Aug. 13: Subservicing, LO comp, non-QM products; Agencies active in capital markets

Don’t think that correct mortgage documentation is important? Think again, or ask Citigroup. The Federal Reserve said Friday it had fined Citigroup $8.6 million over poor quality mortgage documentation practices at its CitiFinancial subsidiary in 2015. The Fed Citi mishandled customer files as it was preparing to wind down its mortgage servicing business, doing so in 2017. But there is good news! The Fed said that the problem was corrected, and the Fed is terminating a separate 2011 enforcement action against Citigroup on a separate residential mortgage loan servicing matter, citing sustainable improvements by the bank. Dot those i’s and cross those t’s!

Lender products and services

“Interest only payment options for your Jumbo Borrowers? We can do that! Stearns Wholesale introduces our Non QM Jumbo Product. With no private mortgage insurance required and eligibility based on FICO scores from 720 and up, the Non QM Jumbo provides flexible guidelines to help your clients qualify for more financing options. Income flexibility that allows for asset depletion, DTI > 43% and projected income. First time homebuyers with FICO scores less than 720 may access loan amounts up to $1M; experienced homebuyers can access loan amounts up to $1.5M. Big Win? We’d call this a Jumbo Win. Contact us for more details on the Non QM Jumbo and all the ways Stearns Wholesale can help you qualify more borrowers!”

CMC Funding, part of the Computershare Group, is aggressively buying servicing through its co-issue platform. With the co-issue process, the asset is sold directly to Fannie or Freddie while CMC Funding is simultaneously designated as the servicer. Why should you consider adding this delivery to your arsenal? Historically, with co-issue delivery your back-office expenses are lower – by some estimates up to 12bps. Additionally, you get all the benefits of selling agency direct without retaining servicing, you have readily available cash flow plus there is no servicing asset to maintain or value monthly – worth exploring!

Gateway Mortgage Group, announced its intentions to merge with Farmers Exchange Bank located in Cherokee, Oklahoma. Following regulatory approval and completion of the merger, Gateway will become a bank. “We believe this acquisition is an important next step for Gateway Mortgage Group that will allow for growth, providing greater opportunity for employees and the communities they serve,” said Stephen Curry, Gateway Mortgage Group’s newly appointed CEO. “Through this acquisition, both Farmers Exchange Bank and Gateway Mortgage Group can expect to gain improved products and technology that will enhance their ability to strengthen the families in their communities. We’re excited about this new venture and the benefits it will provide to our customers.” For more information, visit Gateway’s Newsroom.

Have you outgrown your LO comp management system? Silverton Mortgage did. On its path to becoming one of the fastest growing mortgage companies in the nation, the Atlanta-based lender quickly realized its growth had outpaced its ability to calculate commissions and manage comp plans for its sales staff using Excel spreadsheets. Having already enlisted LBA Ware’s help to integrate its multiple internal systems using the LOS Talker middleware platform, Silverton Mortgage Vice President of Development Jason Strain realized that the vendor’s automated commission platform CompenSafe was exactly what Silverton needed to streamline payroll operations and harness loan origination data to drive additional revenue and profit growth. To see how, download the free case study.

“Originators Love Zip, the POS with a 76% borrower completion rate. Are you interested in a point-of-sale solution that will elevate your borrower experience and convert more leads to loans? Zip is the only POS that you can launch today to engage your leads and streamline doc collection, making home buying more fun and freeing. After all, fintech shouldn’t slow you down. We power your pipeline with an expedited pre-qual, automatic verification of assets, digital doc exchange management and deliver an experience that your borrowers will love. And like you, fearless LO, we like to be first. That’s why Zip customers are ahead of the game with access to the new 2019 URLA.  Be a hero to your borrowers and gain an edge your competition can’t touch. Get a Zip demo today or join our next webinar.

Capital markets

The various high-ranking officials within the Federal Reserve know just as much about the direction of the economy, short-term rates, and financing than anyone else, right? Fed Governor Quarles said the Secured Overnight Financing Rate (SOFR) is more liquid than Libor and should be used by banks when lending to one another going forward. Fed Kansas City President George said she believes “gradual further increases in our policy rate will be necessary to return policy to a neutral stance.” Fed Chair Powell said in Congressional testimony that the global growth outlook “remains solid” and the US economy is in a “really good place” and the “best way forward is to keep gradually raising the federal funds rate.”

The markets continue to expect the Fed to increase rates twice more this year baring any surprises in economic data or world events. The expected timing for those rate increases remains at the September and December meetings. Any questions?

As mentioned in this commentary, Fannie Mae issued the market’s first-ever Secured Overnight Financing Rate (SOFR) securities, a three-tranche $6 billion SOFR debt transaction scheduled to settle on July 30, 2018. This transaction should accelerate the development of the SOFR market and encourage other issuers in the debt markets to follow suit. The floating rate notes, offered in three maturities, 6, 12, and 18 months, were met with strong investor demand.

What else have those crafty Agencies been up to? Here’s a primer on the single security efforts. Loan originators should care because anything that contributes toward an active and liquid market for mortgages helps rates for borrowers.

On July 26, Freddie announced its offering of the Multifamily Aggregation Risk Transfer Certificates, Series 2018-KT03 (KT03 Certificates), which will be backed by multifamily mortgage loans that are awaiting sale into K-Series securitizations. This offering of $1 billion in KT03 Certificates is expected to settle on or about July 30, 2018 and is the first offering of Multifamily Aggregation Risk Transfer Certificates (KT Certificates) this year. KT Certificates are designed to transfer a portion of the credit risk associated with eligible multifamily mortgage loans to certain investors prior to sale into K-Series securitizations. KT03 is designed to transfer the risk on multifamily mortgages that are in their lease up period (Lease Up Loans), which occurs before the collateral is fully stabilized. The initial pool contains 20 Lease Up Loans, eight of which are seasoned more than 24 months. After the closing date, Freddie Mac may also include loans backed by student and seniors’ housing in the pool. On the settlement date, Freddie Mac will sell to the FMPRE 2018–KT03 Multifamily Aggregation Risk Transfer Trust (KT03 Trust) approximately $1 billion in eligible mortgage loans. During a 42-month revolving period Freddie Mac will purchase mortgage loans eligible for repurchase from the KT03 Trust for inclusion in K-Series securitizations and replace them with additional eligible mortgage loans. The KT Trust will issue Class A, B, C, D and E Certificates. Freddie Mac will guarantee timely payment of interest, reimbursement of realized losses and ultimate repayment of principal on the Class A Certificates but will not guarantee the Class B, C, D or E Certificates. Freddie Mac will purchase the Class A and E Certificates.

Fannie Mae Announces Two Credit Insurance Risk Transfer Transactions on $22 Billion of Single-Family Loans, its fourth and fifth traditional Credit Insurance Risk Transfer (CIRT) transactions of 2018 covering existing loans in the company’s portfolio. The two deals, CIRT 2018-4 and CIRT 2018-5, which together cover $22 billion of loans, are a part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has acquired about $6.9 billion of insurance coverage on $278 billion of loans through the CIRT program. These new transactions transferred $663 million of risk to seventeen reinsurers and insurers, representing the largest amount of risk transferred in a single CIRT transaction set. In CIRT 2018-4, which became effective June 1, 2018, Fannie Mae will retain risk for the first 60 basis points of loss on a $19 billion pool of loans. If the $116 million retention layer is exhausted, reinsurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $580 million. With CIRT 2018-5, which also became effective June 1, 2018, Fannie Mae will retain risk for the first 60 basis points of loss on a $2.7 billion pool of loans. If this $16.5 million retention layer is exhausted, an insurer will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $82.5 million. The covered loan pools for the two transactions consist of fixed-rate loans with loan-to-value ratios greater than 60 percent and less than or equal to 80 percent, and original terms between 21 and 30 years. Since 2013, Fannie Mae has transferred a portion of the credit risk on single-family mortgages with unpaid principal balance of over $1.4 trillion, measured at the time of transaction, through its credit risk transfer efforts.

On July 13, Freddie Mac announced the pricing of the SB51 offering, a multifamily mortgage-backed securitization backed by small balance loans underwritten by Freddie Mac and issued by a third-party trust. The company expects to guarantee approximately $457 million in Multifamily SB Certificates (SB51 Certificates), which are anticipated to settle on or about July 24, 2018. Freddie Mac Small Balance Loans generally range from $1 million to $6 million and are backed by properties with five or more units. This is the seventh SB Certificate transaction in 2018. Freddie Mac is guaranteeing three senior principal and interest classes and one interest only class of securities issued by the FRESB 2018-SB51 Mortgage Trust. Freddie Mac is also acting as mortgage loan seller and master servicer to the trust. In addition to the four classes of securities guaranteed by Freddie Mac, the trust will issue certificates consisting of Class B and Class R Certificates, which will not be guaranteed by Freddie Mac and will be sold to private investors. The Small Balance Loan (SBL) origination initiative was first announced in October 2014 and expands the company’s continuing effort to better serve less populated markets and provide additional liquidity to smaller apartment properties. Freddie Mac has a specialty network of Seller/Servicers and SBL lenders with extensive experience in this market who source loans across the country.

Looking at the day-to-day bond market and rates, we had a nice rally to close out last week, including the U.S. 10-year dropping 8bps to 2.86% as investors saw significant weakness in the Turkish lira and its impact on European banks with exposure to Turkey as some tariffs take effect. Headline CPI figures from Friday showed consumer inflation trends are running above the Federal Reserve’s longer-run inflation target, which will keep the Federal Reserve inclined to raise the target range for the fed funds rate.

Turkey obviously remains in focus although US sentiment isn’t as panicked as some of the media reports suggest. Turkey ranks about #17 in the world in GDP, so it is important. But there isn’t much else of the media to focus on, so…Turkey!

We have a pretty busy week for news, although we start with zip today. Tomorrow are import and export price numbers. Wednesday we’ll look forward to the residential application numbers for last week, NonFarm Productivity, Retail Sales, Unit Labor Costs, the Industrial Production and Capacity Utilization couplet, and the NAHB Housing Market Index. Thursday brings the usual Initial Jobless Claims, but also the Philly Fed numbers, and Housing Starts & Building Permits. Friday ends with a whimper with only some numbers from the University of Michigan. We begin the week with the 10-year yielding 2.87% and agency MBS prices little changed from Friday’s rallying close.

Will Rogers, who died on August 15, 1935 in a plane crash in Alaska with bush pilot Wiley Post, was one of the greatest political country/cowboy sages this country has ever known. Some of his sayings:

1. Never slap a man who’s chewing tobacco.

2. Never kick a cow chip on a hot day.

3. There are two theories to arguing with a woman. Neither works.

4. Never miss a good chance to shut up.

5. Always drink upstream from the herd.

6. If you find yourself in a hole, stop digging.

7. The quickest way to double your money is to fold it and put it back into your pocket.

8. There are three kinds of men: The ones that learn by reading. The few who learn by observation. The rest of them have to “piddle” on the electric fence and find out for themselves.

9. Good judgment comes from experience, and a lot of that comes from bad judgment.

10. If you’re riding’ ahead of the herd, take a look back every now and then to make sure it’s still there.

11. Lettin’ the cat outta the bag is a whole lot easier’n puttin’ it back.

12. After eating an entire bull, a mountain lion felt so good he started roaring. He kept it up until a hunter came along and shot him. The moral: When you’re full of bull, keep your mouth shut.

Visit for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “With Regulations, Be Careful What You Wish For.” 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.


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to Copyright 2018 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