Nationstar Adds $50 Billion in Servicing - Does it Make Money?

By rchrisman@robchrisman.com

 

(Thanks to Rhonda M. for this one.)

GOD'S PLAN FOR AGING

Most seniors never get enough exercise. In His wisdom God decreed that seniors become forgetful so they would have to search for their glasses, keys and other things thus doing more walking. And God looked down and saw that it was good.

Then God saw there was another need. In His wisdom He made seniors lose coordination so they would drop things requiring them to bend, reach & stretch. And God looked down and saw that it was good.

Then God considered the function of bladders and decided seniors would have additional calls of nature requiring more trips to the bathroom, thus providing more exercise. God looked down and saw that it was good.

So if you find as you age, you are getting up and down more, remember it's Gods will.

 

If you're a loan officer and need some data for a presentation to some real estate agents, here's a decent source. Using data collected by the U.S. Census Bureau's Survey of Construction, this "Characteristics of New Housing" report provides annual statistics on the characteristics of new privately owned residential structures by census region. Things like the number of bedrooms and bathrooms, the location of the laundry, presence of a homeowner's association, the buyer's source of financing and the structure's square footage. And if you want to hone in on single-family housing, like how many houses have more than four bedrooms, here you go.

I love political correctness. Instead of saying someone was fired we now say, "They were managed out." Certainly Wall Street trading jobs are shrinking, and employment in banks seem to be as well. In an effort to adjust its expense base, Trustmark National Bank ($12.8B, MS) reduced its workforce by 6% by offering early retirement packages to employees who were at least 60Ys old and had at least 5Ys of service. Swiss bank UBS said it plans to cut its US wealth management hiring by about 40%. And Bank of America is expected to reduce staffing in its consumer banking division by as many as 8,000 more jobs. BofA has already reduced the staffing in its consumer division from more than 100,000 in 2009 to about 68,400 as of the end of the first quarter of 2016. Those reductions have come as Bank of America transforms its retail financial centers for digital banking.

 Speaking of Bank of America, its CEO Moynihan warns us that the stress test process may be causing banks to restrict lending.

High levels of market volatility have put a damper on bank stocks, pushing them down to sharply lower levels. This decline will reduce M&A activity, as buyers lose currency and sellers have less interest in stock based deals. But the recently announced bank mergers and acquisitions keep coming. United Fidelity Bank, fsb ($386mm, IN) will acquire Bank of St. Croix, Inc. ($148mm, VI). In Iowa Wayland State Bank ($88mm) will acquire Peoples State Bank ($29mm). United Community Bank ($1.8B, IL) will acquire Illini Bank ($282mm, IL). In Pennsylvania Prudential Savings Bank ($537mm) will acquire Polonia Bank ($288mm) for about $38.1mm in cash (50%) and stock (50%) or roughly 1.01x tangible book. Byline Bank ($2.6B, IL) will acquire Ridgestone Bank ($433mm, WI) for about $105mm in cash (35%) and stock (65%).

 In West Virginia, arguably one of the most scenic states, Summit Community Bank, Inc. ($1.5B) will acquire First Century Bank, Inc. ($410mm) for about $42.8mm in cash (35%) and stock (65%). Out west Farmers & Merchants Bank of Central California ($2.6B) will acquire Delta Bank ($106mm) for about $6.6mm in stock. And in the "Land of 10,000 Lakes" Flagship Bank Minnesota ($101mm) will acquire Landmark Community Bank ($82mm). But stop the presses: SunPac Financial (CA) and Security First Bank ($112mm, CA) have mutually agreed to call off their merger announced in Feb of 2015.

 And certainly there is non-bank, but financial services mergers and acquisitions. Bank of Montreal ($681B, Canada) will acquire boutique investment banking advisory firm Greene Holcomb Fisher (MN). Optum Bank, Inc. ($5.0B, UT) will acquire the health savings account business line from Wells Fargo Bank. Optum is a subsidiary of UnitedHealth Group Inc. Microsoft will acquire business online platform LinkedIn for about $26.2B in cash, as the company seeks to boost its productivity and business processes segment offerings.

 For those playing along at home, S&P Global Market Intelligence research finds the top 10 largest banks and thrifts in the US by assets as of Q1 2016 are: JPMorgan ($2.4T, NY), Bank of America ($2.2T, NC), Wells Fargo ($1.9T, CA), Citigroup ($1.8T, NY), US Bancorp ($429B, MN), Bank of New York Mellon ($373B, NY), PNC Financial ($361B, PA), Capital One ($330B, VA), HSBC North America ($289B, NY) and TD Group ($274B, DE).

 In non-bank news, Nationstar Mortgage (NSM) was selected by Seneca Mortgage Servicing to subservice its $50 billion UPB portfolio of owned mortgage servicing rights (MSRs). This portfolio is in addition to the previously announced $55 billion subservicing portfolio. NSM will assume Seneca's existing site and team. NSM has shown that it can continue to grow its servicing portfolio, and it expects its subservicing book to be over $100 billion by year end. This portfolio is in addition to the previously announced $55 billion subservicing portfolio. NSM had indicated on a recent earnings call that it expected the $55 billion portfolio to generate $30 million to $40 million in pretax income from the earlier $55 billion of subservicing.

 NSM has said that it targets at least 25% margins in subservicing. This would translate into at least $120 million in revenues on the $55 billion of earlier subservicing (22 bp) which is high relative to what other subservicers seem to be seeing. For example, Pennymac (PFSI) charges PMT $7.50 per month (around 5 basis points) for non-delinquent loans.

 (And while we're on servicing, Lakeview Loan Servicing posted changes regarding Freddie Mac's Condominium Project and PUD Insurance requirement changes. The changes prohibit mortgages secured by units in projects with a master or blanket policy combining coverage for multiple unaffiliated projects or PUDs. Fidelity or employee dishonesty insurance is not required when the calculated amount of insurance coverage is less than or equal to $5,000. Professional management firms may be insured under its own fidelity or employee coverage, with proof submitted to the condominium HOA; or, under the condominium HOA's insurance policy. These changes are effective August 1 but may be implemented immediately.)

 Last month the U.S. Treasury Department issued its white paper regarding the online marketplace lending industry. In it, Treasury writes, "Advances in technology and the availability of data are changing the way consumers and small businesses secure financing. Online marketplace lending has emerged as an industry offering faster credit for consumers and small businesses. Through this effort, Treasury took steps to understand the potential opportunities and risks presented by this evolving industry." The report identified, and introduced the following recommendations to the federal gov't and private sector participants: (1) support more robust small business borrower protections and effective oversight, (2) ensure sound borrower experience and back-end operations, (3) promote a transparent marketplace for borrowers and investors, (4) expand access to credit through partnerships that ensure safe and affordable credit, (5) support the expansion of safe and affordable credit through access to government-held data, and (6) facilitate interagency coordination through the creation of a standing working group for online marketplace lending.

 The American Bankers Association CEO and President, Rob Nichols comments, "We applaud Treasury's efforts to better understand the emerging market of online non-bank lending through an open and collaborative process. A policy ecosystem that supports innovation both inside and outside banks is wholeheartedly supported by the banking industry." Continuing, Rob writes, "While there is much to support in Treasury's recommendations, enacting more laws is not one of them. There are numerous laws today that ensure small business loans are made responsibly. What is needed is proactive oversight to ensure that rules are followed and borrowers are treated fairly regardless of the provider."

 Turning to interest rates, as expected the big news yesterday was the Federal Open Market Committee Meeting, despite its inactivity. U.S. Treasuries rallied in a "curve-steepening trade" after analysts came to the conclusion that six Fed officials expect only one more rate hike in 2016, up from only one official in March. The statement that accompanied the decision to keep rates on hold said that "the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up." Given the great employment statistics in the U.S. it is hard to imagine the Fed lowering rates; given the worldwide issues & Brexit it hard to imagine the Fed raising them in the near future. The odds of two rate hikes by the end of the year has fallen and now more committee members are seeing a more gradual increase in rates.

 As a reminder, global investors are so worried about the potential for a UK (British) exit from the Euro (Brexit) that active buying has pulled the yield on the 10-year German bond into negative territory for the first time ever. Those same strains have also driven overseas buyers into the US in droves, pulling our own 10-year Treasury yield into the high 1.50% area.

 For mortgages, the market rallied following the afternoon's FOMC announcement.  Origination supply for the day was in line with recent averages and totaled about $2.25 billion for the day. Despite the great rates lock desk volumes are somewhat steady - perhaps lenders have kept rates fairly sticky and have been unwilling to chase the market lower given the volatility in the market and the fact that capacity is already tight for many in the market.

 This morning we've had weekly Initial Jobless Claims (+13k to 227k), the Consumer Price Index (+.2%, core +.2%), and June Philadelphia Fed (+4.7). For housing news later is the June NAHB Housing Market Index from the home builders at 7AM PDT. For LOs who didn't lock yesterday, rates are a little better today. We closed the 10-year with a yield at 1.60% and this morning it is 1.57% at with agency MBS prices slightly better - see note above.