Tuesday, September 30, 2014

Buybacks, Disparate lending, Indemnifications, and CFPB & Flagstar - all in a day's work!



How did we arrive at the end of the 3rd quarter so quickly? It has been filled with legal news about the financial services sector right up to the very end. Former Federal Reserve Chairman Ben Bernanke and ex-Treasury secretaries Henry Paulson and Timothy Geithner have been called to testify at the U.S. Federal Court of Claims in a lawsuit brought by Maurice "Hank" Greenberg's Starr International, the largest shareholder of American International Group. The suit claims an unconstitutional "taking" of property when the government assumed 80% of the insurer's stock. The fun never ends.

Philip R. Stein (Bilzin Sumberg Baena Price & Axelrod LLP) wrote a piece for American Banker on fighting buybacks. Mr. Stein will be presenting a free webinar on October 9 (available for re-broadcast thereafter) on the CFPB's attempts to expand its authority, and how lenders can best defend against CFPB investigations and enforcement actions.  Anyone interested in registering for the webinar should email Phil Stein.

Speaking of the intersection between legal and lending, home loans to minorities are at a 14-year low. Is it because fewer actually qualify, or because of discrimination or disparate lending? It is a touch subject, and things might become touchier. "The Supreme Court is weighing whether to hear an appeal from Texas officials who argue that intent to discriminate must be proven and that the "disparate impact" standard is too loose an interpretation of the landmark 1968 law that prohibited discrimination in housing.

"Lenders continue to accelerate their efforts to wrap up repurchase activity on legacy loans. Notably, AMLG has seen Bank of America ramp up its efforts in shaking down the correspondent lenders in an effort to collect as much of their losses as they are able to." So wrote the American Law Group in its latest newsletter, although it does not appear to be on its website which is unfortunate as it is quite lengthy and hard to do justice in this commentary. "Although it has not yet been clearly ascertained what the effect of the $16.65B settlement will have on originators, AMLG expects that this settlement, in addition with the prior settlements with the GSEs, will force Bank of America to more aggressively come down on the originators to recuperate its damages." In addition, "On another note, there have also been several other recent developments both in and out of court having the potential to materially affect those repurchase and make-whole defense and resolution strategies that are being presently employed in a number of key jurisdictions. Included in the recent rash of filings by RFC, LBHI in its bankruptcy case in New York, as well as the significant number of lawsuits being filed by LBHI, RFC, Flagstar, Franklin American, BB&T, US Bank, FDIC on behalf of IndyMac, are their ever changing litigation strategies. The battle, which has been won in many states by originators and lenders, has been over the applicable statute of limitations which is a defense that swiftly ends litigation. The issue is whether the statute runs from sale of the allegedly defective loans, as that is when the breach of representations and warranties occurred, or when the lender suffered an actual and appreciable loss. Because cases have come down in various states in favor of originators regarding the statute of limitations for breach of contract claims, lenders are shifting arguments, now asserting that the statute of limitations should be assessed in its indemnification claims."

The Federal Deposit Insurance Corporation announced a settlement with Merrick Bank, South Jordan, Utah, for unfair and deceptive practices related to marketing and servicing of credit card "add-on products," in violation of Section 5 of the Federal Trade Commission (FTC) Act. "This action results from a review of the Bank's credit card products by the FDIC. As part of the settlement, the Bank stipulated to the issuance of a Consent Order, Order for Restitution, and Order to Pay Civil Money Penalty (collectively, FDIC Order). The FDIC Order requires the Bank to pay a civil money penalty (CMP) of $1.1 million, and restitution of approximately $15 million to harmed consumers. Consumers who are eligible for relief under the settlement are not required to take any action to receive compensation." 

As expected, the CFPB targeted Flagstar Bank for its latest penalty. As you might recall, Flagstar mentioned the possible action a month or two ago in its quarterly report. So although not a surprise, I am sure it still hurts. "Flagstar must pay $27.5 million to consumers whose loans were being serviced by Flagstar and who were subject to its unlawful practices. At least $20 million of this amount will go to victims of foreclosure. Flagstar must also engage in outreach to affected borrowers who were not foreclosed on and offer them loss mitigation options. Flagstar must halt the foreclosure process, if one is happening, during this outreach and qualification process. Flagstar also is barred from acquiring servicing rights for default loan portfolios until it demonstrates that it is able to comply with the laws that protect consumers during the loss mitigation process. In addition, Flagstar will make a $10 million payment to the Bureau's Civil Penalty Fund."

Also recall that recently the CFPB and OCC have ordered US Bank to pay nearly $59 million in restitution and civil money penalties to settle allegations around identity theft products billed by a third party related to 420,000 consumer accounts. Consumers were reportedly billed for products but did not receive the full benefit of what they purchased. 

The CFPB has published a notice stating that as part of its Owning a Home project, it plans to seek approval from the Office of Management and Budget to conduct a field study of the project. The project consists of a various online tools and resources developed by the CFPB to help consumers make decisions about mortgages. Comments are due by November 25, 2014.

According to the CFPB, the purpose of the field study is to evaluate and improve its Owning a Home project.  Among the issues as to which the CFPB seeks to gain insight through the study are whether and how the project impacts consumers and which consumer segments or profiles benefit most from the project. To conduct the field study, the CFPB plans to recruit prospective homebuyers and assign them to one of two study groups: those exposed to the project (treatment group) and those not exposed (control group). The CFPB then plans to survey both groups as they go through the mortgage shopping process, track the treatment group's usage of Owning a Home tools and resources, and compare the two groups' attitudes, behaviors and outcomes.

While we're on the CFPB, Ballard Spahr's Barbara Mishkin writes, "In May 2013, we reported that the CFPB's amicus program scored a victory when the U.S. Court of Appeals for the Second Circuit ruled that the sale of a single-floor condominium unit in a multistory building was subject to the disclosure and reporting requirements of the Interstate Land Sales Full Disclosure Act (ILSFDA).  At the court's invitation, the CFPB had filed a letter brief supporting the consumer/appellee's position that the ILSFDA covered such sales. Now, it is condominium unit developers who have scored a victory with the Senate's unanimous approval of H.R. 2600 on September 18, 2014, following the bill's similar unanimous passage in the House last year.  While not exempting condominium unit sales from the ILSFDA's antifraud requirements, the bill exempts condominium unit developers from the requirement to register their projects under the ILSFDA and provide federal property reports to purchasers.  Barring a veto by President Obama, the new exemption will take effect approximately six months from now. For more on the bill, see our legal alert." 

It is hard to argue that the U.S. economy is not showing many positive signs, and that rates are being held in check by unrest overseas. Yesterday, for example, we began the day with stories of protests in Hong Kong, causing a flight to the dollar (and dollar denominated assets) and this was viewed as more important than the news here showing consumer spending rebounded in August as further job gains encouraged households to loosen their purse strings. (Personal Incomes rose .3% in August, while Personal spending rose .5%. The PCE Core rate - the inflation measure the Fed prefers to use - rose 1.5% year-over-year, below their 2% target rate.)

On top of that, recently Freddie Mac's Chief Economist told the New England Mortgage Banking Conference that 2015 could be the best year for home sales since 2007. Freddie is forecasting mortgage rates to be around 5% by the end of 2015 - apparently due to strength in our economy. Yet Pending Sales of U.S. Existing Homes Fell 1% in August, and declined 4.1% year over year, following a 2.8% annual decline in July.  August marked the 11th month of year-over-year decreases. The NAR chief economist said contract signings are holding steady and fewer distressed sales and less investor activity is likely behind August's modest decline. According to NAR's Profile of Home Buyers and Sellers, 81 percent of first-time buyers in 2013 who financed their purchase obtained a conventional or FHA loan. 

The news continues today with the July S&P/Case Shiller read on house price indices, seen improved from the prior -0.20%, September's Chicago Purchasing Manager's Survey, and September Consumer Confidence. In the early going rates have crept higher - probably due to less unrest overseas (a bad thing?). The 10-yr T-note closed Monday at 2.49% and this morning we're back at 2.52% and agency MBS prices are worse about .125.
http://globalhomefinance.blogspot.com

Monday, September 29, 2014

This Week Executive Rate Market Report




Whenever you see a market trade in very wide intraday and interday ranges it implies uncertainty and usually precedes a strong directional move; what direction must be determined by which side has the upper hand in terms of tipping the balance. The US stock market is currently in one of those patterns with wide interday swings; last week the key stock indexes were as volatile we have seen in months; at the end of the week the DJIA -166 points with daily ranges of 100+ points about every day last week. The 10 yr note rate and MBS prices swung back and forth each day tracking the uncertain equity markets. The 10 yield last week was down 4 bps to 2.54%, 30 yr MBS price not much improvement, +38 bp.

This morning August personal income and spending; both right on estimates; income +0.3%, spending +0.5%. The Yr/yr core personal consumption expenditures +1.5% well below the 2.0% the Fed espouses as the ideal.

At 9:30 the DJIA opened -159, NASDAQ -46, S%P -17. 10 yr at 9:30 2.49% -5 bp and 30 yr MBS price +17 bps frm Friday’s close).

The week has a lot of data points to think about with the Sept employment report the elephant of the week on Friday. The present battle being waged in the stock market between the diehard bulls and the increasing number of short term bears looking for a major retracement will dominate daily trading. Sixeable swings in the key equity market indexes will continue through the week on the data points, news frm Europe, the trade in the dollar and any potential geo-political events that may resurrect.

Europe and Japan are on a plan to drive their respective currencies lower; in Europe and Japan the lack of any inflation is forcing their central bankers to weaken their currencies. The result of the decline in the euro and yen is one support for US markets particularly our interest rate markets. The European Central Bank president (Draghi) says the exchange rate isn’t a policy target, officials aren’t secretive about their approval of the currency’s almost 10 percent slide. The depreciation increases the cost of imports and boosts exporters’ competitiveness, aiding the effort to revive inflation. The Bank of Japan officials retained a pledge to buy 60 trillion yen ($548 billion) to 70 trillion yen of assets a year to help spur inflation.

Treasuries and MBSs also getting support this morning on weak stocks and strong protests occurring in Hong Kong. Tens of thousands of pro-democracy protesters poured back into the streets of Hong Kong, to press demands for free and open elections and the resignation of Chief Executive Leung Chun-ying.

At 10:00 NAR reported pending home sales; forecasts were for a decline of 0.2%; as reported -1.0% and yr/yr -2.2%. NAR blames the decline on investors now backing out of the massive purchases over the last 18 months. Investors licked the plate clean; now it’s back to individual purchases.

The rest of the session today will focus all attention on how the stock indexes trade; eight out of the last 10 days the DJIA has closed 100 points frm the previous day. A lower close helps the bond market, higher closes take some away. The technicals on the 10 yr note are now bullish; not a runaway move but rate are likely to continue to decline more frm current levels. Our outlook remains the same; some lower rates but not back the low rates seen in late August unless equity markets totally collapse, and we don’t expect that to occur. Note the level of the stock indexes at 10:10 am below; already well off their opening lows.

This Week’s Calendar:

Monday,

8:30 am August personal income (+0.3%, spending +0.5%), both as forecast

10:00 am NARs pending home sales (-0.2%) as reported -1.0%


Tuesday,



9:00 am July Case/Shiller (20 city yr/yr price index +7.4%)

9:45 am Sept Chicago PM index (62.0 frm 64.3 in Aug)

10:00 am Sept consumer confidence index (92.5 frm 92.4 in Aug)


Wednesday,


7:00am weekly MBA mortgage applications

8:15 am Sept ADP private job growth (+200K)

10:00 am Sept ISM manufacturing index (58.0 frm 59.0 in Aug)

-Aug construction spending (+0.5%, +1.8% in July)

-No time Sept auto and truck sales (16.8 mil frm 17.5 mil in Aug)


Thursday,


8:30 am weekly jobless claims (+4K to 297K)

10:00 am Aug factory orders (-9.3%m July +10.5%)


Friday,


8:30 am Sept employment data (Unemployment 6.1% unch; non-farm jobs +215K, non-farm private jobs 215K; avg. hrly. earnings +0.2%)

-Aug trade deficit (-$40.9B; July -$40.5B)

10:00 am Sept ISM service sector index (58.8 frm 59.6 in Aug)

 

Thursday, September 25, 2014

Are you ready for autumn & winter lending?










A Harvard study tells us that 35% of American households (both homeowners and renters) spend at least 30% of their pre-tax income on housing costs. I remember back in college a friend of mine lived in a closet...ok, it wasn't actually a closet, but a room without windows is pretty close to one. I guess times have changed, and maybe the logic of student housing, according to Zillow's College Towns: Buy v Rent? In the question of "rent versus buy", it really comes down to the breakeven horizon; Zillow's breakeven horizon figure is the time it takes for the accumulating costs of renting a unit to exceed the costs of having purchased the residence from the beginning. The breakdown of university towns, and their corresponding numbers, incorporates all costs associated with buying and renting, including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, opportunity cost of buying a home, maintenance and renovation costs. It then factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates.

Not everyone is growing. A Bank Director survey of directors and senior bank executives of banks across the country finds 50% of banks with assets > $5B plan to reduce branches vs. 28% for banks $1B to $5B, 6% for banks $500 million to $1B and 9% for banks that have less than $500 million.



Everything being equal, anyone who thinks residential lending is going to skyrocket in the autumn and winter is foolish. Are they hoping for rates to plummet, or a new HARP? (There, I said it, and expect to receive a lot of flak for it.) For practically everyone, loans per branch and LO are generally lower than where they were 6 or 12 months ago. If not - congratulations, you are in the minority. If the U.S. economy continues to muddle along, and nothing too dramatic happens overseas, rates will stay where they are or possibly creep up. LOs, who had low volumes on tight margins when 30-year rates were at 3.50% last year, and still in the business, may have a tough time when rates are at 4.50%. Hopefully (and hope is not a strategy) we'll see some guarantee fee price help, or other loan-level price help, from the agencies. And although they don't directly impact 30-year mortgage rates, overnight Fed Funds tend to influence longer term rates - and psychology. The FOMC is currently projecting the Federal funds rate will be between 1.25% to 1.50% in 2015 and 2.75% to 3.0% in 2016. There are companies seeing stable margins and volumes, but those are mostly the ones that have added branches and staff. But even senior management at those companies has contingency plans for what happens if the industry has another winter like the last one.



Lending to minorities is at a 14 year low, probably for a variety of reasons. Certainly FHA lending has taken it on the chin. Buyback risk and fear of future class action lawsuits are candidates. Many minorities are all cash buyers, and certainly tighter credit standards have impacted things. Industry observers suggest that lenders should expect some sort of response from the Administration, and fair lending enforcement is probably going to be stepped up.



"Do bigger loan files mean better loans?" The MBA's Mortgage Banking magazine noted, "(a) 85% of all loan files contained 400-2,000 pages, (b) in 2010, only 3% of loan files had more than 800 pages, whereas 16% do today, (c) when looking at the number of loans with 500-900 pages, 52% of all conventional loans had them and 77% of VA loans had them." Mr. Joe Garrett, banking consultant and fervent A's fan, writes, "What's really eye-catching is that the 10 biggest loan files in the study contained more than 6,000 pages and the largest, for a jumbo self-employed borrower, had over 8,000 pages. Rules and regulations have led to fatter files, but the two obvious questions are these: (1) Is the borrower more protected now from bad lenders and bad loans, and (2) are these loans going to perform better?  Would anyone possibly answer yes to either question?"



Let's see what some vendors have been up to lately!



It has now gotten simpler to collect digital bank statements almost instantly.  AccountChek and Encompass announced they are partnering to provide Encompass users an automated way to collect and verify account statements and VOD's.  http://www.formfree.com/formfree-announces-integration-with-ellie-mae/.  Kevin Conlon, COO at Mason McDuffie Mortgage Corporation, stated "We are delighted to be using AccountChek, which provides a much needed technology solution to a previously outdated process. The AccountChek integration with Ellie Mae's Encompass will allow us to ensure bank account authenticity and increase originations by automating the collection, verification and analysis of borrower accounts."   Contact George Manolis at george@formfree.com.



Compass Analytics, LLC announced the release of its whole loan, MSR and agency best execution pricing and pipeline risk web services. "To date, pipeline risk, whole loan and MSR portfolio risk systems have worked off of batch processes of entire pipelines or portfolios.  With this new release, Compass's analytics solution, CompassPoint™, will be available on a transactional basis and be callable from most applications across the internet.  Compass clients and their third party vendors will now be able to integrate and access CompassPoint™s library of pricing and risk functions such as MSR value, whole loan value, structured cash flow value, agency best execution pricing, rate sheet pricing, investor eligibility and fair market and gain/loss values, from within their own applications on a loan-level, on-demand basis."



CoesterVMS has enhanced its Encompass integration to allow clients to use the cloud control system as a native application that can be built directly into its workflow and business rules. The interface is also open to CoesterVMS' web services to allow appraisal data to transfer between its system and Encompass. "It's a really solid interface and something that the industry has needed" stated David Marguilies, Executive Vice President, Director Global Sales at American Financial Resources/ELend. The next generation of integrations for LOS systems by service providers can be found at CoesterVMS.



Effective October 6, 2014, Arch Mortgage Insurance Company (Arch MI) is updating the rates for our Non-Refundable Single Premium Lender Paid Mortgage Insurance (LPMI) program, with the goal of enhancing our risk-based pricing. The changes include a new credit score tier for credit scores of 760+, and a further refined rate structure below 680. The new rates reflect lower pricing for high-quality loans, credit scores above 720, as well as some increases in the rates for credit scores below 660.



MGIC published new underwriting guideline effective October 1st. The new Underwriting Guide posted at www.mgic.com/newuwg, incorporates changes and updates for doing business with MGIC under its new Master Policy and has been reorganized into 3 sections for easier reference.



Altisource Portfolio Solutions S.A. ("Altisource" and NASDAQ: ASPS), a premier marketplace and transaction solutions provider for the real estate and mortgage industries, has launched Wholesale One, a new cooperative for the wholesale mortgage industry provide a platform for mortgage brokers, wholesale lenders and related vendors to provide quality loans to consumers nationwide.



National Mortgage Insurance Corporation (National MI), a subsidiary of NMI Holdings, Inc., announced that it has launched a new credit union mobile application (app) as well as a new website specifically for credit unions, cu.nationalmi.com. The mobile app enables users to run rate scenarios, view credit union-specific bulletins, and easily contact National MI personnel. National MI believes it is the first private mortgage insurer in the industry to create a credit union-specific app.



Comergence, a provider of third-party risk-management platforms for the mortgage industry, announces that it is now providing appraiser due diligence and screening services for eAMC, an appraisal management company based in Troy, Michigan.  Comergence offers a full suite of hands-on and automated services for screening and compliance monitoring.



But the big news came from New Home Sales which surged 18% in August to a 504,000 annualized pace, the strongest since May 2008. The one-month increase was the biggest since January 1992. And not helping those renters in the market, the median sales price of a new house climbed 8% from August 2013 to $275,600.



Today at 2:30AM HST we'll have August's Durable Goods (-17.9 expected) and Initial Claims (+300k), and later the government will auction off $29 billion of 7-year notes. In the early going the 10-yr T-note, which ended Wednesday at a yield of 2.57%, is sitting around 2.56% and agency MBS prices are little changed.

 

Executive Rate Market Report:

Headline durable goods orders declined 18.2% in August, a little weaker than -17% expected; ex transportation orders durables were up 0.7% as expect4ed. The overall decline due to aircraft orders being low after jumping 22.5% last month on strong aircraft demand. In the details orders for U.S. business equipment climbed more than forecast in August. A 0.6% advance in bookings for non-military capital goods excluding aircraft followed a 0.2 percent decrease in July that was smaller than previously estimated, data from the Commerce Department showed today in Washington.

Weekly jobless claims were expected to have increased 16K from the huge decline the previous week; as reported claims were up 12K to 293K against estimates of +20K; the 4 wk average at 298.5K frm 299.75K. Employment headlines continue to look good, firings are near lows of ten years ago; but wages are still not moving higher and many of the jobs are in the lower paying service sector. Yellen has made it clear she is worried about the quality of jobs being created.

At 9:30 the DJIA opened -33, NASDAQ -12, S&P -5. The 10 at 2.54%, 30 yr MBS price +19 bps frm yesterday’s close and +7 bp frm 9:30 yesterday.

At 1:00 Treasury will auction $29B of 7 yr notes to complete this week’s borrowing. Yesterday the 5 yr auction didn’t see the demand that has been the case over the last year; the 12 month average on the bid/cover at 2.73, yesterday at 2.56.

Interest rates still unable to crack key resistance levels but equally showing little increase. The 10 continues to fail at its key resistance at 2.53% but doesn’t see enough selling to push above 2.57%, yesterday’s closing level. MBSs of course ride the wave with treasuries. US stock indexes are looking a little shaky but like the 10 yr and all treasuries, still holding in a narrow range. In the Mid-East Obama made a passionate speech yesterday at the UN and his coalition is becoming increasingly more solid. Bombings in Syria and Iraq will slow the expansion of ISIS but if recent history can be relied on, the US and the coalition of the willing will eventually tire of it; Obama talks in terms of years. The situation is not having any noticeable impact on US, European, or Chinese markets.

The key driver that sent interest rates to the lows we had a month ago is no longer a factor; Ukraine/Russia safety moves to US treasuries is now settling into less military and more diplomacy that in the end Putin will achieve his initial goal. The US treasury market is going to continue to experience solid demand at times; our rates are 155 bps higher in rate than German bunds and higher than most good sovereign debt. Interest rates are not likely to increase much as we have noted previously, but equally we don’t expect rates will decline much either. The 10 yr note should stay within a 20 bp yield range through the rest of the year (2.66% to 2.45%).

The rest of the day will be directed by US stock indexes. The equity market rallied yesterday after two down sessions, this morning it is back to selling with the key indexes being hit hard. The 10 at 10:00 once again testing its resistance at 2.53%, MBS prices where they traded Tuesday after declining yesterday.

 
http://globalhomefinance.blogspot.com

Wednesday, September 24, 2014

2013 HMDA data out; MBS holdings in flux; Student debt impact quantified





I like to put my money to work. I could earn some decent dividend returns (3-4%) if I buy some Exxon, or AT&T. Or maybe I should start loaning my money out like this lender, and earn a 200-300% APR. (Pick a state and slide the dollar amount bar, and watch the APR magically change.) And we wonder why lenders have a bad reputation...or maybe it is merely a matter of risk versus return.

Chase breathed a sigh of relief Monday when, "Virginia Attorney General Mark R. Herring (D) dropped JPMorgan Chase from a mortgage securities lawsuit against the country's biggest banks, after learning that his predecessor Ken Cuccinelli (R) had already struck a confidential settlement with the bank." Huh? Confidential settlements? What about transparency? The plot thickens... 

Who is John Burns Consulting? Aside from working for home builders, I don't know exactly who it is. But its researchers believe that student debt caused 414,000 houses not to be sold. (And I guess the 414k, through the multiplier effect, quickly turns into billions.) But student debt is not going away, although students and families hope for college tuition appreciation to slow down given that the inflation rate is nearly 0%. Millennial Martine Torres suggests, "The real estate industry is up in arms about first time home buyers being saddled by debt and are therefore not purchasing homes. Yes, these factors contribute to the lack of first time home buyers but the mentality of the 'millennial' generation has  shifted from generations in the past that were eager to get married and buy a home to being more career-driven and being content with renting. My generation does not want to get tied up in mortgages at a young age and is delaying marriage; parental dependence is also at an all-time high.  The 'millennial' generation is commitment-phobic. 

Yay! The new HMDA data is out, the new HMDA data is out! The CFPB released the 2013 HMDA data. Remember that the regulators use HMDA data in their examinations to determine whether a lender is complying with fair lending laws. With the addition of more data points in the proposed HMDA regulations, many believe future HMDA data will become more critical in fair lending examinations. For further information regarding the HMDA data, click on the hyperlinks and URLs in the CFPB press release. "The Federal Financial Institutions Examination Council (FFIEC) announced the availability of data on mortgage lending transactions at 7,190 U.S. financial institutions covered by the Home Mortgage Disclosure Act (HMDA). Covered institutions include banks, savings associations, credit unions, and mortgage companies. The HMDA data made available today cover 2013 lending activity, and include applications, originations, purchases and sales of loans, denials, and other actions related to applications."

 

Yes, the HMDA data comes from lenders, and let's check in with some relatively recent announcements to see what some have been up to lately.

 

Per Bulletin 2014-46, issued August 12, 2014, U. S. Bank Home Mortgage announced that "effective immediately for all new FHA applications and FHA loans in process, USBHM was removing the additional reserve requirement on FHA loans when a borrower is vacating the primary residence and converting it to an investment property. The current requirement of 6 months PITIA reserves for both properties is being reduced to follow the current FHA requirement of 3 months PITIA reserves for both properties. Correction: Effective immediately for all new FHA applications and FHA loans in process, USBHM is removing our reserve requirement on FHA loans when a borrower is vacating the primary residence and converting it to an investment property. The current requirement of 6 months PITIA reserves for both properties is being eliminated. No reserves will be required.

A federal court in North Carolina ruled against the Federal Deposit Insurance Corp.'s takeover and multimillion-dollar loan loss claim against Cooperative Bank. The fact that the court ruled against the FDIC's $40 million claim against the former NC bank officers is viewed as a victory for "the small guy." 

Utilizing the Approved eSign Vendors list from Mountain West Financial, electronically signed initial disclosure packages for Conventional, FHA, and VA transactions are acceptable. Investor restrictions do not allow electronic signatures on the Final 1003/Uniform Residential Loan Application (URLA). Loan Originators must "Wet Sign" the Final 1003, no exceptions. 

Franklin American Mortgage's recent bulletin includes updates on Conventional Property Insurance, Private Road Maintenance Agreements, Secondary Financing - LP, DU Release Notes, VA New Construction, Closing Costs, USDA Annual Fee, All Products Incidental Cash Back - Texas, Clarifications FHA & VA Funds Reimbursed Paid by Credit Card, Conventional, VA and USDA Funds to Close Access Letters.

 

First Community Mortgage Wholesale posted guideline changes effective August 31st. These changes include DU Refi Plus and LP RR, FHA, USDA, and Conventional program updates. 

Mountain West Financial Wholesale matrix changes and updates include: USDA limited to 3% Platinum and Sapphire Grant, Mortgage Insurance required on HomePath loans, and removal of Second Homes as eligible for FHA Streamline Refinance. 

New Leaf Wholesale has reduced LPMI rates. The reduced rates will benefit NewLeaf's LPMI offering as MGIC has introduced additional credit buckets to deepen the discount on higher credit scores. New credit buckets are as follows: 680 - 719 un-changed, 720 - 739 lowered, 740 - 759 deeper discount, 760+ deepest discount. USDA loans are subject to the increased guarantee fee regardless of when a loan was submitted for review. If the RD Conditional Commitment is issued on or after October 1, 2014, it will be subject to the higher guarantee fee. No exceptions to this policy are possible. Initial disclosures must reflect the new fee effective immediately.

 

By now, many know that bank holdings of agency MBS has been decreasing. This is an important statistic, once which gives some insight into bank views on prepayment risk, cash flow valuations, and general market risk. As I received a few emails over the past week inquiring if I had any data on the subject, I thought I could combine a few reports I have read. The National Information Center has released consolidated financial statements for bank holding companies, and although the data is not as comprehensive as the Quarterly Banking Profile (which also includes savings institutions), soon to be released by the FDIC, they provide a good early estimate of changes in bank assets and liabilities. What we find is: agency MBS holdings decreased by $4.0 billion for the top 50 banks; a majority of the decline came in conventional agency MBS holdings, which fell by $4.2 billion; agency collateralized mortgage obligations (CMO's, which can be viewed as MBS' eccentric younger brother) holdings decreased $900 million, while the GNMA holdings increased by $1.1 billion; U.S. Bancorp had the largest increase in agency MBS holdings, adding $4.0 billion, while Bank of America reduced its holdings by $8.8 billion; holdings of non-agency MBS of the top 50 banks decreased by $4.4 billion, while commercial mortgage backed securities CMBS (which is MBS' over-achieving cousin who went to an Ivey League school and reminds everyone about it at Christmas time) holdings rose by $7.4 billion; and treasury holdings increased by $48 billion

"There might be a little noise in the data." That, and, "I couldn't figure out how to make a pivot table," are two things you never want to hear coming from your Capital Markets department. However, often times there is a lot of noise in data sets-if there wasn't, then I guess my first boss was correct: you really could turn a monkey into a mortgage trader. Part of the challenge of being an analyst is identifying variables which alter financial models; the good ones make the necessary adjustments, the bad ones ask if you if you all the veggies on your foot long sandwich. BAML writes in Home Prices: Noise Reduction, "We had been using the S&P Case Shiller national composite, released quarterly, in our models. However, this series has been discontinued and replaced with a monthly aggregate, which has a different history. It shows more stable prices, with less of a decline during the housing bust and a more steady recovery since bottoming at the end of 2011. According to this new national composite, home prices only fell 26% peak-to-trough (versus the prior estimate of 34%) and have increased 19% from then." The consequences of the new composite, according to the article, is the revised data suggests home prices will be up 3.9% this year (4Q/4Q) compared to BAML's prior forecast of 5.1%, and 3.4% next year.  

Things are heating up in the pipeline hedging biz. Compass Analytics, LLC announced that it is opening a new office in Midtown Manhattan on Lexington Avenue. "The new office is 2 blocks from Grand Central Station and provides easy access to all neighborhoods in New York City and the surrounding areas.  This Midtown Manhattan office allows us to continue to add to our presence on the east coast, making it more convenient for our customers to visit with their account managers and to also allow for more regular visits to many our Clients based in the North East."

 

For the bond markets, lack of volatility continues to be the case although by the end of Tuesday the 30-yr agency MBS "stacks" finished about .125 higher and the 10-yr risk-free U.S. T-note closed at a yield of 2.53%. So far this morning we've had the MBA's application numbers (not the same as locks) for last week. They dropped over 4% with purchases down slightly but refis down 7%. And at 8AM MST (MST since I'm in Denver today) will be New Home Sales for August; it is seen gently improved versus the prior print (+412k).  In the early going we're roughly unchanged at 2.54% on the 10-year and agency MBS prices better by a smidge.

 
http://globalhomefinance.blogspot.com

Tuesday, September 23, 2014

FHA Changes on their way; Servicing on the move; Upcoming events of interest



 

It would be nice to think that fraud in any industry doesn't exist - but it does.  And a story in the Los Angeles Times reminds readers that fraud is still a problem in residential lending. Not only does this industry have to continue to grapple with headline-grabbing fraud stories, but who the heck can figure out what is going on? Yesterday alone a quick glance at lending headlines showed, "Should Mortgage Lending Standards Ease?", "Policy Makers Face Tough Question: Is Drag on Housing Due Mainly to Tight Standards or Weak Demand?" "Cash Home Sales, While High, Are Falling" (the share of homes being purchased without a mortgage remains high, historically speaking, but it is beginning to edge down.) "Rate of Americans Starting Own Households 'Disturbingly Slow'" (New data released last week show that household formation slowed considerably last year, a potentially ominous sign for the housing market.)

Poor FHA. The private mortgage insurance companies want it to go away, and many politicians want to phase it out. It dipped below its minimum capital requirements in the last year or two (but has bounced back). And word spread that the FHA's volume has dropped 19% for the first half of the year from 2013 to 2014 due to "haggling and hassling." Critics say that the HAWK plan, postponed until next year, is not enough, and what would be more helpful to the market are things like spot loan condominium approvals.

 

But it soldiers on. A new underwriting guide is rumored to be coming out by September 30th, reportedly with more clarity. The FHA has published a "Blueprint for Access" outlining what FHA is doing to expand access to mortgage credit for underserved borrowers. One of the key principles of the initiative is "Quality Assurance."   FHA is seeking feedback on its new methodology for evaluating underwriting defects and published an overview, FHA's Single Family Housing Loan Quality Assessment Methodology  (Defect Taxonomy).  Lenders and industry representatives are encouraged to use the Loan Quality Assessment Methodology Feedback Response Worksheet posted on the SF Drafting Table to record feedback. Submit your Feedback Response Worksheet to the special e-mail box for this purpose accessible from the SF Drafting Table web page by October 15, 2014.

Anna Desimeon analyzed the release from FHA, "The proposed methodology is based on three core concepts: identifying a loan defect, capturing the sources and causes of the defect, and assessing the severity level of the defect. Additionally, the methodology is comprised of nine proposed defects, their specific sources and causes, and four defect severity levels.   FHA's overall Quality Assurance efforts, including the proposed Loan Quality Assessment Methodology, will provide transparency and consistency for lenders, and make it easier for stakeholders to do business with FHA." 

She continued, addressing "underserved" borrowers. "The economic crisis significantly constrained credit making it tough for anyone with less than perfect credit to obtain a mortgage. According to the Urban Institute, the average credit score for loans sold to the GSEs is 752. Currently, there are 13 million people with credit scores ranging from 580 to 680. Shutting these consumers out of the market hurts American families and undermines our efforts to build more stable communities, create pathways to the middle class, and increase homeownership opportunities for minority and low-wealth borrowers. A healthy mortgage market serves all qualified borrowers. FHA is committed to finding ways to responsibly increase access for underserved borrowers."

Her write up goes on to address the "Principles to Responsibly Expand Access", "Encouraging Housing Counseling," "Establishing Clear Rules of the Road", "Avoiding Unsound Lending Practices", and so on. She mentions that the FHA is developing a new methodology for evaluating underwriting defects. The new criteria will be more descriptive-identifying a limited number of specific defects, their related causes, and levels of severity. Categorizing loan defect severity levels simplifies the compliance process as it allows lenders to better assess the risk posed by a specific deficiency. Additionally, assessing the quality of loans under this framework will allow lenders to more easily address the root causes of defects. 

Apparently the FHA's Lender Compare Ratio, calculated for all lenders, is under review. This ratio is geographically based, comparing the rate of early defaults and claims for single family loans in a geographic area to other mortgagees in the same area. The FHA plans to introduce an additional national lender performance metric. This new Supplemental Performance Metric will assess lender performance based on the lender's default rate within three credit score bands and compare it to an FHA target rate, rather than to the lender's peers. Like the Compare Ratio, the new metric will be reported in Neighborhood Watch. 

The deputy assistant secretary and executive director of the United States Department of Treasury's Financial Stability Oversight Council, besides running out of space on his business card, told the industry that regulators plan on keeping a close eye on the growth of non-traditional players in the world of mortgage servicing in the coming year. Patrick Pinschmidt said that for securitization, this will mean working on implementing common standards and operational controls across the various non-bank mortgage servicing platforms. The state agencies and the Consumer Financial Protection Bureau will be working in tandem to develop the new framework. "Panelists on Sunday at a session dedicated to mortgage servicers specialized in overseeing soured private-label RMBS loans lashed out against an investigation being conducted by Benjamin Lawsky, superintendent of the New York Department of Financial Services. '[The industry] should leave all special servicing to non-banks,' said Michael Lau, chief executive officer at Pingora Asset Management, which services RMBS loans.

Speaking of servicing, let's get some servicing color out of the way.... Mortgage Industry Advisory Corporation (MIAC) has a $50 Million or more, per month, flow mortgage servicing offering currently out for bid. The flow servicing is being offered by a well-capitalized mortgage company that originates nationally. The seller will be providing full representations and warranties for the loans included in the offering. The characteristics of this package are: $202,629 average loan size, 97.68% FRM, GNMA - 67.34%, FNMA A/A - 32.66%, National State Distribution, with an average escrow balance of $2,239. Bids are due on Wednesday, September 24th and bidders may present their flow bid pricing matrices for FNMA or GNMA separately.

Interactive Mortgage Advisors is the exclusive broker for a Federal Savings Bank offering $4.0 Billion in Fannie Mae bulk residential mortgage servicing rights with a WAC of 4.032%, $204k Average Loan Balance, WaFICO of 756, with Texas loans comprising the largest share of the pool.... Also, IMA has two active packages that I have seen; the first is for $126.9 Million of Fannie Mae bulk residential mortgage servicing rights. The package is 80% 30 Year Loans, with an average loan balance of $251k, 8 months of seasoning, with ZERO delinquencies; the second is for $308.7 Million  of Ginnie Mae bulk residential mortgage servicing rights. The bulk of this portfolio is comprised of VA Loans. This package is 100% Retail Originations, 100% FULL DOC Loans, 100% of appraisals were reviewed and approved by VA, $222,000 average loan balance, with ZERO delinquencies. Written bids for both packages will be due Thursday, Sep 28th....

I've seen two offerings from Phoenix Capital Inc recently, the first is "Project Halifax" which is a $50 million per month Fannie Mae and Freddie Mac flow mortgage servicing rights offering; the pool's characteristic will represent May-Jul 2014 production numbers which look like: 87/13% (30/15yr), average Bal $227k-$233k, WaFICO 752; WaDTI 33%, WaLTV 80%; with 75% GA geography, and 70% Retail originations. Their second package is "Project Patagonia" which is $1.2B in Ginnie Mae mortgage servicing rights; the pool is 76% FHA, 18% VA, 6% FmHA, 99% Fixed 30yr term, WAC of 3.928%, average balance of $231k, 54% CA originations, WaFICO 688;  WaLTV 94%, 82% Wholesale and 18% Retail.

 

Let's take a brief look at some upcoming events that will be interest.

 

First, Friday's commentary noted, "In Oklahoma, the OMBA Conference on October 3rd will be presented by Bricker & Eckler LLP and INCompliance. This one-day conference covers the most critical regulatory, compliance and litigation issues facing the industry. Event details include agenda and registration information." It turns out that OMBA, in this case, should have been Ohio. 

The Washington Association of Mortgage Professionals hosts the 2014 Northwest Real Estate Summit & Mortgage Expo tomorrow, Wednesday, 9/24 - industry experts, breakout sessions, industry innovations and more. The 1st 100 realtors are pre-registered guests and mortgage lenders have been encouraged to bring their realtor partners. 

The New England Mortgage Bankers Conference is this week (September 24th through the 26th). Some of the highlights include programs on non-QM mortgages, servicing released options in the market from co-issue to MSR sales, a sales track for sales management, Loan Officers and Realtors.  

Ginnie Mae is conducting an Investor outreach call September 30, 2014 to discuss recent and upcoming Ginnie Mae Data Disclosure topics. 

Liquidity and funding risk management conference in New York, October 16th-17th is an opportunity to join leading treasury and liquidity management executives from Citibank, Bank of America, Scotiabank, and many others. This invaluable forum slated for senior-level executives to weigh the impacts of recent regulatory requirements and exchange methods for operating effectively and profitability in the new liquidity environment. 

MBA regulatory compliance conference in D.C., September 28th- September 30th, is offering virtual sessions for anyone who cannot attend the conference in Washington. 

MBA of St. Louis is accepting registration for its October 2nd presentation on Mitigating Risk When Originating Non-Qualified Mortgage (Non-QM) Loans with Ari Karen and Christopher Tiso.  

Rates actually came down a little Monday - don't ask me why. I guess they didn't want to go up! The only news was that Existing Home Sales lost some momentum in August - sales dropped 1.8%. Sales are at the second-highest pace of 2014, but remain 5.3% below a year ago.  The NAR chief economist said sales activity remains stronger than earlier in the year, but fell last month as investors stepped away. "There was a marked decline in all-cash sales from investors," he said. Total housing inventory declined 1.7% to 2.31 million, which represents a 5.5-month supply.  However, unsold inventory is 4.5% higher than a year ago.  All-cash sales were 23% of August transactions, the lowest since December 2009. 

Today I head out from the wonderful MBAC conference and head to Denver, thus the early e-mail. But it might be a quiet day as the only news is the FHFA House Price Index (basically measuring the market covered by Freddie and Fannie). In the early going the 10-yr, which closed Monday at 2.56%, is at 2.54%, and agency MBS prices are a shade better.

 

Rate Market Report:

 

Yesterday there was some concern that China’s purchasing mgrs. index would decline when reported. The index from HSBC Holdings Plc and Markit Economics climbed to 50.5 this month, compared with the median estimate of 50 in a Bloomberg News survey of economists and August’s final reading of 50.2. Readings above 50 indicate expansion. Measures of new orders and new export orders increased at a faster rate, the report showed. Yesterday the Chinese finance minister commented that there would not be any additional stimulus plans at the moment. The comment sent US stocks down and added a little support in the bond and mortgage markets. This morning the stock markets generally quiet.

The July FHFA housing market index, expected +0.4%, as reported up just 0.1%; yr/yr +4.4% compared to 5.1% in June. Another soft housing market report but no reaction and very little interest in the report.

This afternoon Treasury will begin this week’s auctions with $29B of 2 yr notes. Normally we don’t pay much attention to the 2 yr but with the Fed poised to increase rates next year, the 2 demand may be interesting.

We have been noting recently that the bond and MBS markets are oversold based on our momentum oscillators; after the last few sessions though the oscillators are no longer at oversold levels. The wider technical picture remains slightly bearish; to change that the 10 will have to close below 2.52% where the 20, 40 and 100 day averages currently reside. We still don’t believe interest rates will increase much above 2.66%, and unlikely to break below 2.45% for the remainder of the year. The caveat would be geo-political conditions that drive fear into investors and into treasuries. Fundamentally; no inflation to worry about although the talk about it will continue as it has droned on since 2008. Europe and China in slow to no growth economies; the US can’t continue to grow as long as most of the world struggles. Last week the FOMC didn’t alter the key phrase that rates would remain low for a considerable period of time as almost every analyst and pundit expected. Noting we see now that would feed into much higher interest rates.

PRICES @ 10:30 AM

10 yr note: +3/32 (9 bp) 2.56% unch (today’s low 2.54%)

5 yr note: unch 1.78 unch

2 Yr note: unch 0.56% unch

30 yr bond: +10/32 (31 bp) 3.27% -1 bp

Libor Rates: 1 mo 0.154%; 3 mo 0.235%; 6 mo 0.330%; 1 yr 0.581%

30 yr FNMA 3.5 Oct: @9:30 102.03 +8 bp (+5 bp frm 9:30 yesterday)

15 yr FNMA 3.0 Oct: @9:30 102.99 +3 bp (+11 bp frm 9:30 yesterday)

30 yr GNMA 3.5 Oct: @9:30 103.22 +14 bp (+8 bp frm 9:30 yesterday)

Dollar/Yen: 108.78 -0.06 yen

Dollar/Euro: $1.2874 +$0.0025

Gold: $1225.60 +$7.70

Crude Oil: $91.23 +$0.36

DJIA: 17,161.93 -10.75

NASDAQ: 4532.16 +4.47

S&P 500: 1994.16 -0.13