Credit Trends, Capital Markets News, and Plenty of New Acronyms for the Industry

By rchrisman@robchrisman.com

A man being tried for murder happens to know one of the jurors. Before jury deliberation, the man finds a way to contact his friend and emphatically demands that he vote for life in prison with the possibility of parole. The friend agrees.

The jury deliberates for a week and returns a verdict of guilty with life imprisonment. The convicted man phones his friend and asks why it took so long for the verdict.

His friend says, "It took me a long time to convince the other jurors for life imprisonment."

"Why is that?"

"Because they wanted to acquit you!"

 Fannie Mae offers a best efforts committing option available through its Pricing & Execution - Whole Loan. Fannie Mae helps you manage your pipeline and interest rate risk and eliminates the fall out risk in a best efforts commitment, allowing you to focus your attention on other critical business priorities and activities. Join account executives from Fannie Mae's Capital Markets Sales Desk for an overview on why best efforts may fit your business and a live demo.

 "The agenda at MBA's upcoming 2017 Independent Mortgage Bankers Conference, taking place January 23-26, is deeper than ever before. With IMBs now accounting for HALF of the single-family market, the agenda is packed with sessions on business and technology strategies designed to ensure your company is poised to maintain that edge and build your market share in the challenging market ahead. Registration savings ends December 13^th!"

 Changes to lenders' view of credit?

 Questions surrounding credit scoring models continue. There is talk of Freddie and Fannie switching to a new credit scoring model. Challengers to FICO, like VantageScore, have already done the difficult work of proving the math to investors, establishing trust within DC's regulatory community, and selling the value proposition to the industry. The difficulty is the weighting of underlying assumptions behind the data. It will always be a subjective measure no matter how scientific it becomes.

 Franklin American Mortgage announced that loans originated using the DU Income Validation Service will be eligible for purchase.

 FAMC Correspondent National Bulletin 2016-24 includes information on Product and Guideline Updates, Clarifications and Reminders including removal of overlays.   Log into FAMC website to view its bulletin for additional information and all lock, delivery and purchase by dates, if required. 

 Fannie Mae's Selling guide has been updated with the following changes: Includes information on asset and employment validation offered through the Desktop Underwriter (DU) validation service starting on December 10. Introduces freedom from reps and warrants on property value for loans with a Collateral Underwriter risk score of 2.5 or lower effective December 10. Removes the Property Inspection Waiver fee for loans delivered to Fannie Mae on or after January 1. The fee for the DU Refi Plus Property Fieldwork Waiver is also discontinued for loans delivered on or after January 1. Clarifies when lenders must update appraisers of changes to a sales contract.

 Wells Fargo removing its overlay for saving cash to close for down payment and closing costs on conventional Conforming Loans - specifically its requirement that the Monthly Savings Plan Worksheet (Form 27) be used to document the borrower's savings plan.

 In reference to Fannie Mae's PIW offering, M&T Bank is reminding correspondents that the underwriter is still required to represent and warrant all data submitted to DU is complete and accurate. Before Sales opt to use PIW, they must review the ineligible transaction list and specifically confirm that the property is not located in a current disaster impacted area.

 And there is continued news coming out of the capital markets. Without them non-depository lenders wouldn't have an outlet for their product.

 First off, the GSEs (Government-Sponsored Enterprises, namely F&F) are moving closer to issuing a single mortgage security.The FHFA tells us that development on the Common Securitization Platform has reached a point where Fannie Mae and Freddie Mac may be able to issue a uniform mortgage-backed security sometime in 2018.

Last month Freddie started using the Common Securitization Platform (CSP - another acronym for us to memorize) for bond issuance and bond administration, which the FHFA said is a critical milestone. Yes, Freddie has implemented the CSP for certain single-family fixed-rate mortgage-backed securities (MBS). This development, commonly called Release 1, paves the way for, logically, Release 2, which will enable a combined Freddie Mac and Fannie Mae $3.5 trillion market of to-be-announced (TBA) MBS.

 Will it help borrowers and therefor loan officers? It should, at least through a more liquid and uniform secondary market. "The successful implementation of the CSP's core infrastructure and operations is a critical milestone on the path to the implementation of the Single Security Initiative. Freddie Mac and Fannie Mae have been working together - along with their joint venture, Common Securitization Solutions, LLC (CSS - another acronym) - under the direction of the Federal Housing Finance Agency (FHFA), to create a common fungible security that will be issued and guaranteed by either of the government-sponsored enterprises (GSEs). So, Freddie and Fannie teamed up to create Common Securitization Solutions, LLC, with its own CEO (David M. Applegate).

 

In a challenge to put as many acronyms in a couple sentences Freddie Mac (itself a nickname for an acronym) sent, "Release 1, now operational, enables Freddie Mac to transfer certain securities operations for its Gold participation certificates (PCs) and Giant PCs to CSS and the CSP. This will enable both GSEs to implement the Single Security Initiative by issuing the new Uniform Mortgage-Backed Securities (UMBS) and commingled resecuritizations through CSS and the CSP.

 "The Single Security Initiative will result in both GSEs issuing the new UMBS. Commingled resecuritizations of UMBS, which can combine UMBS issued by Freddie Mac and/or Fannie Mae, will be called Supers. (Supers are the UMBS counterpart to Freddie Mac's Giant PCs.) There are approximately $1.4 trillion in Freddie Mac 45-day PCs, of which an estimated $1.1 trillion are expected to be exchangeable by PC holders for 55-day UMBS once the new security is officially launched.

 "UMBS and Supers have the potential to transform the separate multi-trillion dollar TBA markets for Freddie Mac and Fannie Mae MBS into a single TBA market of $3.5 trillion, second in size only to the global market for U.S. Treasuries."

 The next goal is the issuance of mortgage-backed securities from Fannie and Freddie in a single commingled security. This will ensure that Fannie and Freddie enjoy the same pricing on their MBS.

 Turning to rates, any lender whose entire 2015 or 2016 profitability was based on rate and term refis are certainly growing nervous. For other companies, changes in the marketplace represent opportunities. It will be an interesting first quarter. On Friday U.S. Treasury, and agency MBS, prices fell to near their December 1 lows, and the yield curve is as steep as it's been since 2015. It didn't help the bond market that consumer sentiment climbed to an 11-month high. It is totally "risk on" as money is flooding into the equity markets. And oil prices are on the rise. Are we having fun yet?

 With two weeks until Christmas we have a full plate of scheduled economic happenings in the U.S. this week. Today there's no news but we'll have a $24 billion 3-year note auction and a $20 billion 10-year note sale. Tomorrow we have some November Export & Import Price figures, and a $12 billion 30-year bond sale by the Treasury. Wednesday, we have the MBA's Mortgage Index, November Retail Sales, November Producer Price Index, the Industrial Production and Capacity Utilization duo, October Business Inventories, the Bank of Japan decision and (drum roll please) the Federal Open Market Committee Rate Decision.

 Thursday, we complete the usual inflation news with the November Consumer Price Index numbers, and also Initial Jobless Claims, December Philadelphia Fed, Empire Manufacturing Index, NAHB Housing Market Index, and October Net Long-Term TIC Flows. We finish it off with Friday's November Housing Starts and Building Permits.

 If you want some numbers here you go. Friday the 10-year worsened .625 to close at 2.46%. The 5-year Treasury note sold off roughly .250. Agency MBS prices worsened .250-.375 depending on security and maturity. This morning the "the economy is strengthening so rates are going to go up" thinking is continuing: the 10-year is at 2.51% with agency MBS prices worse .250-.375 versus Friday afternoon.