June 21: Moody’s & New Penn & Shellpoint; a few state-level mortgage changes; are you ready for FMIC?

Welcome to the day with the misnomer, “The longest day of the year.” Every day has about 24 hours – this one, in the northern hemisphere, happens to have the longest period between sunrise and sunset. Hopefully we all have a chance to watch one or the other.


Speaking of watching, or the opposite, here’s a bank employee who fell asleep while working, hit the keyboard, and wired out a huge sum of money. Too bad it didn’t show up in my bank account: http://www.independent.co.uk/news/world/europe/cashier-asleep-with-finger-on-keyboard-launched-a-222222222-transaction-8653656.html.


Will the loss of refi business, which we all knew would happen eventually, be replaced by purchase business due to the expanding economy? That is the big question, and those lenders who have been cultivating Realtor and builder business have the inside track. The National Association of Home Builders (NAHB) is taking a look at the features today’s young homebuyers want most and how builders are adapting to those needs. As the economy recovers and young people who had to live at home with their parents (are my kids reading this?) move forward with their lives and achieve their dreams of homeownership, home builders are delivering homes that cater to the floor plans, features and affordability that this generation desires.


According to the association’s 2012 consumer preference survey, more than 80 percent of Generation Y homebuyers (people born in 1977 or later, which obviously include the Millennial darlings) prefer a highly energy-efficient home over a lower-priced home without energy-efficient features, preferring to save instead on utility costs. To meet this need, builders are now constructing homes with ENERGY STAR-rated appliances; windows, doors, and insulation that help control the home’s climate; and other modern components such as tankless water heaters and heating, ventilation, and air conditioning (HVAC) systems that help save energy costs. Gen Y also seems to favor media and game rooms more than any other kind of specialty room. New homes today not only contain those spaces, but they are outfitted with modern, state-of-the-art electronic and wiring components that can accommodate high-definition televisions, full-house sound systems, hard-wired fire and security alarms, and more. Beyond those features, NAHB noted that new homes today actually cost less to maintain than older homes. A study done by the group found that homes built before 1960 have average maintenance costs of $564 per year, while homes built after 2008 average $241 annually. (Versus my house which seems to cost about $8,000 per year to maintain.) The current market presents outstanding opportunities with near record low interest rates, competitive prices, and new homes being built that include open layouts, energy efficient components, and other features that cater to young buyers who may not know how to pick up their socks, but can buy a house.


But there are still owners out there who, for some reason, never heard that rates were lower than their existing 5% loan, or never had the time in the last year to refi. I’ve heard from a couple sources that some FHA borrowers, whether before May ’09 or after, are refinancing into conventional loans. Does it make economic sense? If the LO is savvy, running the numbers is critical: in some cases even grandfathering in 55 bps of annual MIP, it was cheaper to go conventional + 2nd lien.


To be honest, I’d forgotten that Shellpoint Partners owned New Penn. “Rating agency sniping has reared its head again, this time directed by Moody’s at a mortgage-lending platform co-owned by mortgage-bond pioneer Lewis Ranieri. The ratings firm on Thursday published a critical assessment of New Penn Financial, the mortgage-origination platform bought by Ranieri’s mortgage-finance firm Shellpoint Partners two years ago.” Here you go: http://www.reuters.com/article/2013/06/20/rmbs-ranieri-moodys-idUSL2N0EW1TD20130620.


The Maryland General Assembly has recently enacted the Maryland Mortgage Assistance Relief Services Act with the passage of House Bill 291. The Bill repeals and adds to various Maryland Commercial and Real Property laws. The intent of the Maryland General Assembly was to provide within State law, the consumer protections available under the federal regulations governing mortgage assistance relief service providers. The Act becomes effective on July 1, 2013. The Act uses the definition of “Mortgage Assistance Relief Service” found in the federal regulation, which under the federal regulation a mortgage assistance relief service provider is a person that for compensation provides any mortgage assistance relief service. The Maryland Mortgage Assistance Relief Services Act aligns the consumer protections available in Maryland with those available under federal law. Effective July 1, 2013, private persons harmed, the Commissioner, and the Attorney General may bring actions against those who are not in compliance with the federal regulations governing mortgage assistance relief service providers.


In more state and district news: The Oregon Legislative Assembly recently passed Enrolled House Bill 2688. The Bill creates new provisions and amends Oregon statute 87.202 regarding statements of account for foreclosures of liens on chattel. The amendments to ORS 87.202 apply to foreclosures-by-sale that occur on or after January 1, 2014. On May 22, 2013 the Council of the District of Columbia enacted the “Saving D.C. Homes from Foreclosure Enhanced Emergency Amendment Act of 2013.” The Act is effective immediately land serves to extend the emergency amendments to the D.C. Official Code Right to Cure Residential Mortgage Foreclosure Default, Foreclosure Mediation and Establishment of Foreclosure Mediation Fund regulations. The state of Nevada has revised a variety of provisions related to mortgage lending and brokering, effective immediately; including: Provisions exempting nonprofit agencies and organizations from the licensing requirements of mortgage brokers and mortgage agents, clarification of employment, association, and sponsorship requirement, for mortgage agents, and revisions to provisions governing the renewal of a license as a mortgage agent, Provisions prohibiting false acts and deceptive practices by mortgage brokers and mortgage agents. More state level information can be found here: http://bankersadvisory.blogspot.com/


When I think of catchy government acronyms, I think of TARP, and when I think of TARP, I think of its not-so-catchy cousin, CPP (or Capital Purchase Program). And when I think of CPP, I think of chocolate chip cookies. (I guess I think of chocolate chip cookies no matter what.) CPP’s main initiative under TARP was to help stabilize the financial markets and banking system by providing capital to qualifying regulated financial institutions through the purchase of senior preferred shares and subordinated debt. Rather than purchasing troubled mortgage-backed securities and whole loans, as initially envisioned under TARP, Treasury used CPP investments to strengthen financial institutions’ capital levels. Treasury determined that strengthening capital levels was the more effective mechanism to help stabilize financial markets, encourage inter-bank lending, and increase confidence in lenders and investors. While history will ultimately determine the over-all success of the bailout programs, quantitatively, on paper, the Treasury has recovered more than $222 billion from the Capital Purchase Program through repayments, dividends, interest, and other income – compared to the $204.9 billion initially invested. Recently it paired down its exposure a little more, as they sell off all holdings in preferred stock and subordinated debt of an additional six financial institutions. Full details can be found here: http://www.treasury.gov/press-center/press-releases/Pages/jl1978.aspx.


Senators Dodd and Frank made famous their respective surnames by creating a bill which made sweeping changes to financial institutions and consumer protection; Senators Bob Corker and Mark Warner hope to continue that tradition as they draft a bill which would create a government mortgage insurance agency. The 112-page draft bill would unwind the government-sponsored enterprises, expand the role of private mortgage insurers and install a government backstop that would offer a common securitization platform and provide catastrophic re-insurance. Details on the plan to reform Fannie Mae and Freddie Mac are beginning to emerge in a discussion draft being circulated around Capitol Hill, and although specifics are vague at the moment, a key provision contained within the bill has the creation of the Federal Mortgage Insurance Corporation which would provide catastrophic reinsurance for mortgage-backed securities. The agency would be governed by a five-member board and replace the FHFA, the existing regulator and conservator of the GSEs. I love learning new acronyms: http://www.americanbanker.com/issues/178_109/cheat-sheet-details-emerge-on-corker-warner-gse-bill-1059687-1.html.


As originations inside the QM band become more clear, originations outside QM, present or future, have increasingly become more unclear. K&L Gates write, “On May 6th, the FHFA, the regulator of Fannie Mae and Freddie Mac, directed the GSEs to limit their mortgage acquisitions to qualified mortgages (QM) effective January 10, 2014. This FHFA directive will ensure that the GSEs only purchase loans that are fully amortizing, have a term of 30 years or less, and have points and fees limited to 3% of the total loan amount (and meet all the other QM criteria).” However, by restricting Fannie and Freddie to purchasing only standard QM’s, the FHFA’s May 6 directive solidifies the Consumer Financial Protection Bureau’s standard QM as the new baseline for residential mortgage loans. As such, certain GSE requirements that may have made their way into the “special/Agency” QM definition have now been rendered obsolete in the QM context. Ironically, a few months ago the CFPB’s Director, Richard Cordray, included in a speech that there is “plenty of responsible lending” available outside the QM space, and that lenders “should not be holding back” from originating non-QM loans; the recently issued directive may undermine these comments. As K&L Gates noted, “That is because, with approximately 50% of residential mortgage loans being backed by the GSEs, creditors that wish to originate non-QM loans will soon be left with even fewer secondary market alternatives.”


In a predictive note I received a while back, Steve E. writes, “I agree that someday refinances at their current % of volume will go away. I’m not so sure that time when the long term upward rate trend starts, is very close yet. I’ve been hearing these warnings from management for four years now (really for decades) and each time the rate goes up, they all say, ‘I told you so, refis are over.’ And refis come back. Plus not all refis are rate driven though lower rates do help motivate even these borrowers. Borrowers still divorce, need home improvements, pay for college, etc. For any loan officer that has ignored their past customer pipeline to harvest refis, they’ve missed a lot of revenue for themselves and their employer. Eventually it will be brutal for a decade or more as this time will be different in that we can’t have another 30 year consistent drop in rates but the strong will adapt. Fewer originators will swim in the smaller pond of closed loans.”


The market is still shell-shocked. The mortgage-backed securities market was described as “thin” and “illiquid” which led to a “volatile” and “roller coaster” trading session as markets continued to reprice to potential Fed tapering off of its asset purchases later this year. Mortgage rates on 30-yr paper have headed up into the 4% range, and secondary marketing desks are busy explaining to LOs why it makes no economic sense whatsoever to extend locks, given those juicy pair off gains on security hedges. But a guarantee to a borrower is a guarantee to a borrower, right? The financial markets have wiped out all of recent gains not because QE3 will end, but because participants are unconvinced that the economy can withstand higher interest rates without slowing, thus negatively impacting household spending and ultimately corporate earnings.


Yesterday the 10-year Treasury note yield finally settled at 2.42% – its highest level since early August 2011 after selling off nearly another point in price. Traders reported that the Fed was the sole consistent buyer with its latest weekly report indicating a pace equivalent to $3.48 billion per day in net purchases. Mortgage banker selling totaled less than $2.5 billion with 4s making up roughly 30 percent of the 30-year originations – it is not hard to do the supply and demand math. MBS prices worsened by a point in some coupons, and we’re looking at a mid-4% 30-yr mortgage world again. And thus we’re already seeing refinancing activity declining as a result of higher rates and gross fixed-rate issuance will be declining as a result – something of keen interest to investors. The MBA’s current outlook for refinancing share as a percent of total applications in the fourth quarter 2013 is 42 percent, down from close to 80 percent as 2013 got underway, and from 69 percent in its most recent mortgage application survey.


Morgan Stanley expected gross production in MBS to decline to between $100 and $110 billion per month from about the $150 billion average of the past six months. Based on the Fed’s buying of about $70 billion per month, their purchases would take out 60 to 70 percent of the monthly production, up from less than 50 percent – that should help from a supply/demand perspective.


There is no scheduled news today, and hopefully the market can regain some sense of orderliness.



A guy with a gun enters an Australian bar. 

“Who had sex with my wife?” he fumes.

A voice was heard in the background. “You don’t have enough bullets mate.”





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Rob Chrisman