May 27: Sales/production jobs; interesting trends in FHLB, subprime, and non-agency MBS issuance; so what if Greece defaults?

“There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to piddle on the electric fence for themselves.” Learning how to build a tall building has taken centuries, and for the commercial lenders out there, here is a semi-nifty site that shows a chart of the tallest building in the world in every year. And speaking of commercial lending, CoStar Group reports 82% of the 370,000 multifamily rental units completed over the past 2 years were in the “luxury” category (rents in the top 20% of the market) and have been as high as 95% in some markets. Fannie & Freddie, as well as bankers, should take note and be cognizant of the building risk in the higher end of the market.


National MI is seeking a “dynamic Account Manager who utilizes their expert understanding of the residential mortgage industry and their existing relationships in the Boston and Rhode Island market. This individual will build strong relationships with key senior level client advocates and influencers, and assertively drive new business. He/she will meet with clients on a daily basis, clearly communicate the National MI value proposition, articulate industry and client trends, and use their superior presentation, communication and interpersonal skills to fearlessly develop opportunities, train and educate clients, and grow profitable market share within their assigned territory.” National MI is a U.S.-based, private mortgage insurer enabling low down payment borrowers to realize homeownership. For the complete job posting, see National MI’s careers page.


On the production side, Lend Smart Mortgage LLC is searching for LOs and branches. “Are you a Branch or Regional Manager looking for the right opportunity?  Do you want to partner with someone where your voice will be heard?  If so, you may want to contact LendSmart Mortgage as they are looking to expand in the Southwest and Northwest regions of the US and are looking to add two production groups with leaders who can operate as Regional Managers. LendSmart Mortgage enters markets by acquiring existing teams with production, operations and strong leaders. It is currently licensed in 20 states and growing as a culture first regional lender that has Conventional, FHA, VA, USDA, bond, and Non QM authority. This unique opportunity will give the right leader a chance at regional profit sharing, input on operations and a seat on the company Board of Directors.” Contact Tom Dolan at 480 748 5226 for more information.


And Gold Star Mortgage Financial Group is extending an exclusive invitation to the attendees of next week’s Mastermind Summit, for whom they’ve arranged an exciting evening of live entertainment, food, fun and networking with the industry’s elite top producers and  most sought after business coaches! In addition to meeting Gold Star founder and CEO Daniel Milstein, you’ll be mingling with Volentum  and founder and CEO, Rene F. Rodreguez , and Performance Experts founder, CEO, and Head Coach, Tim Braheem, as well as a surprise special guest. This private event will be held at The Palms, Las Vegas; June 3rd, 6:00 p.m. – 10:00 p.m., and is already drawing much attention. Those interested should RSVP quickly. Tina Jablonski, who will also be attending the Summit, may be contacted should you wish to schedule a confidential conversation regarding Gold Star’s industry-leading opportunities.


Before we plunge into some trends in MBS and securitization, yesterday the commentary mentioned monthly survey results from Campbell Surveys. Readers should know that its findings are not published by the Mortgage Bankers Association although the MBA did make use of Campbell’s latest news release in reporting some of its data. But other than the excerpted news release Campbell Surveys distributes each month, the survey data are made available only to subscribers (which include the nation’s largest banks/lenders, investment firms, and government agencies).


The Boston and San Francisco Home Loan banks are poised to join the MPF Direct program, which allows FHLB members to sell jumbo loans to Redwood Trust. The initiative, part of the Mortgage Partnership Finance conduit program, finally got under way in the first quarter at the Federal Home Loan Bank of Chicago. Marty Hughes, CEO of Redwood Trust, stated that, “We had 10 active MPF sellers in the first quarter and approximately a 100 more under application.” He noted that other Federal Home Loan banks will be participating in the MPF Direct program. Redwood did not disclose the amount of jumbos that it purchased from the 10 Chicago FHLB members. But Hughes noted the sellers are small lending institutions. Financials indicate that in the first quarter Redwood purchased $1.1 billion in jumbo loans from its correspondent seller network of 180 lenders. To refresh your memories, Redwood has a captive insurance company that is a Federal Home Loan Bank member, and it transferred $447 million in jumbo loans to its captive insurer during the first quarter.


But back in January American Banker reported that the FHFA issued a proposal last year that would phase out Federal Home Loan Bank membership for captive insurers over five years. The FHFA’s proposal has run into significant opposition and it’s unclear when it will issue a final rule. “A federal agency’s plan to tighten membership rules for Federal Home Loan banks would hurt community banks and credit unions — and could endanger the financial system, according to a broad array of stakeholders, including state regulators, lawmakers and institutions. The Federal Housing Finance Agency issued a proposal in September that would for the first time institute ongoing membership requirements, forcing institutions to keep mortgage assets on their books or risk being kicked out of the system. But even fellow regulators said the plan is deeply flawed. The ‘revisions to membership requirements, as proposed, would have a detrimental effect on FHLB members and the FHLB System as a whole,’ wrote John Ryan, the president and chief executive of the Conference of State Bank Supervisors, which represents state regulators.


“Specifically, the FHFA’s proposal to impose ongoing mortgage threshold asset tests on new and current members could lead to community banks unnecessarily losing a stable and critical source of funding through termination of their FHLB membership.” Critics point to dueling purposes: the FHFA’s plan is designed to ensure that members remain focused on making mortgages and fulfilling its original purpose of supporting housing finance versus that of the FHLB’s which has evolved to also include providing liquidity to members, particularly in times of stress.


Certainly the demand among U.S. banks is increasing for government-backed mortgage bonds – a good thing for borrowers and lenders. Rules stating that U.S. lenders need to have enough easy-to-sell assets to weather a financial crisis are increasing demand for government-backed mortgage bonds. “Banks report so far that Treasury debt and MBS pass-throughs meet regulators’ standards much more easily than other assets,” according to a report by Deutsche Bank analysts.


It may surprise some that non-agency MBS issuance is at its highest since 2009. The first quarter of 2015 marked an important milestone for non-agency secondary mortgage market as Inside Mortgage Finance reported $20B of single-family MBS issuance. This is the highest level of non-agency issuance since 2Q09 when $26B was issued. Although these sales do include re-securitized loans, it a positive step towards creating a more liquid secondary market for mortgages. Please see page 24 for more details.


But recently Deutsche Bank turned some heads when it announced it will stop trading junk-rated pre-crisis US private-label residential mortgage-backed securities (RMBS), shifting from a sector it dominated prior to the housing crash into new growth areas of the market. The bank will now focus market-making on nascent RMBS sectors such as Freddie Mac and Fannie Mae credit-risk transfer deals and single family rental bonds. Legacy RMBS has sharply declined since the go-go days, which in turn has whittled down the ranks of Wall Street traders buying and selling those assets. The outstanding balance of private legacy RMBS bonds has shrunk to $711 billion from a peak of $2.3 trillion in 2007, according to data provider CoreLogic. And they aren’t increasing much with age: just over 1% of the outstanding balance of home loans backing these deals has disappeared through prepayments and defaults each month over the past year, according to Barclays’ analysts. The biggest private-label RMBS dealers will now be Citigroup, Credit Suisse and Morgan Stanley.


And don’t forget that MBS is only one kind of debt. As noted in the commentary a while back, Quicken Loans Inc. tapped the corporate bond market for the first time. The Detroit-based company sold $1.25 billion of senior notes. Proceeds will be used to make a payment to parent Rock Holdings and for general corporate purposes – many thinking it will go into the legal kitty for the HUD lawsuit.


And last month Fannie Mae announced that it will conduct bulk auctions of mortgages. “These transactions are intended to reduce the number of seriously delinquent loans that Fannie Mae owns, to help stabilize neighborhoods and to offer borrowers access to additional foreclosure prevention options,” said Senior Vice President Joy Cianci. “Our goal is to market these loans to a diverse range of buyers.”


I’m often asked about subprime lending, whether it be a low grade Alt-A or 3/27 loans. The nomenclature may change, but the concepts are not dead. What does it come down to, you ask? Chasing yield; money will always find a way. It’s with no surprise, and a slight chuckle, that subprime auto lending is the old-new little black dress of finance.  Jody Shenn of Bloomberg writes, “The housing crisis laid bare an epidemic of fraud and sloppy paperwork on loans made to home buyers with spotty credit. Investors who purchased bonds backed by those loans suffered drastic losses. Six years later, investors are snapping up a new crop of subprime bonds, this one backed by auto loans.” According to the story, Wall Street sold $17.7B of these bonds through Sept. 26th of 2014, and while credit due diligence remains an important component in mortgage land, getting borrowers approved, and driving off the car lot, may be more important than verifying credit history.


Yes, I know that Greece’s GDP is only about the same as Michigan’s or Washington’s – but that’s not the point, right? Brent Nyitray writes, “It is looking more and more like Greece is going to miss its payment to the IMF next week, unless they get more bailout funds. Here is a good FAQ of what can happen. I suspect the IMF and the ECB will come up with a way to kick the can down the road. Greek Banks are a hot mess (much of their capital consists of deferred tax assets and Greek sovereign debt) and they are completely dependent on emergency loan agreements from the ECB. If the government defaults on IMF payments, the ECB could declare the collateral backing these loans as ineligible (which makes sense since they are more or less defaulted securities), which would make the Greek banks insolvent and set the stage for a bank run. The big European banks all have at least some exposure to Greece and that will certainly be a consideration for the ECB.”


Returning to our shores, we had a spate of economic news yesterday. New-Home Sales Climb 6.8% in April and is up 26.1% from April 2014. The median sales price of new houses sold in April 2015 was $297,300; the average sales price was $341,500. The seasonally adjusted estimate of new houses for sale at the end of April was 205,000. This represents a supply of 4.8 months at the current sales rate. The S&P/Case-Shiller Home Price Index, with its two month lag, rose 4.1% in the 12 months ended in March  David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices, said that historically home prices typically rise 1% a year, compared with the current 4.1% pace. “I would describe this as a rebound in home prices, not bubble and not a reason to be fearful,” he said. And the FHFA’s U.S. House Price Index Report showed that house prices rose 1.3%, the 15th consecutive quarterly price increase in the purchase-only index, and was up 0.3% from February.


For non-direct housing news, the Conference Board tells us that its Consumer Confidence Index increased in May (after a big decline in April). But in spite of all that positive economic news U.S. Government bonds strengthened/rallied on concerns over Greece – again – a rally due to “safe haven demand.” We did have a $26 billion sale of two-year Treasury notes yesterday, followed by a $35 billion sale of five-year notes today and a $29 billion sale of seven-year notes on Thursday.


Besides the aforementioned $35 billion 5-year note auction, the only scheduled news was the non-market moving MBA application index (-1.6% overall, and down 5 straight weeks). After a 2.14% close on the 10-year Tuesday we’re at 2.16% this morning and agency MBS prices are worse a couple ticks (32nds).



(An oldie but a goodie – sums up so much in life for both men and women.)

A wife asks her husband, “Could you please go shopping for me and buy one carton of milk and if they have avocados, get 6.”

A short time later the husband comes back with 6 cartons of milk.

The wife asked, “Why did you buy 6 cartons of milk?”

He replied, “They had avocados.”





(Copyright 2015 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