May 20: Retail expansion; new VOE product; MI industry gossip; a HUD settlement; DOJ goes after Guild Mortgage & Guild’s response

Regarding this week’s MBA Secondary Marketing conference Marcus Lam with Opes Advisors writes, “Obviously this is not the most important thing, but the corporate swag this year stunk. Last year we came away with nice pens, notebooks, phone stands, portable chargers, and an endless supply of candy mints. This year the only thing I received was the AIG Connective purse hook for the man bag I don’t have.”


“The buzz at the NY Secondary conference was focused on growth, capital and access to more capacity- the challenge is, with the increased costs to compliance, increased volume is not necessarily equating to increased profits”, says Dr. Rick Roque (413.297.6895). “With the dust of TRID still falling, on the horizon are HMDA changes in 2018, adjustments to the 1003 and more significant enhancements for Loan Origination Software vendors who can’t keep up with the changes, let alone provide Lenders with the safeguards to lend with confidence.” These activities in the market are leading even well capitalized companies (Net worth of $6M-$20M) to seek capital partnerships or full stock acquisitions, thus driving the mid-market M&A phenomenon.


Speaking of which, a leading Mergers & Acquisitions (M&A) firm is seeking mortgage banks in the Midwest or Mid-Atlantic markets to be purchased either by selling their stock or assets. Eligible mortgage companies would have closed between $300M-$1.2B in 2015, or on pace to doing so in 2016, either consumer direct or referral partner (Realtor) based originations. No Agency approvals are necessary since they are already in place. If you would like to have your firm acquired, possibly receive a 2-4x after tax multiple, maintain your leadership and control, but rapidly accelerate your growth with significant access to capital, a broad array of new / innovative and non QM products, please contact me; specify opportunity.


In West Coast job news, congrats to Albert Gonzalez. He has joined Big Valley Mortgage as the Area Sales Manager for the Central Valley Division which includes Stockton, Fresno, and Bakersfield. Albert comes to BVM with a solid business acumen including sales management, operations, and wholesale. According to Senior Vice President, Michael Pankow, “We are excited and well-positioned to expand our footprint into the Central Valley with Albert leading the way. With our Fresno branch opening in August of this year, I strongly believe that our core values of respect, transparency and to being resourceful will resonate well with consumer, realtors, and loan officers within the Central Valley community.” Big Valley Mortgage, founded in 1990, is continuing to hire and funded over $770 million last year; it is a DBA of American Pacific Mortgage who ranked #15 in the Nation according to the 2015 Mortgage Executive Magazine with 8.01 billion in loan volume.


In other personnel news Virginia-based corporation First Guaranty Mortgage announced the addition of Van Evans to its team as regional sales manager, correspondent division. First Guaranty Mortgage has been in business for over 25 years, and offers correspondent, wholesale and retail origination channels. Van will manage the West Region: California, Washington, Oregon, Idaho, Wyoming, Nevada, Arizona, Hawaii, and Alaska.


In a service that has really taken off with QC staff, underwriters, and processors, Private Eyes has rolled out VOEs to its mortgage clients for both originating loans and quality control. This is in addition to its role providing services 4506-Transcripts, VODA’s, Verification of Assets, and Background Checks for new hires and current employees in 1-3 business days. “We are here to keep you both in compliance and closing loans fast which is why we saw a 30% client growth last year!” For more information on this 16-year-old company visit PrivateEyes or contact Sandra James, President.


Speaking of products, a while back Gold Star Mortgage announced that it has enhanced its risk management policies and procedures governing its retail mortgage lending business by requiring independent screening and risk monitoring for all settlement agents having access to a borrower’s loan documents and mortgage proceeds. The process will be managed for Gold Star Mortgage by Secure Settlements Inc.  Gold Star chose the ClosingGuard tool to evaluate the backgrounds, licensing, insurance, and trust accounts of agents as a method to identify potential threats before a closing takes place. Secure Insight Chief Operating Officer Wayne Doctor stated, “We are pleased and honored to have been chosen by Gold Star Mortgage for these critical risk management services.  In our extensive dealings with their leadership team we saw first-hand their serious commitment to quality control, consumer protection and overall loan quality assurance. We are proud to be their partner in this important endeavor.”


Private mortgage insurance folks know that Radian announced this week that CEO SA Ibrahim will retire at the end of 2017. The Board has appointed a special committee to search for a successor, taking into account internal and external candidates. Those of you who know SA know that he is a great guy, and everyone wishes him good luck in actually being able to retire from this business…it seems people have difficulty doing that. (“Just when I thought I was out… they pull me back in.”)


But under the “as the world turns” banner, not only is AIG reportedly trying to sell its UG group, but Bloomberg reports that Essent Group Ltd. may have an opportunity to buy Radian Group Inc. per an analyst at BTIG LLC said. Given that Radian’s stock is down 11% this year, is there value? “Radian has no clear successor,” for S.A. Ibrahim, BTIG’s Mark Palmer wrote. Per Mr. Palmer, “It would be logical to surmise that the company’s board of directors may be more inclined to entertain approaches from interested suitors.”


“Essent, the mortgage insurer backed by Goldman Sachs Group Inc. and billionaire George Soros before it went public in 2013, ‘could fit the bill’ as a buyer even though it’s a smaller

company, Palmer wrote. Essent trades at a higher multiple to book value than Philadelphia-based Radian, and it could use shares to help fund the purchase, he said.”


It’s a small MI world: Essent CEO Mark Casale previously was an executive at Radian. Neither company is commenting.


As a reminder, suing your bank is going to be a whole lot easier if the CFPB has anything to say about it. Specifically, at issue are the terms that companies routinely insert in contracts for credit cards, payday loans and other products that require consumers to settle disputes through arbitration. The Consumer Financial Protection Bureau proposes a rule that would circumvent those clauses by allowing groups of people to join together to pursue class-action lawsuits when they feel they’ve been wronged. “Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said CFPB Director Richard Cordray. “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”


If you’re skeptical reading the above, you’re not alone. In a Bloomberg article Alan Kaplinsky, head of the Consumer Finance Practice at Ballard Spahr, was quoted, “There’s only one winner coming out of this rule: the plaintiff’s class action bar…it’s not good for the industry, for banks or for nonbanks. And consumers are going to be net losers, it’s a lousy trade.” The regulator’s proposal would cover new agreements for products such as credit cards, auto loans, credit reports and even mobile phone services that provide third-party billing. There will be a public comment period for 90 days before the regulator could issue a final rule. The soonest it will likely take effect is mid-2017 and companies will have 210 days to comply with the requirements.


Speaking of legal matters, Guild Mortgage grabbed the headlines yesterday as the Department of Justice filed a lawsuit against Guild under the catch-all False Claims Act. The action is captioned United States ex rel. Dougherty v. Guild Mortgage Company (D.D.C.).


It continues to be interesting why smaller lenders seem to continue to originate this product wholeheartedly whereas the big banks, such as Chase, have moved away from the program given the potential liability. Do smaller companies think that they are too small to be noticed, or are immune from prosecution? Or because they were originating perfect FHA loans ten years ago?


Yes, this suit covers originations starting in 2006. Settling with the DOJ is certainly an option – just ask Wells Fargo, Franklin American Mortgage, Walter Investment, First Tennessee Bank, Freedom Mortgage or M&T Bank how to do it. Guild acted as a “direct endorsement lender” in the FHA insurance program, which grants the lender the authority to originate, underwrite and endorse mortgages for FHA insurance without prior review or approval from the FHA.


The news prompted one industry vet to write to me saying, “I wonder if the DOJ understands how these enforcement actions cause FHA versus conventional primary market price spreads to widen and is costing every low and middle income FHA borrower about 200 bps in price compared to where levels would be without lenders building in the cost of the uncertainty into their daily price sheets? And ‘enforcement actions?’ ‘Extortion’ now numbering into the billions of dollars in actual fines levied upon lenders with deep pockets and the additional safeguards to avoid such extortion that has caused huge inefficiencies in producing the product. In the end the government wins and the consumer loses. This is the exact opposite effect that these programs were designed to avoid.”


Taking the high road, Guild released a public statement. Mary Ann McGarry, president and CEO of Guild Mortgage Co., issued the following statement regarding an action initiated against Guild by the Department of Justice:


“We are extremely disappointed that the Department of Justice has elected to pursue this action. Guild has a proud record of making FHA loans since 1961 and we welcome the opportunity to set the record straight and correct the numerous misstatements in the government’s complaint. The government’s action is unwarranted and without merit. The implication that any default on an FHA loan by a borrower represents wrongdoing by the lender is not justified. For more than five decades Guild has responsibly underwritten fixed rate and fully documented loans in accordance with FHA requirements.


“This enforcement environment that lenders face today threatens to limit opportunities for home ownership and hurts the housing market. It is contrary to the mission of HUD and the FHA program to help the underserved – a Guild tradition since its founding in 1960. It is unfortunate that lenders such as Guild have been placed in this untenable position where any minor error could result in substantial financial penalties. To help families with low and moderate incomes, we need to expand home buying opportunities, not shrink them. Sadly, if this punitive environment continues, the cost of lending will continue to increase for FHA borrowers and only the wealthy will be able to buy homes. Although we disagree with the allegations and intend to defend ourselves vigorously, we will continue to serve the FHA and first-time homebuyers, which we have served for more than 50 years.”


In other news related to HUD, it reached a $630,000 agreement with a group of Illinois property owners and a management company resolving allegations they violated the Fair Housing Act and Section 504 of the Rehabilitation Act of 1973 by using rental screening policies that prevented applicants with mental disabilities from living in a supportive living complex the group owned. Read the agreement.


In this environment it almost doesn’t matter what rates are doing – and long term rates could easily be at these levels all year. Still, I would be remiss in not saying something about them and how volatility has picked up somewhat – but we’re still in the range we’ve been in for most of 2016. Yesterday U.S. Treasuries moved somewhat higher as Initial Jobless Claims fell back down to 278K last week but the Philly Fed survey for May was worse than expected. New York Fed President William Dudley echoed the remarks from Fed Presidents Williams and Lockhart on Tuesday. Essentially, if the economy improves along with his forecast, then June is definitely on the table for a rate hike and two rate hikes this year would be perfectly reasonable. The Conference Board Leading Economic Index rose 0.6% in April after a 0.2% gain in March.


There is no early morning news, but there continues to be chatter around “Brexit” – a British exit from the European Union. It is a consideration and should be monitored closely. Later we will see April’s Existing Home Sales at 7AM PDT. We closed Thursday with the 10-year at 1.84% and this morning it is sitting around 1.86% with agency MBS prices slightly worse.



Children’s Logic:

“Give me a sentence about a public servant,” said a teacher.

The small boy wrote, “The fireman came down the ladder, pregnant.”

The teacher took the lad aside to correct him. “Don’t you know what pregnant means?” she asked.

“Sure”, replied the young boy confidently. “It means carrying a child.”





(Copyright 2016 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