June 1: Deals in the secondary markets; the CFPB’s request for “junk” fee information; credit unions & taxes; nun humor

Yes, this is a mortgage Commentary, but, given that Chrisman LLC is not a big company with a big editorial staff or management looking over my shoulder, I can occasionally write about things (besides home loans) that strike my fancy… But often have to do with money. Speaking of greenbacks, what do you do with yours? Billionaire philanthropist Rob Hale brought two cash-stuffed duffel bags to the podium of the recent University of Massachusetts Dartmouth commencement ceremony. As the graduates crossed the stage, he handed them $1,000, divided into two envelopes. One was labeled “Gift” and one was labeled “Give.” “…As they prepared to collect their diplomas, their commencement speaker, Rob Hale, announced that he would hand every graduate $1,000 as they crossed the stage: $500 to keep for themselves, and $500 to give to any good cause… as he told the graduates at UMass Dartmouth, he has never forgotten the experience of losing everything, when the first company he built went bankrupt in the dot-com crash more than 20 years ago.” How cool is that?

Banks and credit unions & taxes

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Two Saturdays ago I published a note regarding issues from a credit union buying a bank.

The piece prompted a letter that I paraphrased. “Here is a little perspective from the credit union side. Many banks are S corps. So, they don’t pay federal taxes either. In the same way, my credit union doesn’t pay federal taxes; our profits are given to our members each year. How is that different? If you are going to make a play to change the tax code, don’t we need to add in S corps, otherwise they have an ‘unfair’ advantage.

“Also, credit unions are not for profit, so even if they were to tax us, there is nothing to tax. This seems like a silly argument to me. I kind of laugh when I hear mortgage banks say, ‘There is this huge advantage that credit unions have.’ The reality is that there is an advantage, but the advantage is benefiting the consumer, not corporate profits.”

The letter elicited several people to address the tax issue. “S-Corp owners pay taxes at the individual rate. S-Corps avoid DOUBLE taxation of the corporation’s income. Credit unions are exempt from taxation. Big difference. It is false that credit unions are ‘not for profit.’ Absolutely false. Credit unions do not have to file a 990 Form. They are required to remit any net profits to their members but can pay their executives millions in salaries (‘net’ profit is the key word).

“Also, they are afforded the ability to credit CUSOs where they can grow/share profits and not have to remit to members. The CUSO is the fine print, nothing to see here…”

Credit unions are exempt from all taxes except for local real property and personal property taxes but credit unions do pay many taxes and fees, among them payroll and property taxes.

CFPB Request for Information

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On May 30, the CFPB announced a request for information (RFI) regarding mortgage “junk fees” and their impact on borrowers and lenders.

Orrick writes, “The CFPB identified an increase of over 36 percent in median total loan costs for home mortgages from 2021 to 2023 in its analysis, with median mortgage closing costs of $6,000 in 2022. The Bureau argued these fees and costs, many of which are fixed, can reduce home equity, and may undercut home ownership.

 

“The RFI requested public input on whether the fees are subject to competition, how fees are set, who profits from them, and how fee changes, if any, impact consumers and the mortgage market. The CFPB was particularly interested in the factors driving fee increases, such as tri-merge credit report costs, and how such fees are affecting housing affordability and access to homeownership. The CFPB also highlighted the potential impact of title insurance and mortgage origination fees.

The RFI included nine specific questions/issues: Whether there are fees that are particularly problematic or burdensome for consumers, whether there are unnecessary fees charged for loan closure, whether and to what extent consumers compare closing costs across lenders, whether and to what extent consumers shop for closing costs across settlement providers, the determination of fees, the beneficiaries, and lenders’ influence over third-party costs, which fees have increased, and what are their causes, factors contributing to rising closing, credit report, and credit score costs, the roles of various entities in the credit report chain, competitive pressures on these costs, and their consumer impact, lenders’ ability to negotiate closing costs more effectively than consumers, and the potential impact of closing costs on housing affordability, homeownership access, or home equity.

Secondary market activity drives borrower rates

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How long would a company last producing a product that no one wanted to buy? It is good for us to remember that secondary marketing activities impact primary market rates for borrowers.

Fannie Mae has executed its first Credit Insurance Risk Transfer (CIRT) transaction of 2024. CIRT 2024-L1 transferred $355.6 million of mortgage credit risk to private insurers and reinsurers, beginning another active year of CIRT issuance for Fannie Mae. 24 insurers and reinsurers committed to write coverage and supported the extension of the CIRT maturity term on this deal to 18 years, from the 12.5-year term that had been utilized for most CIRT deals executed since 2019. The covered loan pool for CIRT 2024-L1 consists of approximately 28,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $9.0 billion. The covered pool includes collateral with loan-to-value (LTV) ratios of 60.01 percent to 80.00 percent acquired between January 2023 and April 2023. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With CIRT 2024-L1, which became effective January 1, 2024, Fannie Mae will retain risk for the first 150 basis points of loss on the $9.0 billion covered loan pool. If the $135.1 million retention layer is exhausted, 24 reinsurers will cover the next 395 basis points of loss on the pool, up to a maximum coverage of $355.6 million. Since inception to date, Fannie Mae has acquired approximately $26.2 billion of insurance coverage on $879.2 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions. As of December 31, 2023, approximately $1.29 trillion in outstanding unpaid principal balance of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction.

Fannie Mae announced that it has executed two new Credit Insurance Risk Transfer (CIRT) transactions. Together, CIRT 2024-L2 and CIRT 2024-H1 transferred $709.0 million of mortgage credit risk to private insurers and reinsurers. 25 insurers and reinsurers committed to write coverage on these deals. The covered loan pool for CIRT 2024-L2 consists of approximately 30,000 single-family mortgage loans with an outstanding unpaid principal balance (UPB) of approximately $9.9 billion. The covered loan pool for CIRT 2024-H1 consists of approximately 35,000 single-family mortgage loans with an outstanding UPB of approximately $12.1 billion. The loans included in both transactions are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With CIRT 2024-L2, which became effective February 1, 2024, Fannie Mae will retain risk for the first 160 basis points of loss on the $9.9 billion covered loan pool. If the $158.3 million retention layer is exhausted, 25 insurers and reinsurers will cover the next 410 basis points of loss on the pool, up to a maximum coverage of $405.7 million. With CIRT 2024-H1, which also became effective February 1, 2024, Fannie Mae will retain risk for the first 175 basis points of loss on the $12.1 billion covered loan pool. If the $212.3 million retention layer is exhausted, 23 insurers and reinsurers will cover the next 250 basis points of loss on the pool, up to a maximum coverage of $303.4 million. Since inception to date, Fannie Mae has acquired approximately $26.9 billion of insurance coverage on $901.2 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions. As of December 31, 2023, approximately $1.29 trillion in outstanding UPB of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction. To promote transparency and to help insurers and reinsurers evaluate the CIRT program, Fannie Mae provides ongoing, robust disclosure data, as well as access to news, resources, and analytics through its credit risk transfer webpages.

Freddie Mac announced it sold via auction 679 deeply delinquent non-performing residential first lien loans (NPLs) from its mortgage-related investments portfolio. The loans, with a balance of approximately $104 million, are currently serviced by Specialized Loan Servicing LLC and NewRez LLC, d/b/a Shellpoint Mortgage Servicing. The transaction is expected to settle in June 2024. The sale is part of Freddie Mac’s Standard Pool Offerings (SPO). Bids for the upcoming Extended Timeline Pool Offering (EXPO), which is a smaller sized pool of loans, are due from qualified bidders by April 25, 2024. Given the delinquency status of the loans, the borrowers have likely been evaluated previously for loss mitigation, including modification or other alternatives to foreclosure, or are in foreclosure. Mortgages that were previously modified and subsequently became delinquent comprise approximately 47 percent of the aggregate pool balance. Additionally, purchasers are required to honor the terms of existing loss mitigation agreements and solicit distressed borrowers for additional assistance except in limited cases and ensure all pending loss mitigation actions are completed. Freddie Mac’s seasoned loan offerings focus on reducing less-liquid assets in the company’s mortgage-related investments portfolio in an economically sensible way. This includes sales of NPLs, securitizations of re-performing loans (RPLs) and structured RPL transactions. Since 2011, Freddie Mac has sold $10.2 billion of NPLs and securitized approximately $78.3 billion of RPLs consisting of $30.4 billion via fully guaranteed MBS, $35.5 billion via the Seasoned Credit Risk Transfer (SCRT) program, and $12.4 billion via the Seasoned Loans Structured Transaction (SLST) program. Additional information about Freddie Mac’s seasoned loan offerings is available at http://www.freddiemac.com/seasonedloanofferings/.

Fannie Mae announced its latest sale of non-performing loans as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio, including the company’s twenty-fourth Community Impact Pool (CIP). CIPs are typically smaller pools of loans that are geographically focused and marketed to encourage participation by non-profit organizations, minority- and women-owned businesses, and smaller investors. The one large pool includes approximately 1,205 deeply delinquent loans totaling $221.9 million in unpaid principal balance (UPB), and the CIP includes approximately 52 deeply delinquent loans totaling $14.5 million in UPB. The CIP consists of loans geographically located in the New York area. All pools are available for purchase by qualified bidders. Interested bidders are invited to register for future announcements, training and other information here. Bids are due on the one large pool by May 2, 2024, and on the CIP by May 16, 2024.

Freddie Mac Multifamily’s Impact Bonds program has issued over $20 billion in Green, Social and Sustainability bonds since the program’s creation in 2019, according to its annual Impact Bonds Report. In 2023, a majority of Freddie Mac Multifamily’s Impact Bond issuances were from Social Bonds, totaling over $2.6 billion. Over $567 million of these Social Bonds provided liquidity to small financial institutions with a distinct mission of addressing affordable housing challenges. Cumulatively, since 2019, Impact Bonds proceeds financed 183,384 units affordable to tenants earning at or below 80 percent of area median income as well as water improvements projected to save over 570 million gallons of water per year. The Impact Bonds Report highlights properties and impacts across Green, Social and Sustainability Bonds. The full text of the report is available on Freddie Mac’s website. Historically, more than 90 percent of the eligible rental units funded are affordable to families with low-to-moderate incomes earning up to 120 percent of area median income. Freddie Mac securitizes about 90 percent of the multifamily loans it purchases, thus transferring the majority of the expected credit risk from taxpayers to private investors.

Fannie Mae began marketing its most recent sale of reperforming loans as part of the company’s ongoing effort to reduce the size of its retained mortgage portfolio. The sale consists of approximately 6,507 loans, having an unpaid principal balance of approximately $1.470 billion, and is available for purchase by qualified bidders. Interested bidders can register here. This sale of reperforming loans is being marketed in collaboration with Citigroup Global Markets, Inc. Bids are due on May 9, 2024. Reperforming loans are loans that have been or are currently delinquent but have reperformed for a period of time. The terms of Fannie Mae’s reperforming loan sale require the buyer to offer loss mitigation options to any borrower who may re-default within five years following the closing of the reperforming loan sale. All purchasers are required to honor any approved or in-process loss mitigation efforts at the time of sale, including forbearance arrangements and loan modifications. In addition, purchasers must offer delinquent borrowers a waterfall of loss mitigation options, including loan modifications, which may include principal forgiveness, prior to initiating foreclosure on any loan. Interested bidders can register for ongoing announcements, training, and other information here.

Fannie Mae priced a $509.1 million Multifamily DUS REMIC under its Fannie Mae Guaranteed Multifamily Structures program on April 9, 2024. FNA 2024-M4 marks the second Fannie Mae GeMS issuance of 2024. The second GeMS deal for 2024 has an unpaid principal balance of $509,096,202 across 76 Fannie Mae DUS MBS, with geographic distribution concentrated in TX (24.3 percent), FL (11.8 percent), and IL (8.1 percent). The weighted average debt service coverage ratio is 1.42x and the weighted average LTV is 58.8 percent. For additional information, please refer to the Fannie Mae GeMS REMIC Term Sheet (FNA 2024-M4) which is available on the Fannie Mae GeMS Archive page.

Freddie Mac announced that it sold via auction 20 deeply delinquent non-performing residential first lien loans (NPLs) from its mortgage-related investments portfolio to GITSIT Solutions, LLC. The loans, with a balance of approximately $5.7 million, are part of Freddie Mac’s Extended Timeline Pool Offering (EXPO) and the transaction is expected to settle in June 2024. Given the delinquency status of the loans, the borrowers have likely been evaluated previously for loss mitigation, including modification or other alternatives to foreclosure, or are in foreclosure. Mortgages that were previously modified and subsequently became delinquent comprise approximately 27 percent of the aggregate pool balance. Additionally, purchasers are required to honor the terms of existing loss mitigation agreements and solicit distressed borrowers for additional assistance except in limited cases and ensure all pending loss mitigation actions are completed. Freddie Mac’s seasoned loan offerings focus on reducing less-liquid assets in the company’s mortgage-related investments portfolio in an economically sensible way. This includes sales of NPLs, securitizations of re-performing loans (RPLs) and structured RPL transactions. Since 2011, Freddie Mac has sold $10.2 billion of NPLs and securitized approximately $78.3 billion of RPLs consisting of $30.4 billion via fully guaranteed MBS, $35.5 billion via the Seasoned Credit Risk Transfer (SCRT) program, and $12.4 billion via the Seasoned Loans Structured Transaction (SLST) program. Requirements guiding the servicing of these transactions are focused on improving borrower outcomes and stabilizing communities.

The nuns are painting the chapel on a hot summer day, performing a much-needed renovation on the chapel. Today they paint… and the AC isn’t working at all (that’s getting fixed tomorrow). It’s a sweltering hot summer day, so they decide that since they’re all sisters in Christ, they’ll just lock the doors and strip off their gowns and other clothes while painting so they aren’t sweating so much.

After a while, a knock comes from the door.

Sister Mary: “Who is it?”

From the door comes: “It’s the blind guy!”

Well, the sisters all agree if he is blind, there’s no harm letting him in while they’re nude, and it is still very hot, so they’d rather stay nude if they can… so they let him in and lock the door again.

The blind guy comes in, sets some stuff down, looks around and says “Nice bazookas, sisters. Where do you want the blinds?”

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Rob Chrisman