Mortgage Rates Continue Higher as Weather Blocks Progress

February 21, 2014
Market Summary

Mortgage rates continued higher this week as weather-related effects on financial markets deprived interest rates of one of their primary sources of support.  This is the second straight week of increases and the 3rd week with no improvement.  Before that, rates had fallen for 5 straight weeks.

In terms of the most prevalently quoted conforming 30yr fixed rate for ideal scenarios (best-execution), both 4.375% and 4.5% were in play this week with 4.5% taking over by Thursday.

Unfortunately, there’s no perfect way to separate weather-related distortions from reality, and this is currently serving to keep the range of movement relatively narrow for mortgage rates and US Treasuries.  Also unfortunate is the fact this weather dynamic creates something of a no-win situation for interest rates because only the negative data (which would help rates) is suspect due to weather, while positive data (which would hurt rates) would be seen as strong enough to overcome any weather-related drag.

That’s not to say rates can’t improve, but gains are limited, and more of a serendipitous by-product of market considerations that are not dependent on economic data.  Strong data, on the other hand, could have a noticeable negative effect.

Matthew Graham, Chief Operating Officer, Mortgage News Daily

Secure Your Future With 9 Rock-Solid Dividend Stocks

Motley Fool Stock Advisor

Face it, you want it all. You want to have your cake and eat it too.

You want the reliable income and stability that dividend-paying stocks provide, but you also want to beat the market.

Sound like a pipe dream? It’s not.

According to Ned Davis Research, between 1972 and 2010, dividend-paying stocks returned 8.6% versus just 1.4% for companies that didn’t pay a dividend. That’s an astonishing outperformance that means the difference between turning a $100,000 portfolio into $2.4 million versus just $174,000.

And for those worried about the storm clouds in today’s global economic picture, Ned Davis also showed that during periods of market decline between 1970 and 2000, dividend payers outperformed their stingy counterparts by 1.5% per month.

Here’s why they trounce the market so impressively

For one, since dividends are paid in cash, when you invest in a dividend-paying stock you can be more confident that the company you’re investing in actually makes cold, hard cash. That may sound simplistic, but many companies report accounting profits without actually banking any cash.

In addition, the beauty of many dividend stocks is the long-term dependability of the companies backing them. This allows investors to take advantage of compounding returns over long periods of time. Long-time dividend investors are surely on board with Albert Einstein, who supposedly called compound interest “the most powerful force in the universe.”

Back by popular demand

In a previous Motley Fool report, we offered readers the opportunity to download a dividend-focused special report that delivered a 13-stock dividend portfolio. That report was downloaded by almost half a million investors across the globe!

Due to the overwhelming popularity of that report, we decided to revisit the wonderful world of dividends to bring you a new, ready-to-trounce-the-market dividend-stock portfolio.

In this report you’ll find nine dividend stocks that will not only let you sleep like a baby, but can also help put your portfolio on the path to market-beating returns.

While you certainly don’t have to buy all nine of these to get the most out of the power of dividends, these have been specifically chosen from a range of industries and a range of dividend strategies so that, taken as a group, they create a complete dividend portfolio.

5 All-Around Dividend Rock Stars

Not every band is of Rolling Stones caliber, and not every dividend stock is of Procter & Gamble [NYSE: PG] caliber.

In fact, there is a special group of dividend stocks that Standard & Poor’s keeps track of that it calls the “Dividend Aristocrats.” These dividend payers don’t just pay a dividend. They’re not just any old company that’s had a few dividend increases. No, these dividend maestros have — as S&P puts it — “followed a policy of increasing dividends every year for at least 25 consecutive years.”

Impressed?

You should be. Because when a company has a 25-plus year streak of paying and raising its dividend, you better believe investors are feasting on impressive compounding returns.

Meet the aristocrats

As you might expect, the Dividend Aristocrats are an elite group.

In fact, of the 500 companies in the S&P 500 index, only 54 of them currently qualify for the title. And while most of the companies on that list could make solid investments, there are some that stand out above the rest of the pack.

The five stocks below are some of the greatest businesses in existence.

They each have what we Fools like to call a “moat,” that is, a competitive advantage that allows them to consistently earn above-average returns. Their inclusion on the Dividend Aristocrat list shows their consistent dedication to returning cash to investors. And while it’s tough to find businesses of this quality at bargain-basement prices, all trade at attractive valuations.

Company Business Dividend Yield 10-Year Average Annual Dividend Growth
ExxonMobil [NYSE: XOM] Global energy champ 2.8% 9.6%
Johnson & Johnson [NYSE: JNJ] Diversified health-care products powerhouse 2.8% 11.2%
PepsiCo [NYSE: PEP]
Snacks and beverages giant 2.7% 13.6%
Procter & Gamble [NYSE: PG] Branded consumer goods leader 3.0% 10.8%
Wal-Mart [NYSE: WMT] Low-price retail kingpin 2.4% 18.1%

Source: S&P Capital IQ.

ExxonMobil sells products — oil and natural gas — that are commodities. For the most part, the crude oil Exxon pulls out of the ground is the same as the oil that, say, Chevron [NYSE: CVX] does.

So what makes Exxon so great? It’s the sheer scale that the company has, but it’s also got a long history of wise capital allocation and investment in technology to keep it at the forefront of the industry. And because the company continues to put its money to work in places where it can earn high returns, there should be more good times ahead for investors.

Many health-care companies that focus on patented drugs face grave problems because they’re starting down the barrel of big patent expirations. Not so at J&J. The company has a highly diversified business that spans consumer brands like Tylenol all the way to products that surgeons rely on in the operating room. J&J has faced challenges in recent years but it’s a highly innovative company, and its decades of success have proven its mettle in staying at the forefront of the health-care industry.

Above, PepsiCo was very purposely listed as a “snacks and beverage giant.” Because the company has Pepsi in its name, it’s easy to forget that it also houses the massive Frito-Lay snacks division. Heck, it may also be easy to forget that the Gatorade empire is PepsiCo’s Gatorade empire. Sure, Coca-Cola [NYSE: KO] is a fantastic company, but it’d be a big mistake to overlook the might and staying power of PepsiCo.

Gillette, Tide, Pampers, Oral-B, Mr. Clean, Crest, CoverGirl, Tampax, Old Spice. If you know these brands, then you know Procter & Gamble. Since 1837, P&G has been creating products that consumers want to use. And use again. And use again. And use… OK, you get the picture. Recently, P&G has faced tough questions from investors as its growth engine appeared to have stalled. However, hopes are high that growth will reignite after the company brought back former CEO A.G. Lafley to lead the company again. The good news for investors is that the core of P&G’s empire is strong enough that it continues to generate monster profits — and pay those handsome dividends — as it revs that growth engine back up.

Finally, when it comes to price, Wal-Mart can’t be beat. When you consider that competitive advantage is all about a company’s ability to bring more value to its customers than competitors, you realize what a big deal this is. Wal-Mart will continue to dominate the retail landscape simply because its customers are consistently able to stretch their dollar further in Wal-Mart’s stores.

Your portfolio, starring…

In creating your dividend portfolio, you could go with the five stocks above and stop there. You might be a bit under-diversified, but you wouldn’t be in bad shape.

Below you’ll find two “dividend divas.” They’re more temperamental than the stars above, but can deliver in a big way.

2 High-Yield Dividends Divas You Can Buy

When you’ve got a company that can consistently grow its dividend by double-digit percentages every year — as most of the five companies you just read about have — a 2% dividend can go a long way.

But there are some companies out there whose stocks have yields that make that 2% payout look like a joke. Some have yields two, three, or even five times what you can currently get from a 10-year Treasury bond.

Before you get too excited about these massive yields, it’s important to understand that a huge dividend is not a free lunch. The dividend yield is right out in the light of day where everyone can see it, so if it were so obvious that the yield was a steal, investors would flock to the stock and the yield would fall.

Instead, the stocks that have the biggest yields are often stocks that investors are looking at askance. Investors may believe there are risks to the businesses behind the stocks that may make it difficult for them to keep up their dividends.

Some, not all

While the crowd may be on target with their pessimistic assumptions in some cases, in others they be sorely mistaken and missing out on some really great dividends.

Now that your dividend portfolio has a solid base of five rock star Dividend Aristocrats, let’s jazz it up with two high-yield divas that could spice up your returns.

AT&T [NYSE: T]

As smartphones become an ever-more-powerful hub for consumers to communicate, shop, and otherwise interact, service providers like AT&T will stay in demand as providers of the wireless highways that the data travel over. And investors in this important service provider can currently pocket a 5.3% annual dividend.

The wireless business has been where it’s at for telecoms in recent years, and AT&T is one of the major powerhouses. As is usually the case though, the status quo makes no promises to stay put. And we’ve seen some evidence of the changing landscape as Verizon [NYSE: VZ] took the plunge and agreed to buy Vodafone‘s [NYSE: VOD] ownership stake in Verizon Wireless for $130 billion. This could put pressure on AT&T to make some moves of its own.

But let’s not forget that wireless isn’t AT&T’s only business. In fact, it was only 46% of the company’s 2012 revenue. Though wireline phone service may be a slowly-dying business, broadband and other data services aren’t, and AT&T is building stronger customer relationships through offerings like AT&T U-verse, which offers bundled digital TV, internet, and voice services.

Currently, that sweet 5.0% dividend comes from AT&T paying out just over 50% of its free cash flow — which is a very sustainable ratio. In other words, take that sustainable payout ratio along with the stable business, and it sure looks like Ma Bell’s dividend is a good buy.

New York Community Bancorp [NYSE: NYCB]

If you want dividend growth, you may want to look elsewhere — New York Community Bancorp hasn’t raised its dividend since 2005. However, with investors nervous about the economy and banks in particular, Mr. Market has knocked NYCB’s stock down to a level where its $1 dividend gives you a serious 6.2% yield.

There are risks for NYCB. For instance, banks have to set aside money based on how much of their loans they believe will end up turning sour. The amount that NYCB has set aside is a fairly small percentage of its currently-nonperforming loans, so if management turns out to be wrong in its estimates, that could put a drag on earnings.

But the bulk of NYCB’s loans are not on over-leveraged single-family homes in Las Vegas that were given to minimum-wage earners. Instead, much of NYCB’s loan book consists of conservative loans on low-rent apartment buildings in New York City whose value is based on the actual cash flows that the buildings generate.

Some investors may see “bank” as a four-letter word, but if you’re looking for big dividends, NYCB may be your ticket.

Seven down…

Your dividend portfolio is now at seven stocks — five dependable dividend “rock stars” and two higher-yield divas. Next up is a look at a couple of lesser-known dividend stocks that have what it takes to become stars someday.

2 Dividend Up-and-Comers You Don’t Want to Miss

To stretch the music metaphor just a little bit further, if the first five stocks were reliable rock stars and the next two were high-yield divas, the next two we’re going to take a look at are the yet-to-be-discovered stars of tomorrow.

Though it can be tough to find solid dividends among the small-cap ranks — many small companies prefer to reinvest all of their cash in growth — it’s a big mistake to skip over this part of the market. And because smaller companies tend to get less exposure than larger ones, many investors miss these companies and allow the more intrepid investors to scoop them up at bargain prices.

Better than Goldman

At this point it may be nearly impossible for some people to think about Goldman Sachs [NYSE: GS] and other investment banks without thinking about their part in the financial crisis. It’d be understandable if some investors get the urge to shake a fist every time they hear Goldman’s name. But let’s not be too quick to lump every investment bank in the same category as the too-big-to-fail screw-ups.

Greenhill & Co. [NYSE: GHL] is an investment bank. It’s a high quality investment bank that lands the same caliber of people (or better) than the folks at Goldman, Morgan Stanley [NYSE: MS], or JPMorgan Chase[NYSE: JPM]. But you probably haven’t heard of Greenhill.

Why? Because Greenhill does not fancy itself a financial master of the universe.

It does not have massive trading operations that threaten the ongoing existence of the company or the health of the U.S. financial system. Instead, Greenhill focuses primarily on advisory services. That is, it provides companies with advice on mergers and acquisitions, raising capital, and other special financial situations.

And while the name Greenhill may not ring bells for you, the projects it’s worked on will no doubt be familiar. The deals that Greenhill is currently working on (or recently wrapped up) include SUPERVALU‘s [NYSE: SVU] multiple deals with Cerberus Capital; Linn Energy‘s [Nasdaq: LINE] $4.4 billion acquisition of Berry Petroleum [NYSE: BRY]; GrainCorp’s consideration of Archer Daniels Midland‘s [NYSE: ADM] unsolicited $3.8 billion takeover offer; Actavis‘ [NYSE: ACT] $8.5 billion acquisition of Warner Chilcott [Nasdaq: WCRX]; and it’s also advising the city of Detroit’s General Retirement System and the Police and Fire Retirement System in connection with the city’s financial struggles.

The beauty of this business is that while Greenhill spends significant money on its people, the business itself doesn’t require much capital. That means that when the company’s business is raking it in, there is plenty of cash available to pay shareholders.

Not a minor player

While hospitals do sanitize and reuse some equipment, the high standard for sterility and cleanliness means that there are a great many items that get used once and pitched. These items include gloves, disposable scalpels, respiratory tubing, umbilical cord clamps, medicine cups, and bandages.

Meanwhile, with the cost of health care rising and everybody trying to cut costs wherever they can, hospitals and other health-care providers want to find the most effective and cost efficient way to stay stocked up and ready to serve their patients.

Enter Owens & Minor [NYSE: OMI]. Owens & Minor is a distributor of medical and surgical equipment, as well as a provider of outsourced logistics and inventory management services. The company works with 1,400 suppliers and has access to over 200,000 medical-surgical products, including products from its own private-label MediChoice line. In a business where getting it right is absolutely critical, it says a lot that the company has a 98% customer satisfaction rating across roughly 4,000 customers.

For investors, the proof of its success is in black and white in the numbers. Going back to 2008, the company had an average return on capital of nearly 12%. Between 2000 and the 12 months ending in June 2013, it grew earnings per share 162%. And the dividend? Owens & Minor has raised its dividend every year since 1997 and has more than doubled its payout since 2006.

 

Complaints Surging, Modifications Decreasing As Loan Servicers Snap Up Mortgages From Banks – Consumerist

 

(RAWRS)

(RAWRS)

It’s been a rough few years for homeowners. Since the collapse of a housing bubble in 2008, mortgage-holders have been yanked around every which way by the banks that own their loans. Mega-banks like Wells Fargo and Bank of America have earned their reputations for being impenetrable, hostile bureaucracies to their customers. The industry has done everything from issuing loans that borrowers had no chance of repaying, to “losing” paperwork that distressed borrowers endlessly resend, to foreclosing on borrowers who have actually paid, and even discriminating based on race and gender.

But it’s not just the banks making life harder for homeowners anymore. Loan servicers are buying up more mortgages every day, and borrowers are plagued with just as many problems from these third-party companies as they have been from the big banks.

 

As the New York Times reports, loan servicing companies now own about 17% of the mortgages in the country. While that may not sound like a huge number, these servicing companies held only 3% of mortgages in 2010. That’s an enormous change in a very few years.

 

It’s also a change that’s proving difficult for consumers that need help. It’s hard enough for a borrower to request and receive a loan modification from a big bank; getting one from a servicer, when your loan keeps being handed off among them, can be even harder. By the time you finally have someone agreeing you’ve sent the right paperwork, you might have to do it all over again with yet another company.

 

Borrowers with two huge servicing companies, Ocwen and Nationstar, have particularly low chances of seeing a modification approved for their mortgages. While Bank of America has approved roughly 44% of modifications since 2009, the NYT says, Ocwen has approved just 23% and Nationstar, 22%.

 

Meanwhile, complaints against the servicing companies have been increasing. One couple who won a modification from BoA told the Times that it vanished into thin air when Nationstar took over managing their mortgage a few months later. Another homeowner described to the NYT her experience being bounced among three servicers in less than two years: “I either get conflicting answers or no answer at all.”

 

In January, the Consumer Financial Protection Bureau announced new rules requiring mortgage servicers to provide actual service to customers in need. The deputy director of the CFPB, Steve Antonakes, said at a conference on Wednesday that he was “deeply disappointed by the lack of progress the mortgage servicing industry has made” in helping consumers.

 

“There will be no more shell games where the first servicer says the transfer ended all of its responsibility to consumers and the second servicer says it got a data dump missing critical documents,” Antonakes added, saying that situations where servicers refused to honor loan modifications “would not be tolerated,” and that loan handoffs should be “seamless” for consumers.

 

Rep. Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, has also urged regulators to extend greater oversight over mortgage servicers.

 

Loan Complaints By Homeowners Rise Once More [New York Times]
Official ‘Deeply Disappointed’ by Mortgage Servicing Problems [Wall Street Journal]

 

U.S. 30-Year Mortgage Rates Increase for a Second Week – Bloomberg

Mortgage rates for 30-year U.S. loans climbed for a second week, cutting into affordability as the housing recovery shows signs of cooling.

The average rate for a 30-year fixed mortgage was 4.33 percent this week, up from 4.28 percent, Freddie Mac said today. The average 15-year rate rose to 3.35 percent from 3.33 percent, the McLean, Virginia-based mortgage-finance company said.

While the job market is improving, higher prices and borrowing costs are making it more expensive to own a home. Monthly payments on a median-priced three-bedroom home — including mortgage, insurance, taxes and maintenance — rose an average of 21 percent in the fourth quarter from a year earlier, according to an analysis of 325 U.S. counties by RealtyTrac released today. Mortgage rates jumped to a two-year high in August from near-record lows in May, Freddie Mac data show.

“The cost of financed homeownership is becoming dangerously disconnected with still-stagnant median incomes,” Daren Blomquist, vice president at Irvine, California-based RealtyTrac, said in the report.

Starts for single-family houses slumped in January, in part because of unusually harsh weather in much of the U.S. Builders began work on 573,000 homes at an annualized rate last month, down 15.9 percent from December and the fewest since August 2012, Commerce Department data issued yesterday show.

Confidence among homebuilders dropped in February by the most on record as snowstorms on the East Coast limited prospective buyer traffic, according to the National Association of Home Builders/Wells Fargo sentiment gauge released this week.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Refinances Seen Falling to 38 Percent Market Share in 2014

Feb 4 2014, 1:16PM

Homeowners who refinanced through Freddie Mac in 2013 continued to display fiscal restraint, choosing fixed rate mortgages, keeping essentially the same mortgage balance, and in many cases opting for shorter-term loans to build equity more rapidly.  In doing so homebuyers who refinanced during the year will save approximately $21 billion on net over the first 12 months of their new loans.

The results of Freddie Mac’s fourth quarter refinance analysis showed borrowers are continuing to take advantage of low rates, with the refinancing shaving an average of about 1.5 percentage points off of their old rate; or an average reduction of 25 percent.  On a $200,000 loan this translates into $3,000 in interest over 12 months.  Homeowners who refinanced through the Home Affordable Refinance Program (HARP) benefited from an average rate reduction of 1.7 percentage points and will save an average of $3,300 in interest during the first 12 months.

Thirty-nine percent of those who refinanced during the fourth quarter of 2013 shortened the term of their loan compared to 37 percent in the third quarter.  This was the highest percentage since 1992.  Homeowners who refinanced through HARP continued to take advantage of incentives offered by the program to shorten loan terms with 42 percent choosing to do so compared to 35 percent of those financing outside of HARP.  Only 5 percent of borrowers picked longer loan terms for their new loans.

Only $6.5 billion in net home equity was cashed out through refinancing in the fourth quarter compared to $7.1 billion in the third quarter.  . The peak in cash-out refinance volume was $84 billion during the second quarter of 2006. Another $6.1 billion was used to consolidate home equity loan balances into the first mortgage at the closing table.  About 83 percent of those who refinanced their first-lien home mortgage maintained about the same loan amount or lowered their principal balance by paying in additional money at the closing table. That’s just shy of the 88 percent peak during the second quarter of 2012.

During the entire year the total cash-out from refinancing was $32.1 billion compared to $320.5 billion during the 2006 peak.  Adjusted for inflation, annual cash-out volumes during 2010 through 2013 have been the smallest since 1997.

More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been. For example, 94 percent of borrowers who had a hybrid ARM refinanced into a fixed-rate loan during the fourth quarter. In contrast, only 3 percent of borrowers who had a fixed-rate loan chose an ARM.

The median age of a mortgage that was refinanced during the quarter increased to 7.0 years, the oldest median since Freddie Mac began its analysis.  The company said this reflected the duration of prevailing low interest rates; that is few homeowners who took out their mortgages within the last four year have much incentive to refinance.

Frank Nothaft, Freddie Mac vice president and chief economist said, “Our latest refinance report shows the refinance boom continued to wind down as the pool of potential borrowers declined and as mortgage rates increased during the second half of 2013. We are projecting the refinance share will be just 38 percent of all originations in 2014 as refinance falls off further and the emerging purchase market consumes a bigger piece of the pie.”

Freddie Mac’s refinance analysis is based on a sample of properties on which Freddie Mac has funded two successive conventional, first-mortgage loans with the latest being for refinance rather than for purchase. During the fourth quarter of 2014, the refinance share of applications averaged 56 percent in Freddie Mac’s monthly refinance survey, and the ARM share of applications was 10 percent in Freddie Mac’s monthly ARM survey, which includes purchase-money as well as refinance applications.