Thursday, January 12, 2012

January 12: Mortgage jobs; insight from mortgage trader lingo; CFPB to sharpen claws on PHH? chatter on goals for F&F

Wanna save money? Let our professionals show you the benefits of refinancing today! Apply http://globalhomefinance.com/apply.php !





Did you know that dolphins are so smart that within 2 weeks of being in

captivity they can train a human to stand on the edge of a pool and give

them fish? There are a lot of smart mortgage traders working at the

broker-dealers. Here is a very interesting piece on how Wall Street MBS

traders and analysts think. I included nearly the entire research write-up

here, leaving the firm off of it, as it touches on many subjects that

originators, Realtors, whoever, don't think about very often, but this type

of quantitative analysis directly impacts rate sheet pricing:



"Although dollar prices of Fannie 3.0's (these securities would include

3.25% and higher mortgages) have skyrocketed over the past few days, there

has been very limited originator selling of this coupon. Below we try to

estimate at what price spread  level of Fannie 3.5s/3.0s swap, originators

should have an economic incentive to move new issuance into Fannie 3.0s from

Fannie 3.5s. Let us say that a lender has originated $100 mortgages at 3.9%

mortgage rate and is deciding between securitizing them in FN 3.0s or FN

3.5s. He has got two options. A) Create $100 FN 3.0s and retain 90bp

servicing spread, B) Create $100 FN 3.5s and retain 40bp servicing spread.

At Friday's closing price levels, in Option A, he gets $101 cash and retains

90bp servicing spread. In Option B, he gets $103.1 cash and retains 40bp

servicing spread.

Which one of these options is better for him? Right now, 2010 FN 3.5s IOS is

trading at 17-02. Since the 2011 IOS should trade somewhat better than 2010

IOS, let us assume that the 2011 3.5s IOS is worth $19 and also that the

servicing asset trades at about 15% discount to IOS (fairly realistic

assumptions). In this case, the 50bp additional servicing in Option A versus

Option B is worth: (0.5/3.5)*(19*0.85) =  $2.31. Thus, the originator gains

$103.31 ($101+$2.31) by following Option A versus

$103.1 by following Option B in a completely liquid market with no barriers

to trading.

In other words, as long as the FN 3.5s/3.0s swap is below $2.31 (2-10), the

originator should create FN 3.0s instead of FN 3.5s (from a purely economic

perspective) while this swap was trading at about 2-04 at Friday's closes.

Of course, originators need to set aside capital if they retain excess

servicing - so they may need some premium over what is indicated by

economics to move into FN 3.0s instead of FN 3.5s. And  the Basel III

constraints on the contribution of MSRs to bank capital are also possibly

making originators reluctant to keep excess servicing spread on their

balance sheets at the moment."



MetLife's announcement impacting 4,300 employees has roiled the lending biz.

But  there are those that continue to hire. In the retail arena, mortgage

banker iServe Residential Lending is continuing to expand its national

branching platform which is now in 20 states. The company is a direct lender

providing loan servicing, mortgage origination, and real estate under one

roof.  iServe is expanding its network of  retail branches, and is looking

for NMLS licensed LO's, branch managers, and branches in order to establish

a "local branch presence, leveraging established mortgage broker and loan

officer relationships." Interested parties can visit iServe

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1109075458834&s=8721&e=001YtbJgH

lz9XDLJgG_6JGpL_qLLg6KY4L30WIKnk7Buz5DbaL5CkRnstnthLwYHSUTcE53vtfQZrxBrL7UyK

7QuOsyViaUIFSBP2OWFJ-EBY4Teu0HO8AFPA==]

or for more information on the Western US, contact Allen Friedman at


Eastern US contact Ken Michael at kmichael@iservelending.com




As mentioned yesterday, with BofA and MetLife exiting correspondent lending,

concern in growing about PHH. S&P cut its credit rating in recent months

("negative outlook"), and now the industry is watching its liquidity crunch,

hopefully alleviated by the 8K financial information recently released, but

perhaps more importantly the investigation by the CFPB's investigation into

whether it failed to comply with the Real Estate Settlement Procedures Act.

A filing with the SEC said that the bureau had opened  an investigation to

learn whether the company's mortgage insurance policies, particularly those

involving reinsurance services in exchange for premiums, met obligations

under law. PHH said in the filing that there "can be no assurance whether or

not this investigation will result in the imposition of any penalties and

fines against the Company or its subsidiaries." My opinion is that the

industry would rather not have another top investor wave the white flag.



Now that the CFPB has a director, it can officially begin to exercise the

full authorities granted to it under the Dodd-Frank Act. The agency

announced the formal launch of its nonbank supervision program, and will

start supervising nonbanks that until now "have largely escaped any

meaningful federal oversight," including: residential mortgage brokers,

lenders, and servicers, payday lenders, and private student lenders

regardless of size. Expect their powers to reach into debt collection,

consumer reporting, consumer lending and related activities, money

transmitting, check cashing, and related activities, prepaid cards, and debt

relief services. In addition, the CFPB will supervise any other nonbank

covered person that it determines is posing risks to consumers with regard

to the offering or provision of consumer financial products or services.



Under FHFA's guidance, Fannie Mae is introducing an Unemployment Forbearance

program that provides servicers the flexibility to assist borrowers who have

a financial  hardship due to unemployment. Read all about them at

Forbearance

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1109075458834&s=8721&e=001YtbJgH

lz9XDJ-2yyGNaR-AfowaOpcjCrtx7iYBFpH_xz6ICmox0VaBz47OrqWL2B-CnLU6GNgHH11ckPA_

OikIg8RKWthUNo9sMsOvqMlH9MsDDk604DCHS6-8X_dhQad2WhrLMAtSOjTs3OCWKVOPnnnyfS2F

q70g561GlctJEPgMxZFToyTNmeJjL-jUOB].



Fannie also sent out an update on the maximum allowable pre-foreclosure

mediation fees for which attorneys in Florida may be reimbursed as well as

the maximum allowable attorney and trustee foreclosure fees in a number of

other states. The Attorney and Trustee Foreclosure Fees exhibit on

eFannieMae.com has also been updated

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1109075458834&s=8721&e=001YtbJgH

lz9XDxO7hgb_1b_4G5FjYDQxJ7kh9t_ZdwqSG_YYa3KMAbIYmjI5dny618LP_HL8FTTMoXr6kvSR

IPqOnqdd5Z_mgIR0wFpb-K6_mSJ-s7my35AwXauXCcqK3z_0hNm7qiD_EJyBpahmtPpMwBSyiht9

ImBe4deHQvHWRNSdw9FA_GnvHDjxsRdwnu].



Fannie & Freddie, who are not expected to have much done to/with them prior

to the election, which puts things out to 2013, continue to be a focus of

conversation.

 "Rob - according to a 2009 keynote address by James Lockhart, at that time

the director of the Federal Housing Finance Agency (FHFA), where he

discussed the housing crisis, secondary markets, and regulatory oversight,

he said the FHFA's four stabilization strategies are to: 1. Ensure Fannie

Mae, Freddie Mac, and the Federal Home Loan Banks provide liquidity,

stability, and affordability to the housing market in a  safe and sound

manner; 2. Work with government partners to reduce mortgage rates; 3. Work

with the government-sponsored enterprises (GSEs) to set best practices for

the mortgage market; 4. Prevent foreclosures through affordable

modifications and refinancings. It seems to me that the government itself is

flying in the face of  their own strategy - specifically items 1 and 2 - by

burdening borrowers' note rates via .10% increases in g-fees to fund the

Payroll Tax Holiday extension." How things change: DoAsISayNotAsIDo

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1109075458834&s=8721&e=001YtbJgH

lz9XC-EFWjx6W1rgbHGhuA3YlgDV_NRmv0Hwt7gKgwHOXDCzMrhGEWoEqnNS0bemk3GNEI6LwhsL

R4PMlcYjvBfWnEqwUErsTull6PZTs7gNIn2GYMrKk9LHpMDbzGxFc0lJ6FLV1FcgUa0PXQXLazYb

GXMizVrZIx4pw=].



Have your filed your own lawsuit yet? You'd better hurry - time is running

out.

The Patton Boggs Mortgage Litigation Index reached a four-year high,

indicating a number of mortgage-related lawsuits. "The increase in MBS

litigation is partly  driven by statutes of limitations on investors'

claims," said Patrick McManemin, a partner at Patton Boggs. "State claims

against originators for alleged mishandling of portfolios, inadequate

underwriting practices and misrepresentations regarding loan quality on the

part of private and GSE litigants can only be preserved by filing lawsuits

before claims expire."



Do mortgage fraud suspects have the patent on hiding $70k in their cowboy

boots

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1109075458834&s=8721&e=001YtbJgH

lz9XAjSqKhRS1wbm3pCm-WWSAOJe-q5EFclN18K7qqygYVb1Wdanau66hzblC5uq2GyUqDc_FbER

u7cHhUb4nChDAVRcKADQfWfIwIE6Co4n629L6N0algP6UcLZWGw-KCQ4FZl7Jfb7yJGN2sngs3tF

lQZmTSwwL9hLtv537oA8QPqbj-6028LCfGhC7tH7q8d0c=]?

He probably won't be putting that money to work in the markets, which have

been pretty quiet. Wednesday there wasn't much news to drive rates, but they

dropped nonetheless with the 10-yr moving down to 1.90% and rate-sheet MBS

prices improving by .125. The Fed's Beige Book provided another reminder of

poor state of housing

 market: unlike other sectors of the economy that are showing some

improvement, "activity stayed sluggish in residential real estate markets".

The report went on to say that "extensive inventories of distressed

properties were reported to be a source of price restraint" in 1/3 of the

Districts; and "lending standards were largely unchanged across all lending

categories."



Overnight, though, Spain and Italy had some good news for the euro zone

markets with successful debt auctions at sharply lower borrowing costs in

2012's first real test of appetite for debt from the euro zone's bruised

periphery. European stock  markets rallied, as did the euro. But something

is not right this morning: stock futures are higher, gold and silver are

higher, copper is higher, oil is higher,  and corn & wheat prices are

higher. This morning we've had Jobless Claims and Retail Sales, which moved

from 375k to 399k, up 24k, and up +.1%, respectively. Later, at noon CST,

we'll have the final leg of this week's auctions with $13 billion in 30-year

bonds. With these cross currents, the 10-yr and MBS prices are nearly

unchanged.

A man was walking down the street when he was accosted by a particularly

dirty and shabby-looking homeless man who asked him for a couple of dollars

for dinner.

The man took out his wallet, extracted ten dollars and asked, "If I give you

this money, will you buy some beer with it instead of dinner?"

"No, I had to stop drinking years ago," the homeless man replied.

"Will you use it to go fishing instead of buying food?" the man asked.

"No, I don't waste time fishing," the homeless man said. "I need to spend

all my  time trying to stay alive."

"Will you spend this on greens' fees at a golf course instead of food?" the

man asked.

"Are you NUTS!" replied the homeless man. "I haven't played golf in 20

years!"

"Will you spend the money on a woman in the red light district instead of

food?"

 the man asked.

"What disease would I get for ten lousy bucks?" exclaimed the homeless man.

"Well," said the man, "I'm not going to give you the money. Instead, I'm

going to take you home for a terrific dinner cooked by my wife."

The homeless man was astounded. "Won't your wife be furious with you for

doing that?

I know I'm dirty and I probably smell pretty disgusting."

The man replied, "That's okay. It's important for her to see what a man

looks like after he has given up beer, fishing, golf, and sex."

If you're interested, visit my twice-a-month blog at the STRATMOR Group web

site  located at www.stratmorgroup.com

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj

bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P

jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]

. The current blog discusses the time frames for borrowers returning to

A-paper status after a short sale or foreclosure. If you have both the time

and inclination, make a comment on what I have written, or on other comments

so that folks can learn what's going on out there from the other readers.



Rob



(Check out


[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=sy5ya6iab.0.epg7qedab.zy6u9cdab.8

721&ts=S0720&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinep

ress%2Fdefault.aspx]


[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=sy5ya6iab.0.v7uif6dab.zy6u9cdab.8

721&ts=S0720&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].

For archived commentaries, go to www.robchrisman.com

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=sy5ya6iab.0.fpg7qedab.zy6u9cdab.8

721&ts=S0720&p=http%3A%2F%2Fwww.robchrisman.com%2F].

Copyright 2012 Rob Chrisman.  All rights reserved. Occasional paid notices

do appear.

This report or any portion hereof may not be reprinted, sold or

redistributed without

the written consent of Rob Chrisman.)

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
 

Chrisman Inc. | 326 Mission Ave. | 326 Mission Ave. | San Rafael | CA |
94901

No comments:

Post a Comment