IRS Extends Deadline, Austin and SF Job Market Stats

By rchrisman@robchrisman.com

(Thanks to Stephen S. for this one.)

At the end of the college year, a star football player celebrated by attending a late night campus party.

Soon after arriving, he became captivated by a beautiful coed and eased into a conversation with her by asking if she met many any "potential dates" at the party.

"Oh, I'm much more attracted to the strong academic types than to the party animals," she said. "What's your G.P.A.?"

Grinning from ear to ear, the jock boasted, "I get about 25 in the city and 40 on the highway."

The last day of June, and 2016 half over? How did that happen? (Regarding time flying Linda B. writes, "Thank the Good Lord, I am Benjamin Button.") June for me included time spent in Dallas, Albany NY, Northern California, Las Vegas, New Orleans, Kansas, and now Hawai'i for the MBAH conference. I continue to see hard-working, conscientious, competent people in all ranks of residential lending doing their jobs well. And yet we, as an industry continue to pay the price, both in the press and financially, for problems from years ago. And if you don't think regulators are teaming up, think again - just ask BancorpSouth (details on its $10.6 million settlement below).

Lenders One, the largest mortgage banking cooperative, is hosting its annual Summer Conference August 7-10 in L.A.  Originators from across the country will come together to share best practices, learn from top industry experts and help shape the future of the industry. Kyle Manseau, Vice President of Operations at Allied Mortgage Group, shared that "L1 conferences are by far the most organized, structured and productive conferences that I have attended in my 22+ years in the industry."

 Save the date for the 21st Annual Western States Loan Servicing Conference and Golf Tournament, August 14th - 16th in San Diego. Details are available on the California MBA website.

 Find out the possible effects of "Brexit" regarding implications for Securities and other Financial transactions. This program will provide an overview and discussion of the possible effect of a so-called "Brexit" on EU issuances of securities and transactions in other financial instruments. Register for the July 7^th webcast with Peter J. Green and Jeremy C. Jennings-Mares of Morrison & Foerster LLP who will discuss the impact of a Brexit.

 Speaking of Brexit, and upheaval, the Fed released the results on its annual stress tests of 33 large US banks that have more than $50 billion in assets. Do non-bank residential lenders have stress tests? No. The stress tests examine what would happen if a bank, or economy, ran into trouble. Last year only Deutsche Bank and Banco Santander did not pass the stress test.

 This time around nearly all of the largest U.S. banks are on steady enough footing to increase payouts to shareholders. The two banks that failed - Deutsche Bank Trust Corporation and Santander Holdings USA, have "broad and substantial weaknesses" that persist in their capital planning processes, the Fed said. The Fed also criticized some elements of Morgan Stanley's capital planning process - but still allowed the bank to move ahead with plans for a $3.5 billion stock repurchase program and a quarterly dividend hike while it rectifies the issues.

 Analysis by the World Bank finds banks in some countries still need to close branches to boost profits. Some interesting data points by country of the number of bank branches per 100,000 adults are: Columbia #1 (256), Peru #3 (121), Spain #7 (70), Italy #9 (60), Brazil $12 (47), Belgium #17 (40), France #19 (38), Japan #27 (34) and US #31 (32). Of note, the UK is at 25 branches per 100k and Germany is only at 14.

 Certainly we've seen consolidation in the financial world. On the banking side of things, Steve Brown with PCBB (Pacific Coast Bankers Bank) writes, "As of the end of 2012, there were 7,083 financial institutions and as of the end of Q1 2016, there were 6,122. That is a decline of 961 over 14 periods or about 73 per quarter based on this simple calculation...the total number of financial institutions operating in the US is continuing to decline. Over the past 3 years, the rate of decline has been about 1% or so from the prior quarter, which is historically about the same level as it has been going back even as far as 10 years or more.

 "Therefore, in projecting forward year by year and assuming the 4% decline (i.e. 1% per quarter vs. prior quarter) continues, the industry should shake out something like this in the coming years. As of the end of 2015 there were 6,182 financial institutions (in this case, banks) operating in the US. At the 4% annual decline rate, we would project something around 5,906 at the end of 2016. Looking forward using the same methodology you can logically expect the industry to be 5,643 by the end of 2017; 5,391 by the end of 2018; 5,151 by the end of 2019 and 4,921 by the end of 2020...You cannot count on the past to predict the future, but at least in banking this number continues to holding up quite well."

 Along those lines, in the last week it was announced that in Montana the State Bank of Townsend ($58mm) will acquire Dutton State Bank ($56mm). In Georgia First National Bank of Decatur County ($120mm) will acquire Citizens Bank ($33mm). Canada's 5th largest bank, Canadian Imperial Bank of Commerce (CIBC) will acquire The PrivateBank and Trust Co ($17.7B, IL) for about $3.8B in cash (40%) and stock (60%). American National Bank ($3.0B, NE) will acquire Stonebridge Bank ($209mm, MN). First Midwest Bank ($10.6B, IL) will acquire Standard Bank and Trust Co ($2.5B, IL) for about $365mm in stock. Dollar Bank, FSB ($7.4B, PA) will acquire Bank @LANTEC ($112mm, VA). (And yes, that is its name.)

 Berkshire Hathaway (BHLB) announced the acquisition of First Choice Bank, in an all stock deal valued at $112 million, representing 109% P/TB, a 1.4% core deposit premium and 18x P/E (2016). This deal brings BHLB to the brink of the $10 billion asset threshold. People's United Bank ($38.9B, CT) will acquire The Suffolk County National Bank of Riverhead ($2.3B, NY) for about $402mm in stock or about 1.95x tangible book.

 But Mississippi's BancorpSouth, Inc., the holding company for BancorpSouth Bank, is going to be $10.6 million lighter going forward - although it had already set aside (reserved) more than enough for the settlement. The bank entered into a settlement through the agreement to a consent order (the "Consent Order") with the U.S. Department of Justice ("DOJ") and the Consumer Financial Protection Bureau ("CFPB") related to certain alleged violations of the Fair Housing Act and Equal Credit Opportunity Act. The settlement will fully and finally resolve all previously announced claims by the DOJ and CFPB against the Bank. BancorpSouth has not admitted to any of these allegations or to any liability.

 "Since 2012, the Bank has taken a number of steps to enhance its compliance management systems, reduce its fair lending risk, and increase its lending in minority areas. The settlement is an opportunity for the Bank to avoid protracted litigation with the DOJ and CFPB...BancorpSouth has previously announced numerous enhancements designed to further strengthen its commitment to promote affordable lending products in low to moderate income and minority areas including a new Director of Community Lending to oversee ongoing outreach efforts in all markets, including the Bank's continued lending efforts in minority neighborhoods, a Chief Fair Lending Officer who is responsible for developing, evaluating, and implementing its fair lending program, a Community Development Lending Manager within the BancorpSouth Mortgage team, and opened a new branch in Memphis, Tennessee.

 "These enhancements, combined with the Bank's centralized underwriting process and pricing, further strengthen the Bank's commitment to develop and promote affordable lending products, in low and moderate income areas and minority areas."

 In some temporary good news, the IRS has extended the re-verification deadline for existing clients of IVES vendors from July 1, to midnight July 15. The MBA reports that, "IVES vendors tell us that meeting the July 15 deadline remains a challenge, but this is a significant improvement...(we) have encouraged our members to proactively reach out to their vendors. We appreciate the extension and urge MBA members to complete the re-verification process as soon as possible. If you have already been contacted by your IVES vendor(s), you should continue to make it a priority to complete the process quickly. If you have not yet been contacted by your IVES vendor, you should immediately call your vendor and obtain the re-verification requirements."

 While we're on the IRS, Pacific Union Financials' Correspondent Lenders are advised to have established the appropriate security protocol for ordering tax transcripts via the 4506-T as part of the proper delivery process. Per IRS enhanced guideline requirements, 4506-T vendors are required to certify that all of their subscribers comply with new requirements or must disable any subscriber accounts that do not certify their users to the new requirements by midnight on July 15.

 Aside from holidays, every Thursday we receive the weekly Initial Jobless Claims figures from the prior week. The flip side, of course, is employment. The Census Bureau's county business patterns says that there are 50 counties in the United States that account for 34.7% of all U.S. employment. Among those 50 counties, San Francisco, CA and Travis, Texas (think Austin) lead the nation in employment growth. Both San Francisco's and Travis's employment grew 5.7%. In San Francisco, the information sector grew 13.6%, the construction sector grew 10.4%. In Travis, the real estate and rental and leasing sector grew 22.3%, and the utilities sector rose 14.6%.

 Travis also lead the 50 largest counties in the rate of growth of business establishments, growing 3.6%.  It seems that large California counties are leading the charge in employment growth. 3 of the top 10 large counties with the highest rate of employment gains were in California: Riverside (4.4%), Alameda (4.1%), and Santa Clara (3.9%). In fact, California has the most establishments (889,646), employees (13.8 million), and largest payroll ($797 billion).

 And yes, this morning we had Initial Jobless Claims. They were +10k to 268k. Yesterday agency MBS prices ended lower in price and the 10-year note closed .125 lower in price (settling at 1.48%). Yes, since a week ago mortgage rates have moved lower, but not as much as some expected given the Brexit turmoil. Trading desks are seeing prevailing 30-year mortgage rates around 3.5% which would put the primary/secondary spread at 113bps. Fannie's trading desk reports that, "While some lenders have posted 3.375% and 3.25% GNRs on their rate sheets, volume has been understandably limited given the recent market rally...With just roughly $9 billion of available float in the 2.5% coupon, liquidity should improve if we stay at these levels."

 Later this morning we'll have the Chicago PMI, projected to rise back above 50 to 50.5 vs. 49.3 previously. For numbers, after Jobless Claims we're at 1.50% on the 10-year and the agency MBS prices are actually slightly better than Wednesday's close.

Free Training Across The Nation and FHLBs Enlist In MPF For Ginnies

By rchrisman@robchrisman.com

Dan was a single guy living at home with his father and working in the family business. When he found out he was going to inherit a fortune when his sickly father died, he decided he needed a wife with whom to share his fortune.  

One evening at an investment meeting he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away. "I may look like just an ordinary man," he said to her, "but in just a few years, my father will die, and I'll inherit 20 million dollars."

Impressed, the woman obtained his business card and three days later, she became his stepmother.

Women are so much better at estate planning than men.

Huh? People burned while walking across fire at a Tony Robbins event in Texas? Imagine that! Speaking of incendiary activities, an amendment passed the Senate Appropriations Committee would bar federal banking regulators from preventing or penalizing banks for providing financial services to state approved marijuana businesses. This will now head to the Senate floor for a vote. I am sure that the alcohol lobbies are dead-set against it, but using income from such businesses for loans bound for F&F or the big banks could make things less complicated for underwriters.

BOK Financial Correspondent Mortgage Services would like to remind banks and credit unions it purchases construction to permanent mortgage loans utilizing a single closing that meets Fannie Mae guidelines. Borrower benefits include time and cost savings, eliminating multiple loan applications, fees and closing costs. We offer extended rate lock options for up to 360 days, with a 90-day float down, allowing the lock in rate on permanent financing when construction begins. Single-closing transactions may be used for both the construction loan and the permanent financing of a home if the borrower wants to close on both the loan and financing at the same time. For more program information, contact clientrelations@bokf.com or call 855.890.1485.

 LoanCraft can turn a pile of tax returns and K1s into a clean, uniform analysis, typically in less than four hours. Typically, you get a full analysis of tax returns for personal and business for $25.  It's especially helpful given the recent changes around K1 distributions. They also don't have a minimum monthly commitment. Contact Ron George for more information.

 In 2013, LendingQB first released an interface to MCT's HALO-Link, which automatically transferred loan pricing and pipeline data from the LendingQB LOS to MCT in order to improve the accuracy of hedge positions. Today, the two companies completed an enhancement to the HALO-Link interface that adds the capability for MCT to update the LendingQB LOS in real-time with key investor information, such as confirmation number, confirmation price and expiration date. The result is a comprehensive and efficient secondary marketing process that provides pricing and hedge risk transparency throughout the mortgage loan life cycle. This joint effort demonstrates how collaboration between an LOS and a risk management firm produces tangible operational benefits to mortgage lenders.

 Franklin American Mortgage Company announced it is now offering Fannie Mae HomeReady Fixed Rate Product.

 Overture Technologies has integrated trended credit data into its automated underwriting system, a move that enables lenders and investors to gain new insight into the credit risk of their non-agency loans. The enhancement to the industry's leading independent automated loan underwriting system (AUS) follows Fannie Mae's recent announcement regarding use of expanded credit data in its Desktop Underwriter AUS. Trended credit data records a consumer's use and repayment of revolving credit over time and provides important insight into consumers' evolving ability and willingness to repay a new debt obligation. Lenders, particularly those specializing in loans to borrowers with previous bankruptcy or housing defaults, can leverage this data to understand how consumers have managed their use of credit as they re-establish their credit history.

 United Wholesale Mortgage (UWM), has introduced a new proprietary Settlement Agent Portal, which enables settlement agents to submit their closing changes electronically to UWM. The new portal will streamline the closing process and speed up the response time for UWM clients and their settlement agents. The portal will enable settlement agents to review the preliminary closing documents and submit their changes electronically, placing the file directly into the closing queue. This process eliminates the need for multiple emails and waiting for a Closing Specialist to reply to an email. UWM produced a tutorial video to highlight the increased efficiencies the portal makes possible.

 On the flip side, effective 6/30/16, Mountain West Financial, Inc. (MWF) will discontinue the 203K Standard and Limited Wholesale Programs. MWF will accept registrations up to 6/30/16 and all loans must fund by 8/31/16.

 And recently the IRS notified vendors who provide tax transcripts (such as IVES vendors) that they would need to implement new requirements in order to continue providing tax transcript services. These new requirements are intended to better protect taxpayer information. The updated requirements include certain new assessments and certifications for vendors and lender clients. The MBA's president Dave Stevens sent out a note saying that, "While the IRS has not made their new certification requirements available to the public, we have learned they will include items such as a requirement that lenders provide their vendors with the Social Security numbers of any individual authorized to use the tax transcript process. Some of the new requirements must be implemented by July 1 and thus demand your immediate attention. Other requirements must be implemented within 45 days.

 "The MBA has asked the IRS to delay the implementation date and is working for further clarity around the requirements. The IRS, however, as of this writing has refused to delay the implementation. I strongly recommend that you reach out to your vendor today to obtain the requirements and complete the necessary certifications and assess the impacts on your business operations. According to the IRS, vendors will be required to suspend access to the transcript service for any lender that fails to complete the required certification by midnight, Friday, July 1. If you have any questions, please contact Rick Hill, Vice President, Industry Technology at (202) 557-2718.

 In better news, The Mortgage Collaborative, the industry's only privately held cooperative, has surpassed $100 billion in estimated originations in 2016 with the addition of its 59^th preferred member, Movement Mortgage. "This is an extraordinary milestone for us" said David G. Kittle, CMB the Collaborative's Vice Chairman.  "As we move into the second half of 2016 and towards our August Summer Conference in Denver, we'll be discussing how TMC will monetize this production in 2017. are member companies estimated to do that volume in 2016?

 For some training and events coming up, some as soon as today...

 The new Summer 2016 edition of Arch MI's Housing and Mortgage Market Review^® (HaMMR) will be released next week. Following its release, author Ralph DeFranco, Arch Capital's Global Chief Economist, will present two complimentary webinars on HaMMR and the latest findings of the Arch MI Risk Index^® (the probability of regional home prices being lower in two years). Register now for either Wednesday June 29^th webinar or Thursday June 30^th webinar.

 Learn how to minimizing risk exposure & liability with a free recorded webinar from Bilzin Sumberg. Join a panel of experts as they discuss data security and privacy concerns in the private sector, as well as best practices for minimizing exposure and liability. If you would like to register, email Philip R. Stein, attorney at law.

 Essent invites you to register now for one of its July training webinars. "There are so many vital topics being addressed by Essent's training team, that you may have a difficult time choosing which one to take first."

 On July 19^th in New Orleans, the FHA is providing a free one-day training course covering FHA underwriting procedures.

 Valuation Expo, the largest conference for real estate appraisers, is rapidly approaching. It will be held at the Baltimore Marriott Waterfront, July 11-13. "We will hear from industry who's who such as Joe Tracy from the NY Federal Reserve; Jim Park, Director of the Appraisal Subcommittee; Zach Dawson, Chief Valuation Officer at Fannie Mae, and a panel of bank regulators from OCC, FDIC, NCUA, and FRB. In addition to 14 hours of continuing education available there will be a trade show with software companies, E&O providers and lots of AMCs and lenders."

 In security news, American Banker reports that the Federal Home Loan banks of Topeka and San Francisco have signed up to participate in a Mortgage Partnership Finance program that pools and securitizes government-backed loans via Ginnie Mae. "We now have a new option for selling your government mortgage loans into the Mortgage Partnership Finance program...MPF Government MBS product is geared to make you successful with competitive pricing in both servicing retained and released options," a memo told members.

 "The Chicago Home Loan Bank created and continues to run the MPF program. The Chicago and Atlanta FHLBs have sold the most loans through the program, which is also used by the Boston bank. The San Francisco bank has also joined. The MPF program allows for the sale and securitization of Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service loans." Although the program is less than a year old, so far the MPF Government MBS program has securitized $271 million in single-family loans through May.

 Keeping on with the security markets, Tuesday was a bit of a yawner although the treasury market recouped earlier declines despite the bounce in risk assets. As ThomsonReuters put it, "By the close, retail MBS volumes were near recent averages and biased to better buying." But we were close to unchanged.

 For rates we closed the 10-year with a yield of 1.46%. Today we've already had the MBA's weekly update on mortgage applications for the week ending June 24 (-2.6%). We've also had May personal income and spending (+.4%, +.2%). The Pending Home Sales Index will be released at 4AM Hawai'i time. In the early going the 10-year's yield is hovering around 1.48% with agency MBS prices worse a shade.

Our Economy During Election Years

By rchrisman@robchrisman.com

Deep in the back woods of Tennessee, a farmer's wife went into labor in the middle of the night and the doctor was called out to assist in the delivery. Since there was no electricity, the doctor handed the father-to-be a lantern and said, "Here. You hold this high so I can see what I am doing." Soon, a baby boy was brought into the world.

"Whoa there," said the doctor, "don't be in such a rush to put that lantern down. I think there's another one coming." Sure enough, within minutes he had delivered a baby girl.

"Hold that lantern up, don't set it down there's another one!" said the doctor. Within a few minutes he had delivered a third baby.

"No, don't be in a hurry to put down that lantern, it seems there's yet another one coming!" cried the doctor.

The farmer scratched his head in bewilderment, and asked the doctor, "You think it might be the light that's attracting them?"

How could it have been 30 years since everyone was watching "Top Gun" in the theaters? Yes, time flies, and before you know it, well, you're old. Where's the best place to be a reverse mortgage originator? I guess some place where older people want to stay put. The nation's only county with a majority of the population age 65 or older remains Sumter, Fla., where 55% had reached retirement age and had a median age of nearly 67 years on July 1, 2015.

The world is focused on Europe and Brexit, but recently Wells Fargo's economic team wondered, "Does U.S. economic activity slow in election years?" It has been well documented that the stock market is affected by who is newly elected. When Obama took office in 2009, the S&P 500 and the NASDAQ fell around 5% the day of his inauguration. Most believe, however, that that while the economic backslide may have seemed to indicate that the American public was less than confident in their newly elected leader, the dip was instead widely credited to continued lack of confidence in the failing economy left behind by the previous administration. Either way, confidence in a new leader, and the ability of a market to digest change in a new leader, lead to volatility in the market in the first year after election.

 With that in mind, there hasn't been much research on the performance of real economic variables during presidential election years. The general argument is that the uncertainty of who will become the next president and how that will affect the economy results in slower economic activity. Wells Fargo's economics group findings "suggest that the general argument that uncertainty during presidential election years results in slower economic activity does not hold water. In fact, based on our analysis, we find that real GDP growth, real consumer spending growth, real business fixed investment growth, real disposable income growth and industrial production growth are actually stronger during presidential election years compared to non-election years."

 To prove this and put it into numbers, Wells Fargo took a look at how economic outcomes differ between presidential election and non-election years; they examined the performance of the U.S. economy in presidential election years over the past half-century. They utilized a set of key economic indicators including real GDP, real disposable income, employment and industrial production from 1960 through 2015 on a quarterly basis. Their economists found that median real GDP growth during presidential election years is 1.25% higher than during non-election years.

 Wells Fargo also looked at if there were any outside factors affecting the results. To do that, they performed a sensitivity analysis adjusting the time period to the "modern era" (1980's and beyond). Another possibility was a differing number of recessions during presidential and non-presidential years. The final factor of possible influence was who controlled the White House. Looking at each of these areas individually, they found no statistical differences that would change the results. In conclusion, Wells Fargo did not find any evidence of adverse effects on economic activity in presidential election years. Now, make sure to vote because what is slow is the voter turnout rate of 60%.

 Switching gears to investor updates...Nature bats last, and lenders & investors react to disaster news with reminders of their lending policies.

 Amerihome regularly updates information regarding counties in disaster areas. For a current list of affected counties and re-inspection requirements, log in to its website.

 Pacific Union issued an alert reminding clients that its policy for properties located in disaster areas as published in its Correspondent Lending Guide.

 But nature also can help us out. Mountain West Financial Wholesale is requiring any property with a solar panel system lease or Power Purchase Agreement (PPA) must have the solar panel system lease or Power Purchase Agreement reviewed for eligibility prior to the file being submitted for underwriting.

 And appraisal requirements continue to evolve.

 Effective as of June 1 Nationstar Mortgage will maintain and distribute a monthly Nationstar Mortgage Appraiser Exclusionary List in an effort to continue to ensure collateral quality.  Correspondents are encouraged to review the Nationstar Mortgage Appraiser Exclusionary List prior to submitting a loan to Nationstar Correspondent for loan purchase.

 In a previous announcement, Nationstar Mortgage inadvertently provided the incorrect UCDP Aggregator ID.  In order for Correspondents to take advantage of the appraisal-sharing functionality, Correspondents must set up their "Aggregator profile" within the UCDP web portal and then select the aggregator(s) with whom they will choose to share appraisals.  Please use the corrected UCDP Aggregator ID as listed below: Please select Nationstar Mortgage from the selection criteria within the profile: KSJ363 UCDP Aggregator ID Nationstar Mortgage.

 All U.S. Bank clients be advised that all appraisals for new originations must be submitted to FHA through the portal for all FHA case numbers assigned on or after June 27. Non-Delegated Correspondents must provide a first generation PDF of the FHA appraisal report in the underwriting submission package to your assigned Underwriting Center.  Our Underwriting Group will then upload the appraisal to the FHA EAD Portal and the SSR report will be uploaded to the iDoc file along with the Appraisal Logging. This is a temporary procedure as FHA will open up the EAD Portal to clients that we Sponsor, or act as their Authorized Agent, on July 21, 2016. Additional information on this process will be forthcoming.

 Pacific Union Financial posted a reminder that effective with all case numbers assigned on and after June 27, the Electronic Appraisal Delivery (EAD) portal must be used for electronic transmission of appraisal data files and reports for all FHA loans.Only appraisals that comply with FHA's Appraisal Report and Data Delivery Guide may be uploaded to the EAD portal. Users will be provided a confirmation of successful upload or informed that the appraisal requires correction and re-submission. Once an appraisal report is successfully uploaded to the EAD portal, FHA Connection (FHAC) will pull EAD appraisal data and pre-fill certain data fields in the Appraisal Logging screen.

 Beginning this month, the Collateral Underwriter (CU) Appraisal Findings report will be available exclusively through Fannie Mae Connect™. The report can be accessed by going to the Underwriting section of Report Center. Additional information accessing CU reports in Fannie Mae Connect is provided in the CU Reporting Overview document.

 NYCB Mortgage posted seller guide updates. In reference to permissible use of land policy - accessory unit, the appraisal section has been updated to specify that if the property contains an accessory unit that complies with zoning, the property is eligible if the appraisal report can demonstrate that the improvements are typical for the market through analysis of at least one (1) comparable property with the same use. Also updated is its Seasoning Requirements section regarding Borrowers with No Obligation on Existing Mortgage to be Paid-Off. Specifically, that the borrower(s) may be eligible if they have been on title for at least 12 months, but is not obligated on the existing mortgage(s) that is being refinanced, if they meet at least one of the following requirements: The borrower has been residing in the property for at least 12 months, the borrower has paid the mortgage for at least 12 months, or The borrower can demonstrate a relationship with the current obligor (for example, relative or domestic partner). Note: The loan must be structured as a cash-out refinance.

 Turning to the markets, and the topic of the last month - Brexit - Brian L. writes, "Personally, I like the following additional Eurexit monikers: Austria La Vista, Swedyonara, Luxembyerg, and Deutsche let the door hit you on the way out." There's a lot of humor out there, but in the secondary markets none of it is coming from broker-dealers and investment banks when queried about "renegotiating" the prices of any mortgage-backed securities sold to them by lenders hedging their pipelines. It just doesn't happen in the secondary markets. But in the primary markets LOs and brokers give it their best shot - a money losing prospect for lenders.

 Monday U.S. Treasuries rallied again as Friday's Brexit-induced risk aversion trade rolled onward. While there was little U.S. economic data released, investors had plenty of news to digest as banking stocks in the U.K. and Italy sank. The Brexit vote may well move Europe's financial center from London to the Continent or Dublin. And Italian lenders' non-performing loan problems will not be made better by the Brexit turmoil. Italy's government is said to be considering a bailout plan for its banking system but would need a waiver from the EU to avoid a new regulation which requires investors to take heavy losses before the state can provide support.

 Today we've had the third look at the first quarter's GDP numbers (revised higher to 1.1%, still the lowest in a year). Coming up later is more "old" news: the April Case-Shiller 20-city Index (3AM Hawai'i time) and June Consumer Confidence at 4AM HDT. The yield on the 10-year is "back up to" 1.47% and agency MBS prices are slightly worse than Monday's close.

TILA Dollar Amounts - Bank Supervision Economics Study

By rchrisman@robchrisman.com

 

Everyone is talking about the future of the European Union, and today's joke involves the e-trade baby & Brexit. Tad Dahlke sends, "Brexit to be followed by Grexit, Departugal, Italeave, Fruckoff, Czechout, Oustria, Finish, Slovlong, Latervia, Byegium." And while we're on it, Brian B. reminded me of a quote from Margaret Thatcher: "The trouble with Socialism is that eventually you run out of other people's money." And from Nevada comes, "The EU cannot function without Britain. Britain, however, can function without the EU."

The notice addresses the thresholds related to the minimum interest charge and safe harbor penalty fees under the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), the total loan amount and points and fees dollar trigger for high-cost mortgages under the Home Ownership and Equity Protection Act (HOEPA), and the maximum points and fees for qualified mortgages under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The notice also revises one of the 2016 safe harbor penalty fee amounts due to a decline in the 2015 Consumer Price Index that was not fully accounted for.  This final rule is effective on January 1, 2017 with the exception of section 1026.52(b)(1)(ii)(B) which is effective following publication in the Federal Register.

 PricewaterhouseCoopers' Consumer Finance Group released the Mortgage Risk and Compliance Highlights report for June 2016.  It is a comprehensive look at a variety of areas such as compliance, risk, analytics, tech and servicing in the mortgage industry. 

 A year ago I walked into a bank's Secondary Marketing department to attend a meeting, and was told the team of seven people in the conference room were state auditors starting what would turn out to be a six-month compliance review. In his best David Attenborough, the secondary marketing manager said, "we note the regulatory megafauna in its natural habitat, grazing upon spreadsheets filled with the secrets of the firm..." Needless to say, compliance is no joking matter, unless it's done with a cheap British accent. In its recent paper, Economics of Bank Supervision, the New York Fed uses data on supervisory efforts of Federal Reserve bank examiners to describe how supervisory efforts vary by bank size and risk, and to measure key trade-offs in allocating resources. 

 Its findings (spread across 4 papers) are interesting; "We look at the relation between supervisory attention and a bank's riskiness as measured by its supervisory rating. Ratings are on a scale of 1 to 5 where 1 is the safest and 3 or higher indicates moderate to significant concerns. To the extent that supervisors are assigned to reduce bank risk, as our model predicts, we expect to see a positive relationship between supervisory hours and ratings, that is, more supervisors working on banks with worse ratings. This result is exactly what we find in the data...to put this in perspective, supervisory attention increases about the same amount when a bank's rating goes from 1 to 3 as when its assets double." In a nutshell: The Fed's analysis estimates that large banks (holding over $10 billion in assets) receive 65 percent more attention since 2008 while small banks receive 19 percent less.

 The servicing market is attracting a lot of attention. Banks are selling packages ahead of Basel III or are focusing on owning servicing in their footprint, smaller companies are finding they don't have the capital needed to own a portfolio, and larger lenders are selling portfolios to generate income. Let's take a random look at some recent deals just to give you a taste of what is on the market. (Mentioned are IMA and Mountain View, but of course others like Phoenix Capital and MIAC are very active in the servicing brokering biz.)

 Interactive Mortgage Advisors (IMA to their friends) has two packages currently out for bid. The first pool offering, on behalf of an independent mortgage banker, is a $1.588 Billion FHLMC bulk MSR package. The 6,003 loan pool is: 3.828% WAC, $264k average loan size, 99% FRM, 763 WaFICO, 73.9% WaLTV, 93% owner occupied, 87% SFR, 11% Condo, 45% Purchase, 33% R/T, 21% C/O, with the top five states: CA, CO, FL, NJ and UT. Bids on this package will be due on June 29^th. The second pool is a $3.061 Billion FNMA/FHLMC MSR package which consists of 14,400 loans. The package has a 3.881% WAC, $212k average loan size, 100% FRM, 758 WaFICO, 76% WaLTV, 88% owner occupied, 88% SFR, 10% Condo, 53% Purchase, 29% R/T, 16% C/O, with top five states: FL, VA, IL, TX and CO. Bids are this package are also due June 29^th.

 Mountain View has two deals I've seen recently. The first is a $3B GNMA package currently out for bid. The 100 percent fixed rate 1^st lien product package has a 3.60% WAC, 703 WaFICO, 93% WaLTV, $241k average loan size, with Top states: California (17.3 percent), New York (7.1 percent), Texas (6.0 percent), and Florida (4.9 percent). June 28^th is the bid due date on this package. The second is a $405 million FNMA non-recourse servicing portfolio that is being made available to the national market, plus, the seller would be interested in selling $20mm to $25mm a month of servicing per month on a flow/co-issue basis. The 100 percent retail originated loans have a 4.20% WAC, 725 WaFICO, 76% WaLTV, Low delinquencies, $205k average loan size, with Top states: Florida (13.8 percent), New York (13.6 percent), California (13.5 percent), and New Jersey (9.8 percent).

 Switching gears to the primary markets, every lender has some kind of "online" presence, so when the mainstream press says something about "online lending" I am not sure exactly what that means. Regardless, last week SoFi (Social Finance) completed one of the largest securitization sales of consumer loans backed by online originations in a sign of overall industry health. As the Wall Street Journal put it, the success of the offering is "suggesting that a scandal that recently rocked rival LendingClub Corp. hasn't dented investors' overall willingness to own online unsecured loans."

 Yet from last week also came word that once again US regulators are warning everyone that the rapid growth in online lending, which some also call marketplace lending, may pose a risk to financial stability. And Prosper Marketplace hopes to rely more on individual investors to fund its originations in an effort to reduce its reliance on Wall Street.

 Ginnie Mae surpassed Freddie Mac in total outstanding mortgage securities backed by single-family loans for the first time, according to researchers at the Urban Institute.

 The summer doldrums were interrupted Friday and the focus is on the markets, and not necessarily in a good way. On Friday we saw U.S. Treasury yields (which move inversely to prices) fell to record lows at the 10 and 30-year maturities overnight (1.27% and 2.19%, respectively) following the news that the U.K. had voted to leave the European Union. Some of those gains were given back. Lost in the shuffle were durable goods orders for May which missed expectations and the decline in business investment led to downward revisions to Q2 U.S. GDP growth forecasts.

 Yes, the refi boom continues, but at what cost? Good LOs make money regardless of interest rates, and a large-scale hit to world economies doesn't help borrower confidence. Analysts and traders are trying to make sense of what the implications are for the world's economies. For the United States, given what is going on around the world, the UK leaving the European Union, which could take a couple years, could push the US Federal Reserve to completely change their monetary policy plans and might even provoke a new round of easing. The market is now saying that there is now an implied 0% chance of a July, September and November short term rate hike by the Fed and only a 18% chance in December 2016.

 Here in the U.S. we have a new week of tantalizing economic news - but does it make much of a difference given events overseas? Many of these numbers gauge the economy months ago, and have little relevance given the Friday events. Regardless, today we've had International Trade figures ($60.6 billion, widening from April). Tomorrow are the third estimate of the 1^st quarter's GDP numbers, along with the April Case-Shiller numbers and June Consumer Confidence. Wednesday opens with Personal Income and Outlays, the PCE Price Index, followed by Pending Home Sales. Thursday has Initial Jobless Claims and Chicago PMI. Friday closes out with PMI Manufacturing Index, ISM Manufacturing Index, and Construction Spending - and then a 3-day weekend.

 Looking at rates, we closed the 10-year Friday at a yield of 1.58%. As one would expect with this kind of rally, mortgage prices lagged considerably as everyone is talking about early payoffs and refinancing risk. And what about all those companies that paid "higher than market" prices for servicing - they took it on the chin in the 1^st quarter, and it looks like the 2^nd and 3^rd won't be much better for mortgage servicing rights valuations.

 This morning, in the early going, the 10-year is around 1.48% with agency MBS prices better by roughly .250. Yields are falling everywhere on the planet as part of an ongoing drive into risk-free assets. 10yr yields are down 22bp in Sweden (to ~37bp), 5bp in Germany (to negative 10bp), 5bp in France (to 0.32%), 10bp in the US (to 1.46%), 12bp in the UK (to 0.95%), etc. Spanish 10yr yields are off 14bp.

Brexit: Lock Renegotiations and Margin Calls?

By rchrisman@robchrisman.com

Overheard at a table of middle-aged gals having lunch. "I don't want to brag or make anyone jealous or anything, but I can still fit into the earrings I wore in high school."

At Happy Hour tonight, besides talking about refis, you can throw this one out: the number of homes worth $1 million has doubled in the last 4 years. Of course 2012 was pretty much the bottom of the real estate market, and it has been the big urban areas like San Francisco and Manhattan that have led the charge higher. Heck, in San Francisco, the median home price is over $800k. (One bedroom apartments in San Francisco rent for $3648 a month.) Seems like a little toppy - but rates are helping...

As servicing values continue to slip, and companies question whether or not they want to own a servicing portfolio and who is a natural buyer of servicing if banks stop, New York imposed new requirements yesterday on mortgage lenders to maintain abandoned houses before foreclosure. Viewed as a blow to servicers, the law signed by Gov. Andrew Cuomo threatens banks with civil penalties up to $500 a day for failing to maintain residential properties once they're aware of vacancies. The new law also establishes an electronic statewide registry of abandoned homes and a state hotline where neighbors can report them, and requires notices to mortgage borrowers emphasizing their right to stay in houses until foreclosure. And a related measure establishes a State of New York Mortgage Agency fund to buy and sell abandoned properties at below-market rates and demolish those beyond repair.

 On top of that, the CFPB urged mortgage servicing firms to upgrade their technology to reduce errors and improve efficiency. The CFPB Mortgage Servicing Report is a special edition of its supervisory highlights report focusing exclusively on mortgage servicing. The CFPB found that "some mortgage servicers continue to use failed technology that has already harmed consumers, putting the company in violation of the CFPB's new servicing rules." The report did not break new ground but it did serve as a reminder of the structural importance of mortgage technology firms under the new regulatory regime.

 "Mortgage servicers have failed to make significant investments in technology and compliance systems, resulting in substantial harm to consumers," according to the report. It is recent stuff, reflecting a detailed look at supervisory exams of mortgage servicers between January 2014 and April 2016, found that outdated and deficient technology can lead to greater risks for borrowers.

 CFPB financial reporter Kate Berry wrote, "The CFPB found that some servicers failed to honor loan modifications after a loan gets transferred. Borrowers also faced substantial delays in receiving permanent modifications because of incompatible systems, the report found.

'Mortgage servicers can't hide behind their bad computer systems or outdated technology,' CFPB Director Richard Cordray said in a press release. 'Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.'

 "The CFPB will be conducting targeted reviews this year of mortgage servicers' compliance with fair lending laws. The reviews will include looking at servicers that are creditors, such as those that participate in a credit decision about whether to approve a mortgage loan modification... Mortgage servicing has been a top concern for the CFPB since it first began examining financial institutions, but examiners continue to unearth problems. CFPB examiners found problems with loan modification acknowledgement notices, including notices sent too late, with incorrect information or deceptive statements.

 "The report cited at least one servicer that failed to send any loss mitigation acknowledgement notices to borrowers due to a 'processing platform malfunction over a significant period of time.'

'The magnitude and persistence of compliance challenges since 2014, particularly in the areas of loss mitigation and servicing transfers, show that while the servicing market has made investments in compliance, those investments have not been sufficient across the marketplace,' the report stated. The agency also updated its mortgage servicing exam manual, which includes a section on how servicers handle complaints and requests by troubled borrowers."

 As servicers wonder if it's worth it, the government continues to collect fines, contributing to its bottom line, the latest to write a big check is Ocwen - "New Co" spelled backwards. Do you think servicing loans is something you'd really want to do? Ocwen Financial Corp. agreed to pony up $30 million to resolve lawsuits that claimed it didn't properly include disclosures for loans it was servicing. (After the announcement the stock rose slightly, but is still down over 80% in the last year.) "The lawsuits, which were brought by Michael Fisher and the U.S. Justice Department, alleged that Ocwen didn't make required disclosures in connection with the Home Affordable Modification Program, a government program introduced after the housing crisis to help struggling homeowners avoid foreclosure."

 Speaking of regulators and mortgages, last week the MBA filed a petition for exemption with the Federal Communications Commission (FCC) seeking an exemption for mortgage servicing calls from the prior express consent requirements of the Telephone Consumer Protection Act (TCPA). The MBA is seeking this limited exception in order to continue to encourage proactive communication with mortgage loan borrowers and early engagement with financially struggling homeowners. "Following the financial crisis, many federal regulators - among them the CFPB, FHFA, FHA and Department of Treasury - have mandated protocols for reaching out to borrowers through outbound communications when a homeowner is delinquent. States have enacted similar requirements. These communications can provide the homeowner with critical information about their options to save their home. In today's environment, this often means through outbound calls or text messages to a consumer if the outreach is going to be effective.

 "Unfortunately, the TCPA can frustrate these communications by imposing the threat of significant liability for making outbound communications to cell phones. Congress recognized this and passed an amendment to the TCPA late last year exempting calls made to collect a debt owed to or guaranteed by the government from the prior express consent requirements. The FCC has promulgated a proposed rule in response to the amendment. MBA appreciates this exemption and filed our comments on the rule."

 This "federal debt" exemption, even if construed as broadly as possible, will not extend to all residential mortgage loans.  FHFA recognized that a mortgage servicing exemption is appropriate and necessary to ensure that all borrowers are able to receive communications they need through a method likely to reach them. The FHFA comments on the FCC's rule call for just such an exemption. MBA agrees that these communications are vitally important for both borrowers and their communities. Thus, MBA has submitted a petition for a limited exemption from the prior express consent requirements for mortgage servicing calls."

 And, in another PR black eye for the industry, Ben Lane with HousingWire reports that, "According to the FTC, a California-based law firms bilked millions of dollars out of homeowners who were facing foreclosure by telling them that they could join a 'mass joinder' lawsuit against their respective mortgage note holders that could discharge their mortgage entirely, provide monetary relief, or both."

 Fannie Mae has made the following updates to the Servicing Guide: Retirement of Delinquency Counseling Requirements for Community Lending Mortgage Loans, Fannie Mae HAMP Modification Termination, Foreclosure Title Costs, Further Reduction of Servicing Requirements for Florida Acquired Properties, Property Insurance Reimbursement Limits, Mortgage Release Policies and Procedures and other Miscellaneous Revisions. Please read the Announcement for details.

 Freddie Mac issued a recent servicing bulletin focused on HAMP, lender-placed insurance, and reporting a short sale to the IRS.

 In somewhat servicing-related news, Black Knight Financial Services announced that it is continuing its recent expansion efforts with the acquisition of Motivity Solutions, which provides customized mortgage business intelligence analytics to mortgage lenders. The Sherman's Motivity Solutions offerings will be integrated with Black Knight's LoanSphere Product Suite, including the LoanSphere Data Hub, which will provide clients with insights into their origination and servicing operations and portfolios.

 With the Brexit vote passing and the United Kingdom voting to leave the European Union, now what? A "leave" vote as led to plummeting stock markets around the world, plunging rates, will prompt Britain to renegotiate its relationship with the EU, and immediately caused the fall of Cameron's government. It puts our Fed on hold about a rate increase and could also lead to an interest rate cut in Europe, a sharp depreciation in the value of the British pound, as we have seen, and some short-term capital outflows out of the U.K. It doesn't matter that yesterday the 10-year note closed .5 lower in price to yield 1.741%, and 5-year T-notes, a better proxy for actual MBS prices, worsened .25.

 The other news - U.S. new home sales falling more than expected in May - took second stage. It is generally thought that the housing market remains relatively healthy and continues to recover. Initial jobless claims also beat estimates and remain near historic lows, so that data series is not confirming the deterioration in the labor market at which that the Labor Department's monthly employment reports have been hinting. Lastly the Conference Board's Leading Economic Index fell 0.2% in May, partially reversing April's 0.6% increase.

 We've already today's big data, prior to folks wanting to leave early on what could be a week's vacation ahead of the 4^th of July. Overnight the results of the British vote showed all the Brexit chatter has come to fruition - but be careful what you wish for. Capital markets' staffs are reminding LOs that a rate lock is a rate lock while at the same time brushing off their renegotiation policies. Not surprisingly, MBS spreads are opening substantially wider with treasury prices soaring. Volatility is also up, and anyone hedging a pipeline is wondering about margin calls from their investment banker counterparties - and they don't renegotiate.

 Looking to the very near term, the Fed will provide some moderate support to help offset some of the likely jump in supply as refinancing activity picks up with the 10-year yield down in the low 1.50s. The higher MBS prices will push investors to the sidelines or to take profits, though spread buyers could step in. As noted above the Brexit vote has eliminated a July rate hike by our Fed, and I imagine the Fed reinvestments continuing beyond 2017.

 In this country we've had May Durable Goods Orders (-2.2%) and Durable Goods Orders ex-transportation (-.3%). Later is the second-tier number: June Michigan Sentiment. We closed the 10-year Thursday at 1.74% and this morning its at 1.54% with some agency MBS prices better by over a point.