Friday, September 23, 2016

The Impact of Prepayments Increasing

The flat earth society has members all around the globe.

While the industry is buzzing about how Wells Fargo has unfortunately killed any chance to reform the CFPB (i.e., cutting back its power or structure), and that whoever supposedly prepped Chairman Stumpf for this testimony should be terminated, recently I spent some time in Milwaukee visiting with the folks from Inlanta Mortgage. It was refreshing to hear them talk about "mortgage banking for grown-ups," and their mood reflected that of the industry: hopeful optimism that doing the right thing will prevail in the long run. Also going on in Wisconsin is evidence that the seasons are changing. Welcome to fall: yesterday, mid-day, was the autumnal equinox. In many parts of the nation leaves are starting to turn color and drop to the ground. And then what? The California Law Offices of Peter Brewer came out with a piece titled, "Real Estate Law Considerations for Fallen Leaves."

Another group of people have been prohibited from working in a segment of the industry. "The operators of an alleged mortgage relief scam that preyed upon distressed homeowners are banned from the mortgage loan modification and debt relief business under a court order obtained by the Federal Trade Commission. The order stems from a case called Operation Mis-Modification. According to the FTC, the defendants, operating under the fictitious names "2Apply" and "UW Solutions," falsely claimed they could lower consumers' mortgage payments and interest rates or prevent foreclosure, pretended to be affiliated with a government agency or consumers' lenders or servicers, and illegally charged advance fees - an initial $495, plus monthly fees that averaged about $399.

 There are a few things to note with "the big boys" out there. KB Home announced that the joint venture with Nationstar would be ending and Stearns Lending would be acquiring the JV. KB Home sold just over $1 billion in loans to the JV in 2015 which equated to around 9% of Nationstar's retail production for the year. Assuming a 1% net margin, the earnings hit for Nationstar is less than 5 cents a share. And this once again brings up the topic of joint ventures, MSAs, and the like.

 While we're on Nationstar, Moody's Investors Service has assigned provisional ratings to 35 classes of notes issued by New Residential Mortgage Loan Trust 2016-3 ("NRMLT 2016-3"). The NRMLT 2016-3 transaction is a securitization of $301.7 million of first lien, seasoned performing and re-performing mortgage loans with weighted average seasoning of approximately 158 months, weighted average updated LTV ratio of 55.5% and weighted average updated FICO score of 694. 80% of the loans have been always current in the past 24 months, and 23% of the loans in the pool were previously modified. Ocwen Loan Servicing, LLC, Nationstar Mortgage LLC, and Specialized Loan Servicing, LLC, will act as primary servicers and Nationstar Mortgage LLC will act as master and successor servicer.

 Remember that in August Ocwen, which is Newco spelled backward, had its servicer rating upgraded by S&P. Ocwen's servicer rating went to Average, from Below Average, giving it the minimum rating levels required under its subservicing agreements. S&P upgraded Ocwen's residential mortgage prime, subprime, special, and subordinate-lien servicer ratings to Average from Below Average, with a stable outlook. This follows S&P's downgrade in June 2015.

 And last week Ocwen Financial Corporation announced that, according to the recently released U.S. Department of the Treasury Making Home Affordable Performance Program (MHA Report), Ocwen is the leader in the Home Affordable Modification Program (HAMP). "In the second quarter of 2016, the Streamline HAMP program helped 7,811 families receive a loan modification. Ocwen was responsible for 4,112 or 53% of the total Streamline HAMP Modifications completed industrywide. Since the inception of the Streamlined HAMP modification program earlier this year, Ocwen has helped approximately 19,000 homeowners in need initiate a trail plan under the program."

 But there's more! Ocwen has granted a total of 324,939 loan modifications through the HAMP program - 20% of all completed HAMP modifications. It has completed 52% more HAMP modifications than the next best servicer. And it has granted 48% of all HAMP Principal Reduction Modifications completed industrywide.

 Ocwen (OCN) shares have rallied +88% quarter-to-date. Why? The positive resolution of several major risks. In June OCN settled a potentially damaging outstanding litigation against the company, and along with its 2Q16 earnings release OCN announced that it was in settlement talks with the California Department of Business Oversight (CADBO) and had reserved $15M toward a potential settlement. And has noted above in August, S&P upgraded OCN's servicer ratings to AVERAGE from BELOW AVERAGE, which substantially eliminated the risk that New Residential Investment Corp (NRZ) would be able to terminate OCN as subservicer on the $130 million of MSRs (mortgage servicing rights) on which the underlying "rights" belong to NRZ (as a result of its HLSS purchase). Importantly, the second leg of the regulatory risk reversal rally could come in the form of OCN achieving a settlement with CADBO and receiving permission from the NYDFS monitor to make a small MSR acquisition.

 If you like "dashboards," you may want to check out Moody's "Q2 2016 Originator and Servicer Dashboard." "The report features a spotlight article on how the Consumer Financial Protection Bureau's final amendments to its mortgage servicing regulations are credit positive for RMBS. It further looks at performance trends among both originators and servicers of US mortgage loans, and summarizes Moody's recently completed originator and servicer assessments."

 What does it say, or at least remind us of? Well, recent trends among RMBS loan originators include Five Oaks Aggregation Corp. and Two Harbors Investment Corp. announcing plans to discontinue their mortgage conduit aggregation operations, citing unfavorable market conditions. Lots of lenders out there are putting money into technology, improving their regulatory compliance, while more sophisticated data analysis is leading to better credit risk management and quality control. Additionally, some originators are replacing internal post-acquisition quality control loans reviews with feedback from whole loan investors and offering expanded credit products.

 "On the servicer front, despite negative financial news from Ocwen Loan Servicing, Ditch Financial and Nationstar Mortgage Holdings last quarter, each firm's overall ability to act as servicers remains unchanged, Moody's says. The 'servicer stability' component of the agency's assessments for all three is however 'below average.'"

 Should servicing for all conventional conforming loans be .250%? Perhaps not. The fee-for-service compensation structure, under which the status of a loan determines a servicer's base fee, continues to gain momentum. "The structure better aligns a servicer's costs with the performance of a deal, and facilitates the transfer of loans, should that become necessary. Moody's also notes that the expiration of the Home Affordable Modification Program at the end of this year will have a limited negative impact on RMBS issued in 2008 or earlier, with default rates following HAMP and proprietary modifications now similar after converging in recent years."

 While we're talking about residential mortgage-backed securities (RMBS), the industry keeps an eye on prepayments, and mortgage rates' impact on them. Refinancing activity tends to be the most sensitive to shifts in rates, but purchase volume may also increase as rates fall. Forecasting rates is notoriously difficult - no one has a crystal ball, and if LOs pay some service to predict the future for them, well, that's their business.

 But mortgage rates & costs may not fall much from here, or may drop below 3.5 percent only briefly. Many borrowers already refinanced when rates were low in prior years, including 2012 and 2013, which could damp the current wave. While refinancings are a positive for borrowers, they threaten to wallop investors managing mortgage bonds, which suffer when rates lurch unexpectedly.

 Few money managers have protected themselves for rates heading downward, especially since "experts" have been forecasting higher rates for years. Low rates certainly put owners of MBS at risk of faster prepayments. But the experts say that as long as mortgage rates remain above 3.5 percent, refinancing activity will probably stay muted.

 Mortgage prepayments, generally a good indicator of refinance activity, skyrocketed in August.  According to Black Knight Financial Services "first look" at its August mortgage data, the Single Month Mortality (SMM) or prepayment rate, fueled by post-Brexit interest rates, rose by 32 percent from July to hit a rate of 1.67 of all outstanding mortgages.  It was the highest SMM rate in more than three years. Keep in mind supply and demand determine mortgage rates!

 Although the agencies are well versed in "nudging" lenders to sell them whole loans instead of MBS, Fannie's trading desk sent out a note worth a skim. "To help assist you with the operational mechanics involved in trading, delivering and settling MBS securities with Fannie Mae's Capital Markets Pricing and Sales Desk we have created the reference document in the link below. The Capital Markets Operations Guidelines - MBS document provides descriptions of common processes, helpful hints and contact information useful in MBS transactions with the Desk.

 Who has time to watch rates these days? Plenty of people, and as hedging software continues to tell lenders to sell about 80% of their locks every day, the Fed continues to buy $1-2 billion a day using money from early pay-offs. U.S. Treasuries finished Thursday mostly higher and agency MBS "tightened" which means they did slightly better than Treasury securities: yesterday the 10-year improved nearly .375 in price, 5-year T-notes better by .125, and MBS better by .250. With the FOMC meeting over with, what's left for the financial press to discuss?

 Well, yesterday we learned that U.S. existing home sales slowed slightly. First-time buyers accounted for 31% of sales in August versus 32% in July and a year ago. To no one's surprise despite low mortgage rates, limited inventory & high prices continue to restrict existing home sales activity. We also learned that the Conference Board's index of leading indicators fell 0.2% m/m in August. And the FHFA Housing Price Index rose 0.5% m/m in July after climbing 0.2% in June - stronger than expected.

 Today for scheduled economic news there is nothing of consequence. Agency MBS prices are pretty much unchanged from Thursday's close, and the 10-year is at 1.62%.

Wednesday, September 21, 2016

Systemic First-Time Home Buyer Problems Persist

(Thank you to Stephen S. for this one.)

A farmer and his recently hired hand were eating an early breakfast of biscuits and gravy, scrambled eggs, bacon and coffee that the farmer's wife had prepared for them. Thinking of all the work they had to get done that day, the farmer told the hired man he might as well go ahead and eat his lunch too.
The hired man didn't say a word, but filled his plate a second time and proceeded to eat. After a while the farmer said, "We've got so much work to do today, you might as well eat your supper now too."
Again, the hired man didn't respond but refilled his plate a third time and continued to eat. Finally, after eating his third plate of food, the hired man pushed back his chair and began to take off his shoes.
"What are you doing"? the farmer asked.
The hired man replied, "I don't work after supper."

A Brad Pitt & Angelina Jolie split? Say it ain't so! It should be a private matter, but think of all the time they, and the press, invested in their relationship! What person in lending hasn't spent numerous hours on a loan, project, or deal, only to have it evaporate, leaving them to wonder, "What now? Who's going to pick up the pieces? Was it worth it?" Well, you're not alone

In some parts of the nation Hispanic home ownership is being watched very carefully, and lenders in those areas are very keen on capturing that business. Along those lines the National Association of Hispanic Real Estate Professionals (NAHREP) released an English-Spanish "Glossary of Real Estate Industry Terms," or, what I prefer to say, "Terminos de la Industria Inmobiliaria." "Unlike other glossaries, the English-Spanish Glossary of Real Estate Industry Terms provides both the technical translation for each term and colloquial terminology which are most often used by customers and practitioners."

 "In a recent NAHREP survey, top producing Latino agents and loan officers indicated that 40 percent of their transactions make use of Spanish at some point in the transaction, and as much as 25 percent of all transactions utilize Spanish exclusively as the means of communication with their clients."

 How about the flip side of this discussion? It is well known that buying real estate in good locations is a worthwhile investment because they aren't making any more land. Long term there's a very good chance your investment will increase. So, how about buying some real estate in Latin American countries? What are the top Latin American cities for real estate investment? Live and Invest Overseas came out with a new survey looking at just that. "A strong dollar coupled with expanding middle classes in some markets and windows of crisis opportunity in others make this is the best time in a decade to diversify into foreign real estate, specifically in Latin America," said Kathleen Peddicord, author and publisher of Live and Invest Overseas.

 The survey found that Cali, Colombia, as the most affordable on a per-square-meter basis. How this survey was conducted was it considered the cost in each market of a two-bedroom apartment of 75 to 100 square meters. Cali offers high-end gated communities in a country setting with a lively downtown. Next on the list in Granada, Nicaragua, followed by (yes) Medellin, Columbia. While many people associate this beautiful place with Pablo Escobar it is actually a pleasant city with parks and gardens. On the opposite side is Punta del Este, Uruguay, the most expensive. "Factors to consider when targeting a market for investment include the strength of the local economy, the rate of foreign investment, the diversity of the pool of buyers for eventual resale, the opportunity for rental yield, recent and planned infrastructure improvements, and, of course, price."

 Returning to the United States of America, historically speaking about a third of all home buyers are first time home buyers. As noted above, in some parts of the country the Hispanic segment is growing dramatically. And low interest rates and an improved job market have created a wave of prospective first-time home buyers - if they can find starter homes. Even IF builders can find land, and IF the fees and permit process is not too onerous, then they are often stymied by a lack of skilled construction labor. Nationwide, the inventory of homes costing $250,000 or less fell more than 12 percent between June 2015 and June 2016, according to the National Association of Realtors.

 The shortage stems from higher labor, land and building permit costs that have caused construction companies to focus on higher-end homes that bring more profit. In addition, institutional investors have sucked up the affordable homes by the thousands in select markets nationwide and converted them to rentals. Starter home inventory in key markets has really declined.

 But that's the supply. What about the demand? Younger workers and new families need a place to live, but do things work out credit-wise? Real average hourly wages of often debt-laden college graduates fell between 2000 and 2014, according to the Economic Policy Institute, while the Case-Shiller U.S. National Home Price Index jumped more than 25 percent, adjusted for inflation, over the same period.

 The fabled bidding wars have quieted down slightly, based on what I am hearing, in many areas. Families with kids are staying put for the school year. But over the past four years, the number of entry-level homes for sale (priced in the lower third of a local market) has fallen by 34 percent, according to a Reuters analysis of data compiled by listings firm Trulia. The market is even tighter in many cities like Salt Lake City (where the average number of starter homes on the market has fallen by 83% since 2012), San Diego (down 71.5%), Cambridge, Mass. and Portland OR (dropping more than 60%).

 Loan officers know that the current rental market in some places is actually their friend due to rent prices. The Census Bureau tells us that between 2006 and 2014 the number of single-family homes occupied by renters jumped by about 34 percent. Of course after the housing crash, institutional investors rushed to buy undervalued and foreclosed homes and convert them to rentals. Corporations or companies now own nearly one fifth of all homes priced under $300,000 that are not occupied by their owners, according to property data firm ATTOM Data Solutions, parent of RealtyTrac, though investor purchases have slowed since peaking in 2013.

 Reuters reports that "at least five publicly traded real estate investment trusts in the U.S. exclusively own single-family rental homes. American Homes 4 Rent (the largest publicly-traded REIT dealing in single-family homes) owns nearly 38,000 properties in more than 20 states. Blackstone has invested $8.7 billion in its 45,000-home portfolio since founding it in 2012."

 "Student debt?" you ask? Outstanding student loan debt totaled $1.2 trillion in the fourth quarter of 2015. Yowza! According to the NY Fed this is trailing only mortgage debt among all consumer debt categories. The average student loan monthly payment has jumped 50 percent in constant dollars, to $351, over the last 10 years. A survey released in June by the NAR found that 71 percent of non-homeowners who carry student debt said it had delayed them from buying a home. But heck, isn't that kind of obvious? How about those carrying any debt at all? Remember the source...

 As student loan debt has mounted and young-adult homeownership rates have fallen over the past decade, considerable attention has focused on the nexus among student loans, education, and homeownership. But most believe that the benefits of attaining a college education outweigh the downsides of student loan debt when it comes to achieving homeownership. (When did "achieving" become attached to buying a house?)

 What about Mom & Dad helping out? The intergenerational channels by which parental resources affect their children's homeownership status have not been fully separated from the roles of their children's education and other endowments. Parental wealth enhances children's chances for homeownership through direct financial assistance around the time of home purchase. But don't forget parents ponying up the money for college in many cases. And then higher education supports higher earnings and thus provides a financial foundation for buying a place of their own.

 Fannie Mae weighed in. "Without knowledge of parental resources, children's educational attainment might assume an exaggerated importance in homeownership achievement. If, however, education has an effect that is independent of parental resources, it would suggest that public policies to promote higher education could have the added benefit of promoting greater homeownership attainment.

 "Perhaps the most striking finding of the study is how little the education effect on homeownership is dampened when parental resources are controlled. Including parental endowments reduces the association between education and homeownership for adult children by less than 2 percentage points. This finding suggests that the educational boost to homeownership is largely independent of the parental resources that may have helped increase education. The implication of finding this independent education effect is that homeownership attainment could be increased via policies that promote higher education and increase human capital."

 Switching to interest rates, it was pretty quiet out there in the ol' bond market Tuesday as the financial press continues to focus on the results of the Federal Reserve's Open Market Committee meeting due out later today. In one corner you have recent financial news showing that the U.S. economy is doing well, but not great, and the world's economies which aren't doing much of anything. And in the other corner you have the presidents of the various Fed districts, basically saying, "Don't be surprised if you see a short term rate increase." And although it seems like the Japanese economy hasn't done much in decades, especially as its population continues to decline, we will also have the Bank of Japan's decision on that country's rates.

 For those numerically inclined, Tuesday the 10-year note price improved nearly .125 closing at 1.69% whereas 5-year T-notes and agency MBS prices were pretty much unchanged.

 The highlights of the week will surely be today's Bank of Japan and FOMC decisions. The BoJ is switching away from its previous bond-buying goals in favor of a 10-year interest rate target near zero percent.

 The FOMC will release its statement at 2PM ET, 11AM PT, followed by Fed Chair Yellen's press conference. The market is expecting the Fed to leave rates unchanged despite mostly hawkish rhetoric from the majority of Fed speakers. We've seen the MBA's number crunching on 75% of last week's retail applications (apps fell over 7% with refis down 8%). Tuesday the 10-year closed at 1.69% and this morning it is sitting around 1.68% with agency MBS prices close to unchanged.

Tuesday, September 20, 2016

Non-Agency Primary and Secondary Market Trends

"Some people have a way with words, and other people...oh, uh, not have way." - Steve Martin

Bill C. writes, "I found a new pitchman for the mortgage industry (at least in Russia). President Vladimir Putin advises people to take out mortgages right now." Hey, why wait for rates to drop below 11% for that little dacha in Volokolamsk?

Non-agency & jumbo happenings in the primary & secondary markets? Sure there are. Most of the non-QM or non-agency (e.g., jumbo) loans are going straight into portfolios. And staying there. But there are shifts in the non-agency biz that borrowers are seeing.

 US Bank's Bulletin 16-039 stated its JUMBO LPMI Loan Level Price Adjustment Changes take effect for any locks taken on or after September 7th. Re-locks on existing Jumbo LPMI loans will also be subject to the new loan level price adjustments.

 Elite Jumbo LLPAs for cash-out and ARMs in the state of California will be updated for locks on or after September 6. Check with Plaza Wholesale for details.

 For Non-Agency loans submitted to AmeriHome for Eligibility Review, if the review is suspended for incompleteness (showing Pended status in Seller Portal), all items needed for completion must be received within 10 calendar days of the suspension date, in order to maintain the loan's priority in the underwriting queue.

 The new mineral, gas, and oil rights requirements apply for AmeriHome 's transactions with new locks taken in the Core Jumbo, Non-Agency Hybrid ARM, and Expanded QM programs.  

NationStar Mortgage has updated its Seller Guide.Click here to download the complete update.

 Impac Mortgage offers an alternative documentation program with realistic guidelines to help borrowers qualify which includes qualification using 12 months of bank statements. Click here to view program guidelines.

 And there wouldn't be much of a primary market if it weren't for the secondary markets being driven by investor interest. There's never been a lack of demand for agency products. But what about securities backed by loans "a little off the beaten path?" Lenders are working with different structures to both increase the supply of residential mortgage-backed securities and to relieve concerns of investors who fear that all the problems with securitization haven't been addressed.

 Last month Angel Oak issued a non-QM security. Earlier this year, J.P. Morgan Chase & Co. issued securities that included insurance that would protect the investors in the securities. Other RMBS (residential MBS) alternative structures include securities of the mortgages of single-family rentals and repackaging pre-crisis RMBS into new securities. Invitation Homes, Colony, Starwood, Silver Bay, Blackrock, and Blackstone Group have all issued rental home securities, with a portion of the rents paying bondholders. The market for rental home securities, however, is not as large as that of the non-agency market. But the demand is there.

 And there is, in some cases, a change in the way the loans are underwritten. For example, instead of analyzing the borrower's creditworthiness, Colony American Finance bases its decision on the income of the property being mortgaged.

 Following the private label RMBS market's peak in 2007 and the ensuing credit crisis, many consumers with marred credit or unique circumstances have been either barred from accessing housing credit, or have found the process extremely challenging for a number of reasons, including large institutional risk aversion and tighter credit standards influenced by regulation.

 Kroll Bond Rating Agency (KBRA) put out a piece noting that this appears to be changing. Through the re-emergence of more than a dozen non-prime mortgage origination programs that intend to use securitization as a funding source. To date, KBRA is aware of at least four securitization sponsors that have accessed the private label securities market across nine issuances, two of which include rated offerings.

 In the publication, "KBRA presents and discusses the defining characteristics, strengths and weaknesses of five primary sub-categories of expanded or non-prime origination including Expanded Prime, Prior Credit Event, Alternative Documentation, Business Purpose, and Foreign National." "Originations of such non-prime loans under sound compliance with the Ability-To-Repay (ATR) rules are expected to exhibit better performance than 2005-2007 vintage loans with similar credit parameters due to strengthened underwriting. Loans to borrowers with recent prior credit events will, in some cases, exhibit increased default risk relative to those which lack similar credit disposition activity, even where credit scores may indicate little differentiation. KBRA notes that particular attention should be paid to differences between non-prime and non-QM, as the two designations are different and are not necessarily linked. However, KBRA notes that where there is overlap between the two, the risk of higher loss severities can increase significantly due to greater potential likelihood of a borrower raising a claim that the originator did not appropriately consider the borrower's ability to repay, and the greater potential success rates of such claims."

 Upcoming events & training? There certainly are - and many are free!

 The free monthly conference call of the California Mortgage Bankers Association's Mortgage Quality and Compliance Committee (MQAC) is this Thursday at 11AM PT. The topic is "New CFPB Servicing Rules; New FHA Servicing & QC Requirements" and the speaker is Nicholas Corpuz, VP of Servicing Oversight, MQMR."The webinar will cover CFPB Servicing Rules: Highlights and Low Lights for Servicers, FHA Servicing QC Changes and Highlights, and Highlights of Forthcoming QC and Servicing Rule Changes." Register here.

 MBA Education is hosting a one-day workshop on September 28th designed to cover the overall aspects of appraisal underwriting for conventional and government loans. Attendees will have the opportunity to engage in an open forum to discuss appraisal analysis and best practices for leveraging technology.  The workshop is being instructed by Alice Alvey, CMB, of Indecomm Global Services and Zachary Dawson, Director of Collateral Strategy, Fannie.

 MBA Education is also hosting a FFIEC Cybersecurity Assessment Tool Deep Dive Workshop on September 27th.  Join MBA and leading cybersecurity experts for an exhaustive and interactive conversation on how to successfully implement and use the tool for your unique business needs.

 Do you want to learn about the MERS System and its supporting processes in a live training environment? If so, mark your calendar for one of the MERS® Regional Workshops! You'll be able to ask questions of MERS® trainers and interact with other MERS® System members. These interactive half-day workshops will be located in the following cities: Western Region | Salt Lake City, UT | October 5, Northeast Region | Glen Allen, VA | November 10, Southern Region | Dallas, TX | November 17. Registration is only $95 per person and includes the training, resource manual, and a continental breakfast. 

 On September 28 major foreclosure reform becomes effective in the State of Ohio. The legislation provides for a fast-track foreclosure process for vacant and abandoned property, as well as improvements in the sheriff sale process in general. On October 14th, Brian Deas from the Manley Deas Kochalski Law Firm will conduct a 1-hour webinar on the important provisions of this legislation.

 The CFA Society of LA is running another MBS Boot Camp on Thursday and Friday, October 6th and 7th.  It's two full days of training and information on the MBS product and markets, and is "designed to introduce participants to the broad variety of mortgage and MBS products, explain technical aspects of MBS performance, and demonstrate why and how different types of MBS structures are created." Here is a link to the Society's web site, where details on the curriculum and registration information can be found.

 Sun West offers live 203k training webinars. Click Here to view is training calendar.

 The Washington Association Mortgage Professionals (not-for-profit) is having its annual conference October 13th and 14th TECH conference, the NW MORTGAGE EXPO & REAL ESTATE SUMMIT; Your Business of Tomorrow. All the information you need plus registration details is available here.

 Sign up for Zillow's "Overcoming the Toughest Hurdles: Advanced Best Practices for Mortgage Contact Conversion." In this October 5th webinar, Zillow Group Mortgages will be addressing some of the toughest situations that mortgage professionals face with online lead generation and conversion. Registration is currently open.

 Lenders around the nation had a wonderful August, but how is the autumn shaping up. Most seem to be talking about a gentle decline this month. And Fannie's trading desk reports it is hearing of a tapering off of lock volumes last week, down 15-20%, with Monday being the largest lock day. "Seasonal activity and higher rate ranges are the primary drivers of the rate lock declines." This shouldn't come as a shock to anyone, and CEOs and heads of production with their eyes on horizon are thinking about locks taken now closing during the holidays, maybe even in 2017.

 In terms of rates, U.S. Treasuries, and securities backed by mortgages, traded in a tight range Monday with no news of substance to budge them. We saw the usual Fed activity, in buying agency MBS as entirely expected and forecast, and the usual sellers, and hedgers trying to pick up the mandatory versus best efforts spread (30-40 basis points). We began the week with the 10-year closing at 1.70% and MBS prices worse a tick.

 Today we'll have the Senate's hearing on Wells Fargo's retail business practices. While not directly impacting mortgages, the hearings will be followed. As Joe Garrett put it on the subject of sales quotas, "There is nothing wrong with quotas. What was wrong was the lack of ethics and inadequate controls to make certain no one cheated."

 We've already had all the schedules news we're set to receive: August Housing Starts and Building Permits (-5.8% and -.4%, respectively, weaker than expected - mostly in the South). We've also had Philadelphia Fed's non-manufacturing PMI for September (16.7). After that we find the 10-year at 1.69% and agency MBS prices a smidge better.

Monday, September 19, 2016

Conventional Conforming Program Changes Just Don't Stop

Of course, to err is human; to arr is pirate.

You've made it to "Talk like a Pirate" day. Many lenders are saying, "Arrggghh" when it comes to appraisals. Mike Simmons with Axis AMC put some things in perspective. "Fannie Mae...sees approximately 90% of all residential lending appraisals - even some by credit unions and small banks who portfolio loans but (strategically) may one day want to sell them to outside investors. Fannie Mae identifies only some 40,000 unique appraisers who deliver all of those loans (and) are responsible for doing nearly 90% of the vast number of loans FNMA sees. Given that we vacillate between estimating the resource of available appraisers to be somewhere in the neighborhood of 75,000 to 85,000, this is startling information." Let's change the requirements for entry!

In company news Impac Mortgage Holdings, expected to hit $12 billion in originations this year, entered into an underwriting agreement with JMP Securities agreeing to issue and sell 3 million shares of common stock, $0.01 par value per share, at a public offering price of $13.00 per share. Not only that but JMP has a 30-day option to purchase up to an additional 450,000 shares of common stock. CEO Joseph Tomkinson explained that the roughly $36 million in proceeds from this offering, expected to close this week, will allow the company to execute on its core growth strategies, which include continuing to expand its origination and servicing platforms and to retain valuable MSR assets.

 While we're on MSR assets, the servicing market has settle down a little, more is still subject to price fluctuations which impact borrower's pricing. And the packages out for bid continue. Prestwick Mortgage Group is the exclusive broker for a well-capitalized mortgage bank who is offering a $360 - 480 Million Fannie Mae Texas and Louisiana concurrent flow servicing offering. The monthly concurrent flow will be for $30-40 Million, and will be 100% Fannie Mae A/A, $225,000 average loan balance, 45% Texas and 45% Louisiana, 70% Retail and 30% wholesale. Bids for this package are due Thursday, September 22, 2016, at 5:00 PM EDT. Incenter Mortgage Advisers recently went to market with a $191 Million Fannie Mae and Freddie Mac bulk residential MSR package, consisting of 30, 25, 20, 15 and 10-year fixed rate mortgages. There was an additional offering of $50 - $75 million per month of Fannie/Freddie Co-Issue on behalf of the Seller. This created a potential offering of a $1 Billion in Fannie Mae and Freddie Mac servicing over the next 12 months. The package had a weighted average coupon of 4.116%, $240k average loan size, 734 WaFICO, 76.7% WaLTV, with FL, NJ, MD, and CA being the top states. Phoenix Capital's recent offering: a $345M 100% FHLMC ARC 58% Fixed 30, 41% Fixed 15, (F30) Note Rate; 3.24% (F15) Note Rate 0.250% wAvg Net Service Fee Avg Bal $231K  Geography: 26% PA, 20% NJ, 14% MA, WaFICO 759; WaLTV 74% 2.15% HARPs, 91% Single Family/ PUD Properties, 92% Owner Occupied, 42% Purchase, 83% retail originations.


MountainView Servicing Group, LLC is offering up a $3.26 billion FHLMC/FNMA non-recourse servicing portfolio. "The seller is also interested in selling up to $200 million a month of their conventional production on a co-issue basis with the winning bidder. Written bids are due Friday, September 23rd at 5PM ET. What's inside of it? 99.9 percent fixed rate and 100 percent 1st lien product, weighted average original FICO of 759 and weighted average original LTV of 74 percent, weighted average interest rate of 3.62 percent (3.91 percent on the 30yr fixed rate product), average loan size of $217k, primarily from the Southeast.

 Speaking of Freddie Mac and Fannie Mae, and conventional conforming changes...

 You have 15 months to prepare for the new, longer & more extensive, loan application. AnneMaria Allen with The Compliance Group sent this note along addressing the Uniform Residential Loan Application (URLA - Fannie Form 1003/Freddie Form 67) and its new data fields for increased reporting under the Home Mortgage Disclosure Act (HMDA). The new version includes simplified terminology and a clearer set of instructions for users, according to the GSEs. This, in turn, will help borrowers complete the loan application with less help from the lender. As part of the project, the GSEs worked together to create a common corresponding data set, called the Uniform Loan Application Dataset (ULAD), to ensure consistency of data delivery. Lenders may begin using the redesigned forms on Jan. 1, 2018; however, as of right now, there is no deadline set for their required use.

 AnneMaria observed, "The changes are primarily good. From a compliance standpoint, of course the HMDA changes are needed. The URLA is the primary form in which we collect all of our data. It tells us the story we need to know about the borrower. The better documented the story is, the faster it speeds up the lending process." 

Of course this will require major system upgrades, especially since the URLA hasn't changed in years. As Ms. Allen noted, "There are so many components tied within the application that certain changes will affect other areas, and sometimes you don't even realize they will affect another area until they do. The application is the heart of the loan process, so our industry is literally having a heart transplant."

 What do they know that we don't about the direction of interest rates? Freddie Mac and Fannie Mae have recently updated their ARM notes and riders to include new language that imposes a lifetime floor rate. The new language prohibits the interest rate for ARMs from falling below the loan's margin. The revised Freddie Mac and Fannie Mae ARM notes and riders must be used for all Agency mortgages submitted to U.S. Bank with note dates on or after October 1. The effective date for changes to U.S. Bank Portfolio ARM products will be announced at a later date.

 Fannie Mae's Servicing Guide has been updated to include changes related to the following: Foreclosure Time Frames and Compensatory Fee Allowable Delays Exhibit, Mortgage Insurer Delegations for Workout Options and Form 3179 and Form 181 Loan Modification Agreement Instructions.


During the weekend of November 5, Fannie Mae will deliver new whole loan committing grids and implement an update PE. Fannie is enhancing the current offering of committing grids, introduced earlier this year, with 11 more committing grids for 15-year, 20-year, and 30-year commitments. 

 Fannie Mae has three releases planned for EarlyCheck. The first two releases (October 15 and November 19) involve new edits, changes to edit severity, and edit deactivations. To help you begin planning, Fannie is providing advance notice of the January 21, 2017, release which will move numerous credit eligibility loan-level edits upfront in EarlyCheck from downstream acquisitions systems.

 On November 21, new credit eligibility edits will be available in the Fannie Mae Loan Delivery application. These same edits are experienced today post-submission, requiring lenders to work with the Acquisitions team to resolve. On October 3, these edits will be available in the Loan Delivery Test Environment (LDTE). Reference the Release Notes or attend a live webinar to learn more about this release, and other updates in Loan Delivery.

 Wells Fargo has removed its overlay of Maximum Loan Amount on Guaranteed Rural Housing (GRH) Loans. Also, its Relocation requirements overlay on Conventional Conforming and non-conforming have been removed.

 Effective with ARM Notes issued on or after October 1, PennyMac is aligning with Fannie Mae and Freddie Mac and will be requiring the use of the ARM Notes and Riders with a revision date of 6/16.

 Sun West has updated its manual underwriting guidelines specifically for the review of a borrower's credit. The updated guidelines include additional information on how various risk factors associated with a borrower's credit are analyzed during a manual underwriting review. To access the updated guidelines, please click here. Also noted, Sun West is aligning its guidelines for Multiple Financed Properties as per Fannie Mae announcement SEL 2016-03. The revised policy is effective for loan submissions after 06/30/2016. The updated guidelines can be accessed through its website.

 Flagstar has updated its Conventional Underwriting guidelines to reflect the overlay requiring the credit report to be dated within 60 days of underwriting has been changed to 75 days within the date of underwriting. On the date of the loan application, the borrower's existing mortgage(s) must be current, which means that no more than 45 days may have elapsed since the last paid installment date on the credit report. If more than 45 days have elapsed since last reporting, it is required to document the mortgage is current.

 AmeriHome posted on 9/8/2016, a REVISED incident period end date of October 2, 2016, was noted on the FEMA website for DR-4277, Louisiana Severe Storms and Flooding. In addition, AmeriHome's Seller Guide and Agency program guides are updated with changes to support Freddie Mac 2016-11 & 2016-12, including new financed MI requirements, and Fannie Mae SEL 2016-05, including new VVOE requirements and universal Notes and riders.


Fifth Third Correspondent's weekly communication reiterated Fannie Mae's guidance and requirements for personal accounts as no longer applicable for business accounts.  Instead the Underwriter must analyze deposits into business accounts to determine reasonability based on evaluation of the business cash flow. Also, The Federal Housing Finance Agency directed Freddie Mac and Fannie Mae to extend the HARP Program to provide borrowers additional opportunities to refinance their current loans.  The new loan must have an application date on or before September 30, 2017.

 The bond market? Friday was somewhat quiet as U.S. Treasuries were either unchanged or slightly lower in price in a curve-flattening trade after reports showed that U.S. consumer price inflation ran hotter than expected in August. (The main theme of this week in Treasuries has been the steepening of the yield curve as investors questioned central banks' commitment to asset purchases.) But agency MBS closed narrowly changed in price, and tighter on spread. We ended the week with the 10-year's yield at 1.69%.

 But this week should be interesting indeed. In Japan the Bank of Japan will meet to discuss monetary policy decisions, and in this country the FOMC (Federal Open Market Committee) meets as well to discuss baseball's wild card race. (And also possibly raising short term rates.)

 Jobs and housing drive the economy, and this week we'll have a load of housing news starting with today's NAHB Housing Market Index for September. Tomorrow is Housing Starts & Building Permits. Wednesday is more mortgage-related news with the MBA's application data. But at 2PM ET (11AM PT) we have the FOMC's announcement, FOMC Forecasts and Fed Chair press conference. Thursday has the usual jobless claims, along with yet more housing news with the FHFA Housing Price Index and Existing Home Sales. Friday closes out with Leading Economic Indicators and the PMI Manufacturing Index.

 With little in the way of economic news over the weekend, this morning we're at 1.68% on the 10-year and pretty much unchanged on agency MBS prices.

Wednesday, September 14, 2016

Primer On Angel Oak's Non-Agency Deal

(Thanks to MT for this one.)

"Will you marry me?" = A marriage proposal.

"Will, you, Mary, me?" = a foursome inquiry.

(Yes, punctuation matters.)

With my current travel taking me through Florida, Milwaukee, and now Savannah, geography is on my mind and yesterday I noted that Maine is the only state with one syllable. This prompted stickler Doug B. to counter with, "Actually, ALL states have 1 syllable; 49 of them have additional syllables as well." In nearby 4-syllable Alabama, Regions Bank has agreed to pay more than $52 million to resolve yet again another FHA set of allegations.

Time flies, and National Mortgage Professional Magazine and Mortgage News Network are returning with their successful holiday networking parties! On Tuesday, December 6 they celebrate in Irvine, CA, they continue on Thursday, December 8 in Sunrise, FL and wrap things up on Thursday, December 15 in their hometown - Long Island, NY. The parties start off with complimentary business building workshops for mortgage professionals. Then the party begins with a relaxed trade show atmosphere with holiday music, food and festivities. They are looking for sponsors for all three of their party locations. If you would like an opportunity to network with mortgage professionals while celebrating the festive holiday season, a sponsorship is great fit for you! Click here for more information and to secure your sponsorship today or contact Beverly Bolnick, V.P. Sales and Marketing (516.409.5555, ext. 316).

 In wholesale news, M&T announced a "renewed commitment to the Wholesale lending channel," re-engineering its workflows. M&T's Business to Business Lending Center, found at, is being enhanced to include information for the Wholesale lending channel. "We have put together a comprehensive program manual to assist our Broker customers in conducting business with us. This manual can be found within the MEME InfoCenter on the tab titled 'Wholesale Program Manual.' As always brokers should read the bulletin for details such as, "It is M&T's policy that we will prepare the initial and all subsequent Loan Estimates on all transactions" and "M&T does not charge an Origination Fee for any loan program."

 As lender rely more and more on specialization to help them during the lending process, vendors are increasingly taking a dominant role. Let's see what some have been up to lately.

 Mortgage Coach, ranked the #1 Mortgage App by USA TODAY, launches the availability of seamless integration within LoanEngage from Velocify tomorrow. "You are invited to have a first look at a new approach to automated marketing for modern mortgage lenders. Join President of Mortgage Coach, Joe Puthur, and Director of Business Development for Velocify, Chris Backe, for an overview of 5 key retail lending trends and demonstration of this innovation. Sign up here to see how LoanEngage can help more borrowers make a confident decision with the Mortgage Coach integration."

 Equator, a provider of default software solutions, announced the launch of Equator Agent Elite, a premium suite for REO real estate agents that adds transparency and actionable insight to the REO market. Equator Agent Elite provides agents with access to Equator's local market data and insights, platform and REO certification, real-time notification of new REO assets and communication capabilities with servicers. Agents now have the opportunity to utilize Equator's evolving tools and market intelligence to help drive their business growth and gain a competitive advantage in today's data-driven REO marketplace. Equator Agent Elite is designed to help REO real estate agents stand out and land more REO business by providing a deeper understanding of local market activity, platform certification and facilitating proactive communications with servicers.

 Interactive Mortgage announced its partnership with Lendsnap "in creating a truly interactive borrower experience. Interactive Mortgage believes this partnership will not only help to accelerate our growth but push the mortgage industry to automate and offer the borrowers a better lending experience. Lendsnap automates borrower documentation during mortgage application by linking to borrower financial and employer accounts, enabling quick and secure collection of W2s, pay stubs, banks statements, and full tax returns. (Contact Mike Romano for more information.)  Interactive Mortgage is currently located in Orange with a move planned to its new 40,000 sq. ft. headquarters within the next 30 days. (Interactive Mortgage is always looking for quality employees and offers employment both in house as well as remote.  Contact us today at

 AFR's MyLoanCenter is a FREE, white-label technology solution that will streamline the way brokers communicate with their customers, offering customizable options to provide optimal service. Complete with real-time updates, innovative features, and mobile-friendly experiences.

Visit American Financial Resources, Inc. website for more information.

 Roostify announced that its company has joined the Preferred Partner Network for The Mortgage Collaborative, an independent mortgage lending network. Roostify provides lenders with a complete digital mortgage platform from application to closing which can be platform can be accessed from anywhere, including a mobile device. Consumers can complete a mortgage application in under 20 minutes through Roostify's intuitive interface, then submit, review and sign all documents and disclosures from within the Roostify platform, with real-time updates from their loan officer. The digital document and communication tools allow lenders to automate time-consuming manual processes and focus more time on closing loans.

 FirstClose announced that Holston Methodist Federal Credit Union has selected The FirstClose Report for its Home Equity Lines of Credit (HELOCs) and Home Equity Loans. With instantaneous title search, flood certification, valuation and property information with lien protection insurance. The FirstClose Report delivers all necessary documents instantly, which allows lending operations to reduce closing times from 40+ days to less than 10 days, reduce costs by an average of 40% and reduce risk with $500,000 of A+ XIII rated lien protection insurance per loan. In other news, First Lenders Data (FirstClose) has aligned with Dart Appraisal allowing home equity lenders an expanded number of appraisal vendor options when they order the patent-pending FirstClose Report, an instantaneous data delivery solution that gives lending operations title search, flood certification, valuation and property information with $500,000 of A+ XIII rated lien protection insurance.

 Indecomm announced that its InteleDoc Direct (IDD) eRecording Platform with Recopedia has been integrated with the ResWare title production platform. This collaboration brings Indecomm's latest innovations with the Recopedia toolkit, to ResWare's title platform. Indecomm is the only company in the industry to enhance a web-based eRecording platform with a toolkit that provides current county specific requirements and fee calculations for all real estate document recordings, rather than just prompts and tips about eRecording only county requirements. The inclusion of this breakthrough technology into ResWare will dramatically boost the efficiency of title agents, enabling them to meet all their business processing and recording needs in a single platform.

 The markets, and in turn lenders and LOs, have been watching the non-agency markets with rapt attention. Banks and portfolio lenders, for the most part, have been perfectly happy to add non-agency (jumbo and non-QM jump to mind) loans to the asset side of their balance sheets. They shouldn't forget, however, that late last month Angel Oak announced a $132.65 million securitization of non-agency residential mortgages. AOMT 2016-1 was a $132.65 million securitization primarily backed by non-Qualified Mortgages (non-QM), and was Angel Oak's second securitization.

 As lenders know, investor demand drives the primary markets. Angel Oak Capital's two securitizations are primarily backed by mortgages originated through the firm's two affiliate residential mortgage lenders -- Angel Oak Mortgage Solutions LLC (wholesale) and Angel Oak Home Loans LLC (retail). Angel Oak Capital (through one of its accounts) retained 5 percent of the offered securities, to satisfy risk retention requirements of the Dodd-Frank Act, and 100 percent of the remaining classes of subordinate securities.

 CEO and CIO Sreeni Prabhu stated, "Our lending platforms are on pace to originate approximately 3,100 loans totaling approximately $800 million by year end. Angel Oak Capital will continue to selectively purchase the loans we feel fit best within securitization parameters and meet investor requirements." And Capital Markets' John Hsu followed with, "There is a stark difference between the collateral in our non-prime loans today and the subprime products issued prior to the financial crisis. Today's loans adhere to the 'ability-to-repay' (ATR) regulation and require significant down payment."

 Keeping on with the markets, we did see some intra-day volatility Tuesday, resulting in price changes from lenders, and by the time the dust settled things were markedly worse, in both stocks and bonds, to where they were Monday night. It didn't help that the $12 billion reopened bond auction was poorly bid, and the supply of corporate debt being sold kicked in. A piece from Cantor Fitzgerald noted that, "All-in-all no one reason for today's sell-off but the reversal in EGBs (10 year bunds back to 7 cents), supply (both Treasury and IG) and technicals as we have broken support all played a part."

 But the NY Fed will continue to buy about $11 billion per week, rain or shine, using money from prepayments. The 10-year note worsened .5 in price ending with a 1.73% yield and the 5-year worsened by .250. Mortgage-backed securities fared better, worsening only about .125.

 Leading up to tomorrow, which is a huge news day, we've already had the MBA's retail application figures for last week announced through CNBC: +4.2% with purchase apps +9%. We've also had the August import and export prices (-.2%, -.8%, respectively). The 10-year's yield is 1.71% with agency MBS prices better by .125.