Wednesday, May 31, 2017



(Thanks to Nick C. for this one.)

Two Tennessee rednecks are out hunting, and as they walked along they came upon a huge hole in the ground. They approach it and were amazed at the size of it.

The first hunter says, "Wow, that's some hole; I can't even see the bottom. I wonder how deep it is?"

The second hunter says," I don't know. Let's throw somethin' down there, listen and see how long it takes to hit bottom."

The first hunter says, "Hey, there's an old automobile transmission over there.  Give me a hand, we'll throw it in and see."

So, they picked it up and carried it over and count one, two, three and heaved it in the hole. They are standing there listening, looking over the edge, when they hear a rustling behind them. As they turn around, they see a goat come crashing through the underbrush, run up to the hole and, without hesitation, jump in headfirst.

While they are standing there staring at each other in amazement, peering into the hole, trying to figure out what it was all about, an old farmer saunters up. "Say there," says the farmer, "You fellers didn't happen to see my goat around here anywhere, did you?"

The first hunter says, "Funny you should ask, but we were just standing here a minute ago and a goat came running out of the bushes doin' bout a hunnert miles an hour and jumped headfirst into this here hole!"

The old farmer said, "Naw, that's impossible. I had him chained to a transmission."

It has been interesting talking to residential lending folks around the nation about their mix of business and how it has changed - if at all. It turns out that 49 percent of people who have refinanced their home in the first quarter of the year did cash-outs. That's the highest rate in the post-recession economy, up from 12 percent in mid-2012. To put things in perspective, in the run-up to the recession, that figure was often over 80 percent.

 Events, products, non-profit work

  "Mastermind Summit in Vegas is around the corner. Not too late to book an appointment with Scott Harris, CEO of SocialSurvey and find out what all the buzz is about. Find out why nearly 50 mortgage banking companies including Churchill, Inlanta, PRMI, OnQ, New American Funding, and Embrace have signed on with SocialSurvey in the past 9 months. Enterprise Reputation Management is a new term that lenders are figuring out. Better to be ahead of the curve than playing catch-up. Meet up with Scott in Vegas to learn more. Remember, if you are not actively managing your online reputation, your unhappy borrowers will be happy to do it for you!"

 Gateway Mortgage Group, a mortgage banking firm with over 145 locations nationwide, has signed a national partnership with Folds of Honor, a 501(c)(3) that provides educational scholarships  to dependents of fallen or disabled military service men and women. "Freedom isn't free and more than two million dependents of disabled and fallen soldiers live with this every day," said J. Kevin Stitt, CEO of Gateway Mortgage Group. "We have chosen to stand with our military heroes, and their families, who have made the ultimate sacrifice while serving our country courageously." Since 2007, Folds has awarded more than 13,000 educational scholarships in all fifty states, including more than 2,800 in 2016 alone. Beginning on June 1, 2017, Gateway will make a donation to Folds for every mortgage loan originated and closed in their Retail channel for the next twelve months. In 2016, the Gateway Mortgage Group funded more than 15,000 loans in its retail channel and should surpass 20,000 new loans this year. For more information on this program, please contact Mark Revard via email or by calling 918.392.8580.

 Training and Events:

 Tomorrow (6/1) is the California Mortgage Expo in Southern California.

 MGIC is offering skill building training programs and special events available throughout the month of June.

 Plaza's newest webinar will help you identify common fraud trends and schemes, the red flags that alert you to potential fraud and the tools available to help you combat fraud. Register now for Plaza's June 1st webinar.

 If you would like to refresh your knowledge on the latest processing, appraisals, underwriting self-employed borrowers and other essential lending topics, view the Arch MI course catalog of June webinars.

 It is not too late to register for the National Settlement Services Summit (NS3) being held June 7-9 at the San Antonio Marriott Rivercenter. One hot topic of discussion slated ishas PHH changed RESPA compliance?RESPA experts address the state of compliance today considering the ongoing case of PHH Corp. v. CFPB.

 Learn more about Fannie Mae's proposed Underserved Markets Plan, developed in support of the Federal Housing Finance Agency's Duty to Serve rule. Housing experts will review the actions Fannie is proposing to help the manufactured housing, affordable housing preservation, and rural housing markets identified by Duty to Serve. Fannie Mae welcomes your questions and will share how to submit formal comments on our plan. Click on the links to register for a session and add it to your calendar: Tuesday, June 6, 10-11 a.m. ET or Thursday, June 8, 3-4 p.m. ET. To learn more about Duty to Serve, visit the Duty to Serve page.  

 Vendor M&A and news

 News broke yesterday that Optimal Blue is acquiring Comergence Compliance, "the mortgage industry's leading third-party oversight platform." "Comergence provides an array of third-party originator (TPO), appraiser, and social media risk management solutions that verify third-party compliance in real-time, a capability unmatched in the industry...innovations in due diligence automation and ongoing surveillance services." Michael Stallings, Executive Vice President of Comergence said, "Recent Comergence innovations, including an analytics tool to help account executives identify new TPO opportunities and a breakthrough solution for social media risk monitoring, strongly complement Optimal Blue's existing product offering."

 Mortgage document preparation vendor International Document Services, Inc. (IDS), announced its Uniform Closing Dataset (UCD) XML file has been certified to meet all UCD requirements by both Fannie Mae and Freddie Mac ahead of the GSE's September 25 deadline for UCD delivery. To have its UCD XML file certified by the GSEs, IDS underwent an extensive testing process to ensure the dataset was delivered in a GSE-acceptable format.

 The National Association of Women in Real Estate Businesses (NAWRB) is proud to announce Ten-X as a Premier Strategic Partner.  A real estate technology industry powerhouse, Ten-X recognizes the importance of growing the community of women and women-owned and small businesses in the housing ecosystem. "Partnering with NAWRB connects us with one of the fastest growing business segments in the country," said Rick Sharga, Ten-X Executive Vice President. "On average, women have started over 1,000 businesses a day since 2007; this strategic partnership will assist Ten-X in expanding our business relations while contributing to the sustainability, homeownership and success of women entrepreneurs."

 Coming this fall: Equifax, Experian, and TransUnion VantageScore 4.0 scoring. "VantageScore 4.0 is the first and only tri-bureau model that leverages trended data to take into account the trajectory of borrower behaviors, engages patent-pending machine learning techniques to generate a more accurate score for those with sparse files, aligns with the removal of tax lien and public record data under the National Consumer Assistance Plan (NCAP), aligns with NCAP's exclusion of medical debts for 180 days (allowing time for insurance payments), and as with VantageScore 3.0, this new model generates a score for 98% of all consumers with a credit file. This translates into a scoreable universe 30 to 35 million greater than conventional models, including 12 million more African Americans and Hispanics. Also like its predecessor, VantageScore 4.0 excludes paid collections including paid medical collections."

 Cascade Financial Services, a manufactured and modular home lender, has selected Alight Mortgage Lending for continuous reforecasting and planning. With Alight Mortgage Lending, Cascade will be able to better measure the excess servicing for future securitization purposes. Because Alight is cloud-based-accessible from anywhere, anytime and from any device-management will be able to make decisions in real time.  "We need to be able to provide our private equity investors accurate and meaningful financial forecasting and modeling daily," said Michael Jones, CFO, Cascade Financial. "We'll use Alight's scenario analysis to better understand the ripple effects of changes in pull-through rates, as well as expense and revenue triggers, to maximize profitability."

 Capital markets

 Freddie Mac has been busy with enhancements to Deep MI CRT Program, its second front-end credit risk transfer offering. Through a forward credit insurance policy provided by a panel of mortgage insurance company affiliates, this structured transaction provides additional coverage beyond the primary mortgage insurance on 30-year fixed-rate mortgages with 80-97 percent LTVs -- which is placed immediately upon their sale to Freddie Mac. Transactions are executed via a competitive, transparent auction process.

 FINRA Rule 4210, which establishes margin requirements for Covered Agency Transactions, are set to take effect in December and mortgage originators are already preparing for the rule's implementation. Some of the proposed solutions for mortgage originators include applying structured mortgage financing or transacting in futures instead of the TBA market, but Incenter has introduced an alternative option: Enterprise Margin Offset. From a recent Incenter Brief on the subject: "Enterprise Margin Offset seeks to optimize originators' existing balance sheet assets on hand and margin at the enterprise level. Ultimately, by leveraging retained MSR that they already have on balance sheet, originators can leverage MSR portfolio hedging techniques to further reduce their overall income statement volatility and now, just as importantly, reduce their overall cash margin burden." (And no, this is not a paid ad.)

 Looking at the bond markets, and thus interest rates, we had a little rally yesterday (prices up, rates down) after Core PCE inflation fell to a 1.5% year-on-year pace in April. Contrast that with Fed Governor Lael Brainard's statement that another rate hike would likely be appropriate soon. Take your pick: Fed optimism on the growth and inflation fronts versus investor pessimism. The different opinions have served to flatten the yield curve and the 2-year/30-year Treasury yield spread has narrowed to 158 basis points, near a post-election low.

 Housing? En fuego! If you believe the Case-Shiller numbers, home prices rose at their fastest rate since 2014. The Case-Shiller 20-City Index of U.S. home prices was up 5.9% y/y in March, in line with February's growth rate. MBS closed higher and mostly wider with treasuries better bid.

 When the proverbial dust settled Tuesday the 10-year risk-free T-note price had improved nearly .375 and closed yielding 2.22% and the 5-year note had improved .125. Agency mortgage backed securities were all over the place, but for the most part had improved about .125.

 We've had our usual MBA survey of last week's locks: -3.4%, and -14% from a year ago. Coming up are the Redbook Same-Store Sales Index, Pending Home Sales, Chicago Purchasing Manager's Index for May, and the Federal Reserve's latest Beige Book at 2PM ET. Out of the blocks this morning rates are almost unchanged: the 10-year is yielding 2.22% and agency MBS prices are worse 1 or 2 32nds - not much.

Tuesday, May 30, 2017

CRM, Subservicing Products, State-Level Lending Law Changes, Servicing Trends and Packages



"Jesus Loves You."

Nice to hear in church, but not for a guy in a Mexican prison.

Products
"'Best of the Worst.' Does this describe your subservicing experience? That just about sums up the reason why The Money Source (TMS) brought their servicing in-house in 2015. By doing so, they saw their delinquencies improve by more than 50% and customer service levels have been at all-time highs. TMS is now offering state-of-the art subservicing for those of you tired of dealing with the 'Best of the Worst.' To learn more, visit www.getSIME.com."

 Use Mastermind to UNIFY your Business! "We'll be there... Will you?" Unify has been an Enterprise solution for the Mortgage Industry since 2009. "With our enhanced platform 'any' sized organization can leverage the END to END solution. Unify will help loan officers build, track and manage all aspects of their business and increase productivity by 20% or more. Unify continues to add revolutionary features like our Mobile App, Mortgage Inquiry Alerts and RainMaker to meet the demands of its clients. Schedule your UNIFY DEMO at Mastermind now! Contact Scott Benson (651.288.7510) or Matt Zabbo (618.610.5868).
State-level lending changes
 We continue to be reminded of the cost, and difficulty, of lending in multiple states.
 Washington State enacted the Revised Uniform Law on Notarial Acts, which applies to a notarial act performed on or after July 1, 2018. The bill specifies that a notarial officer has the authority to perform a notarial act, subject to certain requirements. The bill requires that a notarial officer determine that the individual has the identity claimed or that the signature being verified is the signature of the individual. The bill specified requirements for applicant for a commission, details for the official seal or stamp and responsibility of the director to maintain an electronic database of notaries public.

 Iowa has modified several minor provisions under the Consumer Credit Code. These provisions are effective as of July 1, 2017. The first amended provision is Section 524.213. This section modifies the rule that directors shall not be paid an interest rate on deposits by a state bank of which he or she is a director by adding that any waiver of customary charges related to deposit accounts shall not violate this restriction.
Montana amended its provisions to correct erroneous references in material that include updates regarding notaries, taxation, and mortgage servicer prohibitions. These provisions are effective on October 1, 2017. Other updates include provisions regarding disabled veterans, invoices of distributors and aviation fuel dealers, accreditation of schools, language programs, firearms, and license plates. The full text is available here.

 Vermont modified multiple provisions through House Bill 182 that includes amendments regarding licensed lenders and loan servicers. Provisions in this bill range from effective immediately to effective on July 1, 2017; unless noted otherwise. Amendments affect pre-licensing education requirements for loan originator applications. Financial responsibility of money servicers, debt adjusters and loan servicers and how the Commissioner might evaluate such financial responsibility. The bill defines the term "virtual currency" and added new definitions for "lead generation" and "loan solicitation". Provisions have been added for individuals engaging in the financial services regarding suspension, revocation, and nonrenewal receivership.
Vermont also enacted provisions, effective on July 1, 2017, through House Bill 35. Sec. 1. 9 V.S.A. chapter 57 Subchapter 1 is now titled "Voidable Transactions" rather than "Fraudulent Transfers." Amendments were made to § 2285 to make minor changes to many of the definitions in the section. Also, an amendment was made relating to insolvency, burden of proof regarding the elements of the claim for relief by a preponderance of the evidence to a creditor making a claim for relief under the applicable subsection and the rules used to determine a debtor's location.

Vermont House Bill 152 revises the Vermont Revised Uniform Fiduciary Access to Digital Assets Act by adding Sec. 1. 14 V.S.A. chapter 125. The act clarifies the law regarding access to digital assets in the case of death or incapacitation and grants fiduciaries access to a user's online accounts, correspondences, and other computer files, if specified in his or her will, trust, or similar agreement. These provisions are effective on July 1, 2017.

Nebraska amended its provisions relating to fees for recording and the filing of certain documents through House Bill 152. These provisions are effective on September 1, 2017 (or 3 months following adjournment of the current legislative session).  Allocations for a portion of the recording fee designates to preserving and maintaining public records and for modernization and technology needs relating to such records. The update further provides that the funds allocated under this subsection shall not be substituted for other allocations of county general funds to the register of deeds office or any other county office.
 The General Assembly of North Carolina has enacted Senate Law 2017-10, which streamlines mortgage notice requirements, effective immediately. The Senate Law modifies North Carolina G.S. § 45-91 to state that the servicer shall not be required to send such a statement if the fee is included in a periodic statement sent to the borrower that complies with paragraphs (b), (c), and (d) of 12 C.F.R. § 1026.41, or if the fee "results from a service that is affirmatively requested by the borrower, is paid for by the borrower at the time the service is provided, and is not charged to the borrower's loan account."

 Servicing news
Contrary to expectations about growing mortgage lending volumes, current industry trends suggest a gradual reduction in capacity for both lending and servicing that should alarm policymakers. Christopher Walen sent this piece out in September warning the industry.

Servicing can influence rate sheet pricing just as much as the MBS market: what investor is going to pay a premium for loans in a state that tends to pay-off earlier than other states? MountainView Financial Solutions' Matt Mauer sent out a nice chart on state-specific prepayment graphs.

Phoenix Capital is offering up, with bids due June 7th, a pool of $158 million Ginnie Mae servicing rights. Write to Steve Fleming if you'd like more information. 71% FHA, 15% VA, 13% USDA (by loan count), >99% Fixed 30, <1% Fixed 15, 1.7% DQ; 0.6% FC, 1.2% BKs, 3.937% (F30) Note Rate, 4.040% (F15) Note Rate, 0.366% wAvg Net Service Fee, Avg Bal $211K, 99% CA, <1% TX, <1% AZ (by ln ct.), wAvg orig FICO 680; wAvg Orig LTV 92%, wAvg Age 27 months, 89% Single Family Detached Properties, 100% Owner Occupied properties, 80% Purchase Originations 83% Retail Originations, 8% FHA Streamline, 1% VA IRRRL.

 I have seen two Incenter Mortgage Advisor MSR packages recently. The first is a $2.1 billion, 7,800 loan, FNMA & FHLMC pool. The package has a WAC of 3.837%, $275k average loan size, 766 WaFICO, 72% WaLTV, 90% OO, 64% SFR, 21% PUD, 42% RT Refi, 40% Purchase, 16% C/O with state concentration: California (41%), and NJ/CO/MI 6%. The second package: $1.4 Billion GNMA, 3.87% WAC, $216k average loan size, 691 WaFICO, 94.8% WaLTV, 99.9% OO, 97% SFR, 95% Purchase, with Texas (47%), Colorado (16%), Oklahoma (12%) and Washington (7%) as the top state. Next up for IMAC is a $10 Million "Fix & Flip." The 33-loan portfolio has a 12% WAC, 685 WaFICO, 4/2018 Maturity Date, As Is LTV 79.8%, After Repair Value 59%, with properties exclusively in New York and New Jersey.
Phoenix Capital's Project Fiji: $585 Million Fannie Mae and Freddie Mac bulk servicing rights offering, 60% FNMA A/A, 40% FHLMC Gold, 88% Fixed 30, 12% Fixed 15, 4.029% (F30) Note Rate; 3.379% (F15) Note Rate, Avg Bal $269K, 100% of loans are located in Washington, 753 WaFICO, 79% WaLTV, 91% Single Family/PUD Properties, 91% Owner Occupied Properties, 65% Purchase Originations, 100% Retail Originations, 4% HARP loans; Project Alpine: $4.7 Billion Fannie Mae, Freddie Mac and Ginnie Mae bulk: 94% FNMA , 6% FHLMC, 67% Fixed 30, 33% Fixed 15, 3.663% (F30) Note Rate, 3.052% (F15) Note Rate, Avg Bal $214K, geography: 23% CA, 7% GA, 6% MA, 769 WaFICO, 58% WaLTV, 95% Single Family/PUD Properties, 88% Owner Occupied Properties, 91% Cash-Out Refinances, 80% Retail Originations....

 Prestwick Mortgage Group had a $1 billion Massachusetts FNMA A/A package. Total portfolio characteristics were as follows: $263,677 average unpaid principal balance, 3.764% WAC, 68% WaLTV, 100% retail (of Seller or an affiliate of Seller), approximately 93.5% of the loans are on properties in Massachusetts 0.209% delinquency ratio (30+), with no loans in foreclosure or bankruptcy as of the data date.

 Incenter Mortgage Advisors, sent out two servicing deals this week. A Ginnie Mae package for $1.4 billion includes mortgages originated exclusively through the retail channel with a weighted average interest rate of 3.57 percent and delinquencies of 2.27 percent based on number of loans. The loans are spread out across the U.S. Bids are due June 7. The second is tied to Fannie Mae loans. The Fannie portfolio has no delinquencies whatsoever. The average interest rate is 4.33 percent. Bids are due June 6.
Capital markets

We're on Tuesday already, but looking back to Friday U.S. Treasuries and agency MBS prices hardly changed versus Thursday's close (only a few 32nds up or down) despite an upward revision to the official estimate for Q1 U.S. GDP growth. And durable goods orders for April missed expectations but March's numbers were revised up. The 10-year note closed a shade better yielding 2.25% and MBS prices roughly unchanged.

Rates are down a shade this morning in the U.S. Why? Mostly news and nervousness from Europe. Eurozone equities are under mild pressure due to ongoing Italian election worries, some Greek debt worries, soft regional inflation numbers in Germany & Spain, and dovish remarks from Mario Draghi are undercutting reflation sentiments in Europe.

 This morning we've already had April's Personal Income and Personal Consumption/Spending (both +.4%, as expected), and April PCE prices. Coming up are the S&P/Case-Shiller Home Price Index for March, along with Consumer Confidence. Tomorrow is the MBA's read on last week's apps, as well as May Chicago PMI, April Pending Home Sales, and the May Fed Beige Book. Thursday are May Challenger Job Cuts, May ADP Employment Change, Q1 Productivity and Unit Labor Costs, Initial Jobless Claims, April Construction Spending, and May ISM Manufacturing Index. Friday, we can look forward to the May employment data and April trade balance

Friday, May 26, 2017

Bank M&A, Example of Title/Lender Fraud, Basel Update for Los, Wages & Inflation, The Fed and Mortgage Rates



The only cow in a small town in Texas stopped giving milk. The people did some research and found they could buy a super milk cow up in Terra Haute, Indiana, for $2,000.
They bought the cow from an Indiana dairy and the cow was wonderful. It produced lots of milk every day, and the people were pleased and very happy.
They decided to acquire a bull to mate with the cow and produce more cows like it. They would never have to worry about their milk supply again.
They bought a bull and put it in the pasture with their beloved cow.
Whenever the bull came close to the cow, however, the cow would move away. No matter what approach the bull tried, the cow would move away from the bull and he could not succeed in his quest.
The people were very upset and decided to ask the Vet, who was very wise, what to do.
They told the Vet what was happening. "Whenever the bull approaches our cow, she moves away. If he approaches from the back, she moves forward. When he approaches her from the front, she backs off. An approach from the side and she walks away to the other side."
The Vet thinks about this for a minute and asked, "Did you buy this cow in Indiana?"
The people were dumbfounded, since they had never mentioned where they bought the cow. "You are truly a wise Vet," they said. "How did you know we got the cow in Indiana?"
The Vet replied with a distant look in his eye, "My wife is from Indiana..."

Ready to rush off and join the blockchain rush? Not so fast. The implementation of blockchain technology in the financial-services industry is meeting some resistance, with enthusiasm not equating to industrywide rollout. Like GSE reform, it will take many years and while blockchain's potential for improving efficiency, security, and cost savings has been discussed, the commodity sector has concerns about loss of confidentiality, while other industry participants say formal regulation and oversight of the technology is needed.

 Bank news
"Rob, I heard a rumor that Wells Fargo pulled the plug on its rehab(203K) and reno(vation) loan programs. True?" You should ask your local Wells rep.

 Global Home Finance Inc. in Lewisville, TX has updated their 203K Guidelines and expanded their rehab and renovation loan programs and now offers a 90% LTV one-time close construction loan that can be used to build from the ground up or also can be used to rehab your home in Texas. GHF has also expanded their investor fix and flip programs. Call 972-724-3222 to speak with a licensed Construction Mortgage Loan Originator and learn more. 
Bank M&A continues, and just in the last week or so it was announced that Berkshire Bank ($9.3B, MA) will acquire Commerce Bank ($2.2B, MA) for $209mm in stock or about 1.38x tangible book. And thanks to Brian M. who passed along this story about the move of its headquarters to Boston.

 Down the coast in Virginia Union Bank & Trust ($8.7B) will acquire Xenith Bank ($3.2B) for about $701mm in stock. SmartBank ($1.0B, TN) will acquire Capstone Bank ($511mm, AL) for about $84.8mm in cash (20%) and stock (80%). In the state where the Green Bay Packers live Bank First National ($1.3B) will acquire First National Bank ($479mm) for about $76.3mm in cash (70%) and stock (30%) or about 1.06x tangible book.
Do banks protect themselves against fraud to a greater degree than non-depository lenders? Hopefully both categories are doing what they can! I received this note from Texas about a recent episode. The names have been changed to protect the innocent, and thank you very much to Linda D. for passing this along.

 "A title company asked the seller to provide them (and they did obtain) a voided check or deposit slip with the account they were to send the proceeds wire after funding (standard procedure).
"The morning of funding, the listing agent receives an email from the 'title company' to confirm the seller's name, email and phone number (which she gives to them). The title company receives a phone call from the 'listing agent' to let them know that the seller wants to change where the funds will be wired and they will receive an email and a phone call from the 'seller' to confirm and an email from the 'listing agent.'

 The title company receives the aforementioned email from the 'seller' asking them to change the account that they are to wire the proceeds to after funding and gives them the new account number and bank. Title company receives a phone call from the 'seller' to confirm the new account number the proceeds are to be wired and an email from the listing agent confirming the seller wants to make that change.

 "The loan funds. $100,000 is wired to the new bank account number from the title company to the 'seller.' The listing agent calls the title company to check on funding in the afternoon and title company just happens to mention that they sent it to the 'new account number' that had been given earlier that day. Because listing agent was a relative of the seller, she felt that was a little weird and called the seller to confirm. The title company immediately contacted the bank to pull back the funds. Monies were in limbo for several days as the bank sorted things out."
The moral of the story, of course, is to have standard procedures and don't deviate or make exceptions. Make the follow up phone calls and confirm. Don't post the title company in MLS.   Confirm, confirm and confirm. Be aware: fraudsters do not play fair.
 Perhaps the average LO shrugs and says, "What's the diff about this Basel stuff? Will it impact me?" Yes, it will, directly and indirectly, mostly be impacting the value of mortgages, and their servicing, for depository banks. If an LO specializes in originating a product that banks don't want to own, there goes the demand for it, and then the price goes down and the rate is higher for the borrower. "The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide." An argument has been made that one "improves the quality" by increasing the amount of regulation - it is a safety and soundness issue.
LOs should know that top banks are calling for a pause in the introduction of capital requirements by the Basel Committee on Banking Supervision, such as the Net Stable Funding Ratio and Fundamental Review of the Trading Book, allowing time for a review of their effects so far, before they are passed into legislation. Meanwhile, doubts have arisen on whether the Trump administration will observe the new rules, as its direction on economic policy remains undefined.

 Servicing is a big part of it, and the value of that monthly cash flow impacts rate sheets. The punitive treatment of mortgage servicing rights (MSRs) under the Basel III risk-based capital standards threatens to undermine the value of this important asset, with adverse implications for the entire mortgage finance chain. Performance, capacity and service should be the primary drivers of who gets market share in servicing, not excessively high capital standards on one segment of the industry.
A paper by the MBA a while back listed the issues. "The new Basel III rule increases the risk-weighting of MSRs held by banks from 100 percent to 250 percent. It also decreases the cap on MSRs that a bank may hold on its balance sheet from a 50 percent common equity component of tier one capital to a more stringent 10 percent limit; MSR assets above the limit must be deducted from regulatory capital. In addition, MSRs, deferred tax assets and equity interests in unconsolidated financial entities are limited, in aggregate, to a 15 percent common equity component of tier one capital before they must be deducted from regulatory capital. The unnecessarily punitive treatment of MSRs makes them one of the costliest asset classes in the entire Basel III framework."
The MBA goes on to talk about the impact on banks, and therefore a great many borrowers. (Remember that Basel doesn't apply to non-depository mortgage banks.) "In significant part due to the new Basel rules, banks of all sizes have sold MSR assets at a record pace, moving these assets to banks with smaller MSR exposures and to non-bank servicers. Many of these transfers were driven by Basel-related issues, not necessarily by the core competencies of the parties involved. As a result, many banks that are good at servicing and want to remain in the business have been forced to dramatically increase capital levels or shed the asset...The punitive capital treatment, on balance, reduces demand for MSRs, creating a less liquid market that could result in lower prices for mortgages sold in the secondary market, and higher rates for consumers."

The goals of the Basel Committee are admirable - I want my bank to be safe and sound, have plenty of capital, and not take chances. But I also want my bank to be able to make money from servicing loans. What does a big bank think of it all, in terms of Basel? As an example, here's Wells Fargo's take on it.
Capital markets

 Tax reform looks increasingly unlikely this year as Republican rhetoric shifts to simple tax cuts, says Sen. Ron Wyden, D-Ore. Both sides of the political aisle contain ample support for tax reform, he says, but the Republican majority has failed to reach consensus on legislation that would clear Congress and gain President Donald Trump's signature.
 Jobs and housing drive the market, and this morning we had weekly jobless claims. One of the biggest issues for the Fed is wage inflation (or the lack thereof). The last time unemployment was this low, we were experiencing 4% wage growth. We aren't now and here are a few explanations with a few different theories. The first is that there has been a structural change in labor economics, and that the tradeoff between unemployment and inflation is over due to globalization, lack of union representation, etc.
The second explanation is that wage negotiation dynamics have been colored by the economy since 2008: employers are training people internally instead of hiring outside at a higher price, employees don't feel comfortable asking for more, productivity is lousy, and the huge reservoir of the long-term unemployed means the market is not as tight as it may appear. The final one is a measurement problem: that the BLS numbers aren't accurately reflecting the reality of the marketplace.
One example that springs to mind is the construction biz. Builders constantly complain that they can't find skilled labor in areas where there is land, that they are offering signing bonuses, etc. But when one looks at the actual BLS numbers, construction wages are only growing 2.1%. We are seeing in the mortgage business with operations folks as well. So maybe we are starting to see pockets of wage growth, however it isn't showing up quite yet in the rest of the economy or the numbers.

 The Federal Reserve's Open Market Committee has begun to raise short-term rates. They don't set long-term rates, nor mortgage rates, but at this point they can influence them. How? Using the billions of agency MBS and Treasury securities on their books, aka balance sheet. Actively shrinking its balance sheet means selling these securities, which could mean driving down prices and driving rates higher. By buying and holding those securities the Fed has artificially depressed long-term rates. You'll hear Fed Presidents speaking about this nearly every week.
The Federal Reserve's bond buying has been the agency action with the greatest effect on financial conditions, according to research by Eric Swanson, a professor at the University of California at Irvine. "Forward guidance was more effective than large-scale asset purchases at moving short-term Treasury yields, while [bond buys] were more effective than forward guidance and the federal funds rate at moving longer-term Treasury yields, corporate bond yields, and interest rate uncertainty," Swanson wrote.

 And what's happened since the election? The dollar, after shooting up in November by 5%, is now back to pre-election levels. The U.S. 10-year Treasury note yield, which pre-election, was close, give or take, to 2%, hit a high of 2.60% a few months ago and is back down to 2.25%. The stock market is at or near an all-time high. With politicians' heads in other matters, this combination suggests no fiscal stimulus, weak economic growth, good corporate profits, and thus probably weak wage growth - not great news for housing.
In terms of the bond market, yesterday saw treasuries "better bid" with the curve mostly flatter - but not enough for borrowers to notice. Treasuries were confined to a 2.5 basis point range in the case of 10-year T-notes, which ended about .125 better in price than Wednesday night. Agency MBS prices were better by a smidge.

Ahead of the holiday the bond markets are closing early, and of course are closed Monday, but not without looking at some economic news first. We had the second estimate of Q1 GDP (revised to +1.2%, up from +.9%), core PCE Deflator (+2.1%), and April Durable Goods (-.7%). Coming up is the University of Michigan Sentiment Index for May; after that it will become very quiet. After the first volley of numbers the 10-year is yielding 2.23% and agency MBS prices are better by .125 versus last night.

Wednesday, May 24, 2017

Bus. Dev., Title Company Cuts Fees, Bus. Opportunity, Guild's 1% Down Product, New Home Sales Trends



A woman went into a hardware store to purchase a bale of peat moss. She gave a personal check in payment and said to the clerk, "I suppose you will want some identification."
He replied, without hesitation, "No ma'am, that won't be necessary."
"How come?" asked the woman.
"Crooks don't usually buy peat moss," answered the clerk.
                                                              
Memorial Day is coming up - the unofficial start of summer. And barbecuing! Thanks to Kansas' John M. for sending this along this list of the top 50 BBQ places in Texas.
Products
 Media Center LLC, an industry leading provider of CRM has partnered with another leading technology innovator, Optimal Blue, to infuse its CRM/Automated Marketing platform with OB's real-time pricing information, which is 99.99% accurate at all levels for mortgage firms. Media Center has provided CRM/marketing since 1995 and recognizes that their platform must work seamlessly with other "Best in Class" solutions to maximize user benefits. Dan Harrington, founder of the Media Center, says, "It's really a dance that requires creative dexterity to connect the leading pricing technology (OB) with a CRM/marketing platform that's proven to be 'insanely simple' to use. When you get that right, as we've done in our partnership with Optimal Blue, the benefits for LOs are extraordinary." Originators whose companies are currently using Optimal Blue can learn more about the prospecting and data-mining benefits of OB's integrated pricing engine working within the Media Center's CRM by contacting Paul Harrington, Business Development, at 720-931-2375.
 New home sales trends
 "Pending" Home Sales, "Existing" Home Sales, and "New" Home Sales - take your pick. They all show something slightly different, and economists have their favorites. Housing and jobs play critical roles in the United States economy, thus the abundance of various statistics for each one. What have New Home Sales been doing recently? The numbers measure sales of newly built homes, and are a lagging indicator since the number comes out late in the subsequent month. Remember that sales can head higher, or lower, for different reasons. For example, do sales drop because no one wants a home, they're too exps maintained a strong momentum by rising by more than 6% from January and by nearly 13% from a year ago.

 New home sales rose 5.5% YOY to 555,000 in January. This was 3.7% above the revised December reading. The median new home price was $312,900 and the average price was $360,900. At the end of the month, there were 265,000 new homes for sale, which represents a 5.7-month supply. The press took note since we were barely back to pre-1990 levels which doesn't even consider things like population growth and obsolescence. January's data followed a downwardly revised 535K in December.
 Sales fell in December to a seasonally adjusted annual rate of 535k/month, a 10-month low. This data series is volatile, so new home sales for FY 2016 were still up 12.2% to 563k. The median sales price was up 7.9% y/y (4.3% m/m) to $322,500. Analysts noted that lower sales pushed available supply up to 5.8 months of sales. There were about 259,000 units for sale at the end of December, which represents a 5.8-month supply.

ensive, or there are none for sale?
 April's numbers just came out yesterday. We learned that new U.S. single-family home sales tumbled over 11% from near a 9-1/2-year high in April, down to a seasonally adjusted annual rate of 569,00 units last month. March's sales pace was revised up to 642,000 units, which was the highest level since October 2007. New home sales increased 0.5 percent on a year-on-year basis. April's sales drop came after three straight months of increases - so no big deal apparently. The key takeaway from the report is that upward revisions to prior months more than made up for the shortfall in April relative to the consensus estimate. The median selling price fell to $309,200 from $318,700 in March. That statistic can easily be affected by selling prices, i.e., home values are not declining but cheaper homes are seeing more sales. Sales in the West declined by 26.3%.
 It isn't hard to find very high permit prices, rising building material costs, shortages of lots, and fewer laborers. All that has helped keep house prices elevated. The inventory of new homes on the market increased 1.5 percent to 268,000 units last month, the highest level since July 2009. Still, new housing stock remains less than half of what it was at its peak during the housing boom in 2006. (A six-month supply is viewed as a healthy balance between supply and demand.)
 In February new home sales maintained a strong momentum by rising by more than 6% from January and by nearly 13% from a year ago.
 New home sales rose 5.5% YOY to 555,000 in January. This was 3.7% above the revised December reading. The median new home price was $312,900 and the average price was $360,900. At the end of the month, there were 265,000 new homes for sale, which represents a 5.7-month supply. The press took note since we were barely back to pre-1990 levels which doesn't even consider things like population growth and obsolescence. January's data followed a downwardly revised 535K in December.
 Sales fell in December to a seasonally adjusted annual rate of 535k/month, a 10-month low. This data series is volatile, so new home sales for FY 2016 were still up 12.2% to 563k. The median sales price was up 7.9% y/y (4.3% m/m) to $322,500. Analysts noted that lower sales pushed available supply up to 5.8 months of sales. There were about 259,000 units for sale at the end of December, which represents a 5.8-month supply.
 The month before, new home sales increased 5.2% in November to a seasonally adjusted annual rate of 592,000. That was 16.5% higher than the estimate for the same period a year ago, interesting since November's move came despite rising mortgage rates (or maybe because of them as some buyers rushed to lock in lower rates), providing a nice leading indicator for economic activity.
 Continuing our look back, September's new home sales rate came in below expectations at 593,000/year. In August sales came in at an annualized rate of 575k, a little better than expected, but below last month's 659k pace. The median sales price of new houses sold in August 2016 was $284,000; the average sales price was $353,600. The seasonally adjusted estimate of new houses for sale at the end of August was 235,000, a supply of 4.6 months at the then current sales rate.
 New home sales in the U.S. leapt to an eight-year high of 654K (seasonally adjusted annual rate) in July 2016 although the median selling price fell 0.5% y/y to $294,600. Inventory fell to 4.3 months' worth of sales. And in May sales fell to a seasonally adjusted annual rate of 551K in May from 586K in April (revised down from 619K). The downturn in May featured a 33.3% decline in sales in the Northeast, although every region experienced a sales drop except for the Midwest (+12.9%). Notably, the South and the West -- the two biggest regions for new home sales -- saw sales decline 0.9% and 15.6%, respectively.
 Going back to summer of last year, new home sales came in much stronger than expected, at an annual rate of 619,000. This was the highest level since early 2008.
 Capital markets
 Looking at interest rates through the bond market, yesterday things were quiet until - are you ready for this? - a 52-week Treasury bill auction was met with very weak demand. The metrics of the $20 billion auction weren't good ("sloppy"), giving folks an excuse to sell fixed-income securities. Once the selling gathered some steam, even a warm reception for the $26 billion 2-year Treasury auction could not stem the tide. And yes, new home sales were poor, but not catastrophic enough to cause rates to drop. The 10-year note worsened about .250 while the 5-year and agency MBS prices sold-off .125.
 But today is a brand-spankin'-new day, right? We've already had the MBA's read on last week's applications (driven entirely be refinances it was +4.4%, but still 30% lower than a year ago). Coming up are the non-market moving FHFA Home Price Index and existing home sales. This afternoon are the minutes from the May 2-3 FOMC meeting to be released at 2PM ET. Market participants will look for expanded thinking regarding the Fed's balance sheet strategy. We start the day with rates little changed compared to Tuesday's close: the 10-year is yielding 2.28% and agency MBS prices are better by a smidge depending on coupon.