The
United States' demographics are changing...heck, according to the Census Bureau
this is old news; but maybe not from countries you might expect. According to
the agency, the African-Born Population in U.S.
Roughly Doubled Every Decade Since 1970. It writes, "The
foreign-born population from Africa has grown rapidly in the United States
during the last 40 years, increasing from about 80,000 in 1970 to about 1.6
million in the period from 2008 to 2012. The population has roughly doubled
each decade since 1970, with the largest increase happening from 2000 to
2008-2012." As always, here are some stats to impress the receptionist
as you walk past: the four states with African-born populations over 100,000
were New York (164,000), California (155,000), Texas (134,000) and Maryland
(120,000). Of the 10 states with the largest African-born populations,
Minnesota (19 percent), Maryland (15 percent), Virginia (9 percent), Georgia (8
percent) and Massachusetts (8 percent) had percentages of African-born in their
foreign-born populations that were at least twice the national percentage of 4
percent.
The
fun just doesn't end. Not only is a CFPB penalty against a lender rumored to be
announced soon, but now we have the Rolling Stone doing a story
titled, "The $9 Billion Witness: Meet JPMorgan Chase's Worst
Nightmare." "Back in 2006, as a deal manager at the gigantic
bank, Fleischmann first witnessed, then tried to stop, what she describes as
'massive criminal securities fraud' in the bank's mortgage operations."
The public continues to be reminded of, and industry bear the brunt of,
mistakes made many years ago.
Many in the lending industry may have not have the highest
regard for the CFPB's enforcement tactics, but the general public tends to see
a different side of things - like this article over the weekend. "Many
homebuyers have lowered their out-of-pocket mortgage costs thanks to new Consumer Finance Protection Bureau's
mortgage regulations that took effect earlier this year..."
What the public doesn't see, of course, are companies exiting the business
due to higher costs, possibly limiting competition, and/or the cost of
compliance being passed on to every new borrower.
PrimeLending
has its own problems - although they seem too old to be late-breaking news.
American Banker reported that, "Hilltop Holdings in Dallas, the parent
company of PlainsCapital Bank, parent of PrimeLending, has disclosed that PrimeLending
is under federal investigation in connection with underwriting practices for
loans backed by the FHA. The $9.1 billion-asset company disclosed in its
quarterly filing with the Securities and Exchange Commission that PrimeLending,
its mortgage subsidiary, received a subpoena from the inspector general's
office at the Department of Housing and Urban Development. The subpoena was
part of an industry-wide inquiry over origination practices for FHA-backed
loans, the filing said. Hilltop also disclosed that, on Aug. 20, PrimeLending
received a 'civil investigative demand inquiry' from the Department of Justice,
related to the HUD subpoena. The DOJ is looking into potential violations of
the False Claims Act, a law that governs fraud in government programs.
'PrimeLending is cooperating with the investigation and continues to respond to
the Civil Investigative Demand,' the filing said, adding that Hilltop expects
the inquiry 'will not have a material effect on the company's business.'
Hilltop reported lower third-quarter profits, compared to a year earlier,
mainly because of higher operating expenses. The comparison includes expenses
tied to Hilltop's government-assisted acquisition of the $3 billion-asset First
National Bank in Edinburg, Texas. That acquisition closed in September 2013.
The company's earnings fell 37% from a year earlier, to $25.1 million. Expenses
rose 18%, to $254.7 million. Net interest income rose 19%, to $85.8 million.
Fee-based income fell 1%, to $212.1 million, because of lower loan origination
fees.
Speaking
of earnings, the servicers are getting slammed in
recent months, with Ocwen, Nationstar, and Walter leading the way. After
Nationstar reported its numbers the stock dropped 22% after hours. Walter
Investment received an investigative subpoena from California, and everyone is
well aware of Ocwen's issues. All of this may impact servicing values, and thus
rate sheet prices for borrowers - especially if state Attorney Generals start
forcing certain companies to sell their portfolios.
Nationstar
made headlines last week,
and it wasn't for a good reason. Probes never are.
The earning announcements in
the last week or so feel like drinking out of a firehouse. Let's take a summary
look at several to discern trends among lenders (we'll do the MI companies and
more lenders tomorrow), and see if they are indicative of the industry in
general.
Stonegate Mortgage Corporation...operating
Earnings per Share excluded a $6 million negative MSR valuation adjustment and
a small amount of stock comp expense. Analysts such as KBW lowered their
earnings estimates for upcoming years but believe that origination for 2014
will come in around $13 billion. Origination volume totaled $3.54 billion in
3Q, up from $3.31 billion in 2Q. The company noted that interest rate locks per
day averaged $64.9 million in 3Q versus $72.8 million in 2Q14. Gain-on-sale
margin of 124 bps, down from 141 bps last quarter, although the company noted
this was affected by a negative pipeline adjustment. "We are estimating
that the GOS margin will continue to trend up to 159 bps by year-end 2014 and
168 bps in 2015 as the company continues to increase its share of higher-margin
retail and wholesale volume."
Redwood Trust beat
estimates on better-than-expected mortgage banking income. Analysts in turn
raised earnings estimates for upcoming years based on higher jumbo mortgage
volumes and higher gain-on-sale margins. Redwood reported income of $17.9
million from mortgage banking activities in 3Q, up from $6.3 million in 2Q;
residential loan acquisitions totaled $3.4 billion during the quarter with
conforming loan acquisitions of $1.5 billion were up from $868 million in 2Q.
The company also originated $1.8 billion of jumbo loans. The company expects to
complete one additional securitization in 4Q14. Gain-on-sale margins on jumbo
loans came in above the high end of the company's targeted 25-50 bps range. The
company also noted that returns on the conforming business turned positive. The
company does not expect to hit its earlier goal of $1 billion a month of
conforming originations by the end of 2014 mainly because it has increased its
focus on profitability through this channel now that sufficient scale has been
achieved. The company announced a flow risk-sharing agreement with Fannie Mae
(and completed two residential securitizations during the quarter): Redwood
will take the first 1% of credit losses on $1.1 billion of new conforming loans
that will be sold to Fannie Mae in 4Q14. If performance is good, the company
expects the transaction to be accretive to earnings.
Walter
reported operating EPS of $0.96 which excludes a negative MSR mark, a legal and
regulatory charge, and a number of minor expenses. It had a $37.2 million legal
and regulatory charge. Servicing earnings rose to $152.5 million from $127.8
million in 2Q. Higher loan volumes were offset by a lower gain-on-sale margin.
Total volumes of $5.6 billion were up from $4.4 billion in 2Q. The gain-on-sale
margin declined to 2.28% from 3.29%.
Ocwen had
$7.8 million of transition related costs, a $9 million negative MSR mark, and
$120 million related to regulatory reserves. It reported GAAP EPS of ($0.58).
The company booked $120 million of reserves related to regulatory and legal
issues, including $100 million for a potential settlement with NY DFS. The
company said that it does not know the ultimate cost of any potential
resolution. Servicing UPB totaled $411.3 billion at the end of 3Q14, down from
$435.1 billion in 2Q with an average servicing fee of 46 bps, down modestly
from 46.5 bps. During the quarter Ocwen completed 21,543 loan modifications,
down from 27,468 modifications in 2Q. Prepayments fell to 12.8% from 12.9% in
the prior quarter. OCN had $559 million of deferred servicing fees at quarter
end ($4.39/share), which are not shown on the balance sheet.
While we're on Ocwen, as a
reminder its regulatory woes escalated recently as New York's DFS sent the
company a letter stating that the company had backdated letters to borrowers.
Ocwen issued an initial response and had to subsequently issue a redaction. The
New York Post reported that the backdating had started as far back as 2010. The
same article also noted that the company and DFS were engaged in negotiations
that could provide consumer relief and shake up the leadership of the company.
The letter from the DFS stated that Ocwen had admitted to 6100 letters but 1000
others were found by the monitor. The letter stated that weakness in Ocwen's
systems made it impossible to ascertain the extent of the problem.
Executive
Rate Market Report:
A quiet open this morning after a nice
rally last Friday taking MBS prices up 45 bps and the 10 yr yield down to 2.31%
from 2.39% the day before. Mostly a technical move on somewhat lower new jobs
reported than forecasts and weaker hourly earnings. This week is a little
different with a holiday in the middle of the week (tomorrow all markets closed
for Veteran’s Day). Also this week is thin on scheduled data points with what
there is coming on Thursday and Friday. Treasury will auction $66B of notes and
bonds starting today with $26B of 3 yr notes.
Early this morning the bellwether 10
yr note dropped to 2.27%, down 4 bps from Friday’s close; but it didn’t hold
and by 9:30 the yield back to 2.31% unchanged from Friday. At 2.27% it was the
lowest trade since 10/28. Last week the 10 declined 3 bps in yield, 30 yr MBS
price +20 bps. Technically still neutral; markets beginning to see that
deflation is increasing, a slow movement but it is gaining followers. Keep
attention on Ukraine/Russia they are killing each other once again as that
peace truce appears to be unraveling.
At 9:30 the DJIA opened -13, NASDAQ
unch, S&P +1. 10 yr 2.31% unch and 30 yr MBS prices -8 bps; all on very low
trading activity. There are no data points today and with all markets closed
tomorrow we are not expecting much movement in markets today. The 10 last week
declined 3 bps in yield, 30 yr MBS price +20 bps. Technically still neutral;
markets beginning to see that deflation is increasing, a slow movement but it
is gaining followers. Keep attention back on Ukraine/Russia they are killing
each other once again as that peace truce appears to be unraveling.
Tomorrow the National Federation of
Independent Business October survey will update information on small business
confidence, sales, hiring and pricing. Some economists think signs of
accelerated pay growth will first show up at small businesses. Fed officials
scheduled to speak next week include Fed presidents Charles Plosser
(Philadelphia), Narayana Kocherlakota (Minneapolis) James Bullard (St. Louis).
Look for comments on the state of the economy and opinions on when the first
Fed rate increase could happen.
The WSJ, in an article this morning
talking about Millennials that are not only not saving but spending 2.0% more
than they are earning. Not a good sign for potential first time home buyers.
College debt and lower paying jobs are dragging young people down, keeping them
from investing or saving.
What traders are keeping an eye on;
Ukraine fighting is escalating in the past week. So far no noticeable reaction
in the bond market but it appears that the 2 month old cease fire has eroded.
This Week’s Calendar:
Monday,
1:00 pm $26B 3 yr note auction
Tuesday,
All Markets Closed for Veteran’s Day
Wednesday,
7:00 am weekly MBA mortgage
applications
10:00 am Sept wholesale inventories
(+0.2%)
1:00 pm $24B 10 yr note auction
Thursday,
8:30 am weekly jobless claims (+2K to
280K)
10:00 am Sept JOLTS job openings
(4.800 mil from 4.835 mil in August)
1:00 pm $16B 30 yr bond auction
Friday,
8:30 am October retail sales (+0.2%;
core +0.2%)
Oct import and export prices (imports
-1.5%, exports -0.4%)
9:55 am U. of Michigan consumer
sentiment index (87.5 from 86.9)
10:00 am Sept business inventories
(+0.3%)
PRICES @ 10:00 AM
• 10
yr note: -6/32 (18 bp) 2.32% +2 bp
• 5
yr note: -3/32 (9 bp) 1.61% +2 bp
• 2
Yr note: -1/32 (3 bp) 0.52% +2 bp
• 30
yr bond: -21/32 (66 bp) 3.06% +3 bp
• Libor
Rates: 1 mo 0.155%; 3 mo 0.231%; 6 mo 0.326%; 1 yr 0.557%
• 30
yr FNMA 3.5 Nov: @9:30 103.50 -8 bp (+12 bp from 9:30 Friday)
• 15
yr FNMA 3.0 Nov: @9:30 103.85 -6 bp (+5 bp from 9:30 Friday)
• 30
yr GNMA 3.5 Nov: @9:30 104.48 unch (+3 bp from 9:30 Friday)
• Dollar/Yen:
114.65 +0.05 yen
• Dollar/Euro:
$1.2444 -$0.0011
• Gold:
$1166.70 -$3.10
• Crude
Oil: $79.37 +$0.72
• DJIA:
17,573.29 -0.64
• NASDAQ:
4639.16 +6.63
• S&P
500: 2032.71 +0.79
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