November 2012

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THE LATEST ORIGINATION Are Bright Days Ahead for Homebuilders? Falling inventory levels are mitigating market risks, leading Moody's to project strong forecasts for the homebuilding sector. D for the nation's homebuilders, the agency revealed. Moody's has been optimistic espite some heavy risks hanging over the in- dustry, Moody's is pro- jecting a positive future about the homebuilding indus- try as of late, raising its outlook for homebuilders from "stable" to "positive" in September for the first time since 2006. In its most recent quarterly industry outlook, the agency predicted boosted home sales over the next 12 to 18 months, citing customer demand, strong affordability, and historically low mortgage rates. As inventory continues to fall, Closing Rates and Timelines on the Rise Analysis from early fall indicates swelling fees and longer closing periods for mortgage loans. C homebuilders are expected to see significant revenue growth—more than 10 percent in 2012 and 2013, with industry gross margins ap- proaching 20 percent on average in 2013. "A number of factors within the industry have contributed to heightened demand for new homes," wrote Joseph Snider, lead analyst. "For years, homebuild- ers have built too few homes to keep up with the pace of new household formation. As a result, today's inventory levels of com- pleted and unsold new homes have fallen to historic lows." Meanwhile, slow but steady improvements in the economy have some customers concerned that waiting too much longer to buy a house may result in a missed opportunity to save money, Snider continued. Moody's also pointed out that losing rates and the time it takes to close on a residential mortgage increased in August, according to the most recent report from Ellie Mae. Ellie Mae estimates a closing rate of about 47.8 percent in August, up from 45.8 percent in July. The rate for purchase loans was 60.1 percent in August, up from 57.8 percent in July, marking the fourth consecutive increase. The closing rate for refinance loans decreased from 37.9 percent in July to 40.9 percent in August. The time it took to close a loan margins in excess of 20 percent, including Toll Brothers, Lennar, and Standard Pacific; and their margins are only expected to improve. While current trends are could have a "far-reaching eco- nomic impact." For now, though, Snider has reasons to be optimistic. "For all of these risks, 2012 strong, the homebuilding indus- try is still tied to risks outside its influence. Macroeconomic indica- tors are still mixed, and weak consumer confidence coupled with weak "non-existent" income growth may spell trouble. On a larger scale, Europe's larger publicly rated homebuild- ers are already reaping the bene- fits of the housing upturn. Some firms have already reported gross 40 | THE M REPORT potential slide in recession, as well as the United States' approaching fiscal cliff, could cause major setbacks in the market. Moody's also pointed to the possibility of escalating conflicts in the Middle East or the Korean Peninsula that will mark the first year since the downturn began that the home- building industry makes a net positive contribution to the still- struggling U.S. economy," he said. "Amid weak employment, was 49 days in August, up just one day from July's closing time. Refinance closings took a little longer than purchase closings in August, same as July. It took 51 days to close a refinance loan in August, up from 48 days in July. Purchase loans took 47 days to close in August, the same length of time it took in July. Ellie Mae also reported that stagnant incomes, and fragile con- sumer confidence, the economy continues awaiting better macro- economic drivers for a more ro- bust recovery. The real vitality in the homebuilding sector through 2013 might come from potential homebuyers' sentiment that new home prices, home affordability, and mortgage rates cannot im- prove much from here." the 30-year note rates on closed loans decreased to 3.763 percent in August from 3.87 percent in July. The percentage of adjustable rate mortgages (ARMs) reached its lowest level since Ellie Mae began tracking them in August 2011. ARMs reached 2.7 percent in August. For the third straight month, the percentage of refinances with more than 95 percent loan-to-value ratio decreased, falling to 7.74 in August, which is "a possible sign that HARP 2.0 continues to be cooling off," stated Jonathan Corr, COO of Ellie Mae. SECONDARY MARKET ANALYTICS SERVICING ORIGINATION

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