There is plenty of dialog and discussion in the lending industry, and not all of it is centered on wondering, “Was Bruce’s better event in the decathlon the broad jump or pole vault?” (Sorry – my old capital markets/trading desk streak showing.) Certainly some of the conversation involves the fact that, for the popular press, bad news sells. When was the last time anyone saw an article about how 97 or 98% of borrowers understand that a written contract is something to be upheld, and are making their payments? How about how the residential lending industry is funding hundreds of thousands of loans a month, totaling roughly $100 billion, for the most part smoothly and efficiently – in spite of the huge weight of regulation and compliance heaped upon it? This industry doesn’t pat itself on the back often enough. And now the press is labeling non-bank lenders (Stearns, Freedom, Guild, Union Home, etc.) as “shadow banks” when discussing how their market share has increased. Not very complimentary.
Yet new lenders are being created. “Sindeo is building a dynamic, diverse team to revolutionize the mortgage experience for consumers. Our mission is to simplify life’s largest financial decision and help people make smart mortgage choices to get the right loan at the right time. Sindeo is looking for client-service oriented mortgage professionals who share our passion for giving homebuyers a first-rate experience. Want to be part of the team that is building something new? Apply today!”
Also on the expansion front, a privately held seller servicer buying loans in 46 states with a retail presence in nine states is looking to expand their retail presence throughout the country. This company is actively seeking, for their retail division, Regional Vice Presidents for the West Coast, Mountain Region, Southern Region, and East Coast. Selling directly to Fannie, Freddie, and Ginnie there is plenty of opportunity to grow by joining the team. Applicants must be well established, able to manage multiple branches, have the ability to recruit new branch opportunities, and currently work in a similar capacity. With next-to-NO OVERLAYS, this company is laser focused on growth in all regions. “Culture and teamwork is at the very heart of our company, we view our relationships as partnerships because for a mortgage company to succeed in today’s competitive environment, we not only need to be on the same page, we have to know how to get there together. E-mail to see if we are a fit!” Confidential inquiries should be sent to me at [email protected]; please specify the opportunity and excuse any delays due to travel in Colorado.
But once again a large lender is the source of negative news for the industry. “Nationstar Mortgage Accused of Inflating Stock Price in Lawsuit.” “The lawsuit, filed by Robins Geller Rudman & Dowd on behalf of the City of St. Clair Shores Police and Fire Retirement System, accuses Nationstar of gouging mortgagors – and illegally enhancing its profits through unsustainable means – via illicit practices, such as charging for repeated, unnecessary inspections, which resulted in additional late payment fees, and by pressuring mortgagors to carry out expensive modifications and refinancing of their mortgages.”
And JPMorgan Chase said it will cut 5,000 jobs (about 2% of total staff) over the next 12 months, as it seeks to reduce expenses, consolidate support and fine tune operations.
Don’t forget that a while back Freddie Mac released its 2014 Fourth Quarter Refinance Report . According to the Report, of borrowers who refinanced during the fourth quarter of 2014, 34 percent shortened their loan term. Also, an estimated $6.7 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages, down from the revised $7.6 billion the previous quarter. The average mortgage interest rate reduction in the fourth quarter was about 1.3 percentage points — or a savings of about 23 percent.
For the residential industry the share of lender’s purchase volume has increased for the first time this year, increasing by 5 percent according to Ellie Mae’s Origination Insight Report. In March, the purchase share represented 46 percent of lenders’ overall volume and the refinance share was 53 percent. The average 30-year fixed mortgage rate was 4.0141% up from 4.008% a month earlier. The closing rate for all loans jumped more than 3 percent between February and March, while the average closing time was 44 days in March. The average FICO score on a closed loan was 731, down 1 point from February and the share of FHA refinances at 95 LTV rose above 40 percent. The number of FHA loans closed in March grew to 22 percent from 19 percent in February, while the amount of closed conventional loans dropped to 66 percent from 69 percent a month earlier. Ellie Mae’s report is based off of a sample of 66 percent of all mortgage applications that were started in Encompass.
Speaking of industry figures, independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of nearly $1,500 on each loan they originated in the first quarter, per the Mortgage Bankers Association. MBA Vice President of Industry Analysis Marina Walsh said that total production operating expenses per loan remained a challenge, rising to $7,195 per loan in the first quarter, from $7,000 per loan in the fourth quarter. Average production profit rose to 60 basis points in the first quarter, compared to 32 basis points in the fourth quarter. Secondary marketing income rose to 297 basis points in the first quarter, up from 266 basis points in the fourth quarter. Total loan production expenses–commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations–increased to $7,195 per loan in the first quarter, from $7,000 in the fourth quarter. Personnel expenses averaged $4,675 per loan in the first quarter, up from $4,428 per loan in the fourth quarter. And the “net cost to originate” was $5,597 per loan in the first quarter, up from $5,283 in the fourth quarter. This includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.
This morning we learned from the MBA that apps have declined for 6 straight weeks. Anyone bucking that trend should be very happy. The Market Composite Index fell by 7.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, given the Memorial Day holiday, the Index decreased by 17 percent compared to the previous week. Refis were down 12% (49% of all apps) and purchases dropped 3%.
Remember adjustable rate mortgages? They certainly aren’t “against the law” yet with this low rate environment they’ve been put on the back burner accounting for about 6% of business. In fact just ask Alan Greenspan – he thought that Americans might be better off by taking out more floating-rate home loans.
And the government is here to help! There is a “Consumer Handbook on Adjustable Rate Mortgages” that companies are buying for their LOs to distribute to borrowers. “This handbook includes scores of helpful tips and tools from worksheets to glossary of terms and helpful consumer resources. It explains different types of ARMs with their features and pitfalls, including consumer cautions before choosing this type of home loan with balloon payments and in later years that may include pre-payment penalties.”
Of course when you talk about ARM loans you can’t help but mention Freddie Mac and Fannie Mae’s role in the market. The press thinks that the efforts toward a single security move Fannie Mae and Freddie Mac further away from their past as privately run competitors.
But anyone selling to Fannie Mae is certainly talking about the announcement last week: Fannie Mae issued Ann. SEL-2015-06. It’s Selling Guide was updated for the following: Payoff of Revolving Debt At or Prior to Closing, Extension of DU Refi Plus and Refi Plus, Manufactured Housing Affidavit of Affixture, Clarification of CLTV and HCLTV Ratio Requirements for Project Reviews on Florida Condos, replace References to “eCommitting” and “eCommitONE” with “Fannie Mae’s Whole Loan Committing Application”, and it replaced references to “National Underwriting Center” with “Loan Quality Center”. In addition, updates to the following are described in this Announcement: revised Kentucky Security Instrument, updated list of Approved Mortgage Insurance Forms, and an updated list of Special Feature Codes.
Much of the attention was on the “Payoff of Revolving Debt at or Prior to Closing.” When a revolving account is being paid off at or prior to closing, the current policy requires lenders to document that the revolving account has also been closed in order to exclude the payment from the debt-to-income (DTI) ratio. The Selling Guide has been updated to remove the requirement that the revolving account be closed. Going forward, revolving accounts that are paid down to zero at closing may remain open and no monthly payment needs to be included in the DTI ratio.
This policy change was effective immediately. Desktop Underwriter (DU) currently issues a message stating that revolving debts must be included in the total expense payment if the account is not being closed. Lenders may disregard this message until it is removed in a DU release later in 2015.
And regarding the “Manufactured Housing Affidavit of Affixture”, currently, the Selling Guide requires an Affidavit of Affixture for manufactured housing loans, which documents the borrower’s and lender’s intent for the manufactured home to be permanently part of the subject property. The Guide indicates that if the lender needs assistance in preparing an acceptable version of this form, the lender should contact its lead Fannie Mae regional office. Many states publish a version of that form, and lenders can get the form from the appropriate state or local agency or can consult with their legal counsel if they need assistance. Therefore, the Guide has been updated to remove the reference to Fannie Mae’s lead regional office. The Guide has also been updated to clarify who must sign the Affidavit of Affixture.
Lately the Florida market has been hot, and Fannie addressed the clarification of CLTV and HCLTV Ratio Requirements for Project Reviews for Florida Condos. The Selling Guide currently describes the transactions that are eligible for a Limited Review based on the LTV, CLTV and HCLTV ratios. For Florida condo projects, Limited Review requirements are based on a slightly lower maximum LTV ratio. In response to lender questions, the Guide has been updated to include the CLTV and HCLTV ratios that currently apply to Limited Reviews of condo projects in Florida, which are the same ratios that apply to condo projects in all states. Only the LTV ratios (not the CLTV or HCLTV ratios) are lower for Limited Review of Florida projects. And as a reminder, lenders may perform a full review of a Florida condo project (with or without the use of Condo Project Manager™) to originate loans up to the maximum standard LTV, CLTV and HCLTV ratios permitted by Fannie Mae.
Turning to interest rates, how can rates rise if the economy is lagging? We closed out the 10-year at a yield of 2.27% – so someone out there thinks that the U.S. economy is not actually lagging. There has been plenty of nationwide news here in the States showing that things are moving forward – we’re certainly not having the economic discussions that we were having 3 years ago. And remember that we are part of a global economy, and there are plenty of things happening in Russia, China, and Europe that move our markets. In this case we are seeing rising German bund yields on a combination of higher euro zone inflation and expectations that Greece and its creditors are nearing a deal. Meanwhile, data was mixed with factory orders weaker than expected while vehicle sales were favorable – and economists still see some kind of short term rate change later this year. So Tuesday the 10-year T-note lost .625 in price whereas agency MBS prices worsened about .375.
Today we’ll have the ADP Employment report for May at 6:15 Mountain Time (look for +200k in private jobs created from +169k in April), International Trade balances, ISM Services PMI, and then in the afternoon the Federal Reserve will release the Beige Book in preparation for the June 16-17 FOMC meeting. In the early going we’re at 2.28% on the 10-year with agency MBS prices worse nearly .125.
A teacher noticed that a little boy at the back of the class was squirming around, scratching his crotch, and not paying attention. She went back to find out what was going on.
He was quite embarrassed and whispered that he had just recently been circumcised and he was quite itchy. The teacher told him to go down to the principal’s office. He was told to telephone his mother and ask her what he should do about it.
He did and returned to his class. Suddenly, there was a commotion at the back of the room. She went back to investigate only to find him sitting at his desk with his ‘private part’ hanging out.
“I thought I told you to call your mom!” she said.
“I did,” he said, “And she told me that if I could stick it out until lunchtime, she’d come and pick me up.”
(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.)