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Mar. 14, 2011: REIT's on the rise; aftermath of bank takeovers; compensation lawsuits; HARP extended; investor changes continue
Rob Chrisman
In the
old days, Realtors' advertising was simple and
straightforward. Maybe even "old fashioned." Now? http://www.youtube.com/watch?vCdi2ZipvLvY.
Wouldn't it be something if this whole compensation
thing was put on hold for months? Think of all the tens of
millions already spent in attorney and operation costs, and the
fact that many companies have already rolled it out. It is
rumored that House Financial Services Committee Chairman Spencer
Bachus is drafting a letter which will be mailed to Chairman
Bernanke early this week and which specifically request that the
Board delay implementation of the compensation rule and will
site its inconsistency and vagueness as some of the reasons for
the requested delay. In addition, a letter co-authored by
Senators David Vitter from Louisiana and Jon Tester from Montana
was sent Bernanke requesting a delay in the implementation of
the Fed's loan originator compensation rules.
The industry is
watching the lawsuits filed by NAMB and NAIHP. I received this
note from one industry vet, "Where is the MBA in all
of this? The MBA, in my opinion has a conflict of
interest. Its biggest members are clearly the largest lenders,
who are not mortgage bankers - they are banks: the ‘Banks that
are Mortgage Bankers Association’. Pure mortgage banks are
under-represented. If this Rule goes into effect and it is as
bad as expected, the wholesalers are in trouble if they do not
have a bank behind them. What are mortgage bankers supposed to
do? Clearly, what is in the interest of Chase or Citi is not in
the interest of any mid-size wholesale investor.”
FHFA will not be
giving up HARP for Lent. It announced an extension
of the Home Affordable Refinance Program, which is
administered by Fannie Mae and Freddie Mac, to June 30, 2012.
In addition, Fannie Mae and Freddie
Mac will make the following adjustments to their programs:
Freddie Mac will exempt HARP loans from their recently announced
price adjustments and Fannie Mae will conform their eligibility
date to May 2009. The program expands access to refinancing for
qualified individuals and families whose homes have lost value.
Looking at the stats for loans with LTV's from 80-125%, HARP did
about 190,000 in 2009 and 622,000 in 2010.
TMAC Mortgage Co filed with the SEC
to raise up to $300 million from an IPO. The company said it
expects to use all the net proceeds to buy agency securities,
including fixed-rate residential mortgage-backed securities and
adjustable-rate mortgage securities. Deutsche Bank, Barclays
Capital and Credit Suisse are underwriting the offering. TMAC
itself is a Los Angeles-based, TCW-managed REIT formed to invest
in residential mortgage-backed securities. This is indicative of
a growing REIT trend: since the beginning of December 2010,
mortgage REITs have raised about $5bn new capital, which has
resulted in about $40-$50bn of net demand for agency MBS. If
demand for MBS’s is strong and the supply is down, one would
expect prices to increase and rates to drop.
Broadly speaking, a REIT (Real Estate Investment Trust) owns and
manages a pool of commercial properties and mortgages and other
real estate assets and its shares can be bought and sold in the
stock market. Its tax designation leads to a reduction or
elimination of corporate income taxes since it is
required to distribute 90% of its income, which may be
taxable, into the hands of the investors. Mortgage REITs seem to
have bought several billion dollars of higher coupon MBS which
had resulted in higher coupon MBS significantly outperforming
lower coupon MBS over the past three months. Most of this is new
production due to the need to take delivery of actual mortgage
pools (instead of buying TBAs and rolling them) so that helps
the price of new pools versus that of existing pools. Watch for
REIT’s to garner a fair amount of attention going forward.
On Friday the First
National Bank of Davis, Davis, OK was closed by the OCC, which
appointed the FDIC as receiver. Someone at the FDIC called The
Pauls Valley National Bank, Pauls Valley, Oklahoma, who will be
assuming all of the deposits. Up in Wisconsin, Legacy Bank of
Milwaukee also found its stationary worthless, as it transfers
its deposits to Seaway Bank and Trust Company, Chicago,
Illinois. In an FDIC-assisted transaction, bids are placed for
both assets and deposits. When it comes to deposits, the
liabilities are either bid at par or a premium, with the
majority done a par. The acquiring bank gets a period of time to
reset the stated rate down on all or a portion of the
liabilities. In addition, the acquiring bank may also choose to
impose fees. Of course, dropping the rate and increasing fees,
means the acquiring bank will face run-off of volume so one of
the key assumptions in an acquisition is what the predicted
deposit defection will be, which in turn is based on the age of
the account, the type of account, current balance, current rate,
market rate (or alternatives) and the amount of other services
utilized by the account. Most run-off happens within 3 months.
Provident Funding told its broker
clients that if they "fund at least five lender-paid loans with
Provident Funding in one month in the same state, the percentage
level can be adjusted for the next month."
This Wednesday Kinecta Federal Credit Union is hosting a meeting
& WebEx presentation from 8:30-10:00AM PST at its processing
center in El Segundo. Call 1.800.854.4600 for more information.
Meeting Number: 926 212 908 / Meeting Password: regzeasy. Go to
https://kinectamortgage.webex.com/kinectamortgage/j.php?J'6212908&PWNZGY4OWE4MmYw.
Flagstar announced its jumbo
ARM program credit score is increasing to 720 under for most
circumstances, and for the week issued updates on a slew of
changes including an AMC requirement update for delegated
clients, news on the execution of the VA Origination Statement,
clarifications and new policies on FHA refi's, revised the FHA
MIP and case number policy, tweaked the program for condos and
rental income and closing in trust, and discontinued the
SureClose eClosing and ACH Payment programs. Recently Flagstar
lowered the application fees for all new broker and
correspondents, and also lowered the net worth requirements.
(Applications are now $50 and net worth requirements are $25,000
for brokers and $75,000 for correspondents.) And as this column
previously noted, Flagstar issued information regarding comp
plans. LO's must be sure to structure their compensation plans
correctly because if they want to get paid under both borrower
paid and lender paid models, they need to be set up under the
hourly/salary/bonus structure. Most lenders are no longer asking
for and reviewing comp plans, but rather having customers submit
an agreement or individual loan disclosure that reps and
warrants they will be paid according to the new rules. Flagstar
still requires brokers to take advantage of safe harbor option
to avoid steering by providing a disclosure on a per loan basis,
although it is still awaiting a possible industry standardized
disclosure. For the initial roll out Flagstar will limit brokers
to one schedule per ID.
Essent Guaranty is seeing some good
signs out there in the housing market, and in on 3/25 turn is
“implementing a prudent guideline eligibility expansion in
conjunction with expanded pricing options to enhance our value
proposition to our clients. Essent now offers credit guidelines
and Monthly and Single Premium rate plans covering both fixed
and Non-Fixed rate loans for LTVs up to 97% and FICO scores down
to 660. As a reminder, for Retail originations, Essent continues
to have no additional guideline limitations for properties
located in declining markets except for condominiums in
Florida,” and it has removed Michigan from its list of
designated declining markets; this expands the business
acceptable to us for Non-Retail originations.
Home Savings of
America announced a
reduction in its High Balance adjustment for the Conforming 30yr
Fixed (CF30J) to .80 from 0.900. HSOA will now allow current
market relocks 30 days after expiration, cancellation, or denial
on FIXED products. ARM products will still require a 60 day
window to relock at current market, but the standard ARM margin
on HSOA’s government ARM products has been reduced to 2.00 from
2.25. The company recently released a slew of other changes to
FHA loans centered on refinance charges, seasoning on cash-out
transactions, occupancy of former investment property, etc.
Here is some good
news: Prospect Mortgage introduced a new jumbo
program. http://www.prnewswire.com/news-releases/prospect-mortgage-offering-jumbo-loans-on-secondary-market-117700958.html.
Pinnacle Capital
Mortgage sent out a series of
underwriting guideline updates which included an updated LARA
policy, a clarification of contingent liabilities, clarified
that the financed property limit is cumulative for all
borrowers, an updated calculation of HELOC payment on subject
property, etc.
Stearns told broker clients
about the upcoming critical TILA dates. The Broker and
Compensation Agreements have to be to Stearns by 3/25, loans
funded by 3/31 can be done under existing rules and regulations,
and April 1 things change.
NYCB sent out a series of product updates,
dealing in part with Fannie’s DU Refi Plus Program, life estates
eligibility, warrantable condo conditional final project
acceptance, etc.
MSI has posted a
clarification of the FHA Guidance changes and imposes MSI
overlays, a revision of the MSI Minimum
FICO for 5/1 Streamline ARM loans, more information on USDA
announcements, etc.
What is the bond
market focused on? One item that has really turned some heads
recently was the letter from PIMCO’s Bill Gross, stating that
its Total Return Fund sold all of its Treasury holdings. Mr.
Gross has been right and wrong in the past. One quote said,
“PIMCO’s not sticking around to see what happens when QE II
ends” in June. Currently 70% of the Treasury’s annual bond
supply is being gobbled up by the Fed through quantitative
easing – what happens if the purchases stop? Even with the
turmoil around the world there is little "Flight to Quality" bid
for US Treasury debt because the Fed is “busy printing dollars
to create Inflation to solve our own debt crisis.
Investors are also
worried about the potential impact on global recovery the event
in Japan could produce. Japan is the world’s 3rd largest
economy, the 4th largest exporter, 3rd largest importer of oil
and 5th largest importer overall, so concerns are running high –
Japan’s debt is already at 200% of GDP. Even
before the earthquake, Japan’s economy had been struggling to
recover from deflationary pressures and investors are concerned
the government has little room to borrow the funds needed to
support massive rebuilding efforts. Look for rebuilding projects
to eventually be supportive to economic growth, as disaster cost
estimates are nearing $200 billion. Look for central banks
worldwide to keep liquidity flowing into the system, as they
work together to ensure economic growth and Japan are supported.
Here in the US, there
is no scheduled economic news today, but tomorrow we have the
Empire Manufacturing number. On Wednesday we have some Export
& Import Price data, the Producer Price Index, but also the
end of the Fed meeting – don’t look for any change to rates.
Thursday is Jobless Claims, Housing Starts & Building
Permits, and the Consumer Price Index. On the 17th we
have Industrial Production & Capacity Utilization, along
with Leading Economic Indicators and the “Philly Fed” numbers.
MBS prices ended the day Friday worse by about .250; this morning we find the 10-yr yield sitting around
3.38% and MBS prices +.125.
Six retired Irishmen
were playing poker in O'Leary's apartment when Paddy Murphy
loses $500 on a single hand, clutches his chest, and drops dead
at the table. Showing respect for their fallen brother, the
other five continue playing standing up.
Michael O'Conner looks around and asks, “Oh, me boys, someone
got's to tell Paddy's wife. Who will it be?”
They draw straws. Paul Gallagher picks the short one. They tell
him to be discreet, be gentle, don't make a bad situation any
worse.
“Discreet? I'm the most discreet Irishmen you'll ever meet.
Discretion is me middle name. Leave it to me.”
Gallagher goes over to Murphy's house and knocks on the door.
Mrs. Murphy answers, and asks what he wants. Gallagher declares,
“Your husband just lost $500, and is afraid to come home.”
“Tell him to drop dead!'” says Murphy's wife.
“I'll go tell him,” says Gallagher.
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