Nov. 1: Wholesale channel chatter; Mel Watt nomination blocked – for now; new Fannie lawsuit; a favorite joke

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...

I hate to be the one telling you that you’re going to have one less hour of snoozing this weekend, resulting in the usual grumbling Monday morning. Residents in Arizona and Hawaii, however, do not take part in the time change. And for some reason my brain thinks it should be Saturday today, given the Halloween festivities here in Austin, TX last night.

 

Provident Funding, Stearns Lending, Fifth Third Mortgage, Flagstar Bank, United Wholesale Mortgage, Nationstar Mortgage, New York Community Bank, Union Bank, Sierra Pacific Mortgage, U.S. Bank Home Mortgage, Franklin American Mortgage, Cole Taylor Bank, SunTrust Mortgage, National Penn Bancshares, and Guild Mortgage Company. That list may look familiar, as it is the top 15 wholesalers (who report their numbers to NMN) in the 2nd quarter. By some measures broker business is down to less than 10% of total originations; even if it is 30%, the overall pie is shrinking. Blame avoiding trouble with the Department of Justice, increased rules and regulations, lack of counterparty accountability, declining market volume, a preferred focus on other channels like correspondent or retail, whatever, many companies are exiting wholesale. The good news, of course, is that there appear to be plenty of old and new lenders ready to take up the slack. But it is hard not to notice the lack of companies like Wells, Citi, Chase, PennyMac, BB&T, PHH, and others from the list.

 

Venture capital firms and hedge funds are driven by yield – if something doesn’t meet their return hurdle, change it or kiss it goodbye. One fear that Realtors, and the market in general, has for property values is that Blackstone will start to grow weary of the returns it is seeing on the tens of thousands of rental properties it owns, and start selling blocks of them. That being said, it seems that Blackstone may instead securitize them, thus earning an even higher return: http://www.reuters.com/article/2013/10/30/blackstone-abs-homerental-idUSL5N0IK3H220131030. For those interested, Blackstone Mortgage Trust released its 3rd quarter earnings. “As of today, we have closed or committed to $2.2 billion of loans, which would generate $0.44 of quarterly core earnings per share on a run rate basis. Looking forward, our pipeline remains strong.” Blackstone Mortgage Trust issued a full detailed presentation of its third quarter 2013 results, which can be viewed at www.bxmt.com.

Barclays and Morgan Stanley have been chosen to underwrite the Structured Agency Credit Risk 2013-DN2 deal on behalf of Freddie Mac. The risk-sharing mortgage-backed security will likely be priced at $630 million, of which $245 million will be sold to investors: http://uk.reuters.com/article/2013/10/30/freddiemac-mbs-risksharing-idUKL1N0IK0ZF20131030.

 

A favorite conservative jokes is, Q:  How many Liberals does it take to change a light bulb? A: It doesn’t matter; they’ll still be in the dark. (That is easily flipped around for liberal purposes.) White House officials voiced concern that President Barack Obama’s choice of Rep. Mel Watt, D-N.C., as head of the Federal Housing Finance Agency, was going to be blocked by Republicans in the Senate. Sure enough, Republicans successfully blocked the confirmation vote for Watt to head up the FHFA. Watt seems in favor of more refinancing, and upon the news higher coupon mortgage securities rallied in price, the thinking being they’ll be on the books for longer. Investors are concerned that if he became director that he would make changes to further help underwater borrowers refinance, including principal forgiveness. Nothing seems to die with this Congress, however, and the White House won’t give up so easily.

 

Before I forget, last week I told you about the ten mortgage-free homes gifted to wounded military veterans at Todd Duncan’s annual Sales Mastery event. The celebration of this Heroes 2 Homeowners campaign at Sales Mastery was top notch. Former Army Ranger and war hero Sean Parnell delivered a stirring talk and was joined on stage by generous executives from Prime Lending, Service First Mortgage, Fairway Independent Mortgage Corporation, GEM Mortgage, Churchill Mortgage, Wallick & Volk Mortgage Bankers, Prospect Mortgage, Cherry Creek Mortgage and Cornerstone Home Lending. Together, these companies donated $300,000 to measurably enhance the lives of ten wounded veterans. My hat is off to them in a big way. Thanks also to Louise Thaxton, Mortgage Coach and the Todd Duncan Group for spearheading this effort.

 

Keeping track of legal maneuvers have become a part of lenders senior management’s weekly routine. Fannie Mae filed a lawsuit Thursday against nine of the world’s largest banks over $800 million in losses suffered from the alleged ma­nipu­la­tion of the global interest rate known as Libor. Fannie joins a long list of pension funds, asset managers and municipalities that have sued banks involved in setting the London interbank offered rate, which serves as a standard interest rate for loans between banks and as a benchmark for about $360 trillion in lending to businesses and consumers. Fannie Mae estimates that it lost $332 million just on interest-rate swaps, and blames Barclays, UBS, Internal Rabobank Groep, Royal Bank of Scotland, Deutsche Bank, Credit Suisse, Bank of America, Citibank and JPMorgan Chase of colluding to artificially lower the rate from 2007 to 2010. (No Wells Fargo!) Rigging the rate could have caused banks to appear stronger than they were during the financial crisis of 2007 and 2008 by suggesting that they were trading with low interest rates. But the banks could also have cost investors millions of dollars.

 

Wells Fargo was not named in the case above, but it was in the legal news for settling claims with a U.S. government agency over bad mortgages the bank sold ahead of the financial crisis. The Financial Times reported Wells paid less than $1 billion to resolve claims from the Federal Housing Finance Agency, the overseer of F&F. A Wells Fargo spokesman and the government agency declined to comment. The settlement was governed by a confidentiality agreement, the Financial Times said. 

 

Let’s turn to some investor and vendor updates for an indication of the trends out there in the residential lending biz!

 

Guild Mortgage let clients know that regarding the Federal Government Shutdown: “Ending Temporary Policy Concerning Tax Transcripts and SSN Verification. With all federal government operations resuming as of October 17, 2013; and the on-going reduction of the IRS backlog for processing transcripts, we will resume requiring tax transcripts and SSN verifications effective with a Note date on or after November 4, 2013.”

 

Cole Taylor Mortgage reiterated its lock policies, and has arguably one of the strongest lock policies in the market. It gives 5 free days on every loan if requested and up to 20 free days when market is same or better. Additional days can be purchased as necessary for 2 basis points per day. It also provides peace of mind by guaranteeing the turn time of the initial disposition, and if the turn time is missed CTM will automatically extend the lock by the number of days missed at no charge.

 

Coester VMS announces Artificial Intelligence Based Appraisal Intelligent Review – AIR System. Appraiser Intelligent Review, or AIR, employs appraiser based logic to automatically review all reports completed by CoesterVMS network appraisers.  The two part process includes an initial validation of key fields on the report followed by nested analytics to ensure adherence to applicable FHA and GSE requirements. Brian Coester, CEO of CoesterVMS, said, “We are not using just a base checklist but this is actual appraisal logic and will be more accurate than anything ever done.” Coester anticipates full integration of this resource, containing data from over 1 million appraisals, by early 2014. (For Inquires please contact, sales@coesterappraisals.com.)

 

The Wholesale Lending Division of Carrington Mortgage Services, LLC announced that it has expanded its offering to include banks and credit unions as approved third party originators. Effective immediately, approved banks and credit unions can partner with Carrington to provide their customers with access to a wide portfolio of loan programs designed to extend the borrowing potential of consumers. The new program also serves as a risk mitigation method for these financial institutions by allowing them to act as third party originators rather than as lenders on both conventional and government loan products.

 

Secondary market loan professionals have an entirely new way to connect with potential buyers and sellers while cutting out the costs and constraints of a middleman with the launch of LendTrade (www.lendtrade.com). LendTrade is a community for experienced professionals who know how to negotiate their own deals, but need help finding qualified leads. “LendTrade is like Match.com meets LinkedIn for traders,” says Steve Schipper, LendTrade founder and CEO. “We connect buyers and sellers directly at a fraction of the cost of a traditional advisor’s fee.”

 

360 Mortgage Group has begun brokering Southeast Texas Finance Corporation’s 5-Star Texas Advantage Program-Option 3 to lenders, who in turn are able to offer the product to their brokers in the state of Texas apart from El Paso, Grand Prairie, and McKinney.  The program, which is available for purchases and rate/term refinances and permits non-first time home buyers, allows access to a 3% grant on FHA, VA, and USDA loans, reducing a borrower’s down payment to .5% of their own funds.  Loans are restricted to a maximum purchase price of $250,000, a minimum FICO of 600, maximum DTI of 45, and income limits per county guidelines, regardless of family size.

 

Essent Group Ltd. announced that it had priced its initial public offering of 19,710,118 common shares at $17.00 per share. The shares are expected to begin trading tomorrow, October 31, 2013, on the New York Stock Exchange under the ticker symbol “ESNT.”

 

M&T Bank is now requiring a pre-purchase review of all VA transactions prior to purchase that covers all aspects of the loan within VA Guarantee Guidelines, including Data Verify.

 

In compliance with FHA requirements, M&T will be providing a full copy of the 203(k) Draw Administration package for all rehab loans. The close-out package, which gets mailed/emailed to the address and contact name on the Master Lender List, will include the FHA 203(k) Final Release notice, all appraisal/compliance inspection reports, the Mortgagor’s Letter of Completion, all title updates, draw requests, final accounting forms, all change orders, extension requests, permits, the FHA Connection Escrow Account screenprint, and, if applicable, the 203(k) Rehab Financing Lead Agreement, final wipe test, certificate of occupancy, and certificate of compliance.  Lenders will need to have all of this documentation available in the permanent loan file in the event of a HUD audit.

 

Because the last day to file tax extensions with the IRS (October 15th) has already passed, MSI is now requiring the most recent current tax returns to be stamped as received by the IRS to fund/purchase the loan.

 

 

Rates have slid a shade higher, some would say because they didn’t seem to want to slide lower. Others would say it was due to a strong Chicago Purchasing Manager’s Index number Thursday (it surged 10.2 points in October to 65.9 versus an expectation for a slight decline to 55.0). As usual, investors view economic news in terms of its impact on the Fed’s schedule for tapering. Unemployment is much more important that the Chicago PMI, but nonetheless Thursday agency MBS prices worsened about .125.

 

For today’s unbelievably exciting news, we have the October ISM Manufacturing Index (55.0 expected versus 56.2 last) at 7AM PDT. There is no employment data news – it will come out next Friday. The 10-yr. yield, used as a proxy for interest rates, saw a 2.54% close yesterday and in the early going is at 2.56% – look for MBS prices to be worse by .125 again.

 

 

Psychology 101 If you start with a cage containing five monkeys and inside the cage, hang a banana on a string from the top and then you place a set of stairs under the banana, before long a monkey will go to the stairs and climb toward the banana. As soon as he touches the stairs, you spray all the other monkeys with cold water. After a while another monkey makes an attempt with same result … all the other monkeys are sprayed with cold water. Pretty soon when another monkey tries to climb the stairs, the other monkeys will try to prevent it. Now, put the cold water away. Remove one monkey from the cage and replace it with a new one.

The new monkey sees the banana and attempts to climb the stairs. To his shock, all of the other monkeys beat the “tar” out of him. After another attempt and attack, he knows that if he tries to climb the stairs he will be assaulted. Next, remove another of the original five monkeys, replacing it with a new one. The newcomer goes to the stairs and is attacked. The previous newcomer takes part in the punishment…… with enthusiasm, because he is now part of the “team”. Then, replace a third original monkey with a new one, followed by the fourth, then the fifth. Every time the newest monkey takes to the stairs he is attacked.

Now, the monkeys that are beating him up have no idea why they were not permitted to climb the stairs. Neither do they know why they are participating in the beating of the newest monkey. Finally, having replaced all of the original monkeys, none of the remaining monkeys will have ever been sprayed with cold water. Nevertheless, not one of the monkeys will try to climb the stairway for the banana. Why, you ask? Because in their minds…that is the way it has always been! This, my friends, is how Congress operates… and this is why, from time to time: ALL of the monkeys need to be REPLACED AT THE SAME TIME.

 

 

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.