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What?s your favorite indicator of where the market it going? Each month I publish a variety of Monroe County statistics hoping to lend perspective to our local real estate and mortgage finance markets. Mortgage and deed recordings, transfers, foreclosures started and finished just to name a few. I slice them, dice them and try to put them in meaningful relationships with a cool graph or two.
The Monthly Mortgage Market Share report reflects my unfulfilled desire to find the holy grail of market indicators. The one stat that above all others would tell me when the market would turn, how vigorous it would be and when it would end. Were I able to find such a metric, I?d be forever free from the anxiety of living or dying with daily order counts?a curse I?ve endured for over thirty years.
My job would be easy. My confidence would soar. I?d know exactly what decisions to make and I?d always be right. Staffing, capital expenditures, expansion would all be easy considerations. Alas, my search continues. I do know if asked that ?Well, we?re busy in the summer, and slow in the winter.? But that?s about it. Anything else I can add is history; what happened last month, quarter or year.
So I still form my opinions about the future from anecdotal evidence that over the years I?ve learned to trust. For example, I mentally track the number of new for-sale signs between home and the office every week. Before email and Adobe? attachments became common place, I could tell how things were going by how much fax paper we used every day. More than a ream and I knew that we?d be rocking soon.
One of my favorite market predictors is the weekend parking lot indicator. It?s quite simple. On any Saturday or Sunday, I just look out my office window and across the street to Re/Max Professionals? parking lot. When it?s empty, I know that few of my friends are schlepping buyers around looking for dream houses. When it?s full though, especially with cars I don?t recognize, get ready. The market will be turning soon. Make sure there?s paper in the fax. Right now this indicator is pretty darn bullish.
What?s your favorite market indicator? I?ve posted this commentary on my blog here:? https://www.johnbtitle.com/category/blog/
Leave a comment and let the world know. You?re probably more insightful than you give yourself credit for.
~John Bethell
This is not the end. It is not even the beginning of the end. But it is perhaps, the end of the beginning. ~ Winston Churchill
There are encouraging signs for the Monroe County real estate and mortgage finance markets. Commercial loans showed signs of life in December. Residential sales in the higher price ranges improved over the last six months of the year. Neither of these developments appears to be the result of any artificial stimulus, such as home buyer tax credits. That?s good news.
The twenty mortgages securing loans over $500,000 (see detail) made in December is the highest total in Monroe County since July 2008?the month when the sub-prime crisis became obvious. Most of these loans appear to be commercial in nature which is a positive indicator for the 2011 market. I?ll be watching closely the next few months in hopes that this is a trend, and not a year-end aberration.
Sales of properties for use as a primary residence (see chart) also displayed an upbeat trend. Although the total sales in the second half of 2010 were down compared to the 2009 period, sales in the upper price ranges were actually higher?a lot higher. Second half sales with a stated sales price in excess of $200,000 increased over forty percent over 2009?from 178 to 251! These sales are less driven by tax credits and artificial stimulus. The drivers are more likely low interest rates and buyers feeling financially confident about making a change.
The last trend to keep an eye on is mortgage foreclosures. The number of new foreclosures started and the number of recorded Sheriff?s deeds (foreclosures finished) both continued to drop in Monroe County. Is this drop is real or is it just a pause as a result of the robo-signer-gate revelations in the fourth quarter? Let?s hope it?s the beginning of a return to normal.
The market still has a long way back. The ever increasing overhead of regulation and compliance certainly will retard its progress. Nevertheless, signs of improvement should be celebrated.
~John Bethell
“We’ll take the best ones, test them on consumers, and then soon be able to unveil a new, easy-to-understand, federal disclosure form,”
~Treasury Secretary Timothy Geithner speaking about combining the TILA and GFE forms
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I?ve suggested here on occasion that Compliance Officer might be the hot career track in mortgage finance. This past year left no doubt about that. If dealing with the Home Valuation Code of Conduct, RESPA, TILA, and endless new loan guidelines from Fannie, Freddie and FHA weren?t enough, we enter 2011 riding the wave of Robo-signer-gate to where Dodd-Frank Financial Reform awaits.
According to the New York Times, the newly created Bureau of Consumer Financial Protection (just the name alone makes me feel safer!) will oversee the writing of 243 financial rules and conduct 67 studies that I?m sure will find the necessity for even more rules. We?re going to need a compliance army, not just an officer. And politicians wonder why everyone is afraid to buy, borrow or lend.
Although many believe the regulation and compliance emphasis is going overboard, it?s awfully hard to argue against it when the banks, loan servicers and foreclosure attorneys can?t stay out of their own way in the foreclosure mess. Each week seems to bring a new revelation; lost promissory notes, foreclosing on the wrong property, waltzing home owners around the mortgage modification dance floor only to pull the rug out by foreclosing, “technical error? is the new legal term for falsified affidavit. Each disclosed bungle is naturally followed by politicians convening televised hearings and calling for even more regulation.
All we can do is get ready for more of the same. We?re destined for more regulations to ensure that the age of irresponsible borrowing never occurs again. And if responsible borrowing is a casualty, as our local originations clearly show, then so be it.
And to Secretary Geithner I have but four words. Good luck with that!
~John Bethell
“I would tell you that we?re probably there,?we are probably tighter than we need to be.?
~ William Emerson, CEO Quicken Loans, Inc.
In case you haven?t noticed, the purchase market is quite soft. July through October deed recordings were down a whopping twenty-nine percent compared to the same four months in 2009. (757 to 540) How quickly things change. After the first six months of 2010 that number was up seventeen percent. Now, after ten months the comparisons show a total market decline of five percent. (1561 to 1482)
Clearly all the homebuyer tax credits achieved was to accelerate business into the second quarter that probably would have closed in the third quarter. There?s no evidence that the credits brought new buyers into the market. By year end the decline will be even greater since homebuyer tax credits were driving business at the end of last year.
In an interview with Al Yoon of Reuters? last week, William Emerson said what we all know. The credit pendulum has swung too far to the conservative side. And he doesn?t see that changing for another two years. That?s worrisome.
In a related matter, J.D. Powers and Associates reported November 18th that the length of time from loan application to closing has increased again to 52.1 days?the third year in a row. Not surprisingly, consumer satisfaction with the mortgage origination process continues to decline over the same period. Consumer satisfaction with big banks scored even worse on servicing issues. Here are links if you want to take a look. ?Origination Survey. Servicing Survey.
So, fewer people are buying. More people don?t qualify. For those that do the process takes longer, is less satisfying and the experience tends to get worse if you have to deal with the bank on a servicing issue.
And big banks wonder why no one will believe their characterization of problems with foreclosure affidavits as ?technical.?
Despite the challenges of the market place, 2010 has been a great year for our company. Everyone here at the World Headquarters wishes to extend many thanks to all our clients and associates for your confidence in us. We all hope that you have a wonderful holiday season and come back renewed and refreshed to pursue the opportunities that await us in 2011.
~John Bethell
?Lots of folks confuse bad management with destiny.?
~Kin Hubbard
Is anyone really surprised by the latest foreclosure revelations that thousands of affidavits submitted to hundreds of courts in support of thousands of foreclosures were prepared with something less than careful attention to detail? Not to worry, though. As soon as the bank stock analysts started questioning the effect of this latest snafu on bank earnings we were told literally within hours, ?It?s ok now. No real problem. Let the foreclosures resume.? I?m certain that somewhere, a foreclosure processing manager is well regarded by upper management because his or her ?foreclosures processed per employee per month? metric is so high.
The vast majority of foreclosures are warranted. However, fifty state attorney generals are now investigating big banks and their foreclosure process. Many of the AG?s will ask why there are not more loan modifications, a politically popular question with a complicated answer. And to the extent that the investigations discover a callous and condescending approach to the rule of law, big banks will suffer. Foreclosure delays will increase costs. The increasing public perception of bank complicity in the problem won?t help things either.
These procedural errors will begat the inevitable onslaught of class action litigation. The plaintiff?s bar, with endless depositions and requests for production of documents will further increase the cost of foreclosures and lengthen the amount of time that it will take to work out of the foreclosure debacle. In the end these actions will probably extract small changes to the foreclosure process in the name of the consumer and big checks in the names of the attorneys.
There?s a bigger skeleton in the closet though. The Wall Street Journal? recently reported that the investors who bought all the securities containing bad mortgages are beginning to mobilize. The ultimate goal is to prove that the mortgages comprising the securities were not originated to the standards represented in the offering. That could result in those bad mortgages being put back to the banks who originated them. I?ve read some astoundingly high estimates of the big bank?s potential liability. Expect a long drawn out battle when this starts happening.
The sub-prime induced mess that we?re in started about three years ago. It is far from over. To the extent these recent developments retard the recovery of the housing sector of the economy, we all suffer.
~John Bethell
~ Hosea Ballou
In keeping with this month?s theme, I offer for your consideration the following two images. The first, from a 1994 closing; and the second from a file we closed this week. Names have been changed or omitted to protect the guilty.
Feel free to provide your own commentary.
Have a great fall!
~John Bethell
?Laughter and tears are both responses to frustration and exhaustion. I myself prefer to laugh, since there is less cleaning up to do afterward.?
~ Kurt Vonnegut
Last month I suggested here that due to the refinance boom the number of recorded mortgages in our market was headed towards 2004-2005 levels. My prediction was based upon a combination of real data?our order counts and market share?and anecdotal information gleaned from conversations with clients. In retrospect, this led to a faulty analysis of the type once characterized by Alan Greenspan as ?irrational exuberance.?
I now believe that the local mortgage finance business is operating pretty close to full capacity. I included a chart this month that depicts recorded mortgages per working day for each month this year. (Since a month can be anywhere from 18 to 23 working days, some stats are useful to compare on an average per day basis.) The number of mortgages recorded each of the last three months has been nearly identical on a working day basis. This occurs despite the fact that according to many of our clients and national statistics, the number of new mortgage applications has increased substantially during this time frame. Within our own shop, the number of transactions that we close has barely changed over each of the last five months. This level of consistency for this long a period is unprecedented in my years in the business.
The nineteen or twenty mortgages closed on average each day is down considerably from the twenty-nine or thirty mortgages recorded daily during a similar period of refinance mania in 2004. During that year, our report included 51 mortgage lenders. Now our report includes only 35 lenders. The Indy Star reported that the number of licensed mortgage brokers and loan originators in Indiana has declined 73 percent since 2005. It?s clear to me that the capacity of the origination business is contracted. A few of our clients are adding to staff with limited term employees. As a result, production may increase some. No one though appears to be committing to additional permanent staff.
As for the purchase market, stories are now appearing in the media that home sales declined considerably since the expiration of the federal homebuyer tax credits. Why this is surprising to anyone completely escapes me. I included a couple of charts this month that show recorded deeds for each month this year and also recorded deeds for each of the last seven Julys. Unfortunately the performance of our local market is no better than what?s being reported nationally. Early August statistics that I checked confirm the trend.
So we?re all working near capacity but not producing nearly the results as in years past. Demand for mortgages is high but the regulatory overhead is retarding the process. Tighter and more arbitrary underwriting standards are also restricting production.
No doubt the talking heads will be genuinely surprised once that becomes clear to them.
~John Bethell
It?s like D?j? Vu all over again!
~ Yogi Berra
I certainly didn?t see this coming. A couple of months ago I wrote here that I was optimistic that we?d get a modest increase in refinances to help soften the effect of the expiration of the homebuyer tax credits. Well it turns out that new orders for refinances are at levels not seen since the glory days of refinancing in 2002-2003. Not that I?m complaining.
For almost a year now, the mortgage market has been slogging along at ten year lows. Check out the charts for mortgage originations in 2004. We?re probably headed towards those numbers in the next few months. And unlike prior periods of ?interest rates will never be this low again?, our clients tell us that most refinances are being locked at application. Few are floating the rate hoping for that extra one eighth of a percent.
The purchase market is a different story. The three quarter streak of positive comparisons year over year will in all likelihood come to an end. (sale transaction chart, page 14) I?m fairly certain that the homebuyer tax credits for the most part only accelerated transactions into the second quarter (primary residence sales chart, page 15) and did little to bring new buyers into the market.
The tsunami of refinancing is happening all over the country. In the past these extraordinary periods usually last from six to twelve weeks. So I expect the remainder of the year to be filled with activity. After the applications slow, closing the deals will consume our time. Hopefully enough people will save enough money to help the consumer side of the national economy.
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Finally, excuse a bit of shameless self promotion. Our in-house property records data base, from which most of the attached data is gleaned, allows us to complete the title insurance commitment for most refinances without having to spend much time at the court house. Even though we?re extremely busy our dedicated title group is meeting a very respectable three to four days turnaround time. Only when a title issue that needs more research is discovered do things take a bit longer. Our expanded closing facilities at the World Headquarters and our crack team of closing professionals will effectively deal with the inevitable rescheduling and closing delays that are now unfortunately too much a part of getting deals done.
We take pride in providing a consistent level of excellent service in all types of market environments. Thank you for your continued support. We truly appreciate it!
~John Bethell
Monroe County mortgage originations in May continued at ten year low levels. The national media reports that despite a few signs of improvement, foreclosures continue to be a problem and the housing market is in danger of slipping back into a downturn. Credit is hard to come by unless you don?t need any. Mortgage fraud continues to make headlines. After several years of living through the mortgage crisis, what?s really different?
Well, for starters, there?s a lot more regulatory overhead. I don?t need to tell you that. But for all the new rules and procedures, there?s one characteristic of the mid?2000?s mortgage boom that hasn?t changed. That would be absentee lending?loans both originated and funded by persons and entities with no physical presence in the community. In fact, the increasing use of the Internet is probably accelerating the growth of this mortgage distribution channel.
Is anyone surprised that many problem and fraudulent loans were originated and processed by community outsiders without local concern or knowledge of the viability of the transaction or the parties involved? Think about it. The originator is in a call center cube farm in California. The appraiser is from Muncie and her name is drawn from a hat by a vendor manager in Pennsylvania. The lender is in North Carolina and the investor is on Wall Street. The title and closing agent is in Florida and the notary signing agent drove one hundred miles to meet the borrower at the north side McDonald?s. Is it any wonder then that no one can smell out an otherwise fishy deal? Fortunately, the incident of fraud in Bloomington is minimal. But up the road in Indianapolis, it?s all too prevalent.
Maybe the mortgage business futurists are correct. Someday all mortgages will be originated without a local connection. I just don?t see it happening; especially with pending regulations requiring the originator to retain some of the lender?s risk. The long terms costs (both actual and lost opportunity) of managing risk coupled with defaults and fraud will, in my opinion, exceed any short term benefit of economies of scale this form of distribution brings to the originating process. Some absentee lenders and their service providers will continue tweaking this business model in hopes of achieving a different result.
That?s insanity!
~John Bethell
~ Doug Adams
Trying to figure out what?s in store the next few months for the local mortgage finance industry? Good luck with that! The only certainty is conflicting influences. The spring home purchase market is stronger but will it be offset by expiring federal homebuyer tax credits? A return to fifty-year low mortgage interest rates in the face of the Federal Reserve discontinuing its purchasing of mortgage backed securities? How does that happen? And let?s not forget that many mortgage borrowers who could benefit from refinancing no longer qualify for new loans due to more restrictive underwriting guidelines.
The purchase market through April (as measured by recorded deeds) improved by about thirty-three percent over the same four months of 2009?508 versus 382 last year. But that is well short of the 672 deeds in 2008. And we thought 2008 was weak! The federal homebuyer tax credits certainly accelerated home buying. There?s little evidence though that the credits actually increased the number of buyers in the market. The Mortgage Bankers Association reported that new purchase applications fell to their lowest weekly level in thirteen years just two weeks following the tax credit April 30th deadline. In our own shop, we have very few purchase orders in the pipeline with post June 30th closing dates. Let?s hope that all we experience is a mere slowdown and not a grinding halt.
Mortgage interest rates for 30-year fixed rate loans are returning yet again to sub-five percent levels. This contradicts all the conventional wisdom earlier this year. Most experts thought that rates would increase once the Federal Reserve got out of investing in mortgage backed securities. I?m guessing we can thank the European debt crisis for them actually declining. Somehow though, the phrase ?flight to quality? doesn?t have the same ring to it as in years past, does it?
According to the Wall Street Journal? this week, larger markets are already seeing an increase in refinancing. Maybe we will too? Unfortunately there are still many borrowers diligently making their monthly payments on their mortgages at higher interest rates. These borrowers are not able to benefit from refinancing because they no longer qualify for the mortgage they have. Their equity is not enough, their credit score is no longer satisfactory, or their property will no longer appraise. This reality is clearly evidenced in the ten year low of local mortgage originations so far this year. There appears no solution. Fear of making a bad loan is stronger today than the benefits of making a good loan.
The market could turn in a lot of ways. I won?t be surprised to see purchase activity slow down significantly until people realize that even without a tax credit, low rates make it a great time to buy. I?m optimistic that refinancing will increase some.
The only thing that I?m sure of though is that I?m not sure of anything.
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