3.14: Pi Day! Mortgage jobs & Bofa layoffs; a primer on MBS issuance; LendingTree lawsuit; bank M&A; how ’bout these rates!

Who doesn’t love a good ‘Top 10’ list? If it wasn’t for top ten lists, and videos of cats dancing, the internet would be reserved for its intended purpose: governmental communication after a global thermo nuclear war….and who wants that? But it is interesting to see the list of housing markets exploding around the U.S. The data is provided by Core Logic (the only reason I‘ve included the link), by way of WallStCheatSt. In percentage order for the last 12 months: 10. Hawaii (11.1), 9. Idaho (11.1), 8. Washington (11.6), 7. Florida (12.5), 6. Arizona (13.1), 5. Georgia (13.4), 4. Michigan (13.7), 3. Oregon (14.3), 2. California (20.3), 1. Nevada (22.2).


Turning to some job opportunities, I have been retained by a Sacramento-based Northern California mortgage banker that is seeking an experienced Lock Desk/ Secondary Marketing candidate at its headquarters to support its growth. The lender is a locally owned, 100% retail, purchase oriented mortgage banker growing rapidly in N & S California, Arizona, and the Pacific Northwest. Mortgage production consists of a full suite of loan products including Conventional, FHA/ VA (including 203Ks), Reverse and Jumbo loans. Successful candidates should have 1-3 years minimum experience in Secondary (pricing loan scenarios, reviewing /confirming lock requests, selling loans to investors, managing hedge positions, developing price comparison and other reports, etc.), as well as being excellent communicators. Please send confidential inquiries or resumes to me at rchrisman@robchrisman.com.


Bank of America will lay off 156 employees in its Texas mortgage operations unit: http://www.star-telegram.com/2014/03/10/5637548/bank-of-america-to-cut-156-mortgage.html. (Maybe some of them will post resumes for free, and employers will view them for free, at www.LenderNews.com.)


We want them on that wall; we need them on that wall…..Marines? Maybe, however, I’m referring to Wells Fargo’s economics group. In the latest installment of Housing Data Wrap-Up: How Long Will It Take Housing to Shake off the Chills? The group breaks down season challenges in the housing market. While California and much of the southwest has been talked to death about the impending water drought and unseasonably warm weather, much of the nation has been mired down in abnormally cold storms for much of the winter. Has this affected the housing market? Maybe, but seasonality has always been an issue. Wells Fargo writes, “Weather-related weakness will be relatively easy to overcome. November, December, January and February are typically some of the least important months of the year for home sales and new home construction. While these four months account for one-third of the year, data for the past 25 years show the four late fall/winter months accounting for just over one-quarter of new single family home sales and just under 30 percent of single-family starts. By contrast, the following three months account for nearly 37 percent of new single-family sales and nearly 38 percent of starts.” Much will be determined in the housing markets in the next six months. While a lot of effort was expended in Q4 mitigating exposure to QM, one has to believe as we enter into the traditional purchase market season, that an equal amount of time and resources will be devoted to the lackluster step-child: the purchase market.


Mortgage traders report seeing about $1 billion a day from originators – but that is misleading. Looking at the housing market, remember the large percentage of all cash buyers – it is huge! But some of the daily trading numbers leave off the product sold directly to the agencies through their cash windows – although that is also down for the month. This week BAML reported on fixed MBS issuance. “Total: $29 billion MTD vs. $61 billion in Feb; Fannie: $12bn MTD vs. $25bn in Feb; Freddie: $9bn MTD vs. $17bn in Feb; Ginnie: $8bn MTD vs. $19bn in Feb.” Another investment bank reported that it expects the monthly gross issuance of agency MBS to reach roughly $90 billion by May/June of this year (up from its average of $67 billion in January and February). The bank also expects the monthly net issuance of agency MBS to reach $20 billion over the same time frame (up from $10-$11 billion in January and February).


Let’s put some more perspective on this. During the past two months (Jan-Feb), the gross issuance of agency MBS had averaged only $67 billion per month, while it averaged about $150 billion during the first half of 2013. The sharply lower gross issuance due to lower originator selling has been one of the major technical factors supporting the tight valuations of agency MBS basis over the past several weeks. Think back to high school econ, and supply and demand: if supply drops, and demand is steady, the price will increase. In this case, MBS prices have improved relative to Treasury securities. And in spite of the Fed’s tapering off of MBS purchases, supply has been down, so percentage-wise the Fed is still buying a dominant percentage.


If the monthly gross issuance of agency MBS is going to increase by that much to $90 billion a month by the summer, where is it going to come from? Approximately 52% of the total agency MBS issuance, or about $34 billion per month, has been coming from purchase transactions recently and the seasonality in purchase activity is going to have a substantial impact on both the gross and net issuances of agency MBS. Over the past two years (2012-2013), the average existing home sales number from May–July was about 50–58% higher than that of the prior December–February time period. A similar seasonality may be noticed in the monthly agency MBS issuance.


Second, mortgage refi activity contributed about $30 billion agency MBS issuance per month in January and February. Rates have dropped slightly, but this decline in mortgage rate hasn’t led to any pick-up in the MBA refinance index nor do experts think we’ll see another huge increase in refis. It really takes a good salesperson to talk someone out of a 3.50% rate into a 3.75% rate. But we’ll still see refi biz pick up a little bit – there are always some borrowers out there refinancing for some reason.


Turning to legal matters, anytime the press can combine the names Countrywide, Fannie Mae, Freddie Mac, Bank of America, and lawsuit into one story, you can bet they will: http://www.businessweek.com/news/2014-03-13/countrywide-asks-judge-to-reject-u-dot-s-dot-claim-for-2-dot-1-billion-1.


And LendingTree was in the press this week over a patent case: http://www.charlotteobserver.com/2014/03/12/4760913/jury-rules-against-lendingtree.html#.UyL02blOXIU. (If you see a “page not found” error, just type in “LendingTree” in the little search box on the right, and it should find it.)


Bank M&A continues unabated. This week Keefe, Bruyette & Woods announced that Ameris Bancorp, the parent company of Ameris Bank, announced the signing of a definitive merger agreement under which Ameris will acquire Coastal Bankshares, Inc., the parent company of The Coastal Bank, Savannah, Georgia. Upon completion of the transaction, the combined company will have approximately $4.1 billion in assets, $2.8 billion in loans, $3.4 billion in deposits and a branch network of 74 banking locations across four states. KBW was also involved in news from Michigan that “the boards of directors of Chemical Financial Corporation, the holding company for Chemical Bank, and Northwestern Bancorp, Inc., the holding company for Northwestern Bank, announced the execution of a definitive agreement for Chemical Financial Corporation to partner with Northwestern Bancorp, Inc. in an all cash transaction valued at $120 million.”


But that is not all. North Dakota’s Alerus Financial ($1.4B) will acquire Private Bank Minnesota ($142mm, MN) for an undisclosed sum. Bank of America will sell 10 branches in Kansas to banks operating in the state. FirstMerit Bank ($23.9B, OH) said it will close 26 branches as it seeks to consolidate networks and adapt to changing customer behaviors (more online and mobile banking). BBVA Compass Bancshares said it has received regulatory approval to open new loan offices in Charlotte, NC; Los Angeles, CA; Nashville, TN; Raleigh, NC; San Francisco, CA and Seattle, WA. The move follows a similar one last year when Compass opened 12 such offices in NY, DC and FL.


Let’s play catch up with a portion of the agency and investor news from the last few weeks.


How the heck does Freddie Mac do its QC sampling? Well, the video dudes at Freddie just posted a new QC TipCast for its customers: http://www.freddiemac.com/singlefamily/quality_control.html.


MountainView Capital Holdings, a Denver-based firm providing analytic asset management and sales and trading services to the financial services industry, announced its acquisition of McGuire Performance Solutions, a Scottsdale-based firm providing asset-liability management services to financial institutions.


Sterne Agee Group’s FBC Mortgage, seeking partnerships with community banks that want to farm out their single-family mortgage originations, entered into mortgage referral arrangements with four community banks in Florida, most recently HomeBanc in Tampa. As part of the HomeBanc deal, FBC hired the bank’s mortgage personnel, who operated in a distinct unit.


Effective for all new locks, EverBank has removed the -.375 pricing adjustor for all 5/1 ARMs with the 2/2/5 cap structure.


EverBank is now accepting mortgage insurance from United Guaranty for all applicable transactions, effective immediately.


EverBank has changed its FHLMC Conforming Fixed, Conforming ARM, and Relief Refinance-Open Access products to remove the Home Value Explorer option for appraisals.


Chase has updated its Non-Agency debt analysis guidelines to exclude Federal, State, and local taxes; FICA or other retirement contributions; commuting costs; union dues; open revolving accounts with zero balances (with the exception of HELOCs); automatic deductions to savings accounts; child care; and voluntary deductions from being included in the DTI ratio.  The derogatory credit guidelines as they pertain to DU and LP have been revised to encompass both FNMA and FHLMC guidance on seasoning requirements.


Chase has updated its LP and DU overlay matrix to consider health and wellness income an ineligible income source.


Chase’s FHA guidance has been updated to prohibit the use of real estate tax credits as qualifying assets to offset the minimum 3.5% down payment requirement, and while a seller real estate tax credit can be applied towards the cash to close on the HUD-1, the down payment must be verified regardless of cash brought to or received at closing.


Effective for all loan programs, Chase has updated its flood insurance requirements.  The minimum coverage required for single family properties, 2-4 unit properties, and 2-4 unit condos and attached PUDs not covered by a master policy is defined as the lower of $250,000 (the current maximum amount available through the NFIP), 100% of the full replacement cost, or the outstanding principal balance plus the UPB of any other loan and/or the total line of credit amount secured by the property.  Attached PUDs and five-plus unit condo projects that are covered by master policies require the lesser of 100% of the full replacement cost or $250,000.  For properties located in Special Flood Hazard Areas, no replacement cost reconciliation is required if the insurance amount is at least $250,000 or exceeds/equals the outstanding principal balance of the first lien and all other loans securing the property.  If the coverage amount is equal to the replacement cost, Chase may require replacement cost reconciliation.


What the heck? All the smartest guys in the room told us that rates in 2014 were moving higher. We began the year with the 10-yr.’s yield sitting at 3.00% – easy enough to remember – and now we’re at…2.62%?! Nothing moves in straight direction, of course. But the reason for the expectations of higher rates was that the U.S. economy would continue to do better, housing would appreciate, and job formation would increase, thus leading to more demand for credit and the Fed lessening their asset purchases.


Of course, we didn’t predict the heightened tensions between Ukraine and Russia causing the proverbial “flight to quality” into U.S. fixed-income securities, pushing their prices higher and rates lower. Thursday the market decided to focus on Russian military exercises near the Ukraine border, and warnings by Europe and the U.S. that it would place sanctions on Russia starting Monday if Crimea goes ahead with a vote on Sunday on a referendum to become part of Russia.


Are we heading for another refi boom? That would be a real stretch at this point. But everyone is reporting a pickup in locks and in activity. Some of that is weather related, but some of it is due to seeing such dismal January and Februarys that an upswing was practically inevitable. But hey, we’ll take it! Thursday the 10-yr improved by .625 and closed at a yield of 2.65%, and agency MBS prices (that drive rate sheets) improved .5-.625.


And we’re not done with the fun. This morning we had the Producer Price Index – PPI – for February. Inflation hasn’t been a problem in many years, but the index, set in 1982 at 100, is now up around 200. It was forecast at +.2% with the core rate (which doesn’t include volatile food and energy costs) at +.1%. The numbers actually dropped by .1% and .2%, respectively. We will have the preliminary March Consumer Sentiment around 10AM EST. t 9:55 a.m. The 10-yr is down to 2.62% after the anti-inflation news, and agency MBS prices are better by about .125.



In celebration of Pi Day, here’s something of interest for you musicians out there: http://www.youtube.com/watch?v=wK7tq7L0N8E.



(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.)

Rob Chrisman