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Today's Focus: MBA Mortgage Applications
Purchase Applications rose a moonshot +27.4% week-over-week while accelerating to +49% YoY! Volume Trends are good, but not that good.
Strength in the latest week can be attributed to a pre-TRID implementation pull-forward in demand.
Redux: What’s TRID Again? As a reminder, TRID (TILA-RESPA INTEGRATED DISCLOSURE) replaces the current federal disclosure forms with two new forms (Loan Estimate & Closing Disclosure) with the goal of reducing paperwork, simplifying & clarifying language and improving consumer comprehension of loan terms and requirements. While there is general agreement that, once implemented, the changes will be broadly positive there has been considerable stakeholder angst over the collective ability to effectively integrate and comply with the required changes given the breadth of adjustment to both internal operations and technology platforms mandated under the Act.
SPEED BUMP or SPIKE STRIP? The Y2K experience is an apt analog as no one really knows if systems/processes are truly compliant until the switch gets flipped. There is a good chance for a modest speedbump in reported activity following initial implementation (i.e. closing activity lagged 6-8 wks from the Oct 3rd implementation date), but there also exists the possibility for lagged choppiness alongside the seasonal spring pick-up in 2016 – particularly if lenders misestimate staffing levels needed to adequately manage prevailing volume flow.
Despite the integration uncertainty, the current setup probably represents a best-case implementation scenario as the October implementation date with the subsequent enforcement grace period will allow stakeholders to integrate the changes during a seasonally slow period while providing nearly 6 months of ‘live prep’ ahead of the 2016 spring selling season
Enforcement Grace Period: Notably, its expected that the House will consider the Homebuyer Assistance Act this afternoon which would create a formal and defined grace period lasting through the end of the year. Previously, the CFPB indicated they would provide an enforcement grace period following the Oct. 3rd implementation, but the bureau fell short of providing discrete terms or a defined duration for that grace period. We reviewed the TRID regulatory issue in our 2Q/3Q themes decks and our summary review slide is below.
Short-Term Positive? While TRID implementation may perpetuate volatility in the data over the intermediate-term its unlikely to catalyze a permanent shift in the demand curve and may, in fact, serve to juice both the New and Pending Home Sales figures for September as the bolus of pre-TRID demand flows through the reported volume figures.
Other Quick Thoughts: While its likely we give back all of this weeks rise in purchase demand in the coming weeks, the trend has been steady and well above the pace observed in 2H in recent years. The lower volatility and higher level of demand reflects ongoing organic improvement and the slow march to market normalization with conventional borrowers increasingly taking back share. Further, rates breached 4.0% to the downside for the first time since May in the latest week and, at current levels, remain a tailwind to both affordability and HPI.
About MBA Mortgage Applications:
The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis.
The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.
Joshua Steiner, CFA
Christian B. Drake