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May 4, 2012: Freddie's 1st quarter buyback totals; EverBank & PennyMac lots of M&A in the news; the CFPB & diversity
Rob Chrisman
Tomorrow
is
Cinco de Mayo, hence the real-life, true, yes, really true, well
kind of true tale at the end of the commentary. Anyway,
tomorrow celebrates the legendary Battle of Puebla on May 5,
1862, in which a Mexican force of 4,500 men faced 6,000
well-trained French soldiers. The battle lasted four hours and
ended in a victory for the Mexican army under Gen. Ignacio
Zaragoza. Along with Mexican Independence Day on Sept. 16, Cinco
de Mayo has become a time to celebrate Mexican heritage and
culture. This is important, given that there are nearly 32
million U.S. residents of Mexican origin living here, or
63% of the total Hispanic population (up from about 21 million
only ten years ago), and 61% of those with Mexican heritage live
in California. The median age of this population is only 25
years old, versus 37 for the entire U.S.! (The rumor that the
descendants of the defeated French went on to establish the
current regulatory environment for mortgage bankers is
unfounded.)
With its guarantee fee announcement, Fannie Mae really gave
those of us going to the MBA's National Secondary conference
something to talk about. One hopes that it will not be applied
retroactively. (Can you imagine receiving a letter saying,
"We're raising the g-fee on your production for the last year by
5 basis points, so send us a check for..."?) But many are quick
to point out that the first sentence says, “Fannie Mae is
updating the terms that pertain to Fannie Mae’s ability to
change the pricing applicable to lenders’ deliveries of mortgage
loans under the standard Selling Guide provisions as well as
under any existing Master Agreements and related MBS contracts."
Attorney Brian Levy wrote, "No one really ever thought that
repurchase remedies would be used on loans that had errors that
were not material to the loss either, but that all changed when
people tried to figure out how to pin losses on someone else.
Unless they clarify their intentions in writing, I would not be
complacent assuming that Fannie will not use this Announcement
to change deals after they close."
There may be a little good news out there, if you look hard
enough. The CFPB
outlined how the bank regulators plan to implement a mandate
in the Dodd-Frank Act to promote diversity in the
workplace at financial institutions through the Office of
Minority and Women Inclusion (OMWI). Dodd-Frank also called on
the regulators to jointly develop standards for assessing
diversity policies at the institutions that each regulator
oversees. Stuart Ishimaru is now the head of the CFPB's
diversity office, bureau officials said the banking regulators
may soon collect from banks information about their diversity
practices as part of the process for developing best practices.
Per an article in the American Banker, "None of the diversity
offices within the regulatory agencies have authority to write
rules or require bank or nonbanks to change their hiring
practices or other diversity-related policies...The CFPB
plans to work with banks and nonbanks, as well as other
regulators with similar office - including the OCC, FDIC,
Federal Reserve Board, and the FHFA to develop the standards
over time." The office is also responsible for developing
similar standards for the diversity of the CFPB's workforce,
including senior management, and increasing participation of
minority- and women-owned businesses in the agency's programs
and contracts. (http://www.americanbanker.com)
Some wonder why CFPB
enforcement lawyers are accompanying CFPB examiners on CFPB
exams. According to news reports, Mr. Cordray stated that
the practice is intended to allow supervisory and enforcement
staffs to learn more about how each other operates. He was
quoted as saying that the CFPB wants “the supervision teams to
understand where enforcement works and why and how” and that the
CFPB also wants “the enforcement team to understand how
supervision and examinations work.” Critics, however, noted that
the reasoning had changed from the earlier explanation, which
was that (per Deepak Gupta, formerly the CFPB’s Senior Counsel
for Enforcement Strategy) the enforcement lawyers were being
sent to exams to provide legal advice to the examiners, who are
non-lawyers. Those critics suggest that the CFPB’s practice and
the purpose of the exams is to obtain information and documents
that the CFPB can use to initiate enforcement actions.
Hey, hats off to
EverBank, which went public yesterday at $10/share: http://www.bloomberg.com/apps/news?pidconewsstory&tkrEVER:US&sidakJIkutlqqS0.
Many in the industry are seeking to raise capital for things
like financing mortgage servicing rights (MSR's) through other
means, and EverBank went public for other reasons, but it is
still a positive for the biz.
The financial services mergers & acquisitions wires have
been humming lately. In Maine Camden National Bank
is buying 15 branches from Bank of America, picking up $414
million in deposits at a 3.70% premium. Bar Harbor B&T
will purchase Border Trust Company for 97% of tangible book
(3.9% premium on its loans) - it’s the first acquisition in Bar
Harbor’s 125 year history. In California, PacWest Bancorp will
purchase American Perspective Bank for $58 million in cash, or
about 1.4x tangible book. On the Eastern Seaboard the Bank of
Hampton Roads (VA) will sell 3 branches to First Bancorp (NC).
The parent of Encore
National (FL) has agreed to purchase a substantial amount
of Royal Palm Bank (FL) from Mercantile Bancorp (IL) to include
branches, loans and deposits.
Investment banker KBW
announced its participation in a few deals of late. Public
company Independent Bank Corp., parent of Rockland Trust
Company, and Central Bancorp, Inc., parent of Central Bank,
jointly announced the signing of a definitive agreement under
which Independent Bank
will acquire Central Bancorp, and Rockland Trust Company
will acquire Central Bank. KBW also helped with Brynn Mawr Bank
(parent of The Bryn Mawr Trust Company)’s plan to acquire
certain consumer and business deposit and loan accounts, along
with a branch location, from the First Bank of Delaware.
In fact, Banc Investment
Daily reports that, "Of the 31 banks that disclosed sale
prices in 2012, the average price to tangible book was 1.16x up
from 1.08x last year. Deal flow is now 31% ahead of last year
based on the number of transactions and 28% ahead based on
volume."
What
is Freddie Mac’s tangible book value? Good question (don’t ask
me!), but Freddie Mac
has reported net income for the first quarter of 2012 of $577
million, down from $619 million in the 4th
quarter of 2011, and comprehensive income of $1.79
billion. Freddie will request a draw from the U.S. Treasury of
$19 million, but only because of its dividend obligation to the
Treasury under which it will be paying back $1.81 billion. The
net income dropped slightly due to higher derivative losses and
lower net interest income, although it was partially offset by a
decrease in the provision for credit losses related to
single-family loans.
Taking
a step back, including the 1st quarter Freddie has
received about $72 billion in support from the U.S. Treasury
since 8/08. At the same time it has paid, under its Senior
Preferred Stock Purchase Agreement, a total of roughly $18
billion in dividends to the government, resulting in net draws
of $54.0 billion. The dividends do not reduce the draw principal
balance, but to the best of my knowledge are pure interest and
do not reduce the draw balance. Us Average Joe’s see the
press report the total draw amount, but has to dig a little to
see how much in dividends have been paid to the
government/taxpayer.
But
lenders have their eye on buybacks, and for
Freddie, its pending requests to lenders for refunds on faulty
mortgages rose about 19%
in the first quarter to $3.2 billion. This includes 38%
that were outstanding for more than four months – in other words
the unpaid balance on requests to sellers and servicers of
single-family home loans, and the increase is measured from the
end of 2011. The total decreased from $3.4 billion in the first
quarter of last year.
Yesterday
PennyMac Mortgage
Investment Trust reported net income of $19.1 million for
the first quarter of 2012, on net investment income of $46.6
million. Basically its financial picture is shaped by two
channels: investment activities and correspondent lending.
Correspondent funding volumes reached $1.8 billion for the
quarter and interest rate lock commitments (IRLCs) were over
$2.4 billion, both up for the quarter. Of total correspondent
fundings, conventional loans amounted to $992 million, FHA loans
were $795 million, and jumbo loans were $5 million. Pretax
income attributable to the correspondent lending segment was
$10.3 million for the quarter, primarily resulting from a $13.4
million net gain on mortgage loans acquired for sale and $2.8
million of interest income.
Turning
our attention to the markets, yesterday we had a spate
of news which still didn’t move the 10-yr. or MBS prices out
of their recent ranges. (The 10-yr closed at 1.92%.)
Initial jobless claims dropped by 27,000 to 365,000 in the week
ended April 28, the biggest drop in a year and following three
weeks of disappointingly high readings. And Non-Farm
Productivity declined 0.5% in the first quarter while Unit Labor
Costs increased 2%. And the Institute for Supply Management
Service Index fell to 53.5 in April from 56.0 in March,
“rekindling” some concerns about the endurance of the U.S.
economic recovery. Mortgage banker selling was apparently easily
consumed by the usual Fed, REIT, money managers, and hedge fund
buying. (The Fed is buying over 70% of supply.)
The
market was unchanged prior to the 5:30AM PST unemployment data.
Non-farm Payrolls were only up 115k versus a revised +154k,
revised up by 34k, for March. (February was also revised higher,
from +240k to 259k.) So although the number was much less than
expected, i.e., fewer people have jobs than want them, the back
month revisions basically make up for it. The Unemployment Rate
dropped to 8.1%, the lowest since January of 2009, but the size
of the labor force is decreasing. Lastly, the average workweek
was unchanged, as were hourly earnings. So after the numbers, in
the early going… rates
have slid slightly higher with a 10-yr yield of 1.94% and MBS
price maybe worse by .125. We’re still pretty much where
we’ve been most of the week.
Most people don’t know that in 1912, Hellmann’s mayonnaise was
manufactured in England. In fact, the Titanic was carrying
12,000 jars of the condiment scheduled for delivery in Vera
Cruz, Mexico, which was to have been the next port of call for
the great ship after its stop in New York.
This would have been the largest single shipment of mayonnaise
ever delivered to Mexico. But as we know, the great ship did not
make it to New York. The ship hit an iceberg and sank, and the
cargo was lost forever.
The people of Mexico, who were crazy about mayonnaise, and were
eagerly awaiting its delivery, were disconsolate at the loss.
Their anguish was so great that they declared a National Day of
Mourning, which they still observe to this day.
The National Day of Mourning occurs each year on May 5th and is
known, of course, as Sinko de Mayo.
If
you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at
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