Oct. 10: Agency CRT primer and news; Fed President & economic conditions; Saturday Spotlight: Evergreen Home Loans

I sent my commentary out a little early this morning. I was up before my usual time dealing with someone who had pulled into my driveway instead of the 24-Hour Check Cashing place next door. It’ll make for a long day. Plenty of originators are working long hours, too. Individual mortgage loan originators (MLOs), whether working for a mortgage bank, bank, credit union, or mortgage brokerage, are basically running their own small companies. On a small scale, revenue, expenses, strategy, products, advertising, position in the market, all figure into their daily lives. On a larger scale, successful MLOs also pay attention to competitors, the supply and demand for mortgages, the U.S. economy, and global events that may impact their borrower’s price. Surprisingly, some MLOs, when they become successful, stop doing what it was that made them successful! (Imagine trying to keep up with all the news and this is the fastest you can go?) Let’s take a look the economy, and Agency Credit Risk Transfers since CRTs help determine the demand for Agency mortgage originations.

Saturday Company Spotlight

This week we highlight Evergreen Home Loans™ where “Solutions from Evergreen Home Loans™ make the difference.”


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). Evergreen Home Loans™ was founded by President, Don Burton, in 1987 from a single Seattle office intent on improving the homebuying process with faster closings and fewer last-minute surprises. With more than 68 branches throughout the western United States, Evergreen continues to improve the customer experience by offering affordable home loan products, digital mortgage tools, and high-touch local service.

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why. Through the Evergreen Cares Foundation, associates receive one paid volunteer day a year and the foundation matches charitable contributions to qualifying organizations. During the WOW Giving for Hunger event, the foundation provided funds to 60 organizations fighting food insecurity and a corporate gift of $150,000 to Northwest Harvest, the leading hunger relief agency in Washington and Oregon. This year, Evergreen is the title sponsor for Rock the Harvest benefiting Northwest Harvest.

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? Evergreen invests in tools and systems to help associates achieve their full potential. When surveyed by Great Place to Work®, 100% of associates responded that they were given the tools to succeed. The company also provides education assistance for associates to pursue certifications or coursework related to their professional growth.

Tell us how your company maintains its culture in the office, or in a work-from-home environment if applicable. When the world transitioned to staying at home, Evergreen applied its Core Convictions of Family and Fun to help associates work remotely or onsite. The leadership team hosts a monthly virtual town hall and like a family, shares their joys and challenges. Additionally, the company offers opportunities to stay engaged and show appreciation with digital scavenger hunts, gift baskets, a recognition program, and themed Zoom meetings.

Things you are most proud of that don’t have to do with sales? Evergreen is proud to be recognized locally and nationally as a great workplace. In 2020, Evergreen was named the #1 best workplace in Washington in the Extra-Large Company category by Puget Sound Business Journal. It has also been recognized by Fortune, Great Place to Work®, and Seattle Business Magazine. Evergreen is a Great Place to Work® certified company. (Great Place to Work® is a registered trademark of Great Place to Work® Institute.)

Fun fact about Evergreen Home Loans? Evergreen is an industry leader in eClose and digital mortgage technology. On average, over 70% of eligible loans close with an eClose. Now the company is implementing eNote to further achieve their digital mortgage goals. When combined with remote online notarization (RON), customers can experience a remote closing.

(For more information on having your firm and its charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

The economy, stupid

“The economy, stupid” is a phrase coined by James Carville in 1992 to help Bill Clinton unseat George Bush. This time around, President Trump has consistently seen high approval ratings for his handling of the economy. But it is good for MLOs to keep up on events and thoughts.

Dallas Fed President Robert Kaplan recently wrote a paper on economic conditions and the path of monetary policy. He dissented from the Federal Open Market Committee (FOMC) statement at the September meeting, with the Committee saying that it “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

In the paper, he says that he expects it will be appropriate to keep the federal funds rate in the current range until the economy is on track to achieve the Committee’s dual-mandate objectives of a 2% inflation target and full employment, but that the Committee should retain greater policy rate flexibility beyond that point. He dissented at the most recent September meeting because he doesn’t think the definition of “accommodative” is clearly defined enough and keeping rates at 0 to 0.25% becomes increasingly important (though he said the current level is good with him) as the Fed approaches achievement of those dual-mandate objectives. Most Committee members, including Kaplan, are under the impression that it will not be at least until late 2022 or sometime in 2023 for these criteria to be met.


In Kaplan’s opinion, when 2% inflation and full employment are met, the Committee should retain greater policy rate flexibility to decide on the appropriate stance of monetary policy. He would prefer that once the economy has fully weathered the crisis, the Fed should be willing to be more accommodative than in the past in order to create a stronger and more inclusive labor market and make progress on achieving the 2% average inflation target – though that does not mean keeping the rate at 0%, because that sets a dangerous precedent. There are real costs to keeping rates at zero for a prolonged period of time, including adversely impacting savers, encouraging excessive risk taking and creating distortions in financial markets, leading to greater fragilities, excesses and imbalances which could ultimately jeopardize the attainment of the Fed’s objectives. On the flip side, commitment to keeping rates at zero based on certain conditions being met can, in principle, help lower today’s longer-term yields and, thus, provide additional stimulus that could accelerate the economy’s return toward the Fed’s longer-run goals.

Kaplan said that he believes that the Fed’s primary focus today should be on fighting the COVID-19 pandemic and getting the U.S. economy on track to meet the dual-mandate objectives of full employment and price stability. This means keeping the federal funds rate at its current setting, continuing the purchase programs until the Committee judges that they are no longer required, and considering use of other tools. In addition, he said there needs to be continued focus on doing more to help small and mid-sized businesses get access to capital and that lack of additional fiscal relief would create a key downside risk to my economic forecast for 2020 and 2021. The rate of recovery will be determined by how well we manage the virus and he remained confident that the Federal Reserve will do all that it can to make sure we successfully recover from this pandemic and move the economy forward toward achieving full employment and price stability goals.

Credit Risk Transfer: CRTs impact Agency mortgage pricing

Andrew Netter, Senior Financial Consultant with Milliman (an actuarial and quantitative consulting firm specializing in mortgage credit modeling and providing quantitative solutions to investors, insurers, regulators, servicers and lenders) sent the link to a recent white paper on GSE CRT market developments on the capital markets side: The GSE CRT market reopens post COVID-19 disruption: A new normal? Or more troubles on the horizon?

Why should an MLO care? The Agencies (aka Freddie and Fannie) continue to help borrowers both the primary and secondary markets, hoping to achieve competitive pricing in the secondary market while limiting risks borne by taxpayers. And if someone wants to own risk, why not sell it to them? Along those lines, billions of dollars of conforming conventional loans have been bundled into CRT (Credit Risk Transfer) bond deals, nonperforming, or multifamily deals, which help reduce taxpayer exposure to the large book of mortgages guaranteed by the two housing giants and help the Agencies manage their capital. In general, GSE reform needs to ensure stability in the MBS market, but also preserve price signaling from the private sector. Ensuring the smooth functioning of the conventional TBA market is paramount, and most believe that this requires a government backstop behind private capital.

These deals involve sharing part of the credit risk with third party investors – for a price. In the deals, the investors pay cash up front and purchase debt securities that are designed to absorb the credit losses on GSE (government sponsored enterprises) loan pools. The goal is to attract private capital into the mortgage market and shift some risk away from taxpayers since we are currently on the hook for Freddie & Fannie. Fannie Mae and Freddie Mac have still been pricing transactions to aid liquidity in the mortgage space, providing support for its borrowers and up-to-date disclosures for our investor base. And that helps rate sheet pricing for borrowers!

The Mortgage Bankers Association is concerned the GSEs’ strength and stability would be undermined by the Federal Housing Finance Agency’s re-proposed capital rule, particularly its treatment of CRT programs. The MBA said any plan to release Fannie Mae and Freddie Mac from conservatorship should include a strong CRT program in order to reduce taxpayer risk by attracting private capital. IMF reports that, “’Prior to the release of the enterprises from conservatorship, FHFA and Treasury should clarify the precise parameters of any government support or backstop for the enterprises.’”

The Office of the Comptroller of the Currency weighed in as it is, among other things, focused on the role of national banks and federal savings associations. “…We look to avoid market distortions and different approaches to regulation of similar risks across the system and seek thereby to ensure that banks can continue playing a meaningful role in the provision of housing finance. I note that competition is itself an excellent form of risk management. One area in particular that we are looking at closely is the provision of capital relief for credit risk transfer transactions, an area also addressed in the FHFA’s re-proposal.”

S&P reports that RMBS issuance totaled roughly $10bn in September, bringing the YTD total to $79bn, down only 8% versus the comparable 2019 period. The collateral mix includes many different types of issuance: CRT, non-QM, RPL, NPL, reverse mortgage, prime jumbo, investor properties, single family rental, and more.

Preliminary ratings were assigned to the Freddie Mac STACR REMIC Trust 2020-DNA5 residential mortgage receivables-backed notes. STACR 2020-DNA5 is the 10th issuance under the STACR shelf that is structured as a REMIC. This is the first SOFR-indexed CRT from Freddie Mac. In this structure, Freddie Mac is retaining all of the B-3 tranche as they have done in previous transactions, and it is also retaining larger percentages of vertical slices of the remaining subordinate tranches than compared to prior deals.

On July 6, Freddie Mac announced pricing of its $1.1 billion STACR 2020-DNA3 offering, the first Single-Family GSE credit risk transfer (CRT) offering since March, and double the original planned bond issuance. The oversubscribed 2020-DNA3 offering is scheduled to close July 8 along with its Agency Credit Insurance Structure counterpart. STACR REMIC 2020-DNA3 is Freddie Mac’s third securities transaction of the year covering single-family loans with low loan-to-value ratios between 60 percent and 80 percent. The loans were securitized between October 1, 2019 and December 31, 2019 and originated on or after January 1, 2015. Each class of STACR REMIC 2020-DNA3 is priced off of 1-month LIBOR plus a spread (M-1 class: 150 bps, M-2 class: 300 bps, B-1 class: 510 bps, B-2 class: 935 bps). Freddie Mac will retain a portion of the risk in the class M-1, M-2, B-1, and B-2 tranches. Since 2013, the company has transferred a portion of credit risk on approximately $1.6 trillion in unpaid principal balance on single-family mortgages.

This year Freddie announced pricing on the second Seasoned Credit Risk Transfer Trust (SCRT) offering of 2020—a securitization of approximately $1.6 billion including both guaranteed senior and unguaranteed subordinate securities backed by a pool of seasoned re-performing loans (RPLs). The underlying collateral consists of 9,702 fixed- and step-rate, seasoned RPLs, most of which were modified to assist borrowers who were at risk of foreclosure to help them keep their homes. As of the cutoff date, 6.84% of the mortgage loans have been flagged as on a forbearance plan with the servicer, though as of the cutoff date, all the mortgage loans, including those on a forbearance plan, have been performing and not delinquent in the last 6 months. The SCRT securitization program is a fundamental part of Freddie Mac’s seasoned loan offerings which reduce less-liquid assets in its mortgage-related investments portfolio and sheds credit and market risk via economically reasonable transactions. To date, Freddie Mac has sold over $8 billion of Non-Performing Loans (NPLs) and securitized more than $62 billion of RPLs.

Penn P. volunteers, “I think Hooters should have home delivery, call it knockers!”

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, “Do Lenders Care About Forecasts or Predictions?”


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2020 Chrisman LLC. All rights reserved. Occasional paid job & product 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