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Mortgage Applications Soar 25% (Ahead Of Regulatory Regime Change)
Mortgage applications rose 25.5% week-over-week - the 2nd largest surge since 2009 - to the highest level (for this time of year) since 2012. Both refis and purchases soared, and exuberance immediatoley extrapolated this surge as 'proving' the housing recovery is healthy. However, as MBA admits, "many applications were filed prior to the TILA-RESPA regulatory change," strongly suggesting this is anything but sustainable.
2nd biggest week-over-week gain in mortgage apps since 2009...
Both applications to refinance and to purchase a home were almost equally juiced. Refinance applications rose 24 percent, seasonally adjusted, and purchase applications were up by 27 percent. Purchase applications, which are usually less rate-sensitive week-to-week, are now 49 percent higher than one year ago, an astonishing jump given that the latest reads on home sales show the market appears to be weakening. They are now at the highest level in five years.
This pushes the overall mortgage application index to its highest for this time of year since 2012... but note mortgage apps remain half what they were at the previous peak norms.
But as CNBC's Diana Olick notes,
"The number of applications for purchase and refinance mortgages soared last week due both to renewed rate volatility and as many applications were filed prior to the TILA-RESPA regulatory change," said Lynn Fisher, the MBA's vice president of research and economics.
The change is part of a move by federal regulators to further protect borrowers by forcing lenders to disclose all details of a loan at least three days prior to closing; it went into effect October 3rd.
* * *
Ironically, despite one of the unstated goals behind Yellen's rate hike cycle being to get mortgage buyers to buy ahead of a rate hike; instead we got a major slowdown and all buyers were apparently waiting for was the latest drop in rates to pile back in.
* * *
But amid haunting echoes of 2004-2007, Reuters reports JPMorgan Chase & Co, looking to stem falling revenue in its mortgage business as fewer Americans refinance, is increasingly buying loans from smaller lenders, a practice that competitors including Bank of America view as risky.
In the first half of 2015, the bank bought 62 percent of the $58 billion in home loans it added to its books, compared with 56 percent in 2014 and 37 percent in 2011.
While other big banks buy mortgages from other lenders, known as correspondents, JPMorgan has racked up the biggest increase among its peers in the proportion of loans it buys from others, according to data from trade publication Inside Mortgage Finance. JPMorgan is fighting for business in what has been a shrinking market.
"There's more risk in being that far away from the customer," said D. Steve Boland, the Bank of America executive in charge of mortgage and auto lending. For example, a smaller lender could fail to verify a borrower's income properly, and just sell the loan on to a bigger bank.
So yet again - exogenous demand (JPM buying pressure) may enable smaller lenders to deliver more end-product (beget more supply) in just the kind of vicious circle we have seen before that ends so badly.
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What change is this we speak of? 3 days disclosure of details doesn't seem to be any sort of precursor to increased applications.
correct, apps went up on fears of a Fed rate hike which doesn't affect mortgage rates directly anyways....also, the jobs numbers last friday boosted the MBS market initiallly, lots of apps dated 10/2
Looks like new forms, and changing when fees are charged. I started a refi 3 weeks ago because they were "supposed" to raise rates... fucking Yellen...
Friend of mine bought a house because "rates are going to go way up soon".
smh
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Probably refers to banks that want to push mortgages through before they have to be somewhat honest as opposed to completely deceptive. The change would not push buyers to hurry.
The WoW spike is due to lower rates, in that measurement week. Rates have backed up this past week, so next week's headline will be "Applications are Crashing", blah, blah, blah.
TRID (the new disclosure rules) are not the cause. trust me, I'm in the biz. Smart borrowers would WAIT until after the new disclosure rules are in place becuase the new CFPB rules BENEFIT consumers by placing ceilings on fees and interest rate changes (a good thing for consumers / bad for mortgage firms).
From MBA:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.99 percent, the lowest level since May 2015, from 4.08 percent, with points increasing to 0.46 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
A 9 bps drop in mortgage rates is decent move for a week delta. That simply pulls fence-sitters and unqualified from future activity into this week.
NoVa
Thanks new NoVa. Much appreciated. You da man!
Knucks - These disclosure changes are a big deal for the real estate industry. A REALLY BIG DEAL.
it started Monday (two days ago) for loan applications taken on Oct 3rd. Another reason why their excuse is spin as most borrowers have no idea this is now here.
the old forms called GFE (Good Faith Estimate) and HUD-1 are now replaced by CFPB frieindly forms called Loan Estimate and Closing Documents. Most firms involved with real estate (brokerage, mortgagem title, settlement) all have to adopt the new forms as well as allow the prior forms to remain valid. Big changes to data structure flowing through all business systems. Hence, all firms had to design new systems & processes to use both forms. Plus the CFPB implemented new rules to "protect" consumers.
Dodd Frank law mandated the CFPB to make these changes. Dodd Frank argued that the old forms caused confusion for consumers which was an alledged factor in the 2007-2009 Crisis. It was a cause but not "THE" cause. I guarantee that ZH will have some Mortgage closing horror stories in a few weeks.
For the curious out there -
http://www.consumerfinance.gov/know-before-you-owe/
NoVa
I'm sure the banks will just figure out some other way to screw people at closing.
I remember I made my down payment for my mortgage seven years ago and was given a GFE that I needed $4200 at closing. I showed up to sign the paperwork and the title clerk asked me for my $12k check. I replied with, no my $4200 check.
Apparently a whole bunch of charges I was never made aware of were not included in the GFE. SO I needed to either find another 8 grand or lose the house.
My preferred choice would have been to give the bitch the finger and walk out, but I did have a baby on the way.
yup - your horror story is the exact reason why the new forms & rules were designed & implemented. The numbers were likely correct, but just a huge failure to communicate to you of the changes.
One of the biggest changes relates to Affiliated Businesses (RE, Mortgage and Title) under common ownership. Those fees/charges have 0% tolerance changes from the Loan Estimate - fees can only be lowered, not increased.
NoVa
Unfortunately what they dont tell you is the old forms were created by the government as well...they are all confusing.
So are the new disclosure rules in effect now? Everything I see menions early October as the implementation date.
Yes they are. I'm in the biz as well and these rules are killing our operations. I hear several lenders are running into issues.
Welcome to the Party, Pal!
~ John McClain, Die Hard
small bank gets the origination fees, jpm holds the bag. sounds good to me.
But who bails them all out next time? RE prices are not even close to the 2006-2007 bubble where 30-year mortgages were around 6%. This is just getting started.
The same people who bailed them out last time, or at least that's what they think.....
Speaking of refis, I was sad to hear from an old buddy haven't heard from for 10 years. When we last spoke he was living comfortably in Cali with his house 100% paid off due to his hard work.
Then ... somehow he got hooked by these refi commericals and took lots of cash out on his house [and a whopper mortgage] to "invest and make alot of money flipping houses."
Well, the robust economy of 2008 busted him and that hair-brained scheme, and he lost his entire house and now lives with his family in a two bedroom apt. rental shithole and scrounges around for a living.
I told him he should write a letter to greenspan and bernanke personally thnking them for their roll in his demise. He, of course, realizes he is partially to blame since he is one of those who still takes responsibility for his actions. Still, I told him, Ben and Alan would be touched getting a warm note from him.
Can't wait to purchase my first house/LAND with silver. Monopoly $ just isn't as fun to play with as it used to be.
"The number of applications for purchase and refinance mortgages.
The statement should read. The number of applications for refinance mortgages.
Because nobody has a job or any money so nobody is buying anything they are only refinancing.
Monsanto to cut 12% of workforce. Add that to the pile. The number fo mortgages will rise as people will need a mortgage to live in a cardboard box soon. Trade on the number not on the underlying data.
So I assume no doc/liar loans are back on the table?
Yes along with 125% ltv's
stupid people were talked in to submit loan applications to lock in rate before the "interest rate hike" That's all.
The numbers are seasonally adjusted, so take everything with a planet killing asteroid sized grain of salt.
http://www.reuters.com/article/2015/10/07/us-jpmorgan-mortgages-insight-...
JPMorgan buys more mortgages from other lenders as market shrinks
NEW YORK | By Dan Freed
JPMorgan Chase & Co, looking to stem falling revenue in its mortgage business as fewer Americans refinance, is increasingly buying loans from smaller lenders, a practice that competitors including Bank of America view as risky.
In the first half of 2015, the bank bought 62 percent of the $58 billion in home loans it added to its books, compared with 56 percent in 2014 and 37 percent in 2011.
While other big banks buy mortgages from other lenders, known as correspondents, JPMorgan has racked up the biggest increase among its peers in the proportion of loans it buys from others, according to data from trade publication Inside Mortgage Finance. JPMorgan is fighting for business in what has been a shrinking market.
According to the Mortgage Bankers Association, applications for U.S. home loans have fallen by about 25 percent since mid-January, when a temporary drop in rates spurred a small wave of refinancing. Since May 2013, when mortgage rates first started jumping amid fears the Federal Reserve would hike rates, application volume has fallen by more than 50 percent.
Fewer applications overall make it harder for JPMorgan to make as many loans directly to consumers in its bank branches. Still, JPMorgan's willingness to buy loans from correspondent banks is a sign that banks are comfortable taking more risk in the mortgage market, nearly a decade after the housing bubble popped.
"As they gain more confidence about the environment, they go right back to the correspondent channel for more volume," said banking analyst Charles Peabody of Portales Partners.
To be sure, Bank of America Corp avoids the loans, because it doesn't want to be exposed to bad decisions made by smaller banks that do the actual lending.
"There's more risk in being that far away from the customer," said D. Steve Boland, the Bank of America executive in charge of mortgage and auto lending. For example, a smaller lender could fail to verify a borrower's income properly, and just sell the loan on to a bigger bank.
Looks like HGTV is having the desired effect.