|
Jan. 18, 2011: Chase's earnings point to how a mortgage bank makes money; numerous regulatory & investor updates; Freddie lowers 2011 production estimates
Rob Chrisman
When I was in grad school at Cal, a student in the same
apartment complex had a dog. Whenever his parents or a special
girl were coming to visit, rather than clean the kitchen floor
himself he'd grate some cheddar cheese and sprinkle it on the
linoleum, and the dog would clean the floor for him. (Whenever
guys hear that story, they think it’s clever and cool; gals roll
their eyes. Both are similar to the response of watching a Three
Stooges movie.) I wish that I could say that he went into the
mortgage business, which he didn't, but there are plenty of
clever people in mortgage banking, and most continue to adapt to
the regulatory hurdles.
For example, a few weeks ago HUD announced it will begin
collecting NMLS identifier information for individuals and
entities participating in the origination of loans submitted for
insurance by the FHA. And recently the OCC issued a SAFE Act
reminder notice of the expected start date for federal
registration of residential mortgage loan originators employed
by banks, savings associations, credit unions, and their
subsidiaries. The registration period is expected to start
at the end of this month and last for 180 days, after which any
employee subject to registration under the SAFE Act will be
prohibited from originating residential mortgage loans without
having first met the registration requirements. Check out http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx.
For a copy of the reminder notice, please see http://www.occ.treas.gov/news-issuances/bulletins/2011/bulletin-2011-1.html.
And as this commentary noted a while back, law firm BuckleySandler
reminds us that HUD issued Mortgagee Letter 2011-02. "The letter
reminds mortgagees that, since the FHA no longer approves or
monitors Loan Correspondents, mortgagees now must perform
quality control reviews on all sponsored third-party
originators (TPOs) from whom they acquire loans.
Additionally, the letter states that mortgagees must create a
report documenting (i) the methodology used to review TPOs, (ii)
the results of each review, and (iii) any corrective actions
taken as a result of their review findings. This report must be
kept on file for two years." http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-02ml.pdf
It appears that, given what I am hearing, a broad range of
lenders are seeing their locked pipelines down 50% from
their peak in November. On the other hand, Flagstar
wholesale sent out a bulletin, a portion of which stated,
"Wholesale Support is experiencing a high volume of FHA Case
Number Requests. They have exceeded their 48-hour turn time and
are working to improve the turn time by next week."
In its latest downward revision, Freddie Mac estimates that
mortgage originations will total $1.05 trillion this year,
down from its projected $1.2 trillion last month. Most of this,
of course, comes at the expense of refinancing as rates are
expected to grind higher in 2011. Per Freddie, refinancing made
up 69% of the total $1.55 trillion in home mortgage originations
last year, but are expected to constitute just 41% this year and
35% in 2012. http://www.freddiemac.com/news/finance/docs/Jan_2011_public_outlook.pdf
If you haven’t had enough conjecture about the future of loan
officer compensation, you may want to check out this
webinar. It will present “practical solutions for competitive
loan officer and branch manager compensation following financial
reform.” Presented by NYLX, it is
tomorrow at 2PM EST, 11AM PST: https://www1.gotomeeting.com/register/269005313
Freddie
Mac
released an update for servicers, and
wannabe servicers, regarding new servicing technologies.
(Freddie also extended its stay of foreclosure protections for
service members.) "A dynamic, Web-based solution, the Service
Loans application will provide greater operational efficiencies
through a more intuitive and user-friendly servicing environment
for investor reporting functions, including default reporting,
when servicing Freddie Mac mortgages. Read all about the 6+
pages at: http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1101.pdf
Last week JPMorgan Chase reported earnings and the numbers
can be useful in showing how a mortgage bank can make money.
Looking at mortgage production, mortgage loan originations hit
about $51 billion at the end of 2010, up 46% from the prior year
and 24% over the third quarter of 2010. CEO Jamie Dimon noted
that, “In our mortgage business, while charge-offs and
delinquencies have improved, credit costs still remain at
abnormally high levels and continue to be a significant drag on
our returns.” Mortgage banking and other consumer lending
reported a net income of $577 million, an increase of $311
million, or 117 percent, from 2009. Mortgage banking net revenue
was $2 billion, up by $1.1 billion. JPMorgan Chase's mortgage
banking net revenue included $244 million of net interest
income, $1.6 billion of mortgage fees and related income, and
$108 million of other non-interest revenue. (Mortgage fees and
related income were comprised of net production revenue,
servicing operating revenue, and MSR risk management revenue.)
Production revenue, excluding repurchase losses, was $1.1
billion, an increase of $618 million, reflecting higher mortgage
origination volumes and wider margins.
Today
we had Citi's results for the 4th quarter. Citi,
typically in the top 5 list of mortgage origination volumes,
reported only 4 cents per share versus 8 cents per share that
was expected. Revenue came in at $19.5 billion, slightly less
than expected, apparently due to investment banking revenues.
Citi released a little over $2 billion of loan loss reserves,
good news for credit quality which continues to improve.
But a
Bloomberg story points out that Citi’s earnings mask flawed
mortgage loans sold to Freddie Mac: http://www.bloomberg.com/news/2011-01-18/citigroup-46-gain-masks-flawed-mortgages-freddie-mac-calls-not-acceptable.html
The Ally Financial board of directors declared quarterly
dividend payments for certain outstanding preferred stock,
namely payable to the US Treasury. The parent of GMAC stated
that it will have paid a total of approximately $1.9 billion in
dividends to the U.S. Treasury since February 2009.
GMAC
released its new policy requirements for processing the IRS Form
4506-T. This updated policy applies to all financing types -
Conforming, Jumbo and Government loans, subject to certain
exceptions. The requirements are based on whether the loan was
approved using DU or LP, date of submission to GMAC (June 15th,
2011 is a key date regarding 2009 or 2010 tax forms), jumbo or
manually underwritten loans, or the loan is an FHA Streamlined
program.
SunTrust revised its Property Ownership Affidavit
requirement ("If a new application includes a PIW or PIA, the
revised Property Ownership Affidavit (COR 0061) must be
completed by the borrower prior to submission to underwriting.
For existing applications where the Property Ownership Affidavit
(COR 0061) has not been signed use the new Property Ownership
Affidavit (COR 0061).") SunTrust also issued an overlay, similar
to Citi's, for DU Refi Plus loans for correspondents partners.
"This tool aids in identifying areas where SunTrust Mortgage,
Inc. has additional credit requirements supplementing investor
guidelines" but has no new guidelines. In the last week or so
SunTrust has also released announcements focused on appraiser
eligibility, settlement agent eligibility, condo project
approval status, Truth-in-Lending disclosure changes, acceptable
warehouse lines of credit, MERS registration requirements,
allonge usage in a conventional note, etc., etc.
Nationstar sent the word out to clients that it "will not
accept appraisals transferred by another HVCC compliant lender
if the effective date of the appraisal is greater than 30-days
old at the time of the loan submission. All loan submissions
which contain an appraisal over 30-days old will require a new
appraisal to be ordered through the Nationstar Appraisal Order
Portal. Nationstar will not accept a loan submission which
contains a FHA or VA appraisal with an effective date greater
than 30-days old at the time of the loan submission. In
addition, Nationstar does not accept any transferred appraisals
with FICO’s of 660 or below. Every transferred appraisal will be
reviewed by Nationstar and may be subject to a field review,
which can lower the value, but never increase." The company also
told patrons that it will not require 2010 tax returns until
approximately June 1, 2011. Until then, 2008 and 2009 tax
returns should be ordered.
KInecta Federal Credit Union told its brokers that for DU
Refi Plus loans (existing loan not currently serviced by
Kinecta), “we are eliminating the MI requirements for loans with
LTVs >80%,” if the loan meets certain criteria including a
maximum LTV of 90%, primary occupancy, 1 unit SFR, PUD, or
condo, minimum FICO of 720, etc. “Please refer to eligibility
matrix for complete requirements.” Kinecta also spread the word
that Oregon has been approved as an eligible state. “All
products will be available with the exception of the Piggyback
HELOC” which will be available in all states with the exception
of Oregon.
Lenders
and mortgage investors rolled out the new risk-based pricing
matrices over the weekend. For example, in California,
wholesaler Pinnacle Capital alerted brokers about it: http://www.pcmloan.com/serveannouncements.aspx?id8
Given the lower supply, one would think that, relative to
Treasury yields, mortgage rates and prices should be doing ok.
And they are – MBS prices are about 1.5 points off their lows
(worst) last week. Friday MBS prices finished the day about
unchanged from Thursday’s levels, and the 10-year T-note closed
off .250 in price hitting 3.33%.
Besides
earnings, this week's news includes some "Empire State"
manufacturing data today, Housing Starts and Building Permits
tomorrow, and weekly Jobless Claims, Existing Home Sales,
Leading Economic Indicators & the Philly Fed on Thursday.
There is zip scheduled for Friday. Today, so far, we’re seeing
some improvement, with the 10-yr down to 3.29% and MBS prices
better between .1225-.250.
A
woman, upon arrival in heaven, asked "God, why did you create
man before woman?”
God answered "to every good design, there's a rough draft".
|
