Feb. 19: Mortgage company opportunities; economics & MBS pricing; Dallas Fed study of bank capital & leverage

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...

“A statistician is someone who tells you, when you’ve got your head in the fridge and your feet in the oven, that you’re – on average – very comfortable.” Statisticians are licking their chops over the new Producer Price Index information that will be released today. “The Labor Department’s producer price index had previously tracked only the wholesale prices of goods. Now, beginning with Wednesday’s release of January data, the index will also cover services and construction. By tracking what manufacturers and farmers charged for their goods, the producer price index has traditionally provided an early read of inflation trends. It captured how much of the change in oil, grains and other raw material costs was being passed on by producers.” This has nothing to do with loan level price adjustments for loans, but figured I’d pass it along.

 

Mortgage Solutions Financial has been making news. The CO “boutique lender” has rolled out new Gold programs for FHA and VA with no minimum score – including no score streamlines and no-appraisal IRRRL’s. “That’s on top of MSF’s already aggressive conventional Gold, also with no minimum scores.” MSF recently announced its rollout of Correspondent – both delegated and non-delegated, and is also buying loans that have been kicked back by aggregators. Contact Greg Grandchamp at greg.grandchamp@msfhome.com for more info. (Greg is finishing up his Loan Originator Survival Guide sales training that will be offered in a free webinar series.  With four decades of mortgage experience, and having trained thousands of LOs, “it’s a pretty good bet that he knows how to survive and even thrive.  If you’re interested, or if you’re an AE or retail branch looking for a home, contact Mr. Grandchamp directly.  And as it continues to expand, MSF also is looking for an experienced TPO Underwriting Manager.)

 

Aspire Lending spread the word that, “Too many mortgage companies worship numbers: touting their volume, their units, or the number of branches they’ve added in the last quarter.  At Aspire Lending, one of our core objectives is quality: the right systems, the right loans, and above all, the right people. We are focused on building a team of originators and branches that share our core values, and providing the resources and support they need.” Join the Aspire Revolution by emailing Steve Barton at sbarton@aspirelending.com or visiting www.AspireRevolution.com.

 

Along those lines, “are you a lender that has been successful in the past, but lacks the capital you need to get to the next level? Do you have a good team, but are having a hard time navigating the compliance issues, agency approvals and changes that never seem to stop coming?” HomeBridge Financial Services, Inc. (http://www.homebridgeinc.com/), which until recently was known as Real Estate Mortgage Network, is one of the largest privately held, non-bank lenders in the U.S. and is looking for LOs and branches. “Over the last 25 years the company has grown to include nearly 1,300 associates in more than 70 retail branches across the country, along with a correspondent division and two separate wholesale operations. In 2013, it closed just under $7 billion in home loans, a 30 percent increase over 2012.” To learn more, reach out to either Peter Norden at pnorden@homebridge.com or Joel Katz at jkatz@homebridge.com.

 

NAMB issued a “Government Affairs Update” for the 2014 Legislative and Regulatory Conference to be held in Washington DC from March 2-4. The organization has offered to let readers & members weigh in on the top 3 questions you would ask the CFPB. “Please click on the survey link below, and help us get the information you need: https://www.surveymonkey.com/s/NAMB_CFPBQuestions. For information on the conference write to Richard Bettencourt at governmentaffairs@namb.org.

 

Historically, the Wells Fargo Economics group does exceptional work, and their current paper titled The Labor Market and Credit Risk is no exception. In their first report on this topic, the group focused on the development of the Labor Market Index, which they believe is a more comprehensive measure of the labor market than the unemployment rate. In their second report, they focused on the link between the unemployment rate and the broader economy as measured by real GDP. In this third report, released just prior to the New Year, they ask and evaluate a simple question: How reliable is the unemployment rate as a predictor of credit quality in the modern economy? More specifically, they are interested in identifying a possible statistical relationship between the Labor Market Index and credit market indicators including the delinquency rate and charge-offs over the past 20 years. The cliff-notes version: their conclusion shows that the unemployment rate should not be used solely to predict delinquency rates.

 

The Dallas Federal Reserve has released an interesting economic letter entitled, “Weakly Capitalized Banks Slowed Lending Recovery After Recession.” This article finds that large, highly leveraged banks and thrifts followed a softer lending growth path than their better-capitalized counterparts in 2009-10 during the sluggish recovery from, what has now being coined,  the “Great Recession.” As we know, commercial banks, credit unions and savings and loans sustained substantial losses during this period. Real estate was especially sluggish, culminating with residential loan delinquencies peaking at 11.3% in first quarter 2010 and com­mercial real estate delinquencies at 8.8%, according to the Dallas Fed research. J.B. Cooke and Christoffer Koch write, “The resulting loan losses ate into bank capital, the first line of defense for large depositors and debt holders, boosting the institutions’ leverage. A simultaneous decline in wholesale funding—via com­mercial paper or large time-deposits, for example—reduced the supply of loans…this slow­down occurred even though Fed monetary policy was highly accommodative in a concerted effort to stimulate economic growth.” Good economic research can be classified as counter-intuitive, and this is the case with Dallas’ recent release. The ultimate conclusion, and argument made by Cooke and Koch is that a reluctance to lend, particularly by those larger institutions with very low ratios of capital to assets, worsened the fiscal crisis; if these institutions had behaved as the other banks did, the cumu­lative amount of loan activity might have been 5-6% higher and might have provided greater support to Fed recovery efforts.

 

A couple weeks ago the National Association of Insurance Commissioners (the NAIC) released its updated breakpoints for RMBS securities based on November 2013 submissions. Why is this important? Because their demand of product helps determine mortgage interest rates. Overall, breakpoints increased across the board largely due to improvements in collateral assumptions reflecting an improved outlook for the housing market. According to a Bloomberg article published earlier this month, “As of this point, STACR and CAS (Structured Agency Credit Risk & Connecticut Avenue Securities) deals have not been included in the year-end results.” However, according to NAIC meeting notes, they are under potential consideration to be treated as RMBS and are to be assigned NAIC designations in the future. As a result of these improved assumptions, NAIC breakpoints have improved across the board, especially for the credit-dented sectors. Breakpoints increased by approximately 6-7% for sub-prime, POA and Alt-A ARM bonds compared with 1-3% for prime bonds. In 2013-year end results, around 15% of bonds have been modeled as having zero-loss compared with 11% in the 2012-year end results.

 

On January 14th the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission approved a modification to the Volcker rule that would allow banks to keep interests in certain funds backed by trust-preferred securities. The change was aimed at easing small bank’s concerns that they needed to dump certain investments they had previously thought would be allowed under the rule, losing money in the process. A bank trade group sued regulators over the dispute, and lawmakers from both parties have backed the banks. Trust-preferred securities, or TruPS, have hybrid characteristics of debt and equity and can get favorable tax treatment. Regulators said banks could keep certain collateralized debt obligations backed by TruPS if they obtained them before the Volcker rule was finalized on Dec. 10: Bloomberg.

 

The Federal Financial Institutions Examination Council (the FFIEC) was established in 1979. By charter, their principle focus is “to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions.” I would bet business is booming at the FFIEC. The Council has six voting members: the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Consumer Financial Protection Bureau, and the State Liaison Committee. Last month, the Council released final guidance on the applicability of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by banks, savings associations, and credit unions, as well as nonbank entities supervised by the Consumer Financial Protection Bureau. The new guidance is effective immediately; its release does not impose any new requirements on financial institutions, but is intended to help financial institutions understand potential consumer compliance and legal risks. The guidance provides considerations that financial institutions may find useful in conducting risk assessments and crafting and evaluating policies and procedures regarding social media. The full release can be found at www.FFIEC.gov.

 

This time of year I can’t get enough of those “Top 10” lists, so it goes without saying that when Morgan Stanley wrote their “Top Ten Surprises for 2014” I was all ears. Although tailored more for institutional investors, and people who like to throw “delta”, “gamma” and “swaps look rich, today” around, I found it to be an interesting read, and the content conservatively bullish. The full article can be found here.

 

It is time for some lender, bank, and investor updates. First, a clarification on some Green Tree correspondent guidelines noted in the commentary yesterday from a Green Tree representative.

 

“First the POA – this is not an overlay, simply in accordance with FNMA policy.  (Sel-2013-08 Selling Guide Update).

 

“The statement (‘Green Tree has revised its employment verification policy to require the borrower’s most recent account statement if the AUS returns an Approve status and either a Verification of Deposit or the two most recent consecutive monthly account statements in the case of a Refer status or manual underwrite.  FICO guidelines have been relaxed, and instead of a minimum of two reported credit scores, underwriters may use only one score if it is reported and accepted by the AUS’) is a bit confusing and that the guides for VOE & VOD are combined. For VOE – if get AUS approve/eligible we will follow the AUS findings, only requiring a written VOE along with a Verbal VOE (paystub no longer required, unless AUS calls for it).  VODs – if AUS approved – we will accept a fully completed VOD and no bank statements are required.”

 

Thank you!

 

JMAC Lending, Inc., an Irvine-based company that specializes in wholesale and correspondent loan channels, announced it is now offering VA loans with very few overlays in addition to its already popular FHA, Conventional and Jumbo products. For more information, please visit www.jmaclending.com or email info@jmaclending.com.

 

Sandler O’Neill announced that, over in Montana, First Interstate BancSystem, Inc. has agreed to acquire Mountain West Financial Corp. in a deal valued at approximately $73 billion. (“This transaction is Sandler O’Neill’s 114th bank or thrift transaction nationwide since January 1, 2011, more than any other investment bank during that time period. Since January 1, 2011, Sandler O’Neill has advised on 24 bank or thrift transactions in the western region, more than any other investment bank during that time period.”) With assets of $647 million, as of September 30, 2013, Mountain West Bank currently operates 12 branches throughout central and western Montana in Helena, Great Falls, Missoula, Kalispell, Whitefish, and Bozeman.

 

As I depart a great stay in Alabama visiting with mortgage bankers, it is too early to know what rates are up to Wednesday morning. But Tuesday they certainly improved after both the Empire State Manufacturing Survey and homebuilder sentiment declined more than expected. The usual suspects (money managers, overseas and REITs) sold while the usual suspects (real money accounts and hedge funds) bought. Agency MBS prices improved nearly .250, and the 10-yr closed at 2.71%, down from Tuesday’s 2.75%.

 

Tasty treats today include the Mortgage Bankers Association report on mortgage applications, the Housing Starts and Building Permits duo for January, along with the Producer Price Index (expected lower). But not so fast! The Bureau of Labor Statistics (BLS) will be rolling out a new version of the Producer Price Index (PPI). The new system for reporting price changes at the producer level aims to “expand coverage and improve upon the current methodology”, and give analysts something to talk about like “significant changes, merits, and drawbacks of the new system.”

 

 

A retiring farmer in preparation for selling his land, needed to rid his farm of animals. So he went to every house in his town. Once there, at the houses where the man was the boss, he gave a horse. To the houses where the woman was the boss, a chicken was given.

He got toward the end of the street and saw a couple outside gardening. “Who’s the boss around here?” he asked.

“I am” said the man solemnly.

“I have a black horse and a brown horse,” the farmer said, “which one would you like?”

The man thought for a minute and said, “The black one.”

“No, no, no, get the brown one.” the man’s wife said.

“Here’s your chicken.” said the farmer. 

 

 

Rob

(Copyright 2014 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.)