March 4: Mortgage jobs; servicing & bank deals persist; analyst’s take on Ocwen & Walter; HECM & HELOC trends

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 am hearing that lock desk activity is picking up, which is nice to see. New apps mean running credit, and just in time for changing your clocks this Sunday (in most states) the CFPB has published a blog post for consumers about disputing errors on their credit report.  As you’re working with borrowers who may wish to dispute items on their credit report, it may be helpful to provide them with a link:  http://www.consumerfinance.gov/blog/now-you-have-better-options-to-dispute-a-credit-report-error/.

 

On the job front, Salt Lake City’s Primary Residential Mortgage, Inc. is looking for a Senior Business Administrator to join an established team that is responsible for maintaining and configuring their loan origination system.  If you have previous LOS administration experience, you speak geek, and love acronyms like TILA, ATR/QM, and ULDD, please send your resume to A.J. Swope, V.P. of Secondary Marketing: aswope@primeres.com. PRMI funded just under $5 billion in 2013 and continues to grow in 2014 with significant investments in technology and business development – for more information visit www.primaryresidentialmortgage.com.

 

And for branch managers looking for a change, Pro Mortgage Branching Solutions is a mortgage Branch Match company helping retail branch managers and lenders find just the right fit for expansion. PMBS has been contracted by growing regional banks and independent mortgage bankers nationwide to identify market leaders seeking to expand. If you are a successful branch manager and want better pricing, service, culture and/or a better, more compliant branch manager comp plan, contact Adam Sidle through its website, pmbs.net.

 

Speaking of changes, bank transitions continue to take place. Only five have been closed this year, including two on Friday: Vantage Point Bank, Horsham, PA became part of First Choice Bank of Mercerville, New Jersey. And Millennium Bank, National Association (VA) didn’t make it to the next one. It became part of Virginia’s WashingtonFirst Bank. Also reducing the number of banks is the continued M&A, with recent nominees being Southern Bank ($941mm, MO) acquiring Peoples Bank of the Ozarks ($273mm, MO) for $22.9mm in cash and stock or about 1.49x tangible book, and Oconee State Bank ($280mm, GA) announcing it will acquire Stephens Federal Bank ($158mm, GA) for an undisclosed sum.

 

And servicing deals persist – mortgage bankers need cash. Mortgage Industry Advisory Corporation (MIAC) came to market with a $471.05 Million FNMA mortgage servicing portfolio. MountainView Servicing Group, LLC brought out a portfolio of $156 million FNMA/FHLMC non-recourse servicing (99% fixed rate and 100 percent 1st lien product, 100% retail, weighted average original FICO of 743 and weighted average original LTV of 73%, weighted average interest rate of 4.29%, mostly from AZ, CA, and WY, average loan size of $185,535). MountainView also came out with a small pool of $22 million – this one from Texas and Michigan. No one size fits all!

 

The scrutiny of Ocwen continues, especially in regard to the four other publicly held companies controlled by Ocwen’s CEO: http://dealbook.nytimes.com/2014/02/27/mortgage-servicers-ties-raise-regulatory-concern/?_php=true&_type=blogs&_php=true&_type=blogs&ref=todayspaper&_r=1. Investment banking firm KBW reduced their “target price” for Ocwen’s stock from $57 per share to $43. “The reduction in our price target reflects both the meaningful decline in our 2015 EPS estimate but also a lower target multiple; we had been using a target multiple of 10.9x our EPS estimate. We believe that a lower target multiple is justified given the regulatory uncertainty, which could result in an increase in the company’s cost to service. We are reducing our EPS estimates to incorporate a slower pace of acquisitions. We now assume that the Wells Fargo portfolio closes in the second half of 2014 and boards in 4Q14.”

 

KBW also sent out similar news regarding Walter Investment Management Corp., another non-bank company that has beefed up its servicing portfolio in the last year or so – thus it is generally lumped in along with Nationstar, PennyMac, and other non-bank servicers. KBW missed accurately predicting Walter’s earnings, “driven by weaker mortgage banking and higher operating expenses. We are reducing our EPS estimates and taking our price target to $30 from $41. Mortgage banking trends were weaker than expected. Total volumes of $4.7 billion were down from $6.1 billion in 3Q and below our $5.5 billion forecast…The servicing portfolio increased to $218 billion from $209 billion last quarter…WAC also disclosed that Green Tree will likely be the target of enforcement action by the CFPB in regards to alleged violations of various federal consumer financial laws. The company also disclosed that it is awaiting approval from certain of the GSEs on the acquisition of servicing rights from Everbank…”

 

The Federal Housing Finance Agency (FHFA) announced it has reached a settlement with Société Générale, related companies, and specifically named individuals for $122 million. The settlement resolves claims in the lawsuit FHFA v. Société Générale, et al alleging violations of federal and state securities laws in connection with private-label mortgage-backed securities (MBS) purchased by Fannie Mae and Freddie Mac during 2006.

 

And PNC is cooperating with the Department of Justice over potential problems with FHA loans: http://online.wsj.com/news/articles/SB10001424052702303630904579416753646531862?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702303630904579416753646531862.html

 

A group of non-borrower surviving spouses of Home Equity Conversion Mortgage (HECM) recipients filed a class-action lawsuit against HUD alleging that the agency did not prevent them from being foreclosed upon after the death of their spouses as required by federal law. This lawsuit follows a federal court decision from last year that found that HUD violated federal law with a rule which allows a lender to foreclose on or demand repayment from a surviving non-borrowing spouse where the deceased spouse had received a HECM. 

 

This is of interest, of course, since one of the mortgage products that contributed to the housing crash is booming again: New home equity credit line borrowings soared 42% in the final three months of 2013 and were up sharply for the entire year, to $111 billion. But does this point to a return to the “my house is an ATM” mentality that characterized excessive home equity borrowing from 2004 through 2007, just before the crash? Should consumers — and the banks doling out the cash — be cautious about this trend? Researchers at Experian Information Solutions estimate that originations of HELOCs rose 58% in the final quarter of last year in the Western states, 38% in the Northeast and 36% in the Midwest.

 

It is especially interesting since Chase listed stand-alone 2nds as one of the products being eliminated from its product line up going forward. Perhaps the bank, which anecdotally has become more aggressive in pricing other products, wants to stay away from borrowers with lower credit scores: new equity credit lines extended to owners with “deep subprime” scores (300 to 499) increased faster than in previous years and averaged more than $60,000, roughly triple the amounts in late 2010. Serious delinquencies in outstanding HELOCs continued to be low, generally well under 1%. A rebound in owners’ equity due to rising home prices is helping fuel this. (Between the third quarter of 2012 and the same period last year, Americans’ real estate equity expanded by $2.2 trillion, according to the Federal Reserve.) Depository commercial banks are also pushing equity line products: home equity lines are much less expensive than a refi, and have less paperwork. Besides, think of the sale skills involved in refinancing someone with a 3.5% 30-yr fixed into a 4.25% 30-yr fixed rate loan!

 

There is a correction to yesterday’s investor updates. Changes to CSFB’s guidelines were mistakenly attributed to Redwood Trust. It should have read: “Credit Suisse has made a number of underwriting updates, including raising the maximum LTV/CLTV for all ARM and 15-year amortized products from 75 to 80% and allowing second home purchases, rate/term refinances, and cash-out refinances of co-ops.  With regard to risk assessment, borrowers who do not meet the three tradeline requirement will be considered eligible if they have six months additional reserves and the loan has a DTI below 35, LTV below 65%, or FICO above740; and first-time homebuyers’ payment shock may not exceed 250% when deposits and gifts are verified with the borrower. The additional LTV requirements for multiple financed properties have been removed, and condo projects with less than 10 units will be permitted provided that they are typical for the area and the appraisal shows similar comparables. Hobby farms will also be permitted if the property has between 10 and 20 acres, does not have any income-producing attributes, and has a land to value ratio of 35% or below.”

 

But speaking of Redwood Trust, during its earnings release in late February (net income for the fourth quarter of 2013 of $25 million versus $42 million for the fourth quarter of 2012) CEO Martin Hughes said, “Having recently obtained approval as a Fannie Mae and Freddie Mac seller/servicer, however, we now have the ability to acquire and distribute conforming loans to these government-sponsored enterprises, thus significantly expanding our market opportunities….While we continue to create and retain credit securities through our Sequoia securitization program, our entry into the much larger conforming market positions us to pursue investments in conforming credit through potential risk-sharing arrangements (recourse and other types) with the GSEs.”

 

The following public announcement of an LOI appeared this week concerning Axis and Zaio, heralding the formation of a new family of familiar companies in the AMC space: “Axis has been a long time partner of Zaio’s and is a leading Appraisal Management Company in the United States…. Upon closing of this acquisition, Axis would become a subsidiary of Zaio and continue to function as it has, but with greater resources, technology and systems to support its base of appraisers and clients. The net result is a nationwide network of over 5,000 appraisers, 100,000 realtors, and highly skilled and knowledgeable staff and management, all powered by proprietary technology from Zaio and Valuation Vision. Our network will operate out of San Rafael, CA, Tempe, AZ, and Carlsbad, CA, with additional sales personnel in Dallas, Chicago, and New York, representing a truly national entity with deep and experienced leadership and management.”

 

I received a note from Jeff Detwiler with real estate company Long & Foster regarding the recent lawsuit news (

http://inmannews.wpengine.netdna-cdn.com/wp-content/uploads/2014/02/doc_57_baehr_v_northrop.pdf). Mr. Detwiler noted that, “The original suit named a variety of individuals and entities. Long & Foster and Carla Northrop were dismissed for the suit as the court reviewed it, and that Lakeview Title has no affiliation with Long & Foster.”

 

Parkside Lending has expanded its guidelines on the Parkside Collateral ARM product, which now allows a Debt Coverage Ratio of 1.3 for LTVs from 50-60%, 1.2 for LTVs from 40-50%, and 1.1 for LTVs of 40% and below.  All transactions are subject to a maximum LTV of 80%, and DCR exceptions will be permitted on a case-by-case basis.

 

Athas Capital has rolled out a non-QM Stated Interest Only product that allows LTVs up to 80 for owner-occupied properties and 75 for non-owner occupied.  Additional features include an ITIN and Foreign National program and a bank statement program for W2 and SE borrowers.  Athas also allows sub-500 FICOs, bankruptcies, foreclosures, and short sales and does not require reserves or seasoning on the title.  Rates start at 7.00%.

 

We had a lot of news yesterday, but it had little impact on the markets. Personal Incomes rose by 0.3%, in line with expectations while Spending rose by 0.4%, above the 0.1% expected.  Inflation, as measured by the Core Personal Consumption Expenditure, was also in line at 0.1%, while the year-over-year Core ticked down to 1.1% from 1.2%. Inflation is still a non-issue. The ISM Manufacturing Index in February rose to 53.2, more than expected.

 

So instead of trading much off of this news, the stock and bond markets turned their attention, once again, to overseas – in this case Russia & Ukraine. From a human perspective, it is difficult, but the resulting nervousness caused money to flow toward dollars, and an easy way to do that is to buy fixed-income securities. And thus the 10-yr yield ended the day at 2.61%. And there is no scheduled news in the U.S. to move things, so direction comes from Asia/Europe again. “Unfortunately” things have quieted down over there, and yesterday’s market moves have reversed themselves somewhat so the U.S. 10-yr.’s yield is back up to 2.64% and agency MBS prices are worse a shade in the very early going.

 

 

Paddy and Mick were walking along a street in London. Paddy looked in one shop’s windows at a sign that read “Suits £5.00 each, Shirts £2.00 each, trousers £2.50 per pair.”

Paddy said to his pal, “Mick look at the prices!  We could buy a whole lot of dose and when we get back to Ireland. We could make a fortune. Now when we go in you stay quiet, okay?  Let me do all da talking ‘cause if they hear our accents, they might think we’re thickos from Ireland and try to screw us. I’ll put on my best English accent.”

“Roight y’are Paddy, I’ll keep me mouth shut, so I will. You do all da business,” said Mick.

They go in and Paddy said in a posh voice, “Hello my good man. I’ll take 50 suits at £5.00 each, 100 shirts at £2.00 each, and 50 pairs of trousers at £2.50 each.  I’ll back up my truck ready to load them on, OK?”

The shop’s owner said quietly, “You’re from Ireland, aren’t you?”

“Well yes,” said a surprised Paddy. “What gave it away?”

“This is a dry-cleaners,” the owner replied.

 

  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.)