May 7: Hedging ARMs; vendor news; Fannie deals; animal lovers: don’t read the joke; Saturday Spotlight: The StoneHill Group
Lenders often liken their jobs to that of attorneys, for many reasons. For one example, lawyers overwhelmingly want more flexibility, and they’re willing to jump ship to get it, a recent survey of 350 Big Law attorneys found. So, this is making the legal rounds: Want to Thin Your Law Firm’s Head Count? Mandate 3 or More Days of Office Attendance. Also related to our biz, Zillow is officially exiting the iBuying business. Zillow’s first-quarter earnings report stated it only has 100 homes not under contract to be sold from the inventory left over when it closed Zillow Offers in the second half of last year. And in a sign of the times, given that thousands of capital markets folks, senior management, and vendors will head to Manhattan in a week for the MBA’s conference, daily pedestrian counts in New York’s Times Square are up to 290,442 per day in April, well above the 133,778 averaged last April but still much less than the 375,224 people who visited the neighborhood in April of 2019. That area’s industry (the Naked Cowboy, unlicensed character photography, cheap plastic souvenir models of buildings in better neighborhoods, hustling, the Margaritaville hotel, greasepainted Statues of Liberty, and most of the American phone case resale industry, and trucks that say they sell marijuana but legally cannot) relies on foot traffic. That absence of hundreds of thousands of out-of-town marks, schmucks and rubes has had a devastating impact on the hard-working scammers and legally-not-Elmo cosplayers who make the heart of this city what it is.
Saturday Spotlight: The StoneHill Group
In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth)
The StoneHill Group, a Sourcepoint company, is a trusted provider of exceptional loan quality and due diligence services, mortgage process outsourcing, and technology solutions. For nearly 30 years, the company’s proven processes, deep experience, and technology-enabled solutions have helped mortgage companies improve capacity and operational efficiencies while mitigating risks through compliant decision making. As a loan QC leader, The StoneHill Group serves a client base of over 300 independent mortgage bankers, banks, credit unions, mortgage servicers and sub-Servicers and housing finance authorities across the United States.
Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why
At The StoneHill Group, we are guided by the philosophy of “doing well by doing good.” Embedding sustainability into everything we do and giving back to our communities is part of our DNA. Our employees participate in wide-ranging corporate social responsibility (CSR) activities, including employee-led programs, project-based activities, disaster response, fundraising events, partnerships with non-profits, and various payroll giving opportunities.
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?
Our PeopleFirst culture is geared to provide a unique employee experience, focused on promoting growth. Through our First Learning Intelligence tool, we provide on-demand courses and in-person skilling, enabling employees to deepen their understanding of the industry and stay in sync with evolving trends to better serve our clients.
Courses include a blended learning format that leverages virtual instructor-led training (VILT), self-paced online courses (e-learning), as well as assessment-based learning modules that use micro learning and nano learning, personalized adaptive learning (PAL) technology and artificial intelligence (AI). The courses are developed by in-house subject matter experts and domain/process training facilitators with extensive hands-on experience, expertly leveraging new-age digital learning technology and instructional design to construct engaging and effective learning. Employee progress is tracked through a performance management tool that defines goals, develops a roadmap, monitors strategies, and provides feedback for improvement.
Tell us how your company maintains its culture in a work-from-home environment, or how you plan on bringing employees back into the office, if applicable
Regardless of whether our employees work in our offices or from their homes, our goal is to seamlessly integrate them into their roles and our culture. Our team of specialists leverage a robust new hire orientation process, while our technology-driven platforms enable collaboration, across locations, in a distributed work environment. Annually, we conduct an employee satisfaction survey to understand employee preferences and assess opportunities to do better.
Things you are most proud of that don’t have to do with sales
The company has heightened its commitment to inclusion and diversity (I&D) to further its People-First ethos. We strive to create an equitable workplace where employees from different backgrounds and with varied perspectives can come together, collaborate, and innovate to solve pressing client challenges. We encourage open discourse, invite guest speakers, and provide opportunities for employees to participate in thoughtful conversations that advance employee and company growth.
(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)
In my 30+ years of doing this stuff, the effectiveness of hedging adjustable-rate mortgages has never been very good or is decent, depending on who one asks. Most ARMs are either put into portfolios, or are hedged by selling them best efforts. Some companies will dabble in using some kind of Treasury puts. Has anything changed?
For an answer on the current state of things I asked an industry hedging vet. “Hedging arms is still not great at all. We have found that the best duration estimate is still calculated by regressing against a UM15 and multiplying the coefficient by the corresponding dwarf’s duration. The 5/6 SOFR is coming out to about 55% the movement of a UM15 4, but we’ve found that the correlation/r-squared is poor at best. This should get better if the yield curve stabilizes, MBS price volatility settles down, and we stop constantly moving up in coupon. We know that most ARM production is either going into portfolios or being hedged by lenders using ‘best efforts’ sales, and adjustable rate mortgages are currently less than 1% of our hedged volume. But if the yield curve were to really steepen, we can expect the demand for arms to go up.”
But wait! Dean Brown, CEO of Mortgage Capital Management, writes, “Hedging ARMs is similar to hedging fixed rate products here at MCM. We measure the OAS duration, convexity, and OAS SRP value and shock the exposure and then measure and apply the correct coverage to offset the exposure. One thing to keep in mind is that ARMS tend to have a higher fallout rate than fixed rate products and they are more sensitive to rate declines.” (MCM also put out, “Minimize Risk in Rising Interest Rate Environment.pdf (mortcap.com).)
Black Knight, Inc. heard the call announcing the launch of the CA Risk Profiler Plus, a tool designed to help mortgage lenders, appraisers, and appraisal management companies (AMCs) identify potential minority bias in the home valuation process an optional add-on to its CA Risk Profiler. CA Risk Profiler Plus, an optional add-on to CA Risk Profiler, evaluates an appraiser’s list of selected comparables against a list derived from Black Knight’s comprehensive U.S. property database. By identifying discrepancies between the two lists and by analyzing certain patterns, CA Risk Profiler Plus is able to alert customers when an appraisal may contain potential bias. By flagging potentially problematic valuations, CA Risk Profiler Plus enables a more rigorous collateral review process that can help reduce risk exposure for lenders and appraisers and support more equitable underwriting decisions. Both solutions are developed by Collateral Analytics (CA), a provider of property valuation and mortgage risk analysis tools that was acquired by Black Knight in March 2020.
Blend announced three new products to help determine RON eligibility, facilitate online notarization, generate and store eNotes. These products build upon its industry-leading, end-to-end Blend Close solution, providing lenders with advanced digital capability. The new products, Blend eVault, Blend signing room, and Blend RON Eligibility Engine are discussed in
First American Mortgage Solutions has launched a first-of-its kind title and settlement integration with ICE Mortgage Technology’s Encompass platform. The new integration enables a loan officer, loan processor, and First American’s title representative to communicate in real-time throughout the transaction, increasing efficiency and reducing time to close. Additionally, documents are automatically placed in the appropriate order’s e-folder, further reducing tasks for the loan processor throughout the title and settlement process.
Fannie deals keep rolling
The deals that Freddie and Fannie bring into the secondary markets directly impact borrower’s rates in the primary markets. Let’s take a glimpse at what Fannie has been up to.
Fannie Mae priced a $1 billion Multifamily DUS REMIC under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program on January 19, 2022. FNA 2022-M1 marks the first Fannie Mae GeMS issuance of 2022. This is Fannie’s first multifamily REMIC quoted using the spread to the Secured Overnight Financing Rate (SOFR) swap curve. The M1, with its discount, 10-year fixed-rate collateral, found strong demand in the market with the A2 tranche pricing at a 52-basis-point spread to the SOFR swap curve, equating to a 26-basis-point spread to the LIBOR swap curve. All classes of FNA 2022-M1 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal. For additional information, please refer to the Fannie Mae GeMS REMIC Term Sheet (FNA 2022-M1) available on the Fannie Mae GeMS Archive page.
Fannie Mae announced that it has completed its final Credit Insurance Risk Transfer (CIRT) transaction of 2021. CIRT 2021-2 covers $30.7 billion in unpaid principal balance (UPB) of generally 30-year original term, fixed-rate loans acquired from April through June 2021. The deal transferred nearly $1.2 billion of mortgage credit risk to private insurers and reinsurers. Since inception, Fannie Mae has acquired approximately $15 billion of insurance coverage on $537 billion of single-family loans through the CIRT program, measured at the time of issuance for both post-acquisition (bulk) and front-end transactions. CIRT 2021-2 transferred the largest amount of mortgage credit risk through a single CIRT transaction since the inception of the program in 2014. Fannie Mae will retain risk for the first 65 basis points of loss on a $30.7 billion pool of single-family loans with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent. If the $199.3 million retention layer is exhausted, 20 insurers and reinsurers will cover the next 385 basis points of loss on the pool, up to a maximum coverage of approximately $1.18 billion. Coverage for this deal is provided based upon actual losses for a term of 12.5 years. As of September 30, 2021, $616 billion in outstanding UPB of loans in our single-family conventional guaranty book of business were included in a reference pool for a credit risk transfer transaction.
Fannie Mae priced a $640 million Social Multifamily DUS REMIC (FNA 2021-M2S) under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program on November 18, marking the twelfth Fannie Mae GeMS issuance of 2021. The issuance helped support over 4,200 units of restricted affordable housing and 2,000 affordable manufactured housing community pads backing this deal. All classes of FNA 2021-M2S are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal. The structure details and additional information for the multi-tranche offering can be found on the Fannie Mae GeMS REMIC Term Sheet (FNA 2021-M2S) available on the Fannie Mae GeMS Archive page.
Fannie Mae priced Connecticut Avenue Securities (CAS) Series 2022-R05, an approximately $952 million note offering that represents Fannie Mae’s fifth CAS REMIC transaction of the year. CAS is Fannie Mae’s benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. The reference pool for CAS Series 2022-R05 consists of approximately 127,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $38.5 billion. The reference pool includes collateral with loan-to-value ratios of 80.01 percent to 97.00 percent. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With the completion of this transaction, Fannie Mae will have brought 49 CAS deals to market, issued over $56 billion in notes, and transferred a portion of the credit risk to private investors on over $1.8 trillion in single-family mortgage loans, measured at the time of the transaction. To promote transparency and to help credit investors evaluate securities and the CAS program, Fannie Mae provides ongoing, robust disclosure data, as well as access to news, resources, and analytics through its credit risk transfer webpage.
Four brothers left home for college, and they became successful doctors and lawyers.
One evening, they chatted after having dinner together. They discussed the 95th birthday gifts they were able to give their elderly mother who moved to Florida.
The first said, “You know I had a big house built for Mama.”
The second said, “And I had a large theatre built in the house.”
The third said, “And I had my Mercedes dealer deliver an SL600 to her.”
The fourth said, “You know how Mama loved reading the Bible and you know she can’t read anymore because she can’t see very well. I met this preacher who told me about a parrot who could recite the entire Bible. It took ten preachers almost 8 years to teach him. I had to pledge to contribute $50,000 a year for five years to the church, but it was worth it Mama only has to name the chapter and verse, and the parrot will recite it.”
The other brothers were impressed. After the celebration Mama sent out her “Thank You” notes.
She wrote: Milton, the house you built is so huge that I live in only one room, but I have to clean the whole house. Thanks anyway.”
“Marvin, I am too old to travel. I stay home; I have my groceries delivered, so I never use the Mercedes. The thought was good. Thanks.”
“Michael, you gave me an expensive theatre with Dolby sound and it can hold 50 people, but all of my friends are dead, I’ve lost my hearing, and I’m nearly blind. I’ll never use it. Thank you for the gesture just the same.”
“Dearest Melvin, you were the only son to have the good sense to give a little thought to your gift. The chicken was delicious Thank you so much.”
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