Friday, May 27, 2016

TRID Costs Continue


Memorial Day is a federal holiday in the United States for remembering the people who died while serving in the country's armed forces. But this week news came of a different sort, and thanks to Josh F. for sending along word that after 70 years of waiting, WWII 'Memphis Belle' gunner Air Force Master Sgt. Melvin Rector, 94, revisited Britain - and died quietly there. "U.S. Air Force Master Sgt. Melvin Rector long carried Britain in his heart after he helped defend it during World War II, but 70 years passed without him stepping foot in the country. The 94-year-old finally decided to leave his home in Barefoot Bay, Fla., to visit Britain earlier this month. The National World War II Museum in New Orleans conducts a travel program through which interested parties can visit certain sites of the war. He signed up for one..."


Do you think your company's computer system is immune from hacking? It's not a matter of "if" but "when" - just ask Equifax about its data breaches hitting the press. Not only that, but one can buy practically anything on the internet: hackers are selling 117mm LinkedIn passwords on the web. Hackers will likely use such data to mine it and then gain access to email and bank accounts (because so many people reuse passwords for their various accounts). Change your passwords regularly (like from "Passwerd" to "abc1234") and don't use the same one for every account. The largest bank in Africa, Standard Bank Group Ltd., reports it has lost $19 million due to a sophisticated attack carried out in Japan: thieves forged 1,600 cards and withdrew money from 1,400 ATM machines all over Japan within two hours.

This week I have been discussing Section 342 of the Dodd Frank legislation. Section 342, part of the Dodd Frank legislation, continues to be a topic of conversation in some quarters of financial services. You can read the details here. CFPB's Office of Minority and Women Inclusion (OMWI) has spent the last several years ensuring that the Bureau conforms to inclusion policies mandated in 2010 by Dodd Frank. Now it says it is turning its attention to the entities regulated by the CFPB: "OMWI has begun work on plans related to the new standards, including creating processes and procedures for entities to voluntarily assess and report on their internal diversity and inclusion." So if your company is not taking extra steps to hire women- and minority-owned businesses, you should probably pay attention.

 AnneMarie Allen, CEO and president of The Compliance Group, writes, "In my opinion 342 of Dodd Frank is hardly recognized...not totally surprising. I will say, though, that some of our bank clients do ask us if we are minority owned and also some of the Federal Home Loan Banks - mortgage lenders (non-banks) have not asked.

 "Growing up with parents who immigrated to the United States taught me several character traits, but two that always stick in my mind and have sincerely helped me build a successful business: perseverance and honesty. My mom said never give up and my dad always said your word means everything. First and foremost, don't get caught up in the fantasy of having more personal and financial freedom any time soon...that doesn't come for many years.  You gotta do the time - hence keeping perseverance close and when you start earning clients- remember, your word means everything. For The Compliance Group, our biggest challenge in the 17 years in business was surviving the financial housing crisis. Part of our survival was our ability to not overspend in the previous good years and operate conservatively - many startup businesses don't have a business plan and in particular don't save for a rainy day. Our industry requires a keen eye on the market and the ability to maneuver through many various cycles quickly.

 "What did Benjamin Franklin always say? 'By failing to prepare, you are preparing to fail!' There are some specific areas to keep at the forefront of your mind. Secure outside legal counsel for contracts and human resources. Secure a good CPA firm (Taxes...taxes...taxes, don't be blind sighted). Make sure you set up the right corporation (S Corp, C Corp, LLC). Cash Flow, Cash Flow, Cash Flow (this really should be #1). Be strategic and thoughtful about who you are as a company and master it - you can't be everything to everyone. Hire smarter people than you. Your employees and your clients are your greatest assets. Marketing strategies are very important. Budgets are a work in progress and flexible but don't deviate significantly. No good deed goes unpunished - run your business like a business.

 "For me some of the greatest benefits of owning a company have been creative independence, but remember, not everything ends up being a win so you either re-work it and try again or know when to fold it! In any industry, especially the financial services industry, relationships are key. It's a big industry but small...if you know what I mean. Take the time to cultivate your relationships, listen to your clients, care about your services, take care of your employees it is again...your word means everything. Take the time to determine if a client is a good fit for your organization. Sometimes, we get caught up in the win but at the end of the day that win just turned into your greatest nightmare. Understanding a potential client's company culture and each other's differences are vital. It's important to know who you are doing business with and make sure it's a win-win for both organizations."

 Do you think your company is too small to be on the CFPB's enforcement radar screen? Think again - individual loan officers are not immune from enforcement actions. The Consumer Financial Protection Bureau (CFPB) fined former Wells Fargo employee, and until recently Bank of America employee, David Eghbali $85,000 and banned him from working in the mortgage industry for a year for an illegal mortgage fee-shifting scheme. It seems that from late 2013 through early 2015 Eghbali had an arrangement with New Millennium Escrow Inc. that allowed him to manipulate the prices his customers would pay for escrow services.

 New Millennium would reduce its fees for some of Eghbali's customers and make up for its loss by adding fees to loans for other customers. This, per the CFPB, ultimately increased the number of loans Eghbali closed, boosting his commissions at the consumer's expense. Eghbali, who served as a loan officer at the Wilshire Crescent branch in Beverly Hills, California, referred more than 100 loans to New Millennium, the consumer bureau said. Per his Linkedin profile, he worked for Wells for years, left a year ago and went to BofA, and then was terminated by BofA this month.

 Does all this regulation cost money? Sure it does. A while back a study titled, "Government Regulation in the Price of a New Home" by Paul Emrath, Ph.D., VP of Survey and Housing Policy Research for the National Association of Home Builders (NAHB), estimates that 14 million households are "priced out" of the market due to regulation. The report showed that government regulations increase the new home price by an average of 24%, or an additional $84,561. Granted, the study was done for & by the home builder group, but this number is up significantly from 2011 when regulatory costs were $65,224. This phenomenon prices out households so they no longer qualify for a new home mortgage because of higher prices.

 It noted that, "Regulations come in many forms and can be imposed by different levels of government. At the local level, jurisdictions may charge permit, hook-up, and impact fees and establish development and construction standards that either directly increase costs to builders and developers, or cause delays that translate to higher costs. State governments may be involved in this process directly or indirectly. Several states, for example, have adopted state- wide building codes. And although impact fees are imposed by local governments, such fees typically cannot be imposed without enabling legislation at the state level. The federal government can also impact the price of a home-for example, by requiring permits for storm water discharge on construction sites, which may lead to delays in addition to the hard cost of filing for a permit."

 Certainly the regulation-related changes being made by lenders and investors don't stop.

 A while back, due to the diverse interpretations of TRID regulations being applied by Rating Agencies, Due Diligence Firms and Investors, Caliber told its customers that it is "changing the process flow for all Caliber Portfolio Lending (CPL) products through our Correspondent Lending Division.  It is offering the ability to close CPL products in your name, with your funds, while Caliber performs a Prior Review and issues the Closing Disclosure and Closing Documents on your behalf."

 Mortgage Solutions Financial has made changes to its loan level price adjustments. Please review Announcement 18-16W for more information.

 FAMC revised its Corrective Action/Cure requirements for loans that exceed the 3% origination cap on points and fees. Loans originated or purchased by FAMC must be in full compliance with Texas 50(a)(6) requirements. In cases where a loan exceeds the 3% origination cap, the violation may be cured by the lender refunding the amount that exceeds the 3% limitation within 60 days after the lender is notified or otherwise discovers the error. The refund must be documented following the cure provisions as outlined in the Truth in Lending Act (TILA) chapter of the manual. Failure to cure the loan within 60 days will result in a non-compliant loan.

 Have your read PennyMac's most recent TRID announcement?

 Plaza sent out a reminder requesting its clients to make sure its Loan Origination Software (LOS) is up to date with the current version to support all the "Know Before You Owe" elements. Plaza has identified that loans are still being submitted that were processed through LOS's that are not using the most current version, or have documents that are not updated to support TRID. Two of the most widely used mortgage software systems are Point and Encompass. Here is information about their current versions: In May, 2016 - Calyx Software recently announced Point Version 9.3 has been released. Also in May, Ellie Mae has announced an updated version of Encompass

 AmeriHome's TRID Quick Reference Guide has been extensively updated and clarified. The updated guide is now available on SellerWeb.

 Switching gears to the bond markets, not that lock desks will be particularly busy today, rates...headed back down?! There's an early close today, but yesterday agency MBS (Fannie, Freddie, Ginnie) did well yesterday despite rallying treasuries on strong Fed and retail support, some of which was month end-related ahead of Friday's early close and long weekend. We also had a very strong Pending Home Sales Index (April) report that kept the string of much better than expected housing reports for the week going, growing 5.1% vs. expectations of just 0.6% following March's revised 1.6% (from 1.45%).

 Yesterday the 10-year note ended the session nearly .5 higher in price, but of course mortgage prices lagged due to refinance fears. Just think of all the money being lost by companies that paid higher-than-market prices for servicing in the last six months!

 Today, with our holiday-shortened economic calendar and holiday on Monday, began with another update on GDP for the 1st quarter. Expected to come in around +0.7% (versus +0.5% in the initial release), it was +.8%, the weakest showing in a year. Later, at 10AM, the University of Michigan Sentiment Index will be released. In the early going rates are about unchanged. The 10-year, which ended Thursday at 1.82%, is at 1.83%.

Thursday, May 26, 2016

New Jumbo and Reverse Products


Was this really on Craig's List?

"This is Lex, he's an 8 week-old German Sheppard. I bought Lex as a surprise for my husband but it turns out he is allergic to dogs so we are now looking to find him a new home. His name is Chuck, he is 39 years old, a handsome and caring man who drives, helps occasionally in the kitchen, and earns an okay income."


According to Reuters, the NY state financial regulator is gearing up to launch an investigation into the entire online lending industry. (The regulator has already been looking into LendingClub.) Never a good thing to hear your secretary say, "The NY Attorney General is holding for you on line 2." On a more serious note, the lending and banking industries continue to suffer from various regulators a) being afraid of the CFPB, and b) basically competing with each other to create rules where there were none before in an attempt to make a name for themselves. Of course the consumer bears the ultimate brunt of this.

"M&A slowed its pace in 2016 because mortgage volume was strong Q1 (remember Q1 of 2014?) and remains steady", says Dr. Rick Roque (413.297.6895). "This year is expected to be a relatively flat year as compared to 2015, but remember, 2015 ended up higher than every analyst predicted due to the micro-boom in rates in the first quarter of 2015 driving many refinance pipelines and maintaining rates for purchase transactions. But as the summer volume transpires, M&A activity will increase substantially because the multiples are there for the right buyers and sellers."

 A leading M&A firm is working with a large, well-known residential lender seeking mortgage banks in the Midwest or Mid-Atlantic markets to be purchased either by selling their stock or assets; applicable mortgage companies would have closed between $300M-$1.2B in 2015, or on pace to doing so in 2016, either consumer direct or referral partner (Realtor) based originations. No Agency approvals are necessary since they are already in place. If you would like to have your firm acquired, possibly receive a 2-4x after tax multiple, maintain your leadership and control, but rapidly accelerate your growth with significant access to capital, a broad array of new / innovative and non QM products, please contact me for a confidential discussion - principals and agents only.

 In banking M&A continues. In the last week the industry learned that in Georgia State Bank and Trust Co ($3.5B) will acquire S Bank ($109mm) for about $11mm in cash (50%) and stock (50%), or roughly 1.02x tangible book. First-Citizens Bank & Trust Co ($32.1B, NC) will acquire Bank of Virginia ($348mm, VA) for about $35mm in cash. And Simmons First National Bank ($7.5B, AR) will acquire The Citizens National Bank of Athens ($552mm, TN) for about $77mm in cash (52%) and stock (48%) or roughly 1.21x tangible book.

 Regarding banking, marketing and advertising is high on the list of banking examination reviews. Jonathan Foxx, Managing Director of Lenders Compliance Group, has just published the article "Advertising Compliance: Getting Ready for the Banking Examination." It is part one of a two-part series. Jonathan provides a lot of helpful insight into preparing for the inevitable examination of your advertising compliance. It will be published in the May edition of National Mortgage Professional Magazine, but for those interested, it can be downloaded here.

 Yesterday I brought up the ignored or misunderstood topic of Section 342 in Dodd Frank. I took the opportunity to contact a handful of random of others on the forefront of this topic. Maria Zywiciel, who runs NAHREP Consulting Services, had some observations. "Mention Dodd Frank 342 and you many get a blank stare but it's a regulation that needs some serious thought. The disproportionate impact of the economic downturn on diverse communities and minority and women owned businesses prompted legislators to seek stop gaps to future downturns. Congress passed Section 342 of the Dodd Frank Wall Street Reform and Consumer Protection Act, and Section 342 created the offices of Minority and Women Inclusion (OMVI) in federal agencies that regulate the financial services industry.

 "These agencies published The Joint Standards that provide five areas that a regulated firm may consult to develop its diversity policies: Organizational Commitment to Diversity and Inclusion, Workplace Profile and Employment Practices, Procurement and Business Practices, Practices to Promote Transparency and Organizational Diversity and Inclusion, and Self-Assessment.

 "Marketing and Recruiting often are the first things companies try to affect with regard to their diversity efforts, often not even considering their vendor procurement policies and diversification amongst their vendor partners. The small representation of diverse vendors doesn't match the demographic trends of women and minority owned businesses. For example, Latinas own 36% of U.S. businesses by minority women and one in every 10 women owned businesses! Becoming a preferred vendor, however, is not as easy as applying for vendor status. Some requirements such as minimum net worth requirements or minimum number of years in business may make barriers of entry more cumbersome for minority or women owned firms to overcome.

 "Much like the benefits of a more diverse workforce or customer base, having diverse vendors can enhance your business' bottom line or avoid costly mistakes. Joe Nery, partner and cofounder of Nery and Richardson Law in Chicago draws on his Hispanic Heritage to help his clients. He once challenged an Illinois law that he argued posed a disparate impact on minority neighborhoods. 'I have a perspective that is unique and could be overlooked if it weren't for my background,' Nery said. He added, 'As the demographics of our country change, more businesses will be owned by individuals of diverse backgrounds. The consumers they serve will also be diverse or located in multicultural communities. Thus, the vendors that supply these businesses must be familiar with local or community customs and preferences. By employing diverse vendors that are sensitive to these nuances, companies will increase the attractiveness and eventual success rate of their products or services.'

 "Sara Rodriguez, owner of EKKO, a women-owned title company in Virginia, says business is booming but like other vendors she had to go through the rigorous vendor approval process. 'It can be very expensive,' Sara said. 'If you can afford it, you may want to consider hiring a company that can perform due diligence to make sure you can pass all federal, state and even individual lender requirements before you even apply for the lender approval.' The benefits to her have outweighed the obstacles, 'I can provide services in both English and Spanish and I understand where they are coming from. Lenders who use our services provide better customer service.'

 "The advantages of applying the Joint Standards and the positive reaction from regulators to companies that do so should be encouraging to the financial industry. Embracing these standards from marketing, recruiting all the way to the diversification of vendors can give companies a competitive edge in an ever more diverse world.

 And from the SF Bay Area business coach and trainer Kitty Cole provided some advice for women-owned businesses starting out. "My advice for your readers is to set yourself apart by keeping your target market small. Create some specialty or expertise that is rare in your field. Being the most knowledgeable on the product or service in your field goes a long way, so do lots of advance research so you know your competitors. Be prepared to make a list of possible questions so you have all the answers. (I travel to most of my coaching clients, which is uncommon in this industry, although I do coach by phone in some instances.) I have found that a key component of success is response time. Today most everyone expects you to respond within minutes. Although that is impossible at times be the first to respond with the most knowledge and useful information. Then be generous with your advice. Last, keep your reputation intact. Let nothing sully it - it is all you have. If it becomes marred by a lack of integrity, a lack of response or any other flaky behavior, it can stall your growth."


More tomorrow on this!


New products? Sure there are.


Chase introduced the new Standard Agency 97%, an affordable loan product designed for first-time homebuyers who have limited cash for a down payment and closing costs. This new loan program requires only 3% from a customer's own funds.  With LTVs greater than 95% to 97%, the remainder of the down payment and closing costs can come exclusively from gift funds and any LTV lower than 95% requires 0% of customer funds. Customers must have a 680 FICO or higher and at least one customer must be a first-time homebuyer.

 The Wall Street Journal is reporting that Wells Fargo is rolling out a new mortgage for its retail borrowers making minimal down payments, an offering that could allow the bank to step back significantly from the Federal Housing Administration program. The yourFrstMortgage program is a 3% down payment program and will be a partnership with Fannie Mae. FICO scores can go as low as 620 and debt-to-income ratios can be higher than the usual 43% limit. These loans would require mortgage insurance. It is believed that weaker borrowers will likely still have to pay loan level price adjustments (LLPAs) which may make an FHA loan remain more attractive.

 American Advisors Grouphas released its jumbo reverse mortgage loan, called the AAG Advantage, to its wholesale partner network in California. With AAG Advantage, California brokers and loan officers may originate reverse mortgages through AAG on properties valued at up to $6 million, versus the FHA loan limit of $625,500 associated with a traditional Home Equity Conversion Mortgage (HECM) loan. (The AAG Advantage was initially launched in select states by the company's retail channel last September. The loan will roll out to other states through both retail and wholesale platforms in future phases.)

 United Wholesale Mortgage has launched a new Jumbo Elite program that will enable mortgage brokers to offer their borrowers one of the easiest Jumbo processes along with highly competitive rates. The Jumbo Elite program's simplified process will make brokers more attractive to savvy Jumbo borrowers throughout the country. Brokers will enjoy transparent guidelines and direct communication with their underwriter throughout the entire loan process. Highlights of UWM's Jumbo Elite program include: Loan amounts up to $2 million, Exclusive rate incentives for borrowers with 740+ FICO, Eligible for primary and second homes, ARM and fixed-rate options available and Closings in 25 days or less. Visit UWM website for program details.

 Not much, really, is happening with mortgage prices. The yield curve steepened a little on Wednesday based on no news but a solid $34 billion 5-year note auction. The FHFA Housing Price Index rose 0.7% m/m in March (6.1% y/y) after climbing 0.4% in February.

 We've had more news this morning, however, although given the "out of office" replies I am receiving plenty of folks are already thinking about the Monday holiday. We saw Initial Jobless Claims for the week ending 5/14 (-10k to 268k) and April Durable Goods Orders and Durable Goods Orders ex-transportation (+3.4%, higher than expected). Coming up is the April Pending Home Sales number at 7AM PDT and a $28 billion 7-year note auction. We closed Wednesday with the 10-year yield at 1.87% and this morning, after the initial spate of numbers, it is 1.86% and agency MBS prices are better by nearly .125.

Friday, May 20, 2016

DOJ Goes After Guild Mortgage and Guild's Response


Children's Logic:

"Give me a sentence about a public servant," said a teacher. 

The small boy wrote, "The fireman came down the ladder, pregnant."

The teacher took the lad aside to correct him. "Don't you know what pregnant means?" she asked.

"Sure", replied the young boy confidently. "It means carrying a child."


 Regarding this week's MBA Secondary Marketing conference Marcus Lam with Opes Advisors writes, "Obviously this is not the most important thing, but the corporate swag this year stunk. Last year we came away with nice pens, notebooks, phone stands, portable chargers, and an endless supply of candy mints. This year the only thing I received was the AIG Connective purse hook for the man bag I don't have."

 "The buzz at the NY Secondary conference was focused on growth, capital and access to more capacity- the challenge is, with the increased costs to compliance, increased volume is not necessarily equating to increased profits", says Dr. Rick Roque (413.297.6895). "With the dust of TRID still falling, on the horizon are HMDA changes in 2018, adjustments to the 1003 and more significant enhancements for Loan Origination Software vendors who can't keep up with the changes, let alone provide Lenders with the safeguards to lend with confidence." These activities in the market are leading even well capitalized companies (Net worth of $6M-$20M) to seek capital partnerships or full stock acquisitions, thus driving the mid-market M&A phenomenon.

 Speaking of which, a leading Mergers & Acquisitions (M&A) firm is seeking mortgage banks in the Midwest or Mid-Atlantic markets to be purchased either by selling their stock or assets. Eligible mortgage companies would have closed between $300M-$1.2B in 2015, or on pace to doing so in 2016, either consumer direct or referral partner (Realtor) based originations. No Agency approvals are necessary since they are already in place. If you would like to have your firm acquired, possibly receive a 2-4x after tax multiple, maintain your leadership and control, but rapidly accelerate your growth with significant access to capital, a broad array of new / innovative and non QM products, please contact me; specify opportunity.

In a service that has really taken off with QC staff, underwriters, and processors, Private Eyes has rolled out VOEs to its mortgage clients for both originating loans and quality control. This is in addition to its role providing services 4506-Transcripts, VODA's, Verification of Assets, and Background Checks for new hires and current employees in 1-3 business days. "We are here to keep you both in compliance and closing loans fast which is why we saw a 30% client growth last year!" For more information on this 16-year-old company visit PrivateEyes or contact Sandra James, President.

 Speaking of products, a while back Gold Star Mortgage announced that it has enhanced its risk management policies and procedures governing its retail mortgage lending business by requiring independent screening and risk monitoring for all settlement agents having access to a borrower's loan documents and mortgage proceeds. The process will be managed for Gold Star Mortgage by Secure Settlements Inc.  Gold Star chose the ClosingGuard tool to evaluate the backgrounds, licensing, insurance, and trust accounts of agents as a method to identify potential threats before a closing takes place. Secure Insight Chief Operating Officer Wayne Doctor stated, "We are pleased and honored to have been chosen by Gold Star Mortgage for these critical risk management services.  In our extensive dealings with their leadership team we saw first-hand their serious commitment to quality control, consumer protection and overall loan quality assurance. We are proud to be their partner in this important endeavor."

 Private mortgage insurance folks know that Radian announced this week that CEO SA Ibrahim will retire at the end of 2017. The Board has appointed a special committee to search for a successor, taking into account internal and external candidates. Those of you who know SA know that he is a great guy, and everyone wishes him good luck in actually being able to retire from this seems people have difficulty doing that. ("Just when I thought I was out... they pull me back in.")

 But under the "as the world turns" banner, not only is AIG reportedly trying to sell its UG group, but Bloomberg reports that Essent Group Ltd. may have an opportunity to buy Radian Group Inc. per an analyst at BTIG LLC said. Given that Radian's stock is down 11% this year, is there value? "Radian has no clear successor," for S.A. Ibrahim, BTIG's Mark Palmer wrote. Per Mr. Palmer, "It would be logical to surmise that the company's board of directors may be more inclined to entertain approaches from interested suitors."

 "Essent, the mortgage insurer backed by Goldman Sachs Group Inc. and billionaire George Soros before it went public in 2013, 'could fit the bill' as a buyer even though it's a smaller company, Palmer wrote. Essent trades at a higher multiple to book value than Philadelphia-based Radian, and it could use shares to help fund the purchase, he said."

 It's a small MI world: Essent CEO Mark Casale previously was an executive at Radian. Neither company is commenting.

 As a reminder, suing your bank is going to be a whole lot easier if the CFPB has anything to say about it. Specifically, at issue are the terms that companies routinely insert in contracts for credit cards, payday loans and other products that require consumers to settle disputes through arbitration. The Consumer Financial Protection Bureau proposes a rule that would circumvent those clauses by allowing groups of people to join together to pursue class-action lawsuits when they feel they've been wronged. "Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong," said CFPB Director Richard Cordray. "Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing."

 If you're skeptical reading the above, you're not alone. In a Bloomberg article Alan Kaplinsky, head of the Consumer Finance Practice at Ballard Spahr, was quoted, "There's only one winner coming out of this rule: the plaintiff's class action's not good for the industry, for banks or for nonbanks. And consumers are going to be net losers, it's a lousy trade." The regulator's proposal would cover new agreements for products such as credit cards, auto loans, credit reports and even mobile phone services that provide third-party billing. There will be a public comment period for 90 days before the regulator could issue a final rule. The soonest it will likely take effect is mid-2017 and companies will have 210 days to comply with the requirements.

 Speaking of legal matters, Guild Mortgage grabbed the headlines yesterday as the Department of Justice filed a lawsuit against Guild under the catch-all False Claims Act. The action is captioned United States ex rel. Dougherty v. Guild Mortgage Company (D.D.C.).

 It continues to be interesting why smaller lenders seem to continue to originate this product wholeheartedly whereas the big banks, such as Chase, have moved away from the program given the potential liability. Do smaller companies think that they are too small to be noticed, or are immune from prosecution? Or because they were originating perfect FHA loans ten years ago?

 Yes, this suit covers originations starting in 2006. Settling with the DOJ is certainly an option - just ask Wells Fargo, Franklin American Mortgage, Walter Investment, First Tennessee Bank, Freedom Mortgage or M&T Bank how to do it. Guild acted as a "direct endorsement lender" in the FHA insurance program, which grants the lender the authority to originate, underwrite and endorse mortgages for FHA insurance without prior review or approval from the FHA.

 The news prompted one industry vet to write to me saying, "I wonder if the DOJ understands how these enforcement actions cause FHA versus conventional primary market price spreads to widen and is costing every low and middle income FHA borrower about 200 bps in price compared to where levels would be without lenders building in the cost of the uncertainty into their daily price sheets? And 'enforcement actions?' 'Extortion' now numbering into the billions of dollars in actual fines levied upon lenders with deep pockets and the additional safeguards to avoid such extortion that has caused huge inefficiencies in producing the product. In the end the government wins and the consumer loses. This is the exact opposite effect that these programs were designed to avoid."

 Taking the high road, Guild released a public statement. Mary Ann McGarry, president and CEO of Guild Mortgage Co., issued the following statement regarding an action initiated against Guild by the Department of Justice:

 "We are extremely disappointed that the Department of Justice has elected to pursue this action. Guild has a proud record of making FHA loans since 1961 and we welcome the opportunity to set the record straight and correct the numerous misstatements in the government's complaint. The government's action is unwarranted and without merit. The implication that any default on an FHA loan by a borrower represents wrongdoing by the lender is not justified. For more than five decades Guild has responsibly underwritten fixed rate and fully documented loans in accordance with FHA requirements.

 "This enforcement environment that lenders face today threatens to limit opportunities for home ownership and hurts the housing market. It is contrary to the mission of HUD and the FHA program to help the underserved - a Guild tradition since its founding in 1960. It is unfortunate that lenders such as Guild have been placed in this untenable position where any minor error could result in substantial financial penalties. To help families with low and moderate incomes, we need to expand home buying opportunities, not shrink them. Sadly, if this punitive environment continues, the cost of lending will continue to increase for FHA borrowers and only the wealthy will be able to buy homes.Although we disagree with the allegations and intend to defend ourselves vigorously, we will continue to serve the FHA and first-time homebuyers, which we have served for more than 50 years."

 In other news related to HUD, it reached a $630,000 agreement with a group of Illinois property owners and a management company resolving allegations they violated the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973 by using rental screening policies that prevented applicants with mental disabilities from living in a supportive living complex the group owned. Read the agreement.

 In this environment it almost doesn't matter what rates are doing - and long term rates could easily be at these levels all year. Still, I would be remiss in not saying something about them and how volatility has picked up somewhat - but we're still in the range we've been in for most of 2016. Yesterday U.S. Treasuries moved somewhat higher as Initial Jobless Claims fell back down to 278K last week but the Philly Fed survey for May was worse than expected. New York Fed President William Dudley echoed the remarks from Fed Presidents Williams and Lockhart on Tuesday. Essentially, if the economy improves along with his forecast, then June is definitely on the table for a rate hike and two rate hikes this year would be perfectly reasonable. The Conference Board Leading Economic Index rose 0.6% in April after a 0.2% gain in March.

 There is no early morning news, but there continues to be chatter around "Brexit" - a British exit from the European Union. It is a consideration and should be monitored closely. Later we will see April's Existing Home Sales at 7AM PDT. We closed Thursday with the 10-year at 1.84% and this morning it is sitting around 1.86% with agency MBS prices slightly worse.

Thursday, May 19, 2016

"Don't Fight The Fed"


Homographs are words of like spelling but with more than one meaning. A homograph that is also pronounced differently is a heteronym. You think English is easy? (Part 4 of 4.)

Sometimes I think all the English speakers should be committed to an asylum for the verbally insane. In what language do people recite at a play and play at a recital? Ship by truck and send cargo by ship? Have noses that run and feet that smell?

How can a slim chance and a fat chance be the same, while a wise man and a wise guy are opposites? You have to marvel at the unique lunacy of a language in which your house can burn up as it burns down, in which you fill in a form by filling it out and in which, an alarm goes off by going on.

English was invented by people, not computers, and it reflects the creativity of the human

race, which, of course, is not a race at all. That is why, when the stars are out, they are visible, but when the lights are out, they are invisible.

PS. - Why doesn't "Buick" rhyme with "quick?"


Tomorrow is Bike to Work Day. My cat Myrtle isn't a big fan, especially when the sedative wears off and she realizes that she's in an old milk crate with chicken wire on top on the back of my bike. Lots of people wish that they could afford real estate close enough to bike to work, but real estate agents continue to warn clients that they have to, "Drive until you qualify" when wanting to live near city centers.

Acquisitions and merger news just doesn't stop, and in this kind of environment no one expects it to cease.

 "M&A slowed its pace in 2016 because mortgage volume was strong Q1 (remember Q1 of 2014?) and remains steady", says Dr. Rick Roque (413.297.6895). "This year is expected to be a relatively flat year as compared to 2015, but remember, 2015 ended up higher than every analyst predicted due to the micro-boom in rates in the first quarter of 2015 driving many refinance pipelines and maintaining rates for purchase transactions. But as the summer volume transpires, M&A activity will increase substantially because the multiples are there for the right buyers and sellers."

 A leading Mergers & Acquisitions (M&A) firm is seeking mortgage banks in the Midwest or Mid-Atlantic markets to be purchased either by selling their stock or assets: "applicable mortgage companies would have closed between $300M-$1.2B in 2015, or on pace to doing so in 2016, either consumer direct or referral partner (Realtor) based originations. No Agency approvals are necessary since they are already in place. If you would like to have your firm acquired, possibly receive a 2-4x after tax multiple, maintain your leadership and control, but rapidly accelerate your growth with significant access to capital, a broad array of new/innovative and non QM products," please send me a note of interest to pass along for a confidential discussion. (Please specify opportunity.)

 Speaking of M&A, it isn't the first and won't be the last as owners of lenders decide to "explore other opportunities and agree to be acquired for a variety of reasons. Caliber Home Loans has agreed to acquire First Priority Financial, a residential mortgage lender with branches and originators serving California, Oregon, Washington, Idaho and Iowa. "The transaction will expand Caliber's geographic footprint in the Western United States, originally established through its acquisition of Cobalt Mortgage in 2014. We welcome the talented First Priority Financial team to the Caliber family and look forward to working together to better meet the unique financing needs of homeowners across the country." STRATMOR represented the seller First Priority in this transaction.  If you wish to discuss this deal and the underlying M&A market conditions, reach out to Jeff Babcock or Jim Cameron.

 During the conference this week in New York news broke that Black Knight, its name coming from its West Point connection, is purchasing the electronic document firm elynx. elynx is/was one of hundreds of companies owned by American Capital. This may be more of a title company story than a mortgage or real estate, but it certainly indicates a trend toward larger companies becoming larger.

 On the banking side this trend isn't stopping either. Just in the last week the industry learned of a new bevy of planned bank M&A. In South Carolina Coastal Carolina National Bank ($176mm) will acquire VistaBank ($110mm) for about $12.2mm in cash (25%) and stock (75%) or roughly 1.01x tangible book. Bar Harbor Bank & Trust ($1.6B, ME) went across state lines and will acquire Lake Sunapee Bank ($1.5B, NH) for about $143mm in stock. In Louisiana the Bank of Montgomery ($285mm) will acquire Tri-State Bank and Trust ($32mm). The Farmers National Bank of Canfield ($1.9B, OH) will acquire Bowers Insurance Agency for an undisclosed sum. (Bowers has annual revenues of about $2 million.) But last Friday the FDIC closed First CornerStone Bank ($107mm, PA) and sold it to First-Citizens Bank & Trust Co ($31.3B, NC) under a purchase and assumption agreement.


Events and training? Yes there are...


If you're near San Jose tomorrow come say hello at the Silicon Valley Chapter CAMP Spring Mini-Fair. The event is 10AM-3PM and will be held at the Campbell Community Center (1 West Campbell Avenue). It is free to members but $25 for non-members. Visit or call TJ Roberts at (408) 802-8522 for registration.

 The California Association of Mortgage Professionals announced that the 2016 Summer Convention is taking place in Napa this August 8th-10thThis exclusive event, which will take place at Napa's finest resort, The Westin Verasa, provides attendees the opportunity to meet exclusive vendors and learn from the best in the business. Registration opens on-site on Sunday August 7. The Expo Courtyard opens Monday, August 8 and closes Tuesday August 9. This convention is yours to customize with a variety of break-out sessions and off-site excursions. On Wednesday August 10, registered attendees have the opportunity to participate in a FREE 8-hour accredited NMLS course ($129 value) presented by David Luna.

 MBA Education is continuing to crank out tons of education opportunities. Its next Multifamily Property Inspection Workshopis headed to Chicago.

 CRE Basics 2016 schedule is now available. Make sure you've got what you need for the road ahead by enrolling today. Learn more. Also, stay tuned for details on the Commercial Future Leaders Class of 2017. The application period will open in late June. There are a variety of other topics and opportunities available. Click here to view MBA's additional training schedules.

 On Thursday, June 16th, join South Carolinas Clean Energy Business Alliancefor its 2016 Summit.

 While we're on events, last week I had the opportunity to listen to John Williams speak, in part sponsored by Sacramento's Catalyst Mortgage. Mr. Williams has been the Federal Reserve Bank of San Francisco's President and CEO for five years, serving on the Federal Open Market Committee and bringing the Fed's Twelfth District's perspective to monetary policy discussions in Washington.

 It was a good speech, and he used terms such as "talking our foot off the gas" when it came to discussing reinvesting early payoffs from the Fed's mortgage holdings. Certainly holding $4 trillion of debt is not the Fed's long-term goal - that 5% unemployment and 2% inflation are good things to shoot for. He continually stressed that the Fed cannot fix structural problems using interest rates - and that it can't build human capital. The return on a college education is far greater than what one earns on stocks & bonds.  

Why would it be a surprise to anyone that no one can accurately, consistently predict the future? Or know everything about the current worldwide economy? There are lots of things that that Fed, along with bond market traders, economists, politicians, and anyone reading this, doesn't grasp right now. Few politicians are complaining about unemployment because...unemployment has dropped to pre-crisis levels. But wages for the middle class remain stagnant. (And just wait until the minimum wage goes up to $15 an hour in a few states to see how automated systems and robots increase in popularity.) The traditional relationship between job creation and inflation seems to have broken down. The global economy is changing the rules, if there are any rules anymore - and the Fed is trying to figure it out.

 Certainly central governments pumping $29 trillion into economies around the world is unprecedented. What's done is done, of course, and they arguably needed to do that to help restore some growth. Our economy is improving, at least according to most statistics. Of course a major issue is that other economies aren't. The Fed is focused on employment and inflation - and is more focused on employment and inflation in this country than economies overseas - as they should be.

 Bubbles? Higher rates aren't the only way to stop them. (Unfortunately) regulation & supervision can also help. The Fed has already issued cautionary notes about the technology and commercial real estate sectors.

 Shifting to the bond markets, yesterday volatility returned to the fixed-income sector, driving up hedge costs and driving down profits. U.S. Treasuries had their worst day in months as the long-standing dissonance between the expectations of interest rate markets and the guidance of FOMC officials is being resolved by the capitulation of Treasury investors who are running for the hills: "don't fight the Fed." And if the Fed is leaning toward raising short-term rates in June, well, then the market had better pay attention to it. What sparked it was the release of the minutes from the April 26-27th FOMC meeting. The minutes showed that "most participants judged" that if the economy continued to make progress in the second quarter (in terms of growth, the labor market, and inflation) "then it would likely be appropriate" to hike rates in June.

 "Members judged that information received since the FOMC met in March indicated that labor market conditions had improved further even as growth in economic activity had appeared to slow" and that the committee "noted that growth in household spending had moderated, although households' real income had risen at a solid rate and consumer sentiment had remained high. They also agreed that since the beginning of the year, the housing sector had improved further, but business fixed investment and net exports had been soft."

 Today we've had all the scheduled data we're to have: Initial Jobless Claims for the week ending 5/14 (-6k to 278k, as expected) and the May Philadelphia Fed figures (-1.8, worse than expected). On Wednesday the yield on the 10-year had shot to up 1.88% - still well within the range it has been in for several months - and this morning we're at 1.87% with agency MBS prices little changed from last night.