Oct. 29: Letters from the conference trenches on servicing values, technology, credit risk & availability, VA IRRRLs, sharing risk, and more

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...

The participants of the MBA’s annual conference have returned to their abodes, reporting catching up on sleep on airplanes, couches, or in cars for hours and hours – a sign of age?! But let’s see what a sample of them thought about the actual conference – was there anything new, or a re-hash of previous years’ topics while waiting for approaching social events that evening?

 

Given that the overwhelming majority of new production heads their way, news from the GSEs (Government Sponsored Enterprises – Fannie, Freddie, FHA, and so on) was paramount. Bose George with KBW did a great job analyzing things. “The GSE presentations focused on continuing to work to improve credit availability and improve lender certainty on rep and warranty issues. The GSEs and FHFA also highlighted an increased focus on affordable housing, potentially including single family rentals. We think the biggest beneficiaries of this ongoing trend are the mortgage insurers (MIs).

 

“The GSEs also emphasized that credit-risk transfer (CRT) was a necessary part of reducing risk to the tax-payer given the absence of GSE reform. There was no presentation by the Federal Housing Administration (FHA), which was an interesting absence. While the FHA remains a key source of funding to the mortgage market, the agency has had a difficult relationship with the mortgage industry over the past few years given its contentious attitude towards the industry in relation to mortgage origination and servicing practices.

 

“The presentation from Mel Watt, Director of the FHFA, highlighted the need to increase credit availability. While credit access for stronger borrowers remains good, mortgage access remains more challenging for borrowers with weaker credit and for first time buyers. Director Watt noted that while the GSEs are committed to keeping their underwriting standards high, there needs to be an increased push to provide better access to mortgage credit. New products like the 97 LTV mortgage and better clarity about rep and warranty risk for lenders are both ways to help.

 

“We believe that new program, Day 1 Certainty, from Fannie Mae could signal another meaningful step towards reducing rep and warranty risk. Under this program, Fannie Mae will offer income, assets, and employment validation services to lenders through its mortgage underwriting system, Desktop Underwriter (DU). Originators will get freedom from reps and warranties for income, assets, and employment validated through DU. Fannie Mae will also offer relief from representations and warranties on appraisals that are done through Collateral Underwriter, where the property receives a qualifying score. Finally, Fannie Mae will offer customers, who use Desktop Underwriter, eligibility for a waiver of Fannie Mae’s property inspection requirement for many refinance transactions so the lender will have Day 1 Certainty that they will receive representation and warranty relief on property value, condition, and marketability. Income validation through DU is available immediately and all the other components of this initiative will be available on December 10, 2016.”

 

“Another focus of the presentations from the GSE CEOs was the importance of credit risk transfer (CRT). The CEOs of both companies highlighted the importance of CRT in managing risk and noted that the use of CRT is likely to grow. Currently the bulk of CRT is done through the bond programs (STACR for Freddie Mac and CAS for Fannie Mae). There is also meaningful activity through reinsurance programs (ACIS for Freddie Mac and CIRT for Fannie Mae). Going forward, the GSEs expect some new structures to develop in the market, and front-end structures were mentioned.

 

“The GSEs continue to be somewhat cautious about increasing their exposure to the mortgage insurers (MIs), but panelists suggested structural protections, such as cash collateral, could allow the GSEs to work with the MIs without meaningfully increasing their counterparty exposure. We continue to think that absent GSE reform, which seems increasingly likely to be deferred, the growth of the CRT market is likely to be the most meaningful development in the residential mortgage market over the next three to five years.”

 

“Richard Cordray, Director of the CFPB presented at the conference. The presentation reiterated that most of the major rule making has been done. The last remaining rule is the new data collection requirement under HMDA that goes into effect in 2018. In terms of enforcement, Mr. Cordray noted that some servicers are still working on complying with the new servicing requirements (a 900-page document put out by the CFPB in early August) and he specifically highlighted the need for technology upgrades at some servicing platforms. Mr. Cordray discussed the recent ruling against the CFPB in the PHH case. He noted that the CFPB has not decided whether to appeal. From the standpoint of enforcement, however, the CFPB’s 2015 bulletin, which cautioned that marketing and servicing agreements (MSAs) might not be RESPA compliant, should still be looked to for guidance on RESPA.

 

From Sue Woodard, CEO and President of CRM & loan sales force automation company Vantage Production, LLC, comes, “Technology, millennials, digital mortgage – oh my! With 190 exhibitors and 189.5 of them having to do with one of those topics, the message is clear. And I couldn’t agree more with outgoing MBA Chair Bill Emerson’s assessment that the ‘industry must embrace end-to-end technology, and if we don’t do it – someone else will.’ But as we all clamor about the borrower experience – which is critical to improve – let’s not forget about the originator experience. Technology should absolutely be far more deeply utilized to automate and improve repetitive processes and communications that can easily be forgotten by a human brain, yet there are actual human beings involved – and all studies say the clear majority of those human mortgage consumers still want to have an actual human MLO involved to help guide them and answer questions. My big takeaway was a crystallized focus on improving the borrower experience via creating and advancing great technology for the lender and their originators.”

 

Lisa Springer, CEO of the STRATMOR Group, sent, “STRATMOR has been consulting for the industry for over 35 years, and recently commented the MBA annual this year was one of the most productive ever, with over 100 client meetings. Executives were upbeat, optimistic about 2017, and were definitely coming off of a great year. Many lenders cited that September was one of the best production and profitability months ever. And the outlook for 2017 is strong, as the MBA provided some uptick and optimism in their production predictions citing anticipated $1.9 Trillion this year and $1.6 trillion for 2017, with many lenders with plans to expand into new channels, and continue to grow into the new year. There was a tremendous amount of buzz around ‘Digital’ with discussions about how to build out the right process and technology for the Digital future. The announcements from Fannie and Freddie certainly pointed to a new origination future, although it was STRATMOR’s take away that some lenders (and vendors frankly) don’t really understand the steps they need to take to get their own staff and the consumers from ‘here’ (non-digital) to ‘there’ (digital), and that roadmap is a big part of STRATMOR engagements for 2017.”

 

Lionel Urban with PCLender scribed, “PCLender had several meetings with customers and vendors and there were a few recurring themes. I think the most prevalent was that lenders with a retail channel were looking for consumer direct strategies that would help them be more competitive online. Fannie Mae and Freddie Mac have announced pilot programs for income, asset and employment verification services that streamline the ‘Digital Mortgage’ process and there are some compelling new Point of Sale (POS) applications out there including Blend, Roostify, and PCLender. The consumer needs, however, a tool that takes them all the way to closing including collecting conditions, selecting a rate/fee, receiving/executing disclosures and coordinating the loan settlement. That being said, the POS and Digital Mortgage objectives have created a whole new level of integration expectations and superior vendor collaboration is necessary to pull it off. Lender’s shopping for a solution need to establish a clear list of expectations that cover inquiry to closing to ensure they are mobile friendly.”

 

Rosalie Berg, President of marketing & public relations firm Strategic Vantage, observed, “At last year’s conference, much of the talk centered on compliance. This year, there was a lot of buzz around growth and efficiency. The motivation might be coming from lenders like Rocket Mortgage and Movement Mortgage. There seems to be growing interest in technologies that improve every step of the loan process, from lead management to post-closing marketing—and that includes technologies that make QC and compliance far more efficient. Beyond what people were talking about, there’s what people were seeing at the exhibit hall—and that is always on my mind, given my fascination with marketing. In terms of exhibit booths and marketing materials, there was a clear trend toward the modern, crisp designs that Apple made hugely popular. Many companies at this convention had adopted this look and, by association, appear professional and forward-thinking. Did you see Blend’s booth, for instance? Very modern. And that’s the message they are looking to give. At last year’s MBA Convention, few companies had adopted this modern image, and now it’s becoming the standard. By next year I expect more than half of companies exhibiting will have this new polished look. That’s a big deal for those holding on to the image they created 5-10 years ago. Unless they change with the times, they run the risk of looking dated, which suggests their offerings are dated as well.”

 

Shifting to the servicing market, Stephen Fleming, SVP with Phoenix Capital Inc., witnessed, “With a developed sense of recognition for what the MSR landscape has unveiled thus far in 2016, the servicing rights’ dialogue at the annual MBa conference this week struck me as one of maturity & reasonable optimism in light of the very dynamic market before us. Of course, an abundance of moving pieces to keep hot on the radar. Boston MSR conversations invariably touched on (in no particular order) the i) value/speed/bond impact of the recent Ginnie Mae APM regarding six-month streamline treatment (esp. for IRRRLs), ii) new FNMA Day 1 certainty, iii) possibility of FHA premium change, iv) general financing and servicing fee structures, v) new buyers entering given cash flow vis-à-vis current yields (some entering now; others lining up for 2017), and vi) overall strategic retain-release best practices. Despite the lower temps and higher winds outside, the conference meetings maintained a warmed excitement for future servicing rights sales/acquisitions, with keen focus being proactively placed on how Q1 2017 will unfold rate-wise vs recent past first quarters. Will assuredly be an interesting year-end in the servicing rights arena.”

 

Brent Nyitray with iServe Lending noted, “The main chatter was about Ginnie’s new plan to discourage the serial VA IRRRL shops. Consensus is that it will work because it will decimate the margins on these loans. The prepay speeds on VA loans have gotten so high that Ginnie Mae servicing prices are being affected. And separately, Richard Cordray took aim at servicers at the conference.”

 

Shifting to a topic the commentary noted this week – bank-owned properties and how potential buyers can best access that market, Jon Buerkert, the chief business development officer at Columbia, South Carolina-based Vision Property Management  (VPM), the largest company operating in the affordable lease-to-own space, wrote, “With the homeownership rate at a nearly 48-year low of 63.5 percent and mortgage credit harder to obtain than ever before, how are borrowers with low credit scores or who have suffered a foreclosure going to buy homes? Rent-to-own housing offers an interesting solution. Leasing homes with an option to buy provides an opportunity for many of these people, many of whom haven’t given up on homeownership. And it’s a big potential market. A record 11.4 million renter households spent at least half of their income on rent in 2014. It could make more sense for them to own, if they only got the opportunity.

 

“Surprisingly, when approached correctly, the rent-to-own market isn’t as risky as one might think. Steven Randall, chief strategy officer at Columbia, South Carolina-based Vision Property Management  (VPM), the biggest player in the affordable lease-to-own space, says the eviction rate among his customers is just 4.3%. That despite a client base with an average credit score of 565 and where 75% of them earned less than $60,000, 60 percent earning less than $45,000. The lease-to-own option ‘gives renters the time necessary to rebuild their credit and financial strength, and eventually regain future ownership of a home,’ Randall says. (If you’re a specialty servicer looking for a buyer for your real estate-owned or foreclosed properties, VPM is always in the market for such properties, Randall says. The company services properties in about 40 states and actively purchases problem properties from banks and servicers on a national basis.)

 

 

10 Things That Sound Dirty On Halloween, But Aren’t

  1. So… What’d you get in the sack?
  2. Once you get under the sheet, start moaning and groaning!!!
  3. Just hop on that broomstick and ride it!
  4. Those small suckers are gone in a few licks!
  5. I got the best piece from that house.
  6. Quit screwing around on the porch!!!
  7. Stick your hand in and guess what you’re feeling….
  8. It was so filled and heavy, I had to use TWO hands!!
  9. They’ll suck you dry if they get their teeth in you.
  10. I bobbed and bobbed, but couldn’t get my mouth around it!

 

 

 

Rob

 

(Copyright 2016 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.)