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 29th.
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 29th.
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 1st 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 28th 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 1st 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 1st quarter, and it looks like the 2nd and 3rd
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.
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