Sep. 15, 2012: Subservicer list: a growth business - in servicing what you don't know really can hurt you; lender updates
Rob Chrisman




Here’s a note. “When I was a kid, my parents bought a house in California. My Dad had been in the Navy for 20 years, and qualified for a 30-yr VA loan at 6%. (I don't know how many points.) There were no loan brokers; they went to the local Crocker Bank, obtained the loan, and proceeded to make payments for the next 30 years, as agreed. They paid it off in 1997 - Crocker had been taken over by Wells Fargo in 1986. I don't have the statistics on how many borrowers make their payments, watch their loan amortize, and then make that last payment - regardless of rate, regardless of program, and regardless of someone telling them that just because they signed a contract it doesn't mean they have to uphold their side of the agreement. I wish I did have those statistics.”

 

It continues. “It is somewhat of a sad state of affairs when borrowers have to be complimented for upholding an agreement, rewarded for making their payments on time. A number of refinance programs offered by the government, subsidized by the government, overseen by government regulators, have helped hundreds upon hundreds of thousands of borrowers. Property values in many areas have stabilized. And, for society as a whole, it is generally seen as beneficial. But we should not forget the borrowers that make their payments, or refinance "the old fashioned way" in order to obtain a better rate, or continue to uphold their side of the agreement even if their house is underwater. For those folks, a contract is a contract, and a home is a home, not to be confused with merely a house.”

It is a rough transition from this to news this week that the Administration, through HAMP, has had 1 million failed attempts at modifying home loans. Begun in 2009 as a way for potentially 4 million struggling homeowners to obtain mortgage modifications that would reduce their monthly payments, the Home Affordable Modification Program (HAMP) offers homeowners reduced monthly mortgage payments if they're behind or at risk of falling behind on their payments because of reduced income or increased expenses. This week the Treasury Department said that 825,478 homeowners remain in permanent modifications and 66,785 are in trials as of July. But 234,760 permanent modifications and 770,834 trial ones have been canceled since HAMP's launch in 2009, for a total of 1,005,594 cancellations. Per the Huffington Post, “Most of the failed trial modifications were canceled prior to June 2010, when the Treasury Department required banks to verify borrowers' income in order to declare them eligible for the program. The administration says the most common cause of canceled trial modifications is insufficient documentation.

 

Every servicer wishes their clients were like my parents. Many companies service, and subservice, loans. Subservicing is indeed a growing business, and I usually find myself in trouble when I publish lists, but subservicers include BankNewport (RI), BSI (TX), Celink (MI), Cenlar (NJ), Cimarron (MS), Dovenmuehle (IL), Everhome (FL), FCI (CA), Gateway (OK), Green River (UT), HP Locate (TX), LenderLive (CO), ServiceLink LoanCare (VA), MCAP (Canada), Member First (MI), Midwest Loan Services (MI), Multi-State Financial (FL), Nationstar (TX), Nationwide Advantage (IA), Ocwen (FL), PHH (NJ), PNC/Midland (KS), Residential Credit Solutions (TX), Reverse Mortgage Solutions (TX), RoundPoint (NC), Specialty Servicing (TX), and Wingspan (TX). (Thanks to Zackin Publications for the list.)

 

And servicing, once nearly an unknown backwater for lenders, can be very profitable IF an institution has enough cash to own it. And don’t mind the volatility of values, as mortgage servicing rights are all over the map. On this topic I received this note from Tom Piercy: “I would like to take this opportunity to provide my input on the subject of current MSR values. I have acted as advisor in the sale and valuation of MSRs for 25 years. In the past 25 years I have never seen a market as lacking as it is today. By lacking, I mean specifically lacking capital to be applied towards the asset other than the originator itself. One advisor mentioned that the demand for MSRs is the highest it has been in five years. I don’t see that in the secondary servicing market but the greatest demand we do see is by those originators who want to retain the MSR upon direct sale to Fannie, Freddie and Ginnie and capitalize the asset at slightly better than market level.  The biggest competitor to the major aggregators who still purchase on a released basis is the internal capitalization rate established by the originator itself.”

 

Mr. Piercy continued, “That being said, your readers are well aware that most of the aggregators as we knew them have exited the traditional channels that provided liquidity to so many originators who are not Agency approved. The fundamental shift occurred over a year ago. Ours was an industry that created an infrastructure for small to mid-sized originators to sell up to the aggregators, not direct to the Agencies.  That has come to a crashing halt and reflected in SRPs.  Certain companies have stepped in with their newly created correspondent channels and many others are in process but the void is still significant today.  The lack of competing MSR bids in these correspondent channels is certainly one cause for lower pricing but there’s significant risk today in owning MSRs that was not recognized four years ago or was nonexistent.

 

“Today’s MSRs require a higher target yield because of the associated risk.  Many originators that I talk to who do not retain servicing do not clearly understand the risk associated with MSRs.  The repurchase risk with Fannie and Freddie lead the charge but most every originator today has dealt with that and survived.  However, the owners of MSRs are under much greater scrutiny and potential for fines through State and Federal regulation and the CFPB is just getting started.  Further, the line of first defense on default losses and fraud is the servicer.  The VA Loss Guaranty could be pennies on the dollar in many cases.  The spreads available to originators are significant today.  Servicing buyers don’t usually participate on that front-end execution unless they are purchasing the loan servicing released.  Servicer margins are thin hence, the need for higher yield is mandatory.  I do not expect this to change any time soon.  There is significant non-traditional capital hovering around our industry today for the purpose of MSR investment.  The yields are attractive to private equity, hedge funds and REITs.  However, there is little to no leverage available for this asset and the Agencies can pull servicing for non-compliance at any time hence, the risk for loss by that action is catastrophic.  I can delve significantly deeper as to cause and effect but this industry has seen fundamental change.  If origination spreads narrow before solving for the barrier to entry for new capital on MSRs, we’ll have bigger problems to discuss.” Thank you to Tom Piercy, Managing Member of Interactive Mortgage Advisors, LLC ("IMA") – if you’d like to shoot him an e-mail he’s at tpiercy@yourima.com and the company’s site is www.interactivemortgageadvisors.com.

 

Well, the M&A, agency, investor, and lender updates just keep coming. It is hard to keep up, and I squeeze them in, space permitting. As always, it is best to read the actual bulletin, but these will show you the trends.

 

Amerisave Mortgage’s Morgistics, a state of the art web-based mortgage technology platform and LOS, is being rolled out. “The new company has combined their expertise in technology, with their expertise in the mortgage industry to launch a platform that is intuitive and simple to use. The technology provides an enterprise wide vehicle that drives all aspects of the mortgage process from origination to post closing in a paperless environment.” Morgistics has appointed Rich Kesling as President – he was previously VP of National Sales for Novo Appraisal Management and VP and Regional Manager for Bank of America Correspondent Lending. Per the release, watch for a focus on “stellar” metrics in areas like loss mitigation, data integrity, origination cost, and overall loan performance and quality.

 

In Maryland Old Line Bancshares ($839mm) will buy the parent company of Washington Savings Bank ($373mm) for $49mm in cash and stock. Over in Texas, Henderson Citizens Bancshares ($945mm) will buy the parent company of First White Oak Bank ($78mm). Up in Michigan, Level One Bancorp ($470mm) has signed a definitive agreement to acquire Oxford Bank ($269mm). And Ohio’s FirstMerit Corporation ($14.6B) has signed a definitive agreement to acquire Michigan’s Citizens Republic Bancorp ($9.4B) in an all-stock transaction with an implied value of about $912mm or 1.26x tangible book.

 

Out in California, Luther Burbank Savings, with nearly $4 billion of assets, announced it will create a new mortgage unit offering 30-year loans to qualified borrowers, invest $1.1mm in a special financing program, and offer assistance to minority-related census tracts.

 

BofA will settle with the DOJ in a case accusing it of discriminating against disabled mortgage applicants. The bank reportedly imposed extra burdens on borrowers who relied on Social Security disability insurance income to qualify on home loans, such as letters from doctors documenting such income. Under the settlement, the bank will pay $1,000, $2,000 or $5,000 to loan applicants who were asked to provide a letter from their doctor.

As per a previous announcement, Flagstar had temporarily suspended the Guaranteed Rural Housing and GRH Rural Refi Pilot Rural Housing programs.  These have now been partially reactivated.  Guaranteed Rural Housing purchase transactions are eligible to be submitted, underwritten locked, closed, and funded without restriction, though refinances must have already been issued with an RD Conditional Commitment.  The GRH Rural Pilot is only available for refinances for which an RD Conditional Commitment has already been issued.

Fifth Third reminds clients that refinance transactions on properties where the title was held by an ineligible entity in the last two years or since the borrower purchased the property if less than three months are ineligible.  This includes trusts and LLCs.  Titles in the latter are unacceptable and may not be transferred back to an individual to meet the eligibility requirements for a refinance transaction.

GMAC has rolled out its online ViewPoint system, which allows clients to keep track of the current status of outstanding final documents, online images, and reconciliation reporting along with providing access to county websites.  To create a user ID and password, fill out the provided form (
http://click.e.gmacrfc.com/?jufe2e15757666017e751377&lsfdf01d727c63017c75137270&mfef7117372640d&lfe9316767d64047a70&sfe2813717067047b731d72&jbffcf14&t) and email it to viewpoint_gmac@indecomm.net.  Upon receiving a username and password, ViewPoint can be accessed at http://click.e.gmacrfc.com/?jufe3115757666017e751374&lsfdf01d727c63017c75137270&mfef7117372640d&lfe9316767d64047a70&sfe2813717067047b731d72&jbffcf14&t.

Mountain West Financial has clarified its earlier guidance on FHA-insured financings that involve a HUD REO properties with a repair escrow and FHA requirements for REO appraisals completed for PEMCO, HUD’s Management and Marketing contractor, and lenders.  Guidance states that a property requiring less than $5,000 to meet the FHA’s minimum property requirements as per the appraiser may be marketed for sale in its present condition with FHA mortgage insurance available so long as the buyer establishes a cash escrow to ensure that the repairs will be completed.  The purchaser may include an amount including an upfront mortgage insurance payment equal to 100% of the appraised value in their mortgage.  As per HUD guidelines, the amount of money needed for the Repair Escrow should be added to the stated sales prices such that the work for any necessary repairs is done after closing and paid for out of that escrow account.  It is important that the loan amount, UFMIP, and repair escrow not exceed the appraised value.

Affiliated Mortgage has updated various pricing adjustments for its August scorecard, which will be published in early September.  As of September 1st, scores of 85-90 will be subject to an adjustment of +0.07, while scores of 50 and below will be subject to an adjustment of 0.25.  Lenders who receive scores below 70 for three consecutive months are reminded that they will have the pricing hit increased from 7 basis points to 15 basis points, and those who receive scores of 50 or less for three consecutive months are liable to be suspended or terminated.

M&T Bank has relaxed its guidelines for Premium Conforming loans on investment properties with an appraised value of $100,000 or less.  Such properties no longer require a second appraisal.

Carrington Mortgage Services has added Clear Capital to its list of appraisal management companies.

Massachusetts-based Mortgage Master announced that it will be opening a new operations center in Maitland, Florida and expanding operations centers in Sea Girt, NJ and at its corporate HQ in Walpole, MA.


"WHERE is my SUNDAY paper?!"
The irate customer calling the newspaper office loudly demanded to know where her Sunday edition was. "Madam," said the newspaper employee, "today is Saturday. The Sunday paper is not delivered until tomorrow, on SUNDAY."

There was quite a long pause on the other end of the phone, followed by a ray of recognition as she was heard to mutter, "Well, darn, that explains why no one was at church either."

 

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses the new CFPB Rule combining TILA & RESPA disclosures. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

 

Rob

 

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2012 Chrisman LLC.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)









                  










Copyright - Rob Chrisman