People who study mortgage
lending and trends continue to ruminate on the Wells Fargo and Chase numbers
from Friday. JPM's mortgage origination volume was down 27% QOQ and 68% YOY
and mortgage application volume was down 17% QOQ and 57% YOY. Both closings and
application volume came in somewhat weaker than expected. One positive point of
note is that retail applications were down 7.6% but correspondent was down 26%,
so it looks like the company was giving up some share in the correspondent
channel. Wells Fargo's QOQ mortgage volume was down 28% but applications were
down 7.7%.
JPM's gain-on-sale margin came
in at 172 basis points, down from 212 bp last quarter. Wells Fargo's
gain-on-sale margin was down somewhat more modestly to 1.61% from 1.77%, a 9%
decline - probably closer to the overall industry. The value of the JPM's MSR
(mortgage servicing rights) declined to 106 bp which was 2.86x the servicing
fee from 118 bp which was 3.11x the servicing fee at the end of 4Q. The
equivalent numbers for WFC were 85 bp of 3.15x the servicing fee compared to 88
bp or 3.26x in 4Q. What does it all tell us? Nothing that the smallest lender
isn't seeing: residential lending volume is down, margins are slimmer, it is
tougher to make a loan, and lenders may not be able to count on servicing to
beef up their balance sheets. Are we having fun yet?
Yesterday the commentary
contained some information on the differences between "business
purpose" and "consumer purpose". ("...There are roughly
five primary factors that must be considered in order to determine business
purpose from consumer purpose...") I received a well-thought out not from Julia
Wei, an attorney with Peter N. Brewer. "We have litigated this issue
frequently on behalf of private lenders in defending against borrower claims
that the loan was a 'consumer' loan and they should have received a TIL
disclosure, along with other alleged violations of consumer statutes. As
defined by Title15 of the United States Code Section 1602(h),
"consumer" refers to transactions where the loan proceeds are used
primarily for personal, family or household purposes. The code
section further goes on to state in Section 1603(1) that extensions of credit
for primarily business, commercial or agricultural purposes are exempt from
TILA. [See also Regulation Z § 226.3 (a)(1).] The Ninth Circuit had applied a
multi-factor test, which was derived from Federal Reserve Board interpretation
of 12.C.F.R. Section 226.3(a)(1)(1983). [Thorns v. Sundance Properties
(9th Cir. 1984) 726 F.2d 1417.] The Ninth Circuit considered all five of
the factors you noted in your column."
Ms.
Wei's note continued. "The most on point case in California applying the Thorns
factors is that of Weber v. Langholz. In this 1995 case, the
borrower, Ms. Weber, was a 89 year old widow living on Social Security and
investments. She borrowed $160,000 and secured the loan with her primary
residence. She then used the proceeds to buy coins. When she
defaulted on the loan, she sued her lender claiming that the lender had
violated TILA and failed to give her the notice of the right to rescind. The
lender argued that TILA did not apply because the investment of the loan
proceeds in coins was not 'primarily for personal, family, or household
purposes.' The Weber Court evaluated the factors enumerated in Thorns
and noted that the borrower had invested nearly $600k in coins, that the loan
amount of $160,000 was very large and she personally managed her investment
funds. The Weber Count held the Truth in Lending Act did not apply
because the loan was for a business purpose and exempt. [Weber v. Langholz
(1995) 39 Cal. App. 4th 1578, 1583-1584.]"
At
the Tri-State mortgage conference last week I had the opportunity to spend some
time with Jennifer Squillante, a client manager with B2R Finance L.P. out of
Manhattan. It turns out that B2R, besides being hard to type, will offer
loans to individuals who have dozens, or hundreds, of properties. "We
lend primarily upon the value and cash flow of the underlying collateral.
We do not review the personal debt to income ratios of our applicants." I
am not going in to all the details - you should go to B2R or contact Jennifer
directly at jsquillante@b2rfinance.com - but once again we
are seeing capital in search of yield going around or outside the QM box for
loans and borrowers that make sense.
Here are some stats proving
that markets sometimes tend to move more on surprises versus expectations than
on economic trends. The Fed announced the 1st reduction to its asset-buying
program (i.e., quantitative easing - QE) on 12/18/13. The $10 billion reduction
in monthly purchases (from $85 billion to $75 billion) was widely expected to
result in higher interest rates. The yield on the 10-year Treasury note
closed at 2.83% on 12/17/13. The yield on the 10-year Treasury note
closed at 2.62% last Friday on 4/11/14. Rates have actually dropped this year
in spite of QE being gradually curtailed.
The National Association of
Home Builders Housing Market Index was below expectations at 47 in April versus
a projected 50. While builders were "expecting sales prospects to improve in
the months ahead" said NAHB Chairman Kevin Kelly, Chief Economist David
Crowe observed there were headwinds facing both potential buyers and home
builders: ongoing tight credit conditions and limited availability of lots and
labor.
The market didn't do much
Tuesday, so I won't waste your time discussing small moves in MBS prices or the
10-yr. yield (which closed at 2.63%). We should keep in mind, however, that global
events overseas certainly trump any kind of minor economic news that is
scheduled for the U.S. But there is some news out today: mortgage
applications (noted above, up about 4%), March Housing Starts and Building
Permits, March Industrial Production and Capacity Utilization, and the 2PM EST
release of the Fed's Beige Book (with riveting economic anecdotes from the 12
Districts in preparation for the April 29-30 meeting). In the early going
today the 10-yr is sitting around 2.65%, and agency MBS prices are worse a
shade.
No comments:
Post a Comment