New Year’s Eve: Nor Cal job; lender updates continue; primer on leveraged loans; update on labor market conditions

Tonight is the night when we must stay up until midnight and have fun! (Plenty of people enjoy a quiet evening at home and go to bed early.) Perhaps it will be a time that single folks meet that someone special. (Let’s hope married folks don’t meet that someone special…) Those who follow this kind of thing note that 32% of adults lived with someone other than a spouse or partner in 2012 vs. only 26% in 2000. From a business perspective it makes sense: people are finding roommates to reduce costs as incomes have not kept up with rising rents & costs. Speaking of which, banks set a record in 2014 for legal settlements and fines, paying out $56 billion, according to the Financial Times. Bank of America took the biggest hit at $16.65 billion.


On the jobs front, a California FDIC Bank branch located near Sacramento (in Rancho Cordova) is looking for an experienced Loan Processor for immediate opening. The ideal candidate must be able to review loan files to verify procedures per guidelines, prepare loan disclosures in compliance with investor guidelines, ensure integrity of all data and process inputs, order necessary documents and follow-up with vendors/third parties to obtain in timely manner, and manage pipeline of loans within required performance standards for welcome, approval and status calls. In addition the person will obtain and review customer documents, and clear conditions commensurate with authority level, submit loans to underwriting for conditional review and full approval upon receipt of appraisal, partner with sales and underwriters on difficult and/or exception transactions, and exceed customer expectations by providing highest level of customer service. Encompass knowledge is important. Send confidential inquiries to me at


Let’s jump into some relatively recent lender and investor updates to play some catch up and gain a sense of the trends out there. As always, full details can be found in the actual bulletin.


Penny Mac’s recent announcements include its previous rule on limited VA cash-out transactions to 90% LTV/CLTV. Effective with commitments taken on or after Monday, December 15th, 2014, PennyMac announced its VA cash-out transactions are eligible up to 100% LTV/CLTV. As a reminder, the LTV/CLTV calculated for underwriting purposes utilizes the loan amount without any financed funding fee. Follow the link to view announcement 14-69. Clarification Regarding VA Loan Purpose DU 9.2 Release, LTV Changes, Messaging Updates and Updates to Fee Schedule can be found under announcement 14-70.


Union Home Mortgage is now offering 3% Down Options on home purchases. The new 3 percent down payment will help those in the mortgage industry provide service to a segment of these creditworthy borrowers and allow the borrowers access to credit, without a burdensome down payment. To learn the details, view its press release.


Angel Oak is now offering Foreign National loans up to 75% LTV. Contact your non-agency specialist for more information this program.


Flagstar issued an additional reminder regarding the Fannie Mae DU 9.2 update. Broker loans with an LTV greater than 80% must be closed and funded by Friday, February, 27, 2015. Correspondent loans must be delivered and purchased by Friday, February 28, 2015. Also, with the FHA announcement regarding maximum loan limits effective for FHA case numbers assigned on or after January 1, 2015 through December 31, 2015; the new loan limits apply to all forward mortgages, except Streamline refinances without appraisals.


Flagstar has a few changes effective as of December 19th including removing the Appraisal Management Companies (AMCs). Flagstar will be making lock/pricing related updates to the applicable Jumbo Fixed and ARM products.


Flagstar posted asset related issues seen frequently on purchase transactions. To view the information, click here.


CALCAP has introduced a new pricing structure for “fix and flippers” & short term bridge loans. CALCAP will not be charging ORIGINATION points to borrowers. CALCAP will offer its “NO POINT” program with rates starting at 12.50% (interest only).


Citi Bank bulletin 2014-14 acknowledges that Fannie Mae’s recent Announcement, SEL-2014-15 expanded LTV Options for First-Time Home Buyers and Limited Cash-out Refinances to 97%. Citi is currently reviewing all requirements for this new policy; however, currently it is unable to purchase loans with the expanded LTV at this time. Also posted is information regarding non-delegated underwriting fees. Effective for all Loans registered on and after January 10, 2015, the standard Underwriting fee of $500 applies and will no longer be waived on cancelled/withdrawn/declined loans as it was during the pilot phase. Click the link to view the bulletin.


Kinecta Federal Credit Union posted information regarding January 1, 2015 annual adjustments to Home Ownership and Equity Protection Act (HOEPA) and Qualified Mortgages (QM) points and fees. For details, click here. Kinecta is also making changes to its tax service fee. Effective with closings/fundings January 1, 2015 and later, the tax service fees will decrease from $62 to $59 for all states.


Effective immediately, Mountain West Financial Inc. will no longer accept DU High Balance transactions where the borrower(s) owns more than four financed properties.


Peoples Bank (KS) posted information regarding FHA Revised Guidelines on the expiration of Property Flipping Waivers. As of 12/31/2014, FHA will not renew its waiver to its Property Flipping guideline.


Plaza is accepting LTVs up to 97% for transactions that meet Plaza’s Program Guidelines and the requirements outlined in Fannie Mae Selling Guide Announcement SEL-2014-15. Plaza’s MyCommunityMortgage, Conforming Fixed Rate and Fannie Mae Retained Program Guidelines, PULSE and rate sheets have been updated to reflect eligibility to 97%.


U.S. Bank has made changes to its third party Verification requirements according to its Bulletin 14-075.


Citi Bank’s pre-purchase review fee is increasing effective for new loans registered on and after January 10, 2015. These fees are net funded at the time of Loan purchase. Click the link to view its list of fees.


Interested in 89.9% to $1.5M with No MI? Commerce Mortgage Wholesale’s Core Program may be the answer. For more information view the product offerings by clicking here.


First Community Mortgage posted new lock policy for its wholesale channel. Click the link to view its Lock Policy.


LDWholesale has updated information on its Third Party Processing Fees, Doc Order Form Updates, Conventional Loan Limits, and Agency Updates. To view the details on these topics, click here.


Wells Fargo Funding has improved its Non-Conforming 15-Year Refinance Adjuster, effective December 19.


I recently received an email to comment on the leveraged loan market, which is a good topic, albeit slightly off the reservation for my daily commentary. Here goes; first, what IS a leveraged loan? Well, a “leveraged loan” is a loan which is extended to companies (sometimes individuals, but for the sake of this write-up we’ll be viewing it as a corporate finance instrument) that already have considerable amounts of debt. Banks consider leveraged loans to carry a higher risk of default and, as a result, a leveraged loan is more costly to the borrower. I know some are thinking “junk bonds” right now, and that wouldn’t be incorrect. “Money finds a way,” is a popular mantra for an analyst I know, and with some leveraged loan structures paying 2 times what your average 30 year fixed mortgage is right now, it’s no wonder Wall St. has made these lightly regulated instruments their prom dates over the past few years. As the Dallas Fed points out, such loans are sometimes a barometer of market appetite for risk and speculative activity. So how popular are they?


As a recent Bloomberg article points out, very; This growing demand from institutions explains why Wall Street is planning more than $85 billion in leveraged-loan offerings, including funding acquisitions such as Burger King Worldwide Inc.’s purchase of Tim Horton’s Inc., according to data compiled by Bloomberg. One reason the debt has become so popular is because its coupon payments float above benchmark rates, a selling point as the U.S. central bank prepares to raise borrowing costs next year.” When you heard the news Burger King was buying Tim Horton’s, didn’t you think back just recently to when Burger King was on the financial ropes, now they have enough cash to expand their brand? Money finds a way, I guess….and if you’re asking about the size of the leveraged market, the week after Labor Day issuance was nearly $14 billion in volume courtesy of 22 new issues, twice the amount from the previous week. With the recent activity, year-to-date loan volume now totals $420 billion, down from the $449 billion at this point last year, according to S&P Capital IQ/LCD.


I had a professor in college who would say “you’ll see this again” when he was talking about something he knew would be on the exam….it was a moment similar to Matt Damon’s epiphany in Rounders when he recognized KGB’s Oreo fixation after he flopped the straight against Damon’s two pair. Which brings us to the Labor Market Conditions Index….you’ll see this again. We hear so much about jobs, job growth, and job creation. I’ve grown weary listening to “experts” discuss labor participation, or the lack thereof. Most can agree the labor market is, by all historical accounts, dismal at best. Which brings us to the Fed, and their concerns over the declining labor force participation and the large number of involuntary part-time workers. I know an economist who said something noteworthy a while back, “the new-new economy, is forcing us to create new-new indices.”


So what’s the problem with traditional unemployment data? Often-cited indicators, such as the unemployment rate or payroll employment, measure a particular dimension of labor market activity, and it is not uncommon for different indicators to send conflicting signals about labor market conditions. Accordingly, analysts typically look at many indicators when attempting to gauge labor market improvement. However, it is often difficult to know how to weigh signals from various indicators. Statistical models can be useful to such efforts because they provide a way to summarize information from several indicators. Enter the LMCI….oh, and Wells Fargo’s Economics Group to bring this tutorial home; “Much of the drop in the unemployment rate has been made possible by the continued slide in the labor force participation rate, which is partly being driven by the aging of the population. The large proportion of the workforce working part-time also gives less credence to what otherwise would be a fairly respectable unemployment rate. It is because of these concerns that the Fed developed its own encompassing measure of the labor market, the Labor Market Conditions Index. The Fed’s index incorporates 19 labor market indicators that cover virtually all aspects of the labor market.”


Brent Nyitray with Dellacamera Capital Management writes, “The prospect of QE has driven risk-free rates lower in Europe, which has lured US companies to issue Euro bonds. The spread between investment grade Euro notes and investment grade dollar notes is currently 211 basis points, an all-time high, and a big increase from 145 bp a year ago. Companies like Apple are issuing billion in euro bonds yielding something like 1.65%. If you wonder why the big S&P 500 companies seem to be doing great, in defiance of what we see around us, here you go. International exposure matters. The local muffler shop cannot borrow at 1.65% while multinationals like Apple can. While the economy is improving, the stock market is painting a non-representative picture of the US economy.”


For more temporal news, yesterday we had two-month old data from the S&P/Case-Shiller National Home Price Index. The 20-City Index of property values increased 4.5% from October 2013, the smallest gain in two years, after rising 4.8% in the year ended in September. But prices are back to where they were in late 2004. For those of you who think 20 are too many, the 10-City Composite gained 4.4% year-over-year, down from 4.7% in September. Nationally, prices rose 4.6% after a 4.8% gain in the year ended in September. The Conference Board Consumer Confidence Index told us that we’re all more confident now than last month. It now stands at 92.6 in December, up from 91.0 in November.


But these numbers aren’t driving interest rates here in the U.S. What is happening in Europe is, and will, impacting thing more than these secondary numbers – as noted a couple paragraphs up. And rates continued lower with the 10-yr closing at 2.19%.


For news the MBA’s application numbers are put off until next Wednesday (the MBA being closed until next week), and will have Initial Jobless Claims, the Chicago PMI (9:45), and Pending Home Sales. Most importantly the U.S. Treasury market will close at 2PM EST, 8AM in Hawaii, for New Year’s Eve. In the early going we’re down to 2.17% and agency MBS prices are better by a few ticks.



On New Year’s Eve, Marilyn stood up in the local pub and said that it was time to get ready. At the stroke of midnight, she wanted “every husband to be standing next to the one person who made his life worth living.”

Well, it was kind of embarrassing.

As the clock struck, the bartender was almost crushed to death.





(Copyright 2014 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