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Inside Track

Market Update from Our CEO- 06.06.16

 

Daily Quote: “Impossible is just a big word thrown around by small men who find it easier to live in the world they’ve been given than to explore the power they have to change it. Impossible is not a fact. It’s an opinion. Impossible is not a declaration. It’s a dare. Impossible is potential. Impossible is temporary. Impossible is nothing.”  Muhammed Ali

Fun Fact Of The Day:   A red-and-white Schwinn bicycle launched Ali’s boxing career.  When the 12-year-old Clay’s beloved bicycle was stolen in October 1954, he reported the theft to Louisville, Kentucky, police officer Joe Martin and vowed to pummel the culprit. Martin, who was also a boxing trainer, suggested that the upset youngster first learn how to fight, and he took Clay under his wing. Six weeks later, Clay won his first bout in a split decision.  Lives tends to lead us down the path we’re supposed to take.

Mail Bag:  Do You Expect Another Cut In MIP Anytime Soon?”

I've been discussing this for some time.  I believe the odds are high (80% or so) Obama et al will do an MI reduction for first-time homebuyers before he leaves office.  Since it's likely just a first-time homebuyer program it won't have an effect on servicing books.  The home ownership rate is still at historic lows and when you dissect the data the home ownership rate of first time home buyers and minorities is well below where it could/should be.  So there is a strong desire to get this done before the election in my opinion and it doesn't need Congressional approval. As we know President Obama couldn’t get Congressional approval to flush a toilet but HUD and the Agencies are one area he controls completely. 

A more extensive cut in MI for all FHA loans is something that could happen however it's going to be hard to swallow for Republicans until the fund is consistently well above the Congressionally mandated minimum of 2%.  Reverse Mortgages are the real impediment here as valuation swings are incredibly volatile and for some reason they never carved out the 2 pieces (Forward versus Reverse).  Exclude reverses and the MMI Fund is very healthy however I believe the odds of this are a coin toss (50/50) with the odds decreasing with each month we get closer to November.  If Castro and Obama due this right before he leaves office it'll throw Senate Republican's into a tizzy and while President Obama might well get a kick out of that it'll also cause some issues for an incoming Democratic President.

Just my thoughts...

What Does This Mean For Mortgage Participants?   

  • Last Friday’s jobs numbers and the pending vote by British citizens to exit the Eurozone have put the Fed on hold this month and probably will hold the Fed to one rate hike max this year.  So rates will continue to be favorable. 
  • A reduction in MI for first-time homebuyers will be yet another knot or two of wind in the sails of the mortgage industry.  There are plenty of folks out there who, with some additional help, would love to get out of their rental, their in-laws basement, or to stop sharing an apartment with friends.
  • The potential downside?  First time homebuyers tend to have more layered risk features and be more credit challenged…so expect delinquency rates to increase.  In addition, expect the pipeline to move more slowly as these folks aren’t always a snap decision by Underwriting.  If you’re used to dealing with higher-FICO, better qualified borrowers and begin migrating down this path set proper expectations and tighten your submission standards. 

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