Sep. 11: Mortgage jobs; bank M&A – Citi’s down to how many states? FHLB primer; more on USDA changes

In preparing to write a small blurb about the Unmarried and Singles Week that starts in 10 days, which, as best I can tell, is nowhere near Valentine’s Day, I Googled “top songs about being single.” Bon Jovi’s It’s My Life topped three lists I reviewed, along with some fellow named Lil’ Wayne…which ironically is the same nickname I gave an intern back in ‘93 (I’ll assume they aren’t the same guy). According to the Census Bureau, 105 million is the number of unmarried people in America 18 and older in 2013, and making up 44% of all U.S. residents 18 and older; 62% is the percentage of unmarried U.S. residents 18 and older in 2013 who had never been married, with another 24 percent being divorced and 14 percent being widowed. And 18 million is the number of unmarried U.S. residents 65 and older in 2013. These seniors made up 17 percent of all unmarried people 18 and older.


On the jobs & expansion front, REMN Wholesale continues to expand and just made the leap across the Pacific with the addition of Brandi Yonemura, who’ll be working directly with brokers and bankers throughout the state of Hawaii. That said, REMN is still looking for strong AEs in all other markets who believe in the company’s commitment to customer service and see the value renovation lending can bring in today’s housing market. Interested or know anyone that could be? Resumes can be sent to REMN Wholesale. (And if you’re going to the NAMB National next week and thinking about a change, you should connect with Carl Markman and the rest of the REMN Wholesale team on the show floor or swing by LAX Nightclub on 9/14 for the REMN’s 25th anniversary celebration event.)


On the retail side, Homestar Financial is seeking qualified Retail Branch Manager’s in Florida “who will enjoy extraordinary commissions and manager compensation. With over 40 offices, Homestar is a leader in the Southeast in USDA, FHA, VA, conventional and jumbo loans.  Homestar is a company that is focused on closing loans for originators and compensating them for what they accomplish. If you would like to join a company that you will never leave, contact John Berry, Division Manager, for a confidential conversation.


Lastly, private mortgage insurance company Genworth Financial is seeking a dynamic Account Executive to cover Philadelphia and part of New Jersey. Candidates should have exceptional customer interaction skills, as well as a proven track record of sales execution and leadership. The person hired will be expected to provide the highest level of internal and external customer service, manage customer relationships, and develop growth strategies for assigned accounts. In addition, the successful candidate will develop calling plans to cover all assigned accounts, monitor branch volume and calling activity, take necessary actions to achieve account volume goals, and execute and lead implementation of Genworth products and initiatives. The ideal candidate will have 2+ years of experience in a regional or territorial sales role, have a college degree or equivalent of industry/sales experience, great presentation and communication skills, and have the ability to work flexible hours with occasional overnight travel.  Interested candidates should email their confidential resume to Kristin Miller.


And a clarification to yesterday’s mention of The Rule Tool by Take Three Technologies. The product does not do pricing.  It is a tool created to identify rules that pertain to a borrower’s credit or property. It helps qualify once a loan is priced, but has no pricing information. As noted, pricing engines are typically limited to the basic pricing parameters (loan amount, LTV, FICO, state, property type, and debt- to-income ratio). “The Rule Tool provides an intelligent solution for loan originators, processors, and underwriters to simplify the process of researching and confirming agency guidelines and investor overlays as it provides a single, comprehensive source for the multitude of rules and overlays that can affect the eligibility of the loan.”


The commentary’s note yesterday about USDA changes caused a flurry of e-mails. To clarify/repeat, the “4 basis point to 5 basis point” annual premium change, and its resulting state-USDA-level complications & delays, still takes place in 20 days. The USDA has temporarily suspended (until October 2015) its process for determining if an area is still “rural in character” (RIC) and therefore, still eligible for USDA guaranteed mortgages. “Several areas were in danger of losing their eligibility because new development has taken place and it is necessary for USDA to now determine if the area is still RIC. USDA says this suspension will allow time for it to thoroughly review and apply its RIC process for these areas. More information about this USDA announcement and the RIC process can be found in the FAQs here.


Mergers & acquisitions continue to motor along. In Maryland, Congressional Bank ($430mm) will acquire American Bank ($456mm) for an undisclosed sum. Over in Arkansas Farmers Bank & Trust Company ($885mm) will acquire 1st Bank ($311mm) for about $32mm in cash. BB&T Corporation (NYSE: BBT) and The Bank of Kentucky Financial Corporation (NASDAQ: BKYF) announced the signing of a definitive agreement under which BB&T will acquire The Bank of Kentucky in a cash and stock transaction for total consideration valued at approximately $363 million. This acquisition will establish a presence for BB&T in the Northern Kentucky / Cincinnati market. (The Bank of Kentucky, headquartered in Crestview Hills, Ky., has $1.9 billion in assets, $1.6 billion in deposits and 32 banking offices.) And after the latest sale of Texas branches is concluded, Citigroup says it will have reduced its footprint by 11% since the end of last year and its banks will only operate in 13 states in the U.S. The company’s retail banking business has been struggling. Income from continuing operations at the unit fell 46 percent in the second quarter. Revenue from the business accounts for nearly a quarter of total revenue. The bank had 3,463 branches in 35 countries as of June 30, with a little over a third of them in North America.


Forget the Federal Reserve, NCUA, OTC, or the FDIC – everyone is talking about Federal Home Loan Banks. As an example, the director of the regulatory agency overseeing the FHLB system, Mel Watt, said in a recent speech that the agency is not opposed to the proposed merger of FHLB Des Moines and Seattle. His support could mean bankers will see more FHLB mergers in the future. This spate of FHLB news in recent months has people wondering, “Who, what, why…” First of all, traditionally community banks, thrifts, commercial banks, credit unions, community development financial institutions and insurance companies are all eligible for membership in the Federal Home Loan Banks. The Federal Home Loan Banks are a group of cooperatives that lending institutions use to finance housing and economic development in local communities.


They’ve been around for the better part of a century. The FHLB system was set up in 1932 after a string of bank failures caused by runs on deposits, and has accepted insurers since its start. Members buy stock in the institutions and get access to low-cost, wholesale funding in return for pledging collateral such as mortgages.


And get this: about 80 percent of U.S. lending institutions relies on the Home Loan Banks for low-cost funds. Because the Home Loan Banks are cooperatives, their low costs are supposedly passed on to consumers and communities, and they don’t have the pressure for high returns that they otherwise would have if their stocks were publicly traded. The returns they do make go directly toward replenishing their ability to keep a reliable supply of funds flowing to communities through local financial institutions. Federal Home Loan Banks require their members to put up collateral against the advances they receive. If you want to do a little research on your own, feel free: FHLB.


But returning to recent news about them, the overseer of the Federal Home Loan Banks (the FHFA) is planning changes to membership rules that would keep investment firms and lenders lacking customer deposits out of the U.S. government-chartered system. Bloomberg wrote earlier this month, “The FHFA, which has voiced concern that firms are using specialized insurers to join FHLBs, (is) proposing new rules limiting insurer access to home-loan banks to companies dealing primarily with ‘non-affiliated persons.’ The existing memberships of captive insurers — which mainly offer coverage to their owners or customers of those parent companies — would be ‘sunset’ over five years. Real-estate investment trusts that buy mortgage debt and other lenders known as shadow banks have been using captive insurers to flock to the FHLBs in recent years for dependable funding that can offer better terms than traditional banks or bond markets. FHFA Director Melvin Watt said in a May speech that the new members could raise “issues” for the safety of a system with $815 billion of debt that’s seen by investors and credit raters as being backed by taxpayers. Captive insurers should remain a part of the FHLBs’ membership base because they help support the U.S. housing market, which is the system’s mission set by Congress, said David Jeffers, a spokesman for the Council of Federal Home Loan Banks, a trade group for the lenders.


Mortgage REITs Redwood Trust Inc., Annaly Capital Management Inc., Invesco Mortgage Capital Inc., and Two Harbors Investment Corp. have all joined the network of regional lending cooperatives since October through captive insurers. Commercial real-estate lender Ladder Capital Corp. joined in 2012. But a recently started program in which Redwood will buy large mortgages from FHLB members isn’t tied to its own membership.


The FHFA said other proposed rules include a new test requiring all members to hold 1 percent of their assets in home-mortgage loans, and a requirement that some keep 10 percent in residential-mortgage loans on an ongoing basis. It will also clarify how an insurer’s “principal place of business” is identified for determining the appropriate Home Loan Bank district.


Switching gears somewhat, a while back Isaac Boltansky with Compass Point Research and Trading LLC put out an interesting piece on a servicing bill that a House Committee passed as a result of Basel III. On July 30 the House Financial Services Committee advanced the “Community Bank Mortgage Servicing Asset Capital Requirements Study Act of 2014” (H.R. 4042) out of committee by a vote of 44 to 9 “which caused a number of inbound questions from clients. We believe that H.R. 4042, if enacted, would be an incremental positive for regional and community banks. We include below our thoughts on this bill, its likelihood of passage, and its potential impact.


“The bill would require bank regulators to ‘conduct a study of the appropriate capital requirements for mortgage servicing assets for nonsystemic banking institutions.’ The study, which would have to be delivered to Congress no later than 6 month after enactment, would have to consider a number of criteria including the risk of mortgage servicing assets and the impact of Basel III capital rules. H.R. 4042 would also delay the implementation of the mortgage servicing components of Basel III for nonsystemic banking institutions for as long as 9 months after the bill’s enactment…(although) it contains no guarantee whatsoever that the Basel III rules covering mortgage servicing assets for covered banks would be softened.


“With that being said, there is little doubt of the Basel III changes the industry would push to enact. For example, the Mortgage Bankers Association (MBA) has recommended the current MSR cap as a component of tier 1 capital be revised. As the MBA states: ‘MSRs are currently limited by a 10 percent cap; MBA recommends the use of at least a 25 percent cap for MSRs on the books of banks and a 50 percent cap for MSRs on books of thrifts and savings and loans.’ MBA also recommends that MSRs should be excluded from the 15% aggregate cap for DTAs, MSRs, and equity interests.” Good job Compass!


Hey, and don’t forget, the Federal Reserve requested comments on a proposal to repeal its Regulation AA (Unfair or Deceptive Acts or Practices). Write soon!


Turning to the markets, at this point, everyone knows that QE (Quantitative Easing) is going to end around Halloween. While a tapering of QE could correlate to higher rates, it doesn’t necessarily cause higher rates. Correlation does not equal causation. Historically, the Fed sets short term rates (like the overnight Fed Funds rate); it does not set Treasury rates, or 30-year mortgage rates. That is a function of supply and demand. So what the Fed has done is to increase demand, thus increase the price of securities and thus keep rates low. The market knows that the Fed will stop next month – but what will increase is the potential for volatility!


We certainly have not had much volatility (leading to intra-day rate changes) this summer and yesterday was no exception. Today the news has picked up. We still have a $13 billion 30-yr bond auction ahead of us, but we had Initial Jobless Claims increase 11k to +315k – higher than expected. The newly auctioned off 10-yr. had a 2.53% close Wednesday, and in the early going we’re at 2.52% with agency MBS prices better by .125.



Don’t ever forget September 11, 2001.





(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