Lenders
know that as the United States continues fighting overseas the population of
veterans is steadily increasing. And with it VA lending. The US Census Bureau
tells us in 2013 there were 19.6 million veterans living in the United
States, with 1.6 million being female veterans. The top three states where
most veterans live are California (1.7 million), Texas (1.5 million), and
Florida (1.5 million). The annual median income of veterans in 2013 was $36,381
compared to $25,820 for nonveterans. Of the 19.6 million veterans in the US,
3.6 million have a service-connected disability. There were 9.3 million
veterans who were 65 years and older in 2013, and 1.6 million veterans who were
younger than 35. Although the percentage of millennial veterans is relatively
small, this number is only going to increase in the coming years. LOs and real
estate Agents should be marketing to this population and educating past, future
and current veterans about the benefits of VA loans.
Bloomberg
reports that "Seasoning and recoupment-period standards under the VA's QM
rule may cut down on refis that aren't 'a good outcome for the borrower,' Mike
Frueh, director of the VA's loan guaranty service, said." QM status requires 6 months seasoning
and the upfront costs to be recouped by borrower through lower payments within
36 months. It is indeed an interesting time for VA loans as their volume
steadily climbs. For fiscal year 2014 VA volumes are running around a total
loan count of 438,398 ($99.6 billion): purchase 271,701 and refi 166,697. VA
backed a record 629,293 loans in FY 2013, including 241,190 purchase loans. It
is estimated that about 4% of fiscal year 2013 VA refis would have been non-QM
because of the seasoning requirement, and supposedly there are 'anecdotally'
many loans with recoupment periods exceeding 15 years. Of course lenders can
still make non-QM VA loans assuming they can find a warehouse bank and/or
investor for them.
Yesterday
the commentary embarked on a consolidated list of lenders and vendors and their
recent company earnings announcements. I figured we'd continue that
today, since there are dozens of publicly held lenders and MI companies to help
others check how their 3rd quarter stacked up.
United
Guaranty Corporation reported pre-tax operating income of $135 million for the third
quarter of 2014, compared to pre-tax operating income of $43 million in the prior
year quarter resulting from decreased first-lien claims and claims adjustment
expenses incurred and an increase in first-lien net premiums earned. UG saw
lower new delinquencies, an increased rate of cures, increased first-lien net
premiums earned due primarily to higher persistency, domestic first-lien new
insurance written decreased 11 percent to $12.6 billion in principal of loans
insured, driven primarily by declining mortgage originations from refinancing
activity. Quality metrics remained high, with an average FICO score of 750, and
an average loan-to-value of 92 percent on new business.
Essent
Group Ltd.
reported net income for the quarter ended September 30, 2014 of $25.1 million
or $0.29 per diluted share. As of September 30, 2014, Essent had primary
insurance in force of $46.4 billion and consolidated stockholders' equity of
$794.9 million. For the third quarter New Insurance Written ("NIW")
totaled $8.8 billion, which included $1.5 billion of NIW related to a pool of
loans on which Essent Guaranty was selected by Fannie Mae to be the sole
insurer. Additionally, Essent's Bermuda reinsurer, Essent Reinsurance, Ltd. was
selected by Freddie Mac to participate in Freddie Mac's ACIS 2014-2 transaction
and insure $28.5 million of risk that Freddie Mac had retained as part of its
STACR 2014-DN1 transaction. Also during the quarter, Essent Re began reinsuring
new business from Essent Guaranty as part of the affiliate quota share
effective July 1, 2014. The average premium margin was up to 56.2 bps, from
54.3 bps from last quarter.
Radian reported a strong
operating quarter with lower expenses and lower incurred losses (although this
was driven by the BAC settlement). Operating EPS excludes $7.8 million
(+$0.03/share) of investment losses and $15.8 million (-$0.07/share) of net
fair value gains on derivatives and financial instruments, along with another
penny of adjustments. Operating EPS is also based on pre-tax income. New
Insurance Written was $11.3 billion - up from $9.3 bn in 2Q and down from $13.8
bn Y/Y. Insurance-In-Force (IIF) increased to $169.2 bn from $165.0 bn in 2Q.
Radian Guaranty's risk-to-capital ratio improved to 18.4x from 18.7x last
quarter.
Farmer
Mac reported
GAAP EPS of $1.02 which included the add-back of $0.4 million of premium
amortization along with the exclusion of derivative gains of $2.7 million. The
company also reported $12.5 million of core net income excluding the net
financing costs of the repo initiative and the effects of pre-funding the
Falcon preferreds. The portfolio net spread increased to 89 bps, from 84 bps in
2Q14 and from 83 bps in 3Q13. Outstanding guarantee volume declined to $14.0
billion, with $630.5 million of new business. This was down from last quarter's
balance of $14.1 billion, as paydowns and maturities slightly exceeded new
volume.
Toll
Brothers
pre-announced good numbers (a good sign for luxury home builders, versus, say,
D.R. Horton which specializes in starter homes) as deliveries increased 22% in
units and 29% in dollars. ASPs increased to $747,000 from $732,000 last quarter
and $703,000 a year ago. Signed contracts rose 10% in units and 16% in dollars.
Clearly things are still hitting on all cylinders at
the luxury end of the market.
PennyMac reported GAAP and
operating EPS of $0.69, down from $0.91 in 2Q. The company had a +$0.42 per
share of valuation changes and payoffs of mortgage loans; 2) -$0.09 on net
interest income; 3) -$0.06 on gain on sale income; and 4) -$0.25 on other
revenues. It also had a write-down of excess servicing spread (ESS) driven by
higher expected prepayments - possibly made up for in future quarters as it
recaptures income from prepayments. The gain-on-sale margin declined to 26 bps
based on non-FHA fundings, from 34 bps in 2Q. Total fundings of $8.1 billion
were up from $7.0 billion in 2Q. The company also sold $80 million in UPB of
performing loans. The company made no investments in NPL and REOs during the
quarter, down from $38 million last quarter and $930 million a year ago. The
company noted that NPL sales activity remains strong and the company is an
active bidder; however, the company believes that recent transactions rely more
heavily on home price appreciation and leverage to generate acceptable returns.
The company also added $40
million in new MSRs from its correspondent production. The company now has $533
million of MSR and ESS assets relating to roughly $60 billion UPB.
Nationstar reported GAAP EPS of
$1.22. Operating EPS excludes $6.8 million of one-time expenses less $1.2
million of positive MSR marks. Book value increased to an estimated $13.24 from
$12.04. Servicing had increased pre-tax profitability at 9.8 bps from 9.0 bps
last quarter. Servicing operating earnings excludes $4.4 million of one-time
expenses related to the sale of servicing advances and the $1.2 million
positive fair value mark on the MSR. The quarter-end servicing portfolio was
$377.8 billion (UPB), flat with $378 billion last quarter and in line with our
estimate. Origination volume of $4.1 billion was down from $4.4 billion.
Gain-on-sale (GOS) income declined to $128.4 million from $151.2 million Q/Q
(below our $157.5 million forecast). Based on total closings, the GOS margin
came in at 3.48% from 3.93%. Solutionstar revenues came in at $85.5 million
from $83.4 million last quarter.
PHH reported 3Q diluted
GAAP EPS of $4.00, much of it due to an add-back of a $40 million negative mark
on the MSR, along with the exclusion of a $303 million discontinued operations
gain attributable to the sale of the Fleet segment. Also noted were $54 million
of unusual expenses, including a $24 million charge of related to the early
repayment of debt, $22 million in legal and regulatory charges, and $8 million
in severance. Pre-tax mortgage banking income fell to a loss of $28 million
from a loss of $27 million in 2Q. Mortgage volume rose to $9.9 billion from
$9.3 billion. Interest rate lock commitments fell Q/Q to $1.8 billion from $2.1
billion. It had total gain-on-sale margin (as a percentage of IRLCs) of 3.73%,
down Q/Q from 3.88%. Core mortgage servicing income was down Q/Q. The decline
to a loss of $31 million from $2 million reflected higher servicing expenses
than forecast (though the $31 million loss includes $22 million of legal and
regulatory charges).
Although
most are sick of politics, and politicians are yapping about 2016, I figured
we'd sum things up about how the results will impact lending. It won't take
long. Read MBA's Mid-Term Election
Analysis.
But
let's dig a little deeper. Plenty of politicians will want to make the
headlines talking about financial regulation. Will some of it be scaled back?
Republicans want to have a much bigger hand in GSE reform and the
infrastructure for the housing market going forward. At the margin, this means
fewer subsidies, or in other words, higher priced MI and maybe slightly higher
rates.
Isaac
Boltansky with Compass Point Research and Analytics wrote a piece on the
election results. Not that I am an expert, but I agree with his summary. "Big
bank bashing has become one of the few bipartisan issues on Capitol Hill
and we expect the climate for money center banks on Capitol Hill to remain
inhospitable in the next Congress...We expect the GSE reform
conversation to return to Capitol Hill in the next Congress but doubt that
there will be substantive progress...We believe that tax reform will
ultimately take a herculean policy effort and a unified political landscape,
which underscores our pessimism regarding the prospects of tax reform in the
next Congress...The Private Mortgage insurance industry lost a powerful
ally with Sen. Hagan's (D-NC) defeat but the industry remains well positioned
on Capitol Hill and ingrained in the mortgage finance system. We continue to
believe that the finalization of the Private Mortgage Insurance Eligibility
Requirements (PMIERs), which we expect by the end of 2014, will further
solidify the PMI's role in the mortgage finance market and provide a platform
for the industry to expand the types of risk it insures...Significant
Changes to the CFPB Unlikely. While we expect a concerted legislative
effort to alter the CFPB we simply do not believe these efforts will come to
fruition given practical and political considerations. We believe that the
combination of the White House's commitment to the bureau's mission and a lack
of a filibuster-proof majority in the Senate are likely to insulate the CFPB
from significant legislative changes."
Okay...
in honor of Veteran's Day, those ad execs have really done it again with this
short video.
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