Mortgage jobs; investor changes; HPML issues; MBA outlines secondary market proposals; lenders to do margin calls on broker dealers?

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Is July 15 a day that you should mark on your calendar? Daren Metropoulos hopes so. Who the heck is he? He is a principal of the investment firm Metropoulos & Co., which teamed up with Apollo Global Management to buy a variety of Hostess snacks. And on July 15th we’ll see Twinkies, CupCakes, Donettes, etc., with a shelf life of 45 days, back on the shelves in boxes labeled, “The Sweetest Comeback In The History Of Ever.”

 

Platinum Mortgage, a Fannie Mae/FHA/VA/Rural Development approved lender and servicer, is excited to announce that they are again expanding their Wholesale Operations.  As a result, Platinum Mortgage is seeking qualified Conventional and Government Underwriters at existing branch locations, as well as qualified Underwriting Managers to open new underwriting branches in other areas.  For complete details, including locations, and to submit your resume, please visit their Employment Opportunities page at:  www.platinumez.com/jobs.  Platinum Mortgage is an equal opportunity employer.

 

And Lenox Financial continues to grow, and is looking for compatible branch affiliates and acquisitions in select major market areas and is working to build a strong corporate support team as well. For more information on joining the Lenox Retail Branch Team please contact Rod Thompson at Rod.Thompson@lenoxhomeloans.com. In three years Lenox’s wholesale channel, Wesland Financial, has expanded into 40 states and will soon be launching a mini-correspondent lending channel. Wesland is looking for wholesale AEs; contact Robert Bates at Robert.Bates@Weslend.com. CEO Wesley Hoaglund also looks for the Lenox “Consumer Direct” team to broaden its national efforts in purchase activity of primary and second homes, reverse mortgages, and HARP refinances. Sales Manager Tom McMurray is actively seeking experienced, licensed mortgage loan officers – contact him at Tom.McMurray@lenoxhomeloans.com. For more information on Lenox visit www.lenoxhomeloans.com.

 

Reports indicate that more than 50% of internet usage is video-related. Yes, the agencies send out training via videos now, as does the CFPB – right up there with Aerosmith. But it is happening across all levels, and here is a typical example of a short, 1 minute video from the Dean Harrington, CEO of Shamrock Financial, on handing out versus collecting business cards: http://youtu.be/nKg7KPuxP4Y. (And companies further set the hook by having folks subscribe: to video blogs: http://www.deansdesktoday.com/.)

 

Companies are indeed focusing on marketing – they have to, given what rates have done in the last seven weeks. Since May 1 through Friday, the yield on the 10-Year Note has risen from 1.63% to 2.63% and at the same time, the 3.5% coupon has shed 734bp. In fact, The 3.0 coupon MBS (interest rates 3.25 – 3.625) has worsened 9 points in price since May 1st. The 3.5 coupon MBS (interest rates 3.75 – 4.125) has worsened 6 points in price since May 1st. The 4.0 coupon MBS (interest rates 4.25 – 4.625) has worsened 4 points in price since May 1st. I fielded three separate e-mails yesterday from Capital Markets staff asking about giving their broker-dealers margin calls. The MBA has a working group based on broker dealers requiring margin to do trading; but it is a two-way street. Unfortunately for lenders who hedge pipelines, the agreements with broker-dealers are not always two-sided, and work both ways. But if a particular dealer owes a lender 7 points on a $5 million trade, where $350 thousand owed the lender – and the lender hopes the investment bank is good for not only this money but all the other monies owed other counterparties.

 

Speaking of the MBA, it has been busy with working papers on transitional plans for the agencies. Look under Secondary Market Transitional Plan Components here: http://www.mortgagebankers.org/Advocacy/Issues  (Under Secondary Market Transitional Plan Components). These are papers outlining “transition steps” for the GSEs that the MBA believes can be taken now and would benefit the market and would not require any legislative action. Once those are out the MBA will wrap up all five papers into a package and try to get the word out about why these steps make sense. So far it has released papers on moving to a common security, re-introducing deeper risk share opportunities, and improving execution for smaller lenders. The remaining two will cover the credit box/reps and warrants and the securitization platform. And if you have any questions, contact Mike Frantantoni at MFratantoni@mortgagebankers.org.

 

“Rob, I have heard from many of my fellow secondary marketing peers that Fannie is pushing lenders to do cash for a number of reasons. One is the implied guarantee fee.  Each cash price has a guarantee fee built in to the pricing but the ever-escalating level of these fees is not disclosed to the lender.  Some may be able to figure out a good estimate of the gfee but it keeps Fannie from having to disclose every time they decide to change. Two, by pushing lenders to cash, Fannie Mae can buy the loans and then create their own specified pools for low-balance, high-balance, etc. With recent pay-ups on some of these specified pools, this is a big moneymaker for them. Have you heard the same thing?” Yes, I have heard the same thing, but cannot vouch for the validity of that line of thinking. I recommend you speak with your Fannie rep and ask them flat out if it is true.

 

My opinion is that there is some gfee difference in window versus security pricing, but maybe not as much as everyone believes. As I understand it, there is an industry-wide gfee of 56-58 basis points, regardless of size or financial stability of the lender. (In the “old days” the gfee for a Wells or a Countrywide would be in the teens. In addition, the cost of buying down any gfee, so that a 4.25% loan could be put into a 4% MBS has gone up.) It is accepted that the FHFA will raise, through the agencies, the gfee sometime again this year, at which point it will become even more expensive for the borrower in an agency transaction to obtain a mortgage, regardless of underwriting differences, for example, between the two agencies.

 

Traders are very tuned into the price difference between Fannie and Freddie securities. The “swap,” or the price difference between the two, is a factor of many things, all of which determine supply and demand. REITs and “fast money accounts” may be interested in one security over the other. In theory, the theoretical level refers to where the swap would trade independent of other market forces (supply/demand mismatches, prepays, etc…) and based solely on the difference in payment delays between Fannie and Freddie securities. And of course any talk about the prospect of combining the back-office operations of the two entities is filled with details and questions. What will happen to the existing securities? Combining the two securities doesn’t necessarily affect the borrower characteristics, or the mix of servicers, or the HARP programs/borrowers, etc.

 

The secondary markets have been undergoing some change for several months now. Perhaps the last big solid news impacting the securities markets occurred on March 1 with the TMPG Fail Charge Announcement. The Treasury Market Practices Group announced that starting July 1st, 2013 the two-day grace period will be removed from the current recommended practice related to MBS settlement fails.  As a result, MBS settlements will be subject to a fail charge for each calendar day a fail is outstanding. Here is the link to TPMG Announcement: http://www.newyorkfed.org/tmpg/03_01_2013_Fails_charges_press_release.pdf.

 

And the industry continues to watch the tug between public capital (the agencies) and private capital, with the stated goal of the agencies to attract more private money by increasing gfees and the cost of doing business with Freddie and Fannie until their market share diminishes. (If I was the government, I don’t know if I’d want a 90% market share – but this sure is good paper being originated by lenders across the nation!) Recently astute folks noticed that non-agency conforming loan pricing actually was better than agency pricing. In theory, if they were equal, and private money sources actually had a guarantee fee, then private investor gfees would equal that of the agencies – or 56-58 basis points. Sellers are reporting doing business with companies such as AIG’s Connective Correspondent channel (Non-Agency Conforming loan amounts), a Federal Home Loan Bank Board, or the Bank of New York’s MPF program, through various MI companies. And others have noticed, in certain parts of the nation, jumbo loans being priced better than conventional conforming – at least on the retail side of things. The warehouse banks, as you can imagine, are watching take-out investors very carefully.

 

And what about the adverse market fee that is sticking stubbornly on some loan pricing out there by the agencies? Perhaps that will come off, especially as credit quality improves, reserves are added to, and the gfee increases are felt. The smartest minds in the room opine that guarantee fees will go up until the government can gracefully back-out of the credit wrap business at which point a large investor will start pricing private-label product that meets agency guidelines – and we’re pretty much there.

 

Speaking of agencies, while I think of it a couple weeks ago a group of shareholders filed a $41 billion lawsuit against the government over the placement of Fannie and Freddie into conservatorship. There is no provision for Fannie Mae or Freddie Mac to exit conservatorship under their current agreement with the Treasury. Here you go:http://www.bloomberg.com/news/2013-06-10/fannie-freddie-shareholder-suit-challenges-u-s-takeover.html

 

So who were the big correspondent investors in the first quarter? There has been quite a shuffling versus, say, a year ago. Yes, number 1 is Wells Fargo, but it is down 18% versus a year ago and with “only” a 27% market share. Chase has moved into the #2 spot with an increase of 77% from a year ago and with 15% market share. U.S. Bank Home Mortgage is now #3, up 18% from a year ago with 8% market share per National Mortgage News. #4 is now PennyMac with a 376% increase over the first quarter of 2012, and #5 is Flagstar. Rounding out the numbers for the first quarter are BB&T, Franklin American, Ally, CitiMortgage (#9), SunTrust (#10), Ocwen, PHH, Provident Funding, Stonegate, and Fifth Third.

 

I don’t know if this is an intended or unintended consequence of regulators and regulations, but I received a flurry of e-mails about HPML yesterday. “Rob, the recent large intra-week rate increases have triggered a question regarding HPML.  With the APOR rate being set weekly, has there been any discussion on how one would manage the potential increases in HPML loans due to a stale APOR rate?” And, “Does anyone know who is surveyed or when they are surveyed to determine the APOR?  We seem to be faced with an APOR that went down for this week (4% on 30 Year) and rates that went up last week, but hey, we know that the APOR is for low risk characteristics!” Lastly, “Is there a regulation against not issuing rate sheets? HPML compliance can be a killer when TBAs get this volatile between scheduled mortgage rate index releases – lenders can’t disclose a rate against outdated APORs without running into HPML, and lock desks are holding their breath for APORs to catch live pricing levels.  Frozen rate sheets seem like the safest play right now.”

 

Yesterday we all saw rate-sheet mania due to mortgage-backed securities in the fixed-income markets gyrating. Many think it is an overreaction, but you can’t fight the tape. Remember, however, that he number one goal for the Fed is to create a reflationary recovery (a little bit of inflation is not a bad thing), not kick stocks or bonds in the teeth. The bond markets around the world are certainly recalibrating given the Fed’s comments and the current economic climate.

 

By the time the dust settled Monday MBS prices were worse about .5 versus Friday, but still better than the worst prices of the day by almost .75. Moving markets is not necessarily the goal of the Fed, but the market improved on comments from three Fed officials who attempted to remind investors that Fed policy will still remain very accommodative for a long time. MBS prices were helped by supply dropping: originators sold less than $1 billion in MBS. The 10-yr closed at a yield of 2.55%.

 

Today starts the cavalcade of scheduled news. Today is Durable Goods (expected +3%), the Case-Shiller 20-city Index, the FHFA Housing Price Index, and New Home Sales. Tomorrow is GDP, Thursday is Jobless Claims, Personal Income and Consumption/Spending, and PCE Prices. Oh, and Pending Home Sales. We finish off on Friday, the last business day of June, with the Chicago PMI and Michigan Sentiment. In the very early going we have an improvement in rates with the 10-yr at 2.49% and agency MBS prices better by about .250.

 

 

One day I accidentally overturned my golf buggy.

Elizabeth, a very attractive and keen golfer, who lived in a villa on the golf course, heard the noise and called out, “Are you okay, what’s your name?”

“It’s Jack, and I’m okay, thanks,” I replied.

“Jack, forget your troubles. Come to my villa, rest a while, and I’ll help you get the cart up later.”

“That’s mighty nice of you,” I answered, but I don’t think my wife would like it.”

 “Oh, come on,” Elizabeth insisted.

 She was very pretty, very sexy and persuasive…. I was weak.

“Well okay,” I finally agreed, and added, “but my wife won’t like it.”

 After a restorative brandy, and some creative putting lessons, I thanked my host.  “I feel a lot better now, but I know my wife is going to be really upset.”

 “Don’t be silly!” Elizabeth said with a smile, “She won’t know anything. By the way, where is she?”

“Under the cart!” I said….

 

 

Rob Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)