No residential loan originator would ever want to see this in their email. “Dear ____: After much discussion, our leadership has decided to reduce our competitive position in the marketplace. To ‘right-size’ our operations department, we would rather do one loan for $600,000 than three loans for $200,000 each, and we will do this through adjusting our rates and profit margins. And we expect our MLOs, given your compensation plans where you earn more than most attorneys, doctors, and every honest politician in the United States, to be able to sell these rates to borrowers…” Yet we live in a cyclical business world, at the direction of the FHFA Fannie and Freddie are changing their footprint, and indeed margins and product mix are changing as well as work life. As noted in this commentary recently, Fannie Mae’s economists polled hundreds of senior mortgage executives about the shift to remote work during the COVID-19 pandemic. The special topic survey examined the benefits and challenges experienced and lenders’ expectations of the post-pandemic workplace. Our industry has proved during the last thirteen months it can adapt, just as it has over the last several decades, and it will in 2021 and going forward.
Be aware of Agency changes
Given the continued constriction of Fannie Mae’s and Freddie Mac’s footprint, lenders are trying to figure out the impact of the expiration of the QM patch on Agency loan sales. The current understanding is that the loan is eligible to sell to the Agencies if the DTI is greater than 43 only if the APR exceeds APOR by less than 2.25 percentage points. Do lenders have a feel for how much issuance actually exceeds that 2.25 percent point cap? It’s difficult to discern from the agency loan level disclosure dataset as origination fees and discount points are not disclosed, so analysts can only see the note rate and not the APR.
So lenders, especially aggregators like Wells Fargo, Chase, and AmeriHome, are looking for any data out there which may provide some color on the percent of origination which would not fall within that 2.25% cap. Or the percent of origination where discount points apply? And asking themselves, “Will this impact the percent of purchase loans with 2+ risk factors. It is relatively straightforward to identify the universe of loans where one of the 2 risk factors is DTI >45%, but determining the percent of those which would now be ineligible for sale to the GSEs is the difficult piece as for the most part, all of those loans are within the 2.25% of APOR when looking at the note rate. It’s the APR, not the note rate, which is used in the calculation.
Michael Ehrlich, Mortgage Proposition Manager with Refinitiv, dug into the numbers. “I found the data I was looking for. It appears that the Agencies used 2018 HMDA data which showed that roughly 27,000 loans were priced at 2.25 percentage points or higher than APOR of which roughly 20,000 met the original DTI-based general QM loan definition (43 DTI or less) with about 6700 of those higher priced loans originated at a DTI greater than 43.
“This seems to be a massive ‘nothing burger.’ Most of the loans which were covered by the QM patch which allowed for loans over 43 DTI will still be eligible for sale to the GSEs since the QM Patch for DTI will expire and the final rule eliminates DTI as a determinant of QM eligibility and replaces it with the pricing and fees cap of 2.25 points above APOR.
“The number of conventional loans exceeding 43 DTI issued in 2018 numbered 929,000. Nearly all of those would have still been eligible for sale to the GSEs with the new QM final rule. Only 6,000 or so of those would have been ineligible based on the price and fees cap of 2.25. Yes, that’s only .6% of the >43% DTI loans issued that year. That’s right, .6% (so less than 1%).
“Again, 2018. Of the 2.3 million GSE loans issued in 2018 with a DTI <=43, only 20,000 (or .8%) would have been ineligible based on the new pricing and fees cap of 2.25%. 2018 was also a bad year for refi loans (33%). When refi biz is down underwriting guidelines loosen a bit. Many of those loans originated greater than 2.25% above APOR likely would not even be originated in a year like 2020 when lenders could afford to be picky based on credit due to the massive loan volumes.” Thank you, Michael!
Another change is the $1.5 billion cap on window sales. Whether or not you sell directly to Fannie and/or Freddie, the aggregator that you sell to probably does sell directly to the Agency cash windows, and limiting their execution can impact pricing, and therefore the price they pass on to you and your borrower.
Bob Broeksmit, the President and CEO of the MBA, wrote, “It was revealed in Freddie Mac’s latest 10-Q that the FHFA is accelerating the implementation of cash window limitations for certain lenders beginning July 1, 2021, rather than January 1, 2022.
“FHFA has an obligation to ensure liquidity and stabilize markets. Unfortunately, the agency is failing at this core responsibility by creating disruption in the mortgage marketplace. FHFA’s latest directive accelerating limitations on lenders that use the GSEs’ cash window could impact access to credit and raise mortgage costs across the country.
“In what appears to be a pattern of market disruptions, from the adverse market refinance fee to the unwillingness to mitigate disruption caused by the arbitrary 7% cap on GSE purchases of investor and second homes, and now the early imposition of the cash window caps, FHFA has become a disruptive force in the marketplace rather than being a source of stability.
“It’s time for Treasury, as the senior party to the PSPA and the provider of the federal backstop, to direct FHFA to provide the GSEs more time to comply with the loan caps, and to withdraw the accelerated implementation of the cash window caps.
“We continue to press FHFA, Treasury, and the White House to reduce the disruptions caused by these recent actions.”
Secure Insight and Ignite Integration Solutions Inc. have partnered to offer a custom API integration for Secure Insight’s wire verification and closing fraud detection capabilities. “A straightforward user interface allows the Encompass user to find settlement agents, request a detailed report to the eFolder, along with data being stored to fields, all within seconds. From here, data can be leveraged for business rules and action points. Ignite’s solution is intuitive while Secure Insight’s product offers live, reliable risk analytics leveraging a nationwide database of 80,000 professionals.” Secure Insight President Andrew Liput stated, “This relationship allows us to deliver our wire and closing agent risk data exactly how a lender wants to receive it, in whatever format they wish to receive it, so that it seamlessly integrates into their operations workflow.” Brad Ketcher at Ignite commented, “The partnership brings a very valuable service to lenders, while keeping their Encompass users within the LOS, and ensuring Encompass is the system of record.”
A recent integration between Credit Plus and Cirrus allows mortgage and commercial lenders the ability to pull Credit Plus’ Pre-Qualification Plus, a one to three bureau soft credit pull, that doesn’t impact an applicant’s credit score. The new functionality is now available in Cirrus’ platform. Find out more information about Credit Plus and Cirrus by viewing the websites.
LenderHomePage has officially released the new Loanzify Mobile App providing a simple, yet intelligent consumer facing UX, in addition to powerful loan management and engagement tools for Loan Originators. To learn more on Loanzify’s impact on the brokerage industry, visit the Loanzify website and LenderHomePage blog.
Redwood Trust, Inc. added a new press release to its website regarding its support of the mortgage ecosystem through blockchain technology investment.
The demand by investors, whether they are portfolio lenders or owner of securities backed by mortgages, is the primary driver of the rates borrowers are offered. No lender with a warehouse line would ever offer a product that it can’t sell, at a rate that is unattractive to investors like insurance companies, pension funds, or money managers. Among other things, Freddie Mac is there to support America’s homeowners and renters while serving as a stabilizing force in the U.S. housing finance system. The Agencies do more than merely buy single family home loans. For example, 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.
Last week Freddie Mac announced the pricing of the SB85 offering, a multifamily mortgage-backed securitization backed by small balance loans underwritten by Freddie Mac and issued by a third-party trust. The company expects to issue approximately $384 million in SB85 Certificates. As mentioned above, 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. This is the fourth SB Certificate transaction in 2021. The top class, A-5H has $74.98 million of principal, a weighted average life of 4.13 years, a spread of 5 bps, a 0.95 percent coupon, a yield of 0.813 percent and a $100.4983 price.
On January 15, Freddie Mac announced the pricing of the SB82 offering, a $405 million 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-5H has $89.659 million of principal, a weighted average life of 4.05 years, a spread of 12 bps, a 0.67 percent coupon, a yield of 0.5368 percent, and a $100.4904 price. Class A-7F has $55.320 million of principal, a weighted average life of 5.46 years, a spread of 15 bps, a 0.86 percent coupon, a yield of 0.7604 percent, and a $100.4800 price. Class A-7H has $95.012 million of principal, a weighted average life of 5.37 years, a spread of 25 bps, a 0.95 percent coupon, a yield of 0.8478 percent, and a $100.4793 price. Class A-10F has $165.139 million of principal, a weighted average life of 7.20 years, a spread of 27 bps, a 1.18 percent coupon, a yield of 1.0996 percent, and a $100.4904 price. This was the first SB Certificate transaction in 2021.
Green Agency programs
Fannie Mae issues “green bonds” based on sustainability, and Freddie Mac released a report detailing the impact of its more than $5 billion in Green (focused on making efficiency improvements to workforce housing), Social (focused on supporting affordable housing by providing liquidity to financial institutions with a distinct mission of addressing affordable housing challenges or providing financing targeted towards underserved populations) and Sustainability (intended to attract capital to support economic mobility for residents and economic growth and sustainability in communities) Bonds issuances since 2019. All told, Freddie Mac Multifamily issued $3.3 billion in Green Bonds, $874 million in Social Bonds and $971 million in Sustainability Bonds through December 31st, 2020. “Freddie Mac’s Impact Bond series is a prime example of our ongoing commitment to improving and preserving the affordable housing while reducing renter utility costs through water and energy efficiencies that help the environment too,” said Robert Koontz, the head of Capital Markets for Freddie Mac Multifamily. “These bonds provide investors with an opportunity to help support safe, quality workforce and affordable housing that is fundamental to establishing sustainable communities.”
In October, Fannie Mae priced a $536 million Green Multifamily DUS REMIC under its Fannie Mae Guaranteed Multifamily Structures. FNA 2020-M46 marks the ninth Fannie Mae GeMS issuance of 2020 and signifies the first Green Building Certified PHIUS+ certified deal. This is a first for the mortgage and Green Bonds industry – a securitized mortgage backed by a property meeting passive house standards. Pricing for the offered classes is as follows. Class A1 has an original face of $36.0 million, a weighted average life of 5.72 years, a fixed coupon of 0.716%, a spread of S+28 and a 100 offered price. Class A2 has an original face of $359.5 million, a weighted average life of 9.14 years, a fixed coupon of 1.323%, a spread of S+40 and a 102 offered price. Class A3 has an original face of $60.0. million, a weighted average life of 9.53 years, a fixed coupon of 1.299%, a spread of S+36 and a 102 offered price. Fannie Mae’s Multifamily Green Financing Business provides financing through several different Green product offerings, encouraging apartment building owners to make energy and water savings improvements to their properties. Fannie Mae introduced the Green MBS product to the market in 2012 and has issued $78.5 billion in Green MBS and $11 billion in Green GeMS since the program’s inception.
On December 16, Freddie Mac priced a new $585 million offering of Structured Pass-Through K-Certificates (K-G04 Certificates), which were multifamily mortgage-backed securities expected to settle on or about December 23, 2020. KG-Deals are the environmental and social impact series of Freddie Mac’s K-Deal program. They exclusively securitize loans made through the company’s Green Advantage program. Pricing for the deal is as follows. Class A-1 has $56.0 million of principal, a weighted average life of 6.80 years, a S+24 spread, a 0.845% coupon, a yield of 0.83867% and a $99.9951 price. Class A-2 has $529.6 million of principal, a weighted average life of 9.76 years, a S+30 spread, a 1.487% coupon, a yield of 1.15480% and a $102.9928 price. The K-G04 Preliminary Offering Circular Supplement can be found at http://www.freddiemac.com/mbs/data/kg04oc.pdf.
Freddie Mac priced a K-G Deal as the environmental and social impact part of its K-Deal series. This offering exclusively securitized loans made through the company’s Green Advantage® program. K-G05 clocked in at $603 million. Class A-1 ($39m) had a weighted average life of 6.98 years, a spread of S+8 bps, a coupon of 1.23 percent, a 1.23 percent yield and a $99.9986 price. Class A-2 ($564m) had a weighted average life of 9.77 years, a spread of S+20 bps, a coupon of 2.00 percent, a yield of 1.66 percent and a $102.9949 price.
On January 21, Fannie Mae priced a $315 million Social Multifamily DUS REMIC under its Guaranteed Multifamily Structures (GeMS) program. FNA 2021-M1S is the first Fannie Mae Social GeMS issuance. The issuance aligns with Fannie Mae’s Sustainable Bond Framework, which governs Fannie Mae’s commitment to adhering to international standards in its issuance of green, social, and sustainable bonds. In 2020, Fannie Mae’s Multifamily business provided $7.8 billion in financing for rent-restricted properties and properties receiving other federal and state subsidies, $5.5 billion for manufactured housing communities, $1.5 billion for properties with rent restrictions between 60 percent and 80 percent area median income (AMI), and provided $13 billion in green financing. The structure details for the multi-tranche offering are as follows. Class A1 has $33.5 million of original face, a weighted average life of 6.06 years, a 0.833 percent fixed coupon, a spread of S+15 bps and a 100 offered price. Class A2 has $281.281 million of original face, a weighted average life of 9.62 years, a 1.38345 percent WAC coupon, a spread of S+21 bps and a 100.93 offered price.
If you’re not supposed to eat at night, why is there a light bulb in the refrigerator?
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, “Hiring: New Tactics for a New Day.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).
(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.)