All the McDonalds and Burger King workers in California are rejoicing: the minimum wage is heading to $10/hour. This, coupled with the tax increases voted in last year, is making it a more interesting economic situation in the state of fruits and nuts: http://www.reuters.com/article/2013/09/25/us-usa-california-minimumwage-idUSBRE98O0U920130925. I only use Mickey D’s as an example of a minimum wage job – but in some states it is not! With the oil boom in the Dakotas, BusinessWeek reports that anyone going to work at McDonalds receives a $300 signing bonus. “It’s not uncommon for signing bonuses to proliferate during boom times. In the late 1990s Burger King offered managers a $5,000 signing bonus in a variety of cities to try to poach them from other fast food chains, according to a 1998 New York Times report…At Williston Sate College in Williston, North Dakota, students are dropping out, lured by the possibility of making $100,000 working on oil rigs, driving trucks or maintaining oil wells…The boom isn’t only boosting the salaries of workers directly involved in the oil industry. With thousands of men moving to Williston to cash in on the boom, they’re attending more strip clubs and strippers in the area have seen their salaries soar…strippers claimed they could make $2,000 to $3,000 in tips in Williston.” (Rumors of the CFPB sending in teams of examiners are unfounded.) God Bless America.
Although she is blind, Justice never sleeps, and any company’s management who thinks it can skirt the Bank Secrecy Act might be in for a rude awakening. Yesterday’s commentary discussed the huge penalty TD Bank is facing. I was also reminded of a closed NJ bank hit with BSA penalties. The Saddle River Valley Bank, of Saddle River, New Jersey, opened for business on June 1, 2006 and lasted for six years. A year prior to closing it was issued a C&D by the OCC for its deficient BSA/AML program…the bank late-filed more than 190 SARs on over $1.5 billion in transactions…and were presented with a $8.2 million combined fine which will wipe out most of the remaining assets of the bank, which were reported at $10 million as of June 30, 2013. Details on the announcements and links to the Orders and Civil Complaint have been added to the BankersOnline page:
“Rob, if everyone’s residential volume is down 50%, and the Fed keeps buying its daily billions, won’t that impact the supply & demand teeter totter?” You bet it will! The last reputable research piece I saw from Wall Street calculated that it made no sense for any investor to “short the basis”, meaning selling agency MBS and buying Treasury securities – especially the current coupons that the Fed is buying. Fed purchases hit a high of 55% of gross issuance in September and Q4 it will only go up if/when production continues to stagnate. Given the usual purchase tail-off that occurs in the last quarter, the estimates were Fed purchases, as a total percentage of gross volume, being Oct 62%, Nov 67%, and Dec 69%. The smartest guys in the room are paying very close attention to how & what supply hits the market, and what the Fed is buying.
Nationstar Mortgage, which has seen its share of criticism in purchasing turn times (apparently due to growing pains) is being cited by investment banking sources as the winning bidder on a $41 billion package of legacy mortgage servicing rights offered up by Wells Fargo recently. (Here is a piece on
the background: http://news.investors.com/investing-ibd-industry-themes/091713-671394-mortgage-services-stocks-still-rising.htm.) It’s no secret that Nationstar has been an active bidder on MSRs the past two years, absorbing some huge packages of product, including much from Bank of America. But servicing is not only sold in bulk – it is also sold in flow packages, a little every month. For example, Phoenix Capital sent out a “pleased to present the following $70-105 million/month conventional and government flow servicing offering for your consideration. Seller is a well-positioned independent mortgage banker, with a uniquely strong history of operations dating to the early 1970s. Seller is interested in entering into a forward commitment to sell and transfer their relevant production on a monthly basis.” I am not going to list the attributes or details, but if you’re interested contact Stephen Fleming at firstname.lastname@example.org.
While we’re talking about selling, so how exactly does the U.S. Treasury sell its preferred stock holdings of companies purchased under T.A.R.P.? Typically, by way of modified Dutch auctions to (a) “qualified institutional buyers”, (b) certain domestic institutional “accredited investors”, or (c) certain directors and executive officers of the respective issuers of the Capital Purchase Program Securities. Basically, don’t expect to see a ’Buy It Now’ button for them on your eBay home page. Recently the Treasury opened auctions to liquidate the holdings of six more banks purchased under TARP by way of CPP: Centrue Financial Corporation (Ottawa, IL); DeSoto County Bank (Horn Lake, MS); First Banks, Inc. (Clayton, MO); RCB Financial Corporation (Rome, GA); Reliance Bancshares, Inc. (Frontenac, MO), and Severn Bancorp, Inc. (Annapolis, MD). The auctions commenced at 9AM EDT, September 12 and closed at 6PM on September 17. During the auction period, potential bidders for the Capital Purchase Program (CPP) Securities were able to place bids on the offered stock (in increments of whole shares or per $1,000 aggregate principal amount, as applicable) at any price per share or per $1,000 aggregate principal amount, as applicable, and in increments of $0.01 at or above the minimum prices set forth in the applicable bidder letter agreement provided to the potential bidders. Investors may bid on individual or multiple CPP Securities. (If you care about the results, here you go: http://www.menafn.com/64667e92-f3ca-48b0-addf-1e96b03b8028/Treasury-concludes-TARP-auction-of-St-Louisarea-banks-stock?src=main.)
My bet is that it won’t happen, or, if it does, it will be resolved quickly. In between now and then, the possible shut down will give politicians plenty of opportunities for posturing, grandstanding, and blathering. An actual shutdown would probably move rates lower since it would have a negative impact on GDP, probably reducing fourth quarter Gross Domestic Product about 1.4% since folks like park rangers and tour guides won’t be spending as much money – businesses may hold off on investment and households delay spending. “What we have is a political and not economic maelstrom,” said Bernard Baumohl, chief global economist at Economic Outlook Group LLC in Princeton, New Jersey. (Sorry for the delay in sending the commentary out today – I had to find out what “maelstrom” means.)
Let’s move to some investor, agency, and vendor updates – and yes, the potential shutdown is starting to be a concern.
“HomeBridge would like to remind brokers that in the event of a government shutdown on October 1, 2013 the processing of IRS transcripts will most likely be delayed. Brokers are advised to order tax transcripts ASAP to avoid any potential loan closing issues.”
Mountain West Financial sent out, “In anticipation of a possible US government shutdown, MWF is taking this opportunity to suggest that all broker and corporate departments complete the following immediately: insure as many loans close as possible, including the wiring of funds, run CAIVR’s and order VA and FHA case numbers, complete SSI Validations and LDP/GSA searches, order/execute 4506T (for IRS transcripts), order any pending W2 searches, remit upfront MIP payments (Internal).”
Fannie Mae is building up interest in its risk-sharing securities. Will it be the model of the future? “Fannie Mae…will offer better terms than in Freddie Mac’s initial deal as the U.S.-backed mortgage companies seek to expand investor participation in the market….Fannie Mae officials are visiting investors across the country, with stops in Boston and Cincinnati this week, as it attempts to sell $675 million of the debt at lower yields than Freddie Mac got in its $500 million offering in July. Under Fannie Mae’s terms, bondholders won’t suffer losses until delinquencies are higher. The entire story by Jody Shenn can be found here: http://www.bloomberg.com/news/2013-09-26/fannie-woos-investors-as-regulators-embrace-risk-sharing.html.
As a reminder, The Agencies have announced that they are extending the expiration dates for the Streamline Modification program, HAMP, and the Second-Lien Modification program. HAMP and the Streamline Modification program have been extended to include modifications with Trial Period Plan effective dates on or before March 1, 2016 and December 1, 2015, respectively (the March 1st deadline applies to 2MP as well). All HAMP modifications must have a Modification Effective date of September 1, 2016 or before. In the meantime, for mortgages that meet all other eligibility criteria outlined in the selling guide to be eligible for HAMP, all proposed modifications must submitted through the Treasury Net Present Value model on or after January 1, 2014 and receive a positive test result.
The HAMP “Pay for Success” incentive will be retired effective April 1, 2014 in order to accommodate the tiered incentive increase for modifications with this safe effective date.
In order for servicers to have sufficient time to process their foreclosures, both Freddie and Fannie have extended the state foreclosure timelines by 30 days for properties in Nevada, New Mexico, and Washington. This is effective for foreclosure sales completed on or after September 1, 2013.
Fannie Mae’s updates to the Loan Delivery Test Environment are now in effect. The changes give users access to the test environment using Loan Delivery production credentials, new DU test data, and new Appraisal Document File Identifier test data.
Version 9.1 of DU will not apply the additional maximum DTI and minimum representative FICO score requirements to HARP case files that have an increased principal and interest payment; however, a message will be issued for all DU Refi Plus files stating that the lender must indicate whether the loan is considered a higher-priced mortgage loan as defined by Regulation Z and apply the relevant DTI and FICO requirements as necessary.
Fannie has updated the reporting requirements for repurchased loans subject to a HAMP permanent loan modification or HAMP Trial Period Plan such that the responsible party must now cancel the related record accessible through the online HAMP Reporting Tool. As a general reminder to servicers, Fannie is not legally responsible for any losses incurred due to repurchase action and has the right to recover all previously paid incentives in connection with the cancellation of HAMP permanent mortgage loan modification records.
Last week PHH received a letter from activist investor Orange Capital late last week in which the latter issued four recommendations, the first being financing MSRs through a captive vehicle, the second repurchasing $150 million worth of shares, the third spinning out the fleet business, and the fourth tender for the 2017 converts. Keefe, Bruyette & Woods’ assessment is that financing prime MSRs would be the most difficult of these recommendations on which to act, considering that there have been no transactions of any major scale in the prime market. Furthermore, if the MSR piece of the plan were unsuccessful, the rest would be difficult to implement as well, as there would not be enough capital to buy back shares, and a tax-efficient spin of the fleet management business would run the risk of not generating enough cash. An outright sale could also prompt a large tax bill, and at the end of the day, bidding on the coverts might limit further dilution as the shares move up but would not add any economic value. To read the full report, see https://kbw3.bluematrix.com/sellside/EmailDocViewer?encrypt=bafa7d3b-b028-44cb-896b-2dabacd5e85f&mime=pdf&co=KBW3email@example.com&source=mail.
US Bank is now allowing occupant co-signors for all products provided that they occupy the subject property as either a primary residence or second home, are the spouse or domestic partner of another borrower who will be in the title, and meet all other Agency requirements.
With regards to trust vesting, US Bank has clarified that properties previously or currently vested in a trust may close in the trust so long as the property title is in the borrower’s name for at least 30 days prior to the date of the initial mortgage application. The 30-day period is measured from the recording date of title transfer.
As a reminder, US Bank will not purchase refinance loans on properties that have been listed for sale by the current owner within 90 days of making the loan application. Loan files for such refinances must include a recently listed copy of the canceled listing agreement in the underwriting file in order to be eligible for purchase.
Effective immediately, Bank of the Internet has updated the cap structure for its Portfolio ARM products from 2/2/6 to 6/2/6.
United Guaranty will updating its issued Commitments and Certificates for all loans insured on and after November 1st to include additional loan transaction and premium information, including borrower, property, mortgage, and underwriting data. In terms of tracking data, the version number and date/time stamp will be included in the footers.
Flipping over to the markets, yes, rates have come down, and seem pretty content where they are now. (As if they have their own personality, right?) The Fed is buying about $3 billion a day, mostly 30-yr agency MBS filled with mortgages between 3.75%-4.625%. The economic news has mixed, as it always is. Yesterday’s weekly Jobless Claims declined to 305K, far below the consensus of 330K, and very close to a six-year low – no computer glitches this time. Second quarter GDP remained unchanged at 2.5%.
Although the press is focused on our government, as predicted, grappling with a possible shutdown of non-essential components, we did have two pieces of data: August Personal Income & Consumption (+.4% and +.3% respectively), and will have final September Consumer Sentiment at 9:55AM EDT. In the early going MBS prices are pretty much unchanged from Thursday’s close, and the 10-yr is sitting around 2.63%.
Most of the time there is a little humor here. Today, however, is a link to an incredible set of award-winning action photos that make me feel even worse about sitting on my rump doing nothing every day: http://www.theatlantic.com/infocus/2013/08/winners-of-the-red-bull-illume-photo-contest-2013/100583/. Yes, there are other things besides QM and debt ceilings.
Rob Copyright 2013 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.