Mar. 20: Mortgage jobs & correspondent growth; Fitch analyzes non-QM market; Redwood Trust non-agency deal; DOJ report on fraud

“I named my dog ‘5 Miles’ so that I can legitimately tell people I walk 5 Miles every day.” Speaking of “5”, it has been 5 years since Thornburg Mortgage filed for Chapter 11. For folks not around then, Thornburg Mortgage Inc. was an American corporation headquartered in Santa Fe, New Mexico. It began in 1993, but had a hard time of it from 2007 to 2010, certainly after filing in the spring of 2009. Many, including myself, fondly remember the company and its personnel, and business of doing loans that made sense with compensating factors and risk-based pricing – even for the fabled self-employed borrower. It reminds us that despite the shift in regulatory environment, the flow of capital has not stopped, nor has the demand by certain borrowers for that capital. And the thinking of non-QM loans continues to evolve – more a few paragraphs down.


Angel Oak Funding, LLC (AOF), is seeking highly motivated Retail Sales Managers and Loan Originators throughout the Southeastern and West Coast. AOF is under the canopy of Angel Oak’s family of companies, and is a full service retail mortgage lender based in Atlanta, GA.  Angel Oak Capital Advisors, LLC is an SEC registered investment advisor with over $3 billion in assets under management.  The combination of its expansive capital markets knowledge and non-agency expertise has enabled Angel Oak to complete the rollout of the 3rd generation of its Evergreen Oak Portfolio Series – the details of the program are in the investor update section several paragraphs down. AOF’s career opportunity “features expansive and competitively priced Conventional and Government programs, a dynamic and supportive sales culture, industry leading marketing support, innovative & unique portfolio products, competitive compensation and unlimited career growth potential.” If you are looking for an opportunity to grow your career with a company that consistently delivers an unsurpassed client experience please contact Whitney Fite at and for additional information please visit


And the Impac Mortgage Correspondent lending team continues to expand and is adding correspondents. It’s a two-step process to become an approved correspondent seller with Impac Mortgage: 1) download and complete the Correspondent Lender Questionnaire (PDF), then 2) email the completed questionnaire to Impac is highlighting its underwriting: “Impac is your underwriting wingman with a full slate of choices available to sellers via a live person, ready to handle questions and give quick answers – aka, you can reach someone. The list of functions they handle includes flexible underwriting options, which are tailored to their customers’ requirements, including: Pre-close Underwriting which provides for no PTD or PTF conditions, only those conditions required for purchasing the loan. Clients may also choose to have a Full Underwrite from Impac’s underwriting team on any of its programs and products offered, as well as Manual Underwriting for its FHA / VA programs, and full underwriting on both Standard and Streamline 203k loans to correspondents. Or, feel free to refer any underwriting scenario to Impac Correspondent by email at


No one should equate non-QM loans with subprime loans, and every borrower should exhibit the ability to repay. The rating agencies are warming to the non-QM idea, and in an edition of “Consumer Financial Services Watch” Laurence Platt noted that “Non QM Lending Facilitated by New Fitch Ratings Criteria”. Here is the link to the Fitch report: Mr. Platt writes, “Non-QM lending received a big boost this week when Fitch Ratings issued its criteria for analyzing residential mortgage-backed securities under the ATR and QM rules issued by the CFPB. It announced that it would apply a relative ‘credit enhancement’ adjustment (i.e., extra collateralization) to non-QM loans pooled to back RMBS, but the level of credit enhancement reflects its belief that the risk of massive losses on such loans is relatively slight. In reliance upon required third-party due-diligence reviews, Fitch said that it would assume the accuracy of an originator’s designation of loans as ‘safe harbor’ QM loans, higher-priced QM loans or non-QM loans.”


His letter goes on. “Violations of the ATR requirements can lead to affirmative claims against creditors and defensive claims against assignees for potentially significant monetary damages consisting of actual damages, $4,000 in statutory damages, a refund of finance charges paid at closing, and three years of interest actually paid and attorneys’ fees. Concern over the amount of such damages and the potential impact of a borrower claim on a foreclosure action has caused some lenders and purchasers to restrict their loan purchases to loans that are conclusively presumed to satisfy the ATR requirements. The lack of an active securitization market for non-QM loans, however, constrains those who want to participate in this segment of the market but want an ultimate ‘take out’ for non-QM loans that they make, purchase or finance.


“Fitch identified a number of ‘key ratings drivers’ that informed its analysis, only some of which relate to potential performance of the loans. As a threshold matter, any transaction must include adequate representations and warranties, ‘robust’ enforcement mechanisms and indemnification for breaches. It also will review the originators’ and aggregators’ processes for ensuring compliance with the ATR rules, both in design and in implementation. Fitch also will require additional credit enhancement for deal structures that deduct expenses from available trust funds rather than from a mortgage pool’s net weighted average coupon rate.”


Mr. Platt writes, “But the heart of the analysis relates to the likelihood of losses based on ATR violations resulting in defensive claims against assignees. A rating of a securitization is based in part on estimated cash flows on the loans backing the RMBS. Losses resulting from ATR violations would impact such cash flows unless the loan is repurchased based on a breach of a selling representation and warranty. So the key is trying to model the number of potential claims and the likelihood and severity of losses resulting from such claims. This is where Fitch took a very practical perspective. In determining the probability of an ATR violation, Fitch first looked at the probability of default as determined by its mortgage loan loss model. It limited its analysis to defaults in the first five years of origination, which in its view excluded 40% of defaults that its model predicted would occur, although it decreased the size of this exclusion for short-term, hybrid adjustable-rate loans. It then differentiated between states that require judicial foreclosure and states that permit nonjudicial foreclosure, positing that borrowers in nonjudicial states are less likely to seek counsel and file a claim in court. Also relevant to its analysis is credit quality: it assumes that non-QM ‘lite’ loans, such as jumbos with debt-to-income ratios only slightly above 43%, pose a lesser risk. Fitch also created assumptions for probability of resolution as a percent of challenges and anticipated legal fees to defend such challenges.”


His note concludes, “The result of this analysis is an assumption that, at least for now when there is not yet any judicial precedent that would provide additional guidance regarding ATR challenges, higher-priced QM loans and non-QM loans ‘…reflect a low probability/high severity scenario whereby Fitch expects a limited portion of defaulted loans to challenge ATR/HPQM status but that significant legal costs will result.’ Interestingly though, it concluded that ‘Fitch expects loan modifications to be the most common resolution to ability-to-repay disputes for higher priced QM loans.’”


Some things are clever and fun, others aren’t – like lawsuits. The CFPB is not immune to lawsuits, and we have a brand-spanking new one against them:


Here is some bedtime reading: “Audit of the Department of Justice’s Efforts to Address Mortgage Fraud”. Unfortunately fraud is not dead in lending (or probably any other business, for that matter), and you can read all about it here:


Redwood Trust has not issued a non-agency bond since 2013. But that is about to change: (The story also includes an update on other non-agency news.)


On the investor side, Angel Oak completed the rollout of the 3rd generation of its Evergreen Oak Portfolio Series specifically designed to “increase loan officer’s market share in today’s competitive purchase environment.” Highlights include: Home$ense Program – 1 day out of short sale, foreclosure, or bankruptcy;  24 month Bank Statement, FICOs as low as 500 and LTV’s up to 80%. Portfolio Select Jumbo- FICOs down to 640, 1 year tax returns for SE, asset depletion and CLTV’s to 90% on loan amounts to $1.0mil. Performance Jumbo – aggressively priced 30 year fixed.  Their entire Portfolio Series offers in-house underwriting and servicing.


RightStart Mortgage is adding 25 new retail branches to increase its market footprint from 10 to 15 states, most of them in the western US.  Three new branches have been added in Southern California, which will be followed by a branch in Hawaii later in the spring.  The expansion will be headed up by John Stangarone, who was recently appointed Retail Business Development Manager.  Stangarone will be joined by Jonathan Okken, formerly of CNCInnovis, Countrywide, Dollar Mortgage, Harbor Capital, CBSK Financial, and Manhattan Financial.


Genworth has released a suite of new master policy resources with the intent of improving process transparency, providing clarity of the coverage, and offering clear steps and timelines for managing claims and resolving disputes after having consulted extensively with the FHFA, Fannie Mae, and Freddie Mac.  The policy has also revised the approach to rescissions, as Genworth will now offer rescission relief after a minimum of 12 months of payments for customers who agree to have their loan files reviewed and verified upon submission.  For loans to be salable to the Agencies, all mortgage insurers must introduce their own version of a new master policy.  At present, the new policy is expected to go into effect by July 2014.


Impac Mortgage Holdings, Inc. announced a net loss for the year ended 2013 of $(8.2) million as compared to a net loss of $(3.4) million for the year ended 2012. In 2013, mortgage lending net earnings decreased by $18.8 million, to a loss of $(1.2) million, as compared to 2012. “Although lending volume slightly increased in 2013 to $2.5 billion as compared to $2.4 billion in 2012, margin compression, an increase in interest rates, increase in lending compliance efforts and the roll out of our new LOS system resulted in a very challenging year for us.”


Rates: up some, down some. Yesterday it was up some after the FOMC statement, SEP projections, and Fed Chair Janet Yellen’s first press conference. As expected, the Committee announced another $10 billion in tapering, split equally between MBS and Treasuries, while forward guidance was shifted to a qualitative approach from quantitative with the 6.5 percent threshold for the unemployment rate removed. But the Fed turned out to be much more hawkish, a surprise to some given the recent data (much attributed to weather), and analysts opined that there is a strong potential for a Fed rate hike in mid-2015. The 10-year Treasury note was down/worse about .75 in price, and agency MBS prices fell between .5-.625.


So beginning in April, outright MBS purchases from the Fed will decline to $25 billion from $30 billion. Thomson Reuters writes, “Combined with paydowns, MBS buying is projected to decline from $2.3 billion per day over the last half of March to just over $2 billion in the first half of April. Although supply/Fed-demand technicals remain supportive over this time, it is deteriorating. Currently, originator selling is averaging roughly $1.2 billion recently, but is anticipated to increase as purchase activity strengthens into the spring home buying season.”


Rates were quiet overnight, but today we’ll have Initial Jobless Claims, which is expected to increase to 322k from 315k, Existing Home Sales for February, Leading Economic Indicators for February, and the Philly Fed survey for March. At 5AM Hawaii time the Treasury announces details of next week’s auctions of 2-, 5- and 7-year notes and 2-year floating rate note (e: $109 billion) and at 7AM HST auctions $13 billion reopened 10-year TIPS. Our risk-free 10-yr T-note closed Wednesday at 2.77% and in the early going is nearly unchanged as are agency MBS prices.



How about a little trivia today? “Dead Penguins” – I never knew this!

Did you ever wonder why there are no dead penguins on the ice in Antarctica?

Where do they go?

Wonder no more!

It is a known fact that the penguin is a very ritualistic bird which lives an extremely ordered and complex life. The penguin is very committed to its family and will mate for life, as well as maintain a form of compassionate contact with its offspring throughout its life.

If a penguin is found dead on the ice surface, other members of the family and social circle have been known to dig holes in the ice, using their vestigial wings and beaks, until the hole is deep enough for the dead bird to be rolled into, and buried.

The male penguins then gather in a circle around the fresh grave and sing:

“Freeze a jolly good fellow.”

“Freeze a jolly good fellow.”




(Copyright 2014 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