(For those of you listening to
the current offering of podcasts about the U.S. presidency...)
Once there was a little boy
that lived in the country with his father. They had to use an outhouse, and the
little boy hated it because it was hot in the summer and cold in the winter -
and stank all the time. The outhouse was sitting on the bank of a creek and the
boy determined that one day he would push that outhouse into the creek.
One day after a spring rain,
the creek was swollen and the little boy decided that that was the day to push
the outhouse into the creek. So he got a large stick and started pushing.
Finally, the outhouse toppled into the creek and floated away. That night his
dad told him they were going to the woodshed after supper. Knowing that meant a
spanking, the little boy asked why.
The dad replied, "Someone
pushed the outhouse into the creek today. It was you, wasn't it son?"
The boy answered yes. Then he
thought a moment and said, "Dad, I read in school today that George
Washington chopped down a cherry tree and didn't get into trouble because he
told the truth."
The dad replied, "Well,
son, George Washington's father wasn't in the cherry tree."
As the productivity of the male
part of our industry grinds to a screeching halt due to looking up "Beach
volleyball cheerleaders" on Google Images, I can think of nothing I'd
rather do than spend my workday reading about the Consumer Finance Protection Bureau.
For others who feel the same way, they should check out Mayer Brown's CFPB Five-Year Retrospective.
On the retail side of things,
as we learned in the Originator Census column in last month's STRATMOR Insight Report, the top 20% of loan officers
originated more than twice as many units per month versus the average producer. The
Originator Census survey provides detailed comparisons of Originator
productivity across production quintiles, originator age, tenure and operating
model. The latest set of results cover 2015 activity for both Independents and
Bank Owned or Affiliated mortgage companies. The census collected
information for over 15,000 originators from companies with under 100 LOs to
those with over 1,000 LOs. Results were distributed to participant lenders
this April, but the survey is open for additional registrations through
August 19. To read more about the survey including the data
requirements visit the website STRATMOR Originator Census or contact originatorcensus@stratmorgroup.com.
Of course lenders that do
business in multiple states must pay attention to changes in various places in
addition to whatever the federal government and the investors are doing. There
has been some recent state news of note.
For example, the state of
Ohio has created the D.O.L.L.A.R. Deed Program which provides a loss mitigation
alternative for borrowers in default on their mortgage. This creative
program gives those struggling to pay their mortgages an unconventional way to
maintain and reclaim rights and possession of their real property. In order to
qualify for the Program, the mortgagor in default must submit an application
and a request for modification and affidavit form developed under the home
affordable modification program. The applicant must occupy the residence and
his or her front-end and back-end debt-to-income ratios must fall below the current
ratios set for the home affordable modification program. The lender is not
required to participate in the program, but must respond to the applicant
within 30 days.
The state of Ohio has
amended provisions regarding its judicial foreclosure process as part of a bill
signed by the governor on June 28th, 2016. One provisions
enacted was to improve the process of foreclosure. This section allows the
foreclosure process to be expedited in the case of a vacant and abandoned
property. A mortgagee may file a motion with the court to proceed in an
expedited manner if the mortgagee is entitled to enforce the instrument secured
by the mortgage. If the property is deemed by the court to be vacant and
abandoned the court shall enter a final judgment and decree of foreclosure and
order the property to be sold.
If a residential property
is found to be vacant and abandoned, then the mortgagee may enter the property
to protect it from damage. In the case of a mortgagee that has not filed
a foreclosure action on the property; the mortgagee may only enter and secure
the property if the mortgage or some other contract allows the mortgagee to do
so. The equitable and statutory rights to redemption of a mortgage,
secured by a property that is found to be vacant, expire upon the confirmation
of sale of the property. These provisions are effective 91 days after filing
with the Secretary of State. The complete text of the bill which contains these sections can
be found here.
Effective October 1st,
2016 the General Assembly of North Carolina Session 2015 Session Law
2016-86 Senate Bill 19 S19-v-5 updates fees for filing a deed of trust so that
they are compliant with the Truth in Lending Act. Fees collected under this
section shall be deposited into the county general fund. The updated fees for
filing a deed of trust are: $64.00 for the first 35 pages and any additional
pages regardless of length will cost $4.00 each. A deed of trust or mortgage
that is registered with additional instruments shall incur a fee of $10.00 for
each additional instrument. Recording records of satisfaction or cancellation of
any deeds of trusts or mortgages will not incur any cost.
One common question that
those in the primary markets have is, "What happens to these loans that
we fund?" The large majority of them are currently being securitized.
The Fannie Mae TBA (to-be-announced) and Freddie Mac PC (participation
certificate) market is the recipient of the usual conforming loan - Fannie Mae
or Freddie Mac 30-year & 15-year mortgages. But when a lender funds a
Veterans Affairs or Federal Housing Authority loan, that loan is securitized
and put into a Ginnie Mae TBA.
The biggest difference
between Fannie Mae MBS (mortgage-backed securities) and Ginnie Mae MBS is that
Ginnie Mae MBS have an explicit guarantee from the federal government. Despite
being under government conservatorship Fannie Mae MBS & Freddie Mac PCs
don't have a guarantee quite like that, and therefore are viewed as slightly
riskier. Therefore, some investors tend to purchase more Ginnie Mae MBS, and
those trade at a premium to Fannie & Freddie securities.
Who is buying these
securities? The New York Federal Reserve continues to purchase $2-3 billion a
day of agency MBS. Mortgage REITs are also big users of TBAs because they can
increase or decrease exposure quickly using current coupon securities - new production.
While older MBS issues can become illiquid, there's always a large liquid
market in TBAs.
Turning to the markets,
congrats to that understaffed group known as Ginnie Mae. Ginnie Mae had
record MBS Issuance. Residential and commercial loan securitizations
on behalf of the Government National Mortgage Association climbed to the
highest level on record last month. If you dig into the numbers you will
find that as of June 30, there were $1.7 trillion in Ginnie Mae mortgage-backed
securities outstanding.
While I am talking about older
loans, Fannie Mae released some performance data on modified loans. Originators
don't care too much about this data, but investors certainly do, and these
numbers enable investors to better understand the expected performance of
Agency MBS backed by re-performing loans.
Brexit is the big
celebrity gossip story while the crisis of Italian Banks lurks unnoticed
in the background. I'm not sure how that counts as a catchy intro but I think I
have your attention so, do Italian banks pose a global systemic risk? Some
economists will say that the simple answer is "no" because banking
systems in most other countries (including the U.S.) do not have a substantial
amount of exposure to the Italian economy.
One thing that lenders
should know about, however, is that the Italian banking crisis could
potentially bring banking systems in other Euro zone countries under the spot
light. What is happening in Italy? Italian Bank share prices are plummeting,
and real GDP in Italy is no higher today than it was 15 years ago. It is hard
for banks to increase profits when the economy is not growing. Even without growing
GDP, Italy still has one of the 10 largest economies in the world so that would
lead one to believe that an Italian banking crisis would have a more profound
affect.
Foreigners, however, do
not have an immense amount of exposure to Italian banks, which should limit the
ability for any banking crisis in Italy to spread around the world. Wells Fargo
points out that France has the most on the line with $300 billion in total
assets in Italian banks; but that is only 5% of France's total assets. Overall,
"a banking crisis that was confined solely to Italy should not ignite a
global banking crisis. But any potential contagion effects emanating from Italy
would certainly warrant watching."
In this country, the
Federal Home Loan Bank of San Francisco announced that the monthly weighted
average Cost of Funds Index (COFI) for June 2016 was 0.690%. The index
for May was 0.691%. While the difference in these two numbers may seem small,
changes in interest rates on adjustable rate mortgage loans offered by many financial
institutions are tied to changes in the COFI. (COFI is computed from the actual
interest expense reported for a given month by the Arizona, California, and
Nevada savings institutions members of the Bank that satisfy the Bank's
criteria for inclusion in the COFI - "COFI Reporting Members."
Yes, rates are darned
low, and continued low Wednesday as the yield on the 10-year shuffled from
1.54% Tuesday to 1.51%. We know that supply & demand set MBS prices which
in turn are the primary driver of rate sheet pricing. It seems that supply of
new securities looks to remain near the $3 billion per day area, and the Fed
continues to buy $2-3 billion per day. See how that works? That being said, the
most recent Federal Reserve's schedule shows daily purchases dropping well
below the $2 billion per day level, so we'll see if that impacts the supply
& demand balance.
Thrilling economic news
today consists of Import and Export Prices for July (imports were +.1 versus
+.6% in June; export prices were +.2% in July versus +.8% in July). Also
released was Initial Claims (266k, down 1k from a revised 267k, about as
expected). The U.S. Treasury Department wraps up its quarterly refunding with
$15 billion in 30-year bonds on the block.
Tuesday the 10-year
T-note price improved nearly .375, ending with a yield of 1.51%, the 5-year
T-note improved a little over .125 as did agency MBS prices. This morning
the 10-year is sitting around 1.51% with agency MBS prices unchanged from
Wednesday's closing levels.
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