Feb.27: Mortgage jobs & Wells’ layoffs; groups react to tax changes; chatter about “subprime” loans – a misnomer

Hope springs eternal, right? As the residential lending industry wraps up a couple rough months tomorrow, everyone is hoping for a more robust March and April. They are basing this hope on the seasonality of the purchase business out there, and the hope that the worst of the winter storms are past. Few are banking on lower rates, lower costs to originate, or a big influx of HARP-related business. Others are repeating the mantra, “Hope is not a strategy,” and are moving ahead with expansion & hiring plans, scaling back operations staff due to production predictions that were too optimistic, analyzing capital increases or decreases, and adjusting projections. Life goes on and people need home loans – just not as many industry-wide as a year ago.


And selective hiring continues. Kinecta Federal Credit Union currently has openings for a Mortgage Loan Consultant II positions in the Los Angeles, Ventura County, Orange County and San Diego areas. “Here are some of the highlights of our distinctive programs: Service- 21 Day Closing Guarantee -Guaranteed on-time closing on all purchase transactions, money back up to $895, Purchase Ready Pre-Approvals -Direct from the underwriter within 48hrs (with receipt of income and asset docs), Team Access- Our operations teams (processing, underwriting, and funding) are all ‘under one roof’, and products – Limited overlay agency, jumbos, reduced MI program, portfolio and it new 80-10-10 at www.loankinection.com. Here are some of the details of our comp plan: up to 90 bps payout for top performers, monthly marketing for loan officers, and quarterly bonuses for purchase loans.” If you are interested in joining the team, please send your confidential questions and resume to Anthony Jackson at Anthony.Jackson@Kinecta.org.


Growth is the name of the game at American Financial Network. It recently tapped retail branching veteran Daniel Jacobs and his management team to launch expansion in the form of an East Coast corporate office in Charlotte, NC.  AFN is actively seeking successful new branch managers and market leaders to launch new markets nationwide. AFN is a Fannie Seller/Servicer and Ginnie Issuer with a servant culture that places producers and clients first. “They take pride in doing it right while avoiding red tape and internal politics.”  Branch Managers ($2.5mm/mo.+) and Regional Market Leaders should click here for more information.


Maybe they’ll pull some talent from Wells Fargo. The bank announced layoffs of 700: http://www.startribune.com/business/247349081.html.


News out of Congress regarding possible changes to the tax code certainly turned some heads out there. Here is a statement by National Association of Realtors President Steve Brown: “NAR supports reforms that promote economic growth, but we strongly oppose severely altering the rules that govern ownership and investment in real estate. Real estate powers almost one-fifth of the U.S. economy, employs more than 17 million Americans, and contributes a quarter of all federal and state tax revenue and as much as 70 percent of local taxes. We are extremely disappointed with several of the provisions contained in U.S. House Ways and Means Chairman Dave Camp’s tax reform draft released today, namely proposed limits on the mortgage interest deduction and capital gains, and the repeal of deductions for state and local property taxes. These proposed changes to the taxation of real estate will impact every single American, either directly or indirectly. NAR will carefully analyze the details of the Chairman’s plan so we can best educate Congress and the public about how this plan would impact the owners, consumers, and producers of both residential and commercial real estate.”


And Barbara Thompson, the Executive Director of NCSHA (National Council of State Housing Agencies) issued a statement on Chairman Camp’s Tax Reform Discussion Draft. “On the one hand, we are pleased that House Ways and Means Committee Chairman Dave Camp’s tax reform discussion draft preserves the Low Income Housing Tax Credit, though we are still analyzing the impact the many changes the draft proposes would have on the program. On the other, we are deeply disappointed that the discussion draft eliminates the ability of states and localities to issue tax-exempt bonds to finance affordable housing by terminating private activity bond authority. This authority allows states and localities to issue bonds for affordable housing, student loans, energy projects, water facilities, transportation developments, and other vital uses. State Housing Finance Agencies (HFAs) issue tax-exempt Housing Bonds to finance affordable mortgages for first-time homebuyers and rental housing developments. Forty percent of all Housing Credit production annually is made possible by Housing Bonds. Both programs have a proven track record of success in providing affordable housing help to the growing number of lower income people who need it. We urge Congress to ensure that any tax reform plan it advances preserves and strengthens both of these essential programs.”


The CFPB said it is making mortgage loan servicing a “significant priority” for itself as it plans to make sure servicers are actively reaching out to customers in default to try to help them. The regulator said they expect servicers to pay “exceptionally close attention” to servicing transfers and only use force-placed insurance “as a last resort.” But what happens when you combine servicing and subprime loans? Here is a take from Reuters: http://www.reuters.com/article/2014/02/26/moodys-mortgage-idUSL3N0LV2J120140226. The press loves to use the word “subprime” since it seems to incite the pubic and regulators, and the industry should do what it can to stop using the term. Borrowers who don’t have sterling credit have always existed, and always will, and will always want to borrow money – a fact somehow lost on some reporters.


But the definition of the word has always been nebulous, especially when it is tied to a FICO score (much to the dismay of other credit score providers). And “inconsistent income” has always been a problem for self-employed borrowers, generally the group mentioned as left behind in the Ability to Repay movement. Forgotten are compensating factors, such as LTV or assets in the bank. When Wells Fargo announced its retail group extending credit to that segment, it never uttered that term, but somehow it garnered plenty of press in spite of dozens of other lenders offering similar products especially in the FHA segment. Even Bloomberg jumped on the bandwagon with the headline, “Subprime Called Safer Makes Comeback as ’Nonprime’” (here’s the link: http://www.bloomberg.com/news/2014-01-29/subprime-called-safer-makes-comeback-as-nonprime-mortgages.html) on a story highlighting NewLeaf Lending. But gosh, haven’t we been through this “slide down the credit curve” before?


“Gone are the days when lenders handed out mortgages without requiring documentation and down payments. Today’s purveyors of subprime call the loans ’nonprime’ and require as much as 30 percent down to safeguard their investment. And they see a big opportunity for growth as tougher federal lending standards shut out millions of Americans with poor credit from the mortgage market. You’re going to have to make all types of loans, ones that conform to all the new standards and ones that don’t, to keep powering the housing recovery,” said Bill Dallas, CEO of Skyline Financial Corp. in Calabasas, California. “There needs to be a solution for people who don’t fit in the box, and rebuilding nonprime lending is it.”


About $3 billion of subprime mortgages were made in the first nine months of 2013, matching the year-earlier period, according to Inside Mortgage Finance. In 2005, subprime originations reached $625 billion. But even that number, combined with jumbo securitizations, is less than 5% of overall historical production. Most companies are doing what they can to avoid non-QM lending, but in my discussions with CEOs they admit that eventually, if the investor market improves for this product, they will take a hard look at it. And then instead of Household, Beneficial, and Associated, we’ll be hearing names like Advancial Mortgage, Athas Capital Group, B of I Federal Bank, Citadel Servicing, Impac, LoanStream Mortgage, New Leaf Wholesale, New Penn Financial, Parkside Lending, Quick Funding, Union Bank, Virage, and Western Bancorp. Regardless, the industry, and the press, should not equate non-QM with subprime.


While we’re discussing companies, a player to watch on the scene these days is FirstKey. FirstKey is an independent lender based in Rye Brook, NY, backed by an international private equity firm and global investor, providing a wide range of real estate financing products and services for all sectors of the industry. FirstKey’s correspondent and retail origination businesses operate under FirstKey Mortgage. Rental finance products (loans for owners of 1-4 family rental properties) are offered by FirstKey Lending. “FirstKey Mortgage’s correspondent and retail channels provide their clients with proprietary jumbo and agency loan products. If you’re a mortgage banker or rental property investor looking for a new company to support your business, FirstKey should be at the top of your list. To learn more about FirstKey, email info@firstkeyholdings.com.


Fannie Mae has increased the repayment plan incentive fee to $500, which applies to each new and existing repayment plan that meets the criteria outlined in the servicing guide and successfully brings the mortgage loan current.  The new incentive will go into effect for loans brought current on or after March 1st.


As a reminder, Fannie has suspended the approval of affiliates of MGIC, Radian, and Genworth, which were approved through December 31, 2013; as such, loans insured by any of these entities must have note dates on or before the 31st and pool issue dates on or before July 1st or delivery dates on or before July 31st as applicable.  This includes both borrower-paid and lender-paid policies. The parent companies are still approved and doing business as usual.


Freddie Mac has revised sections of the seller/servicer guide to extend state foreclosure timelines when certain allowable delays occur, provide additional guidance on default legal matters, add a timeline for notifying borrowers of interest rate adjustment for Step-Rate mortgages, and update the requirements for reimbursement costs associated with foreclosure notices and related legal proceedings.  The guide has also been updated to permit authorized third-party service providers to use Workout Prospector and BPODirect and to provide additional guidance on Electronic Default Reporting.  For full details, refer to the original Freddie bulletin at http://click.freddiemacinfo.com/?qs=ca643da04e19c1725ec50d24c86c8460649771eaa7cee4b40d4176e640207b767eb67e4f69a3ead5.


The MBA spread the word that the SEC announced that it was re-opening the comment period for the 2011 Re-Proposal of Reg AB II’s disclosure rules. Recognizing the potential privacy issues associated with the Re-Proposal, the SEC is specifically seeking comment on a staff memorandum that proposes a potential solution. Comments are due by March 28, 2014.


The bond market had a nice little rally Wednesday, although, as Thomson Reuters observed, “it was instigated by headlines related to Russian war games that will take place near Ukraine, not by weak economic news. In fact, today’s New Home Sales report for January was surprisingly strong.” New Home Sales were up nearly 10% in January, and December’s numbers were revised higher. But that was in January, and the MBA’s application numbers from last week showed levels not seen since autumn 1995. And remember that a portion of housing sales are all-cash buyers which tend to help Realtors and title companies but not lenders. And lenders drive the production of mortgages, which in turn drive the production of mortgage-backed securities. Anyway, when the dust had settled current coupon MBS prices improved about .125 and the 10-yr closed at 2.67%.


I head out this morning for a brief visit to Orange County, but today will have Durable Goods for January and Initial Jobless Claims for last week, along with Fed Chair Yellen’s testimony before the Senate Banking Committee – don’t look for much deviation from her appearance before the House Financial Services Committee two weeks ago. In the early going the 10-yr is down to 2.64% and MBS prices are once again a shade better.



I head to Austin, Texas tomorrow for several days, so, as a break from the usual jokes, here are some interesting facts about Texas (part 1 of 2):

1. Port Arthur to El Paso: 889 miles.  Port Arthur to Chicago: 770 miles

2. Brownsville to Texline (north of Amarillo): 956 miles.  Texline to Canada: 960 miles

3. El Paso is closer to California than to Dallas

4. World’s first rodeo was in Pecos, TX July 4, 1883.

5. The Flagship Hotel in Galveston is the only hotel in North America built over water.  Destroyed by Hurricane Ike – 2008!

6. The Heisman Trophy was named after John William Heisman who was the first full-time coach at Rice University in Houston, Texas.

7. Brazoria County has more species of birds than any other area in North America.

8. Aransas Wildlife Refuge is the winter home of North America’s only remaining flock of whooping cranes.

9. Jalapeno jelly originated in Lake Jackson in 1978.

10. The worst natural disaster in US history was in 1900, caused by a hurricane in which over 8,000 lives were lost on Galveston Island.

11. The first word spoken from the moon, July 20, 1969, was “Houston,” but the Space Center was actually in Clear Lake City at the time.

12. The King Ranch in South Texas is larger than Rhode Island.

13. Tropical Storm Claudette brought a US rainfall record of 43″ in 24 hours in and around Alvin in July of 1979.




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Rob Chrisman