On Wednesday, Fannie Mae released its Q4 2017 financial statement, and as expected, the GSE posted major losses for the quarter. It also posted an annual revenue in 2017 that was nearly $10 billion down from 2016.
By the end of Q4, Fannie posted a drop of $3.7 billion in overall net worth and a loss of $6.5 billion. The GSE's net income in 2017 was $2.5 billion, down from $12.3 billion the year before. Pre-tax, however, those numbers work out to $18.4 billion in 2017, compared to $18.3 billion in 2016.
In a statement, Fannie President and CEO Timothy Mayopoulos said, “Our 2017 results demonstrate that the fundamentals of our business are strong. While the fourth quarter was affected by a one-time accounting charge, we expect to benefit from a lower tax rate going forward.”
Mayopoulos' optimism aside, Fannie still has nearly $4 billion to make up, and the agency is expected to ask for government assistance for the first time since 2012.
Bloomberg reported Wednesday that Fanie's shortfall is the “unintended but anticipated side effect of the corporate tax cut signed into law in December.” What that refers to is a drop in the value of the GSE's assets, which became less valuable—and, therefore, less able to offset taxes—when Congress cut the corporate tax rate, “resulting in a $9.9 billion hit.”
That's almost exactly the amount Fannie dropped in net income last year.
Mayopoulos told Bloomberg that he believed investors in the company’s mortgage bonds won’t be surprised by the draw of public funds.
“Anybody who’s been paying attention to the situation has been entirely aware that this draw was likely,” Mayopoulos told Bloomberg.
In reality, Fannie's business, Mayopoulos said, is essentially stable. According to its Q4 statement, an agreement Fannie made with the Treasury in December increased the applicable capital reserve amount to $3 billion as of January 1 and reduced the dividend amount otherwise payable for the fourth quarter of 2017 by $2.4 billion.
Fannie Mae also reported providing approximately $570 billion in liquidity to the mortgage market in 2017 and said it was the largest issuer of single-family mortgage-related securities in the secondary market in the fourth quarter and full year of 2017.
The company’s estimated market share of new single-family mortgage-related securities issuances was 39 percent for the full year of 2017 and 37 percent for Q4 2017.
“Our focus is on building a strong, stable housing finance system for the future,” Mayopoulos said. “We are doing this by delivering innovative solutions for our customers and demonstrating leadership on our country’s most persistent housing challenges.”
The study, which was conducted in late 2017 targeted 14 major metro areas across the U.S. and compared the answers of the respondents to a similar study conducted by Redfin in May 2017.
According to the findings, only 6 percent of the people surveyed said that they would halt all plans of buying a home if the mortgage rates touched 5 percent or more during the year, showing a modest one-point increase from the earlier survey. In contrast, 27 percent of the respondents said that an increase in interest rates would slow down their home search, down two points from the last survey.
The study indicated that 21 percent of the respondents would consider buying a home that was smaller or in another area if the interest rates increased, showing a three-point increase over a similar response in the earlier study. Interestingly, consistent with the number in the last study, 25 percent of the respondents said that an increase in mortgage rates would not impact their plans to buy a home.
After remaining under 4 percent for most of 2017, 30-year fixed mortgage rates increased above 4 percent in January and were at 4.32 percent in the first week of February. A robust economy, increase in jobs and a generally sound housing market has economists predicting a hike in Fed rates over the next few months, which would continue the upward trend for mortgage rates.
The study also gauged buyer response to the tax bill and how it would impact the economy. High taxes were the most cited response with 38 percent citing this reason among their top three concerns. Affordable housing came a close second with 33 percent respondents citing it as a concern, followed by 28 percent respondents citing the income gap between the rich and the poor as a concern after the tax bill.
When asked if they expected home prices in their areas to rise, a majority of the respondents replied in the affirmative. The study indicated that only 6 percent said that they expected a decline in price. More than half (52 percent) respondents said that they expected to home prices to rise slightly while 25 percent expected a significant rise in prices.
Except for in the hurricane-hit states of Florida, Texas, and Puerto Rico, delinquency rates across the U.S. declined in November 2017 on a year-over-year basis, according to the Loan Performance Insights Report released by CoreLogic on Tuesday.
The report examines all stages of delinquency as well as transition rates, which indicate the percentage of mortgages moving from one stage of delinquency to the next. Nationally, the report indicated, 5.1 percent of mortgages were at some stage of delinquency in November 2017, down from 5.2 percent recorded during the same period in 2016, showing a decline of 0.1 percent.
The foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, was 0.6 percent, down 0.2 points from 0.8 percent in November 2016. The report indicated that the foreclosure rate had held steady since August 2017 and was the lowest level since June 2007.
However, transition rates for 60-day and 90-day delinquencies rose in the hurricane-affected states of Texas, Florida and Puerto Rico.
“Serious delinquency rates are up sharply in Texas and Florida compared with a year ago, while lower in all other states except Alaska. In Puerto Rico, the serious delinquency rate jumped to 6.3 percent in November, up 2.7 percentage points compared with a year before. In the Miami metropolitan area, serious delinquency was up more than one-third from one year earlier to 5.1 percent, and it more than doubled to 4.6 percent in the Houston area,” said Dr. Frank Nothaft, Chief Economist for CoreLogic.
According to the report, the rate for early-stage delinquencies remained unchanged on a year-over-year basis at 2.2 percent in November 2017. However, it was down 0.1 points from 2.3 percent in October 2017.
The share of mortgages that were 60-89 days past due was up 0.2 points on a year-over-year basis at 0.9 percent in November 2017 and remained unchanged from the month earlier. The serious delinquency rate, reflecting loans 90 days or more past due, was 2 percent in November 2017, up from 1.9 percent in October 2017 but down 0.3 points year over year from 2.3 percent in November 2016. Prior to November 2017, the serious delinquency rate had held steady for five consecutive months at 1.9 percent—the lowest level for any month since October 2007 when it was also 1.9 percent. www.teamthayer.com
The Dow Jones industrial average closed down 1,200 points on Monday, after having dropped 1,500 points earlier in the day. This came on the heels of a 666-point drop in the Dow last Friday. With the Standard & Poor’s index down in four out of the last five sessions and Nasdaq won the last six out of eight, what’s causing this level of investor skittishness, and what does it mean for the housing industry?
The Washington Post throws the stock turmoil into stark relief, pointing out that the Dow “has swung more than 2,100 points in the last two sessions, a decline pushing more than 8 percent and shattering long-term momentum.” The Post cites changes at the Fed as one likely contributing factor, with new Fed Chair Jerome Powell having just taken over from the departing Janet Yellen. While Powell, who was officially sworn in on Monday, is widely expected to continue many of the cautious policy approaches championed by Yellen during her time in the role, a new Fed Chair can nevertheless contribute a level of uncertainty into the economic landscape.
The Post cites investor concerns that Powell and the Fed will accelerate interest rate hikes, which could slow the economy. The Fed increased their benchmark interest rates to a range of 1.25 percent to 1.5 percent in December, but left them unchanged at last week’s meeting of the Federal Open Market Committee. Analysts expect another rate hike to come in March, following the first FOMC meeting under Powell, with several more rate hikes being widely predicted throughout 2018. Further interest rate hikes would drive up mortgage rates, which, when combined with widespread affordability and inventory issues throughout many parts of the country, could make the difference between many potential homebuyers choosing to purchase a home or stick with the rental market.
In a video posted to the Fed’s website Monday, Powell said, “Today, unemployment is low, the economy is growing, and inflation is low. Through our decisions on monetary policy, we will support continued economic growth, a healthy job market and price stability." Powell also stated his belief that the financial system is now stronger and more resilient than in the days of the housing crisis. “We intend to keep it that way," Powell added. "My colleagues and I will remain vigilant, and we are prepared to respond to evolving risks."
During an appearance on CBS Sunday Morning, Yellen praised Powell, saying, “I've worked with Gov. Powell for five years, very constructively," Yellen said. "He is thoughtful, balanced, dedicated to public service. I've found him to be a very thoughtful policymaker."
As one of Yellen’s final acts, the Fed announced on Friday that it would restrict Wells Fargo’s growth due to “widespread consumer abuses." The Fed is limiting Wells Fargo from growing any larger than its total assets at the end of 2017 until such time as “sufficient improvements” have been made. In response, Wells Fargo announced that it would be replacing four directors by the end of the year. Shares of Wells Fargo stock fell 9.2 percent on Monday, as of this writing.
During an appearance on CNBC’s Power Lunch, veteran banking analyst Dick Bove downplayed the impact of the Fed’s actions, saying, “There will be no reduction in the ability of this company to lend money, take in deposits, or operate the way they have historically.”
Investors are likely also watching the yield on 10-year Treasury bonds. As the Post explains, “Bond yields are rising as the Federal Reserve trims its U.S. bond holdings. The U.S. Treasury is also having to borrow more money, partly because of the tax cuts, and issuing more debt tends to raise yields.”
There are other potential landmines on the horizon as well. After a brief government shutdown followed by a stopgap agreement in late January, the government is once again poised to shut down unless the House and Senate can come to terms. Last week, the Congressional Budget Office announced that if the debt ceiling is not raised by mid-March, “the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both.”
David Kelly, Chief Global Strategist for JPMorgan Asset Management, told ABC News, "It's like a kid at a child's party who, after an afternoon of cake and ice cream, eats one more cookie and that puts them over the edge."
On Monday, Wells Fargo shares sank $5.91 to $58.16, a drop of 9.22 percent. Bank of America closed at $30.26, down 5.29 percent. JPMorgan Chase dropped 4.80 percent to close at $108.80.
Over the past several years, many homebuyers have traded big-city living for an abode in the ’burbs. But flash ahead to now, and those same folks may be kicking themselves, at least if they take a look at Zillow’s recent research, which indicates dwellings in suburban locales are less valuable on a per-square-foot basis today than they were a decade ago.
According to the report, which gives an analysis of home values in urban, suburban, and rural zones, as of December 2017, the median U.S. suburban home was worth $138 per square foot. Houses in urban markets boast a median value of $315,988, up 8.8 percent from last year. Homes sited in the suburbs, on the other hand, are valued at $234,443 (ahead 6 percent year-over-year) and $157,451 in rural spots (up 5.5 percent from December 206).
While per-square-foot values for both urban and rural homes ($231 and $102 per square foot, respectively) have exceeded their pre-recession highs and are currently at new peaks, the current value for suburban homes stands below its prior peak of $140, from October 2006, the report noted.
The 127.1 percent disparity between urban and rural housing is now as broad as it has ever been, even outstripping the chasm in existence 10 years ago ahead of the Great Recession, the analysis notes. It represents the biggest difference since at least January 1996 and tops the 124.1 percent gap last felt in October 2006, months before the housing market crested before the housing bust.
In parsing the numbers, it’s a matter of how well (or not) different areas of the country have rebounded since that bust, the report indicates. Numerous urban areas benefitted from big businesses setting up shop in their ZIP codes, it adds.
The report said that the data provides another illustration of the deep and lasting scars of the recession, as well as how different market segments have fared in the years since then. Many cities have experienced tremendous growth in recent years as high-paying jobs in tech, healthcare, finance, and other booming industries increasingly located in dense urban cores, while other areas have not bounced back.
A monthly report that covers bankruptcy, foreclosure, consumer confidence, and other data was released Thursday revealing that foreclosures are increasing—and bankruptcies could be close behind.
LegalShield, a provider of legal safeguards and identity theft solutions, released its LegalShield Law Index that uses five indices: the LegalShield Consumer Financial Stress Index, Bankruptcy Index, Housing Activity Index, Foreclosure Index, and Real Estate Index. The indices rely on LegalShield’s unique and proprietary database of member demand for and usage of legal services as well as a close tracking of the Consumer Confidence Index by The Conference Board, Housing Starts report by the Census Bureau, and Foreclosure Starts by the MBA.
In its Foreclosure Index, foreclosures worsened, which is reflected in a 5.1 point rise to 63.8 in August, even though foreclosures remain down nearly 5 percent year-over-year. LegalShield said if debts such as student loan, credit card, and auto increase, bankruptcies could also be on the rise, mainly due to consumer financial health being weighed down.
"While confidence remains an important economic indicator, our data suggest that confidence is inflated right now,” said James Rosseau, LegalShield's Chief Commercial Officer. “Decision makers who rely heavily on confidence measures in forecasting consumer spending may be disappointed."
Rosseau said the inflated confidence is due to what they believe is stubborn optimism. Though consumers have reason to be assured about the economy, and LegalShield hopes for continued economic strength, their data has worsened in recent months.
“In light of these developments, we want to make decision makers aware that consumer spending will likely continue to fall short of the levels implied by consumer confidence,” Rosseau said. “In short, the consumer picture is pretty good, but not gangbusters."
LegalShield publishes the Law Index on the sixth business day each month. To read the full report, click here.
“The market is about to change and we need to be ready,” said Delgado. “REO is going to increase in 2018 as we see more fractures in the market—how much is determined by location and how big the fall off in price points will be.”
According to Delgado, the real estate market is white hot while demand is still strong. These factors are driving price points, appreciation, and values way up. However, 5 to 10 percent spikes in appreciation along with price points that are overvalued by 15 to 20 percent aren’t a new observation—it’s something he witnessed in 2007 and 2008.
“This is what we think will happen in the next year: Regional or microbubbles will start to burst—pay attention to Denver, Dallas, San Antonio, Las Vegas, Phoenix, Los Angeles, and San Francisco,” said Delgado. “Delinquency will rise and foreclosures will increase.”
Additionally, after being devastated by Hurricanes Harvey and Irma respectively, Delgado said Houston has an understated delinquency population by as much as 300,000 while Florida homeowner insurance deductibles will create long-term hardships putting a greater financial strain on homeowners.
In 2016, Judy Dominguez of Cherry Creek Mortgage, a residential lender based out of Greenwood, Colorado, had her spousal health insurance revoked and was saddled with about $40,000 in medical bills after her wife had a heart attack. Though they have a recognized marriage, the bank cited the decision to revoke as recognizing marriage as a union between a man and a woman.
“Every once in a while when discussing the AMDC I’ll have a well-meaning executive ask ‘what’s the point’,” said Delgado. “Ensuring that stories like this don’t happen again is the point.”
Delgado said that discussions are important and should be had, but anyone can pull professionals together so they can say the right things and feel good about themselves. Once the steps are defined, they must be walked out.
“It is up to each of us to pursue the change that we want to see with passion,” Delgado said. “The stakes are simply too high for us to give anything but our best.”