Wells Fargo Mortgage Applications Fall To Lowest Since 2005* (The Wells Fargo Mortgage Wagon ISN’T Coming!)

It is reporting season for American banks and Wells Fargo’s came out today. first-quarter-earnings-supplement

Of particular interest is the decline in residential mortgage applications for Wells Fargo, the lowest since 2005. Because that is the last year for which there is data on Bloomberg for Wells Fargo.*

Mortgage originations? About the same as Q1 2016, but substantially below levels seen in 2012. Q1 2017 is the second lowest level of originations sine 2005.

It just isn’t Wells Fargo. Take Bank of America. But Wells claimed their niche was the residential mortgage market while other banks retreated from the market.

Low wage growth coupled with regulatory overreach by Dodd-Frank and the Consumer Financial Protection Bureau has diminished residential mortgage lending by the banks.

So, the Wells Fargo (mortgage lending) wagon isn’t coming. And it isn’t for other big banks either. But PROFITS increased for mortgage bankers  in 2016.

While Wells Fargo was still the leading mortgage originator in Q3 2016, shadow bank Quicken is challenging Chase for 2nd place with PennyMac challenging US Bank for 4th place in the mortgage origination derby.

Maybe Dan Gilbert, the CEO of Quicken Loans and the owner of the Cleveland Cavaliers basketball team, should adopt the Wells Fargo wagon song for Quicken! Because it seems that Wells Fargo’s wagon isn’t bring the home loans as expected.

MBA Residential Mortgage Application Index Hits Highest Level Since May 2010 .. And It Is Only April!!

As mortgage interest rates hit a new 2017 low, we now see mortgage purchase applications rising to its highest level since May 2010.

This new level is in spite of mortgage originations for borrowers with credit scores under 620 playing a lesser than during the financial crisis. Although mortgage originations for borrowers with credit scores under 620 are at their highest level since March 2010. So both mortgage purchase applications (SA) and under 620 credit score mortgage borrowers are at their highest levels since 2010.

With the worst wage recovery after a recession in modern history, expanding the “credit envelope” is about the only way to expand mortgage lending.

In other words, mortgage credit for borrowers under 620 FICO score is expanding at the fastest pace since Dodd-Frank and The Consumer Financial Protection Bureau were created in 2010.

Elizabeth Warren, architect of the Consumer Financial Protection Bureau.

 

US construction spending rose to nearly 11-year high?? (how about slowed to 3% YoY)

According to the US Census Bureau (as interpreted by Fox News). US construction spending rose to nearly an 11 year high.

WASHINGTON – U.S. developers ramped up construction spending in February to the largest amount in nearly 11 years, led by more building of homes, highways and schools.

The Commerce Department says construction spending rose 0.8 percent in February to the highest level since April 2006, after two months of declines.

Builders are rapidly putting up more homes in response to strong demand that has pushed up prices for existing homes. Yet it hasn’t yet been enough to relieve a shortage of homes for sale. The accelerated building could boost the economy this year.

State and local governments spent 0.9 percent more on construction, driven by roads, schools and recreational buildings.

The federal government, meanwhile, cut construction spending for the second straight month and has cut back 9 percent from a year ago.

Here is the report from the Census Bureau.

The 11-year headline from Fox is really overselling the report.

In fact, construction spending has slowed dramatically YoY to 3% for February 2017.

Non-residential construction spending? It slowed to under 1% in February YoY.

Residential construction spending actually rose 6.36% YoY, but still remains considerably lower than the 22.6% YoY in August of 2015.

The more accurate headline should have been “Construction Spending Slows.” But that is not a feel-good business headline.

But I suppose that Fox News’ headline is better than the Pawnee Sun headline.

Zillow:10.5% National Negative Equity Share Declining (But Chicago And Las Vegas Have 2X National Rate)

According to Zillow (and their methodogy for calculating “underwater mortgage loans”), US negative equity hit 10.5% in Q4 2016. That is a considerable improvement of the peak of 31.4% in Q1 2012.

But more than 55 percent of all homeowners in negative equity nationwide were underwater by more than 20 percent as of the end of Q4.

Where are the negative equity “zones”? Not on the West Coast. The West Coast is home to all five major metros with the lowest rates of negative equity. As of the end of 2016, Las Vegas and Chicago had the highest rates of negative equity among the largest U.S. metros, with 16.6 and 16.5 percent of homeowners underwater, respectively.

How about EFFECTIVE negative equity rates? Even though a borrower may barely be in positive territory, brokerage fees (say 6%) on sales can push the homeowner into negative territory. The national average for EFFECTIVE negative equity still exceeds 25%.

Let’s compare Washington DC with Prince Georges County in Maryland. The share of homes with a mortgage in negative equity is almost double in PG County compared with DC. The same holds true for the shares in EFFECT negative equity (that is exactly double the rate of Washington DC).

To show how much Phoenix AZ has improved in terms of negative equity, Phoenix now has the same negative equity share as Washington DC: 10.5% and the US. But Maricopa County has a larger EFFECTIVE negative equity share of 27.3%.

But how about Chicago, home of the World Series Champion Chicago Cubs? Negative equity in Chicago is even worse than it is in Prince Georges County in Maryland!

How about Lackawanna County, PA, the home of Scranton and the Dunder-Miflin regional sales office? Even worse negative equity problems than Chicago!!

The WORST negative equity county in the US? Pulaski County in Missouri, home of the US Army’s Fort Leonard Wood with a 47.4% share of negative equity mortgages and  76.1% share of EFFECTIVE negative equity mortgages.

Despite the improvement of negative equity in the US, a number of counties (many rural) are still struggling which is an impediment to both mortgage refinancing and mortgage purchase lending despite near-record low mortgage rates.

Jurassic Banking: Shadow Banking Is Getting Bigger Without Getting Better

There is an interesting article on Bloomberg entitled “Shadow Banking Is Getting Bigger Without Getting Better” 

Taxi companies that compete with Uber and media companies that are up against Facebook know it: In a rivalry between regulated and unregulated firms, the latter have an unfair advantage. It also applies to banks, which spent the past ten years losing market share to companies that regulators ignored.

In a fresh working paper, Greg Buchak and Gregor Matvos of the University of Chicago, Tomasz Piskorski of Columbia Business School and Stanford’s Amit Seru calculated that between 2007 and 2015, so-called shadow banks have increased their share of the U.S. Federal Housing Administration mortgage market sevenfold to 75 percent. That’s the market where the less creditworthy borrowers get their loans. In the U.S. mortgage market as a whole, shadow banks held a 38 percent share in 2015, compared with 14 percent in 2007.

This is not really surprising since non-depository financial institutions have risen in force thanks in part to Washington DC’s penchant for trying to regulate anything that moves (Dodd-Frank, Consumer Financial Protection Bureau, etc.) But the growth of “shadow banks” is also linked to a growth in more risky FHA-insured loans.

And with FHA-insured loans having 4 times the serious delinquency rate than loans purchased by GSEs Fannie Mae and Freddie Mac, this is represents a dramatic shift in banking and risk taking.

As Gerald Hanweck and I showed in a recent paper, bank failures following the housing bubble and financial crisis boomed in  2009 and 2010. Most of these bank failures were small banks. This resulted in bank aggregation into progressively larger banks. These were failures of depository institutions and shadow banks (non-depository institutions like Quicken Loans) have stepped in with riskier loan profiles.

The result? The rise of the mega-banks.

As Professor Ian Malcolm said in the movie Jurassic Park, life will find a way. Including subprime lending. Welcome to Jurassic Park, where Senator Elizabeth Warren and CFPB Director Richard Cordray still believe that they can control the banking system.

 

Freddie Mac Serious Delinquencies Fall To Lowest Since June 2008 As Home Prices Grow At 5.87% YoY Clip

Freddie Mac reported that the Single-Family serious delinquency rate in February was at 0.98%, down from 0.99% in January.  Freddie’s rate is down from 1.26% in February 2016.  That is the lowest reading since June 2008.

Notice how tame serious delinquencies were during the housing/credit bubble. The US seems to be repeating the housing bubble in terms of house price growth and low serious delinquencies, but without the higher levels of mortgage originations to borrowers with credit scores less than 620.

Bear in mind, the Case-Shiller reading is for January and it is almost April. Be that as it may, home price growth is at 5.73% YoY versus wage growth at 2.3% YoY, over 2x. And yes, Seattle, Portland and Denver lead the nation in YoY growth in home prices. The slowest growing cities? New York City and Cleveland (the Shooting Guards JR Smith/Iman Shumpert effect having been traded from the Knicks to the Cavaliers).

It says here that when home prices are growing at two times wage growth it would mean we have a housing bubble … again.

 

 

 

New Home Sales Rise 6.1% MoM in February (Mostly In Midwest) Following -3.7% Decline in Existing Home Sales

New home sales rose by 6.1% in February, greater than expected.

The biggest winner? The Midwest! (Home of the Chicago Cubs, Cleveland Indians and … Pawnee Indiana!)

The growth in new home sales has lagged existing home sales since 2009.

But in terms of median price, median price for new home sales has been accelerating from median price for existing home sales since 2009.

Existing home sales? Down 3.7% MoM in February.

The Midwest includes Pawnee Indiana!