Aug. 8: Is the Agency CRT program endangered? Economic tidbits; Saturday Spotlight: LBA Ware

Does running from my responsibilities count as cardio? There are a lot of groups responsible for running the production of economic statistics of varying quality. The United States now finds itself grouped with China in terms of questionable government statistics: how can we rely on them when people are distressed or don’t answer the phone? Statistics show that Manhattan is watching its urban real estate fall while suburban real estate is surging. And RENTCafe believes that the economic impacts and safety concerns of COVID-19 epidemic have influenced over 40% of current renters to reconsider their plans for homeownership, either delaying them into the future or ending them outright. In a survey of 6,963 RENTCafe users in May, 11 percent, reported that they had been ready or planning to buy a home in 2020. 25 percent of renters intended to upgrade their apartment, 24% planned to move to a similar unit, 29% planned to downgrade, and 10% intended to renew their current lease. My guess is that more people want to own a home now, back then the most commonly cited reason for delaying homeownership was “economic uncertainty,” followed by “loss of income.”

Saturday Company Spotlight

This week we highlight LBA Ware as the mortgage software developer launches a new BI platform. 


LBA Ware is well respected as the company behind CompenSafe (and an often-cited source of LO compensation data). How do you maintain your company culture? Lori Brewer, Founder & CEO, replied: LBA Ware fosters a culture of collaboration, innovation, and professional development as we work together to help lenders better leverage the human potential within their organizations. Hallmarks include our annual employee retreat and a love of Chuck Taylor sneakers. Every new employee receives a pair, and we do ‘Chuck Checks’ every Friday… even in quarantine!


You’ve recently launched something new to the market. Tell us about that. We built CompenSafe to help lenders manage incentive compensation, something that’s normally complicated, error-prone, and spreadsheet-driven, with the push of a button. This gave us the opportunity to look “under the hood” of nearly 100 different lenders. Everyone had questions they wished they could answer, like “why is this competitor eating my lunch?” or “why are my refi turn times so bad?” Their data held the answers, but they didn’t have time to dig through 10 different systems to find them. That was the genesis of our business intelligence platform, LimeGear. LimeGear does the heavy lifting for you, allowing you to visualize the data and take action immediately. 

What distinguishes LimeGear from other BI platforms?  BI tools that aren’t built for mortgage (Qlik, Tableau, Domo) can be made to work, but only with lots of manual configuration that makes them clumsy at evolving with your business. LimeGear is dialed in to the exact needs of mortgage lenders and scales with you. For example, we’ve built a KPI library of production metrics lenders can use to customize weighted scorecards for assessing individual or branch performance. Because we don’t have a per-user fee, LimeGear is affordable for companies of every size. Role-based permissions empower the entire organization to make informed decisions: LOs and managers can see and act on data immediately; analysts can focus on analysis, not report-building; and the C-Suite can generate reporting on demand.

What is your company most proud of that doesn’t have to do with sales? Our core beliefs include “never stop learning,” “remain curious” and “strive for greatness.” Through our partnership with Book ‘Em, we put books in the homes of at-risk kids in our local community, empowering them to develop a sense of wonder and envision a world of possibility through the magic of reading. With every new client, we donate $100 to Book ‘Em. Learn more about Book ‘Em and ways you can help here. We also support The Mentor’s Project, working with local middle- and high-school students who need mentorship and support to achieve their academic, social and personal potential.  

(For more information on having your firm and its charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

It’s the Economy, Stupid

Chapter 11 business bankruptcies surged 52% in July compared to the same month last year, while around 40,000 personal bankruptcies were filed in the month, up 11% from April’s figure. Filings are expected to increase as government support programs come to an end. Fitch has maintained its AAA credit rating for the US but lowered its outlook from stable to negative. The ratings agency said in a statement there is a growing risk that “policymakers will not consolidate public finances sufficiently to stabilize public debt after the pandemic shock has passed.”

The US federal government will need to maintain borrowing at elevated levels as the coronavirus crisis continues, although it should decline marginally this quarter, the Treasury said. Offerings of all Treasury securities will be increased but the emphasis will be on 7-year and 10-year notes, and bonds with 20-year and 30-year maturities, as the government aims to shift to longer-dated debt.

At least a sixth of all American Bar Association-accredited law schools plan to be fully online in the fall, including some schools that announced plans to offer a hybrid of in-person and online classes earlier in the summer.

Economic releases this week included updates on forbearance. Black Knight revealed the number of active forbearance plans fell by 101K from the week prior, driven in part by the estimated 500K plans that were set to expire at the end of July entering the last week of the month. More than two-thirds of loans that remain in active forbearance have had their plans extended, with the bulk of forbearance extensions being for an additional three months. Forbearances declined across all investor classes over the past week, with FHA/VA loans seeing the first decline in four weeks. As of August 3, 4M homeowners were in active forbearance, the lowest such share since the last week in April and representing 7.5 percent of all active mortgages, or $852 billion in unpaid principal. And while forbearances in general are falling, Ginnie Mae (composed of primarily FHA & VA loans) forbearances are still rising

The airline industry, which early in the pandemic estimated ticket revenue would drop $252 billion this year, even back in April estimated that it’ll instead lose $314 billion in ticket sales in 2020, which would wipe out about 55 percent of the annual passenger revenue accrued by large global carriers. In the first bit of April, flight volume was down 80 percent worldwide, and the revised estimate is based on a slower recovery. The most recent tally is a collective loss of $26 billion in the 2nd quarter alone.

CRT: A Good Acronym to Know; Is It Endangered?

Originators should know that the Agencies (aka Freddie and Fannie) continue to help borrowers both the primary and secondary markets, hoping to achieve competitive pricing in the secondary market while limiting risks borne by taxpayers. And if someone wants to own risk, why not sell it to them? Along those lines, billions of dollars of conforming conventional loans have been bundled into CRT (Credit Risk Transfer) bond deals, nonperforming, or multifamily deals, which help reduce taxpayer exposure to the large book of mortgages guaranteed by the two housing giants and help the Agencies manage their capital. In general, GSE reform needs to ensure stability in the MBS market, but also preserve price signaling from the private sector. Ensuring the smooth functioning of the conventional TBA market is paramount, and most believe that this requires a government backstop behind private capital.

JP Morgan, however, produced a very good research piece on why all this may be coming to an end given FHFA Director Calabria’s May GSE capital proposal. “The new proposal would bring capital levels to around 4%, but draws on the complexity of the modern bank capital framework to include a leverage ratio, risk based capital, and various buffers. And in doing so, makes CRT economically unattractive for the GSEs. If implemented, the capital rule would make single- and multi-family CRT transactions uneconomical.

In analytics way above my head, Chase’s piece notes, “Under the standardized approach, single and multi-family loan capital is calculated as per static grids that reference loan specific risk factors. Single- and multi-family CRT capital is calculated using credit support, bond thickness and expected losses with an RWA floor of 10%. Multi-family CRT capital calculations can also vary between Fannie and Freddie given their different approaches to CRT. The 4% leverage ratio requirement at a balance sheet level reduces the benefits of single and multi-family CRT. The capital rule reduces the capital relief provided by CRT particularly when compared to the cost of credit protection. The leverage ratio and the treatment of CRT under the risk-based capital framework need to be addressed to preserve CRT.”

JP Morgan concluded that, “A well-functioning TBA market and a sustainable private market should be important pillars of GSE reform. To preserve liquidity in TBAs, investors must only be subject to interest rate risk and not credit risk. Therefore, regardless of the level of capital chosen, TBA investors will need some assurance that the government is still backstopping the securities. An explicit guarantee, which would require an act from Congress, ought to be a part of the discussion. Creating a sustainable private market should not come at the expense of CRT. CRT provides price signals to the FHFA and is a risk transfer tool that has been adopted by several market participants. Preserving single and multi-family CRT should be a key focus in the next iteration of the capital regulations. First and foremost, this will require easing of the 4% leverage ratio. Without this change at the balance sheet level, single- and multi-family CRT lose much of their benefit. Once the leverage ratio is altered, the capital relief provided by CRT should be increased by changes to the risk-based capital framework.”

These deals involve sharing part of the credit risk with third party investors – for a price. In the deals, the investors pay cash up front and purchase debt securities that are designed to absorb the credit losses on GSE (government sponsored enterprises) loan pools. The goal is to attract private capital into the mortgage market and shift some risk away from taxpayers since we are currently on the hook for Freddie & Fannie. Fannie Mae and Freddie Mac have still been pricing transactions to aid liquidity in the mortgage space, providing support for its borrowers and up-to-date disclosures for our investor base. And that helps rate sheet pricing for borrowers! Freddie and Fannie aren’t the only ones involved in large deals in the secondary markets. Chase, for example…

J.P. Morgan announced J.P. Morgan Mortgage Trust 2020-1 (JPMMT 2020-1), a prime RMBS transaction comprising 1,056 residential mortgages with an aggregate principal balance of $776.6 million as of the January 1, 2020 cut-off date. The underlying collateral includes prime jumbo non-conforming loans (74.3 percent) and conforming mortgages (25.7 percent), all of which have been designated as Qualified Mortgages (QM). The weighted average original FICO is 765, including 99.6 percent of the loans above a 680 FICO, a weighted average original LTV of 68.6 percent, with only 4.5 percent of the loans having an original LTV above 80 percent, 42.3 percent purchases, and 96.5 owner occupied. All 13 of the A-classes offered received AAA (sf) KBRA ratings from Kroll. The two B-1 classes received AA+ (sf) ratings, the B-2 classes received A (sf) ratings, and the B-3 classes receiving BBB+ (sf) ratings. Shellpoint will interim service the loans until approximately April 1, 2020, after which they will be serviced by JPMorgan Chase Bank using a variable service fee framework. United Shore, loanDepot, and Guaranteed Rate (lenders that contributed mortgages to the transaction) will be under variable service fee framework as well. The variable servicing fee framework mortgages incur servicing fees that, in aggregate, increase as loan performance worsens and/or loss mitigation activity increases.

Switching gears slightly, Ginnie’s no slouch in the capital markets. Despite the pandemic rolling out, Ginnie Mae announced that issuance of its mortgage-backed securities (MBS) totaled $55.21 billion in March, providing financing for more than 211,000 homeowners and renters. That March issuance included $52.51 billion of Ginnie Mae II MBS and $2.69 billion of Ginnie Mae I MBS, of which $2.23 billion of loans were for multifamily housing. Ginnie Mae’s total outstanding principal balance of $2.142 trillion is an increase from $2.058 trillion in March 2019. The Ginnie Mae MBS program has facilitated an average of $55 billion in mortgage capital in each of the past eight months.

The billions for Ginnie sailed right through to June, when it issued $61.3 billion for 231,000 homeowners and renters. A breakdown of June issuance includes $58.22 billion of Ginnie Mae II MBS (registered holders receive separate principal and interest payments on each of their certificates) and $3.11 billion of Ginnie Mae I MBS (registered holders receive an aggregate principal and interest payment from a central paying agent), which includes $2.87 billion of loans for multifamily housing. Ginnie Mae’s total outstanding principal balance of $2.130 trillion is an increase from $2.076 trillion in June 2019. MBS issuance in June exceeded $60 billion for the third consecutive month.

A man has been ill for some time. Fearing that his end is near, he calls his wife to his bedside.
“I have a last wish,” he says to her. “Promise me that two months after I die, you’ll marry our neighbor, Ken.”
The wife is perplexed. “But darling, I thought you hated Ken,” she asks him.
“I do,” replied the man.

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Rob Chrisman