(I am not clever enough to think
that this joke has an analogy in lending, but I know there is one.)
A kangaroo kept getting out of
his enclosure at the zoo. Knowing that he could hop pretty high, the zoo
officials put up a ten-foot fence. The next morning, however, the kangaroo was
out again, idly roaming around the zoo.
The zoo officials raised the
height of the fence to twenty feet. Again, however, the next morning the
kangaroo was again roaming about the zoo. This kept on, night after night,
until the fence was sixty feet high.
Finally, the camel in the next
enclosure asked the kangaroo, "How high do you think they'll go?"
The kangaroo replied,
"Probably a hundred feet, unless somebody starts locking the gate at
night."
"Well, shakin' my
moneymaker ain't ever made me a dime! And there ain't no sugar for you in this
shaker of mine!" So sing Maddie and Tae. Conversely, homebuilders are
pretty good at making plenty of dimes (if they can find land and labor), but
they aren't immune to mounting compliance costs due to the regulatory regime.
Of course these rising compliance costs are passed on to
consumers.Regulatory fees have increased by nearly 30% since
2011. "It really makes it hard to satisfy the lower end of the
market, which is a lot of first-time buyers," said Paul Emrath, vice
president for survey and housing policy research at the NAHB, who conducted the
survey of about 400 builders across the country.
News continues to hit about Lending
Club. Its stock was down 26% yesterday. And CNBC reports Citigroup will
soon begin to lay off employees as it seeks to boost performance and continue
to streamline. The Lending Club news made me want to look at bank &
non-bank stock prices - how are they doing? Not good. In fact, analysts
are hard-pressed to find a single publicly held non-bank residential lender
that made money in the first quarter of 2016, or that has seen its stock price
improve this year. Put another way, practically every lender not part of a
bank has not only lost money so far this year, but has seen its stock price
worsen & in some cases plummet. And most of them have not had a
profitable year in a few years! Let's hope that employees don't have their
entire 401(K) held captive in company stock, and that the lessons learned eight
years ago aren't forgotten.
Want some examples of
stock prices in the last six months? Nationstar (-14%), Ocwen (-69%), PMAC
(PFSI -19%), Impac (-25%), Walter/Ditech (-58%), PHH (-15%), Stonegate (-30%).
Redwood Trust, after being down 30% at one point, has rebounded to actually be
up 1% in the last six months. How about the banks, with their lower cost of
funds, other product lines, and core bank earnings? Not much, if at all,
better: Bank of America (-21%), Wells Fargo (-12%), Citi (-20%), Chase (-9%),
US Bank (-4%).
What is the culprit? Were
all of these stocks overvalued six months ago? Their earnings have shown mixed
numbers. There are plenty of lesser reasons, but the primary reasons seem to be
servicing, or related to it. Whether it was hedged or not, plenty of management
teams thought servicing would be on their books much longer. When those loans
pay off, and after the early pay-off penalty expires for whoever originated the
loan, it is a hit to the asset side of the company's balance sheet. And any
company that paid above-market premiums for servicing, well, they took a bigger
hit. Industry experts are watching the impact of Basel III on banks' servicing
portfolios - is there a natural buyer for those portfolios? Or will the run-off
equal the new production coming in?
These results, of course,
have plenty of employees of non-publicly traded firms asking senior management
about how their company is faring. Certainly smaller lenders who were able to
take advantage of larger investors paying up for servicing benefited by selling
the product servicing released. And certainly there is concern among any
profitable lenders owned by venture capital firms who are arguably quicker to
pull the trigger on unprofitable ventures.
Regarding the stock
performance of banks & non-bank lenders, industry expert Joe Garrett (of Garrett McAuley) writes, "The short-term fluctuations
of a stock or an entire sector can be difficult to understand, and even when
there's a consensus as to why a big move occurred, it's often proven wrong six
months or more later. Over the longer term, investors have simply not done well
investing in mortgage banking companies. Look at the leaders of 1998. Almost
all gone. Look at the leaders of 2007. Almost all gone. And for the vast
majority, it's not because they sold to a bigger company at some terrific
premium. In most cases, the public mortgage companies don't last because they
blow up.
"The window opens
for mortgage company IPOs every so often, but you'd be hard pressed to find a
public mortgage company that's been around for more than 15-20 years. For a
variety of reasons, most of them simply blow up. Do you remember BNC, New
Century, Novastar, Accredited, Aegis, EMC, Fieldstone, Ameriquest or even Indy
Mac? Lots of money was lost on these mortgage lenders that were once the
darlings of Wall Street. Let's put it this way. Investing in mortgage company
stocks has generally been a money-losing proposition. Investors may occasionally
forget the lessons of the past and become excited about some new mortgage
company with some new story as to why they're different. But as the French say
it so well, La plus ca change, la plus c'est la meme chose. The more
things change, the more they stay the same. As for why mortgage stocks &
big banks did so poorly the first quarter, let's wait six months and then try
to figure out what happened."
Renovation & jumbo program
news?
"Live from National
Mortgage Professional Magazine's Mortgage News Network Studios ... it's Inside
the Renovation Studio. Staring Damon Richardson, Renovation Lending Specialist.
Also staring Pam Seifert, Managing Director of Training Wholesale and Carl
Markman, Director of National Sales for REMN Wholesale. Join Mortgage News
Network for the first-time ever, FREE live broadcast from the MNN studios on
Thursday, May 12 at 2:00 PM EDT. In this 60 minutes show, the cast will show
you how to sell renovation loans, help you define your audience, and target
them through renovation loans. They'll also show you how to generate more
referrals. And featuring ... Selling reno loans to millennials! You must preregister for this FREE live broadcast here.
Pacific Union
Financial's recent bulletin includes information regarding Ineligible
Program Options which have been updated to indicate that Freddie Mac
Renovation Mortgages are not permitted. Also, Loan apps dated on or after
April 18th will require alignment with recently announced Fannie Mae
changes. Some of the requirements include a financed property has been
redefined to include only 1-4 unit financed residential properties where the
borrower is personally obligated on the mortgage(s). Eligibility restrictions
for LTV/(H)CLTV and cash-out refinances have been removed and are aligned with
standard eligibility requirements. In addition, its recent bulletin states
Pacific Union will now qualify California borrowers and determine escrow
impounds and monthly collections using a 1.25% rate or actual rate in the
property tax calculation. Review the Purchase Review section of the
Correspondent Lending Guide for complete details.
Franklin American Mortgage
has expanded the maximum LTV/CLTV/HCLTV limits for High Balance products. These
changes are effective with locks on and after May 13. Visit FAMC website for details as well as other updates.
Plaza's Elite Jumbo Fixed and ARM Program Guidelines have been
updated to clarify that when a Balance Sheet or Profit and Loss Statement are
required, they must be signed and dated on or before the Note date. In
addition, HomeStyle Program Guidelines have been updated to identify
specific improvements that are ineligible. The customer service contact
information has also been updated with a new email address.
Jumbo Core Fixed and
Hybrid Products have been added to NewLeaf Wholesale's product line.
Some general guidelines include: These Jumbo products are QM and must meet the
ATR requirements. The maximum LTV is 80% to $2,000,000 and maximum loan amount
is $2,500,000. Investment Properties are not allowed. Purchase, Rate/Term and
Cash-out are available.
Citihas modified its LP-Agency Jumbo overlay to
maximum LTV/CLTV/HCLTV of 75% for 3-4 unit primary purchase or rate/term refinance
and 1-unit investment rate/term refinance. In addition, an overlay has been
added to Home Ready & Home Possible. <= 95% LTV - Minimum FICO=620;
maximum DTI=43%. For complete product/program guidelines, please refer to
the Citi Correspondent Manual.
Mortgage Solutions Financial has reinstated its 701 Non-Conforming products. Guidelines for these
products can be found here.
Amidst all of this rates
continue to be good - in fact mortgage rates are about as good as they've been
in quite some time. As volatility has diminished hedge costs have come down,
allowing lenders to price a little more aggressively. Yesterday U.S. Treasuries
gained ground along with international sovereign debt as oil and metals prices
fell sharply. There were no U.S. economic data releases.
And there isn't much
market-moving news today either. We have the March JOLTS - Job Openings numbers
at 10AM EDT, along with March Wholesale Inventories, and then a $24 billion
3-year T-note auction. We closed the 10-year Monday at a yield of 1.76% and
this morning it is hovering around 1.76% with agency MBS prices unchanged from
Monday's close.
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