D-Day
was a well-guarded secret, and there are lots of secrets, or at least little
known things, in the world. For example, did you know that (supposedly)
McDonalds has a secret menu, and that every
day around 10:30AM, during the shift from breakfast to lunch, you can order the
Mc1035?
In what has become nearly a
bi-weekly feature in this commentary, the list of banks merging, dissolving,
waxing and waning continues without stopping. The regulators, and the CFPB,
have never said anything about "leveling the playing field", and it
makes sense for banks to save money and join forces. Is the consumer better
off with fewer, but larger, banks around? We'll see! In Virginia EVB
($1.1B) will acquire Virginia Company Bank ($134mm) for about $9.6mm. Down in
Georgia United Bank ($1.1B) will acquire Monroe County Bank ($97mm). Five Star
Bank ($3.0B, NY) will acquire insurance agency Scott Danahy Naylon Co. (a full
service insurance agency with 6,000 customers in 44 states). First Tennessee
Bank will buy 13 branches in TN from Bank of America for a 3.32% deposit
premium, temporarily capturing $660mm in deposits. BBVA Compass ($75B, AL) has
closed 6 branches in TX as it continues to refine its branch network.
The fact that the CFPB "is
aggressively going after mortgage, title and real estate companies that it
believes are violating laws prohibiting payments or incentives for customer
referrals" is not news to those in the industry. What many will find
interesting in this story is what the CFPB actually does with the
money it collects.
I
find myself worrying more and more about the younger generation....which I
shouldn't really be doing; I should still be worrying about the older
generation according to the CFPB's recent report Snapshot of Older Consumers and
Mortgage Debt. The Bureau writes, "The CFPB's analysis of
Census data shows that the percentage of homeowners' age 65 and older carrying
mortgage debt increased from 22 to 30 percent (3.8 to 6.1 million) from 2001 to
2011.16 Additional data from the Federal Reserve shows that consumers over age
75 had the greatest increase during this period. The proportion of consumers 75
and older with mortgage debt more than doubled from 8.4 to 21.2 percent." According
to the report, in addition to mortgage debt, the Bureau found that older
Americans are also carrying more credit card and student loan debt into retirement
than they were during the same period. Student loan debt into retirement? Are
people retiring when they hit 32 ½ nowadays?
Contrary
to popular opinion, Benjamin Lawsky did not crash the MBA conference last
month; he was actually scheduled to speak. Although rumor has it, he was
initially turned away from entering by a guard who claimed he did not have the
appropriate credentials...the guard has since been fired, but I've been told Credit Suisse Group has
hired the gentleman as their new Vice President of LOL. When Lawsky finally
took the podium, he mainly discussed his concern regarding conflicts of interest
in providing of ancillary services by special servicers. "Recently...there
has been an evolution in the mortgage servicing industry. Regulators are -
appropriately, in the wake of the financial crisis - putting in place stronger
capital requirements for big banks. In particular, they are giving those
banks less credit for the - often distressed - mortgage-servicing rights on
their balance sheets...rather than building up stronger capital buffers in
response, many large banks are instead offloading those MSRs to nonbank
mortgage servicers - which are often more lightly regulated." I hate it
when regulators are actually correct; "Now, one of the things we're
concerned about as a regulator is whether these MSR sales trigger a race to the
bottom that puts homeowners at risk. Remember, in most cases, the
compensation to be paid for servicing is fixed by the PSA; it cannot be
diminished," Lawsky said. "So the cheaper a servicer can service
those mortgages, the more profit it expects to earn from the fixed servicing
fees, and the more it can offer the banks to buy these MSRs."
Speaking
of the MBA, it spread the word yesterday that the "FHFA announced that it is
seeking input on the guarantee-fees that Fannie Mae and Freddie Mac charge
lenders. As you may recall, upon taking office Director Watt suspended planned
g-fee changes, pending a comprehensive policy review. This request for input
seeks to ascertain the optimal g-fee policy to balance the need to protect the
taxpayer against the implications for mortgage credit availability. The
request for input, along with specific questions, can be found here. Responses are
required by August 4, 2014. The MBA will be forming a working group to
review and respond to this request. Any member interested in participating in
crafting this response should reply to this e-mail no later than cob
Wednesday, June 11th."
It
is a good thing to put this gfee thing in perspective. They impact a lot of
things: the price a borrower pays for a loan, the share of business MI
companies receive, the reason why jumbo pricing is better in many areas than
conforming loans, the level of private capital entering the mortgage market,
etc. In fact, it is no mystery why many borrowers are not refinancing even with
low rates: the gfees and other fees (upfront fees are called Loan Level Price
Adjustments - LLPAs - by Fannie Mae and post-settlement delivery fees by
Freddie Mac) serve to make conforming conventional loans more expensive by
50-75 basis points.
Remember
that in mid-December the FHFA, under Ed DeMarco, had announced a 10 basis point
across-the-board increase in guarantee fees and an increase in upfront fees
charged to higher risk borrowers. These increases were put on hold by Mel Watt
after he became director of FHFA five months ago. Industry experts believe that
the announcement and commentary from the FHFA further reinforces views that Mel
Watt will take a broader view of FHFA's role as conservator of the GSEs, which
they believe will be positive for the housing market.
But
it isn't a matter of everyone writing in saying they want lower g-fees. The
announcement from FHFA yesterday asks for industry input on a number of key
issues including the appropriate return on capital that should be driving
g-fees, is there a level of g-fees that will drive private capital back into
the market, the impact of rising g-fees on overall mortgage volume, and whether
the GSEs should charge higher LLPAs if it means that these loans move into FHA
programs. The FHFA report suggests that the g-fees being charged by the GSEs
are already reasonable to cover the risk taken by the government, so perhaps
further broad increases are unlikely. And who knows - the possibility exists
for LLPAs to be reduced and potentially offset by slightly higher across the
board g-fees.
On
May 27, Fannie Mae announced numerous selling policy updates. The
announcement includes changes to Fannie Mae policies related to cash-out
refinance transactions to provide additional flexibility and clarity with
regard to delayed finance, continuity of obligation, and multiple finance
properties for the same borrower. The announcement also details several
asset-related updates, including, for example, that Fannie Mae will no longer
require documentation for any deposit on a borrower's recent bank statement
that exceeds 25% of the total monthly qualifying income for the loan. Instead,
Fannie Mae is changing the definition of a large deposit to 50% of the total
monthly qualifying income, and states that when a deposit includes both sourced
and un-sourced portions, only the un-sourced portion must be used when
calculating whether the deposit meets the 50% definition. Fannie Mae also
announced: (i) updates to the definitions for retail, broker, and correspondent
origination types; (ii) clarification of the requirements for use of a power of
attorney; and (iii) revised requirements for reporting lender financial
statements.
Looking at rates, the big news yesterday
driving our markets was not anything that happened between our borders. The European Central
Bank (ECB) announced a package of policy changes intended to stimulate economic
growth in the Eurozone and thereby reduce the probability of a mild
deflationary environment taking hold. The policy moves can be broadly divided
into changes in policy rates (intended to guide short-term interest rates in
the Eurozone lower) and policies that the ECB hopes will jumpstart lending to
the private sector. The ECB cut its deposit rate below zero for the first time
and reduced its benchmark to a record 0.15%.
What
is interesting about this, of course, is that it the 180 degree opposite of
what is happening here in the United States as our Fed is winding down its QE
program of the monthly asset purchases. (The Bank of Japan continues with its
asset purchase program begun about a year ago.) Analysts and investors continue
to closely monitor the technical situation of supply and demand: with the Fed
tapering and some seasonal increase in supply, there are increased risks of
temporary technical imbalances, which will pressure spreads. The Fed is buying
about $1.6 billion a day of agency product compared to whatever lenders are
producing.
But
today we've had the unemployment data. Yesterday's rally of about .125 in agency
product and in the 10-yr (which closed at 2.58%) is exactly that: yesterday's
news. The Bureau of Labor Statistics told us that nonfarm payrolls were up
217k, spot on with expectations, and the Unemployment Rate was 6.3%. The labor
force participation rate was unchanged. After the news, in the early going,
we're looking at an unchanged market for rates and prices.
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