Usually
I put the bank, M&A, investor, and agency news down lower.
But today I am putting it here – the trends in M&A are
unmistakable as companies band together for various
reasons, not the least of which is sharing increased
compliance and regulatory costs.
First
Republic
Bank, a private bank & wealth
management company (and frequent contributor to Redwood Trust
jumbo deals), announced that Luminous Capital Holdings,
LLC, one of the nation’s leading independent wealth advisors
will become part of First Republic Investment Management.
KBW,
who was itself acquired, announced that Nasdaq-traded
companies PacWest Bancorp and First California Financial
Group signed a definitive agreement and plan of merger.
First California (not the California wholesaler) is the parent
of First California Bank and had approximately $2.0 billion in
assets and 15 branches across Los Angeles, Orange, Riverside,
San Bernardino, San Diego, San Luis Obispo and Ventura
Counties.
Keefe,
Bruyette & Woods also announced another merger on the
other coast: New Traditions National Bank will become a
subsidiary of Old Florida Bancshares, Inc., which owns
and operates Old Florida National Bank and Mercantile Capital
Corporation.
But
“the hunter became the hunted” when boutique investment bank Stifel
Financial
announced the $575 million acquisition of KBW Inc.
(KBW), making this Stifel's 10th purchase since 2005. KBW
operates the Keefe Bruyette & Woods broker dealer. Stifel
has been busy in recent years, acquiring Legg Mason's
capital-markets business and Thomas Weisel Partners Group. It
was among the companies that bid on all or part of
bond-trading firm Gleacher & Co., according to press
reports.
Lastly
(for now) in Kansas Bank of Hays ($204mm) will buy
Farmers’ State Bank of Jetmore ($26mm) for an
undisclosed sum.
Fifth Third reminded clients that all HARP 2.0 loans
with LTVs that exceed 105% must be delivered by November 30th
and funded by December14th.
For all self-employed borrowers with loan applications dated
October 20, 2012 or after, Fifth Third is requiring the most
recent two years’ signed tax returns as verification of
income, regardless of AUS findings.
Beginning November 5th, Flagstar began requiring all
loan files to contain a copy of the Undisclosed Debt
Acknowledgement and will be auditing files to ensure its
inclusion with the underwriting and post-closing
documentation.
Flagstar is allowing the use of Hardest Hit Funds for HARP
loans provided that they don’t result in a recorded lien on
the property and are used to pay down or curtail the
outstanding balance on a borrower’s existing loan and/or
associated financing costs. The file should contain
documentation that verifies the terms and conditions of the
HHF funds, which should be disclosed on the HUD-1 and included
in the monthly DTI ratio upon repayment unless repayment is
due only upon sale or default. Currently, the HHF funds are
available only in Arizona and Nevada, but other states’ HFAs
are expected to get theirs rolling in the near future.
M&T Bank began pricing its new SONYMA Conventional
Plus loans in the correspondent channel for New York
properties on October 22nd. The program is based on Fannie’s
MyCommunityMortgage and offers 30-year fixed-rate loans that
can be partnered with SONYMA’s Down Payment Assistance Loans
(DPALs) as an alternative to FHA financing. In addition to
potentially lower monthly payments, borrowers can benefit from
further savings if they’re eligible for a SONYMA-issued
Mortgage Credit Certificate, which allows them to convert 20%
of their annual mortgage interest into a tax credit. The
SONYMA Conventional Plus program isn’t restricted to
first-time homebuyers, doesn’t have purchase price limits, and
doesn’t qualify based on household income, unlike traditional
SONYMA programs. Participating lenders must be
SONYMA-approved and must execute a tri-party agreement with
SONYMA and M&T.
All M&T properties in the Florida counties affected by
Hurricane Isaac whose appraisals were completed before August
27, 2012 must be re-inspected as per the disaster policy. The
original appraiser should complete the inspection and must
include exterior photos, confirmation that the property hasn’t
damaged, and commentary on conditions that may affect the
property’s marketability.
Back to trivia – like the election results! Elizabeth
Warren, the CFPB architect and frequent bank critic, was
elected to the Senate, much to the dismay of the financial
services industry, and we all know about Barack Obama’s
victory.
"Rob,
don’t you find it somewhat intriguing that one of the most
important and critical actions we as Americans partake in is
voting for of all things a President. At the same time we hear
about the regulators bearing down on us and forcing us to
upgrade our LOS’s, due to new regulations. Isn’t it
somewhat puzzling that so many voting machines under the
care of government are failing, not responding and
causing millions in legal minutia as they are asked to perform
the simple task of scanning a document (something we do all
day everyday) or using a touch screen? Compared to a LOS and
the tasks we are asked to perform this is child’s play!"
Regardless
of which politicians won yesterday, the government will still
have to deal with the "fiscal cliff" and its profound economic
consequences. The market was expecting a knee-jerk reaction to
President Obama being re-elected is a rates rally and a
sell-off if Governor Romney is elected. This appears to be
largely related to what the next president will have to
address almost immediately - the fiscal cliff. A quicker
resolution is seen with Romney while the acrimony between the
Democrats and Republicans suggests a longer time to resolution
which would weigh on the economy's growth.
Impacting not only folks in our industry but the whole nation
are the longer term issues related to the housing market,
the future of the GSE's including the FHFA leadership, as
well as a possible new Fed chairman in 2014, along with
their policy actions. Experts believe that there will be
no threat to QE3 under Obama, but that higher coupons are at
risk if a new FHFA director comes in who supports principal
forgiveness. Yes, Obama (and Elizabeth Warren) won, and banks
can look forward to even more regulations and oversight: http://www.reuters.com/article/2012/11/07/us-usa-campaign-financialregulation-idUSBRE8A60R620121107.
Certainly
investors fear that Obama (and Romney, if he won) will
struggle to reach a compromise with the leaders of the
opposing party in Congress to halt $600 billion in expiring
federal tax cuts and automatic spending cuts at year-end. The
lack of a resolution could push the world's biggest economy
into a deep recession, a consensus view supported by analysts
at the Congressional Budget Office. "I think the current
situation politically hurts us very badly in trying to deal
with our problems economically," veteran bond investor Dan
Fuss at Loomis Sayles in Boston said of the so-called fiscal
cliff, his No. 1 worry. Neither an Obama nor a Romney win will
change Fuss' market outlook. Many warn the Fed is only
postponing a destabilizing rise in rates that would hurt
economic growth. There's a sense that with Obama’s win, the
Fed accommodation (QE3) will continue as planned.
Let’s
take a moment to look at share prices of non-bank mortgage
servicers Ocwen Financial (OCN) and Nationstar Mortgage
Holdings (NSM). Both sank 5% and 6%, respectively, on
Monday in an apparent response to an announcement that MetLife
agreed to sell its mortgage servicing portfolio JPMorgan
Chase. At this point we know that MetLife is selling its $70
billion mortgage servicing portfolio to JPMorgan, boosting
JPMorgan's servicing business by more than 5%.
As
an astute reader wrote, “The major reason for the purchases by
Ocwen was to move away from the run-off of the subprime
servicing portfolio, and expand the FHA servicing portfolio.
If you take a look at the moves from the spinoff of
Altisource, the purchase of LendersOne ( part of C1), after 18
months, a GNMA Seller/Sevicer of both residential and HMBS,
and now the purchase of ResCap and Homeward, this will put
Ocwen in a long term growth pattern in the GNMA space.”
Given
the looming threat of Basel III’s capital requirements for
banks, especially with regard to servicing, non-depositories
Ocwen and Nationstar have competed aggressively for mortgage
servicing operations as banks lighten up on that business.
Last month, Ocwen outbid Nationstar in a $3 billion deal for
the mortgage servicing unit of Residential Capital, owned by
auto-financier Ally Financial. As noted above, Ocwen also
picked up Homeward Residential Holdings last month. Those
purchases make it the fifth-largest mortgage servicer in the
country, the company said.
Last week, Ocwen reported lower-than-expected quarterly
profit. Nationstar came out yesterday showing a strong
origination 3rd quarter, and a servicing
pipeline up to $600 billion. The difference between reported
and operating numbers reflected $3.9 million of ResCap and
other transaction-related expenses. Total servicing revenues
came in less than expected, but this was largely offset by
higher origination income and lower operating expenses. The
servicing portfolio increased to $198 billion from $193
billion and the gain-on-sale margin increased sharply, and
management expects to close $30 billion of UPB purchases this
quarter! During the 3rd quarter origination volume
of $1.82 billion increased modestly from $1.81 billion in 2Q.
However, gain-on-sale (GOS) income increased to $139 million
from $102 million on stronger margins. Analysts suggest
that the increased margins reflect the strong lock volume in
3Q of $4.4 billion, as rate locks are the primary driver
of margins. The total application pipeline increased to $5.5
billion from $3.1 billion in 2Q.
Sticking
with stock moves, no sooner do we find out that Zillow
purchased Nebraska's Mortech than the stock market smacks it.
Zillow posted a record decline after forecasting
fourth-quarter revenue that trailed analysts’ estimates. Sales
this quarter will be $30-31 million, up from $19.9 million a
year earlier. It is good, but lower than the $32.4 million
average estimate of analysts, according to data compiled by
Bloomberg. Darn that Trulia! (Trulia, the online real
estate site, went public in September.) But Zillow’s numbers
are strong, regardless of expectations: revenue in the third
quarter jumped 67%, the company swung to a profit by recording
net income of $2.33 million after reporting a loss of $570,000
a year earlier. Still, its stock price dropped 18% at one
point.
Tuesday was not a good day for the fixed-income markets.
Mortgages "took it on the chin." Dealers reported above
average originator selling - locking ahead of the election
results perhaps? Traders also saw the FED and a few money
managers try to step in and add a few blocks but their buying
was not been able to stem the tide. By the end of the day the
10-yr was worse by about .5 in price, closing at 1.74%, and
MBS prices were worse by about the same.
But
with some uncertainty removed after the election, overnight
Treasuries rose, with 10-year yields falling the most in two
months as Obama’s re- election bolstered speculation the
Federal Reserve will stick to its policy of buying bonds to
support the economy. After all, Obama backs government
intervention through the Fed’s QE3 plan and buying more than
$40 billion a month of agency MBS. The 10-yr. dropped to
1.66%, the lowest level since Oct. 16. Interestingly enough,
ever since Lyndon B. Johnson defeated Barry Goldwater for the
presidency in 1964, yields on 10-year Treasuries have dropped
about 40 basis points in the first month when a Democrat wins,
and risen 19 after a Republican victory, according to data
compiled by Bloomberg.
This
morning we've had the MBA application index for last week,
greatly influenced by Sandy. (Who wants to lock in a loan to
refinance after their car floated into their living room?)
Applications dropped for a 5th straight week, this
time down 5% with both purchases and refi’s down about 5% -
refi’s still make up about 80% of industry applications
(mostly due to large banks’ refi work). Later we'll also have
the second leg of this quarter's Treasury Refunding with $16
billion 10-year notes auction at 1PM EST. But in the early
going it is hard to complain much about the 10-yr going down
to 1.64% and MBS prices better by about .250.
A driver is stuck in a traffic jam on the highway outside
Washington DC.
Nothing is moving. Suddenly, a man knocks on the car window.
The driver rolls down the window and asks, "What's going on?"
"Terrorists have kidnapped the members of Congress and they're
asking for a $100 million ransom! Otherwise, they are going to
douse them all in gasoline and set them on fire. We are going
from car to car collecting donations."
"How much is everyone giving, on average?" the driver asks.
"Roughly a gallon."
If
you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at www.stratmorgroup.com.
The current blog discusses some of the considerations facing
the FHFA regarding Fannie and Freddie. If you have both the
time and inclination, make a comment on what I have written,
or on other comments so that folks can learn what's going on
out there from the other readers.
