Monday, July 3, 2017

July 3: Residential legal news; disaster area updates; FHA, VA, and Ginnie news from agencies & lenders

We've sailed through half of 2017 already. ("Life is like a roll of toilet paper. The closer you get to the end, the faster it goes." Since many folks have today off, very few people are reading this, so I can get away with remarks like that.) Turning up the intellectual level a little, who is William Stanley Jevons? He was an English economist and logician, and while living in Australia wrote a book titled, "A General Mathematical Theory of Political Economy." I bring this up because in it he developed a theory about value. Should prices be based on the cost of making goods, or should the price reflect the degree to which a consumer values a product? Should mortgage prices to the borrower be based on the cost of originating a mortgage, or should the price reflect the degree to which a borrower values the mortgage? A good discussion to have at your next sales event.
 Ginnie Mae has provided disclosure information for its MBS Multifamily New Issuance Loan Level data. Ginnie is also restoring access to the legacy REMIC search page and adding a link from its existing data search page to access the legacy page as well.
 Lenders react to disaster news
 Most investors and lenders rely on FEMA to define a disaster and the area impacted. Of course, any monies about to be lent, and recently lent, in a disaster area are questionable from an investor's perspective. Is the borrower safe, will they make their payments, is the collateral sound? Typically a correspondent investor will have verbiage in their contract referring the seller to it in the event an area is declared an investor and requiring additional appraisals.
 Certain Counties in Arkansas have been declared by FEMA as Major Disaster Areas for the Incident Period Date:From April 26, 2017 to May 19, 2017.
 In response to the Federal Disaster declaration for Arkansas counties of Boone, Carroll, Clay, Faulkner, Fulton, Lawrence, Randolph, Saline, Washington and Yell County and Missouri counties of Bollinger, Butler, Carter, Douglas, Dunklin, Franklin, Gasconade, Howell, Jasper, Jefferson, Madison, Maries, McDonald, Newton, Oregon, Osage, Ozark, Pemiscot, Phelps, Pulaski, Reynolds, Ripley, St. Louis, Shannon, Stone, Taney and Texas;
 Residential legal tidbits
 Hard money lenders provide financing for borrowers who are left out of the conventional lending process, and offer supplemental loans to help complete real estate deals. These kinds of lenders typically take a second position to the lender of the primary loan, which is typically a bank.
 When a borrower recently defaulted on two loans secured by a four-unit residential property in Berkeley, the hard money lender in second position faced the possibility of being wiped out by the foreclosure initiated by the institutional lender in first position. Attorney Henry Chuang of The Law Offices of Peter N. Brewer stepped in to help protect the client. First by reinstating the first loan, and then by defending claims of predatory lending and fraud lodged by the borrower.

The strategy utilized by attorney Henry Chuang not only won the case but also resulted in 100% of the attorney fees paid. If you would like to read more about this case, download the Case Study.
 Have you ever heard, "get it in writing"? Of course, you have but do you heed the advice? One broker learned this rule of thumb the hard way in a recent California case between Westside Estate Agency Inc. and James Randall.
 The broker agreed to assist a "friend" in purchasing a $40+ million home in Bel Air but didn't get anything in writing as to the terms of his assistance. The broker prepared 2 offers for purchase which were rejected. But, the seller remained interested. A couple months later, the "buyer" hired an attorney to prepare a new slightly higher offer which was accepted. The attorney received $925,000 commission. The broker filed suit against the buyer claiming he was owed the commission under a breach of an implied contract theory. The brokers suit did not meet the statute of frauds according to both the Trial Court and Appellate Court, here's why.
 The Appellate Court held that even though the two unsuccessful offers contained language that stated that the broker would collect a commission, since the broker was not the procuring cause of the eventual purchase, he had no right to a commission.
 California statute of frauds declares invalid any "agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate" unless that agreement is in writing and signed by the brokers client (Civ. Code 1624, subd, (a)(4).) Merely putting a prospective purchase on the track of a property which is on the market will not suffice to entitle the broker to the commission contracted for, and even though a broker open negotiations for the sale of the property, he will not be entitled to a commission if he finally fails in his efforts.
 Capital markets
 FHFA Director Watt, before the American Mortgage Conference of the North Carolina Bankers Association indicated that the GSE are looking to expand credit risk transfer programs to include 15-year and ARMs while Treasury Secretary Mnuchin, before the Senate Committee on Banking, Housing, & Urban Affairs, indicated stressed the importance of housing finance reform and the need to resolve the GSEs. Of course, there is a lot of talk about what to do with the very profitable Fannie Mae and Freddie Mac. But what happens if they have a losing quarter?
 Casting a quick look at interest rates (yes, the bond market is open today), on Friday the 5- and 10-year U.S. Treasury were the highest they've been in over a month. Fixed-income securities here and in Europe continued their sell-off that began on Tuesday (prices move inversely to yields). Despite Mario Draghi's hawkish remarks earlier in the week supposedly being "misinterpreted" by the market, investors & traders have continued to sell. Granted, the economic news here in The States (personal income & consumption/spending, Core PCE Prices, the Chicago PMI, and the Michigan Sentiment Index of consumer confidence) either met or exceeded expectations.
 For Friday's session, the 10-year note price worsened nearly .375 to close yielding 2.30% while the 5-year, which is a little closer in price movement to the typical mortgage-backed security, worsened about .125. Mortgage rates experienced one of their worst weeks in 2017 as originators were posting rates 0.125% to 0.25% higher compared to the same time a week ago. The 10-year treasury finished the day at 2.30% and for the month of June the 10-year increased by approximately 10bps.
 There's an early close today in the bond market, and most companies are only partially staffed, but we do have some news coming out: Markit Manufacturing PMI, Construction Spending for May, and the ISM PMI. Wednesday we'll have the MBA's application data for last week, May Factory Orders, and the June 13-14 FOMC Minutes. Thursday are June Challenger Job Cuts, June ADP Employment Change, Initial Jobless Claims, May Trade Balance, and June ISM Services Index. And then on Friday is all the employment data. We start the day and week with rates a shade higher than Friday afternoon: the risk-free 10-year T-note is yielding 2.31% and agency MBS prices are worse a few ticks.

Tuesday, June 20, 2017

June 20: Reverse Mortgage Primer - Product Attracting Forward Lenders?

A delightful angelic little boy was waiting for his mother outside the ladies' room of the gas station.
As he stood there, he was approached by a man who asked, "Sonny, can you tell me where the post office is?"
The little boy replied, "Sure! Just go straight down this street two blocks and turn to your right.  It's on the left."
The man thanked the boy kindly, complimented him on how bright he was and said, "I'm the new pastor in town. If you and your mommy come to church on Sunday, I'll show you how to get to Heaven."
The little boy replied with a chuckle; "You're kidding me, right? You can't even find the post office."

"People who don't give up attract other people's attention." As do people whose humor is stuck in 4th grade - like mine usually is. For example.
Reverse mortgage news
Given that 10,000 people a day are turning 62 (the minimum age to take out a reverse mortgage), plenty of "forward" lenders are looking at the channel, or are fostering divisions to capture the business & revenue. Reverse mortgages are a "costly blessing" to older people who have valuable homes, but not a lot of ready money. They allow people to borrow money to spend now, that only must be repaid (plus interest) when they, or their estate, finally sells their home. Real estate agents and financial planners are often offered help by lenders doing reverse mortgages: "We can help your clients navigate the tricky reverse mortgage waters. We know there is a lot of old information out there - let us help your clients learn the truth about what an HECM is and isn't."
A reverse mortgage loan is available to homeowners age 62 or older and allows the homeowner to borrow the equity in their home minus fees and costs. It may only be secured by a primary residence for which all title holders are borrowers and are age 62 or over. To be eligible, borrowers must receive reverse mortgage counseling explaining the fees, costs, and ramifications of getting a reverse mortgage. Reverse mortgage payouts can be in the form of a line of credit or lump sum, with limits on the size of the lump sum payout.
June 15 was World Elder Abuse Awareness Day (WEAAD), and the National Reverse Mortgage Lenders Association and the National Aging in Place Council launched new consumer webpages to "help older adults, and their loved ones, recognize the signs of abuse and report instances of financial fraud and exploitation to the appropriate authorities. Through their combined audience of more than 36,000 monthly website visitors, the organizations hope to provide more seniors with the tools to protect themselves from scams and abuse." Visit Recognize and Report Elder Financial Abuse on NRMLA's consumer education website at
The Las Vegas Sun recently had an article about the pros and cons of reverse mortgages. Even the Huffington Post is telling consumers how to shop for a reverse mortgage.

Total new HMBS production issuance dropped from $584MM in April to $543MM in May, but as an industry, we continue to perform about 20% better year over year in total. The $543MM of new prod created in May is roughly 121% of UPB issued in same month 2016. This improvement is down slightly from the 127% improvement YoY we clocked in April. Four of the top five issuers saw a fall in issuance in May. For the 28th consecutive month, AAG leads all industry participants in new production issuance. In May, total new production issuance slipped to $128MM, good for 23.6% market share, down a bit from $159MM and 27% market share in April.
The #2 spot goes to FAR as the only top 5 issuer to show an increase in issuance month over month. Market share increased from 16.2% to 20.5% as issuance levels look consistent and strong across all 3 HECM rate varieties. RMF ranked third in May as total new issuances declined by ~$2MM to $101MM month over month. Ocwen was fourth with $98.7MM in new production pools. Ocwen remains the 2nd largest issuer of fixed-rate paper, finishing just $2MM shy of AAG for the fixed rate crown. In 5th place, LiveWell issued $50MM in May vs $59MM in Apr, as the firm saw market share fall slightly from 10.2% to 9.2%.  As always, fully interactive charts are on our site available here.
George Brooks with IMF reports that lenders originated $4.5 billion of new home equity conversion mortgages in the first quarter in his story, "Reverse Mortgage Lending on the Rise Again, but..." "Compared to the same period a year earlier, production increased by 16.6 percent. Purchase reverse mortgages comprised 83.6 percent of HECMs produced during the period. Borrowers appeared to favor reverse mortgages with adjustable rates over fixed-rate HECMs, which accounted for only 10.7 percent of HECMs in the first quarter. Despite increased originations in the first quarter, FHA data show a gradual decline in HECM endorsements since peaking in FY 2009 with $114.7 billion. For the full story and an exclusive look at the nation's top 100 reverse lenders, see the new edition of Inside FHA/VA Lending, now available online."
How much so you really understand about a HECM Reverse Mortgage? One advantage is that it does not impose a monthly payment burden on the borrower. The disadvantage is that the reverse mortgage will cover only about 50-60% of the house price, depending on the borrower's age, requiring the purchaser to find the remaining needed cash elsewhere. The most common source is asset liquidation. If you know anyone considering or that should consider this program, This HUFFPOST article will help give you some insight.
Recognizing the significant improvements that have been made to the HECM program that reduce risk to the MMI Fund and ensure responsible lending to aging homeowners, President Trump published a proposed Fiscal Year 2018 budget that would permanently remove the cap on the aggregate number of reverse mortgages that FHA can insure. Click here to read the full article.
There is training. For example, Plaza offers a presentation designed to help financial planners and loan professionals to better understand how Plaza's Reverse Mortgage can be used as a vital part of an overall retirement strategy and not just a loan of last resort.
The lending sector certainly receives its share of "bad actors" which the press highlights. For example, recent headlines blared, "Chicago man accused of stealing $10M in reverse mortgage scheme." "The Federal Trade Commission filed a civil suit against him in 2003. The Illinois Department of Financial and Professional Regulation suspended his loan originator registration in 2010. But it took until Mark Steven Diamond - who also went by the name Mark Stevens - was accused of stealing a total of $10 million of equity in the homes of at least 122 elderly victims before he was arrested on Monday and, on Tuesday, upon appearing in federal court, was charged with wire fraud and engaging in a financial scheme, according to FBI Special Agent Garrett Croon, a media coordinator for Chicago." The oldest victim was 98.
"Mark Diamond caused certain elderly homeowners to execute reverse mortgage loan documents, despite the fact that they were disabled or otherwise unable to understand the reverse mortgage loan documents," said Kelly Popovits, a special agent with the United States Department of HUD, Office of Inspector General. Diamond, 60 and of Chicago, is suspected of working with at least five co-conspirators, officials said, defrauding seniors by fraudulently obtaining home loans in their names and keeping the profits..."
Capital markets
On the short end of the yield curve, where do the Fed Funds futures stand after the FOMC meeting last week? For the upcoming July meeting, a 97% chance of no changes to rates. For the Sep meeting, an 87% chance of no changes, and for December a 54% chance of no moves. And who knows what will happen in the next six months. The flattening of the yield curve yesterday means that the 5-year Treasury yield is within two basis points of a three-week high while the 30-year yield is within one basis point of a seven-month low. Be careful what you wish for: a flattening yield curve is often indicative of a slowing economy.
NY Fed President Dudley expects wages and inflation to pick up and for the Fed to continue to remove policy accommodation, especially as he thought halting it would jeopardize the recovery. Given the lack of news, it seems traders and investors latched onto that, and the 10-year note price worsened .250 and its yield closed at 2.19% while agency MBS prices sold off about .125.
Not much news today (some current account trade figure) although oil prices are dropping significantly, and there are three speakers from the Federal Reserve which may make things interesting. We commence Tuesday with the 10-year yielding 2.17% and agency MBS prices are making up the .125 they lost yesterday.

Monday, June 19, 2017

June 19: Cap. Mkts. Exec Looking, Upcoming events incl. M&A discussion & Jobs & Housing Driving Rates

Winston Churchill said that, "If the present tries to sit in judgement on the past, it will lose the future." No argument there in mortgage banking. But veering away from lending for a moment, who could predict that nearly 40 years ago the enduring popularity of "Animal House"? I mention this because we lost Flounder over the weekend, at only 63 years old.
  Upcoming events
 Finastra, formerly D+H, will be hosting a joint, complimentary webinar on June 29th at 1PM CT with Gartner's Craig Focardi on Emerging Technology Trends in Mortgage Lending and Finastra's Head of Retail Lending Product Management, Steve Hoke. "This one hour live event will help you to learn about the emerging trends in the mortgage market around cloud systems, paperless workflows, RegTech and multi-channel mortgage fulfillment including mobile."
 Zelman & Associates is offering up a short conference call for its institutional investor clients on Monday to discuss key takeaways from our May homebuilding survey. If you're interested in listening to the Homebuilding Survey Conference Call: Replay Number: 800-332-6854, Replay Passcode: 989455, link to survey: Homebuilding Survey: Order Growth Remains Solid While Price Accelerates Further.
 OpenClose, a multi-channel loan origination system (LOS) provider, and QuestSoft, a provider of automated mortgage compliance software, will host a joint webinar covering the new CFPB HMDA regulations, how they will impact organizations, and outline specific plans to make compliance with the new HMDA rules the most efficient and time-saving process in the mortgage industry. The webinar will be held on June 21, 2017 from 1:00 p.m. - 2:15 p.m. EDT.
 Throughout the month of June, Essent will be releasing valuable insights on Millennial Homebuyers. Visit the new page here, to view the Infographics and Fact Sheets, as well as sign up to receive the complete study at the end of the month.
 FAMC published its June Wholesale Monthly Customer Training Calendar. This month's calendar offers a variety of training opportunities such as "Mortgage Fraud", "LinkedIn for Beginners", "Self-Employed Borrowers", "How to Review an Appraisal", and "HomeReady is a Home Run".
 With the successful implementation of the Loan Review System (LRS) on May 15, 2017, FHA approved lenders are now using the system for most Title II Single Family quality control functions. As part of its continuing commitment to ensure a successful transition, FHA is hosting a live webinar on Wednesday, June 28, 2017, to describe best practices and address common questions that lenders have about LRS. You must register to attend this free, online webinar. Attendees will receive the link to access the webinar and other details with their registration confirmation.

Will the pace of M&A accelerate later this year or perhaps in 2018? And how can you position your company to take advantage of whatever may ensure? Join the String Opportunity-2017 Webinar featuring Jeff Babcock & Jim Cameron of the STRATMOR Group for a presentation on "M&A Market Conditions - Opportunities for Midsize Independent Lenders". You will discover answers to those questions plus more during STRATMOR's June 29th webinar.  
 Sign up for the June 21st Silicon Valley CAMP 2017 Lender EXPO. Come hear me present the latest news in the mortgage economy, and then "hear how three Top Producers created, built and sustained remarkable mortgage businesses in different ways - a distinguished panel moderated by SV CAMP President Richard Wang." LUNCH is included, and admission is FREE to members but ONLY if you pre-register.
 Capital markets
 Jobs and housing are the lynchpins of the U.S. economy. A hot employment or housing market can push rates higher, and vice versa. Late last week we had some disappointing housing data that came in much worse than expected with a -4.9% decline in permits for May compared to forecasts of an increase.  Housing starts were off -5.5% for the month compared to expectations of a +4.1% increase. There were also prior month negative revisions for April.  Multifamily starts which tend to be volatile were off -9.7% but single family starts also dropped with a decline of -3.9%.  The permit data included a -1.9% decline in single family month over month data.  Regionally the south and the Midwest had the largest drops in permits. 
 Going back even farther, if one looks at the May jobs report, it showed that the labor market has lost some steam. The headline payroll gain surprised to the downside and came on top of sizable downward revisions to the prior two months. Notably, the three-month moving average gain has steadily declined from about 200,000 in February to 121,000 in May. The drop in the unemployment rate to the lowest level in 16 years was because of a large decrease in the labor force that outpaced a decline in household employment. Certainly uncertainty looms large for both the fiscal and monetary policy outlooks over the next year.
 In the past week US job openings reached an all-time high of over 6 million, a promising development as the labor market continues to create jobs. Hiring, however, dipped in the past month, and reveals structural challenges for the US economy as the new job opportunities may be mismatched with the skills job-seeking workers can provide. Though the non-manufacturing index dipped slightly in May, surveys suggested continued expansion in the service sector; economic expansion this year will likely exceed that of 2016. There have been no notable changes in the CPI or retail sales in the states, and though housing starts recently declined they are expected to rise to an annualized rate of 1.207 million.
 And a glance overseas indicates that economic expansion in the Eurozone is expected to continue sluggishly through recent political uncertainty settling in the UK, and the ECB is not expected to raise policy rates anytime soon. Elsewhere, Chinese industrial production fell shy of expectations and Australia's labor market added a notable 37,400 jobs.

Investors are certainly thinking about these economic trends. Friday U.S. Treasuries, and MBS prices, improved slightly as both the Housing Starts and Michigan Sentiment reports missed economists' expectations. The Atlanta Fed reduced its forecast for Q2 residential investment growth to 0.4% from 1.8% on the former report. We also heard the first public remarks from FOMC participants since Wednesday's rate decision today and Dallas Fed President Robert Kaplan said that the Fed must be very cautious in raising rates further. And Minneapolis Fed President Neal Kashkari believes that the Fed should wait for the current lull in inflation's upward path to end before hiking rates again. And that there are others on the Committee who are probably agree.
 Investors in fixed-income securities, like MBS, have other options as well. Mortgages have modestly outperformed Treasuries since the beginning of the year, thanks largely to "carry." A carry trade is a strategy in which an investor borrows money at a low interest rate to invest in an asset that is likely to provide a higher return. The lack of rate volatility or spread volatility has nudged many investors, especially money managers, into carry trades in order to generate market, or better, returns. The Fed announced a tentative plan for winding down buying MBS ("tapering"): with the Fed releasing their plan for balance sheet normalization and hinting at a September announcement, things change. As a result, investors have been reluctant to be overweight MBS, to the benefit of corporates.
 Over the weekend we had another election for the press to hash over - this time in France. Macron's party won a commanding majority in parliament following second round elections on Sunday. His Republic on the Move (LREM) party controls 350 seats (out of 577) in the lower house (although turnout hit a record low).
 There is no scheduled news here in the U.S. of much consequence today or tomorrow. Wednesday we'll see the MBA's application numbers for last week as well as May Existing Home Sales. Thursday things heat up a little with June Philadelphia Fed, May Import Prices ex-oil and Export Prices ex-ag., Initial Jobless Claims, and the FHFA Housing Price Index. Friday is May's New Home Sales and a bevy of Fed speakers. To start the week, we find the 10-year's yield, which ended last week at 2.16%, unchanged, and agency MBS prices a shade better than Friday night.