July 10: Ops & wholesale jobs; Google & its mortgage investment; bank M&A continues; hedging servicing?

My cat Myrtle ambled up to me the other day and asked, “You know what rhymes with ‘Friday’? Vodka.” And then she said, “Speaking of refreshing beverages, don’t forget that tomorrow (7/11) is ‘Free Slurpee Day.’” Myrtle has interesting priorities. Speaking of priorities, the FDIC has updated the Compliance Examination Manual to include examination procedures for TRID in order to allow financial institutions a better understanding of what areas of TRID the FDIC will focus on as part of the examination process. Updates include replacing the GFE, HUD-1 Settlement Statement and TIL disclosures with the Loan Estimate and Closing Disclosure, an alternative definition has been provided for the term “small servicer” and requiring a limited time period in which to review a transaction and “cure” excess points and fees.


Operations are critical for lenders, and Carrington Mortgage is expanding its footprint with its new state of the art Operations Centers in Anaheim California and in Jacksonville Florida. “We are currently looking for Centralized Processing Managers to join our growing team! Competitive salary plus bonus, generous vacation time and great medical/dental benefits.”   Please contact Carlos Fernandez (949-517-7204).


On the wholesale sales side Michigan Mutual is pleased to announce that Julie McCan and Chad Northington have joined the company as Regional Sales Managers. “Both are consummate professionals with extensive experience building and leading successful sales teams in their respective geographic market areas. Julie is responsible for our Southwest Region including Southern CA, AZ, and UT while Chad will oversee our Central Region including, TX, CO, KS, MO, AR, OK, and NM. Both are actively interviewing prospective Wholesale Account Executives who are seeking an opportunity to join a dynamic, customer focused organization. Michigan Mutual is a privately held, non-depository mortgage lender headquartered in Port Huron, Michigan. It is a direct Fannie Mae, Freddie Mac seller/servicer and Ginnie Mae issuer – currently licensed in more than 30 states.  For more information, click on the above link or contact Julie MCan (949.381.1003) or Chad Northington (414.758.3370) directly.


Congrats to Timi Ajibola. Google Inc. hired Timi, a U.S. mortgage-bond strategist at BNP Paribas SA, to help manage its investments as big technology companies deal with growing cash hoards. Jody Shenn with Bloomberg reports that, “Google owned $8.3 billion of agency residential mortgage- backed securities as of Dec. 31, up from $5.8 billion a year earlier and $1.6 billion at the start of 2010, according to securities filings.”


And Radian recently introduced the promotion of Nicholas Costa to the role of AVP, National Account Manager and the appointment of David Shrewsbury to the role of senior account manager.


The number of banks in this country continues to decline through M&A for various reasons – but basically it is darned expensive to run a bank or mortgage bank these days. And plenty of owners are aging and tired of the fight. National Bank of Commerce ($1.2B, AL) headed south and will acquire Reunion Bank of Florida ($272mm, FL) for $37mm in cash (20%) and stock (80%). In PA First Citizens Community Bank ($928mm) will acquire The First National Bank of Fredericksburg ($238mm) for $22.1mm in cash (25%) and equity (75%). In cheese country Hometown Bank ($204mm, WI) will acquire Farmers Exchange Bank ($56mm, WI). Post Oak Bank ($916mm, TX) will acquire Security State Bank ($157mm, TX). On a raid across the border, Providence Bank ($684mm, MO) will acquire Community First Bank ($211mm, IL). The parent of Citizens Deposit Bank & Trust ($388mm, KY) and Premier Bank, Inc. ($880mm, WV) will acquire First National Bank ($261mm, WV) for $26.5mm in cash and equity. Americas United Bank ($165mm, CA) will acquire 2 CA branches from Banc of California ($6.1B, CA). The branches hold $50mm in deposits and $35mm in loans.


But banks are doing pretty well, right from the get-go of 2015. The first quarter of 2015 is certainly way above the 1st quarter of 2014. Banks saw higher mortgage volumes versus 4Q14 and modestly higher gain-on-sale margins. The early read-across from mortgage banking results of the big banks was slightly better than expected, with volumes up about 7% and gain-on-sale margins expanding slightly. The primary focus of investors is likely to be the sustainability of the increase in mortgage applications, gain-on-sale margin trends, and strength of the spring selling season. Gain-on-Sale Margins were generally up among lenders. And mortgage servicer performance continues to be very company specific. Speaking of which…


One question I receive a lot has to do with the mortgage servicing rights pools I include from time-to-time, and whether or not MSR holders are hedging the loans they’re servicing. Yes, from what I know a good number of  mortgage servicers hedge their MSRs. However, it’s important to make a distinction, and realize that an originator who may service a portfolio of loans will behave differently in putting on hedge, than a firm who does nothing but book MSR’s. It could be argued that the originator has an almost systemic hedge against the decline in mortgage servicing right values by way of their origination channels, so the hedging decision is a based between mortgage servicing and production. For the hedging minutia I turn to Keefe, Bruyette and Woods’ Bose George who writes, “One of the main hedges for MSRs is mortgages, specifically the t o – b e – announced (TBA) MBS market. The TBA market allows servicers to be long MBS without having to own assets. The TBA MBS is attractive since there is limited basis risk between the MSR and the MBS and in periods of increased volatility, the impact on both MBS and MSRs should be fairly similar. The TBA market is also very liquid and provides capacity for large servicers. There are numerous other derivatives that can be used to hedge. The primary characteristic is that they should add duration. Typical securities include receive -fixed swaps, treasury futures, principal – only (PO) securities, and swaptions. Some mortgage banks that have large balance sheets also hedge with MBS instead of derivatives. However, this is not usually an efficient way to hedge.”


While you could probably find a lock desk gal who would tell you the same thing (which would save a lot of research money), the empirical evidence to support recent trends in bank versus non-bank servicing is convincing. Studies identify several factors contributing to the non-bank boom in mortgage origination and servicing: (1) Regulation of mortgages has been tightened and broadened and unlike the pre-crisis era, federal oversight now covers both banks and non-banks and state regulation has also been tightened; (2) Non-bank technological innovation is improving customer experience and non-bank market share; (3) Depository institutions have either retreated from the mortgage origination market, or grown more selective, as they’ve been hit with waves of new regulations and legal actions targeting them; (4) Non-banks are disproportionately engaged in FHA-insured lending to higher-risk borrowers; and (5) Basel III and other regulatory actions have driven depository institutions out of mortgage servicing. The 40 page paper is an excellent analysis of the current evolvement of our industry, and worth a read.


A while back Everbank announced with 1Q earnings the sale of MSR totaling $5.7 billion of UPB to WAC and $6.7 billion to NSM. EVER also reported the termination of its subservicing agreement with WAC. These were Ginnie Mae (GNMA) and early buyout (EBO) loans. The existing subservicing agreement between Everbank and Walter was terminated. When Everbank sold its default servicing platform to Walter it had entered into a flow servicing agreement where Walter became the servicer on future delinquent loans. Walter also became the subservicer on $6.9 billion of MSRs and whole loans. The sale to NSM were Fannie Mae, Freddie Mac, and non-agency MSRs. Everbank noted that with these sales the company has sold substantially all the non-core MSRs that were not included in the 2014 default servicing sale.


Time to get caught up on some Mortgage Servicing Rights activity….Interactive Mortgage Advisors had a $2 Billion Ginnie Mae bulk residential mortgage servicing rights offerings currently out in the marketplace. The pool had an average loan size of $173k, 691 WaFICO, 94.4% WaLTV, 3.74% WAC, with an even distribution of states, and low delinquencies….Phoenix Capital had two deals recently: Projects Python and Poseidon. Python is a $1.6B FNMA/FHLMC & $1.2B Ginnie Mae bulk MSR offering comprising of 90% F30; 10% F15, 4.00/3.44% WAC (30/15), 753 WaFICO, 70% WaLTV, 75% CA geography; Poseidon is a $875M Fannie Mae/Freddie Mac & $166M Ginnie Mae servicing rights offering; 4.08/3.36 (30/15) WAC for the conventional, 3.82/3.35 WAC for the gov’t; concentrated in California originations. Bids were due June 25th.


MountainView Servicing Group is showing two deals at the moment; the first is an ongoing $55mm per month FNMA/FHLMC/GNMA flow offering which is 100% retail, 100% fixed rate, 92% purchase, 739 WaFICO, $259k average loan size, with top states: FL (23.6%), NC (18.9%), and TX (14.3%). Bids for this package were due April 29th; the second is a $203M FNMA non-recourse servicing portfolio, which is 100% fixed rate, 1st lien product, 740 WaLTV, 74% WaLTV, 3.66% WAC, $205k average loan size, with top states: Connecticut (63%) and Massachusetts (35%). Bids on this package were also due on the 29th…..Phoenix Capital is offering Project Saffron (which makes me hungry for some tikka masala and it‘s only 4:30am). Saffron is a $301M servicing package with pool characteristics looking like:  80% FHLMC ARC, 20% FNMA A/A, 98% Fixed Rate, 2% ARM, $318k average loan size, 756 WaFICO, 68% WaLTV, 46% refinance-rate/term , 28% purchase, 26% refinance-cash out, with top states: 89% CA, 4% OR, 3% CO.….Interactive Mortgage Advisors’ first package is a $1.68B Freddie Mac bulk residential portfolio. The pool is 7,348 loans strong, $229k average loan size, 4.52% WAC, 736 WaFICO, 77% WaLTV,  and bids were due on April 28th; the second package is a $100+M per month co-issue. Projected Characteristics look like: $266k average loan size, interest rate par +/- 100bp, servicing fee: 0.2500% +/- , 754.9 WaFICO, 67.5% WaLTV, and estimated 12 month average escrow (% principal): 0.4442% +/-.


MountainView Servicing Group is offering a $153mm FNMA/FHLMC/GNMA non-recourse servicing portfolio; the package is 100% fixed rate, 1st lien, 100% retail, 67% purchase, 729 WaFICO, 80% WaLTV, 3.71% WAC, low delinquencies, $252k average loan size, with top states: Utah (56.3 percent), and California (29.6 percent).….Interactive Mortgage Advisors had a $202.4 million Fannie Mae bulk residential mortgage servicing rights offerings currently out for bid. The pool had an average loan size of $201k, 745 WaFICO, 79% WaLTV, 4.11% WAC, with an even distribution of states, and zero delinquencies….Prestwick Mortgage Group is the exclusive broker of a $328 Million Massachusetts FNMA A/A package. Total Portfolio characteristics were: a $242,068 average unpaid principal balance, 3.719% WAC, 98.5% fixed rate, 0.701% delinquency percentage by loan count, including one foreclosure, and a 766 WaFICO score. Bids for this package were due June 3rd. Phoenix Capital had two deals recently: Projects Igloo and Redrocks. Igloo is a $1.05B FNMA/FHLMC Bulk MSR Offering comprising of 77% F30; 23% F15, 4.19/3.59% WAC (30/15), 747 WaFICO, 70% WaLTV, 75% CA geography; Redrocks is a  $30-$60M/mo FN/FH/GN Flow MSR Offering. The flow agreement is based upon YTD production numbers which include $15-$30 million per month of  Conventional product which will be (79%) F30yr, (20%) F15, (1%) ARM, Avg Bal: $156k-$159k, 95% Owner Occupied, 750 WaFICO, 82% WaLTV, AS WELL AS, $15-$30 million per month of GNMA product which will be 63% FHA / 23% USDA / 9% VA, Avg Bal: $119-$133k, >99%% Owner occupied, 86% GNMA II; 14% GNMA I, 686 WaFICO, and 96% WaLTV.


What moves markets changes with time. Sometimes investors and traders are focused on what is happening in Europe, sometimes Asia, and sometimes our own economy. But don’t count the Middle East out. Interestingly few are talking about oil, but its price has fallen from $60/bbl. to $52/bbl., near the multi-year low of $45/bbl. set in Q1/15. (Know that “bbl.” is “barrel” not “be back later.”) Just in time for “the summer driving season!” Iran plans to increase exports once sanctions are lifted, and OPEC is increasing production. Here, US oil rig counts are up and US production is the highest since 1971. And China, which accounts for 30% of global demand growth, is slowing.


Looking at rates, remember when they were lower earlier this week? Yesterday despite a very disappointing session for the major U.S. equity indices and a weak Initial Jobless Claims number, Treasuries could not muster any buying interest and so prices sank pushing rates higher. The $13 billion 30-year Treasury bond auction was met with weak demand – sometimes it is tough to find a “natural” buyer for a 30-year fixed rate product. And the Germans are running the show: Chancellor Angela Merkel and Finance Minister Wolfgang Schauble both said that debt forgiveness for Greece is not an option.


We saw a 2.32% close on the 10-year Thursday and in the early going this morning we’re up to 2.37% with agency MBS prices worse .250. And there is no scheduled news in the U.S. of substance of move rates heading into the weekend – we’ll see what happens overseas.



Here is a short, cute video reminding us that “R” is an endangered species in New England. In fact, some would say, “Extinct in these pahts, by gaud.”





(Copyright 2015 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