Implications of UG and Arch Deal

By rchrisman@robchrisman.com

(The NFL season commences in three weeks. This is part 2 of 6 of football quotes & jokes guaranteed to insult practically every team. Please, no complaints - you can change the team to whoever you like.)

"A school without football is in danger of deteriorating into a medieval study hall."  -  Frank Leahy / Notre Dame

"There's nothing that cleanses your soul like getting the 'hell' kicked out of you."  -  Woody Hayes / Ohio State

"I don't expect to win enough games to be put on NCAA probation. I just want to win enough to warrant an investigation."  -  Bob Devaney / Nebraska 

"In Alabama, an atheist is someone who doesn't believe in Bear Bryant." -  Wally Butts / Georgia

"I never graduated from Iowa. But I was only there for two terms - Truman's and Eisenhower's."    Alex Karras / Iowa

"My advice to defensive players is to take the shortest route to the ball and arrive in a bad humor."  Bowden Wyatt / Tennessee

 

Only two weeks until Labor Day? How did that happen? Will AIG and Arch MI figure out which reps have which territories after the purchase of UG goes through by then? (Doubtful - but the spoils generally go to the victor although I am sure area market share is a factor.) Celebrating Labor Day goes back to a "workingmen's holiday" in the 1800s and the first Monday in September was designated "Labor Day" in 1894. Leave it to our Census Bureau to tell us that there are 159 million people aged 16 and over working in the U.S., of which about 10% belong to a union. Unfortunately, on average men earn $50,383, while women only earn $39,621. Want a growth field? Don't be scared of heights: the projected percentage growth from 2014 to 2024 in the number of wind turbine service technicians is 108% (the projected fastest growing occupation).

Yes, changes to lending are occurring to the lending biz. Freedom Mortgage has completed its acquisition of the residential mortgage origination operations of Sterling National Bank the principal subsidiary of Sterling Bancorp (NYSE: STL).  Sterling Bancorp operates mainly in the greater New York and Hudson Valley markets through its principal subsidiary, Sterling National Bank. Freedom Mortgage officially transitioned the residential business and its team of approximately 70 professionals to its banner last week. "Freedom will handle new mortgage requests from Sterling National Bank customers through the newly acquired team, as well as leveraging the unit's capabilities to expand Freedom Mortgage's presence throughout the New York metro area." Don't forget that last month Freedom Mortgage acquired the origination assets of JPMorgan Chase's rural housing business.

 And after a lengthy rumor period, news broke yesterday that AIG agreed to sell United Guaranty, its mortgage insurance subsidiary, to ACGL (Arch) for $3.4 billion. The unit had $3.5 billion of equity capital, so this transaction appears to be taking place at a price/book multiple of roughly 1x. So now the industry will have one less player - which will certainly impact price competition. (National MI introduced a new price structure and Arch followed with a new pricing methodology.) Both UG's and Arch's pricing is generally viewed as more aggressive than most of its peers, and if this pricing is now extended to a broader share of the market it will help borrowers & lenders but certainly not its competitors.

 Despite losing market share for a couple years, in the 2^nd quarter UG was the largest mortgage insurer with new insurance written (NIW) of 18.3% in 2Q16, this was down from a peak of 28% in early 2013. Arch's market share is much less at about 9% by this measure. (Radian was #2 at 18.2%, MGIC 17.8%, Genworth 16.1%, Essent 12.3%, Arch, and then National MI at 8.2% per a report by KBW.) If one uses Insurance in Force (IIF) as a metric the rankings remain the same but UG had over 21% at the end of the 2^nd quarter. As it does now, business going forward will depend on transaction-based versus the central allocation (divvying up) by lender management.

 Arch MI's take on the deal? "We are pleased that the transaction is moving forward and would like to assure our customers that the transaction will not impact Arch MI's existing customers and that there will be no interruption of our service to you during this time. Arch MI and UGC will continue to operate as completely separate entities until the transaction closes."

 August is sailing by, and the upcoming events that are of interest to various portions of the lending community continue to come at us.

 Live on Mortgage News Network on Thursday, August 18 at 2PM EDT. Sponsored by REMN Wholesale and National Mortgage Professional Magazine, they're going to dissect the minds of three leading loan officers to learn how they develop their business strategies, who they market to and how they market differently than the competitors in their area, and why their lender partners help them take their business to the next level. This complimentary live video broadcast (this is not a webinar) is titled Masters of the Mortgage Industry: Tips of the Trade from Industry Leaders and you can join them live by reserving your space here. 

 SF-based software company Snapdocs has found that 2 in 5 loan closings are compliance risks. Dig into the data on hundreds of thousands of loan closings to identify a new breed of compliance and operational risks. The full findings and recommended solutions will be discussed during their complimentary webinar today, Tuesday, August 16^th titled "Navigating Loan Closing Pitfalls." Sign up here to learn more.

 Also today, join Richey May & Co for its Deferred Compensation Plans: Strategies and Implications for Independent Lenders Register now for this August 16^th webinar.CPE credit is offered for this webinar.

 The Midwest Financial Services Conference on August 19^th is coming up quickly. Bricker & Eckler and INCompliance are presenting this one-day conference in Columbus Ohio. Representatives from the Mortgage Bankers Association and other industry leaders are invited to discuss current regulatory and compliance issues pertaining to mortgage lending and other consumer loan products.

 Register for Tuesday, August 23rd with Ellie Mae compliance experts to hear about the updated HMDA regulation. Discover Ellie Mae's plans to support the regulation and when, and what your management and staff need to be doing to get ready.

 K&L Gates in conjunction with four of its partners will host a webinar regarding the Telephone Consumer Protection Act (TCPA).

 Mark your calendars for September 28-30 in Los Angeles: MBA Risk Management, QA and Fraud Prevention Forum is coming to town.

 Are you ready for this years' Valuation Expo in Las Vegas? The event is being from Wednesday, November 9th through Saturday, November 12th. Be a part of the biggest and best trade show and loads of networking opportunities. Click this link for numerous options, videos and registration information.

 There are lender & investor price changes to note.

 Caliber Home Loans, Inc. announced significant rate reductions for its Portfolio Products resulting from the success of the first rated non-prime RMBS issued since the financial crisis. Rates have improved by anywhere from .25% - .875% for Caliber's Jumbo Alternative, Homeowner's Access, and Fresh Start Programs. "These substantial rate improvements are now coupled with major guideline enhancements," all going into effect August 15^th and "further expanding home ownership opportunities to thousands of qualified borrowers who do not qualify under traditional guidelines."

 Mortgage Solutions Financial has made changes to its loan level price adjusters.

 Beginning with locks after July 29, Flagstar Bank made the following price adjustment changes to the applicable Doctor and Jumbo products: Doctor Loan, Doc. #5425 and Jumbo 5/1 & 7/1 ARMs, Doc. #5415. Non CA LLPA adjustment will be +0.250. The existing Non CA LLPA for the Jumbo 30 Year Fixed will remain at +0.500.

 AmeriHome changed its lock renegotiation policies on Best Effort offerings. A couple of changes include the removal of its requirement that a lock must be within 15 calendar days prior to Delivery Due Date (Lock expiration).  "Renegotiation pricing indications must be accepted by an email, written change request submitted to the Commitment Desk Lock Desk at on the same day the quote was received" this requirement has also been removed. 

 Effective for all commitments taken on or after Monday, August 22^nd, 2016, PennyMac is implementing updates to values in the 'Conv LLPAs' and 'Govt LLPAs' tabs on all rate sheets. No changes will be made to the structure of any rate sheet tab or grid.

 Plaza has increased the appraisal fees in Texas, Oregon and the following 5 counties in California; Marin, Napa, San Francisco, Santa Clara and Santa Cruz. The fees went into effect for appraisal orders placed on or after Monday, August 15th.

 Enough about the primary markets - how about the secondary markets? We were once again reminded that long-term rates are set by supply and demand. In this case, a story from Bloomberg points out that investors in fixed income securities are buying as much corporate debt as the can find. "Treasuries are falling behind corporate bonds in a reversal from last year...Investors are willing to accept as little as 216 basis points of extra yield to buy company debt instead of Treasuries, the smallest spread in more than a year. Benchmark government yields are within about 22 basis points of a record low in the U.S. - investors will have to look to other assets other than government bonds."

 But U.S. Treasuries and other fixed-income securities worsened Monday as the S&P 500 made yet another record high and the NAHB reported that home-builder sentiment improved in August. The New York Fed's Empire Manufacturing survey showed modest deterioration this month, but the internals of the report remained encouraging.

 It's a brand-spankin' new day, however, and we've already had July Housing Starts and Building Permits (+2.1%, prior month revised higher; permits -.1%) and July's Consumer Price Index and Core CPI (unchanged as expected) - inflation hasn't been an issue in decades yet people still worry about it. Still ahead is July's Industrial Production and Capacity Utilization (09:15).

 Rates were pretty darned flat last week with the yield on the 10-year closing in the 1.50%s for several days. Yesterday it worsened nearly .375, closing at 1.55%; the 5-year T-note and agency MBS prices closed .125 worse than Friday. After the first round of numbers this morning we're at 1.52% on the 10-year and +.250 in price on current-coupon agency MBS prices.