Commercial and Multi-Family Market - Growing Weary

By rchrisman@robchrisman.com

I received this email from a golfing friend recently.

"I have two tickets to the US Open final round in Oakmont, but just realized I'm getting married that day and can't go."

"If you're interested in going in my place, it's at St. Paul 's church and her name is Emily."

 

We're now past the Summer Solstice, and the sun will start rising later and setting sooner - most noticeable in places like Anchorage where the sun now goes down around 11:42PM. Turning to more "man-made" changes, any time you combine computers, copying machines, and currency, strange things happen. Ever tried to copy money? Most of the time it doesn't work on a modern copy machine; here's a video why not.

I've mentioned the upcoming changes to the 1003 form, the Uniform Residential Loan Application, and mentioned that the "target implementation date is 1/1/17 (think HMDA)." Several astute readers pointed out that the date for implementation is actually 1/1/18 - not 1/1/17. I apologize for any confusion, hand-wringing, frustration, or the like.

 The changes, scheduled for 1/1/18, prompted one veteran broker to write saying, "Why change the 1003? It is a tried and true form: simply fill in the boxes. Leave it alone. The last thing we need is to redo all the operating systems again due to bureaucrats trying to justify their jobs with more unnecessary form changes. That is the problem with government.  All those bureaucrats must have something to do, so they create needless/useless paper so they have paper to push around."

 The reason, suggested another originator, is that the current form "Is not intrusive enough. I'm guessing it's to back up the FHFA /CFPB national data base. What concerns me is the lack of security on that data base. I get they are seeking to charge lenders with discrimination...but at the risk of national security? By the time the data base is breached, and it will be, it will be too late..."

 For events that might be of interest to lenders, depending on the area of nation you're in...

 The Community Bankers Association of Georgia kicks off its 38^th Annual Leadership Convention and Mini-Trade Show today in Orlando. The mission of the CBA is to promote the preservation and continued development of locally, independently-owned community banks in Georgia and the philosophy of hometown banking through unified efforts of its membership and staff. Skip Willcox with Triumph Mortgage says, "As a sponsor, I am very excited to be involved in this event. As part of a community bank, Triumph Mortgage is proud to help other community banks with their mortgage needs. The meeting at Disney will be a great opportunity for bankers from around the state to share ideas, network and learn."

 In Northern California, the CAMP Silicon Valley Chapter Officers Installation event is this Friday, June 24^th in San Jose and will feature California Real Estate Commissioner Wayne Bell officiating the installation of Richard Wang as president and the incoming board members. For more information, contact TJ Roberts at 408-802-8522 or register on-line.

 American Banker is offering a free webinar tomorrow on e-signature authentication techniques.

 Moving to September, the TMBA has its 16th Annual Reverse Mortgage Day on September 6th & 7th at the downtown Omni Hotel in Dallas, Texas.

 Event information and registration is already underway for Zelman & Associates 2016 Housing Summit September 22^nd & 23^rd in Boston. This conference offers a unique combination of very topical, interactive panel discussions moderated by Ivy Zelman and Dennis McGill.  In addition to scheduled 1x1s, there will also be opportunities throughout the day for investors and senior executives from over 100 public and private companies to meet and network.

 On person who won't be enjoying any of this is the former Connecticut State Representative who pled guilty to mortgage fraud. Just what the public continues to see in terms of headlines...not the fact that tens of thousands of LOs are doing exactly the right thing, legally, every day.

 I can't pick up a newspaper these days without some dire prediction about something happening. Someone is always yapping about stocks going down, or up, rates going up, or down, housing going up, or down. I remember when Meredith Whitney predicted the freefall in muni bonds, and when Bill Gross opined that Treasuries were a lousy investment and that rates were going to shoot up. How's that trade working out?

 Lately the clamor has reached a higher-than-normal pitch about the dreadful future of commercial real estate, and therefore lending. For example, PIMCO is in the mix saying the prices buyers pay for commercial real estate in the US could fall as much as 5% over the next 12 months. Pacific Investment Management said the value of commercial properties will be under pressure from asset sales by publicly traded owners, tightening regulations and approaching maturing debt.

 And the Federal Reserve warned that prices in the commercial real-estate market may have run up too far too fast. Valuations in commercial real estate "appear increasingly vulnerable to negative shocks, as CRE prices have continued to outpace rental income," the Fed said in its semi-annual Monetary Policy Report to Congress. The Fed noted that prices exceed their pre-crisis peaks by some measures.

 The Fed included a special section on financial stability risks in the report, which accompanies Chair Janet Yellen's testimony. The report said that even given "moderate'' financial vulnerabilities, risks of external shocks, such as the U.K.'s possible exit from the European Union, pose stability risks.

 Someone should tell Cushman & Wakefield since management announced that it has acquired Atlanta-based Multi Housing Advisors (MHA) in a transaction that creates the leading multifamily brokerage platform in the Southeast U.S. With the addition of MHA, Cushman & Wakefield now commands 23.8 percent of multifamily investment sales in the Southeast, year-to-date. The combined firms, with nearly $3 billion in transactions, captured 20 percent of 2015 Southeast multifamily sales, compared with CBRE's 15.7 percent market share.

 According to the MBA, Commercial and multifamily mortgage originations closed $503.8 billion of loans last year, which was 26 percent higher than the volume in 2014. This is close to the record high that was reached in 2007. The large volume was due to the low interest rate environment, rise in property value and stronger demand. Commercial bank portfolios were responsible for $138.6 billion of the total, followed by commercial mortgage-backed securities at $99.4 billion and life insurance companies and pension funds. Multifamily properties experienced the greatest origination volume at $201.7 billion, office buildings saw the second highest volume, followed by retail properties, hotel/motel, industrial and health care. First liens accounted for 97 percent of the total dollar volume closed.

 The MBA recently released its Fourth Quarter 2015 Commercial/Multifamily DataBook, suggesting that the final quarter of 2015 experienced continued growth. Property sales volume was 25 percent higher in 2015 than in 2014, just slightly below the record levels seen in 2007. The fourth quarter of 2015 was also the highest quarter for borrowing and lending on record, with only the commercial mortgage-backed security sector not breaking a record for originations like banks, life insurance companies and the GSEs. Total commercial and multifamily debt outstanding reached $2.83 trillion at the end of last year, rising 2.2 percent from the third quarter. Multifamily mortgage debt outstanding grew 3.4 percent reaching $1.06 trillion.

 So with all this growth is coming warnings. As another example, Felice Maranz with Bloomberg writes that Morgan Stanley has become more cautious on commercial real estate (CRE) as it sees the multiple expansion that's helped drive REIT price appreciation subsiding. The article notes that the focus is shifting to earnings growth; at the same time, it's likely too early to call cycle's end. Apparently analysts are seeing signs of "peaking fundamentals," including tightening lending conditions, active selling by REITs (pre-crisis turning point for property prices), and recent stalls in CRE prices for 1st time since 2010. There may not be enough NOI growth to offset risk of tighter lending conditions, leading to declining valuations.

 Yet the American Bankers Association writes that demand for CRE loans may be strengthening, or at least relatively speaking. As most are aware, commercial loans, and the securitization markets which provide liquidity to them, was probably hit the hardest during the recession. From a peak in 2006 and 2007 (CMBS of $198.4B and $228.6B, respectively) to current levels of $100B last year, with forecasters estimating $115 billion-ish for 2016 (currently not on pace; YTD of $19B), the market in this space is choppy at-best. However not is all lost according to the ABA who writes that banks are currently seeing an increase in demand for commercial real estate loans. It writes, "Eighty-two percent of banks plan to increase capital concentration in commercial real estate, according to its first annual Commercial Real Estate Lending Survey. The banks cited strategic planning and demand as the biggest driver in growth."

 According to the survey, most banks identified regulatory burden as their primary concern for the CRE industry looking forward into 2016 and beyond. About 65 percent indicated that recent regulatory guidance on CRE risk management will cause a measureable reduction in credit availability.

 Turning to the bond markets, today the European Central Bank will begin an experiment that could test how lenders respond when actually paid to extend loans. They will be offered four-year loans with zero interest that could end up in negative territory in the ECB's latest bid to encourage credit, even as liquidity remains abundant and global demand sputters.

 But are we already in the summer doldrums? Using the yield on the 10-year T-note as a proxy for interest rates, it shot down into the 1.60% range a while back, and seems content there until a) Janet Yellen says something new, or b) the United Kingdom determines if it is staying in the European Union. Neither happened yesterday, and so the 10-year sat between 1.67%-1.70% Tuesday. And regarding the Brexit/Bremain question, well, the bookies currently expecting that Britain will remain a part of the EU.

 Today, as much of the nation roasts, we have Fed Chair Yellen back in front of Congress when she delivers round two of her semi-annual Monetary Policy Report and testimony (this time in front of the House Financial Services Committee beginning at 10AM EDT). But we've already had the MBA release its survey of 75% of retail originations for last week: +2.9%, +35% from a year ago, and refis at nearly 58% of the total. Later we have the April FHFA Home Price Index at 9AM EDT, and May Existing Home Sales 10AM EDT. Oh, and if you have some spare doubloons, pony up for the Treasury's $13 billion 2-year, $5 billion 30-year TIPS, and $28 billion 7-year note auction. In the early going the proxy 10-year yield is at 1.69% and agency MBS prices are pretty much unchanged from Tuesday's close.

48 Hours to Brexit/Bremain Vote - Traders Prepare

By rchrisman@robchrisman.com

"I've surely gotten old! I've had two bypass surgeries, a hip replacement, new knees, fought prostate cancer and diabetes. I'm half blind, can't hear anything quieter than a jet engine. I take 40 different medications that make me dizzy, winded, and subject to blackouts. I have bouts with dementia, have poor circulation, hardly feel my hands and feet anymore. I can't remember if I'm 85 or 92, and I've lost all my friends. But, thank God, I still have my Florida driver's license."

Today I am in Kansas City, where it is "only" 96 degrees. Phoenix hit 119 degrees this week. Let's ask the folks over there what they think about housing made out of metal shipping containers. Seriously, in heat like that we have to use our noggins - otherwise tragic things can happen, like a gal dying after biking in the sky-high temperatures.

Are you maximizing opportunities to work with low-to-moderate income (LMI) borrowers? Join National Mortgage Professional Magazine on Thursday, June 23 at 2PM EDT for a complimentary webinar titled "Are Low-to-Moderate Income Borrowers Worth the Risk?" presented by Freedom Mortgage. You will learn that just because these LMI borrowers have low FICO scores doesn't mean they're a bad investment. We know everyone deserves a chance (or two) to achieve the American dream of home-ownership. In this webinar we'll shine the light on fact vs. fiction for these loans and why we embrace LMI borrowers. Click here to sign up for this FREE Webinar!

 Registration is now open for The Mortgage Collaborative's Summer Lender Member Conference, which will take place August 21-23 at the Four Seasons Hotel & Resort in Denver, CO.  The conference will feature a powerful agenda filled with presentations from top industry leaders, relevant educational breakout tracks, and a series of peer-to peer networking sessions and events.  For more information, contact Rich Swerbinsky.

 AllRegs by Ellie Maestill hascourses available for everything from underwriting and compliance, to QC, appraisal review and more. Click here to view July and August training topics brought to you by AllRegs.

 Have you taken advantage of one of Fannie Mae's HFI InDepth webinar trainings? There are a several upcoming webinars available including its new Customer Care Course designed to help you learn more about the transformation redesign of the loss mitigation process on July 7^th.

 And Alight Inc., the fast-growing provider of real-time financial optimization applications across a range of industries, announced that SWBC Mortgage Corporation, a wholly-owned subsidiary of a 40 year-old financial services company, SWBC, has selected the Alight Mortgage Lending platform to support the firm's growth objectives and help optimize performance and profitability.

 There is renewed interest in the future of Fannie & Freddie lately. Partly due to this being an election year where big, long-term problems get their every 4-year moment in the sun and partly because some shareholders continue to push for their rights (or perceived rights) demanding a determination on the value of their shares. Bloomberg reported the likely Clinton Plan, likely because two of her closest campaign advisors were intimately involved in developing housing policy at the Obama Administration, is to replace Fannie & Freddie with a single, government entity resembling the FDIC. The merits of the plan notwithstanding the proposal will be altered, one way or the other, depending on who Secretary Clinton selects as her running mate and how the general election evolves on questions of government support of the economy. Whereas housing policy might generate one or two questions in a single debate, the overall theme of government involvement in the economy is likely to only grow as we near November.

 Fannie Mae's update to Desktop Underwriter (DU) is scheduled for the week of September 24, 2016. "We are focused on delivering the best technology solutions that provide certainty and stability for our customers. Our release date ensures that all of our customers have the time they need to fully test and transition to the new DU version 10.0.  We remain unwavering in our commitment to earn our customers' business every day and look forward to bringing them the industry leading capabilities of the enhanced DU, such as use of trended data in credit risk assessment and automated underwriting for borrowers with no traditional credit to expand access to mortgage financing."

 In Saturday's commentary I discussed the upcoming changes to the good ol' 1003, the Uniform Residential Loan Application. Yes, changes are in the works. Some, given the recent TRID experience, view the changes as a nightmare. Others don't. But just think of all the other aspects of pricing, tracking, doc drawing, title, etc., etc., information from the 1003 touches.

 In response, from Tracy Sanderson, Banner Bank's VP/Policy & Training Manager, comes, "Fannie Mae's website contains an update, and it has to do with the Uniform Loan Application Dataset (ULAD). Fannie Mae and Freddie Mac are revising and redesigning the Uniform Residential Loan Application (URLA) and developing a corresponding standardized dataset, the Uniform Loan Application Dataset (ULAD). 'The revised URLA form will provide lenders and borrowers with greater clarity and an easier, more consumer-friendly loan application.' Yep, it's coming, and the format will be similar to LE and CD. For simple borrowers, it might only be 3 pages long; for complex borrowers, it could be 15+. The target implementation date is 1/1/17 (think HMDA)."

 All this chatter about Fannie Mae reminded me of a recent story opining that U.S. taxpayers may be paying too much for construction of the new headquarters of Fannie Mae. "The new Fannie Mae building in downtown Washington has seen its per-square-foot costs increase by more than 50 percent in about eighteen months, according to the watchdog's report, which said the original cost estimate for the structure was $770 million."

 It goes on. "We believe there are significant financial and reputational risks from the projected costs associated with Fannie Mae's relocation of its headquarters," reads the report from the independent auditor of the Federal Housing Finance Agency (FHFA). Director Watt shot back, "The sale of the properties Fannie Mae currently owns and occupies will result in substantial additional financial benefits," Watt wrote in response to a draft of the report. The new building envisions spiral staircases and 'bridges' that transverse the building but those are part of a modern building design and not extravagances," Watt wrote.

 At the other agency, Freddie Mac hit $650 billion in transferred credit risk to private capital. This is made up of $500 billion in single-family loans since 2013 and $150 billion in multifamily loans since 2009. On top of that, Freddie spread the word that it has significantly reduced its legacy mortgage credit risk through the securitization and/or sale of more than $50 billion in less liquid and impaired assets from its mortgage-related portfolio since 2013.

 Freddie Mac debuted its first official credit risk transfer program in 2009 with a multifamily deal, and then in 2013, for single-family mortgages, did a transfer of credit risk when it introduced both Structured Agency Credit Risk (STACR) debt notes, which are sold to bond market investors, and Agency Credit Insurance Structure (ACIS), which transfers risk to insurance companies.

 Greystone announced it has originated and closed $1,000,000,000 in Freddie Mac Small Balance Loans since the Freddie Mac Small Balance Loan program was launched in October 2014. In that time, Greystone has closed over 350 Freddie Mac Small Balance Loan transactions from the East Coast to the West Coast.

 As noted last week in this commentary, Resitrader, a provider of whole loan mortgage trade management software, announced that more than $1 billion in loans have been presented and delivered on its mortgage trading platform since its introduction late last year. "Resitrader automatically normalizes loan data so buyers can easily search for loans by investment criteria and loan type."

 Call it Brexit or Bremain, it is dominating the world bond and stock markets. Trading desks everywhere are girding their loans. For example, clients of Bank of America Merrill Lynch received this note of warning. (And take notice of the spelling of "endeavor" - a clue as to its origin.) "We would like to take this opportunity to remind you of the measures Bank of America Merrill Lynch (BofAML) has in place for trading in volatile market conditions.

 "In periods of extreme volatility, we have on some occasions seen delays to trades, including requests for quotes (RFQs), order taking, order processing, price streaming and/or market data dissemination.  As a reminder, we are not obligated to provide price streaming, respond to RFQs, or accept orders for execution in any particular manner, and all determinations of if, whether, or when market criteria have been met for execution shall be made by us in our sole discretion.

 "BofAML's electronic trading platforms have volatility controls that may temporarily suspend execution and price streaming in response to rapid and adverse market movements.  It is possible that different clients submitting orders or requesting trades with similar profiles may achieve different outcomes, including whether and when orders or trades will be executed.

 "During volatile markets, we will endeavour to continue to serve clients but we may not be able to provide the product offering, level of execution, liquidity and pricing - including in electronic markets - as would be the case under more normalized market conditions.

 It seems like the Brexit campaign was losing momentum ahead of Thursday's UK referendum, with polls showing more support for "Bremain" - darn those Brits are clever with words. And so Monday started off with a sell-off prior to the opening, and pretty much stayed there all day. So aside from some intra-security and inter-rate minor movement, not much happened - so I won't waste your time.

 So now its Tuesday, and the sun will start rising later and setting sooner. Fed Chair Yellen's semi-annual Monetary Policy Report before the Senate Banking Committee, starting at 9AM Kansas time, will be the highlight today when she will get a chance to elucidate on recent Fed decisions. If you have some spare change sitting around the Treasury will auction $50 billion of 1-month bills, $20 billion of 1-year bills at 11:30am, followed by $34 billion of 5-year notes at 1:00pm. We closed Monday with the 10-year sitting at 1.67% and in the very early going today it is at 1.68% with agency MBS prices a shade worse.

FHA and VA News

By rchrisman@robchrisman.com

(Thank you to Steve S. for this one.)

Wife: "Dear God, I wish you could make my husband pay more attention to me, protect me, take me out all the time, sleep close to me at night. I wish he would be more caring, even if I got the smallest of scratches, and think about me all the time."

God turned her into a smartphone.

To start off the week, besides the first full moon on a summer solstice since 1967, here's an interesting Bloomberg chart about the Federal government's percent of ownership of consumer debt, the money that we owe Uncle Sam. Ever since Obama nationalized the student loan sector, at $1.3 trillion they have taken their percentage of consumer debt from 5% to 28%. Many expect some sort of write-down of student loan debt in the future, and a study by the National Association of Realtors and SALT finds 71% of people with debts from student loans say the load from paying that debt is keeping them from buying a home and adding to it. More than 50% expected it would take 5 years until they felt comfortable buying a home given their current debt load.

 Redwood Trust recently launched an expanded credit jumbo purchase program, branded as Redwood Choice. The Redwood Choice program allows FICO scores down to 661, LTVs up to 90% and reduces minimum post close cash reserves to 3 months. The program allows non-warrantable condos and condotels and has both a QM and non-QM option available. Pricing is competitive and reactions to the program from loan officers and originators thus far has been extremely positive. Redwood believes the Choice program greatly expands loan officers' options for their jumbo customers and will help broaden the loan officers' customer base. Redwood has been buying jumbo loans since 1995 and is excited to offer this new product to currently approved counterparties. The legacy Redwood product has been rebranded as Redwood Select. Please contact your Redwood relationship manager for details on the program.

 (Occasionally I am asked about a 1% down payment program from Quicken Loans. If you want to know the complete details contact Quicken, but here is the link from Quicken March 3, 2016.)

 Returning to jobs, companies aren't always searching for new staff. In this case, Pacific Investment Management's (PIMCO) 25% drop in assets is prompting the firm to cut its global workforce 3% - 68 workers - and to close six dividend-income strategy funds. "Our current business plans will reduce expenses in some areas while, of course, ensuring investment and hiring in others," PIMCO spokesman Michael Reid said.

 Here's a handful of free upcoming webinars.

 ATS Secured is offering a free webinar on vendor management presented by Moorari Shah of Buckley Sandler. Tomorrow (the 21^st) lenders and title agents can find out exactly what they need to do to manage vendors, reduce their 3rd party risk and satisfy regulatory requirements.

 California MBA is providing a free webinar on June 23^rd to help you prepare for the CFPB Exam. Are you ready?

 On June 22^nd, join California MBA Tech and Marketing Committee to find out how the traditional buyer path model is out-of-date.  Do you know about "The Loop"?Register now and hear from top industry experts how you can adapt to the new reality and drive more business.

 In news that certainly caught everyone's attention Friday, the Justice Department's pursuit of 77-year old Angelo Mozilo is over. After earlier dropping a criminal investigation of Countrywide's Mozilo, federal prosecutors recently decided against filing a civil fraud case against him. Prosecutors in Los Angeles, in coordination with those at the Justice Department in Washington, spent more than two years reviewing the merits of pursuing a civil fraud case against Mozilo.

 Mozilo and several other former Countrywide executives supposedly recently received letters from federal prosecutors notifying them that they had officially ended an investigation. In May, prosecutors suffered a blow when an appellate court in Manhattan overturned a jury's verdict that had found Rebecca Mairone, a former Countrywide executive, liable under FIRREA. The panel said although Countrywide may have sold flawed mortgages to two government-sponsored mortgage finance firms, there was insufficient evidence that the firm and Mairone had engaged in any deliberate deception.

 The possibility of the Justice Department filing a so-called FIRREA lawsuit against Mozilo first came to light when Bank of America reached a $16.65 billion settlement of its own FIRREA case in August 2014. The inquiry by the Justice Department of Mozilo was seen by some legal critics as a way for prosecutors to address complaints that little had been done to hold individuals to account for the financial crisis. But lawyers for Mozilo argued a civil fraud case would be duplicative of the efforts of the Securities and Exchange Commission, which sued Mozilo and two other former Countrywide executives in 2009. On the eve of the trial in 2010, Mozilo and the other defendants reached a settlement that required the mortgage financier to pay $67.5 million in fines and restitution.

 FHA & VA news? You can't ignore those programs, and in fact Ginnie Mae, where the lion's share of FHA & VA loans wind up, guarantees $1.6 trillion of mortgage securities. (Of course lenders don't "sell" loans to Ginnie Mae, like they do to Freddie and Fannie.) Ginnie Mae broke its own volume record by guaranteeing $464 billion in 2013 - and this year may be even better.

 Few expected another refinancing boom after the Fed started lifting short-term borrowing costs in December. Lenders are reporting VA IRRL biz is great. Longer-term yields in the bond market have been plunging this year as money managers seek shelter from sinking stock markets and from slowing growth in China, underscoring the limits of the central bank's power as it tries to normalize lending costs.

 If you are a mortgagee who has not yet transitioned your operations to the FHA Electronic Appraisal Delivery (EAD) portal for all of your FHA appraisal submissions, FHA is reminding all mortgagees that all appraisals must be submitted through the EAD portal for all originations with case numbers assigned on and after June 27, 2016. On and after the June 27 mandatory use date, mortgagees will no longer be able to: Use both the EAD portal and other appraisal submission methods concurrently for originations; Submit appraisals for originations with case numbers assigned on and after June 27 to FHA through any method other than the EAD portal; nor Access the Appraisal Logging Screen in FHA Connection (FHAC) for case numbers that require an appraisal to be submitted through the EAD portal.

 Valuation Management Group is already prepared for FHA's June 27^th EAD portal mandatory usage. It announced its integration with the Federal Housing Administration's (FHA) Electronic Appraisal Delivery (EAD) portal and has begun successfully submitting FHA appraisal files for its lender customers prior to loan endorsement.

 It's the final countdown to be on board with FHA's Electronic Appraisal Delivery (EAD) portal's June 27 mandatory use date. On this date, all mortgagees must begin submitting all appraisalsthrough the EAD portal for all originationswith case numbers assigned on or after June 27. To avoid potential disruption in case processing, mortgagees who have not yet done so should finalize the transition to full use of the EAD portal for appraisal submissions to FHA.

 U.S. Bank Home Mortgage provided VA and FHA updates in a recent bulletin. Effective with all case numbers assigned on or after June 1, VA Circular 26-16-10 addressed unreimbursed expenses when commission income is equal to or exceeds 25% of the borrower's total income.  IRS Form 2106 expenses must be deducted from gross commission income with the exception of an automobile lease or loan payment. Also updated is FHA reduction to the requirement of 2% loan balance calculation to 1%; however, FHA will no longer allow the use of a payment less than 1% unless it is the fully amortized payment according to the original terms of the note.  Income Based Repayments-IBR less than 1% may not be used The guidance is effective for all case numbers assigned on or after June 30, 2016; however, Lenders may begin using the policy immediately.  Please refer to Mortgagee Letter 2016-08 for guidance as revisions will be incorporated into FHA's Single Family Housing Policy Handbook 4000.1(Handbook 4000.1) on June 30, 2016.

 The M&T FHA 203(k) product pages have been updated to reflect a correction to the maximum allowable LTV on refinances to 110% LTV. Reminder: FHA requires a separate calculation of the LTV for the application of MIP (which appears on the 203k Maximum Mortgage worksheet), versus the calculation of LTV for the actual loan (which must appear on the HUD-92900-LT Loan Transmittal).

 VA's VALERI Special Announcement for May 17, 2016 contained information regarding the VA Home Loan Program's Real Estate Owned Portfolio Servicing Contract.

 Mountain West Financial will now allow W-2 transcriptsfor borrowers who ONLYuse W-2 income to qualify for a loan approved by Desktop Underwriter (DU) or Loan Prospector (LP) on VA loans. For borrowers with income that is supported exclusively by W-2 transcripts,the originator must follow DU/LP guidance when requesting documentation from the borrower to include in the loan file. Additionally, the loan must be approved by DU/LPand the DU/LP cert must substantiate use of W-2 income only.

 If you're interested in rates and world economic affairs, this is a big week. Britons will vote on whether to remain a member of the 28-nation European Union or leave the bloc - which will take many months if not years. The EU's fundamental philosophy, meant to stimulate competition and efficiency but show unity, is "one territory without any internal borders or other regulatory obstacles to the free movement of goods and services." If you look at Britain's performance with GDP and employment, however, it tracks closer to the US and Germany than it does with the rest of the EU that's severely underperforming. Those arguing for an exit highlight the expense to the United Kingdom, and the increased regulation. When the UK joined the EU in 1973, the EU's GDP made up 37% of the world's GDP. The IMF estimates that number will drop to 22% by 2025.

 Many Britons are fed up and unlike Greece, they actually have the financial firepower to follow through. Polls as of Friday show 48% are in favor of Brexit. The European Central Bank stands ready to work with the Bank of England in the event the U.K. votes to leave the European Union. But markets don't like uncertainty...

 So the focus will be on England since there is very little in the way of scheduled economic news this week in the United States. In fact, there is nothing scheduled for today or tomorrow. Wednesday we have the MBA's application data, and also Existing Home Sales, the FHFA House Price Index, and Federal Reserve Chair Janet Yellen semi-annual testimony before the House Financial Services Committee (aka Humphrey Hawkins). Thursday has Jobless Claims and New Home Sales. Friday closes out with Durable Goods Orders and some statistics from grad school students at the University of Michigan. We closed last week with the 10-year at 1.62% and this morning it is at 1.68% with agency MBS prices worse about .125.

Nationstar Adds $50 Billion in Servicing - Does it Make Money?

By rchrisman@robchrisman.com

 

(Thanks to Rhonda M. for this one.)

GOD'S PLAN FOR AGING

Most seniors never get enough exercise. In His wisdom God decreed that seniors become forgetful so they would have to search for their glasses, keys and other things thus doing more walking. And God looked down and saw that it was good.

Then God saw there was another need. In His wisdom He made seniors lose coordination so they would drop things requiring them to bend, reach & stretch. And God looked down and saw that it was good.

Then God considered the function of bladders and decided seniors would have additional calls of nature requiring more trips to the bathroom, thus providing more exercise. God looked down and saw that it was good.

So if you find as you age, you are getting up and down more, remember it's Gods will.

 

If you're a loan officer and need some data for a presentation to some real estate agents, here's a decent source. Using data collected by the U.S. Census Bureau's Survey of Construction, this "Characteristics of New Housing" report provides annual statistics on the characteristics of new privately owned residential structures by census region. Things like the number of bedrooms and bathrooms, the location of the laundry, presence of a homeowner's association, the buyer's source of financing and the structure's square footage. And if you want to hone in on single-family housing, like how many houses have more than four bedrooms, here you go.

I love political correctness. Instead of saying someone was fired we now say, "They were managed out." Certainly Wall Street trading jobs are shrinking, and employment in banks seem to be as well. In an effort to adjust its expense base, Trustmark National Bank ($12.8B, MS) reduced its workforce by 6% by offering early retirement packages to employees who were at least 60Ys old and had at least 5Ys of service. Swiss bank UBS said it plans to cut its US wealth management hiring by about 40%. And Bank of America is expected to reduce staffing in its consumer banking division by as many as 8,000 more jobs. BofA has already reduced the staffing in its consumer division from more than 100,000 in 2009 to about 68,400 as of the end of the first quarter of 2016. Those reductions have come as Bank of America transforms its retail financial centers for digital banking.

 Speaking of Bank of America, its CEO Moynihan warns us that the stress test process may be causing banks to restrict lending.

High levels of market volatility have put a damper on bank stocks, pushing them down to sharply lower levels. This decline will reduce M&A activity, as buyers lose currency and sellers have less interest in stock based deals. But the recently announced bank mergers and acquisitions keep coming. United Fidelity Bank, fsb ($386mm, IN) will acquire Bank of St. Croix, Inc. ($148mm, VI). In Iowa Wayland State Bank ($88mm) will acquire Peoples State Bank ($29mm). United Community Bank ($1.8B, IL) will acquire Illini Bank ($282mm, IL). In Pennsylvania Prudential Savings Bank ($537mm) will acquire Polonia Bank ($288mm) for about $38.1mm in cash (50%) and stock (50%) or roughly 1.01x tangible book. Byline Bank ($2.6B, IL) will acquire Ridgestone Bank ($433mm, WI) for about $105mm in cash (35%) and stock (65%).

 In West Virginia, arguably one of the most scenic states, Summit Community Bank, Inc. ($1.5B) will acquire First Century Bank, Inc. ($410mm) for about $42.8mm in cash (35%) and stock (65%). Out west Farmers & Merchants Bank of Central California ($2.6B) will acquire Delta Bank ($106mm) for about $6.6mm in stock. And in the "Land of 10,000 Lakes" Flagship Bank Minnesota ($101mm) will acquire Landmark Community Bank ($82mm). But stop the presses: SunPac Financial (CA) and Security First Bank ($112mm, CA) have mutually agreed to call off their merger announced in Feb of 2015.

 And certainly there is non-bank, but financial services mergers and acquisitions. Bank of Montreal ($681B, Canada) will acquire boutique investment banking advisory firm Greene Holcomb Fisher (MN). Optum Bank, Inc. ($5.0B, UT) will acquire the health savings account business line from Wells Fargo Bank. Optum is a subsidiary of UnitedHealth Group Inc. Microsoft will acquire business online platform LinkedIn for about $26.2B in cash, as the company seeks to boost its productivity and business processes segment offerings.

 For those playing along at home, S&P Global Market Intelligence research finds the top 10 largest banks and thrifts in the US by assets as of Q1 2016 are: JPMorgan ($2.4T, NY), Bank of America ($2.2T, NC), Wells Fargo ($1.9T, CA), Citigroup ($1.8T, NY), US Bancorp ($429B, MN), Bank of New York Mellon ($373B, NY), PNC Financial ($361B, PA), Capital One ($330B, VA), HSBC North America ($289B, NY) and TD Group ($274B, DE).

 In non-bank news, Nationstar Mortgage (NSM) was selected by Seneca Mortgage Servicing to subservice its $50 billion UPB portfolio of owned mortgage servicing rights (MSRs). This portfolio is in addition to the previously announced $55 billion subservicing portfolio. NSM will assume Seneca's existing site and team. NSM has shown that it can continue to grow its servicing portfolio, and it expects its subservicing book to be over $100 billion by year end. This portfolio is in addition to the previously announced $55 billion subservicing portfolio. NSM had indicated on a recent earnings call that it expected the $55 billion portfolio to generate $30 million to $40 million in pretax income from the earlier $55 billion of subservicing.

 NSM has said that it targets at least 25% margins in subservicing. This would translate into at least $120 million in revenues on the $55 billion of earlier subservicing (22 bp) which is high relative to what other subservicers seem to be seeing. For example, Pennymac (PFSI) charges PMT $7.50 per month (around 5 basis points) for non-delinquent loans.

 (And while we're on servicing, Lakeview Loan Servicing posted changes regarding Freddie Mac's Condominium Project and PUD Insurance requirement changes. The changes prohibit mortgages secured by units in projects with a master or blanket policy combining coverage for multiple unaffiliated projects or PUDs. Fidelity or employee dishonesty insurance is not required when the calculated amount of insurance coverage is less than or equal to $5,000. Professional management firms may be insured under its own fidelity or employee coverage, with proof submitted to the condominium HOA; or, under the condominium HOA's insurance policy. These changes are effective August 1 but may be implemented immediately.)

 Last month the U.S. Treasury Department issued its white paper regarding the online marketplace lending industry. In it, Treasury writes, "Advances in technology and the availability of data are changing the way consumers and small businesses secure financing. Online marketplace lending has emerged as an industry offering faster credit for consumers and small businesses. Through this effort, Treasury took steps to understand the potential opportunities and risks presented by this evolving industry." The report identified, and introduced the following recommendations to the federal gov't and private sector participants: (1) support more robust small business borrower protections and effective oversight, (2) ensure sound borrower experience and back-end operations, (3) promote a transparent marketplace for borrowers and investors, (4) expand access to credit through partnerships that ensure safe and affordable credit, (5) support the expansion of safe and affordable credit through access to government-held data, and (6) facilitate interagency coordination through the creation of a standing working group for online marketplace lending.

 The American Bankers Association CEO and President, Rob Nichols comments, "We applaud Treasury's efforts to better understand the emerging market of online non-bank lending through an open and collaborative process. A policy ecosystem that supports innovation both inside and outside banks is wholeheartedly supported by the banking industry." Continuing, Rob writes, "While there is much to support in Treasury's recommendations, enacting more laws is not one of them. There are numerous laws today that ensure small business loans are made responsibly. What is needed is proactive oversight to ensure that rules are followed and borrowers are treated fairly regardless of the provider."

 Turning to interest rates, as expected the big news yesterday was the Federal Open Market Committee Meeting, despite its inactivity. U.S. Treasuries rallied in a "curve-steepening trade" after analysts came to the conclusion that six Fed officials expect only one more rate hike in 2016, up from only one official in March. The statement that accompanied the decision to keep rates on hold said that "the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up." Given the great employment statistics in the U.S. it is hard to imagine the Fed lowering rates; given the worldwide issues & Brexit it hard to imagine the Fed raising them in the near future. The odds of two rate hikes by the end of the year has fallen and now more committee members are seeing a more gradual increase in rates.

 As a reminder, global investors are so worried about the potential for a UK (British) exit from the Euro (Brexit) that active buying has pulled the yield on the 10-year German bond into negative territory for the first time ever. Those same strains have also driven overseas buyers into the US in droves, pulling our own 10-year Treasury yield into the high 1.50% area.

 For mortgages, the market rallied following the afternoon's FOMC announcement.  Origination supply for the day was in line with recent averages and totaled about $2.25 billion for the day. Despite the great rates lock desk volumes are somewhat steady - perhaps lenders have kept rates fairly sticky and have been unwilling to chase the market lower given the volatility in the market and the fact that capacity is already tight for many in the market.

 This morning we've had weekly Initial Jobless Claims (+13k to 227k), the Consumer Price Index (+.2%, core +.2%), and June Philadelphia Fed (+4.7). For housing news later is the June NAHB Housing Market Index from the home builders at 7AM PDT. For LOs who didn't lock yesterday, rates are a little better today. We closed the 10-year with a yield at 1.60% and this morning it is 1.57% at with agency MBS prices slightly better - see note above.