Jun. 6, 2013: Mortgage jobs; the role of Secondary, Freddie & Fannie’s stock prices, recent updates, and move toward a single security

¿Cómo se dice CFPB en español? I don’t know, as high school Spanish is a distant blur (the potlucks were great)…but the CFBP probably knows. Recently it announced the launch of its Spanish language website, which will run in parallel to the CFPB’s English language site. According to the CFPB, in response to research showing that two-thirds of Latinos who are online tend to access the Internet from a mobile device, the website is designed so that “it works beautifully on mobile devices as well as on desktops.” The website allows users to access Spanish language versions of the CFPB’s online consumer complaint system and answers to consumers’ frequently asked questions. In the announcement, the CFPB noted that it also takes complaints over the telephone in Spanish, as well as in more than 180 other languages. Oficina para la Protección Financiera del Consumidor: http://www.consumerfinance.gov/es/.


Kinecta Federal Credit Union continues to grow its business and is hiring Retail Mortgage Loan Consultants in the greater Los Angeles area and Wholesale Account Executives to cover New England, Phoenix, AZ, Southern California, Central California (Sacramento to Fresno) and San Jose, CA.  Additionally, Kinecta continues to hire Senior Underwriters, Underwriting Assistants and Funders in their Southern California and Chicago operations centers.  Kinecta FCU is one of the nation’s leading Credit Unions with more than $3.2 billion in assets and serving over 250,000 member-owners across the country. Go to www.kinecta.org and click on the Careers tab to view all openings, position descriptions and apply online or send a resume to Daniel Borgstadt at dborgstadt@kinecta.org.


Remember all those folks that had their 401(k)’s tied up in stocks like Countrywide, Bank of America, Lehman Brothers, National City, WAMU… the list goes on and on, and now they’re all saying they’ll have to work into their 80’s because those stock prices plummeted and they didn’t diversify? Stock prices are interesting animals, and the market is keenly interested in the prices of Freddie and Fannie stocks. They’re owned by the government, have to turn all their profits over, and are being phased out, right? Yes, but they’re also making billions of dollars, are seen as adding stability to mortgage lending, and might just be with us for the long haul. An article yesterday from Bloomberg highlights the disconnect between the fundamentals and the technical in their stock prices: http://www.bloomberg.com/news/2013-06-05/fannie-shares-seen-as-worthless-surging-in-disconnect.html. “Fannie Mae and Freddie Mac shares surged to five-year highs last week, giving them a combined market value of $48 billion, about the same as BlackRock Inc., the world’s largest money manager, and Starbucks Corp., the biggest coffee-shop operator.”


Freddie and Fannie are not involved in the primary markets (lending money to consumers), but obviously their role in the secondary markets is very important. Secondary marketing touches virtually all aspects of the company, but many are not aware of its role. Marcus Lam with Opes Advisors wrote, “I think one of the most common questions we get here in Secondary is, ‘just what the heck do you guys do?’ Senior management calls it interest rate risk management. Our only objective on the hedge is margin preservation, meaning we don’t make any more money in market rallies but at the same time we’re protected against sell offs.”


And Joe Garrett, with Garrett McAuley, noted, “Here’s an interesting question for a CEO: If you need some sound advice on what’s best for your company, who’s going to give you the best counsel, your production people or your head of secondary?  This answer will irritate many of you, but I’d say that I’d trust the secondary person more.  Secondary marketing people look at things like best execution (getting the best loan prices for the company), issues that could cause repurchases, and other things that affect the overall company.  Production people, maybe because they’re typically paid on volume, seem to be more focused on whatever helps close more loans. (And we don’t think secondary marketing types should be paid on volume, nor should they be paid on a formula based on gain-on-sale.  You just want to avoid anything that could possibly reward them for taking undue risk.  My view is that they should be paid a bonus based on minimizing leakage.  The less leakage, the bigger the year-end bonus.)”


But the debate about Fannie & Freddie rolls on and there was another article discussing the bipartisan effort in the Senate to most into a post-GSE world. A plan being considered in the Senate would liquidate Fannie/Freddie within five years and replace them with a government-backed reinsurance entity that would back-stop the industry but only after private investors suffer losses first: http://www.reuters.com/article/2013/06/04/us-usa-gse-bill-idUSBRE95311K20130604


(And of course F&F, “Frannie,” isn’t the only agency being talked about: according to a previously undisclosed “stress test”, total losses at the FHA over a 30 year period under an “adverse scenario” could total $115B, a number much higher than forecasts previously published by the agency. The fun never ends: http://www.cnbc.com/id/100791651.)


The Federal Housing Finance Agency (FHFA) is exiting the mortgage market… uh, maybe, uh….someday…..well, they kind-a-sorta have a plan on how they are going to reduce their footprint in housing finance. The need to move back to a mortgage market financed predominately by private capital is essential and the FHFA outlined initial steps it will take to do so, including the creation of a new business entity between Fannie Mae and Freddie Mac. The FHFA issued a progress report earlier this month on steps being taken to establish a Common Securitization Infrastructure for residential mortgage-backed securities, reflecting feedback from a broad cross-section of industry experts that responded to the agency’s white paper, which set forth the proposal for a new securitization platform. The plan is to scale back the secondary mortgage operations of the government-sponsored enterprise via the single platform, though exactly how is an ongoing development. More on this issue can be read on their site here.


This whole concept has been in play for quite some time, with industry groups such as the MBA weighing in often and keeping the industry’s best interests in mind. Those on the front lines should remember that a key objective of the Federal Housing Finance Agency (FHFA, the conservator of Fannie & Freddie) is to execute various risk transfer transactions aimed at reducing the enterprises’ footprint in housing finance. As a result, the need for a move back to a mortgage market financed predominately by private capital is viewed as essential and the FHFA, quite a while ago, outlined initial steps it will take to do so, including the creation of a new business entity between Fannie Mae and Freddie Mac.


A “Common Securitization Infrastructure” for residential mortgage-backed securities, reflecting feedback from a broad cross-section of industry experts that responded to the agency’s white paper, is actively being discussed. The plan is to scale back the secondary mortgage operations of the government-sponsored enterprise via the single platform, though exactly how is an ongoing development. “The design of the common securitization infrastructure will, in the future, facilitate increase in the scale and ease of execution of such transactions. Therefore, the infrastructure will be designed to be flexible so as to enable policymakers to have a choice about the role of the federal government in a future housing financing system – including a choice about the degree of mortgage credit risk directly assumed by the government,” a report recently explained.


One plan included the establishment of a Bond Administration, which will be responsible for establishing the security administration and reporting, as well as making data available for ongoing investor reporting for each payment cycle. Bond Administration will also support both first-level securitizations — securities backed by directly by loans — and second-level resecuritizations — securities backed by existing securities. The platform proposed will collect funds due to investors generated by the collateral, loans or existing securities, and provide such funds to the user for investment in eligible investments. And an idea was to initially structure the CSP as co-owned by the GSEs during which time key components of the platform will be designed, built and tested.


Any concept, especially the work being done by the MBA, has to take into account the broader private market challenges, specifically regulatory requirements and uncertainties. For example, the efforts by regulators to implement the risk retention requirements of the Dodd-Frank Act and to define a Qualified Residential Mortgage standard as opposed to the recently Qualified Mortgage standard were cited as a factor that will affect securitization markets. Yes – QRM uncertainty is still out there, although there is definitely a move toward aligning QRM with QM – sometimes the simplest solution is the best solution. Additionally, the GSEs will develop and executive work plans for alignment activities between the enterprises with regard to common standards and creation of documents to facilitate varied credit risk transfer transactions.


And access to the secondary markets is important for smaller lenders. Not to worry – the MBA is on it: http://www.mbaa.org/NewsandMedia/PressCenter/84717.htm.


Fannie Mae has asked for feedback on the new rep and warrants rules.  Read what other people are saying and put in your two cents on the Housing industry Forum (http://cl.exct.net/?qs=e8f6aa63f3b1d9b3bb31e5559b5dd51bb08e710e6a00973bc0eb0ab37d910586).


Two new job aids are now available on the Fannie Servicing Learning Center website, the first of which offers assistance in “Completing and Submitting the Notice of Title Defect Form” (http://cl.exct.net/?qs=e8f6aa63f3b1d9b382339d50ad9f0f889950102477864b33c8bc0e1d72ef101f)  when reporting title defects.  The “Calculating Income” job aid (http://cl.exct.net/?qs=e8f6aa63f3b1d9b3904c9e52b0d22b7b6a747fbb31fa75b7351c8b61e9febb44) goes over how to calculate various type of income (self-employed, rental, investment, alimony, child support, and Social Security).


EarlyCheck is scheduled for an update that will add two new edits and accept a new mortgage insurance company identifier on July 22nd.  For more information, see http://cl.exct.net/?qs=98525bb92c6e6460938f2418ec843deac09eed82d00d68d98e0c4de50d21ab57.


In preparation for the Phase II ULDD implementation, Freddie Mac reminds seller-servicers that they need to begin collecting the applicable data points for all loans with applications dated on or after March 1st, 2014 and delivered on or after August 25th, 2014.  Lenders should review which data points they currently collect and ensure that they meet the requirements specified by ULDD, identify which points they do not currently collect, and develop a plan to capture the missing data.  Freddie has published an Investor Feature Identifiers job aid to assist in this which is available at http://freddiemac.sparklist.com/t/440254/4682831/5467/35/.


As a reminder, Freddie will implement its new Default-Related Legal Services requirements on August 1st.  Servicers who have not yet submitted Servicer Selection forms to ensure that their chosen law firms are eligible to receive referrals should do so by June 15th at the latest in order to meet the deadline.


In an effort to provide liquidity for distressed assets, Freddie announced recently that it has begun securitizing some of the modified loans in its portfolio that were previously delinquent but have been performing for at least the last six months.  The loans in questions were pooled into the new FHLMC Fixed-Rate Modified Participation Certifications (Modified PCs) with new “MA-MD” prefixes.  The PCs are not TBA deliverable and exclude loans modified through HAMP but are being considered eligible collateral for new Freddie Mac Giant PC securities.  In addition to pool-level disclosures of the 36 months’ payment history prior to issuance, Freddie plans to provide additional loan-level disclosures of loans’ attributes at origination before modification, at the time of modification, and at the time of securitization.  For full details of the pool-level disclosures, see http://ctt.marketwire.com/?release=1020049&id=3025651&type=1&url=http%3a%2f%2fwww.freddiemac.com%2fmbs%2fhtml%2fcs_terms.html; more info on loan-level disclosures can be found at http://ctt.marketwire.com/?release=1020049&id=3025654&type=1&url=http%3a%2f%2fwww.freddiemac.com%2fmbs%2fdocs%2ffs_lld.pdf.


 For loan officers, another day, another look at the rate sheets to see what is going on out there. There is a lot of hand-wringing out there, and we had some news yesterday that moved the markets. Europe seems to be being ignored right now, and U.S. fixed income markets are more focused on jobs, housing, and the Fed. Mortgage-backed securities were down slightly again Wednesday as investors worried about tomorrow’s nonfarm payrolls report and the risks of a sharp sell-off if the print is better than expected. Yesterday’s May ADP employment survey reported +135k in private employment versus an expected +165k, while the employment component of ISM services fell for the fourth consecutive month to 50.1 from 52, and was at its lowest since last July.


We also had the Fed’s Beige Book, which comes out eight times a year, and its descriptions of the economy and hiring did not provide a strong case for or against “tapering.” (There are lots of folks who dislike that media term.) Economic activity seemed to have been slightly downgraded to increasing “at a modest to moderate pace” from “expanded at a moderate pace” in the April report. Meanwhile, hiring was described as increasing “at a measured pace in several Districts”.


Wednesday’s market had the 10-yr close at 2.10%. Today we’ll have Initial Claims at 8:30AM EDT. Early on rates are slightly better with the 10-yr at 2.08% and agency MBS prices a shade better.


An efficiency expert concluded his lecture with a note of caution. “Don’t try these techniques at home.”

“Why not?” asked somebody from the audience.

“I watched my wife’s routine at breakfast for years,” the expert explained. “She made lots of trips between the fridge, stove, table and cabinets, often carrying a single item at a time. One day I told her, ‘You’re wasting too much time. Why don’t you try carrying several things at once?’”

“Did it save time?” the guy in the audience asked.

“Actually, yes,” replied the expert. “It used to take her 20 minutes to make breakfast. Now I do it in ten.”


 If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “Mortgage Backed Securities: Life after QE3.” 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.


(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. Copyright 2013 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