May 19: Reader’s notes on shipping container homes; bitcoins for down payments, blockchain in cap mkts., Nor Cal market
As thousands of capital markets folks head to New York to (ostensibly) fight for every basis point while at the same time trying to visit every MI company-sponsored party (only 125 calories in a glass of red wine – and it has antioxidants!), there are plenty of things going on.
Notes from the trenches on current lending conditions
“Rob, are guidelines going back to the days where someone with a name like Patrick McShea could provide a photo of himself wearing a mariachi hat, claim he ran a mariachi band, and say he made $20k a month doing it to qualify for a $500k home loan?” I sure hope not. But people are motivated by fear and greed, and there are still plenty of those out there.
This telling note from San Jose. “Rob, I’ve fielded more AE calls some days than from borrowers & prospective borrowers. In the last 3 weeks two separate AEs (unrelated) have called to say: 1) ‘I just finished my performance review and I need you to give me a loan, they are going to fire me.’ This one, in the business for at least 20 years, has always been a producer. 2) ‘This is the worst month I’ve had in the business and I’m on notice, If I don’t bring it in this quarter they are going to can me. Do you have anything you can give me?’ And this from a VERY prominent wholesaler who has been in the business for 30 years and whom I’ve always relied on for guideline information.
“It’s tough in the broker biz. One of the LOs in our office did $1mm net commissions in 2012, yet last year’s production totaled 11 loans – for the entire year! I recently finished another c/o refi. I got them into the home May 2015 for $769k, their appraisal came in at $1.2 million, 35% appreciation in less than two years, for a 3/2 1,158 square foot, 60-year old house on a 5,000 square foot lot with a new kitchen they did themselves, the size of a matchbox, and they planted grass and a few shrubs in the backyard. It formerly looked like a dirt farm. So, they have $400k appreciation in less than 24 months in a good neighborhood. It’s crazy out there!
“Anyone that is so ridiculous to think this is not going to end badly is sadly mistaken. California sees, generally speaking, an historical 8% annual appreciation, so the example above is double the appreciation in half the time. NO ONE is reporting the layoff’s and closing of mortgage companies, except you, thank you very much. Also, in my hometown, the anchor department store with the only mall within 200 miles is closing. Healthy economy?
“IF we were to be extremely generous, we could give the Dow an average annual return over its existence of 9%. Since President Trump has been in office it has been about 31% gain in two years. Right in line with some zip codes in California.
“It ‘always ends in one day’ is my recollection of how ‘it’ unfolds, unwinds, and flops onto the floor, dead as a doornail. Once real estate falters, loses jobs, the rest is going to be REAL interesting again! In 2008 Angelo Mozilo advised, ‘I HAVE NEVER SEEN A SOFT LANDING.’ People are walking around saying my favorite: ‘It’s different this time.’ Once everyone is off the crack pipe, they should shore up their bank accounts. Thank you for listening, I feel better now!”
Brent Nyitray penned, “The private label MBS market used to be a $1 trillion market – last year it was only about $70 billion. Regulation may appear to be the culprit, but it really isn’t. There are still all sorts of unresolved issues between MBS investors and securitizers. The biggest surround servicing – how do investors get comfort that the loan will be serviced conflict-free, especially if the issuer has a second lien on the property. How do investors get comfort that the issuer won’t solicit their borrower for a refinance? A lack of prepay history is also a problem – it makes these bonds hard to model and price. Many investors also remember the crisis years, when liquidity vanished, and investors were unable to sell, sometimes at any price.
“Issuers were content for a lot of years to simply feast on easy refi business – rate and term streamlines which were uncomplicated and simple to crank out. Warehouse banks were reticent to fund anything that didn’t fit in the agency / government box, so why not concentrate on the low-hanging fruit? Investors were able to pick and choose from all sorts of distressed seasoned non-agency paper trading in the 60s and 70s. Most of that paper ended up being money good. But in that environment, why would anyone be interested in buying new issues over par? If you are a mortgage REIT, why not buy and lever new agency debt with interest rates at nothing and a central bank that is actively supporting the market?
“Now that the easy refi business is gone, will we see a return of this market? Perhaps, but there probably still is a big gulf between what borrowers and investors are willing to accept and the governance issues remain unsolved.”
Fun with cryptocurrencies
Bitcoins, backed by blockchain technology, continue to capture the imagination, and attention, of plenty of folks. MERS and title companies are especially interested since blockchain, with its supposed data integrity and historical record keeping, could seriously impact their business proposition. Most New York banks still resist cryptocurrency trading: Eight months have passed since Goldman Sachs reported a plan for a bitcoin-trading desk, but no other Wall Street bank has indicated a formal plan to offer cryptocurrency derivatives. Morgan Stanley, while not launching a trading desk, reportedly is arranging trading of bitcoin-related products for some customers.
Despite their popularity, cryptocurrencies are still not used regularly in mobile payment apps, according to a survey by S&P Global Market Intelligence. Only 6% of those surveyed had used an app to send or receive a cryptocurrency payment in the last month.
“Rob, can bitcoins be used for a down payment?” Not that I know of. For example, if one looks at Fannie’s guidelines, you’ll see that this is not acceptable. Bitcoin (or any other cryptocurrency) as a digital currency is not an eligible asset. The bitcoin must be converted to U.S. currency. So, although the source of a large deposit may be bitcoins (which must have a paper trail, e.g., evidence of ownership and conversion to U.S. dollars) bitcoins cannot be used as assets for closing, or reserves.
Bank of America’s top technology officer, Cathy Bessant, said the use of bitcoin and other cryptocurrencies as a payments system is “troubling.” She chose the word because she said that as a payment system, cryptocurrencies lack the foundational element of transparency between senders and receivers.
Yet JPMorgan Chase gave a demonstration this week of its prototype blockchain trading platform named Dromaius (also a type of Australian emu), which aims to make capital market transactions faster, more economical and more efficient. Christine Moy, head of the firm’s Blockchain Center of Excellence, said the prototype will undergo further testing and development before being rolled out to customers, adding: “We think the technology has the potential to be transformative.”
The international banks HSBC and ING have successfully executed a live cross-border commodity trade using blockchain technology. The banks created digitized letters of credit using a blockchain platform to finance the shipment of soybeans from Argentina to Malaysia for Cargill.
Tim Anderson, Director of eServices with DocMagic, sent, “Much like the initial hype around eMortgages, and now with digital mortgages, blockchain appears to be the next shining object that everyone is fixating on. Realty is that we’ve had a technology solution that currently does everything espoused in your Saturday blog available ever since the states and fed introduced UETA and ESIGN law back in 2001. It’s called an eVault and performs all the functions mentioned with the exception that it is not a distributive data model but still a centralized one, but all the data can be currently be locked down and tamper evident sealed and protected at a loan package, separate doc or even individual data level today. Most people get caught up with focusing only on the SMARTDoc eNote but we can do the same where data and documents need to be shared between parties with any or all documents within a loan package.”
Russian state-owned bank Sberbank has completed a bond purchase from telecommunication provider MTS using blockchain technology, the country’s first such transaction. A proprietary system operated by National Settlement Depository processed the trade, which “confirmed blockchain’s status as an efficient industrial technology providing confidentiality and speed during securities settlement”, NSD Chairman Eddi Astanin says.
IT, cutting costs, and the rise of the machine
From the capital markets ranks California’s Marcus Lam writes, “Once smart appliances have taken over our homes we’ll have to watch ads before we can use the microwave.”
Kevin K. sent, “I wanted to pass along the next evolution in hijacking folks. Hope none of your readers have fallen for these ‘assistances.’ Alexa and Siri Can Hear This Hidden Command. You Can’t. https://nyti.ms/2G2RrgW.”
Tech companies taking over mortgage banking? Not so fast. I received this note from Alabama’s David M. “Good stuff Rob, maybe someone should show this to Amazon. I am always amazed at the number of people / entities that think there is so much money and margin in the mortgage business and feel the need to “get in this business”. They forgot one thing, however: experience in this space. You and I both know it is much easier said than done and probably one of the toughest lines of business in the country to master which is why a lot fail at it because they “had no idea” but we are all forced to compete with this scenario every day.”
American Banker reports Fintech company Moven is planning to buy a bank and break itself into two pieces. The bank portion will reportedly be called MovenBank. Moven was founded by Banking 3.0 futurist Brett King as a mobile banking startup designed around a digitally enabled customer.
Companies improve revenue by increasing revenue or decreasing costs – it is that simple, and recently this commentary published some information on where to cut costs. The quote prompted Michael Baker, in Product Development & Distribution with Loan Originator Networks, LLC, to relay, “Good survey. Cost is in the assembly line of people non-banks and HF’s are throwing at the TPO space for reg Z compliance. Smart money will look for technology solutions and integrations.
“9 basis points sounds about right for profit. HF’s: Average HF has 12 HF FTEs (full time employees) looking after the investment. Interestingly, one must look deep into the management structure to find anyone with experience in the space. Too many ‘Business Development’ guys. I’ve eliminated the channels as viable and am working on the technology piece to support Wholesale as the cost to produce retail loans drives channel change, not unlike 1994 -1997. I see .375 in rate better execution for the low cost /variable cost broker working from his or her laptop, uploading 3.2 files and assigning merged credit efficiently with ‘compliance in a box’ technology.
We at Loan Originator Networks are releasing some interesting things. IDS is the new industry standard plug in for compliance. Hands down. If you’ve not seen the platform, you should. I’m long integration with Encompass et. al. versus proprietary database.”
Shipping container homes
Chris G. sends, “My girlfriend knows a couple in St Charles, MO that recently built a shipping container home, and they love it. I’ve only seen the outside in person, and, even though the upside-down windows make me cringe, I personally like the overall finished product. Getting it built was supposedly a nightmare, and I believe they paid out of pocket, so they didn’t have to deal with the mortgage issues that would have arisen. It is in a fairly nice area so, unsurprisingly, their neighbors apparently hate it, but it is hard to argue with the price ($130K for 3100 square ft) in a world of increasing building costs and a lack of affordable housing. Here is an article on it if you are interested.
And from Northern California Euie H. writes, “My son lived in a shipping container, or rather containers, in Afghanistan with the Air Force. It had air conditioning, and one container was a group bathroom.”
Instead of spending 20 seconds reading the usual joke or trivia here, please spend that time thinking about the families and friends of those, once again, hurt or killed in a terrible school shooting, this time in Texas. Are we really at the point, as a nation, where we think of this as the norm?
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, “Amazon in the Mortgage Jungle.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
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