Daily Mortgage News & Commentary

Jan. 23: Reader’s thoughts on Freddie & Fannie’s pricing, capital, and future; Saturday Spotlight: Truework

While many are watching “Lupin” on Netflix, others are thinking about lending and real estate. Among other things, good and bad, 2020 will go down in the history books for the performance of U.S. residential real estate right up and through December. Very strong home price appreciation was the name of the game. According to Radian Home Price Index (HPI) data released today by Radian Group’s Red Bell Real Estate, LLC, home prices nationally rose from the end of November 2020 to the end of December 2020 at an annualized rate of 8.5 percent. For the full year, the Radian HPI rose 8.0 percent year-over-year (December 2019 to December 2020). (The Radian HPI is calculated based on the estimated values of more than 70 million unique addresses each month, covering all single-family property types and geographies.)

Saturday Spotlight: Truework, allowing you to verify any employee, quickly and accurately, and to help HR teams become more efficient, secure, and transparent.

In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth). 

 

Truework was founded in 2017 in San Francisco with the idea that there needed to be a faster and more way for lenders to verify income and employment. More than 40,000 lenders, background check companies, landlords and other verifiers, as well as 150 enterprise companies and 20,000 small businesses, trust Truework as their employee and income verification platform of choice. By the end of 2020, Truework’s employer network will include over 35 million employees ranging from small and medium businesses to enterprise companies.

 

Tell us how your company maintains its culture in the office, or in a work-from-home environment if applicable. 

 

With the rise of the COVID-19 pandemic, our people team has worked tirelessly to translate their work virtually and emphasize the importance of community within our workforce. Specific programs that have been implemented include virtual lunch and learns where our team brings on interesting specialists to teach our employees fun and engaging topics. Previous lunch and learns have included a virtual magician, a virtual farm tour, and the collector behind the world’s largest collection of pizza boxes. With the lunch and learn program, our people team aims to create environments where employees can learn new things with their coworkers while having fun.

Other programs that we’ve implemented that really promotes our employee-first mission includes our Culture Crew meetings, which allow employees to chat, learn, and implement change company-wide, our Virtual Coffee Buddies program which allows employees to meet other employees across the organization via a random generator, and regular game nights and happy hours, to encourage community amongst our employees.

 

Things you are most proud of that don’t have to do with sales. 

 

In the midst of truly unprecedented times, we’ve been able to see the impact that our technology has had in ensuring that healthcare workers are quickly staffed and deployed to the frontlines of battling COVID-19.

 

Earlier this year we partnered with Trusted, a nurse staffing platform to help them verify important information about each nurse such as verified employment history, work credentials, and criminal history. We saw that with Truework’s technology, tens of thousands of nurses were able to be verified in an average time of 22 hours and subsequently staffed, providing a critical need in the hardest-hit areas throughout the U.S.

Trusted’s head of marketplace, Amanda Maxedon, observed, “Nurses are the backbone of our healthcare system and have played a key role in the fight against COVID-19. Being able to ensure the privacy of their data while also helping to speed up the hiring process is not only a win for the nurses involved, but also ensures that everyone is able to get the care they deserve.”

 

Fun fact about Truework

Our team has grown rapidly and continues to grow. Since May of 2020, we have nearly doubled our team from 50 employees to 91 as of September.

 

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

Charity innovation

Colorado’s The Mortgage Co. launched a fresh approach to charitable giving. “Investmint” brings new programs to over 50 charities.

Agency Action

Everyone (“and their brother”) continues to talk about Fannie Mae and Freddie Mac, both critics and proponents, on a small and on a large scale. Actions and news about the Agencies can directly impact rates for borrowers, since demand & pricing in the secondary markets translates to rate sheets.

From Pennsylvania Edward E. sent, “I remember when the price of gas was close to topping $4.00 a gallon. I received a bill from my trash hauler and there it was…a bright and shiny new line item on my bill they called a ‘Fuel surcharge’ (the trash company’s version of the adverse market fee). When I called to inquire why the charge was placed on my bill the trash company rep emphasized the higher gas prices. Currently gas is bouncing around $2.50 a gallon here in PA but, like the permanence of a tattoo, the ‘fuel surcharge’ lives on. No call back from the trash hauler about removing the ‘fuel surcharge.’ And… so goes the ‘adverse market refinance fee.’ Ridiculous.”

What should we expect from the Biden Administration? There is general agreement that it will not pursue the end of the GSE conservatorships with the same zeal we have seen during the Trump Administration. The Biden Administration’s overarching focus is on responding to the virus and its housing-specific focus is on affordability, neither of which comports with the goal of ending the GSE conservatorships. The Supreme Court could conceivably expedite the capitalization of the companies depending on its Collins decision, but the drive to end the conservatorships will almost certainly slow under the Biden administration.

On the billions of dollars of income and retained earnings, the role of the U.S. Government, and the recent agreement between the U.S. Treasury and the FHFA, Isaac Boltansky, with Compass Point Research and Trading, wrote, “The article states that ‘Treasury opposes reducing the government’s ownership stake in Fannie and Freddie, a longtime goal of the companies’ private shareholders.’ Although it also includes this caveat: ‘Whether to modify the Treasury’s senior preferred stake is consideration at the White House, said one person familiar with the matter.’ Without addressing the Treasury Department’s $222B senior preferred position in the GSEs, this agreement appears to be incremental rather than holistic. The UST’s senior preferred position is effectively concrete on top of the GSE capital stacks that prevents value from flowing downward, which is a necessity for raising outside capital. We will wait to see the actual agreement before passing judgment, but if the senior preferred position is left untouched then the tangible impact of the forthcoming PSPA amendment is modest.”

“Recap and release” has been a trendy phrase when talking about the Agencies, but it can be a long, complicated process, especially compared to how quickly the two of them were brought into conservatorship. Up until August of 2019 the two paid out their earnings to the government. But in September 2019, the FHFA and UST announced an agreement that permitted the GSEs to retain up to $45 billion in aggregate capital ($25 billion for Fannie Mae and $20 billion for Freddie). But the details going forward are murky. Is this an actual end to the net-worth sweep, an increase to the capital buffers, or does it remove the net-worth sweep construct from the PSPAs?

Bose George with KBW had some thoughts on the amendment to the Preferred Stock Purchase Agreement (PSPA) under which the GSEs will be able to continue to build capital until they reach their regulatory capital minimums (roughly $280 billion). “…this capital retention would continue to increase the liquidation preference of the senior preferred shares owned by Treasury. So common equity at the GSEs is not changing, and the agreement does not address the question of how the senior preferred investment from Treasury will ultimately be resolved. So while this agreement is positive in terms of building capital at the GSEs, which would make it easier to privatize them in the future, it defers all questions regarding the economics of the privatization to the next administration. We continue to believe that GSE privatization is not a priority for the incoming administration, so we would expect GSE reform to slow while the new administration determines a course of action on the GSEs. We would expect GSE shares to be weak. While capital retention is positive, GSE reform appears to now be on hold.”

Dave Stevens with Mountain Lake Consulting has some opinions about the GSEs and conservatorship. “Over the last four years, the Trump administration worked diligently in an effort to release the GSEs from conservatorship and return them right back to where this all began. The unlevel playing field, sweetheart deals for market share, abusing the charter to appease shareholders, and more, are part of that history. This is an outcome that any entity vested in the housing sector should oppose.

“The Biden regime… provides us the ability to return to focusing on how the GSEs in conservatorship can support the nation’s housing needs rather than return to private ownership. The Trump administration has managed to turn the very notion of “GSE reform” into how best to give them back to private shareholders, rather than how best to use the government backstop they provide to help the nation meets is housing needs. The new administration will surely change that.

“… to trust these companies if released as is without reform would be a perilous error in judgement and could begin the spiral back in history to how we got here to begin with. (And) the GSEs are two critically important companies who should be viewed as utilities for the housing sector. Not only do they provide sustainable access to long term financing for residential real estate in the U.S., but they are vital to advancing equitable access to mortgage finance in good times and bad.” Thank you, Dave!

Meanwhile, both Freddie and Fannie continue to a) buy loans from originations in the primary market, providing guidance through LP and DU, respectively, and b) push deals in the secondary markets. This is critical, and the reason they were both created in the first place: to add liquidity in the secondary markets to help borrowers. Let’s take a glance at what they’ve been up to.

This week preliminary ratings were assigned to the $970mn Freddie Mac STACR REMIC Trust 2021-DNA1 residential mortgage receivables-backed notes. Freddie Mac is issuing this transaction to transfer a portion of the risk in its mortgage asset portfolio to private investors. This type of risk transfer has been mandated as one of several goals by the FHFA. Similar to its more recent transactions under the STACR shelf, STACR 2021-DNA1 uses a REMIC structure, which better protects investors from potential future counterparty risk exposure to Freddie Mac. STACR 2021-DNA1 is the fourth Freddie Mac CRT transaction to use LIBOR-alternative benchmark SOFR as the new reference rate to calculate class coupons on its notes.

Over the summer Freddie announced that it has obtained a new insurance policy under its ACIS (Agency Credit Insurance Structure) program. The policy provides a maximum limit of up to approximately $425 million of losses on a $48.3 billion reference pool. The new ACIS policy’s reference pool consists of fixed-rate, single-family loans with low loan-to-value (LTV) ratios between 60 percent and 80 percent. The loans were securitized between October 1, 2019 and December 31, 2019 and originated on or after January 1, 2015. Freddie Mac has placed more than $1.5 billion in insurance coverage through five ACIS transactions in 2020, which is a large portion of Freddie’s cumulative annual credit loss exposure.

On January 6, Freddie Mac priced a new $1 billion offering of Structured Pass-Through K Certificates (K-F96 Certificates), which includes a class of floating rate bonds indexed to the Secured Overnight Financing Rate (SOFR). K-F96 includes one class (Class AS – $653.18 million, 30-day SOFR average + 30 bps coupon) of senior bonds indexed to SOFR and backed only by SOFR-based mortgages, and another class (Class AL – $363.99 million, 1-month LIBOR + 26 bps coupon) of senior bonds indexed to LIBOR and backed only by mortgages which are currently LIBOR-based. The K-F96 Certificates are backed by floating-rate multifamily mortgages with 10-year terms.

A while back Freddie Mac priced a new $1.3 billion offering of Structured Pass-Through K Certificates (K-113 Certificates), which are backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 10-year terms. Pricing for the deal is as follows. Class A-1 has a principal of $100.352 million, a weighted average life of 6.99 years, a coupon of 0.805 percent, a yield of 0.79926 percent, and a $99.9943 price. Class A-2 has a principal of $1,080.235 million, a weighted average life of 9.75 years, a coupon of 1.341 percent, a yield of 1.01098 percent, and a $102.9926 price. Class A-M has a principal of $159.343 million, a weighted average life of 9.89 years, a coupon of 1.093 percent, a yield of 1.08776 percent, and a $99.9993 price.

Around the same time, Fannie Mae priced its seventh Multifamily DUS REMIC in 2020 totaling $869.6 million under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program. The FNA 2020-M34 transaction marks Fannie Mae’s 100th GeMS REMIC re-securitization. The program’s re-securitization execution creates block-sized, geographically diverse, near-par-priced tranches to meet investor demands and increase the liquidity of the Multifamily DUS MBS program. All classes of FNA 2020-M34 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal. The structure details for the offered classes are as follows. Class AV2 has an original face of $148,108,912, a weighted average life of 6.69 years, a 0.861 percent fixed coupon, a S+42 spread, and a 100 offered price. Class 3A2 has an original face of $110,000,000, a weighted average life of 7.70 years, a 0.962 percent fixed coupon, a S+46 spread, and a 100 offered price. Group 1 Collateral consists of $156,921,913 in UPB across 25 Fannie Mae DUS MBS, based primarily in CA (42 percent), GA (13 percent) and SC (7.32 percent), with a weighted average debt service coverage ratio of 1.86x and a weighted average LTV of 63.6 percent. For additional information, please refer to the Fannie Mae GeMS REMIC Term Sheet (FNA 2020-M34) available on the Fannie Mae GeMS Archive page.

And Freddie Mac priced a new $936 million offering of Structured Pass-Through K Certificates (K-F80 Certificates), which includes a class of floating rate bonds indexed to the Secured Overnight Financing Rate (SOFR). The K-F80 Certificates settled in July, and are backed by floating-rate multifamily mortgages with 10-year terms, which are currently LIBOR-based. K-F80 includes one class (Class AL) of senior bonds indexed to LIBOR and another class (Class AS) of senior bonds indexed to SOFR. Class AL has principal of $536.217 million, a weighted average life of 9.48 years, a coupon of 1-month LIBOR +44 bps and an even $100.00 price. Class AS has principal of $400.00 million, a weighted average life of 9.48 years a coupon of 30-day SOFR +51 bps, and an even $100.00 price. Freddie Mac will provide a basis risk guarantee on Class AS that covers any floating interest rate basis risk if the value of SOFR exceeds the value of LIBOR. This marks the eighth K-deal with bonds indexed to SOFR.

 

What’s the difference between in-laws and out-laws?

Outlaws are wanted.

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2021 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)