Apr. 11, 2011: Will all mortgages be funded by REIT's? A primer. New Ginnie pool data requirements; servicer-specific early pay-offs
Rob Chrisman

Western Springs National Bank and Trust (IL) was closed Friday by the OCC, which in turn appointed the FDIC as receiver, which, in turn, entered into a purchase and assumption agreement with Heartland Bank and Trust Company, also of Illinois. A few thousand miles away, in Nevada, Nevada Commerce Bank was closed by the Nevada Financial Institutions Division, which appointed the FDIC as receiver, and the FDIC tapped City National Bank out of Los Angeles to assume all of the deposits of Nevada Commerce Bank. The pace of these bank closings has slowed relative to late 2010.
 
Any company originating FHA & VA loans, and either securitizing them or selling the loans to a company that does, should be aware of HUD’s new data elements to Ginnie Mae pool issuance. Commencing 9/1, Ginnie Mae will require Issuers to provide up to eight additional new data elements on single-family forward mortgages in an effort to provide greater transparency for investors, which in turn should help prices and therefore rates. For complete details go to http://www.ginniemae.gov/apm/apm_pdf/11-05.pdf

Something caught my eye last week from a very active mortgage desk from a well-known Wall Street dealer. "The jump in prepays on certain Chase serviced pools seems to have occurred because servicing moved from Washington Mutual to Chase. As more loans are serviced by Chase now versus before, this should lead to a slight increase in prepays for the different cohorts where there were a relatively high percentage of Washington Mutual serviced loans.” There are various reasons why pools of certain loans pay off more quickly or slowly than others, including rate, pricing, geographic appreciation, borrower credit worthiness, and so forth – and one can add “servicer to that list. What originators should take away is that investors are analyzing pools, and the servicer of those pools, and eventually, each licensed LO out there will have a track record, using the NMLS, of loans paying on time, loans delinquent, loans in foreclosure, loans that pay off early, etc. And speaking of NMLS, the Resource Provider has some updated NMLS information to become an approved course provider: http://mortgage.nationwidelicensingsystem.org/courseprovider/Pages/Resources.aspx.

Merrill Lynch/Banc of America sent out a list of recent REIT filings, which continue at a record pace. Last week I was on a panel at a conference in California focused on the future of jumbo lending, and residential mortgage REIT’s may figure prominently in that. REIT’s clearly have become, with their leverage of 5x1, the dominant pool of new capital that the government was looking for as the GSE's become a smaller portion of the mortgage market. Recent REIT filings include Angelo Gordon ($300 million), Provident ($300), TCW ($300), Apollo ($300), Wamco ($300), American Capital ($500), and PIMCO ($600 million).
 
If one is a mortgage company seriously looking into a REIT structure, you don't start off by saying things like, "I was having brunch with Frank yesterday and we decided to start a REIT this week." Anytime you bring in a combination of an investment bank, a team of attorneys, serious quarterly reporting, and the SEC, check your bank account first. But there are some very smart players out there who believe that the current level of government involvement in the U.S. residential mortgage market (90% or so) is not sustainable and that eventually Agency support will be significantly reduced and replaced by private capital. And some of that private capital entering the $12 trillion residential market will be in the form of REIT's, especially if there is a big spread difference between existing agency MBS's and other mortgage products in the future.

Here is a series of introductory primers on the formation, qualifications, and benefits of REIT’s. http://www.ehow.com/how_5054864_set-up-reit.html. Whole Loan Capital also has a primer from a lender's perspective - just scroll down slightly at http://www.wholeloans.com/blog.html. Or go to http://www.sutherland.com/file_upload/CapitalMarketTransactionsKrusPangas.pdf
or http://www.gentryfinancialcorporation.com/wealth-management/library/downloads/REIT-Taxation.pdf. Lastly, try http://www.sec.gov/answers/reits.htm - from there one can click on the "EDGAR DATABASE" link, and for kicks type in "Redwood Trust" under "company or fund name." Or visit http://www.bostoncapital.com/reit/sec.html.
 
The government seems to have averted a shutdown, but I received several notes regarding the potential shut down in response to some comments noted from a loan officer and from Caroline Baum. "I was dismayed that you passed along the insensitive remarks from that LO in Michigan.  I now live in Washington DC and have been continually amazed and impressed with the diligence of the staffers and federal workers here, including many stories about how workers are trying to get around being locked out from their computer systems so they can keep on top of their workloads if the shut-down does occur.  And don’t forget the potential hit to other businesses, from sandwich shops to cab drivers.  We would do well to remember that and leave the smug, snarky comments out of the dialogue, and that the anger should be directed at the Congress and not the workers.”
 
“I have two sons in the military. One Army, one Air Force. They won’t get paid, but have to show up for work anyway. They have car payments, insurance, etc. and have to pay them. They are fortunate though as both have savings and my wife and I told them we would back them up as long as it lasts if need be. Both of my sons, and my wife & I support a shutdown until the Congress and President cut the budget a ton. Unfortunately Reid & Obama are fine with using our soldier’s pay as a political football. No matter your political viewpoint, this is immoral.”
 
Here is one trend that Realtors and mortgage originators should pay attention to, and that is household formation. Yes, as a nation the population in the US is steadily increasing, which in the past led to an increase in the number of households. But at present, household formation has been slowed by the recession. There are a large number of adults who have either moved back in with their parents because they can no longer maintain the expense of their own household, or are not even moving out due to economic uncertainty. A loan agent wrote to me, “In the recent past many kids got down payment gifts from their parents, but now the parent’s wealth has gone down, and a portion of my clients don’t feel comfortable giving their kids any money to move them out of the house.”
 
Owning a home is a subset of forming a household (which includes rentals), and most analysts believe that several years ago home was driven up artificially high by political mandates, bad mortgage lending, artificially low rates, or any number of other factors. The home ownership rate has been inching back down for a variety of reasons, but the number of households is not showing the same dramatic decline since people do, indeed, need a place to live. And many in the business believe that encouraging more investor loans would be an improvement rather than the government concentrating on keeping people in homes with mortgage modifications. Clearing the existing inventory, and the inventory of about-to-be foreclosures, is a necessary condition to improve the housing market.
 
The post-comp training continues. Home Savings of America is hosting a session tomorrow (4/12) at 2PM EST – “Join us as we de-mystify pricing and locking loans and completing GFEs under the new compensation regulations.  We will walk through pricing options and how they look under the new rules; we will also go over how to complete the GFE under various pricing options.” Go to this site and click “register” and then “submit”: https://homesavingsofamerica.webex.com/homesavingsofamerica/onstage/g.php?d€5949491&ta&EAbarbh360%40gmail.com&ETf66ab079d11b8b43f753bf2103207a63&ETRe3e59f0021de27242e65fa8b9dd51f9a&RTMiM0&p.
 
If you’re in Washington later this month, you may want to sit in on the upcoming “WAMP Speaker Evening Meeting” in Bellevue on the 27^th. The speakers will be Mike Anderson of NAMB and Mark Savitt of NAIHP. Contact Nicole M. Christy for details at Nicole.Christy@Flagstar.com.

Not only is Stephen Ross the owner of the Miami Dolphins, but is now apparently buying (through his Related real estate companies) a 25% stake in Fannie Mae’s apartment building inventory for $300 million. Fannie also would sell Related stakes in future foreclosed multifamily properties, which are expected to be added to the portfolio as Fannie takes them over in the coming years. Fannie reported $596 million in foreclosed multifamily properties at the end of 2010, more than double what the company reported a year earlier, and may now be taking the approach of selling apartments to investors but keeping a majority stake on its books. Fannie reported owning more than 162,000 single-family homes, which had been backed by mortgages valued at $15 billion at the end of 2010, compared with just 222 multifamily properties.
 
Many originators are hoping that this week is an improvement over last week, when we saw the price on the 10-yr Treasury Note worsen by nearly 1.25 (3.45% up to 3.57%) and current coupon mortgage-backed securities worsen by roughly .5 in price. What’s been driving interest rates higher for three weeks in a row? The markets seem focused on the trend in rates moving higher, commodity price pressures (seen every time one drives by the gas station), the job market improving, persistent stock market gains, European Central Bank tightening, increasing Treasury supply (this week we have 3’s, 10’s, and 30’s), our Fed tightening going from “if” to “when”, and so forth. In early February the 10-yr yield hit 3.74%, but most don’t expect us to see that high of a yield in the near future.
 
Last week we had very little scheduled economic news to chew on but this week we have “a ton.” We don't have anything today, but tomorrow we have the trade balance figures and import & export prices. Wednesday is the MBA application index, Retail Sales, Business Inventories, and the Fed's Beige Book monitoring economic activity in the various Fed districts. Thursday brings us Jobless Claims and the Producer Price Index. Tax Day we'll see the Consumer Price Index, so we can see how much of the change in the PPI is passed on the consumers, Empire Manufacturing, Industrial Production and Capacity Utilization, and a University of Michigan sentiment number. Ahead of that our 10-yr Treasury is sitting around 3.59% and MBS prices are roughly unchanged.
 
 
A Newfie (Newfoundland) named Eric is driving home after downing a few at the local pub. He turns the corner and sees a tree in the middle of the road. He swerves to avoid it. He realizes there's another directly in his path!
He discovers his drive home is causing him to veer from side to side to avoid all the trees. Moments later, he hears a police siren and stops his car.
The officer approaches his car and asks him what on earth he is doing.
Eric starts to tell the story of the trees on the road.
The officer stops him in mid-sentence and says, "Fer Chrissakes, Eric, tha's yer air freshener!"