What Conference Calls Tell Us About Mortgage Trends [Housing Tracker]

Quote Of The Day 

“I feel like we’ve turned the clock back 20 years. We’re back to the old standard.” - Mary Floyd, senior vice president at Financial Federal Savings Bank, referring to the more conservative guidelines lenders follow for mortgages now, such as solid credit and a down payment. (Memphis Daily News, July 15^th)

Homebuilder Mortgage Trends

Mortgage Insurers Raise Bar.  “Mortgage insurers have been dramatically tightening their standards throughout the U.S., further squeezing potential home buyers. Stung by growing defaults, lenders are offering borrowers fewer ways to avoid purchasing private mortgage insurance. Mortgage insurance, required for buyers who are unable to make a full down payment or who have insufficient credit histories, reimburses lenders in the event of a borrower default. But over the past few months, mortgage insurers have been declaring more and more of the U.S. a "declining market," raising the requirements and making such insurance harder to obtain. The result: another hurdle for home buyers, and yet another wrenching change for the struggling housing market.” (Wall St. Journal, July 15^th)

Q2 Mortgage Filings Down 31%. Tennessee: “Conservative guidelines that require solid credit and a down payment – has taken a toll on mortgage counts in Shelby County... Chandler Reports: Just 2,991 mortgages were made during Q2, marking a 31.1% decline from the 4,342 in Q2’07… Not only did Q2 dip from Q2’07, but it was off 45.5% from the 5,492 mortgages in Q2’06. Mortgages in Q2’08 averaged $154,216 per loan, fairly close to the averages of $157,930 in Q2 2007 and $151,553 in Q2’06. But the quarter’s total mortgage volume in terms of dollar amount was way off from Q2 in each of the past two years: Q2’08 totaled $461.3 million, down 32.7% from $685.7M in Q2’07 and 44.6% from $832.3M in Q2’06.” (Memphis Daily News, July 15^th)

Lennar Corp. F2Q08 (Qtr End 05/31/08) Earnings Call Transcript. “Bruce Gross – Lennar (LEN) VP and CFO: Mortgages increased from $4.6 million of profit last year to $8.1M in the current year and that was primarily due to the prior year having a $14.4M land note receivable write down. This quarter our mortgage capture rate improved from 72% to 85% year-over-year and almost all of our loans in this quarter were fixed rate, conforming loans. The percentage of government loans increased to approximately 60% this quarter, up from 19% in the prior year. This is the first quarter that the higher FHA mortgage loan limits went into effect.  Our title company experienced a $10.7M loss that compares to an $8.1M profit in the prior year. This was the result of fewer transactions as well as $6.7M of… termination costs.” (Seeking Alpha, June 26^th) 

KB Home F2Q08 (Qtr End 05/31/08) Earnings Call Transcript. “Domenico Cecere – Executive VP & CFO: “Our Countrywide (CFC) KB Home (KBH) Loans mortgage joint venture continues to perform well. Within the joint venture retention rate for the second quarter of 2008 was 80% compared to 70% a year ago… Buyers also continued to use more fixed rate product; just 4% of the quarter chose an adjustable rate mortgage. Government and conforming loans were used in 97% of our Q2 deliveries. Over two-thirds of our backlog of sold homes were qualified with an FHA loan. There has also been some recent press on down payment assistant programs. It is not a meaningful portion of our business.”  (Seeking Alpha, June 27^th) 

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Comments

[billddrummer]

Hi Judy,

Excellent reporting, thank you.

The quote of the day is telling, and speaks to the new paradigm in mortgage lending: Good credit, down payment, reserves and ability to pay have superceded the quest to 'stretch the envelope' and make deals work regardless of the outcome.

The CDO market for conforming mortgages will eventually come back to the volumes we saw in 2006. The main difference now is that new originations have much better underwriting standards than old ones, which will help both firm up the secondary market (because it will be easier to validate repayment streams) and reduce defaults (because of the more thorough underwriting process).

This is a welcome change to the industry. And just because there will be people shut out of home ownership isn't a bad thing. As we've all seen, the folks who couldn't afford homes are now losing them.

[Kunst]

Yes, it sure is. Now we go back to proven lending standards. That's sort of like the ocean going back to its normal level after a tsunami. It doesn't undo the damage.