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 www.reversemortgage.org.
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.

Thursday, June 15, 2017

June 15: Bank M&A, EverBank & Wells in the Headlines, Renovator Jobs on the Rise

At a wedding ceremony, the pastor asked if anyone had anything to say concerning the union of the bride and groom. It was their time to stand up and talk or forever hold their peace.    
The moment of utter silence was broken by a young beautiful woman carrying an infant.
She started walking slowly from the last row toward the pastor.
Everything quickly turned to chaos.
The bride slapped the groom.
The groom's mother fainted.
The groomsmen started giving each other looks and wondering how best to help save the situation.
Amidst the turmoil, the pastor asked the woman, "Can you tell us why you came forward? What do you have to say?"
The woman replied, "We can't hear in the back."

In legal news, in Denver, the state's high court has ruled that HOAs can't necessarily sue in construction defects disputes. A couple thousand miles away, the odds of passage are slim but Congress has finally moved forward with a bipartisan amendment that could allow banks to do business with marijuana companies. I don't know how high it is on the priority list...
 Bank news
 As mentioned in yesterday's commentary, SoFi applied with the FDIC on June 6 to obtain a de novo bank charter. The application is open to comment through July 6. Good news!
 Now for the bad news: now we have the new term "stealth modification." Wells Fargo is accused of making changes to loans it services without telling the borrowers. "The changes, which surprised the customers, typically lowered their monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy. But deep in the details was this fact: Wells Fargo's changes would extend the terms of borrowers' loans by decades, meaning they would have monthly payments for far longer and would ultimately owe the bank much more. Any change to a payment plan for a person in bankruptcy is subject to approval by the court and the other parties involved. But Wells Fargo put through big changes to the home loans without such approval, according to the lawsuits."
 But "The Coach" says, "Not so fast." Bloomberg writes that, "'Wells Fargo strongly denies the claims in these lawsuits,' spokesman Tom Goyda said in an emailed statement.’The terms of these modification offers were clearly outlined in letters sent to the customers and/or to their attorneys, and the payment change notices sent to the bankruptcy courts.' Goyda said modifications help customers in distress to meet their mortgage payments, and that such moves have enabled more than 1 million families to stay in their homes since 2009. The bank doesn't finalize changes without getting signed documents from customers and, where required, from bankruptcy courts, he said."
 The National Mortgage Servicing Association (NMSA) announced the appointment of Jim Taylor, SVP of Property Preservation with Wells Fargo Home Mortgage Asset Management, to lead the organization's effort to mitigate the threat that vacant and abandoned properties pose to homeowners and communities.
 TIAA's acquisition of EverBank is now complete. TIAA's existing banking business, TIAA-CREF Trust Company, FSB (including its division "TIAA Direct"), has been combined with EverBank to form one full-service bank, headquartered in Jacksonville, Florida. The legal name of the combined bank is TIAA, FSB, but for now, we will continue using the EverBank® brand name in a variety of materials.
 Yet S&P Global Market Intelligence reports the number of US bank and thrift M&A deals has declined from 284 in 2014 to 278 (2015) and 243 (2016). And so far this year, based on data through early June (98 transactions), the total would be about 235 (2017).
 In the last week or so several bank M&A deals were announced. Four-bank holding company QCR Holdings ($3.4B, IL) will acquire Guaranty Bank and Trust Co ($267mm, IA) for about $44.2mm in cash (21%) and stock (79%) or about 1.40x tangible book. In New Jersey BCB Community Bank ($1.8B) will acquire Indus American Bank ($235mm) for about $20mm in cash (20%) and stock (80%). 14 bank holding company Glacier Bancorp ($9.6B, MT) will acquire Collegiate Peaks Bank ($469mm, CO) for about $73.9mm in cash (22%) and stock (78%) or about 1.92x tangible book. CresCom Bank ($2.2B, SC) will acquire First South Bank ($1.0B, NC) for about $162mm in stock (100%) or about 1.92x tangible book. In Texas Southside Bank ($5.7B) will acquire First Bank & Trust East Texas ($1.0B) for about $218.8mm in cash (11%) and stock (89%) or about 2.28x tangible book.
 Banks lend money - usually their depositors. There is other lending, however (look at mortgage banks, for example): Amazon.com says Amazon Lending service has surpassed $3 billion in loans to small businesses since it was launched in 2011. In the last 12 months alone it has loaned over $1 billion to small businesses. Hiking up the sales for third party merchants is a plus for Amazon, as the company gets a piece of the transaction. "We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success," Amazon Marketplace VP Peeyush Nahar said. Over 20,000 small businesses have received a loan from Amazon and more than 50% of the businesses Amazon loans to end up taking a second loan.
 Banks are certainly watching the potential changes to the regulatory environment. Bloomberg's Matt Scully reports that, "Wall Street's mortgage-bond business could benefit from regulatory rollbacks outlined by Treasury Secretary Steve Mnuchin earlier this week that would allow lenders to gradually loosen underwriting standards, according to analysts at Goldman Sachs Group Inc. Cutting back or revising rules imposed on mortgages after the 2008 financial crisis would likely boost sales of privately issued bonds that finance home loans, analysts led by Marty Young wrote in a note to clients Wednesday. Possible changes recommended by the Treasury Department include repealing or revising rules on risk retention and lifting caps on points and fees that lenders can charge.
 "'The Treasury report describes potential changes to mortgage and bank regulation which could be enacted without legislative action, and which thus stand a good chance of eventual implementation,' Young said. While the changes could boost issuance, they still would not bring bond sales back to pre-crisis levels because lenders will remain wary of legal and reputational risks, he wrote.
 "The report recommended changes to several complex rules that push banks to avoid riskier versions of mortgages and ensure borrowers actually have the ability to repay. It also suggested regulators either repeal or revise so-called risk-retention requirements that force issuers of private-label mortgage bonds to hold a piece of the securities that they issue, which was an effort designed to align lenders' interests with investors."
 Capital markets
 This morning we've had our usual read on initial jobless claims. But employment in residential specialty trades is way up compared with the end of 2011, when the job market for home renovators bottomed out in the aftermath of the housing crash and recession. Employment in the category has risen 32 percent since then, to just under 2 million jobs in May. Private employment overall rebounded 12 percent in the same period.
 Yesterday volatility picked up in the U.S. Treasury & MBS markets. They finished with large gains for long-dated Treasuries and much smaller gains at the front end of the curve. In the morning, the Consumer Price Index inflation numbers missed expectations for the third-straight month in May. And retail sales coming up short. The shortfall in inflation sparked a lot of buying and short-covering interest when few traders wanted to commit to big positions ahead of the Fed rate decision. Then we had the Fed announcement (more below); the median expectation of the FOMC participants is for one more hike this year and three hikes in 2018.
 As expected, the Federal Open Market Committee voted to raise the federal funds rate's target range to 1.00-1.25%. Of more interest to LOs and mortgage folks, the Committee unexpectedly agreed to a plan for balance sheet reduction. Sometime "later this year", the Fed will begin allowing a reduction of a maximum of $10 billion of securities ($6 B of Treasuries and $4 B of mortgage securities) every month. That cap will increase by $10 billion of securities every quarter until the balance sheet is declining by $50 bln/month. Put another way, the Fed is maintaining its existing policy of reinvesting principal payments from its MBS and agency debenture holdings, but added "The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated." Also, the Committee said it would be prepared to resume reinvestments if there was a material deterioration in the economic outlook where a reduction on the fed funds rate was not enough.
 Yet bond prices improved and rates dropped - another day where someone would have lost their shirt if they'd know the information ahead of time. Most of the rally was based on the weak economic data, and the removal of uncertainty in the markets by the FOMC addressing the balance sheet question. The 10-yr yield hit its lowest level since November 10 and the 2s10s curve the flattest since early September. The 10-year note closed Wednesday yielding 2.14% and agency MBS prices improved .125-.375 depending on coupon and maturity.
 Looking at today we've already had initial jobless claims (-8k to 237k), the Philadelphia Fed's manufacturing index (27.6), the Empire Manufacturing number from New York (up to 19.8), and May import & export prices (-.3% & -.7%). Coming up are the Industrial Production and Capacity Utilization duo. We start the day giving back some of yesterday's gains: the 10-year is yielding 2.16% and agency MBS prices are worse about .125 versus last night's close.