LOS Survey Results, Banks Buying Non-Banks, Lehman vs. Loandepot and Imortgage

By rchrisman@robchrisman.com

(Yes, this is a gal's joke; I am merely passing it along.)

Looking in the mall for a cotton nightgown, I tried my luck in a store known for its hot lingerie. To my delight, however, I found just what I was looking for.
Waiting in the line to pay, I noticed a young woman behind me holding the same nightgown. This confirmed what I suspected all along, that despite being over 50, I still have a very "with it" attitude.
"I see we have the same taste," I said proudly to the 20 something behind me.
"Yes," she replied. "I'm getting this for my grandmother for Christmas."

Per STRATMOR's LOS Technology Insight Survey, 30% of lenders report that are not satisfied with their LOS and are either actively looking to replace or are in the process of replacing their system. Lender Satisfaction is only one component of the detailed results report that is now available for purchase. The full report includes the results from more than 250 lenders and reports on LOS Functionality, Market Share, Overall Satisfaction, User Experience, Implementation Experience, Expenditures and Required Resources and other LOS considerations as well as Third-Party Integrations such as Document, Lead Management/CRM, POS and Pricing Engine software. The report also includes detailed lender feedback on 17 unique Loan Origination systems including satisfaction, user experience and a functionality assessment. To download a sample of the report or to purchase the full report, click here.  

We have some news from the continuing Lehman Brothers saga. Josh Rosenthal, an attorney with Medlin & Hargrave, PC, writes, "LBHI just filed an adversary proceeding in the Lehman bankruptcy against Imortgage.com, Inc. and Loandepot.com, LLC, for indemnity related to the Fannie Mae settlement LBHI entered into in 2014.  LBHI has already filed some of these actions against nearly 200 loan originators (of the 3,000 or so loan originators that it has indemnity claims against).

"This action is related to claims LBHI has been making in demands to loan originators over the past year. LBHI has taken the position that loan originators that purchased certain assets of other loan originators that originated the loans that were the subject of the Fannie Mae settlement are also responsible for liabilities of those loan originators. It has convinced the bankruptcy court to force these alleged successor companies into the Alternative Dispute Resolution procedure it has in place which requires loan originators to mediate with LBHI in New York.  Now, LBHI is filing actions against these alleged successors based on asset sale agreements. 

 "Due to a ruling by the 10^th Circuit Court of Appeal in February of 2016, the statute of limitations that may apply to indemnity claims related to the Fannie Mae settlement is the three year limitations period of Delaware, not the six year period of New York. So, Lehman may feel some pressure to get all of its claims on file by the end of next month or risk not being able to file any of the claims." Thanks Josh!

 Residential lending and legal entanglements aren't confined to the United States. Spanish banks lost a court case over mortgage interest payments. The EU Court of Justice ruled that Spanish banks may have to refund billions of euros to mortgage customers who paid too much interest on home loans.

Lawsuits aren't cheap, and the increasing cost of regulation, coupled with the need to invest in technology, creates fixed costs that hurt residential lenders and community banks overall. Companies can mitigate these costs primarily by getting bigger, which has prompted increasing M&A activity among community banks - and we will see plenty more among lenders in 2017. Research by Deloitte finds the biggest impediments to achieving a successful M&A transaction cited by large corporate executives and private equity investor respondents are: insufficient due diligence process (88%), improper target identification (83%), not valuing the target accurately (81%), changing regulatory and legislative environment (81%) and failure to effectively integrate (78%).

The holidays have not slowed the M&A pace. Just in the last week or so it was announced that in Florida IBM Southeast Employee Credit Union ($947mm) has filed an application to acquire Mackinac Savings Bank ($110mm). In Virginia Sonabank ($1.1B) will merge with EVB ($1.3B) in a merger of equals transaction. The deal is valued at about $178.3mm & after close will result in Sonabank owning about 51% of the company and EVB owning about 49%. HomeTrust Bank ($2.7B, NC) will acquire municipal leasing company United Financial (NC). (United underwrites & originates municipal leases for fire stations & other municipal buildings.) First Republic Bank ($68B, CA) will acquire student loan technology company Gradifi. (Gradifi offers programs that help members pay down student loans faster.) Simmons Bank ($8.2B, AR) will acquire Bank SNB ($2.5B, OK) for about $564.4mm in cash and stock or roughly 2.10x tangible book. In California Bay Commercial Bank ($653mm) will acquire United Business Bank ($451mm) for about $38mm in cash and stock. And in Texas Veritex Community Bank ($1.3B) will acquire Sovereign Bank ($1.1B) for about $162mm or roughly 1.74x tangible book.

 Today we had the usual Thursday Initial Jobless Claims. Here's something regarding the employment situation. Research by the Bureau of Labor Statistics finds the share of farm employment has declined from 40% back in 1900 to only 2% as of 2014. And research by Smith finds 65% of Americans believe computers and robots will take over the work people do now within the next 50 years. Of note, research by Korn Ferry finds 44% of leaders of large global businesses believe robotics, automation and AI will make people "largely irrelevant" in the future (when it comes to work). Crowe Horwath Financial Institutions Compensation Survey. The survey noted that more banks are now willing to pay above-market rates given a tight jobs market - a trend that's risen sharply over the past 4Ys. Consider that in the 2016 study, almost 29% of banks reported plans to pay more than 10% above market for some jobs. That's up 5bp from the 2015 study, 10bp from the 2014 study and 15bp from 2013. Not surprisingly, as compensation has ticked up, employee turnover has also risen. According to the survey, bank employees are changing jobs at the fastest pace in 10Ys, with non-officer turnover peaking at almost 19% and officer turnover reaching nearly 7%. By contrast, only 1Y ago, non-officer turnover rates stood at about 16% and officer rates at fewer than 5%.

Rates? Heck, we could be here for the next couple weeks. Fixed-income securities started Wednesday with a slightly positive bias and it held that slightly positive bias throughout the session, with all securities respecting some pretty tight trading ranges. There was no news yesterday to move rates although November's Existing Home Sales were +0.7% to seasonally adjusted annual rate of 5.61 million. November has the highest sales pace since February 2007. Housing inventory is at 4 months of supply, versus 4.3 months in October, which should continue to drive up median prices and crimp affordability for prospective buyers. Median existing home price for all housing types increased 6.8% to $234,900, which is the 57th straight month of year-over-year gains.

Today we've already had a tidal wave of data, so let's wade in. (Like that one?) November Durable Goods (-4.6%), final Q3 GDP (revised higher to +3.5%, topping forecasts), Initial Jobless Claims for last week (+21k to 275k), and the Chicago Fed National Activity Index (-.27). Later, in a spread of indicators across months, we see the FHFA Home Price Index (Oct), leading indicators (Nov), and the KC Fed's manufacturing survey (Dec). And if you have some spare ducats at 1PM the Treasury will auction $14 billion of 5-year TIPS.
The 10-year note closed Wednesday better by nearly .250 in price and yielding 2.54% while 5-year securities and agency MBS prices were better by about .125. After this first volley of economic data the 10-year is yielding 2.56% with MBS prices worse a shade versus last night.