Origination

New home sales rebounded 6.2% in October after a slight 2.4% dip in the previous month, while the inventory of newly constructed homes plunged to a 38-year low. The U.S. Census Bureau found that the new home inventory fell to a 6.2-month supply during the month, down from a 12-month supply in January. "If you are looking for a sign that builders need to start swinging their hammers soon, this is it," said Mike Larson, real estate analyst at Weiss Research. Sales of new single-family homes rose to a 430,000 seasonally adjusted annual rate in October, up from 405,000 in September. The sales are now 5% above the pace in October 2008. "The evidence continues to show stabilization in the housing market," Mr. Larson said.

The average Freddie Mac rate for a 30-year fixed-rate mortgage has matched a record low last seen earlier this year. The average FRM rate during the holiday-shortened week ended Nov. 25 was 4.78%, down from 4.83% a week ago and the lowest it has been since the week ending April 30. A year ago, the average 30-year FRM rate was 5.97%. The average 15-year FRM rate in the latest week continued to breach lows never before seen in the history of Freddie's rate survey of this particular product, which started in 1991. The average 15-year FRM rate was 4.29%, down from 4.31% the previous week and 5.74% a year ago. The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage also dropped to its lowest point since Freddie started tracking it. Freddie first began tracking this product in 2005. In the latest week, the five-year Treasury hybrid fell to 4.18% from 4.25% a week ago and 5.86% a year ago. The one-year Treasury ARM remained unchanged in the latest week at 4.35%, a low that before the previous week one would have had to go back to July 7, 2005 to beat (at that time, it was 4.33%). A year ago, the average one-year Treasury ARM rate was 5.18%. Average points were as follows: 0.7 for 30-year FRMs and one-year ARMs and 0.6 for the other two aforementioned products.

Banks had to buy back $7.1 billion in defaulted single-family loans in the third quarter to reimburse mortgage investors, up from $1.9 billion in the previous quarter. Federal Deposit Insurance Corp. Call Report information shows that most of the buyback demands fell on JPMorgan Chase and Bank of America. Chase repurchased $2.7 billion in defaulted loans and BoA repurchased $2.3 billion to satisfy investor demands. Both are on the hook for troubled loans they took control of when they purchased ailing mega-thrifts — Countrywide in the case of BoA and Washington Mutual by Chase. The FDIC information also lists buybacks by Citibank ($898 million), National City Bank ($361.6 million), Wells Fargo Bank ($266 million) and SunTrust Bank ($232.3 million). Investors like Fannie Mae and Freddie Mac can require lenders to buy back defaulted loans that don't comply with their underwriting requirements. Freddie Mac forced its seller/servicers to buy back $960 million in bad mortgages in third quarter. (Fannie does not disclose buyback information.) Ginnie Mae and Federal Housing Administration also require buybacks and indemnifications on bad loans.

On this day before Thanksgiving 2009, I hope you all get to spend some time with family and friends over the holiday weekend. We have so much to be grateful for. I thank all the readers of this column for your commitment to the senior market. At a time when so many of our seniors are facing financial challenges, you remain in the forefront bringing the information they need. I hear from you week after week telling me the success stories that make what we do so unique. At the National Reverse Mortgage Lenders Association conference last week, I was able to speak with our peers from around the country and heard that many of us are dealing with the same issues. Property values remain a challenge in many parts of the country, the press is often mentioned as painting us in a less than favorable light. We can deal with all this; because we know what we do is important and brings real value to our clients.

Once booming, home equity conversion mortgages have begun a slowdown that could continue until home prices stabilize. In the year ended Sept. 30, mortgage lenders funded 114,692 reverse mortgages under the Federal Housing Administration's HECM program, an increase of 1,336% compared with 1999. Five years ago, just 43,000 reverse loans were written. Until a year ago, the reverse mortgage niche looked like a safe bet for mortgage bankers seeking a haven from the carnage in the industry. But now — with home prices still under pressure and fears of a double-dip recession growing — reverse mortgages no longer look like a safe bet.

Housing starts will increase by 36% next year and the housing sector will contribute to economic growth for the first time since 2005, according to the November survey by the National Association of Business Economics. The 48 professional forecasters see housing starts hitting 790,000 units in 2010, which is up from 580,000 in 2009. The economists also expect house prices will bottom out this year and rise 2% in 2010. "When asked what factors were driving the housing rebound, panelists identified low house prices and interest rates as the two most important factors," a summary of the survey results says. The economists are forecasting that the 10-year Treasury note will yield 4.2% by the end of 2010 and the unemployment rate will average 9.6% in the fourth quarter of 2010. The unemployment rate is expected to "remain stubbornly higher." However, hiring is expected to pick up soon. "Within the next few months, companies should be adding instead of cutting jobs," said NABE president Lynn Reaser.

Home prices rose 0.3% in September, compared to 1.2% in August, according to the Standard & Poor's/Case-Shiller 20-city house price index, which posted its fourth consecutive monthly increase. Overall, the 20-city HPI is down 9.4% from a year ago but the declines are decelerating. In August, home prices were off 11.3% from a year ago. Values have improved since the spring, according to David Blitzer, chairman of S&P's index committee. "However, the gains in the most recent month are more modest than during the seasonally strong summer months," he said. IHS Global Insight economist Patrick Newport said prices are stabilizing across the country but he still expects another 5% decline. "We believe that prices have further to fall — about another 5% — because the foreclosure rate, which hit a record at the end of the third quarter, and the unemployment rate are still rising," he said.

Commercial banks originated $405.6 billion of residential mortgages in the third quarter, down 25% from the second quarter. New call report figures released by the Federal Deposit Insurance Corp. show that retail originations at the 874-reporting banks totaled $163.3 billion in the third quarter, compared to $222.2 billion in the previous quarter. Meanwhile, wholesale and correspondent originations totaled $242.7 billion, compared to $318.5 billion in the second quarter. Only commercial banks and FDIC-supervised savings banks with at least $1 billion in assets or smaller banks with at least $10 million in originations over the past the two quarters are required to report origination data to the FDIC.

Freddie Mac purchased $32.1 billion in mortgages from its seller/servicers in October, its weakest acquisition month since January and a sign that originations are slowing in the primary market. According to the GSE's new monthly volume summary, purchases fell slightly from September, but rose 66% compared to October of last year, a month in which credit markets came to a halt and the nation's financial system was on the brink of collapse. Freddie also disclosed that its delinquencies rose yet again to a new record, 3.54% at the end of October, compared to 1.34% in the same period last year. Its delinquency number reflects loans that are 90 days or more past due but exclude loan modifications.

The Federal Reserve should continue its MBS purchase program past the March 31 cutoff date, according to James Bullard, president of the St. Louis Federal Reserve Bank. "I have advocated to keep the asset-purchase program open but at a very low level and wait and see want happens," Mr. Bullard told Dow Jones Newswires. To support the secondary mortgage market, the Federal Reserve has purchased nearly $850 billion in Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities since December 2008. Mr. Bullard said in a recent speech that he would like the FOMC to adopt a "state-contingent policy that would allow for the adjustment of asset purchases as new information on the economy becomes available." At a Sept. 23 Federal Open Market Committee meeting, the Fed decided to extend its $1.25 trillion MBS purchase program through the first quarter and slow its MBS purchases. Since then, weekly MBS purchases have slowed to a $16 billion to $19 billion range from the faster pace of $20 billion to $25 billion a week. During the week of Nov. 11, however, the purchase activity spiked to $45.3 billion, as the Fed acquired $39.5 billion in Fannie MBS.