(Part 4 of 4 of "If you
are from the northern states and planning on visiting or moving to the South,
there are a few things you should know that will help you adapt to the
difference in lifestyles.")
If there is the prediction of
the slightest chance of even the smallest accumulation of snow, your presence
is required at the local grocery store.
It doesn't matter whether you
need anything or not. You just have to go there.
When you come up on a person
driving 15 mph down the middle of the road, remember that most folks learn to drive
on a John Deere, and that is the proper speed and position for that vehicle.
Do not be surprised to find
that 10-year-olds own their own shotguns, they are proficient marksmen, and
their mammas taught them how to aim.
In the South, we have found that
the best way to grow a lush green lawn is to pour gravel on it and call it a
driveway.
AND REMEMBER:
If you do settle in the South
and bear children, don't think they will accept them as Southerners.
After all, if the cat had
kittens in the oven, they wouldn't call 'em biscuits.
Underwriters will want to know
that IBISWorld has identified the top ten sectors with expected rapid growth price in 2016.
Legal services are expected to see an increase next year, as roughly 66 percent
of revenue generated by industries in legal services comes from business and
corporate clients. Cybercrime and fraud will tick prices up 3.3 percent and
employment law services should rise 3.2 percent in 2016. Turning towards the
construction sector, the cost of plastering and drywall services should rise
7.7 percent next year, along with painting services and landscape architecture
and design services at a 5.9 percent and 3.4 percent increase, respectively.
PHH announced the completion of
its $100 million buyback program, announced on Nov. 4, 2015.
The company repurchased 6.35 million shares at an average price of $15.75. $150
million remains on the company's $250 million repurchase authorization, which
will be outstanding until year-end 2016. The company noted that the decision on
whether to repurchase additional shares will be based on regulatory
developments, the company's capital structure, liquidity position, and other
potential uses of cash including investments in growth. The pace of the buyback
was quicker than we had modeled. However, because of the weak results we
forecast in 4Q15 and in 1H16, the quicker pace has a limited effect on our EPS
estimates but is more accretive to book value than our forecast because of the
repurchase price.
Ocwen agreed to pay a fine for $2 million settling yet
another legal issue. "The U.S. Securities and Exchange Commission said
Ocwen misstated its profits in parts of 2013 and 2014 by using asset values
provided by a Cayman Islands firm that former Chairman Erbey also ran, rather
than an independent company, as it had stated." A note from the company
stated, "The terms include that Ocwen, without admitting or denying
liability, will pay a $2.0 million civil money penalty and consent to the entry
of an administrative order. As previously disclosed in the Company's SEC 10-Q
filing in October 2015, Ocwen has reserved funds for payment of this
settlement...'We are pleased with the resolution of this U.S. Securities and
Exchange Commission's (SEC) investigation. As previously disclosed in our
October 2015 SEC 10-Q filing, funds have already been reserved to address this
settlement. Ocwen remains committed to full compliance with all legal and
regulatory requirements and will continue to fully cooperate with regulators on
any matter brought to its attention.'"
Recall that the Federal
Housing Finance Agency (FHFA) issued a final rule revising its regulations governing Federal
Home Loan Bank Membership. This final rule adopts several provisions including,
but not limited to preventing the circumvention of the statute's membership
restrictions by ineligible entities by defining the term "insurance
company" to exclude captive insurers. I mention this because the
residential lending business is very aware of these companies and any news that
directly impacts residential Real Estate Investment Trusts.
Since the start of the
year REIT stocks are down (aren't all stocks down due to global worries about
dragging economies?): Invesco -11%, Annaly -6%, Two Harbors -20%, for example.
In fact lots of mortgage-related stocks are down since January 1, bucking the
thinking that another refi boom will help bottom lines, and hopefully no one
out there has their entire 401(k) in Nationstar or Stonegate stock.
This comment includes
Redwood Trust. This year, which is less than three weeks old, has seen RWT
-20%, down over 6% yesterday alone. Redwood plans to restructure its conforming loan operations by discontinuing
the acquisition and aggregation of conforming loans for resale to Fannie Mae
and Freddie Mac, and instead "focus on direct conforming-related
investments in mortgage servicing rights and risk-sharing transactions"
while maintaining its approvals with the agencies. Redwood also plans to
implement a workforce reduction, which primarily impacts employees engaged in
and supporting the Company's residential mortgage loan business. The reduction
represents approximately 15% of the company's fixed compensation expense at
December 31, 2015 and a headcount reduction of 25%. (Editor's note: those
employees impacted can always post their resumes - for free - for companies to
review at www.LenderNews.com.)
"Redwood's
conforming business activities utilize less than 5% of the Company's capital,
while its investment portfolio, which utilizes 85% of the Company's capital
base, continues to exhibit strong credit performance and remains a steady and
growing source of income." "Our conforming loan purchase and sale
operations generated a pre-tax loss of $10 to $11 million in 2015 or a loss of
$7 to $8 million on an after-tax basis based on our preliminary full-year 2015
results. This included interest and fees of approximately $12 million
associated with $5.2 billion of loan purchases, and operating expenses of approximately
$22 million," said Christopher Abate, Chief Financial Officer.
So Redwood announced that
it will restructure its operations by discontinuing the acquisition of
conforming loans for resale to Fannie Mae and Freddie Mac. This business reduced
EPS by $0.10 a share in 2015. The restructuring will also free up $45 million
of capital. The company noted that it will focus on direct conforming-related
investments in mortgage servicing rights and risk-sharing transactions. RWT's
announcement is not surprising given the competitive correspondent lending
market. But it remains to be seen how the company will now participate in
GSE credit-risk-sharing transactions.
MI companies are
certainly interested in risk sharing developments, so let's see what they've
been up to lately.
MGIC has published its
operating statistics for December. New notices dropped 10.5
percent YoY but increased 19.9 percent MoM and cures of 5,258 were down 13.7
percent MoM. The cure ratio did decline to 79.7 percent from 110.7 percent in
November. The ending delinquent inventory of 62,633 was up 0.3 percent MoM from
62,445 compared to a 2.7 percent decline in November. Ending delinquent
inventory was down 21.6 percent YoY and paid claims increased 0.9 percent MoM
versus a drop in November of 11.9 percent. Net rescissions and denials rose to
81 from 63 the month prior and new insurance written equaled $3.3 billion in
December, up from $3 billion in November.
Radian announced a
$100 million repurchase program. The authorization is effective
immediately, may be transacted through a 10b5-1 plan, and will expire on
December 31, 2016. The repurchase program is about 4% of the market cap. As of
3Q15, RDN had $710 million of holding company liquidity. In December, the
company contributed $375 million to Radian Guaranty and an affiliate to comply
with PMIERs, bringing holding company liquidity down to $335 million. The
company also has roughly $250 million in debt maturities coming due in 2H17.
Arch MI has published
its winter 2016 Housing and Mortgage Market Review, reporting that
the likelihood of home prices to decline nationwide over the next two years is
6 percent although oil & natural gas producing states are at a higher risk
due to declines in energy prices. This includes states like North Dakota,
Wyoming, West Virginia, Texas and Alaska. North Dakota had the highest Arch MI
Risk Index due to the 2.9 percent decline in employment over the past year and
home prices are estimated to be overvalued by 20 percent. Texas has the top
five riskiest MSA's with a 26-36 percent chance of house prices declines in
several areas.
Its MBS business wasn't
mentioned, but Barclays will cut about 1,000 jobs in investment banking
worldwide and close its cash equities business in Asia as new Chief
Executive Jes Staley wields the axe in a bid to reduce costs and boost returns.
Keeping with related news
U.S. Treasuries, and other fixed-income securities like MBS, had another good
day Wednesday. Not that anyone cares about our economic data anymore, but we
continue to receive news that our economy is NOT zooming along: consumer
price indices for December missed expectations while the housing
starts/building permits data were mixed. Housing starts were less than expected
but building permits were higher - although quickly explained away by noting
the entire gain was due to a 62% jump in the Northeast and that was likely due
to a change in tax or building codes
Today, as the East Coast
girds its collective loins for "stormzilla," Initial Jobless Claims
came in +10k to 293k, the highest in quite some time, versus the prior week.
And the January Philadelphia Fed was "-3.5". We closed our benchmark
10-year Wednesday at 1.98% and this morning it is hovering around that level
with agency MBS prices unchanged.
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