Sep. 25, 2007: HECM news with the 10-yr yield back down to 4.57%

Sep. 25, 2007: HECM news with the 10-yr yield back down to 4.57% Rob Chrisman

HECM’s (Home Equity Conversion Mortgage) continue to be in the news. As many originators know, a reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in their home into cash, and no repayment is required until the borrower stops using the home as their principal residence. Some companies have proprietary programs, but most generally follow HUD’s reverse mortgage guidelines (HUD’s are federally-insured). HUD’s Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; the property be owner-occupied, own their home “free & clear” or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan. And borrowers must go through counseling prior to obtaining the loan. Last week the Senate Banking Committee passed FHA modernization legislation in an effort to ease the subprime market duress.  Included in those provisions were a HECM cap removal, allowing a HECM for home purchase, a single-national loan limit at the conventional limit (currently $417,000), and allowing cooperatives. This follows action by the House of Representatives, which voted to approve similar legislation. What’s next? The full Senate must pass the bill and then a conference committee will need to work out the differences between the two bills (House and Senate).

Originator-wise, the top 10 originators of HECM’s originate 44% of production, down from 55% a year ago, suggesting new lenders are entering the business. HECM origination volume in the Southeast has risen 127% in 2007 which makes it the highest producing region in the US.  The Pacific region is second (down 19% Y-O-Y) and Southwest third (+116% Y-O-Y).

Nationstar Mortgage, Dallas, on Friday closed its subprime wholesale division, ranked 18th nationwide in this channel.

Are we done with lenders going out of business, underwriting guideline changes, and foreclosure issues? Probably not, but it has certainly calmed down. All the major Wall Street houses have written down debt losses, but it is clear from the data that foreclosures and delinquencies are going to rise as resets continue. Rates are low, but not low enough to correct the problems caused by loose credit over the last several years. So credit is still a problem and hopefully the decrease in overnight rates last week will cushion a hard landing. Inflation worries have not been abandoned by the Fed, but there is some stabilizing in rates: short term rates have eased significantly from a week ago. In fact, long term inflation concerns will push yields on the long end of the curve north and should continue to steeper the yield curve – 2yr vs. 10yr spread is now approaching 60bps. Many investors believe that if the economy continues to grow at an annualized rate of 2% or less, the Fed is assured to continue cutting rates yet again.

Existing Home Sales and Consumer Confidence are due out later this morning. The Consumer Confidence number is expected to show a marginal decline down to 104 from 105, and August’s Existing Home Sales are expected to have reached a new 5-year low, declining -4.5% to 5.49mln. If buyers believe that home prices still have more room to fall, existing sales may continue to suffer from their “wait and see” mentality.

Two New York men were driving through Georgia when they got pulled over by a State Trooper.  The cop walked up and tapped on the window with his nightstick. The driver rolled down the window and “WHACK,” the cop smacked him in the head with his nightstick.

“What the heck was that for?” the driver asked.

“You’re in Georgia, son,” the trooper answered. “When we pull you over in Georgia, you better have your license ready by the time we get to your car.”

“Sorry, officer,” the driver said, “I’m from New York and didn’t know your laws here.”

The trooper runs a check on the guy’s license – he’s clean and gives the guy his license back. The trooper then walks around to the passenger side and taps on the window. The passenger rolls down the window and “WHACK,” the trooper smacks him on the head with the nightstick.

“What’d you do that for?” the passenger demands.

“Just making your wish come true,” replied the trooper.

“Making WHAT wish come true?” the passenger asked.

“I know you New Yorkers,” the trooper says, “two miles down the road you’re gonna turn to your buddy and say, ‘I WISH that jerk would’ve tried that with me!'”