Posted To: MBS Commentary

Heading into today, if you were hoping to see rates move lower, it would have made sense to hope for economic data to come in weaker than expected. There is one scenario , however, where weaker data arrives in the middle of a multi-day bond market rout and only serves as a minor stumbling block for determined sellers. In those cases, the stumbling blocks can vary in size. In today's case, sellers hurdled right over it and kept on selling. As far as confirmation of bearish momentum goes, this is about as obvious as it gets . After all, we had the weakest ISM PMI readings in more than a year (which the price/inflation component being the weakest in 3 years) and bonds weren't even able to break back in to yesterday's range! 10yr yields bounced HARD at yesterday's big volume ceiling…(read more)

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The deep freeze in the Canadian housing markets continues. The latest housing market stats show that housing sales and prices in January were lower than the ones recorded a year earlier.

A retrospective view of the housing markets raises significant concerns. The impact of stringent mortgage regulations appears to be longer lasting than was initially expected.

In January 2018, housing sales declined after stricter mortgage regulations, including a stress test, were enacted. The January 2019 numbers are the first piece of evidence suggesting that housing market slowdown is deeper rooted than a direct and immediate reaction to policy interventions.

The sustained slowdown in housing markets presents at least two alternatives to the government. The first alternative is to maintain the status quo and do nothing. The second alternative is to rethink the policy interventions made in the recent past and see if there is any new evidence that warrants a change in policy.

The decline in housing sales in January 2018 was expected. A whole host of new regulations designed to tighten  mortgage lending became effective on the first day of January last year. Sales in December 2017 were higher than usual as households rushed to close deals to avoid being subject to stricter mortgage regulations a month later.

When January 2018 sales were 14.5 per cent lower than the month before, there was no surprise, and the decline was attributed to the new stress test. Similarly, year-over-year sales were down 2.4 per cent from January 2017.

The January 2019 sales figures are more disturbing. Compared to the year before, sales last month were down by four per cent. In fact, the Canadian Real Estate Association (CREA) revealed that sales in January 2019 have been the weakest since 2015.

In addition to sales, housing prices have also softened. The average house price across Canada was $455,000, 5.5 per cent lower than the same time last year.

The January 2019 statistics offer the first opportunity to compare the annual change in housing market dynamics after the stress test came into effect. The decline in last month above and beyond what was observed a year ago is indicative of the fact that the markets are not merely reacting to new regulations, but the markets have embraced a more systematic response that is characterized by fewer transactions and lower prices.

The weakness in housing markets also affects mortgage lending, a business The Big Five banks continue to dominate in Canada. The continued slowdown in housing sales may have influenced banks’ mortgage portfolios — the first signs of such an effect could soon be visible when the banks release their updated earnings report in the coming days.

The past few weeks have witnessed diverse voices both questioning and supporting the efficacy of the more stringent mortgage regulations. Some believe that stress tests are working fine. Phil Soper, CEO of Royal Lepage, thinks that the stress tests are needed “for the longer term health of the economy.”

Others believe that the stress tests have adversely impacted homebuyers who are either unable to buy at all or are forced to consume less adequate shelter space than they would have afforded in the absence of stress tests.

After reviewing the sustained decline in housing sales, Dave Wilkes, President and CEO of the Building Industry and Land Development Association (BILD), believes that the stress test “has overshot its target.”

BILD has advanced two proposals for the feds to contemplate. First, to consider lowering the stress test threshold that requires borrowers to qualify at 200 basis points above the contracted rate. As the interest rates have been revised upwards since the stress test was implemented, there is merit in reviewing the threshold.

Housing trade groups are also advocating to reintroduce the 30-year amortization for CMHC insured mortgages, which was available until July 2012.

First-time homebuyers are likely to benefit more from these changes. The ability to stretch the amortization period to 30 years lowers the monthly payment and allows many to participate in homebuying who would otherwise be forced to rent at a time when rental vacancy rates are at historic lows in large urban housing markets.

Critics of the 30-year mortgage point out its two obvious shortcomings. First, borrowers end up paying considerably more in interest. Second, longer amortization periods contribute to house price inflation.

Good public policy should be responsive and rooted in evidence. Recent housing market data indicates that the impact of tighter mortgage regulations has been longer lasting than what most housing experts expected. A course correction might be a prudent way forward.

Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) declined in February to just under $491 million, the lowest level in nearly five years following a recent downward trend, but it was also weakened further by less days in the month and a lack of any highly-seasoned pools. This is according to publicly available GNMA data and private sources compiled by New View Advisors.

The downward trend continues in the new year, with December being the most recent month to see HMBS issuance grow in comparison to a prior month. This general reduction in activity continues to stem from the changes instituted to the Home Equity Conversion Mortgage (HECM) program in October 2017, reducing principal limit factors (PLFs), according to New View.

“For the entire year of 2018, HMBS issuance totaled about $9.6 billion, compared to $10.5 billion in 2017,” New View wrote in its commentary accompanying the data. “The HMBS market will be hard-pressed to equal last year’s totals, which included some HMBS issuance backed by new HECM loans originated at higher PLFs.”

When asked if tail pool issuance could help issuers in the face of a downturn, New View partner Joe Kelly told RMD that it is possible, but could be mitigated if the general issuance decline continues.

“Tail pools provide a multi-year stream of premium income for issuers,” Kelly told RMD in an email. “This in turn helps the originators who sell their loans to the issuers, as it makes their loans more valuable. Tail issuance provides premium income that is vital to the industry during downturns in new loan origination volume. However, if the decline in new loan volume persists, tail pool issuance will ‘tail off.’ This will reduce premium income not only from lower volume but also declining duration.”

The production of new, original new loan pools came in at about $274 million, which is down from the recorded $304 million in January. Last month’s tail pool issuances totaled $217 million, which is generally still within the range of recent tail issuances recorded in months prior. Still, the total of sold pools and their dollar amounts is considerably lower than where these figures were at the same time last year.

“By comparison, HMBS issuers sold 129 pools totaling $1.47 billion in February 2018,” the commentary wrote.

Read the full commentary at New View Advisors.

The post February HMBS Issuance Hits Lowest Level in Nearly Five Years appeared first on Reverse Mortgage Daily.

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) declined in February to just under $491 million, the lowest level in nearly five years following a recent downward trend, but it was also weakened further by less days in the month and a lack of any highly-seasoned pools. This is according to publicly available GNMA data and private sources compiled by New View Advisors.

The downward trend continues in the new year, with December being the most recent month to see HMBS issuance grow in comparison to a prior month. This general reduction in activity continues to stem from the changes instituted to the Home Equity Conversion Mortgage (HECM) program in October 2017, reducing principal limit factors (PLFs), according to New View.

“For the entire year of 2018, HMBS issuance totaled about $9.6 billion, compared to $10.5 billion in 2017,” New View wrote in its commentary accompanying the data. “The HMBS market will be hard-pressed to equal last year’s totals, which included some HMBS issuance backed by new HECM loans originated at higher PLFs.”

When asked if tail pool issuance could help issuers in the face of a downturn, New View partner Joe Kelly told RMD that it is possible, but could be mitigated if the general issuance decline continues.

“Tail pools provide a multi-year stream of premium income for issuers,” Kelly told RMD in an email. “This in turn helps the originators who sell their loans to the issuers, as it makes their loans more valuable. Tail issuance provides premium income that is vital to the industry during downturns in new loan origination volume. However, if the decline in new loan volume persists, tail pool issuance will ‘tail off.’ This will reduce premium income not only from lower volume but also declining duration.”

The production of new, original new loan pools came in at about $274 million, which is down from the recorded $304 million in January. Last month’s tail pool issuances totaled $217 million, which is generally still within the range of recent tail issuances recorded in months prior. Still, the total of sold pools and their dollar amounts is considerably lower than where these figures were at the same time last year.

“By comparison, HMBS issuers sold 129 pools totaling $1.47 billion in February 2018,” the commentary wrote.

Read the full commentary at New View Advisors.

The post February HMBS Issuance Hits Lowest Level in Nearly Five Years appeared first on Reverse Mortgage Daily.

Amazing post

A number of news items in recent weeks have focused on the state of Canada’s housing market, with some hinting the worst of the correction may be behind us, and others suggesting more weakness to come. For example, CMHC says overvaluation risks are subsiding in some of the country’s hottest markets, while the B.C. government […]

The deep freeze in the Canadian housing markets continues. The latest housing market stats show that housing sales and prices in January were lower than the ones recorded a year earlier.

A retrospective view of the housing markets raises significant concerns. The impact of stringent mortgage regulations appears to be longer lasting than was initially expected.

In January 2018, housing sales declined after stricter mortgage regulations, including a stress test, were enacted. The January 2019 numbers are the first piece of evidence suggesting that housing market slowdown is deeper rooted than a direct and immediate reaction to policy interventions.

The sustained slowdown in housing markets presents at least two alternatives to the government. The first alternative is to maintain the status quo and do nothing. The second alternative is to rethink the policy interventions made in the recent past and see if there is any new evidence that warrants a change in policy.

The decline in housing sales in January 2018 was expected. A whole host of new regulations designed to tighten  mortgage lending became effective on the first day of January last year. Sales in December 2017 were higher than usual as households rushed to close deals to avoid being subject to stricter mortgage regulations a month later.

When January 2018 sales were 14.5 per cent lower than the month before, there was no surprise, and the decline was attributed to the new stress test. Similarly, year-over-year sales were down 2.4 per cent from January 2017.

The January 2019 sales figures are more disturbing. Compared to the year before, sales last month were down by four per cent. In fact, the Canadian Real Estate Association (CREA) revealed that sales in January 2019 have been the weakest since 2015.

In addition to sales, housing prices have also softened. The average house price across Canada was $455,000, 5.5 per cent lower than the same time last year.

The January 2019 statistics offer the first opportunity to compare the annual change in housing market dynamics after the stress test came into effect. The decline in last month above and beyond what was observed a year ago is indicative of the fact that the markets are not merely reacting to new regulations, but the markets have embraced a more systematic response that is characterized by fewer transactions and lower prices.

The weakness in housing markets also affects mortgage lending, a business The Big Five banks continue to dominate in Canada. The continued slowdown in housing sales may have influenced banks’ mortgage portfolios — the first signs of such an effect could soon be visible when the banks release their updated earnings report in the coming days.

The past few weeks have witnessed diverse voices both questioning and supporting the efficacy of the more stringent mortgage regulations. Some believe that stress tests are working fine. Phil Soper, CEO of Royal Lepage, thinks that the stress tests are needed “for the longer term health of the economy.”

Others believe that the stress tests have adversely impacted homebuyers who are either unable to buy at all or are forced to consume less adequate shelter space than they would have afforded in the absence of stress tests.

After reviewing the sustained decline in housing sales, Dave Wilkes, President and CEO of the Building Industry and Land Development Association (BILD), believes that the stress test “has overshot its target.”

BILD has advanced two proposals for the feds to contemplate. First, to consider lowering the stress test threshold that requires borrowers to qualify at 200 basis points above the contracted rate. As the interest rates have been revised upwards since the stress test was implemented, there is merit in reviewing the threshold.

Housing trade groups are also advocating to reintroduce the 30-year amortization for CMHC insured mortgages, which was available until July 2012.

First-time homebuyers are likely to benefit more from these changes. The ability to stretch the amortization period to 30 years lowers the monthly payment and allows many to participate in homebuying who would otherwise be forced to rent at a time when rental vacancy rates are at historic lows in large urban housing markets.

Critics of the 30-year mortgage point out its two obvious shortcomings. First, borrowers end up paying considerably more in interest. Second, longer amortization periods contribute to house price inflation.

Good public policy should be responsive and rooted in evidence. Recent housing market data indicates that the impact of tighter mortgage regulations has been longer lasting than what most housing experts expected. A course correction might be a prudent way forward.

Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.