A couple quick ones...
What do you call a man that
lost all of his intelligence?
A widow.
Why does it take 100 million
sperm to fertilize one egg?
Because not one will stop and
ask for directions.
It would be interesting to find
out the last time some political candidate wasn't on the front page of
all the major newspapers. What did we talk about before this election? The
volume has been turned up on specific economic plans, and with it thoughts of
taxes. Of course campaign promises rarely pan out, especially regarding taxes,
but it is interesting to see which states have the highest and lowest property tax rates for
property owners. The worst are Illinois and New Jersey; the
"best" are Hawai'i and Alabama.
Personnel everywhere are trying
to keep up with lending developments. And there are some webinars and
conferences coming up this month to help them.
Plaza's FHA 203(k)
Standard and Limited Renovation Loan Programs webinar is today, Wednesday,
August 10th, register now.
The Collingwood
Group's experts and former FHA staff will present a webinar on "the
in's and out's" of FHA's Neighborhood Watch system. On August 17th,
learn how to proactively monitor your performance to stay ahead of Credit Watch
Termination (DE and Originator by Branch), or Lender Insurance termination
actions.
On August 30th,
MBA Education will be hosting a webinar to provide a high level
foundational understanding of the revised Home Mortgage Disclosure Act (HMDA)
rule reporting requirements, implementation considerations, and to provide
information on how to use the MISMO standards to support implementation of the
revised rule. Click here to register.
NAWRB (National
Association of Women in Real Estate Businesses), besides offering up a Women-Owned Business Certification, has its 3rd Annual Women's Diversity and Inclusion
Conference coming up at the end of this month in Southern California.
Questions should be directed to Desirée Patno.
The servicing market
continues to garner attention. Yesterday I had some comments regarding the
environment, and price changes. Also coming in was Rob Walters, Director
at Denver's Incenter Mortgage Advisors. "When we have the type of
volatility in the market starting with the rally in Q1, and especially with the
velocity in rate movement around the Brexit, both Buyers and Sellers need time
to evaluate the impact.
"Regardless, we have
marketed 26 deals including the $9 billion we put out this week with only two
that did not trade. We had $3 billion of conventional that bid last week that
we are still working. We did have $470 million of GN (primarily VA) and
$172m of FN that did not trade this summer. VA is tough given the speeds
observed and the level of interest in GN servicing being low in general and for
the other DNT ("did not trade"), we received bids that were close to
our marketing range however the Seller chose not to hit them.
"The ability to get those
deals done leading up to and in the aftermath of the Brexit speaks to Sellers
who recognize that you have to be 'market sellers'. That is an important
aspect to what IMA deployed in our advisory services and how we manage our
accounts from the beginning of retention through the sale or released
execution.
"There is a
'liquidity premium' for GN servicing that the remaining Buyers are pricing in
but that may be short lived given the yields that are being
generated. Where else can you generate yields in the high teens or greater
today? Even the Agency loan trades that have been in vogue for the yields they
generate are becoming equivalent to what you can achieve on GN MSRs...
"As for the outlook,
I think we will continue to see deals come to market as Sellers will weigh
monetizing the MSR asset against what they can make by investing the cash
generated from a sale into originating more loans. To the extent Sellers
have been proactive in writing their basis down with the gyrations in the
market, the hit to the balance sheet will be minimal and the ability to grow
originations will outweigh the urge to hold on to MSRs until rates rise. I
have a handful of Sellers who are waiting to see rates rise but one comment
recently stands out: 'the write-down on the MSR is eating into the gains
we are making on originations - even though it's just a paper loss." Thank
you Rob!
But why does anyone want
to own the rights to service a loan? To make money and, for banks, to serve
depositors in their footprint. Don't they know it is going to pay off at some
point? Banks will often buy and/or keep servicing in their footprint due to
cross selling opportunities and wanting to provide personal customer service.
Larger banks are happy to use their deposit base to help fund the portfolio.
Investors seem to think that loans stick around for 5-6 years whereas LOs hope
they stick around 5-6 months.
Wander into any loan
servicing department and you'll see folks overseeing the collection of
interest, principal and escrow payments from borrowers. (Remember that Freddie,
Fannie, and Ginnie don't service loans.) The payments collected by the mortgage
servicer are remitted to various parties and usually include paying taxes and
insurance from escrowed funds, remitting principal and interest payments to
investors holding mortgage-backed securities (or other types of instruments
backed by pools of mortgage loans), and remitting fees to mortgage guarantors,
trustees, and other third parties providing services.
Servicing an "on
time" loan is expensive, but the cost really goes up if things go wrong.
The level of service varies depending on the type of loan and the terms
negotiated between the servicer and the investor seeking their services, and
may also include activities such as monitoring delinquencies, workouts/
restructurings and executing foreclosures.
To balance that out
servicers receive servicing fees, and other ancillary sources of income such as
float and late charges, based on a percentage of the unpaid balance on the
loans they service. The fee rate can be anywhere from one to forty-four basis
points depending on the size of the loan, whether it is secured by commercial
or residential real estate, and the level of service required. Those services
can include (but aren't limited to) statements, impounds, collections, tax
reporting, and other requirements. Analysts wonder if 25 basis points of yield
for servicing is enough for Fannie & Freddie loans.
Given the obvious
touchpoint with consumers, and the potential for complaints, plenty of
government regulators have a hand in servicing. For example, recall that last
week the CFPB released 900 pages of addendums, clarifications, and proposals to
existing rules! A nice primer for someone new in the industry, or to provide a
borrower new to making mortgage payments, can be found on the FTC's website.
Let's look at the capital
markets! Yields on US Treasury securities have fallen to near zero or below
zero for Japanese and European buyers who hedge against currency
fluctuations. Some analysts believe that this could threaten the strong foreign
demand for Treasury bills, notes, and bonds. If the demand falls, prices drop,
and rates move higher. There are some that feel like rates should be higher,
but technical and supply & demand factors are keeping things lower. There
hasn't been any noticeable inflation for decades, but economists and
fixed-income investors still talk about it. If there's any marked increase in
inflation it will hurt fixed-income investments.
In the markets Spain's
10-year debt fell below 1% for the first time as fixed-income investors search
for yield. The bonds of many big developed economies are giving holders
negative yields, so bond buyers are increasingly turning to the peripheral
countries of Europe to buy debt. Central banks have adopted negative interest
rates to stimulate national economies - thinking that people would rather spend
their money then pay to keep it at the bank.
Is that plan working? It
doesn't look like it: data show that consumers in many of those countries
are increasing their saving instead of spending, the oppose of what
negative rates are intended to achieve. Some bankers and economists believe
that the negative rates themselves raise doubts about future growth and
discourage people from borrowing and spending.
But wait! Between 50%
and 75% of the European Central Bank's interest-rate changes were transmitted
to the real economy, JPMorgan Chase economist David Mackie calculated in
response to Bank of England Governor Mark Carney's disparaging remarks on
negative interest rates last week. "The combination of sovereign
[quantitative easing] and the [targeted longer-term refinancing operations] has
ensured a greater pass through of changes in the policy rate to changes in bank
retail deposit and lending rates than might have been expected on the basis of
past experience," Mackie wrote.
We did have a bit of a
rally yesterday but our bond markets have been relatively steady. Sure we have
a little intra-day volatility, and a little movement between coupon rates and
securities (Ginnie, Fannie, Freddie), but overall prices haven't made a big
move much since Friday evening's levels. There was some news of note yesterday
morning. The Bank of England, in its new round of QE purchases, was unable to
find enough sellers to meet its purchase target for longer term assets. That
meant prices went up, and thus rates went down - all around the world. By the
time Tuesday finished the 10-year note price had rallied .375 (a yield of 1.55%),
the 5-year note improved .125 as did current coupon agency MBS prices.
This morning we've had
the mortgage applications for last week (+7%, a nice rebound from the prior
week, with refis +20% and purchases +2.6%) which doesn't move rates but gives
investors an idea about supply. Coming up are the Job Openings and Labor
Turnover Survey for June. Speaking of supply later is our very own Treasury
Department selling $23 billion in 10-year notes.
We wrapped up Tuesday
with the 10-year risk free T-note yielding 1.55%. In the early going it is
sitting around 1.54% with agency MBS prices better by about .125.
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