December 20, 2013

Mortgage Rates Bounce Back; Wake-Up Call on Fee Increases!

December 20, 2013

Mortgage rates bounced back today, recovery the ground they lost in yesterday’s move to 3-month highs.  Today then, is the second worst day in 3 months, at least for those who don’t need a long lock time frame (more on that below).  4.625% continues to be the most prevalently quoted rate for ideal, conforming 30yr Fixed scenarios  (best-execution) for normal lock time frames.

So what’s with this mention of “lock time frames?”  It has to do with the recently announced increases to the Guarantee Fee imposed by Fannie and Freddie’s conservator the FHFA. There seems to be a lot of confusion and even lack of awareness both in the consumer and originator communities about the very real damage this may have already done to your rate quote.  Let’s clear that up, or begin to anyway.

Fannie and Freddie have always charged a fee (Guarantee Fee or G-Fee) to lenders in order to guarantee the timely repayment of principal and interest.  Historically, it’s amounted to about 0.25% in terms of interest rate.  Since the onset of the financial crisis and particularly during the last few years, the fee has risen such that it’s now adding just under 0.5% to rates.

The actual amount of the G-Fee is not important for the purposes of this discussion.  The only time a consumer will notice or care about G-Fees is when they CHANGE, and that’s precisely what’s happening right now.  Written into the very legal definition of the G-Fee is the fact that it MUST increase by 0.10% (in terms of rate) on average each year.  All things considered, a 0.10% increase per year isn’t much, but it can be quite noticeable when it first takes effect.

Here’s why: The FHFA (that’s who oversees Fannie and Freddie) says the new, higher G-fee has to be collected on loans that Fannie and Freddie buy on or after April first. BUT THAT DOES NOT MEAN RATES WON’T FEEL THE IMPACT UNTIL APRIL 1ST!   A loan that is purchased on or after April first would have to have been acquired by the lender in March or sooner, and such loans may have been at the closing table all the way back in February.

If we know that the G-fee may affect loans closing in February and March, and we know some loans lock for 60 or more days, that means that the new fee will be in effect for some loans RIGHT NOW if the lock time frame is long enough!  This has already been announced by several large lenders and you can safely assume that more will follow shortly.

Here’s what the difference looks like: Lenders tend to convey the change in terms of COST as opposed to rate.  In most cases, it’s around 0.7% of the loan amount such that a $200k loan would require an additional $1400 in upfront costs (.7% x $200k) in order to lock the same rate after the fee change.  It has ALREADY HAPPENED that some borrowers considering a 60 day lock a few days ago would now be charged that higher amount to lock the same rate.  For those borrowers looking at those time frames, that’s unfortunate.

Most borrowers lock for 45 days or less these days.  That’s why it’s so very important that you understand what’s about to happen to your rate.  I don’t originate loans and I’m in no position to benefit from telling you this.  There is no way you can avoid this increase in cost if you don’t lock before it happens and there is no way the increase will not happen (unless the law happens to change very quickly).  The fact that it has already happened for 60-day+ lock time frames at many lenders is proof positive that it will happen for 45 day time frames about 2 weeks later and 30 day locks 2 weeks after that.

Please keep in mind that this entire discussion on fees is independent of market movement.  If rates happened to recover further, it’s possible such a recovery could offset the fee hikes, but as you know, that’s never a guarantee and certainly not something to plan on.  Assume that rates can go higher or lower, but rest completely assured that there will be an automatic and unavoidable move higher in the near future for 45-day locks.  Some lenders still haven’t changed 60 day locks as well, but it would be shocking if it that doesn’t happen next week.

Loan Originator Perspectives

“Small pullback and improvements like the one we have seen today are the ones I feel are prime opportunities to take the improvement in pricing and lock your loan. Unfortunately, today is essentially a Friday before a two week period of lightly staffed desks and what will certainly be an illiquid market at year end, so secondary departments will be hesitant to improve pricing, and if they do, it will likely be a minimal improvement. ” –Stephen Chizmadia, Mortgage Advisor, American Capital Home Loans

“Moderate rate improvements today, a welcome respite from recent losses. The Fed’s taper announcement has been received without much drama. As we look to 2014, however, LO’s and borrowers need to beware the pending changes to Fannie/Freddie’s risk based pricing adjustments that will soon affect the vast majority of loans. Rates are going up from these, even if MBS pricing remains the same. ” –Ted Rood, Senior Originator, Wintrust Mortgage

“Surprise surprise. Maybe the beginning of tapering will usher in lower bond yields….what?? Wishful thinking, but one can have a dream. Still favor locking asap. Little pre-Christmas present. ” –Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.

Today’s Best-Execution Rates

  • 30YR FIXED – 4.625%
  • FHA/VA – 4.25%
  • 15 YEAR FIXED –  3.5%
  • 5 YEAR ARMS –  3.0-3.50% depending on the lender


Ongoing Lock/Float Considerations

  • The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
  • Tapering ultimately happened on December 18th, 2013.  Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn’t make for another immediate spike higher.
  • That said, we should assume that we’re still in a rising rate environment on average.
  • NOTE: Lenders will be adjust rate sheets at various times in December and January to account for the most recent hike in Guarantee Fees.  This will unequivocally raise rates by at least an eighth of a percent for almost every borrower, and in most cases .25-.375%.  Depending on the lender, those changes will take place overnight and have already begun.
  • (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

 

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Mortgage Rates Run to 3-Month Highs Complicated by Fee Hikes.

 

Mortgage Rates Run to 3-Month Highs Complicated by Fee Hikes

Dec 19 2013, 4:09PM

Mortgage rates continued higher today, reaching levels not seen since the week before the FOMC Announcement in September.  Today’s weakness owes itself completely to yesterday’s news.  While the Fed’s decision to “taper” didn’t cause an excessive move higher yesterday, it did confirm the significant move higher that began in May.

While we’re not moving higher at the same pace seen in May and June of this year, the determination is as high as ever.  In a real sense, the pace of the movement–in general–and the mass behind it, are glacial.

Against the backdrop of that overall gradual move higher, we have had, and will have our ups and downs.  Some days will be flat.  Some days we’ll improve or deteriorate modestly, other days a lot.  Today was a bit more than modest for most lenders, though some borrowers will only experience it in terms of closing costs.

That means that 4.625% remains intact as the most prevalently quoted rate for ideal, conforming 30yr Fixed scenarios  (best-execution), but that it will be more expensive to obtain than it was yesterday.  4.75% is creeping up quickly.

If it seems like rates have been slow to move up recently despite talk of “higher rates,” it’s because the gap between rates (usually 1/8th or .125% increments) has gotten increasingly expensive in terms of PRICE (related in terms of percentage of the loan amount such as 0.75 = $750 on a $100,000 loan).

In the past, when we’ve discussed “affordable buydowns,” that might look like .4 to .5 in terms of upfront cost to move between rates (i.e. paying to move an eighth lower in rate, or being charged less to move an eighth higher in rate).  Those same costs are now closer to 1.0, meaning that it costs more to buy down to the next lower rate, but that there is also better insulation from being pushed up to the next eighth higher in rate or better compensation in terms of decreased closing costs if you do move to the next higher rate.

So will rates continue to go higher?  Remember the glacial pace with ups and downs.  There will always be pockets of correction and consolidation even within broad trends higher.  The entire month of October was a great example.  Whether or not we’ll see another extended period of time like that in the near future is uncertain, but less likely than it was for two reasons.

First, the tapering corner has been turned.  Even though markets will continue to speculate about whether or not each upcoming Fed Announcement will result in another $10bln reduction in bond buying, the biggest speculation as to whether or not the process will start, is in the books.  Some have suggested that this calms volatility, and that may well be true, but it was volatility working in our favor that allowed October’s little bounce back to happen.

The other incredibly important factor is the recently announced increases to the Guarantee Fee imposed by Fannie and Freddie’s conservator the FHFA.  This will raise rates by .25-.375% for many borrowers by the time the up-front cost changes are applied, and that’s happening a lot sooner than most people realize.

In fact, at least one big bank has already applied part of the G-fee change to rate locks of 60 days.  It instantly made those locks way more expensive than they were yesterday.  Borrowers would either pay for it by moving up to the next eighth of a percent higher in rate, or by raising their up-front costs by around three quarters of a point (so $1500 on a $200k loan). If 60 day locks just took the hit, it will be 2 weeks or less before it affects 45 day locks.  Time is ticking…

Not only does this put a big consideration on the horizon, but it also means that lenders aren’t going to be too eager to put out lower rates between now and then because it’s unprofitable and unwise for them to get locked into earning interest rates that aren’t in line with the rest of the market in a few weeks’ time.

 

Loan Originator Perspectives

 

“The same song and dance continues. Matthew Graham equated the recent trend in rates this morning to “glacial momentum higher in rates.” I think this is a perfect analogy. It will take something big to break up the glacier slowly moving down the hill (or up in rates) at this point. I still think locking at or shortly after application is the best move for the foreseeable future.” –Stephen Chizmadia, Mortgage Advisor, American Capital Home Loans

“More deterioration in MBS markets today as bond investors pondered the short and long ramifications of yesterday’s Fed tapering announcement. As noted repeatedly, we’re in a rising rate environment, even before new pricing adjustments from Fannie and Freddie kick in over the next couple of months. Mid-upper 4’s may not seem like exceptionally appealing rates now, but rest assured in a few months we may be wishing they were still available.” –Ted Rood, Senior Originator, Wintrust Mortgage

“The tourniquet seems to be applied stopping the slow bleed to weaker levels. Would be nice if the worst is behind after the first taper announcement, but that is wishful thinking. Floating in hopes of a meaningful drop is asking for pain in my opinion. ” –Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.

 

Today’s Best-Execution Rates

  • 30YR FIXED – 4.625%
  • FHA/VA – 4.25%
  • 15 YEAR FIXED –  3.5%
  • 5 YEAR ARMS –  3.0-3.50% depending on the lender


Ongoing Lock/Float Considerations

  • The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
  • Tapering ultimately happened on December 18th, 2013.  Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn’t make for another immediate spike higher.
  • That said, we should assume that we’re still in a rising rate environment on average.
  • NOTE: Lenders will be adjust rate sheets at various times in December and January to account for the most recent hike in Guarantee Fees.  This will unequivocally raise rates by at least an eighth of a percent for almost every borrower, and in most cases .25-.375%.  Depending on the lender, those changes will take place overnight and have already begun.
  • (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

Fannie Mae Policy Update 12/16/2013

Announcement SEL-2013-09: Pricing Update
This Announcement reports that the Federal Housing Finance Agency has directed Fannie Mae to increase pricing, reflecting a “gradual progression to more market-based pricing.” The pricing changes include increases in guaranty fees and loan-level price adjustments (LLPAs) and the elimination of the Adverse Market Delivery Charge (with the exception of four states). Both the LLPA Matrix and the Refi Plus™ LLPA Matrix have been updated and are available on Fannie Mae’s Business Portal.

FHA Report to Congress 12/13/2013

December 13, 2013

 

From the Desk of Carol Galante – Acting assistant for FHA Commissioner

 

Report to Congress

On December 13th, HUD released its Fiscal Year (FY) 2013 Annual Report to Congress on the Financial Status of the Mutual Mortgage Insurance Fund, which reports the results of an independent actuarial evaluation of the of the Fund.

 

According to the independent actuary, the Fund’s value has improved by $15 billion since last year, and is currently valued at negative $1.3 billion. This change represents a 92 percent improvement in the capital reserve ratio rising from negative 1.44 percent to negative 0.11 percent. The independent actuary now estimates that the Fund will reach the required two percent reserve ratio in 2015, two years faster than predicted in last year’s report.

 

This Administration has worked hard to implement the policies and practices that have led to this turn-around. Since 2008, FHA has taken a number of steps to restore capital, including adjusting premiums, tightening credit policies, and expanding its use of alternative disposition strategies for defaulted assets. As a result, recovery rates have substantially improved and the credit quality of our most recent books of business remains at historically high levels – keeping FHA on the right track for the future.

 

While these policy changes were necessary and prudent, we are aware of the impact they have on our lending partners. In the years since the crisis began, the housing industry has been asked to adjust to an unprecedented amount of change. No doubt it has been challenging to keep up with all of the new policies and initiatives introduced by FHA and other regulatory agencies.

 

The initiatives that led to the Fund’s improvement are part of a wider effort to transform the way FHA operates. We are committed to becoming more efficient and making it easier for our partners to do business with us. Toward those ends, we have been focused on improving the consistency and transparency of our quality assurance practices and communication with lenders. We realize that a strong, consistent and transparent QA framework creates the best environment to ensure compliance with FHA’s origination and servicing guidelines and provides lenders the confidence needed to reduce overlays and enable broader access to credit.

 

That is why FHA is focused on improving the utility of all of its guidance. As a first step, FHA has worked to consolidate more than 900 Mortgagee Letters into an updated Single Family Handbook – a definitive guide on originating and servicing a single family FHA-insured loan. And our transformation efforts do not end there. We have begun issuing the quarterly Lender Insight publication, are developing an automated lender approval and re-certification process, and are working to streamline the way we develop and announce new policies.  When these initiatives are complete, it should be easier for everyone to stay informed and appropriately utilize existing and new FHA guidance.

 

We are doing everything possible within our existing capabilities to improve our policies, operations and business practices, but with additional tools we could make even more progress. So, we continue to ask Congress to pass legislation that will enhance our overall ability to manage risk. Specifically, FHA needs the ability to require indemnification from all classes of FHA-approved lenders, the authority to terminate lender approval on a more refined geographic basis, and the flexibility to engage specialty servicers. Legislation to revise the calculation of the compare ratio and reduce barriers to more effective risk management would also be beneficial to the Fund.

 

Fiscal Year 2013 Highlights

FHA had an important impact on the market in 2013.   This past year, FHA:

 

  • Insured nearly 1.1 million single-family forward mortgage loans during the year, with a total dollar value of approximately $240 billion and $13.6 billion in reverse mortgages (HECM). This brings the active single family portfolio to nearly $1.2 trillion.
  • Insured more than 675,000 new purchase loans, 79 percent of which were for first-time homebuyers.
  • Provided refinancing for more than 610,000 homeowners who were enabled to take advantage of historically low interest rates.

 

These numbers illustrate the continued importance of FHA to the housing finance market. Moving forward, FHA will continue to focus on using aggressive strategies to reduce losses, increase recoveries, and maintain access to credit for qualified borrowers. We believe that managing risk to the Fund is a critical element of ensuring that FHA is here to help future generations buy that first home, refinance into a more sustainable mortgage, or age in place as they get older.

 

Thank you for your continued support of FHA and our mission. HUD’s Annual Report to Congress on the Financial Status of the MMI Fund and the accompanying actuarial reviews are available at http://blog.hud.gov/index.php/2013/12/13/annual-report-to-congress-shows-progress/

 

 

 

 

RESOURCE INFORMATION

 

FHA Homeownership Listserv Archive Page: FHA   recently began posting prior messages from this Homeownership Listserv on a   Departmental web site.  Currently the archives include messages from   calendar year 2013 and a portion of calendar year 2012.  To view   messages sent by fhainfo@hud.gov and   previously by jerrold.mayer@hud.gov,   please visit the following site:  FHA   INFO Listserv Archive
Have FHA Questions? For FHA   technical support, please search the FHA Frequently Asked   Questions site or contact the FHA Resource Center by email at:    answers@hud.gov or by   telephone toll-free between 8:00 AM & 8:00 PM ET at: (800) CALLFHA or   (800) 225-5342.
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HUD   press releases

Skyrocketing rents hit ‘crisis’ levels

Published: Monday, 9 Dec 2013 | 3:45 PM ET

By: | CNBC Real Estate Reporter

Vstock LLC | Getty Images

Since the housing crisis began in 2008, approximately 4.6 million homes were lost to foreclosure, according to CoreLogic. The vast majority of those homeowners became renters. Even as housing recovered, credit tightened, pushing even more potential buyers out of homeownership and into rentals, both apartments and single-family rental homes.

There are now 43 million renter households, or 35 percent of all U.S. households, the highest rate in over a decade for all age groups, according to Harvard’s Joint Center for Housing Studies; 4 million more renters today than there were in 2007. For those aged 25 to 54, rental rates are the highest since the center began record keeping in the early 1970s.

As a result, rental vacancies have fallen dramatically, and rents have skyrocketed.

Play Video

 

Housing affordability shrinking
Residential construction jobs grew in November, and employment data in hard hit housing areas was slightly ahead of national growth. However, CNBC’s Diana Olick reports rates are decidedly higher from last week and affordability is shrinking.

“We are in the midst of the worst rental affordability crisis that this country has known,” said Shaun Donovan, U.S. Secretary of Housing and Urban Development.

Half of all U.S. renters today pay more than 30 percent of their incomes on rent. That’s up from 18 percent a decade ago, according to the Harvard center. For those in the lowest income brackets, the jump is even worse.

(Read more: Rising mortgage rates a boon to smaller lenders)

“Over four years, a 43 percent increase in the number of Americans with worst-case housing needs,” said Donovan. “Let’s be clear what that means, they’re paying more than half of every dollar they earn for housing.”

The numbers are not lost on Annie Eccles, who is in her late 20s. She has been renting for over two years, and the rent on her Bethesda, Md., apartment has increased by the maximum the county allows every year.

“It’s frustrating because we pay for rent, we also pay for parking, and just knowing that every June it’s going to increase significantly, it’s frustrating,” said Eccles.

And Eccles pays almost as much each month on student loan debt as she does in rent. Put together, it makes it very hard for her and her husband to save up enough to buy a home of their own.

“It would be hard buying in this area, just because it’s so expensive,” she added.

(Read more: Soaring new home sales: Not what they seem)

Most younger Americans, like Eccles, want to be homeowners someday. While so-called millennials favor mobility and city living, they still see homeownership as a goal.

“Nineteen out of 20 people that are surveyed say that they intend to buy a home at some point in the future, if they’re under the age of 30,” said Eric Belsky, director of Harvard’s Joint Center for Housing Studies. “There is no question that the will toward homeownership remains there, it’s the way.”

Home prices are rising faster than expected, due to heavy investor demand, ironically in single-family rental housing. While more than 3 million owner-occupied homes are now investor-owned rentals, there is still a lack of supply in the market. New rental stock is coming soon, but demand is not easing. Renters may want to be buyers, but many still can’t, due to rising home prices and mortgage rates.

(Read more: October new home sales strongest in more than 33 years)

“You add in other things, like higher student debt for many people, you add in the fact that incomes for low- and moderate-income people have not been going up as fast as inflation, and you have a situation where it’s going to be very difficult to buy homes,” said Belsky.

By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick.

Questions?Comments? facebook.com/DianaOlickCNBC

 

HELOC Problems Starting

LPS Already Seeing Increased HELOC Problems; More to Come

Lender Processing Services (LPS) Mortgage Monitor for October reports that 48 percent of outstanding second lien home equity lines of credit (HELOCs) were originated between 2004 and 2006 and the vast majority have draw periods of 10 years.  Therefore these loans are set to begin amortizing over the next several years and many borrowers may see monthly payments increase. According to LPS Senior Vice President Herb Blecher, recent increases in new problem loans among the HELOCs originated prior to 2004 (that have already begun amortizing) indicate increased risk of more delinquencies ahead.

 

 

“In the aggregate, the home equity market is experiencing lower delinquencies,” said Blecher. “However, among the HELOC population that has already begun amortizing, we are actually seeing an increase in new seriously delinquent loans. As of today, only 14 percent of second lien HELOCs have passed this 10-year mark, leaving a very large segment of the market at risk of payment increases over the coming years. Nearly half of all of these lines of credit were originated between 2004 and 2006, with the oldest set to begin amortizing next year. If this trend toward post-amortizing delinquencies carries over, we could be looking at significant risk to the home equity market over the coming years.

 

 

In addition to the current risks posed by the home equity market the Monitor focuses on:

  • Prepayment activity, mortgage originations, and property sales
  • Home prices and negative equity
  • Judicial vs. non-judicial state disparities

The company reports that prepayments dropped again in October to around 4.3 percent of mortgages.  As recently as May of this year prepayments were running near 6.5 percent.  While the rate of repayments continues to drop, the decline slowed with retreating rates in October.

 

 

Mortgage originations are down sharply, having dropped 43 percent since June.  The decline has been driven in large party by refinancing which represented 50 percent of originations in October compared to 75 percent at the beginning of 2013.

 

 

Home sales have also pulled back from recent peaks this past summer but the ratio of distressed sales to equity sales is improving.  Only 14.2 percent of sales in September were owned real estate (REO) or short sales, the lowest percentage since 2007.

Home prices are up about 9% year over year to an average of $232,000 but were up only 0.2 percent month-over-month as seasonal slowing continued.  Nationally prices are about halfway back from the $202,000 low point of January 2012.  Prices peaked in June 2006 at a national average of $270,000

Home price improvement is driving negative equity lower.  LPS estimates that about 11.6 percent of loans remain underwater compared to 18.8 percent at the beginning of the year. LPS says that negative equity estimates vary widely so it has a adopted a new methodology that accounts for not only the current combined loan-to-value (LTV) ratio of all mortgages but also the impact of distressed sale discounts on loans in serious delinquency or foreclosure.  As the negative equity situation improves, the volume of short sales has dropped from 56 percent of distressed sales in September 2012 to 44 percent this past September.  The discounts offered for short sales are declining as sales volumes decrease.

 

 

Judicial states are lagging in price recovery since the national trough in January 2012.  As can be seen from the graphic, with the exception of Florida all of the states where prices have increased more than 15 percent above that trough are non-judicial states.

 

 

New problem loans are increasing in both judicial and non-judicial but the rate is higher in the former and the gap between the two is growing.  Foreclosure starts are also still elevated in judicial states where they increased 12 percent from August to September while starts declined by 5 percent during the same period in non-judicial states.  However, increasing levels of foreclosure sale activity have helped improve pipeline ratios (the ratio of loans that are seriously delinquent and in foreclosure to the six-month average of foreclosure sales) in judicial states. The judicial state pipeline ratio had declined from a high of 118 months of inventory, down to 47 months as of October, much closer to the non-judicial states’ 39 months of inventory.

 


 

HUD ANNOUNCES NEW FHA LOAN LIMITS TO TAKE EFFECT JANUARY 1ST

4:55PM
WASHINGTON – Today the Department of Housing and Urban Development (HUD) announced that it will implement new FHA single-family loan limits on January 1, 2014, as specified by the Housing and Economic Recovery Act of 2008 (HERA). Read FHA’s mortgagee letter detailing the agency’s new loan limits.“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still under-served.”

The current standard loan limit for areas where housing costs are relatively low will remain unchanged at $271,050. The new national-ceiling loan limit for the very highest cost areas will be reduced from $729,750 to $625,500. Areas are eligible for FHA loan limits above the national standard limit, and up to the national ceiling level, based on median area home prices. Additional information and loan limit adjustments for two-, three-, and four-unit properties, and in Special Exception Areas, are noted in FHA’s mortgagee letter. An attachment to the Mortgagee Letter provides information on which counties are eligible for loan limits above the national standard. Borrowers with existing FHA insured mortgages may continue to utilize FHA’s Streamline refinance program regardless of their loan balance. The changes announced today are effective for case number assignments between January 1, 2014, and December 31, 2014.

Full mortgagee letter HERE.

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