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Feb. 16, 2011: A primer on the future of, and changes in, the servicing biz; news from HUD, PMI, Stearns, Chase, Kinecta
Rob Chrisman
If you
take away one thing from today's commentary, it should be "don't
pull this stunt on your underwriting manager." hjdM2N2aU">http://www.youtube.com/watch?v>hjdM2N2aU.
It’s worth 30 seconds.
Something else to take away is that the jumbo
market is making baby steps, but at least they're steps. Redwood Trust Inc. is marketing a $280 million
residential mortgage-backed security, the first private deal of
this year, backed by a mix of fixed-rate and adjustable-rate
mortgages. According to news on the issue, the average loan size
is $978,000 and the average FICO score is 775 - pretty similar
to last year's Redwood deal made up of Citi loans. Redwoods is
in its “quiet period,” and probably not adding originating
customers, but if you are originating similar type loans,
consider getting in touch with Redwood Trust later in the
quarter. And please, don't e-mail me asking for
contacts. For complete details on the deal go to http://sec.gov/Archives/edgar/data/1510079/000114420411009020/v211544_fwp.htm
Let’s hope that they
have some loans to fill those securities! Last week
mortgage applications dropped 9.5% to a level last seen in
November 2008. Refinancing activity was down 11.4%, and
now accounts for 64% of new apps, and purchases were down about
6%. Braver Stern Securities wrote that, “with
conforming mortgage rates at (these levels), almost 60% of the
FH/FN mortgage universe does not have an economic incentive to
refinance at the current time. For FHA borrowers this number
is just over 85%.”
I have never seen a
Federal Budget in person, and something tells me that I am not
missing much. Analysts have happily plunged into dissecting the
2012 budget, however, which begins in October (for some reason)
and details are coming out on its housing & mortgage
numbers. The cost of rescuing mortgage giants
Fannie Mae and Freddie Mac is likely to sink to nearly half of
the current cost over the next decade, for example. The
budget estimates keeping Fannie and Freddie afloat will cost $73
billion by 2021, reflecting dividends paid back to the Treasury
Department and is 45% lower than the $131 billion cost to date
and much lower than outside estimates. Fannie and Freddie must
pay 10% dividends on the quarterly cash infusions they receive
from the Treasury, which some argue should just be forgiven,
thus saving them a tremendous amount of ducats. In fact, the
White House estimates that the companies will be paying back
more in dividends by 2013 than they receive in cash infusions
and from 2014 on, the companies are expected to need no more
funding. Turning to HUD, the budget proposal outlines a $48
billion spending program for fiscal year 2012, an increase of
more than $900 million from 2010.
A fellow in secondary marketing wrote to me and said, "When is
technology going to be socially curbed? I love to see people who
spend hours at Starbucks using their iPhones and laptops
suddenly complain about the traffic camera on the busy
intersection. The people in business offices who complain about
having to have a Blackberry with them at all times, are always
the ones who send out emails on Saturday mornings. And cell
phones? Just because you CAN get ahold of me, doesn't mean you
SHOULD."
But technology is
critical to many facets of the mortgage process, not the least
of which is servicing. Recently the Federal Housing Finance
Agency (FHFA), who oversees Freddie & Fannie, has become
very involved in reforming mortgage servicing
rights and due compensation, which in affect sets up a new
payment structure for mortgage servicers in the future. A panel
at the American Securitization Forum conference last week in
Orlando agreed now is a good time to change the fee structure,
because simply put, it seems unfair. Some want to increase it,
others decrease it, and industry vets remember Countrywide
wanting to eliminate it entirely (due to capital issues). As is
known by many servicers & investors, securitizing mortgages,
which helps not only agency but also jumbo and other loan types,
is dependent on a good servicing model - and inefficient
servicing operations are part of what’s holding back new
securitization.
It is not a simple
topic. The industry must make sure that MSR (mortgage servicing
rights) reform doesn't kill the mortgage servicing business in
the revamp, but also that the fees are more relevant to the
actual tasks and suited to the responsibility of the servicer.
Does servicing a current Fannie loan really warrant .25%? Does
servicing a delinquent loan warrant the same .25%? Should the
originator be the only one responsible for the servicing – like
the subprime days of the past? Basel III is scheduled for
implementation in 2014, and at this point MSRs will not count as
common equity for Tier 1 capital – what will that do to BofA,
Wells, and others? The president of Ginnie Mae (Theodore Tozer)
suggested a sliding scale based on constant versus
variable costs.
The servicing rights
for an MBS (MBSR) or most mortgages include receiving both
principal and interest. Currently for agency loans the GSE bonds
have a minimum 25 basis point servicing “piece” retained by the
servicer and used to fund the processing of the principal,
interest, and any delinquencies. The servicer also
receives float on the money received by the homeowner,
since there is a lag between the payment is received and when
the money is due to the investor. It is pennies on individual
loans, but adds up if you have billions in servicing. And of
course servicers receive late fees (some
borrowers are surprisingly regularly late), ancillary
income from other marketing efforts such as credit cards,
insurance, etc., and a good shot at refinancing the
borrower should it come to that. It is truly an
interesting business model, and more & more companies are
looking at it closely.
“I’ve been charged
with murder for killing a man with sandpaper. To be honest I
only intended to rough him up a bit.” According to a recent
research piece by Barclays, servicers may get roughed up a bit
pretty soon. In fact, Barclays suggests that the
FHFA, HUD and the GSEs are much farther along in this process
than many people may realize. The goals include “improving
the servicing of non-performing loans and reducing GSE credit
losses, relieving banks of their capital requirement issues
under Basel 3, and reducing the risk of servicer concentration
in the market.” Barclays’ report states, “Although banks should
face less onerous capital requirements and experience less
earnings volatility under such a structure, the servicing side
of the business is likely to become much less profitable in
future.”
We have three
brand-spankin' new Mortgagee Letters from HUD.
The first introduces a 25 basis point increase to the Annual
Mortgage Insurance Premiums for forward mortgage amortization
terms. It also provides guidance on the validity period of case
numbers and new requirements for requesting them. The second
clarifies and updates existing guidance to mortgagees concerning
refinance transactions for FHA insurance. And the third
announces the FHA servicing lenders’ tier rankings for Round 42.
They were calculated using established criteria for HUD’s Tier
Ranking System (TRS) based on activity during the performance
period from October 1, 2009 through September 30, 2010. (I guess
I wasn't paying attention to Rounds 1-41.) The letters can all
be found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/
The PMI
Group “only” lost $184 million in the 4th
quarter, although it had a 128% increase in new loan insurance
for the period and a slight decline in the number of PMI-insured
U.S. primary loans classified as in default. The loss is less
that than 2009’s 4th quarter loss of $228 million,
but still worse than expected.
Stearns Lending let its brokers know that its
Declining Market Policy has been removed for loans under $417k
in CA, AZ, FL, and NV for loans requiring MI. There are other
restrictions, so check the bulletin.
J.P. Morgan Chase rolled out some new programs
to help military and veteran customers stay in their homes as it
seeks to repair its image after wrongly foreclosing on military
families and overcharging thousands for mortgages. Chase also
recently updated its Reps & Warrants section of its Guide to
“specifically reference the Appraisal Independence Requirements”
under Dodd-Frank and the Appraiser Independence Requirements
issued by Fannie Mae and Freddie Mac to replace HVCC. Chase, as
have others, temporarily suspended temporary buydown loans until
regulators address paperwork issues. And Chase decreased the
price adjustment for Agency Fixed Rate High Balance loans,
improving pricing by .375.
Kinecta Federal
Credit Union
announced the rollout of FHA 15- and 30-year fixed rate
products. “Business Partners must obtain separate approval to
originate FHA loans. Products are eligible in the following
states: CO, IL, IN, KS, MI, MN, MO, ND, NE, OH, OK, SD and WI.”
For economic news
today we’ve had Housing Starts were up 14.6%. But Building
Permits were down 10.4%. The Producer Price for January was
+.8%, as expected, although ex-food & energy it was +.5% -
the biggest jump since 2008. The Consumer Price Index comes out
tomorrow, and we’ll be able to see if these price pressures have
come down the consumer level. We find the 10-yr at
3.63%, and MBS prices very similar to where they closed
Tuesday.
Dear Abby,
I have never written to you before, but I really need your
advice. I have suspected for some time now that my wife has been
cheating on me. The usual signs; phone rings but if I answer,
the caller hangs up. My wife has been going out with 'the girls'
a lot recently although when I ask their names she always says,
just some friends from work, you don't know them.
I try to stay awake and watch for her when she comes home, but I
usually fall asleep.
Anyway, I have never broached the subject with my wife. I think
deep down I just did not want to know the truth, but last night
she went out again and I decided to finally check on her around
midnight, I hid in the garage behind my golf clubs so I could
get a good view of the whole street when she arrived home from a
night out with “the girls.”
When she got out of the car she was buttoning up her blouse,
which was open, and she took her panties out of her purse and
slipped them on. It was at that moment, crouching behind my golf
clubs, that I noticed a hairline crack where the grip meets the
graphite shaft on my TaylorMade 460 driver. Is this something I
can fix myself or should I take it back to the PGA Superstore?
Signed - Concerned Golfer
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