Daily Mortgage News & Commentary

Mar. 6: LIBOR phase out details; Agency deals continue, helping borrower’s mortgage rates; Saturday Spotlight: ReadyPrice

Lenders think about business every day. According to FBX, February 2021’s mortgage rate-lock volume was up 29 percent year over year but down 7 percent from January across all channels, while funded volume increased 76 percent YoY and flat MoM. In the retail channel, lock volume increased 28% YoY and decreased -7% MoM, while funded volume was up 84% YoY and flat MoM. How about some things that you don’t think about every day? Did you know that Ecuador has become the largest exporter of shrimp in the world: $3.6 billion last year, with India coming in #2? While I’m yapping about food, feta is on fire thanks to a viral pasta recipe spreading across TikTok, which is basically an oven-baked feta pasta that can be made in one pan. The trend started pulling in serious numbers in mid-January, and now the hashtag #fetapasta has over 600 million views. So if you’re wondering what to make for dinner…

Saturday Spotlight: ReadyPrice: creating mortgage technology for the modern era, making it even easier for mortgage loan originators and lenders to work together.

 

In 3-5 sentences, describe your company. 

 

Launched in 2020, ReadyPrice’s is a dynamic community, bringing together leading mortgage loan originators (MLOs) and lenders to facilitate a more efficient loan origination process. ReadyPrice enables MLOs to manage and choose pricing, run automated underwriting, and deliver approved loans to lenders at no cost to them. For lenders, ReadyPrice provides an efficient way to scale their businesses, ensuring wholesale lending rates are included in every pricing engine search while providing brokers with the easiest path to directly transfer DU approved loans. ReadyPrice technologies support FNMA, FRE, FHA, VA, USDA, VA, and non-agency (non-QM, jumbo, etc.) loan originations.

 

The system is growing at an unprecedented rate, growing the platform, and investing in new tools to drive efficiency and transparency across the origination process. In January of this year, ReadyPrice was acquired by SitusAMC, augmenting the system with a broad ecosystem of complimentary technology and services across the life cycle of real estate finance.

 

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why. 

 

We believe that our company and people have a responsibility to the communities where we work, live and play. Our offices regularly come together to support local charities and volunteer our time. This past year, SitusAMC and associated companies came together to partner with FeedingAmerica to provide 250,000 meals for the hungry.

 

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop? 

 

While our business is largely focused on technology, we believe our success is rooted in the quality of our people. To that end, we’ve established an in-house training department that provides support and training to ensure our people feel empowered to be their best. Additionally, we’ve launched the SitusAMC University, housing tools and resources that our employees can access in real time. We also leverage the many subject matter experts from across the enterprise to provide unique perspectives and insights in the form of webinars, articles, podcasts and more to our own employees, enabling them with the knowledge they need to be better partners for our customers and clients.

 

Tell us how your company maintains its culture in the office, or in a work-from-home environment if applicable. 

 

While the pandemic has created unique challenges, we believe it’s made us more thoughtful on how we engage our employees and maintain our culture. Given the rapid growth of ReadyPrice and the many acquisitions led by SitusAMC much of the work we do around employee engagement is about bringing our people together and providing transparent views into the enterprise and where we are on our journey. We do this through all employee town halls, updates from leadership, and consistent communications.

 

Things you are most proud of that don’t have to do with sales. 

 

What makes us most proud is the willingness of our teams to embrace change.

(For more information on having your firm, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

LIBOR updates

The UK Financial Conduct Authority has confirmed publication of most Libor rates, including euro, sterling, Japanese yen, Swiss franc, one-week US dollar and two-month US dollar, will cease Dec. 31. Bank of England Governor Andrew Bailey says this marks the “final chapter” for Libor: “With limited time remaining, my message to firms is clear: act now and complete your transition.”

Intercontinental Exchange, which administers the London Interbank Offered Rate, finalized plans to cease publishing U.S. dollar Libor after the end of 2021. Under the plan (proposed for comment in December 2020) ICE will stop publishing the one-week and two-month settings of USD Libor immediately after Dec. 31, 2021, and cease publishing remaining Libor settings on June 30, 2023. This week’s announced 18-month delay in the retirement of some of the most widely used Libor benchmark rates to mid-2023 widely reduces credit risk because it provides additional time for U.S. dollar exposures to decline and for issuers, structured finance deals and others to prepare for the transition. So the finalization by ICE Benchmark Administration of the retirement timeline proposed in December covers all US dollar Libor tenors aside from 1-week and 2-month US dollar Libor.

The universe of contracts with weaker, older benchmark fallback language is already shrinking. Commercial or residential, refinancings and renegotiations have wound down many of these contracts or reduced the size of exposed debt, and appear poised to continue to do so in sectors such as US CLOs and residential mortgage-backed securities.

Most lenders I’ve spoken with have already moved to Treasury index-based adjustable-rate mortgages, many through CMT (Constant Maturity Treasury). Yes, ARMs only make up about 1-3 percent of current applications, but they are still a product offered by most lenders. But community financial institutions have a particular reason to care about LIBOR’s end: the syndicated loans that many CFIs hold on their balance sheets, many of which are still pegged to LIBOR. Review those contracts!

Lenders doing ARMs through Freddie Mac or Fannie Mae should review the FHFA guidance.

U.S. lenders, and worldwide financial markets, have known for years that LIBOR would be discontinued. Even so, plenty of existing contracts are still pegged to LIBOR. In many instances, says the New York Fed, credit agreements have fallback language, but the provisions aren’t economically appropriate or sufficiently robust. The key distinction is how much input lenders have in determining the new rate. PCBB offers a paper worth a gander: A Smooth Transition from LIBOR to SOFR. Banks need to check their loan agreements, determine which contracts lack sufficiently robust, economically appropriate fallback provisions for LIBOR’s retirement, and amend those agreements.

Lastly, recall that Ginnie Mae extended the securitization deadline for LIBOR-based HECM loans. Ginnie Mae issued All Participant Memorandum 20-19 (APM 20-19) to extend the deadline for securitization of new LIBOR based home equity conversion mortgage (HECM) loans.

Fannie & Freddie deals: chugging along

Everyone (“and their brother”) continues to talk about Fannie Mae and Freddie Mac, both critics and proponents, on a small and on a large scale. It is highly doubtful that Congress could agree on removing them from conservatorship, and it is not high on the Biden Administration’s priority list anyway. But everyone in our biz knows that actions and news about the Agencies can directly impact rates for borrowers, since demand & pricing in the secondary markets translates to rate sheets. Freddie and Fannie continue to a) buy loans from originations in the primary market, providing guidance through LP and DU, respectively, and b) push deals in the secondary markets. This is critical, and the reason they were both created in the first place: to add liquidity in the secondary markets to help borrowers.

Although CRT (Credit Risk Transfer) deal making has slowed somewhat, Freddie Mac has been busy bringing K-Deals to the market. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. STACR (Structured Agency Credit Risk) is another good term to know, and another mechanism for transferring risk to those who want to own it. And don’t forget SB Certificate deals. But overall, let’s take a glance at what Freddie was up to.

Freddie Mac announced the pricing of its seventh SB Certificate transaction of 2020, the $387 million SB76 offering, a multifamily mortgage-backed securitization backed by small balance loans underwritten by Freddie Mac and issued by a third-party trust. Freddie Mac Small Balance Loans generally range from $1 million to $7.5 million and are generally backed by properties with five or more units. Pricing for the deal is as follows. Class A-5F has a principal of $53.255 million, a weighted average life of 4.08 years, a coupon of 0.83 percent, a yield of 0.6955 percent, and a $100.4891 price. Class A-5H has a principal of $125.170 million, a weighted average life of 4.07 years, a coupon of 1.03 percent, a yield of 0.8947 percent, and a $100.4773 price. Class A-7H has a principal of $120.155 million, a weighted average life of 5.50 years, a coupon of 1.19 percent, a yield of 1.0912 percent, and a $100.4595 price. Class A-10F has a principal of $89.35 million, a weighted average life of 6.84 years, a coupon of1.13 percent, a yield of 1.0537 percent, and a $100.4393 price. The SB76 Certificates settled in July.

Freddie priced a new $465 million offering of Structured Pass-Through K Certificates (K-I06 Certificates) that are backed by multifamily loans sold to a third party and securitized by Freddie Mac. The K-I06 Certificates settled in late August. Pricing for the one offered class is as follows. Class A has a principal of $465.420 million, a weighted average life of 2.22 years, a coupon of 1-month LIBOR + 22 bps, and a $100.00 price.

 

Freddie priced a new $549 million offering of Structured Pass-Through K Certificates (K-G03 Certificates), which are multifamily mortgage-backed securities. KG-Deals are the environmental and social impact series of Freddie Mac’s K-Deal program, exclusively securitizing workforce housing loans made through the company’s Green Advantage program. Pricing for the deal is as follows. Class A-1 has a principal of $55.40 million, a weighted average life of 6.26 years, a spread of S+39, a coupon of 0.704 percent, a yield of 0.69796 percent, and a $99.9962 price. Class A-2 has a principal of $494.58 million, a weighted average life of 9.73 years, a spread of S+48, a coupon of 1.297 percent, a yield of 0.96635 percent, and a $102.9999 price.

 

Freddie priced a new $927 million offering of Structured Pass-Through K Certificates (K-F83 Certificates), which includes a class of floating rate bonds indexed to the Secured Overnight Financing Rate (SOFR). The K-F83 Certificates are backed by floating-rate multifamily mortgages with 10-year terms, which are currently LIBOR-based. K-F83 includes one class (Class AL) of senior bonds indexed to LIBOR and another class (Class AS) of senior bonds indexed to SOFR. Freddie Mac will provide a basis risk guarantee on Class AS that covers any floating interest rate basis risk if the value of SOFR exceeds the value of LIBOR. Pricing for the deal is as follows. Class AL has a principal of $477.694 million, a weighted average life of 9.45 years, a coupon of 1-month LIBOR + 36 bps, and an even $100.00 price. Class AS has a principal of $450.000 million, a weighted average life of 9.45 years, a coupon of 30-day SOFR average + 38 bps, and an even $100.00 price.

 

Freddie announced that it closed its $835 million STACR (Structured Agency Credit Risk) REMIC 2020-HQA3 offering, upsizing the bonds due to strong investor interest for the second time since March. Freddie also upsized and closed the related ACIS (Agency Credit Insurance Structure) 2020-HQA3 insurance policy. STACR and ACIS make up Freddie Mac’s flagship Credit Risk Transfer (CRT) program. STACR REMIC 2020-HQA3 is Freddie Mac’s third securities transaction of the year covering single-family loans with high loan-to-value ratios between 81 percent and 97 percent. The loans were securitized between October 1, 2019 and December 31, 2019 and originated on or after January 1, 2015. Pricing for STACR REMIC 2020-HQA3 is as follows. Class M-1: 1-Month LIBOR plus 1.55 percent. Class M-2: 1-Month LIBOR plus 3.60 percent. Class B-1: 1-Month LIBOR plus 5.75 percent. Class B-2: 1-Month LIBOR plus 10 percent. The ACIS 2020-HQA3 insurance policy covers the same reference pool of single-family loans. The policy provides a maximum limit of up to approximately $246 million of losses on a $31.3 billion reference pool. Through ACIS 2020-HQA3, a substantial portion of the remaining credit risk on STACR 2020-HQA3 is being transferred. Since 2013, Freddie Mac has transferred a portion of credit risk on approximately $1.6 trillion in unpaid principal balance (UPB) on single-family mortgages.

In mid-summer Freddie Mac priced a new $330 million offering of Structured Pass-Through K Certificates (K-J30 Certificates) which are backed by underlying collateral consisting of supplemental multifamily mortgages. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. Pricing for the deal is as follows. Class A-1 has a principal of $90.000 million, a weighted average life of 3.51 years, a spread of S+28, a coupon of 0.526 percent, a yield of 0.5170 percent, and a $99.9981 price. Class A-2 has a principal of $240.125 million, a weighted average life of 6.90 years, a spread of S+53, a coupon of 1.252 percent, a yield of 0.9423 percent, and a $101.9940 price.

We can all agree that in 2016 not a single person got the answer correct to, ‘Where do you see yourself 5 years from now?’

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Servicing: A Valuable Asset”. The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

qoɹ

(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2021 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)