North Carolina Looks at Capital Requirements; Another Ocwen Settlement?

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It's Christmas-time, and we are all seeing plenty of logos out there. Those graphic design people are pretty clever, and plenty of logos have hidden, or not so hidden, symbols that are worth glancing through. But many know that yesterday was the Winter Solstice - and we'll see more daylight here in Northern Hemisphere going forward. This is a good thing for folks in places like Anchorage (sunrise 10:15AM, sunset 3:30PM) or Bismarck ND (sunrise 8:30AM, sunset 4:45PM). It is also the time of year when Wisconsin and Minnesota fishermen there like to say "Visit our beautiful ice holes"

Out West Peoples Bank (KS) is searching for quality Retail Loan Officers focused on purchase business in Northern California.  Peoples Bank is a family-owned, federally-charted (FDIC) community bank founded in 1871 with a "solid mortgage banking culture which has evolved over 30 years. Peoples Bank has grown its servicing portfolio and offers the advantages of a depository bank for LOs, is a Fannie/Freddie direct lender, has significant warehouse spread, 'common sense' underwriting, a cooperative and supportive internal departments, and a solid back office which delivers consistently competitive service levels (like consistent 72 hour underwriting turn times or less)."  Please send your confidential resumes or questions to the head of retail lending for Northern California Chery Tamaru.

And Fannie & Freddie seller/servicer American Capital Corp (ACC) is gearing up to increase business in its Wholesale channel. The name has changed from ACBN to ACC Wholesale, but the "feel like a big fish" offering to brokers is still in place. ACC is looking for Account Executives to bring us established relationshipsfor the following areas: Seattle, Texas, San Diego, Pasadena/Santa Barbara. AEs have the ability to bring on Retail and Wholesale clients as well as originate themselves if they are licensed.  Please email Allen Cravello if you would like to be considered.

 Capital is always critical for lenders - the more the better - but there are some developments in North Carolina about lessening capital requirements for lenders.

Self-employed borrowers can often present high-risk to lenders because of the volatility of their income and difficulty documenting their finances despite their high salary. Recent data reported by Zillow found that self-employed shoppers earned roughly 80% more than non-self-employed mortgage shoppers. Self-employed borrowers also seek more expensive homes. In October, self-employed borrowers searched for homes that cost about $351,000, compared to $315,000 for non-self-employed borrowers. Self-employed borrowers on Zillow often receive less interest from lenders due to their credit scores. For every 10 quotes received by a non-self-employed borrower, a self-employed borrower receives 6 or 7 quotes. In October, 28% of self-employed shoppers on Zillow reported a credit score of less than 680, compared to 14% of non-self-employed shoppers.

The industry recognizes that self-employed borrowers were left behind in terms of programs. That is changing, but is the "credit pendulum" swinging back too far? Are we heading for another mortgage collapse? This reporter thinks that the government is helping to sponsor the next crash. One wonders when Realtors, who are involved in nearly every transaction, will be held accountable for their role in the housing crisis.

Millennials are more likely to be foreign born and speak a language other than English at home, according to the most recent statistics posted by the U.S. Census Bureau comparing young adults today to previous generations. The millennial generation, comprised of 73 million young adults aged anywhere from 18 to 34 years old, is one of the largest populations today, but is smaller than the young adult population in 1980. In 1980, 30% of the population was aged between 18 and 34 years old, compared to 23% today. The amount of young adults who are foreign born has more than doubled since 1980 (15% versus 6%). The majority of foreign-born young adults reside in the West (21%) and Northeast (18%) and a quarter of young adults speak a language other than English at home. One in five young adults live in poverty, compared to one in seven in 1980 and 65% of young adults are employed compared to 69% in 1980. More millennials are educated, as 22% have a college degree, an increase from 16% in 1980. The delay in household formations is also common among millennials with only 3 in 10 young adults having ever been married, a significant decline from 6 in 10 in 1980.

The feds are going after Ocwen again, this time for dragging their feet in short sales. The company, which is currently dealing with a mountain of regulatory issues, said it has purchased almost 2,000 delinquent FHA-insured loans. Ocwen services about 2.6 million mortgages, worth about $426 billion, according to Fitch Ratings. According to a report from the monitor of the National Mortgage Settlement (NMS), Ocwen failed to ensure that its efforts to comply (namely to ensure that struggling borrowers are treated properly) with a 2012 mortgage- abuse settlement were sufficiently independent from the company's managers. The monitor, Joseph A. Smith Jr., also said that his office could not rely on information provided by Ocwen.

And Bloomberg has been intently following Ocwen. "Ocwen Said to Have Stalled Home Sales by Underwater Borrowers" read a headline last week on a story by Carter Dougherty. "Ocwen Financial Corp. is being examined over whether it improperly stalled short sales by borrowers who owe more than their homes are worth, according to two people briefed on the case, as troubles deepen for the mortgage servicer whose stock has slumped 60 percent this year. The New York Department of Financial Services and the U.S. Consumer Financial Protection Bureau are investigating whether Ocwen is thwarting a new rule that mortgage servicers must approve or deny a short sale within 30 days of an application. They're examining whether Ocwen is delaying such sales to collect more fees, according to the people, who asked not to be identified because the probes are confidential."

The story went on. "'Ocwen has it all figured out,' Deborah Priebe, a senior vice president at Short Sale Success in Henderson, Nevada, said in an interview. 'They are notorious for asking for one more piece of paper on the 29th day.' Margaret Popper, a spokeswoman for Ocwen, said the company 'has no desire to delay short sales' and their costs increase when the process is prolonged" but instead want to maximize proceeds from the sale of the property.

Ocwen is no stranger to these proceedings. It became subject to the 2012 servicing accord last year when it bought the servicing business of Residential Capital LLC, a unit of one of the banks that agreed to pay $25 billion over improper foreclosures. Under the agreement, the company must credit payments properly and issue timely notifications on loan modifications, short sales and foreclosures, among other standards. Ocwen also reached a roughly $2 billion settlement with state and federal authorities last December, promising to adhere to servicing standards. In January it agreed to buy servicing rights on $39 billion of loans from Wells Fargo & Co. A month later, Ocwen put the deal on indefinite hold amid reviews of its business, ultimately canceling it last month. Last year Ocwen agreed to pay $2.1 billion to settle with the CFPB, whose director, Richard Cordray, said the firm "took advantage of borrowers at every stage of the process."

  And now we have the Wall Street Journal reporting that Ocwen is expected to sign a settlement with the New York DFS. As part of the settlement Chairman Bill Erbey will resign from Ocwen and its four affiliated Ocwen companies (ASPS/HLSS/RESI/AAMC). Ocwen cannot make additional acquisitions until it has satisfied the state that it has fixed its systems, and will also pay $150 million and in consultation with the state will appoint two outside directors. As part of the settlement Ocwen will have to acknowledge that it didn't properly deal with distressed borrowers and may have imposed excessive charges on them through affiliated companies.

  Remember that the Consumer Financial Protection Bureau proposed measures that would require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan. The proposal would also put in place additional servicing transfer protections and to take steps to protect borrowers from a wrongful foreclosure sale. The proposal would also help ensure that surviving family members and others who inherit or receive property have the same protections under the CFPB's mortgage servicing rules as the original borrower.

  For example, among other things the proposal would require servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan. Currently, a mortgage servicer must give the borrower certain foreclosure protections, including the right to be evaluated under the CFPB's requirements for options to avoid foreclosure, only once during the life of the loan. Under the proposed rule, servicers would have to give those protections again for borrowers who have brought their loans current at any time since the last loss mitigation application. A summary can be found here, and the proposed rule can be found here.

  Turning to the markets, last week was a busy week for fiscal and monetary policy. With three dissenters, the FOMC slightly tweaked its language describing the period of time between the end of the QE program and when the first rate hike would take place. But we had other economic news as well. November industrial production data showed an impressive pace of industrial output for the month, while October's data were revised higher. Housing starts fell a surprising 1.6 percent in November after posting a 1.7 percent increase in October. And consumer prices slid in November, declining 0.3 percent with energy prices pulling the headline index lower. Core prices edged higher a slight 0.1 percent for the month.

  We have a new week with a new set of economic data and tomorrow is a deluge. Today we've had the Chicago Fed National Activity Index, but will also have Existing Home Sales. Tomorrow is the 3^rd quarter GDP numbers, Personal Consumption, volatile Durable Goods, the core PCE index, a University of Michigan consumer sentiment number, the FHFA House Price Index, New Home Sales, and Personal Income and Consumption. Whew! On Christmas Eve we'll have the MBA app numbers and Initial Jobless Claims and expected low MBS liquidity. Thursday holds awkward family gatherings, and then we'll see who shows up Friday.

    Rate Market Report:

Early this morning the US stock indexes were trading better, the 10 yr note yield at 2.18% +1 bp and at 8:30 30 yr MBS price -14 bps. Holiday trading this week and next. Last week’s run up in the stock market didn’t break the rate markets, investors and traders still willing to hold treasuries, supporting MBS prices. U.S. stock-index futures better this morning after the biggest three-day jump since 2011, amid investor optimism that the Federal Reserve will continue to support the economy. Treasuries holding well amid investor optimism that inflation isn’t going increase next year.

U.S. equities jumped 5% in the past three sessions as Fed Chair Janet Yellen said the central bank will likely hold key rates near zero at least through the first quarter, even as the U.S. economy strengthens. December has been volatile to say the least; oil prices and Russia’s currency collapse took the equity market down and initially wiped out $1 trillion of value in stocks to begin the month. The fear factor evaporated quickly after the FOMC meeting a Yellen’s comments; stock indexes have recovered all those losses in the last two weeks. Equities rallied around the world after the central bank said it will be patient on the timing of a rate increase. Yellen said any spillover from the situation in Russia is likely to be small. In the meantime interest rates have held steady compared to the volatility in equities. We don’t expect equity market volatility to end anytime soon, the beginning of the year likely will start with increased volatility after the next two weeks that should cool off somewhat from recent volatile trading.

At 9:30 the DJIA opened +94, NASDAQ -3, S&P +3. 10 yr at 9:30 2.17% unch after trading at 2.18% earlier; 30 yr MBS price at 9:30 unchanged after opening -14 bps.

10:00 am; Nov existing home sales, expected at 520 mil from 5.26 mil, sales dropped 6.1% to 493 mil. Yr/yr up 2.1%, $205,300 average sales price +5.0% yr/yr. Based on the pace of sales there is a 5.1 month supply. At 1:00 Treasury will begin this week’s borrowing with $27B of 2 yr notes.

Looking forward; the 50% decline in the price of oil has yet to have any serious effects on the economies of the Mid-East. Huge amounts of reserves keeping those richer countries’ citizens calm but if crude doesn’t rebound next year the loss of revenues may filter to less services for people in those countries that remain unaffected so far. The Mid-East is already in serious turmoil with tribes of old rising up to reclaim lands and/or convert others to their specific tribal rules. If the Saudis, Kuwaitis, and other Persian Gulf monarchies become unable to transfer some of the oil wealth to the populous it may be next year’s geo-political story.

This week’s Economic Calendar:

Monday,
10:00 am Nov existing home sales (-1.2% 5.20 mil; as reported -6.1% to 493 mil)
1:00 pm $27B 2 yr note auction

Tuesday,
8:30 am Nov durable goods orders (+3.1%, ex transportation +1.3%)
Q3 final GDP (+4.3% from +3.9% on prelim)
Nov personal income and spending (income +0.5%, spending +0.5%, PCE core +0.1%)
9:00 am Oct FHFA home price index (+0.2%)
9:55 am U. of Michigan consumer sentiment index 93.0 from 93.8)
10:00 am Nov new home sales (+0.4% to 460K units ann.)
1:00 pm $35B 5 yr note auction

Wednesday,
8:30 am weekly jobless claims (+1K to 290K)
11:30 am $29B 7 yr note auction
1:00 pm stock market close
2:00 pm bond market close

Thursday,
Merry Christmas

Friday,
Markets open

As long as the 10 can stay below 2.20%/2.21% our work will stay positive for rates at the long end, including MBSs. A solid break above 2.21% on a close will turn our near term outlook. That said, although technically bullish, we don’t want to float. It is unlikely doing so will reward much this week.

PRICES @ 10:10 AM

• 10 yr note: -3/32 (9 bp) 2.17% unch
• 5 yr note: unch 1.65% unch
• 2 Yr note: unch 0.65% unch
• 30 yr bond: -13/32 (41 bp) 2.77% +1 bp
• Libor Rates: 1 mo 0.165%; 3 mo 0.247%; 6 mo 0.343%; 1 yr 0.605%
• 30 yr FNMA 3.5 Jan: @9:30 104.14 unch (+2 bp from 9:30 Friday)
• 15 yr FNMA 3.0 Jan: @9:30 103.91 +6 bp (+11 bp from 9:30 Friday)
• 30 yr GNMA 3.5 Jan: @9:30 104.80 -7 bp (-1 bp from 9:30 Friday)
• Dollar/Yen: 119.90 +0.40 yen
• Dollar/Euro: $1.2255 +$0.0026
• Gold: $1195.10 -$0.90
• Crude Oil: $56.26 -$0.87
• DJIA: 17,873.58 +68.78
• NASDAQ: 4773.78 +8.40
• S&P 500: 2071.16 +0.51
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