Some
of the big topics here at the CMBA Western Secondary conference are margins,
compensation, and compliance. Reports show that bank tellers earned an
average of $25k in 2012 and other bankers earned 50% more. I have certainly
heard my share of stories about how a lender noticed a pleasant, intelligent
teller, and brought that person into residential lending with good success. How
about techniques on compensating compliance personnel?
Vendor
and counterparty vigilance is becoming the name of the game - it isn't enough to
police your own company's activities and financial health; you must also do the
same for key companies that your business relies upon. Law firm Buckley
Sandler tell us, "On July 1, the Federal Reserve Board announced a
joint enforcement action with the Illinois Department of Financial and
Professional Regulation against a state bank that allegedly failed to properly
oversee a nonbank third-party provider of financial aid refund disbursement
services. The consent order states that
from May 2012 to August 2013, the bank opened over 430,000 deposit accounts in
connection with the vendor's debit card product for disbursement of financial
aid to students. The agencies claim that during that time, the vendor misled
students about the product, including by (i) omitting material information
about how students could get their financial aid refund without having to open
an account; (ii) omitting material information about the fees, features, and
limitations of the product; (iii) omitting material information about the
locations of ATMs where students could access their account without cost and
the hours of availability of those ATMs; and (iv) prominently displaying the
school logo, which may have erroneously implied that the school endorsed the
product. The regulators ordered the bank to pay a total of $4.1 million in
civil money penalties. In addition, the Federal Reserve is seeking restitution
from the vendor, and, pursuant to the order against the bank, may require the
bank to pay any amounts the vendor cannot pay in restitution to eligible
students up to the lesser of $30 million or the total amount of restitution
based on fees the vendor collected from May 2012 through June 2014. The consent
order also requires the bank to submit for Federal Reserve approval a
compliance risk management program in advance of entering into an agreement
with a third party to solicit, market, or service a consumer deposit product on
behalf of the bank."
Ballard
Spahr
provided some elucidation on the recent CFPB/min-correspondent proposals,
specifically with regard to the questions that brokers will need to answer.
"To provide guidance, the CFPB sets forth a number of questions that it
may ask to assess whether a company using a mini-correspondent structure is
actually acting as a creditor, or is acting as a mortgage broker. The CFPB
notes that the questions in the guidance are not exhaustive and that no single
question is necessarily determinative of how the CFPB may exercise is
supervision and enforcement authority. The questions reflect areas that likely
are of concern to the CFPB, including whether the warehouse line arrangement
that the mini-correspondent uses to fund loans is bona fide and whether the
mini-correspondent is actually performing the functions of a creditor.
Among the various questions are the following. Is the warehouse line of credit
provided by a third-party warehouse bank? Is the warehouse bank providing the line
of credit one of, or affiliated with any of, the mini-correspondent's investors
that purchase loans from the mini-correspondent? How thorough was the process
for the mini-correspondent to get approved for the warehouse line of credit?
Does the mini-correspondent have more than one warehouse line of credit? Does
the mini-correspondent's total warehouse line of credit capacity bear a
reasonable relationship, consistent with correspondent lenders generally, to
its size (i.e., its assets or net worth)? What changes has the
mini-correspondent made to staff, procedures, and infrastructure to support the
transition from mortgage broker to mini-correspondent? What training or
guidance has the mini-correspondent received to understand the additional
compliance risk associated with being the lender or creditor on a residential
mortgage transaction? What entity (mini-correspondent, warehouse lender,
investor) is performing the majority of the principal mortgage origination
activities?"
Who
actually closes the loan is important. Speaking of the closing process, my STRATMOR
colleague Garth Graham has a great point on why it's so important to attend
closings. Often, loan officers think they are too busy and that
closing is a waste of time. But the person who is NOT at closing is going
to get blamed, and too often it's only the closing agents and the Realtors who
are present at the closing table. And it's also a great chance for
getting referrals and reinforcing the relationship. Read GET TO CLOSING for more
insights.
Financing
is all the rage! What happened to good old warehouse arrangements? America First
Multifamily Investors announced that it has entered into a second long-term
secured debt financing facility with Freddie Mac utilizing Freddie Mac's
Tax-Exempt Bond Securitization or "TEBS" program. Proceeds from the
TEBS Financing totaled approximately $94.7 million which was used to repay a
portion of the outstanding balance due on the Partnership's Tender Option Bond
facilities. The TEBS Financing is a securitization of 13 of the Partnership's
mortgage revenue bonds and essentially provides the Partnership with a
long-term variable rate debt facility at interest rates that will reflect
prevailing short-term tax-exempt rates. The effective interest rate to be paid
on the TEBS Financing is equal to the weekly Securities Industry and Financial
Markets Association ("SIFMA") floating index rate plus certain
credit, facility, remarketing and servicing fees (the "Facility
Fees").
And
lenders are setting up alternative funding arrangements. The latest news comes
from PennyMac, which is entering into a $550 million loan repo facility with
Bank of America to help fund newly originated mortgages. It sells the
mortgages to BofA, for PennyMac to potentially later repurchase, in a deal fully
guaranteed by PennyMac, for loan that Penny purchased from correspondent
lenders and were pledged for sale and/or securitization, according to documents filed with the SEC.
Fannie
Mae announced a $2bn risk-transfer deal - its largest risk sharing MBS
sale to date. And BlackRock plans to auction off $3.7 billion, in an
"all or nothing" deal, of legacy subprime mortgage-backed securities
today. Redwood plans to sell its second prime RMBS of the year, Kroll
said in a presale report, backed by high quality, prime jumbo mortgage loans.
It will have an aggregate loan balance of $306 million, an average loan balance
of $699k, with the top originators being Homestreet ( 21.5%), FRB (13.3%), and
PrimeLending (9.9%). The servicers include Cenlar (81.9%), FRB (13.3%), and PHH
(4.8%), with most of the production coming from California, Washington, and
Texas. Interestingly, "only" 87% of loans fall under the scope of
the QM. No one ever said non-QM loans are bad loans, and in this pool the
weighted average LTV is 71% and the weighted average credit score of the
mortgage pool is 768.
But
wait, there's more! Credit Suisse is in the market with a new $368
million jumbo RMBS. These loans come from Quicken, First Republic, Caliber, and
Sierra Pacific.
Up
until recently there had been only about 50 prime transactions issued since the
market "re-started" in 2010, with most of that volume placed over the
past 24 months. Given the lack of commercial lending opportunities there has
been strong portfolio demand for high quality mortgage assets, and challenging
securitization incentives. But a growing source of supply in 2014 has come
from GSE risk transfer programs, noted above. Both Fannie Mae and Freddie
Mac have issued multiple transactions in 2014 and all indications suggest they
will continue to be active for the remainder of the year. According to the
Federal Housing Finance Agency's 2014 Scorecard for Fannie Mae and Freddie Mac,
each is expected to execute credit risk transfers on residential mortgages of
at least $90 billion of unpaid principal balances. This represents a three-fold
increase from last year's scorecard. In addition, the GSE's are
encouraged to explore other transactions types, which can include a senior/sub
structure or other alternatives. We're also seeing very strong demand for
non-traditional mortgage transactions, including non-performing loans,
re-performing loans, and single family rental securitizations.
Investors
have little to complain about, as the performance of the pools has been
excellent. Heck, they're filled with creampuff loans, right? The most recent
stats I saw said that of the 20,000 loans securitized since 2010, only one loan
is currently more than 60 days delinquent. Recent issuances contain higher FICO
scores (771), lower combined loan-to-value ratios (68% versus 70%) and more
loans that are fully documented (100% versus 64%) than deals that came to
market prior to 2005.
And
lenders/investors are also pushing the envelope. AmeriHome Mortgage Company
is rolling out a new Core Jumbo Product. For information on
this product and other opportunities, visit Amerihome. I spent some
time with AmeriHome yesterday at the CMBA conference, and they have a lot of
expansion plans in the works!
Athas
Capital Group has lowered rates and fees and expanded subprime guidelines.
Some opportunities available for clients include OO LTV's to 80%, NOO to 75%
with only a 650 FICO, 12 or 24 months personal bank statements available, Asset
depletion program, and Stated income available for business purpose loans.
Cole
Taylor Mortgage recent bulletin included Jumbo Loan Guideline Enhancements.
Several helpful enhancements and clarifications have been updated which
include: allow new subordinate financing, acreage over 10 acres up to 20 acres
allowed in certain circumstances, increase in maximum LTV for specific programs
and terms, and decreased minimum allowable FICO on some products.
Carrington
Mortgage Services announced FICO Reduction to 550 on Government Programs.
Impac
Mortgage Corp. Wholesale offers FNMA HomePath loans with credit scores
as low as 620, up to 95% LTV for primary residences and up to 90% LTV for
second homes and investment properties. "5-10 Financed Properties, Fixed
Rate Loans - Fully Amortizing, No Appraisal Required- the Sales Price is Used
to Determine LTV/CLTV/HCLTV. No Mortgage Insurance, gifts acceptable and condos
allowed."
Lastly,
on the earnings front, JPMorgan Chase reported second quarter 2014 net
income of $6.0 billion on revenue of $25.3 billion. Mortgage banking net income
was $709 million, a decrease of $433 million from the prior year, driven by
lower net revenue and a lower benefit from the provision for credit losses,
partially offset by lower noninterest expense. Mortgage application volumes
were $30.1 billion, down 54% from the prior year and up 15% from the prior
quarter. And period-end total third-party mortgage loans serviced were $786.2
billion, down 6% from the prior year and 2% from the prior quarter.
There is not much pushing rates one way or
the other, resulting in another quiet day for rates Monday although MBS prices
worsened about .125. There was no news, unlike today which includes the June
Retail Sales number (expected +.3%), the July NY Fed manufacturing survey, and
the June Import Price Index. Later we'll have Fed Chair Janet Yellen giving her
version of Humphrey Hawkins testimony. The "benchmark" 10-yr closed Monday with a yield of
2.55% and in the early going is at 2.53%, and agency MBS prices are better by
about .125.
The rate markets continue to decline this
morning as the stock indexes are better early this morning. Yesterday MBS
prices declined 24 bps, at 9:00 this morning down another 5 bps. The 10 yr
yield increased 2 bps yesterday, at 9:00 this morning another 1 bp higher in
rate to 2.56%. 8:30 data; June retail sales expected up 0.6% were up 0.2%, ex
auto sales expectations were for an increase of 0.6%, as reported +0.4%. The headline
didn’t look very good but May retails were revised higher by 0.3%, from +0.2%
to +0.5% lessening the reaction to the weaker June sales. Also at 8:30 the July
NY Empire State manufacturing index was expected to have slipped a little from
19.3 in June to 17.8 in July; the index increased to 25.6. The NY report is a
regional one and has been increasing over the last few months; the April index
was 1.9, May 19, June 19.3 and now 25.6. A very healthy increase over the last
four months. The two data points supported the equity market indexes prior to
the 9:30 open. While the data is better overall, not much change in markets
ahead of Janet Yellen’s testimony at the Senate Banking Committee.
At 9:30 the DJIA opened +48,
NASDAQ +8, S&P +3; 10 yr 2.55% +1 bp and 30 yr MBS prices -9 bp from
yesterday’s close and -17 bps from 90:30- yesterday).
Janet Yellen is
beginning her testimony shortly. Since her Feb testimony the economy has gained momentum; the
unemployment rate was 6.7%, now 6.1% and inflation was 1.2%, less than the 2.0%
the Fed wants. Since the Feb testimony inflation has edged up to 1.8% and
obviously close to the Fed’s goal. Yellen has said the Fed’s plans for interest
rates depend on how fast the economy converges on its goals of maximum
employment and 2% inflation. Yellen has been emphasizing recently that the del
ne in the unemployment rate is mis-leading and reminds that job creations are
mostly lower paying jobs and that 7.5 mil people that are working want full
time jobs but can’t find them. “While conditions in the labor market have
improved appreciably, they are still far from satisfactory,” Ms. Yellen said in
an update on the economy to the Joint Economic Committee in May. After a
five-month stretch in which businesses have added 1.2 million positions to
their payrolls; she is likely to be questioned on whether she now has a more
optimistic outlook.
BREAKING:
Yellen’s prepared text is a little more cautious about the economy than most
other analysts espouse. The rate markets gained ground from 9:30 levels (see
below for MBS 9:30 levels); at 10:10 +6 bp, up 12 bps. Technicals still holding
positive outlook, but still trading in tight ranges, no directional trend.
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