Children's Logic:
"Give me a sentence about
a public servant," said a teacher.
The small boy wrote, "The
fireman came down the ladder, pregnant."
The teacher took the lad aside
to correct him. "Don't you know what pregnant means?" she asked.
"Sure", replied the
young boy confidently. "It means carrying a child."
Regarding this week's MBA
Secondary Marketing conference Marcus Lam with Opes Advisors writes,
"Obviously this is not the most important thing, but the corporate swag
this year stunk. Last year we came away with nice pens, notebooks, phone
stands, portable chargers, and an endless supply of candy mints. This year the
only thing I received was the AIG Connective purse hook for the man bag I don't
have."
"The buzz at the NY
Secondary conference was focused on growth, capital and access to more
capacity- the challenge is, with the increased costs to compliance, increased
volume is not necessarily equating to increased profits", says Dr. Rick
Roque (413.297.6895). "With the dust of TRID still falling, on the
horizon are HMDA changes in 2018, adjustments to the 1003 and more significant
enhancements for Loan Origination Software vendors who can't keep up with the
changes, let alone provide Lenders with the safeguards to lend with
confidence." These activities in the market are leading even well
capitalized companies (Net worth of $6M-$20M) to seek capital partnerships or
full stock acquisitions, thus driving the mid-market M&A phenomenon.
Speaking of which, a
leading Mergers & Acquisitions (M&A) firm is seeking mortgage banks in
the Midwest or Mid-Atlantic markets to be purchased either by selling their
stock or assets. Eligible mortgage companies would have closed between
$300M-$1.2B in 2015, or on pace to doing so in 2016, either consumer direct or
referral partner (Realtor) based originations. No Agency approvals are
necessary since they are already in place. If you would like to have your firm
acquired, possibly receive a 2-4x after tax multiple, maintain your leadership
and control, but rapidly accelerate your growth with significant access to
capital, a broad array of new / innovative and non QM products, please contact me; specify
opportunity.
In a service that has really
taken off with QC staff, underwriters, and processors, Private Eyes has rolled out VOEs
to its mortgage clients for both originating loans and quality control. This is
in addition to its role providing services 4506-Transcripts, VODA's,
Verification of Assets, and Background Checks for new hires and current
employees in 1-3 business days. "We are here to keep you both in
compliance and closing loans fast which is why we saw a 30% client growth last
year!" For more information on this 16-year-old company visit PrivateEyes or contact Sandra James,
President.
Speaking of products, a
while back Gold Star Mortgage announced that it has enhanced its risk
management policies and procedures governing its retail mortgage lending
business by requiring independent screening and risk monitoring for all
settlement agents having access to a borrower's loan documents and mortgage
proceeds. The process will be managed for Gold Star Mortgage by Secure
Settlements Inc. Gold Star chose the ClosingGuard tool to evaluate the
backgrounds, licensing, insurance, and trust accounts of agents as a method to
identify potential threats before a closing takes place. Secure Insight Chief
Operating Officer Wayne Doctor stated, "We are pleased and honored to have
been chosen by Gold Star Mortgage for these critical risk management
services. In our extensive dealings with their leadership team we saw
first-hand their serious commitment to quality control, consumer protection and
overall loan quality assurance. We are proud to be their partner in this
important endeavor."
Private mortgage
insurance folks know that Radian announced this week that CEO SA Ibrahim will
retire at the end of 2017. The Board has appointed a special committee to
search for a successor, taking into account internal and external candidates.
Those of you who know SA know that he is a great guy, and everyone wishes him
good luck in actually being able to retire from this business...it seems people
have difficulty doing that. ("Just when I thought I was out... they pull
me back in.")
But under the "as
the world turns" banner, not only is AIG reportedly trying to sell its UG
group, but Bloomberg reports that Essent Group Ltd. may have an opportunity to
buy Radian Group Inc. per an analyst at BTIG LLC said. Given that Radian's
stock is down 11% this year, is there value? "Radian has no clear
successor," for S.A. Ibrahim, BTIG's Mark Palmer wrote. Per Mr. Palmer,
"It would be logical to surmise that the company's board of directors may
be more inclined to entertain approaches from interested suitors."
"Essent, the
mortgage insurer backed by Goldman Sachs Group Inc. and billionaire George
Soros before it went public in 2013, 'could fit the bill' as a buyer even
though it's a smaller company, Palmer wrote. Essent trades at a higher
multiple to book value than Philadelphia-based Radian, and it could use shares
to help fund the purchase, he said."
It's a small MI world:
Essent CEO Mark Casale previously was an executive at Radian. Neither company
is commenting.
As a reminder, suing your bank is going to be a whole lot easier if the
CFPB has anything to say about it. Specifically, at issue are the terms that
companies routinely insert in contracts for credit cards, payday loans and
other products that require consumers to settle disputes through arbitration.
The Consumer Financial Protection Bureau proposes a rule that would circumvent
those clauses by allowing groups of people to join together to pursue
class-action lawsuits when they feel they've been wronged. "Signing up
for a credit card or opening a bank account can often mean signing away your
right to take the company to court if things go wrong," said CFPB Director
Richard Cordray. "Many banks and financial companies avoid accountability
by putting arbitration clauses in their contracts that block groups of their
customers from suing them. Our proposal seeks comment on whether to ban this
contract gotcha that effectively denies groups of consumers the right to seek
justice and relief for wrongdoing."
If
you're skeptical reading the above, you're not alone. In a Bloomberg article Alan Kaplinsky, head of the Consumer
Finance Practice at Ballard Spahr, was quoted, "There's only one winner
coming out of this rule: the plaintiff's class action bar...it's not good for
the industry, for banks or for nonbanks. And consumers are going to be net
losers, it's a lousy trade." The regulator's proposal would cover new
agreements for products such as credit cards, auto loans, credit reports and
even mobile phone services that provide third-party billing. There will be
a public comment period for 90 days before the regulator could issue a final
rule. The soonest it will likely take effect is mid-2017 and companies
will have 210 days to comply with the requirements.
Speaking of legal matters,
Guild Mortgage grabbed the headlines yesterday as the Department of Justice filed a lawsuit against Guild under the catch-all False
Claims Act. The action is captioned United States ex rel. Dougherty v. Guild
Mortgage Company (D.D.C.).
It continues to be
interesting why smaller lenders seem to continue to originate this product
wholeheartedly whereas the big banks, such as Chase, have moved away from the
program given the potential liability. Do smaller companies think that they are
too small to be noticed, or are immune from prosecution? Or because they were
originating perfect FHA loans ten years ago?
Yes, this suit covers
originations starting in 2006. Settling with the DOJ is certainly an option - just
ask Wells Fargo, Franklin American Mortgage, Walter Investment, First Tennessee
Bank, Freedom Mortgage or M&T Bank how to do it. Guild acted as a
"direct endorsement lender" in the FHA insurance program, which
grants the lender the authority to originate, underwrite and endorse mortgages
for FHA insurance without prior review or approval from the FHA.
The news prompted one
industry vet to write to me saying, "I wonder if the DOJ understands how
these enforcement actions cause FHA versus conventional primary market price
spreads to widen and is costing every low and middle income FHA borrower about
200 bps in price compared to where levels would be without lenders building in
the cost of the uncertainty into their daily price sheets? And 'enforcement actions?'
'Extortion' now numbering into the billions of dollars in actual fines levied
upon lenders with deep pockets and the additional safeguards to avoid such
extortion that has caused huge inefficiencies in producing the product. In the
end the government wins and the consumer loses. This is the exact opposite
effect that these programs were designed to avoid."
Taking the high road,
Guild released a public statement. Mary Ann McGarry, president and CEO of Guild
Mortgage Co., issued the following statement regarding an action initiated
against Guild by the Department of Justice:
"We are extremely
disappointed that the Department of Justice has elected to pursue this action. Guild has a proud record of making FHA
loans since 1961 and we welcome the opportunity to set the record straight and
correct the numerous misstatements in the government's complaint. The
government's action is unwarranted and without merit. The implication that any
default on an FHA loan by a borrower represents wrongdoing by the lender is not
justified. For more than five decades Guild has responsibly underwritten fixed
rate and fully documented loans in accordance with FHA requirements.
"This enforcement
environment that lenders face today threatens to limit opportunities for home
ownership and hurts the housing market. It is contrary to the mission of HUD
and the FHA program to help the underserved - a Guild tradition since its
founding in 1960. It is unfortunate that lenders such as Guild have been placed
in this untenable position where any minor error could result in substantial
financial penalties. To help families with low and moderate incomes, we need to
expand home buying opportunities, not shrink them. Sadly, if this punitive
environment continues, the cost of lending will continue to increase for FHA
borrowers and only the wealthy will be able to buy homes.Although we disagree
with the allegations and intend to defend ourselves vigorously, we will
continue to serve the FHA and first-time homebuyers, which we have served for
more than 50 years."
In other news related to HUD,
it reached a $630,000 agreement with a group of Illinois
property owners and a management company resolving allegations they violated
the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973 by using
rental screening policies that prevented applicants with mental disabilities
from living in a supportive living complex the group owned. Read the agreement.
In this environment it
almost doesn't matter what rates are doing - and long term rates could easily
be at these levels all year. Still, I would be remiss in not saying something
about them and how volatility has picked up somewhat - but we're still in the
range we've been in for most of 2016. Yesterday U.S. Treasuries moved somewhat
higher as Initial Jobless Claims fell back down to 278K last week but the
Philly Fed survey for May was worse than expected. New York Fed President
William Dudley echoed the remarks from Fed Presidents Williams and Lockhart on
Tuesday. Essentially, if the economy improves along with his forecast, then
June is definitely on the table for a rate hike and two rate hikes this year
would be perfectly reasonable. The Conference Board Leading Economic Index rose
0.6% in April after a 0.2% gain in March.
There is no early morning
news, but there continues to be chatter around "Brexit" - a British
exit from the European Union. It is a consideration and should be monitored closely.
Later we will see April's Existing Home Sales at 7AM PDT. We closed Thursday
with the 10-year at 1.84% and this morning it is sitting around 1.86% with
agency MBS prices slightly worse.
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