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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
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