Oct. 9: Mortgage products and jobs; subprime IPO; more bank M&A; the confusing state of mortgage credit

Capital Markets folks are always watching the MBS market. It is not a simple topic. For example, a “Catch-22” is preventing the issuance of non-agency mortgage bonds. Lenders shy from creating the bundled debt instruments without knowing the credit rating involved, and credit rating agencies won’t put their stamp on anything until they can review the actual loans. The Treasury Department is trying to bring clarity to the situation. But remember, your voice can be heard. Moody’s (who along with S&P and Fitch is most often mentioned as doing a poor job of rating billions of dollars of securities) is requesting comments on its new model for rating RMBS.


In new product news, Stearns Correspondent Lending continues to expand it’s offering with the full release of its Direct Trade modeling. This trade type is a supplement to the already existing Bulk Bid, Single Loan Mandatory and Best Effort execution. To aid in the expansion of the platform, Stearns Correspondent has boarded Mark Panella as a Regional Manager in the Western US. For more information please contact Aaron Samples (SVP Correspondent Lending – East) or Nick Pabarcus (SVP Correspondent Lending –West) or visit the correspondent website.


And Carrington has recently announced that “we are now a ‘No Fee Lender’ and continuing to gain market share with our ‘Serving the Underserved’ loan products with FICO’s down to 550. Continued growth and expansion are a priority for Carrington who was also recently named master sub servicer by Ginnie Mae, expanded its Jacksonville, FL and Windsor, CT Operations Centers and as a result is adding experienced Wholesale Account Executives in the following markets: Northeast (NY, PA, MD, and CT), Great Lakes (WI, MN, IL, and OH), and Southeast (FL – Gulf Cost). If you are interested please send your confidential resume to John Cervantes, recruiting manager for Carrington Mortgage Holdings.


CitiGroup’s subprime lending group – OneMain Financial – is set for an IPO. Who said subprime lending, if done in a compliant manner, is dead?


On the flip side, Louisiana’s Wingspan Portfolio Advisors laid off a number of employees at its Monroe customer service center last week as well as dozens of employees at its Melbourne, Florida, location.


There sure are a lot of folks going to the MBA conference in Las Vegas. I received this note from STRATMOR’s Garth Graham. “So, as we all prepare to head to Vegas for the MBA Annual, each of us needs to make decisions about how much we want to gamble.  And for the mortgage business, one of the biggest gambles is losing sight of what matters to customers – especially when the regulatory CFPB is asking a lot of questions about how processes impact the consumers. One way to learn more about monitoring customer satisfaction is to attend a session from STRATMOR Group regarding MortgageSAT at the MBA National. These sessions, at the obnoxiously named ‘TheHotel’ (at Mandalay Bay) can be used to see how MortgageSAT works and understand how this service is increasing effectiveness and production in lenders’ sales and operations. There are even 6 group sessions that are available but space is limited.  Click Don’t Gamble With Customer Satisfaction for more details.”


Originators have been offering the same products for so long it is refreshing to see some changes out there. But it is always good to know what investors think of the products since that drives demand and thus rates. Occasionally I am asked about this in terms of FHA versus VA loans, so decided to pen a more in-depth piece on why price differences exist between FHA and VA loans – it is over in the right-hand column. “Do Investors View FHA Loans Differently Than VA Loans?”


I just finished perusing Ellie Mae’s Origination Insight Report for August; the report provides monthly data and insights from a large sampling of closed loan applications that flow through Ellie Mae’s Encompass mortgage management software and Ellie Mae Network, and I would speculate the numbers contained in the report represent a large portion of the industry at the moment. Ellie Mae writes, “Approximately 3.5 million loan applications ran through Ellie Mae’s Encompass mortgage management solution and Ellie Mae Network. The Origination Insight Report mines its application data from a robust sampling of approximately 57% of all mortgage applications that were initiated on the Encompass origination platform. Given the size of this sample and Ellie Mae’s market share, the Company believes the Origination Insight Report is a strong proxy of the underwriting standards that are being employed by lenders across the country.” A couple of items of interest: Average days to close for all loans increased, but remained under 40 for the second consecutive month; Closing rates on all loans increased to 61.1%, the highest rate Ellie Mae has seen since reporting the data in August 2011; average days to close for all loans remained under 40 for the second consecutive month, rising two days to 39; the average 30-year interest rate for all loans declined for the fourth consecutive month, settling at 4.386%; closing rates on all loans increased to 61.1%, the highest rate since August 2011; purchase loan closing rates also reached their highest percentage in August; in August 2014, 32% of closed loans had an average FICO score of under 700 compared to 31% in August 2013; The average FICO score on a VA purchase loan decreased two points to 707 while the average FICO score on a VA refinance fell five points to 699.


CoreLogic reported that in August of 2014, home prices, including distressed sales, increased 6.4% compared to August 2013. The seasonally adjusted MOM home price appreciation rose 4.2% but home prices were still down in the second quarter with signs of recovery during the third quarter. Home price appreciation has reached 3.4%, which is an in increase from June’s 2.8% SA. According to CoreLogic’s Case-Shriller index, BofA Merrill Lynch is predicting that home price appreciation will be at 3.5% by the end of the year, which is down 10.8% from 2013. BofA Merrill Lynch foresees minimal growth in home price appreciation in the next few years.


BofA Merrill Lynch disproves the notion that mortgage credit is loosening within the industry citing that the Federal Reserve Board’s Quarterly survey has minimal value and conflicts with reputable data. For example, the Federal Reserve’s survey indicated that mortgage credit loosened in the second quarter of 2014, conflicting with BofA Merrill Lynch’s research that collective FICO scores for purchase mortgages are increasing. BofA ML believes the discrepancy is due to lowered FICO scores in all financing channels with the highest quality channels increasing their share of mortgages closed, therefore the total score is rising. The rise in FHA’s mortgage insurance premiums has caused the loss of share by lower FICO government financing. The FHA purchase mortgage production has decreased about 50% since the inception of Mortgage Insurance Premiums.


Zillow Real Estate Research recently published data indicating a loosening of credit to borrowers with lower credit scores. To no one’s great surprise, borrowers with low credit scores lean towards loans with smaller down payment requirements and are more likely to receive quotes for FHA loans. According to Zillow’s research, over the past two years there has been an increase in lender attention to offer FHA loans to subprime borrowers. For example, for every ten quotes received by a prime borrower (FICO >720) for an FHA loan with less than 20% down, subprime borrowers with FICO scores between 620 and 639, received eight quotes. Whereas, the same subprime borrowers looking for a non-FHA loan received half the amount of quotes than prime borrowers did in September, regardless of down payment. Zillow’s data indicates that “riskier” borrowers are starting to receive more home financing options. (Be aware that the information provided is based upon subprime borrowers receiving an increasing number of quotes on Zillow only and other sources were not used to compile or reinforce its data.)


The Federal Reserve’s survey indicates that there has been a loosening of credit standards to high quality borrowers, even though the pool for these types of borrowers is small. BofA ML disagrees, stating that MBA’s Mortgage Credit Availability Index provides more accurate real time data, citing that the credit index is up 116, which is 1/7 of the pre-crisis peak of 869. CoreLogic data shows that the aggregate FICO score has increased 6 points, to 748. With the increase in high FICO scores, there has been a decline in low FICO score originations, with the lowest declines in production seen in the FHA sector. FHA provides opportunities for first time homebuyers with their low down payment and credit score requirements, but mortgage insurance premium has withered FHA’s pricing competitiveness. BofA ML believes this is problematic since FHA is in a weaker position to provide financing to first time home buyers. If the industry is unable to provide financing options for first time homebuyers, the housing market will not be able to sustain itself and move into recovery.


BofA Merrill Lynch is a Wall Street firm, and I should have known that someone out there tallies up the profits of “Wall Street”. In this instance, it is the New York State comptroller and trustee of the New York Common Retirement Fund. He reports that profits are down 13% in the first half of this year compared to last year. Most lenders this year had a rough 1st quarter that was made up for in the 2nd quarter, and word-of-mouth reports suggest that the 3rd quarter was “pretty good but not great.”


On the banking side, and to some extent individuals, the cash is piling up. The Bloomberg headline reads, “American Banks Pile Up Treasuries as Deposits Surpass Loans and notes how lenders accumulated so much cash that deposits exceeded loans by the most on record last month. That gap has widened by more than $300 billion in the past year. While we’re talking about American banks, the M&A continues. Just in the last week First Farmers Bank and Trust Co. ($1.2B, IN) announced it will acquire three separate community banks in Illinois. First Famers will acquire Community Bank ($83mm), United Community Bank ($46mm) and The First National Bank of Chrisman ($39mm). The Seminole Tribe of FL will acquire Mackinac Savings Bank ($111mm, FL) for an undisclosed sum. Upon acquisition, the bank will be renamed Seminole Bank. (Rumors of the football team in Washington becoming a sponsor are unsubstantiated.) Bank of Eastern Oregon ($308mm, OR) will acquire Bank Reale ($39mm, WA). Iberiabank ($15.2B, LA) will acquire Florida Bank (524mm, FL) for about $87mm in cash and stock (45% and 55% respectively) or roughly 1.26x tangible book after adjustments are made. In Mississippi First State Bank ($534mm) will acquire Bank of Jones County ($227mm). American National Bank ($2.2B, NE) said it will sell 1 branch to Cass County Bank, Inc. ($56mm, NE). On the flip side of all this, Citizens Community Federal ($565mm, WI) said it will close 3 branches following a review of growth opportunities and efficiencies.


This morning we did have Initial Jobless Claims and they were 287k, -1k, fourth week below 300k. Looking back at yesterday, there was a lot of movement perhaps based on the Fed’s minutes although there were no big surprises. Federal Reserve policy makers at their last meeting said a global slowdown and a stronger dollar posed potential risks to the outlook for the U.S. economy. It was nice to see a rally of .25-.50 in price for 30-yr agency MBS – how much of that was passed on to rate sheets remains to be seen. For other potentially domestic market moving events we have the Treasury selling $13 billion in 30-year bonds. The 10-yr closed Wednesday at 2.33% and this morning we’re down to 2.30% and agency MBS prices are better by about .125.



Two little boys, Tom and Danny, are excessively mischievous. They are always getting into trouble and their Mom knows if any mischief occurs in their town, the two boys are probably involved.

The boys’ mother heard that a preacher in town had been successful in disciplining children, so she asked if he would speak with her boys. The preacher agreed, but he asked to see them individually.

The mother arranged to send Danny in the morning, with the older boy to see the preacher in the afternoon.

The preacher, a huge man with a deep booming voice, sat the younger boy down and asked him sternly, “Do you know where God is, son?”

The boy’s mouth dropped open, but he made no response, sitting there wide-eyed with his mouth hanging open.

So the preacher repeated the question in an even sterner tone, “Where is God?!”

Again, the boy made no attempt to answer.

The preacher raised his voice even more and shook his finger in the boy’s face and bellowed, “WHERE IS GOD?!”

The boy screamed & bolted from the room, ran directly home & dove into his closet, slamming the door behind him. When his older brother found him in the closet, he asked, “What happened?”

The younger brother, gasping for breath, replied, “We are in BIG trouble this time! GOD is missing, and they think WE did it!”




(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