about halved.
First Mortgage 30-Day Delinquency Rate, by Vintage
June 2011
0.18%
0.16%
0.14%
Percent of Number in the Month
0.12%
0.10%
2007
2008
0.08% 2009
2010
0.06% 2011
0.04%
0.02%
Source: Moody's Analytics and Equifax
0.00%
11
13
15
17
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25
27
29
31
33
35
37
39
41
43
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51
53
1
3
5
7
9
Months On-The-Run
21
Foreclosures Started
As a result of improved early- and late-stage mortgage delinquency rates,
foreclosures started have declined by 44 basis points since the peak in
early 2009. In percentage terms, this is a 30% decline from the peak.
Foreclosures Started--% of Mortgages
2011Q2
1.60
1.40
1.20
1.00
Percentage Points
0.80
0.60
0.40
0.20
Source : MBA
0.00
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
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00
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Mortgage charge-off rates have peaked.
Charge-off rates for all residential mortgages and for home equity balances have
peaked. The factors involved are the following:
Less household financial stress (financial obligations ratio),
House prices are about stable (excluding distressed sales),
There is some employment growth, and
Burnout.
Net Charge-Off Rates Comm'l Banks
3.50
2011Q2
3.00
2.50
Percent of Number
2.00
1.50
1.00
0.50
Source: Federal Reserve
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
HEQ All Res
23
24
Case-Shiller Home Price Indices (Through July 2011, Released 9/27/11)
25
Case-Shiller Home Price Index Values for Large MSAs (Through July 2011)
Note: Home values for all individual MSAs were benchmarked to a value of 100 in the year
2000. 26
Existing Home Sales by Month (Not Seasonally Adjusted, Units in Thousands)
The homebuyer tax credit expired on June 30, 2010. Therefore, 2010 August 2011 Existing Home Sales at 502,000 units (not
650 existing home sales were relatively “front-loaded” in the first half of the seasonally adjusted); inventory at 3.6 million units (8.5
year (compared to “normal” years). months of supply)
600 Highest level for the month of August since 2007.
(Units in Thousands, Not Seasonally Adjusted)
550
500
450
400
350
300
250
200
150
100
50
0
J F M A M J J A S O N D
2007 2008 2009 2010 2011
Source: NAR . Note there is likely noise in the NAR data; numbers are estimates. 27
Products and Programs
28
Issues to cover:
Changes to High-Balance Limits….and our
response
Is FHA really the only valuable High LTV
option? Let’s go to the video tape.
Portfolio opportunities … moving from theory
to reality…one step at a time
29
High Balance Changes – What We Know
Current limits sunset September 30, 2011
New (Old) formula will supersede current formula
115% of Average Median Home Price not to exceed 150% of
Conforming Conventional Limit
$417,000 x 150% = $625,500
Impacts 669 Counties nationally and 208 Counties
with current limits > $417,000
30
Nonconforming PCL Simplification
Effective August 22
I. Recommend simplifying eligible funds used to meet PCL requirements
31
Nonconforming PCL Simplification
Effective August 22
I. Recommend simplifying PCL policy by reducing to two levels (10% and 20%)
on loan amounts between $750K and $2MM
32
There are a lot more options than just FHA
Scenario…Property value $170,000 w/Sales Price/Appraised Value $170,000 …credit score 740
(Price Blast 7453 – assume 1% origination fee)
VA FHA Rural Conv BPMI Conv SP Conv LPMI
Housing
Base LTV 100.00% 96.50% 100.0% 95.00% 95.00% 95.00%
Total LTV (includes 102.15% 97.46% 103.63% 95.00% 95.00% 95.00%
MIP/fnd fee)
Note Rate 3.750% 3.750% 3.750% 4.000% 4.000% 4.375%
Base loan amount $170,000 $164,050 $170,000 $161,500 $161,500 $161,500
Total loan amount $173,650 $165,690 $176,166 $161,500 $161,500 $161,500
Down Payment $0 $5,950 $0 $8,500 $8,500 $8,500
Upfront MIP (financed) $3,655 $1,641 $6,165 $0 $4,005 $0
Monthly MIP (year 1) $0 $156 $44 $90 $0 $0
Months MIP Required 0 108 111 94 0 0
Principal & interest $804 $923 $860 $861 $771 $806
(year 1)
33
There are a lot more options than just FHA (Cont’d)
Scenario…Property value $170,000 w/Sales Price/Appraised Value $170,000 …credit score 740
(Price Blast 7453 – assume 1% origination fee)
VA FHA Rural Conv BPMI Conv SP Conv
Housing LPMI
Base LTV 100.00% 96.50% 100.0% 95.00% 95.00% 95.00%
Total loan $173,650 $165,690 $176,166 $161,500 $161,500 $161,500
amount
Principal & $804 $923 $860 $861 $771 $806
interest
(year 1)
34
Future Likely Trend: FHA or MI?
Private MIs are expanding parameters
Limited FICO availability down to 660
Private MIs are Re-Pricing to regain share
Private MIs are also struggling financially
FHA is becoming directionally more conservative
FHA has decreased up-front MIP…..and,
FHA has increased monthly MIP
FICO band +/- 600
35
Portfolio Opportunities
Non-Conforming Investment Properties Program
Non-Conforming Doctor Program
Non-Conforming Pricing Options
Purchase Special continues
Other Opportunities
LTV and Property type considerations
HFI to HFI
36
Tools you are and will use
37
Tools you will use…
CRM / MS Dynamics Update
PPO Enhancements
38
PPO…. Looking Forward
Customer options document / takeaway
piece
Mobile: Blackberry app for HMCs
CORE Integration
39
PPO….. Other Recent Adds
Add 1-2 products to recommendation results
(June 2011)
Marketing Flyers “engine” (end of 2010)
Continued credit policy relevance (1-2
updates per month) – local loan limits /
market class / LTV, WFHM + WFHE policy,
etc.
40
2012 Market and Pricing Dynamics
Aka…Batten down the hatches team cause
there’s a storm brewin’
41
Topics:
State of the GSEs….and the impact on G-fees
HARP Status
QM
QRM
Reputation Risk
42
FHFA Annual Report to Congress on FNM, FRE, and the FHLBs (Released 6/13/11)
Fannie & Freddie Combined Net Income by Year
1971-2010 ($MM)
According to the FHFA report:
FHFA again assigned ratings of “Critical Concern” to both FNM and FRE, citing numerous areas of risk concerns;
including credit risk, operational risk, modeling risks, retention of qualified leadership and personnel, and others.
The GSEs’ combined net loss slowed to ($28B) in 2010. From a longer-term view:
– In the last 4 years (2007-2010), the combined FNM/FRE Net Income was ($236B).
– Between 1971 and 2010 (40 years total), FNM’s and FRE’s combined Net Income was ($130B), or an
average annual Net Income of ($3.3B) per year.
“The GSEs completed 950,000 loan modifications and other foreclosure alternative actions in 2010”.
“Although the financial condition and performance of the FHLBanks generally stabilized in 2010, the FHLBanks
continued to be negatively affected by exposure to private-label mortgage-backed securities and declines in
advances”. All FHLBs recorded positive annual profits in 2010.
43
Dodd-Frank Rulemakings (# by Regulator by Deadline Dates)
The Dodd-Frank 1-year mark is next month, and a number of rule-making deadlines are around that anniversary date in July. Note a large
percentage of the 109 required rulemakings due in 3Q11 for the SEC and CFTC and are related to financial derivatives regulations.
Several regulators have stated they will miss some of the 3Q11 deadlines (and a number of the previous deadlines have been missed as well).
Eighty-seven studies are required by Dodd-Frank; 24 have been completed (2 study deadlines have been missed).
Financial Times: The Financial Services Roundtable recently announced that it has sent more than 100 comment letters to regulatory agencies
regarding the Dodd-Frank Act. "The scope of regulatory activity through Dodd-Frank has been just astounding," said Steve Bartlett, president
and CEO for the Roundtable. In terms of missed deadlines, “The Roundtable’s position is that while agencies are behind in issuing final rules, we
believe it is more important to get rules right than make the statutory deadlines”.
44
Source: Financial Services Roundtable (Davis Polk), Financial Times.
HARP Status
Set to expire on June 30, 2012… Likely to be
extended
Does not require legislation to extend
The “Boxer Rebellion” is not expected to pass… but it
did get the discussion going
45
HARP Status – (Cont’d)
Other Considerations…
Higher LTVs
Rep and Warrant Relief
LLPA Adjustments
Loans made post May 2009
The issue of “Re-HARPing”
46
QM…What is it and where did it come from?
The genesis is Dodd-Frank which mandated
no creditor make a mortgage loan without a
reasonable and good faith determination that
the borrower has THE ABILITY TO REPAY
the loan.
47
QM…..(Cont’d)
Ability to Repay can be met in 1 of 4 ways….
1. Determine a general ability to repay
2. Originate a Qualified Mortgage
3. Refinance a non-standard mortgage into a standard
mortgage
4. Originate a balloon payment loan as a QM in a rural
or underserved area
48
QM…..(Cont’d)
Safe Harbor…we desperately need a port in this storm….
Lenders, Wells Fargo and industry groups believe that clarity or
a bright line set of standards is needed.
Wells Fargo has suggested a collaborative approach with
industry, consumer groups and regulatory agencies should
occur before the issuance of any final rule
Two alternatives were presented by the Fed with most industry
participants favoring Alternative 1…with specific suggested
changes.
49
QM….(Cont’d)
Alternative One…broadly defined as:
No negative amortization, no balloon, no interest only payment
loans nor any term > 30 years
Total points fees cannot exceed 3% of the total loan amount
Borrower’s income or assets relied upon in making the ATR
decision are considered and verified
Underwriting of the mortgage is……
Based on the maximum rate in the first five years of the loan*
Uses a fully amortizing payment schedule
Takes into account any mortgage related obligations.
50
QM…(Cont’d)
Wells Fargo Suggestions include the following:
Points and Fees Threshold of 3%
3% cap will penalize smaller loans and certain segments of
the market including larger loans in high fee states such as
NY and FL
Including loan originator compensation in the calculation on
Retail loans is double counting and difficult to determine
Affiliate-retained fees do not impact the borrower’s ATR and
may deny benefits to the consumer
Limit of 2 bona fide discount points unnecessarily restricts
consumer options.
Suggest QM Safe Harbor include certain streamlined refinances
51
QRM….Qualified Residential Mortgage
QRM is a subset of QM
Dodd-Frank requires it be no more expansive than QM…it does
not “require” it to be more restrictive
Many industry groups and associations have staked out a
common definition of QM/QRM as their position
The Federal Reserve published a preliminary rule in April with
three criteria
LTV
DTI
Credit Profile (not score)
52
QRM….(Cont’d)
Fed Proposal ……now in the hands of the CFPB
LTV
Purchase 80%
Rate and Term Refinance – 75%
Cash out Refinance – 70%
DTI - ≤ to 36%
Credit Profile – an implied FICO of 690 or greater
QRM is restricted to owner occupants
53
QRM….(Cont’d)
Implications per Inside Mortgage Finance
Current Proposal would place a majority of GSE loan out of QRM status if the
GSES were not in conservatorship
Of Freddie Mac’s 1st half of 2011 securitization volume, 64% would fail the QRM
test.
Biggest impact is due to DTI
36% of Freddie loans exceeded 36% DTI (Wells Fargo 32%)
19% of Freddie purchase loans exceeded 80% LTV (Wells Fargo 15.4%)
38% of Freddie refinances exceeded 75% LTB (Wells Fargo 37.6%)
8% of Freddie loans scored less than a 690 credit score (Wells Fargo 8.4%)
Less than 5% of Freddie loans were made to investors (Wells Fargo 5.6%)
Wells Fargo’s revised position suggest a 90% LTV with MI and a DTI in
the low 40’s. BofA and Chase are at 80% and varying DTIs.
54
Interest Rates & Opportunities
55
Federal Funds Futures: Low through mid-2013.
The Fed has told us that it expects to keep short-rates low through mid-
2013.
The Fed funds futures market has that expectation all priced in.
Fed Funds Futures Prices
September 15, 2011
1.50
1.25
1.00
Percentage Points
0.75
0.50
0.25
0.00
12
12
11
12
12
1
2
12
2
2
11
2
2
12
2
11
12
12
p1
b1
p1
b1
n1
l1
n1
pr
ug
ec
ec
n
ct
ov
ay
ct
ov
ar
Ju
Se
Fe
Se
Fe
Ju
Ja
Ja
O
O
M
A
D
D
M
N
N
A
Source: Bloomberg Oct-21 Jan 20 Mar-22 June 30 Sep-15
56
Spreads: 10 year to 3 month Treasury spread.
The recent rally at the long end propelled long rates lower, but the yield curve is
still very steep historically. The policy of low interest rates at the short-end of the
yield spectrum is designed to do several things:
Induce investors to assume more risk,
Re-capitalize the banking system, and
Encourage interest-sensitive spending.
That policy is working, especially on points one and two. (NIM tougher in future)
10Year-3Mo Treasury Spread
August 2011
4.0
3.5
3.0
2.5
Percentage Points
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
90 9 91 9 92 9 93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 0 03 0 04 0 05 0 06 0 07 0 08 0 09 0 10 0 11
19 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2
57
Inflation expectations: Still anchored.
Inflation expectations fell below 200 basis points on September 16.
Market participants are not concerned that inflation is going to be a problem in the
next 10 years, despite some thought that excessively easy monetary policy could
shortly boost inflation. The evidence is to the contrary.
10-Year TIPs Spread
3.00
September 16, 2011
2.50
2.00
Percentage Points
Sept 16= 195 bps
1.50
1.00
0.50
Source: Federal Reserve, our calculation.
0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011
58
FOMC Decision
Operation Twist
And More…..
59
Pricing Survey
60
Pricing Survey
61
Pricing Survey
62
Pricing Survey
63
Pricing Survey
64
Pricing Survey
65
Non-Conforming Purchase Special Results
BASE Volume – August 1 - 30 Promo – August 30 – Sept 24
Avg Daily 0/0 Avg Daily % of 0/0
Locked Locked Change
Region 91 $503,095 87 $499,637 -1% 102
Region 92 $599,665 89 $894,016 +49% 59
Branch $27,215,604 79 $33,778,213 +24% 84
Retail
Conforming $192,020,493 95 $171,197,346 -11% 94
Purchase
Locks
66
67
68
69
Top Purchase & Refinance Retail Lenders for 1H2011 ($B)
$88B
The top purchase lenders rank-ordered by volume (purple bars) are: WF, BofA, PHH,
Chase, USAA, SunTrust, MetLife, Prime Lending, and US Bank.
The top refi lenders rank-ordered by volume (green bars) are: WF, Chase, BofA, Citi,
PHH, Quicken, US Bank, PNC, and SunTrust.
Note Chase’s, Citi’s, and Quicken’s refi volumes were respectively 92%, 87%, and 93%
of their total volume. All three of these firms were significantly over-indexed in
refinances (see chart on next slide).
Chase was the #2 refi lender, and in fact was the #2 Retail lender in 2Q11 (not shown).
BofA’s Retail share has fallen by close to 50% over the past several years.
$50B * Quicken and USAA purchase/refi splits are estimated using CoreLogic/Marketrac data
$46B (these lenders did not disclose splits to IMF).
$17B
$14B
$11
B $8B $7B
$6B $6B $6B
$5B $4B
$4B $3B
70
Q&A
71