There
has been a huge rise in servicing by small and mid-sized lenders, and due to
potential liability most turn to a subservicer. LoanCare, part of the Black
Knight family of companies, is a leading national provider of full-service,
interim, component and back-up subservicing as well as servicing performance
solutions to the mortgage industry. With subservicing volumes exceeding
550,000 loans totaling over $110 billion in unpaid principal balance (UPB),
"LoanCare has been the smart solution for subservicing since 1991.
LoanCare offers award-winning technology to its lender/servicer clients
featuring superior data access for full transparency and robust reporting
capability. In addition, LoanCare deploys an intuitive borrower-facing website
and powerful mobile platform for its customers, providing convenient 24/7
access through their smartphones or tablets, better enabling them to manage
their mortgage loans. LoanCare will be at the
ACUMA 2014 Annual Conference in Las Vegas the week of September 14-17 and the
20th Annual ABS East Conference in Miami Beach. If you are interested in
meeting and speaking with the LoanCare team at the event, please contact Gene Ross.
On
the new product front, things are alive and well in the jumbo origination
sector. For example, California lender Western Bancorp, noted for its
innovative Jumbo ARM offerings and extensive wholesale lending experience, has
added another jumbo to its program offerings: the Newport Jumbo loan
program, with loan amounts to $2.5 million. This marks the third Jumbo program
Western Bancorp has added over the past few months, demonstrating its growing
commitment to the Jumbo Market. Learn more at the Newport Jumbo page or
contact management through email Western Bancorp.
But
all is not peaches and cream for lenders. (If I said Peaches and Herb, I'd
be showing my age.) Compass Point Research and Trading reports that Flagstar
filed an 8-K disclosing that the bank 'has commenced discussions with the CFPB
related to alleged violations of various federal consumer financial laws
arising from the bank's loss mitigation practices and defaults servicing
operations dating back to 2011.' The bank also disclosed it had received a
Civil Investigative Demand (CID) from the CFPB. There have been large mortgage
servicers that have received CIDs from the CFPB, albeit not all of them have
been disclosed. Considering Flagstar felt it was necessary to mention the
company was in discussions with the CFPB, we believe a material settlement may
be imminent. We believe FBC has little to no reserves established for this
issue. At of the end of 2011, FBC had a $64B servicing portfolio compared to
the current portfolio of $25B. Since the end of 2011, we estimate the company
sold over $100B of servicing UPB in order to reduce operating risk and increase
much needed capital. Most of the recent settlements we have seen between the
CFPB and other mortgage servicers have included several other regulators,
including the state attorneys general. This regulatory discussion appears to
only involve the CFPB which makes it difficult to give an estimate of any
future penalty payment."
Since
we're on the CFPB, who is Global Client Solutions?
It is the latest contributor to the CFPB's Civil Penalty Fund. And no, it is
not a mortgage company but instead a debt-settlement payment processor - but
the issue does have tidbits to see what the CFPB is up to. In its complaint
filed in a California federal court concurrently with the proposed stipulated
final judgment and consent order, the CFPB alleged that the defendants had
violated the Telemarketing Sales Rule (TSR) by assisting and facilitating the
charging of unlawful advance fees by debt-relief companies (DRCs) and that such
unlawful conduct also violated the Consumer Financial Protection Act. The
consent order requires the defendants to pay over $6 million in relief to
consumers as well as a $1 million civil penalty. The CFPB alleged that
after a consumer enrolled in a debt relief program, the DRC would instruct the
consumer to stop making payments to creditors and instead make payments to
Global for deposit in a custodial account. The CFPB claimed that at the
time Global transmitted advance fees to DRCs, it knew that it had not yet
transmitted any funds from consumers' custodial accounts to creditors.
The CFPB also claimed that Global had received hundreds of complaints from or
on behalf of consumers.
The
vast majority of the CFPB's settlements involved an administrative proceeding
and did not involve the filing of a complaint by the CFPB in a federal
court. The CFPB's filing of a complaint against Global concurrently with
the consent order likely reflects the CFPB's desire for the Global defendants
to be subject to the more severe consequences that attach to violating a court
order than an administrative consent order. Should the Global defendants
violate the injunction entered by the court, the CFPB could move to have them
held in contempt of court.
Besides
bank mergers and acquisitions, there are plenty of smaller deals being
contemplated and explored, especially as smaller mortgage brokers and mortgage
bankers join up with larger players. I receive plenty of notes that say things like, "Rob, we
are a one-branch operation and are being recruited by numerous companies. In
this current mortgage environment making the right decision is more important
than ever especially in terms of competitive loan compensation, strong reverse
mortgage presence, and diverse product options, all with an operations team
that loves their Loan Originators. What do you suggest?" Although the STRATMOR Group tends to
focus on whole company transactions and not individual branches, I turned to Jeff Babcock who replied, "Anyone
thinking about transitions like this should start with a few basic items.
Prepare a check list (in rank order of importance) of the factors which
are most critical in your evaluation process. Assess each prospective company
against that check list so that you can compare one against the other on an
apples-to-apples basis. Pay close attention to the corporate culture; while
culture is very intangible and subjective, cultural compatibility is the key
element of a successful new business relationship.
The
question is whether everyone is thinking the merger or acquisition through
strategically, or whether this is more of a fad that will fade as loan demand
heats up and profitability jumps for banks of all sizes (already happening).
Bankers have heard all the statistics and dire predictions that smaller banks
just aren't going to make it. The argument is that costs are too high and every
bank under (pick a number) in asset size will have to merge or perish. This
generalization is not true. Certainly bank size is one measure, but all markets
are different, overhead costs vary dramatically, competition is vastly
different and many banks & mortgage banks simply do a great job no matter
their size. The success rate for mergers has not been that great - whether
looking at banking or other industries. Think of the culture clash between
Daimler-Benz and Chrysler, or remember when Quaker bought Snapple for $1.7B and
then sold it 27 months later for $300mm. Look also at the time period between
2000 and 2008 when Wells Fargo acquired 19 banks. This was all about gaining
market share and geographic coverage and probably little time was spent
worrying too much about cultural fit of these acquisitions.
In
more recent M&A activity, the data shows the average buying bank has been
around $1.5B in assets and the average seller around $300mm. For banks of this
size, one could argue cultural fit matters a great deal. Any bank considering a
merger should delve deeply into how the merger will build franchise value. There
are many elements beyond the purely financial that are critically important,
and these cultural and strategic elements must be considered. They are best
assessed by the people who truly know the bank - namely, the people within the
bank. Merging banks also don't have to be the same, indeed differences between
merging parties can complement one another and diversify the business model.
When assessing a potential strategic fit, banks must ask and answer a lot of
questions. First, assess each market as measured by its population density.
Also assess population and economic growth dynamics. Are the economic engines
of the merging banks similar or complementary? Also consider the product mix.
For instance, if one bank has primarily agriculture lenders and the other bank
focuses on commercial real estate, there could be great synergies or a
potential clash of cultures. Is this an opportunity for a bank to diversify its
income stream, or will it lead to problems? Do the merging banks have similar
competitive forces and market share in their respective markets? Do the
management teams have a similar outlook and are business customs compatible?
Pacific
Coast Bankers Bank reminds us that "if the merger appears to be a good fit
after careful consideration of all things financial and cultural, the next hurdle
is one of integration. Obviously the customer experience is of paramount
priority but so is the handling of important employees and producers in the
bank. Management should be decisive about the direction of the new organization
and make every effort to integrate the most successful elements from the
existing banks into the new organization. The new bank will then grow out of
the best of the new and old and should have a good chance for success. For
those banks that are doing fine just as they are, our advice is to keep up the
good work and stick to a simple business model that feeds off of an expanding
economy."
Switching
gears again, no one is complaining about rates. But the costs of origination
are high, millions of borrowers have lower rates than what is being offered
now, every deal is tough, and purchase volume typically wanes heading into
autumn. Ugh. It helps our bond prices when prospects of further easing by the
ECB (European Central Bank) rise. Remember the chaos surrounding Portugal,
Italy, Greece, and Spain? Well, Italian, Spanish, German, and several other
countries' bonds are all yielding less than our 10-year T-note.
As
desks start to be vacated ahead of the 3-day weekend , the focus will continue
to be on European markets and what/when the ECB chooses to do either next week
or this fall and geo-political headlines. Also on tap today was Weekly Initial
Jobless Claims (-1k), the second look at Q2 GDP (+4.2% up from 4%); later is
Kansas City Manufacturing, and Pending Home Sales, along with a $29 billion
7-year note auction. So Wednesday...bonds rally, stocks rally... will the fun
never end? The 10-yr closed Wednesday at 2.36% and we're at 2.34% this
morning with agency MBS prices better by .125.
http://globalhomefinance.blogspot.com
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