Non-Agency Primary and Secondary Market Trends

By rchrisman@robchrisman.com

"Some people have a way with words, and other people...oh, uh, not have way." - Steve Martin

Bill C. writes, "I found a new pitchman for the mortgage industry (at least in Russia). President Vladimir Putin advises people to take out mortgages right now." Hey, why wait for rates to drop below 11% for that little dacha in Volokolamsk?

Non-agency & jumbo happenings in the primary & secondary markets? Sure there are. Most of the non-QM or non-agency (e.g., jumbo) loans are going straight into portfolios. And staying there. But there are shifts in the non-agency biz that borrowers are seeing.

 US Bank's Bulletin 16-039 stated its JUMBO LPMI Loan Level Price Adjustment Changes take effect for any locks taken on or after September 7^th. Re-locks on existing Jumbo LPMI loans will also be subject to the new loan level price adjustments.

 Elite Jumbo LLPAs for cash-out and ARMs in the state of California will be updated for locks on or after September 6. Check with Plaza Wholesale for details.

 For Non-Agency loans submitted to AmeriHome for Eligibility Review, if the review is suspended for incompleteness (showing Pended status in Seller Portal), all items needed for completion must be received within 10 calendar days of the suspension date, in order to maintain the loan's priority in the underwriting queue.

 The new mineral, gas, and oil rights requirements apply for AmeriHome 's transactions with new locks taken in the Core Jumbo, Non-Agency Hybrid ARM, and Expanded QM programs.  

NationStar Mortgage has updated its Seller Guide.Click here to download the complete update.

 Impac Mortgage offers an alternative documentation program with realistic guidelines to help borrowers qualify which includes qualification using 12 months of bank statements. Click here to view program guidelines.

 And there wouldn't be much of a primary market if it weren't for the secondary markets being driven by investor interest. There's never been a lack of demand for agency products. But what about securities backed by loans "a little off the beaten path?" Lenders are working with different structures to both increase the supply of residential mortgage-backed securities and to relieve concerns of investors who fear that all the problems with securitization haven't been addressed.

 Last month Angel Oak issued a non-QM security. Earlier this year, J.P. Morgan Chase & Co. issued securities that included insurance that would protect the investors in the securities. Other RMBS (residential MBS) alternative structures include securities of the mortgages of single-family rentals and repackaging pre-crisis RMBS into new securities. Invitation Homes, Colony, Starwood, Silver Bay, Blackrock, and Blackstone Group have all issued rental home securities, with a portion of the rents paying bondholders. The market for rental home securities, however, is not as large as that of the non-agency market. But the demand is there.

 And there is, in some cases, a change in the way the loans are underwritten. For example, instead of analyzing the borrower's creditworthiness, Colony American Finance bases its decision on the income of the property being mortgaged.

 Following the private label RMBS market's peak in 2007 and the ensuing credit crisis, many consumers with marred credit or unique circumstances have been either barred from accessing housing credit, or have found the process extremely challenging for a number of reasons, including large institutional risk aversion and tighter credit standards influenced by regulation.

 Kroll Bond Rating Agency (KBRA) put out a piece noting that this appears to be changing. Through the re-emergence of more than a dozen non-prime mortgage origination programs that intend to use securitization as a funding source. To date, KBRA is aware of at least four securitization sponsors that have accessed the private label securities market across nine issuances, two of which include rated offerings.

 In the publication, "KBRA presents and discusses the defining characteristics, strengths and weaknesses of five primary sub-categories of expanded or non-prime origination including Expanded Prime, Prior Credit Event, Alternative Documentation, Business Purpose, and Foreign National." "Originations of such non-prime loans under sound compliance with the Ability-To-Repay (ATR) rules are expected to exhibit better performance than 2005-2007 vintage loans with similar credit parameters due to strengthened underwriting. Loans to borrowers with recent prior credit events will, in some cases, exhibit increased default risk relative to those which lack similar credit disposition activity, even where credit scores may indicate little differentiation. KBRA notes that particular attention should be paid to differences between non-prime and non-QM, as the two designations are different and are not necessarily linked. However, KBRA notes that where there is overlap between the two, the risk of higher loss severities can increase significantly due to greater potential likelihood of a borrower raising a claim that the originator did not appropriately consider the borrower's ability to repay, and the greater potential success rates of such claims."

 Upcoming events & training? There certainly are - and many are free!

 The free monthly conference call of the California Mortgage Bankers Association's Mortgage Quality and Compliance Committee (MQAC) is this Thursday at 11AM PT. The topic is "New CFPB Servicing Rules; New FHA Servicing & QC Requirements" and the speaker is Nicholas Corpuz, VP of Servicing Oversight, MQMR."The webinar will cover CFPB Servicing Rules: Highlights and Low Lights for Servicers, FHA Servicing QC Changes and Highlights, and Highlights of Forthcoming QC and Servicing Rule Changes." Register here.

 MBA Education is hosting a one-day workshop on September 28th designed to cover the overall aspects of appraisal underwriting for conventional and government loans. Attendees will have the opportunity to engage in an open forum to discuss appraisal analysis and best practices for leveraging technology.  The workshop is being instructed by Alice Alvey, CMB, of Indecomm Global Services and Zachary Dawson, Director of Collateral Strategy, Fannie.

 MBA Education is also hosting a FFIEC Cybersecurity Assessment Tool Deep Dive Workshop on September 27th.  Join MBA and leading cybersecurity experts for an exhaustive and interactive conversation on how to successfully implement and use the tool for your unique business needs.

 Do you want to learn about the MERS System and its supporting processes in a live training environment? If so, mark your calendar for one of the MERS® Regional Workshops! You'll be able to ask questions of MERS® trainers and interact with other MERS® System members. These interactive half-day workshops will be located in the following cities: Western Region | Salt Lake City, UT | October 5, Northeast Region | Glen Allen, VA | November 10, Southern Region | Dallas, TX | November 17. Registration is only $95 per person and includes the training, resource manual, and a continental breakfast. 

 On September 28 major foreclosure reform becomes effective in the State of Ohio. The legislation provides for a fast-track foreclosure process for vacant and abandoned property, as well as improvements in the sheriff sale process in general. On October 14^th, Brian Deas from the Manley Deas Kochalski Law Firm will conduct a 1-hour webinar on the important provisions of this legislation.

 The CFA Society of LA is running another MBS Boot Camp on Thursday and Friday, October 6^th and 7^th.  It's two full days of training and information on the MBS product and markets, and is "designed to introduce participants to the broad variety of mortgage and MBS products, explain technical aspects of MBS performance, and demonstrate why and how different types of MBS structures are created." Here is a link to the Society's web site, where details on the curriculum and registration information can be found.

 Sun West offers live 203k training webinars. Click Here to view is training calendar.

 The Washington Association Mortgage Professionals (not-for-profit) is having its annual conference October 13^th and 14^th TECH conference, the NW MORTGAGE EXPO & REAL ESTATE SUMMIT; Your Business of Tomorrow. All the information you need plus registration details is available here.

 Sign up for Zillow's "Overcoming the Toughest Hurdles: Advanced Best Practices for Mortgage Contact Conversion." In this October 5^th webinar, Zillow Group Mortgages will be addressing some of the toughest situations that mortgage professionals face with online lead generation and conversion. Registration is currently open.

 Lenders around the nation had a wonderful August, but how is the autumn shaping up. Most seem to be talking about a gentle decline this month. And Fannie's trading desk reports it is hearing of a tapering off of lock volumes last week, down 15-20%, with Monday being the largest lock day. "Seasonal activity and higher rate ranges are the primary drivers of the rate lock declines." This shouldn't come as a shock to anyone, and CEOs and heads of production with their eyes on horizon are thinking about locks taken now closing during the holidays, maybe even in 2017.

 In terms of rates, U.S. Treasuries, and securities backed by mortgages, traded in a tight range Monday with no news of substance to budge them. We saw the usual Fed activity, in buying agency MBS as entirely expected and forecast, and the usual sellers, and hedgers trying to pick up the mandatory versus best efforts spread (30-40 basis points). We began the week with the 10-year closing at 1.70% and MBS prices worse a tick.

 Today we'll have the Senate's hearing on Wells Fargo's retail business practices. While not directly impacting mortgages, the hearings will be followed. As Joe Garrett put it on the subject of sales quotas, "There is nothing wrong with quotas. What was wrong was the lack of ethics and inadequate controls to make certain no one cheated."

 We've already had all the schedules news we're set to receive: August Housing Starts and Building Permits (-5.8% and -.4%, respectively, weaker than expected - mostly in the South). We've also had Philadelphia Fed's non-manufacturing PMI for September (16.7). After that we find the 10-year at 1.69% and agency MBS prices a smidge better.