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
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