|
Jun. 14, 2011: One take on diminished broker role; investors preparing for loan limit cuts; FHFA's report on Fannie & Freddie
Rob Chrisman
The
parent of Marie Callender's restaurants (around since 1964), and
which also owns Perkins Restaurants & Bakeries, has filed
for bankruptcy protection and closed 31 locations nationwide.
Wendy's/Arby's Group has cut a deal to “unload” most of its
Arby's chain on private-equity firm Roark Capital Group in a
deal valued at $430 million. There are 3,600 Arby’s (the name
coming from “America’s Roast Beef Yes Sir”). And "the roof's
caving in on Bank of America"? NY Post: http://www.nypost.com/p/news/business/roof_caving_on_bofa_oz53ZdeJD8rBA1MGJ0RH0L?
Meanwhile, Facebook, according to CNBC, is likely to go public
by the first quarter of 2012 at a valuation that could be pegged
at north of $100 billion. People don’t have to
eat, but they have to socialize on-line?
Thousands of text
books have been written about why interest rates go up and
down. Yes, an expanding economy often pushes rates higher,
but often rates move based on supply and demand. Just like how
the lack of demand for a purple Ford Pinto forces the price
lower, if the demand for US securities drops, that
may push prices down, and thus rates higher. The story may
be coming to a theater near you this summer: http://www.reuters.com/article/2011/06/12/us-banks-usa-treasuries-idUSTRE75B2JH20110612.
World economies are struggling, debt in the US is mounting,
mortgage bankers are grappling with disclosure, buyback, and
volume issues, banks are holding huge amounts of cash reserves
in case the "worst case scenario" hits, and...NMLS is reminding
everyone that "the NMLS Approved Course Provider logo
will no longer be authorized for use after July 1, 2011.
Providers who are currently using the logo on their web site
and/or are using it in marketing materials should begin the
process to remove it. We are currently finalizing the new
approved course logo and anticipate starting to send the updated
logo to providers the first week of July. To deter unauthorized
use, the new logo design incorporates the unique course ID
number and a digital watermark."
Life is tough when even the agency set up to regulate you seems
to not only take the credit for your improved performance, but
then indicates it would rather you went away: http://www.bloomberg.com/news/2011-06-13/fannie-mae-freddie-mac-remain-risks-to-taxpayers-u-s-regulator-reports.html.
Yesterday the
commentary mentioned a report stating that broker business was
down to about 7% of total originations. Say what you will about
how mortgage production statistics are tabulated, broker
business is down. What is the "investor chatter" out there
with regard to broker business? Barclays released a piece
reminding us that for brokers, “The new loan compensation
guidelines, which went into effect on April 1, have several key
provisions that limit the types of compensation that they can
receive. Yield spread premiums are prohibited. Compensation
based on loan characteristics or terms is prohibited, other than
the loan balance. Only the borrower or the lender, but not both,
may compensate the loan originator for making a loan. A broker
can no longer receive fees from both parties. Overall, these
changes seek to eliminate the incentives for originators’
steering borrowers into riskier loans for financial gain. While
correspondents, and retail lenders are somewhat affected by
these rules, they substantially restrict the previously existing
business model for brokers.”
The piece goes on.
“The pullback in wholesale lending has already reduced the
broker share in recent years, and the change in originator
compensation rules looks to do more of the same. Under the new
guidelines, most of the economics for brokers are permanently
impaired and, consequently, should result in further shrinkage
of the broker channel. As third-party origination in general
looks to decline with these changes, it suggests that overall
prepayments could be somewhat less, all else being held equal.
As broker and correspondent originated loans tend to be more
reactive to rates, their declining share should somewhat temper
the refinancing response. With most other profit channels shut
off, we expect brokers and correspondents to increase their
focus on high balance loans. While they have done so in
the past, the new regulations suggest that the loan size
prepayment gradient for TPO collateral could steepen sharply.”
The term "girding
your loins" is a little dramatic, but investors everywhere
are setting up for the loan limit changes. PHH (#5
in originations in the first quarter of 2011 – where did they
come from?) reminded clients that, “The current Conforming Plus
and FHA maximum mortgage limits apply to loans closed within the
government’s current fiscal year which ends on September 30,
2011. Loans that are closed with a Note Date that is on or after
October 1, 2011 will be subject to new loan limits which will be
lower in many areas…PHH will rely on the correspondent to verify
a loan is within allowable limits. Any loan not meeting GSE or
FHA limits will be ineligible for delivery/purchase.” And high
balance loans underwritten on its system after 7/1 will receive
a warning, “Maximum loan amounts are established by federal law
and are subject to change on 10/01/11. Correspondent must insure
a loan is within these mandated limits based on property
location and closing/note date as required by the GSEs/HUD.”
In preparation for
the loan amount changes, PHH ended its 120 lock option on June 3rd
for loans above a certain balance in its Conforming Plus and FHA
sectors. “As September 30th approaches, PHH will continue to
modify the available lock lengths. However, to maximize lock
option availability, the 30-90 day options will be handled
differently. Availability will be based on the limits FHFA and
HUD have established for loans closed between October 1, 2011
and December 31, 2011. 30-90 day lock options will remain
available for loans within the new limits.”
PHH has also been
busy in other areas. About a month ago it announced a change in
the process for delivery of collateral documents (“Complete
collateral document packages must be delivered to PHH’s document
custodian, Bank of New York Mellon”). PHH also delivered an
extensive closed loan checklist to its clients, and recently
announced the introduction of its 5/1 VA ARM and new suite of
"conforming plus" products: 7/1 ARM, 7/1 ARM IO, 10/1 ARM and
10/1 ARM IO.
Over at Fifth
Third (#13 in the industry in the first quarter in
originations), with the decrease in rates, the wholesale float
down policy is being revised starting today. “The intent of this
policy is to assist brokers in the event a borrower demands a
lower rate and is not intended to solely improve pricing to the
borrower.” Brokers were provided with the e-mail and fax for the
request, and the transaction must meet certain terms. “The rate
must be lowered at least an .125 with the execution of a float
down, the loan must be conditionally or fully approved status,
15 day and 30 day float down option is available (15 day float
down is only available on a Fully Approved loan, while a 30 day
float down is available on a Conditionally Approved loan), and
so forth. Brokers can only do it once, and program changes can
be made. “Broker income cannot improve through float down
execution on Borrower Paid compensation option and cannot change
on Lender Paid compensation option…All pricing improvement will
be credited to the borrower, the compensation option (Lender or
Borrower Paid) cannot be changed after float down execution.”
Bank of America issued a note on the
signature requirements for “Non-Titled Spouse Notice of Right to
Cancel (NRTC).” BofA also issued disaster updates for Alabama
and Tennessee.
CitiMortgage spread the word to
brokers on “Common Reasons for Declined Loans.” It was good to
see, although none were a shock. “Reasons Related to
Insufficient Income/Funds - Insufficient income for mortgage
obligations and for total obligations, insufficient funds to
close the loan, insufficient stability of income, lack of cash
reserves.” Also listed were Citi’s underwriters unable to verify
income, assets, residence or occupancy, or credit references.
Lastly, additional common reasons for declining loans were an
incomplete credit application, the CLTV/HCLTV exceeds maximum
allowed, unable to verify employment, and ineligible property
type(s).
Turning to the
markets, yesterday MBS prices were unchanged although traders
reported higher-than-average volumes. “J.P. Morgan anticipates
that buying from banks and REITs will more than offset the
dealer positions, while a new quarter and month will bring in
some balance sheet space.” The 10-yr ended at 2.99% with no
substantive news.
But today we’ve had
Retail Sales for May at -.2%, ex-auto +.3%. RS was close to
expectations but still a negative number. May PPI was +.2%,
ex-food & energy +.2%, a little stronger than expected. The
inflation gauges Producer and Consumer Price Indexes are
expected to confirm the Fed’s belief that inflation is not a
threat at this time and is expected to remain a nonevent for
some time given the economic growth slowdown. Later this morning
we have Business Inventories – hardly a market mover but is seen
+0.9%. After the early numbers stocks are pointing higher,
the 10-yr is at 3.06% and agency mortgage prices are worse by
.250.
A blonde calls Delta Airlines and asks, "Can you tell me how
long it'll take to fly from San Francisco to New York City?"
The agent replies, "Just a minute."
"Thank you," the blonde says, and hangs up.
|
