Yes,
it’s Tuesday already - and football season. Wasn't it just
Memorial Day? Here’s a quick one told to me by a college
football referee in Ohio: "What's 2 and 2?" "In Tennessee, its
3rd and 6."
Are you making money? I hope so, because if you're not making
some ducats in this environment, you might be in the wrong
business. The MBA reported that independent mortgage bankers
(or at least the 305 included in the survey) and mortgage subs
of chartered banks saw their profits surge during the
second quarter of 2012. Ninety-five percent of the firms
posted pre-tax net financial profits in the second quarter of
2012! Read all about here: http://www.mbaa.org/NewsandMedia/PressCenter/81793.htm.
(“In basis points, the average production profit (net
production income) was 107 basis points in the second
quarter, compared to 82 basis points in the first quarter.”)
Speaking
of the MBA, I, and about 600 other folks, will be heading to
Dallas over the weekend for the MBA's "Risk Management and
Quality Assurance Forum." ("Forum" - not to be confused
with a conference, a round table, a pow wow, a congress, or a
convocation.) The forum is divided into four tracks of
concurrent sessions as well as several general sessions
allowing you to focus on the topics that are most valuable to
you and your business: Quality Assurance, Underwriting,
Servicing QC, and Risk Analytics. More information can be
found at http://www.mortgagebankers.org/RMQA12.htm.
I
have been retained by a Sacramento, CA mortgage banker that is
seeking
an experienced Secondary Marketing/ Lock Desk Analyst at
its headquarters to support its aggressive growth plans. The
lender is 100% retail with a purchase transaction focus. They
offer a wide range of loan products including FHA/VA,
Conventional, Jumbo and Reverse mortgages. A candidate should
be able to quickly price out loan scenarios, accurately review
and confirm lock requests and respond clearly and confidently
to other lock desk requests. In addition, the individual will
assist in selling loans to investors, managing hedge positions
and developing/maintaining business unit reports. Please send
confidential inquiries or resumes to me at rchrisman@robchrisman.com.
(And as I mentioned on Saturday, Stearns Lending, Inc. is
holding a job-related open house tomorrow in Southern
California. Stearns is the nations’ 5th largest privately held
mortgage lending institution, and is rapidly expanding its
Fulfillment Operations at its headquarters in Santa Ana, but
is also looking for remote underwriters across the nation. For
more information go to http://stearnscareers.com/open-house/.)
Credit unions aren't dummies, and in the current environment,
with documentation, appraisal, and credit "back to the old
days," and lenders leaving, mortgage lending among credit
unions is on its way up. Volume rose 1.7% to $240.3
billion in the second quarter from $236.4 billion in the
previous quarter, per the National Credit Union Administration
(NCUA). “The credit union industry’s performance further
strengthened in almost every category,” said NCUA Chairman
Debbie Matz. “Assets, earnings, and net worth rose, as
charge-offs, bankruptcy filings, and loan loss reserves
declined." Gains in membership at credit unions continued in
the second quarter, increasing by 643,322 individuals. It is a
record high for the industry, whose 93.1 million members
deposited an additional $2.7 billion in savings at credit
unions in the quarter. Total loans by credit unions have
increased for five consecutive quarters. Credit unions
booked $581.7 billion in outstanding total loans in the second
quarter, up 1.7% from the previous three months.
Well,
we all knew the guarantee fee increase was coming, right?
It is/was generally accepted that Freddie and Fannie
weren't/aren't charging enough to guarantee investors (the
bond holders) a return of their money. Pulled off the web,
"The main component of the guarantee fee is charged to protect
against credit-related losses in the mortgage portfolio (think
of it like MBS insurance), but small sub-fees are also
deducted to cover internal expenses for such services as:
Managing and administering the securitized mortgage pools,
Selling the MBS to investors, Reporting to investors and the
SEC, Maintaining the MBS on the open market, and selling,
general and administrative expense.”
“The
FHFA has directed both GSEs to increase guaranty fee pricing.
In order to comply with this directive, Fannie Mae will
increase the base guaranty fees (i) by 12 basis points for
adjustable rate mortgage loans and fixed rate mortgage loans
with amortization terms greater than 15 years, and (ii) by 6
basis points for fixed rate mortgage loans with amortization
terms of 15 years or less. These increases are applicable to
loans in MBS pools with issue dates on or after December 1,
2012, and will be added to guaranty fees in effect immediately
prior to that. Fannie Mae will also make adjustments to
pricing for loans committed on or after November 1, 2012,
through its whole loan programs, including eCommittingTM,
eCommitONETM, and the Servicing Execution ToolTM (SETTM).”
Suddenly
correspondent lenders across the nation had huge lock days.
Given processing times, lock periods, and lead times, LO’s and
borrowers can expect to see these price changes soon.
Borrowers have seen the average guarantee fee charged by
F&F increased from 26 basis points in 2010 to 28 basis
points in 2011, and then another 10 earlier this year to cover
the Payroll Tax Waiver Extension. Here is the actual bulletin:
http://www.fhfa.gov/webfiles/24259/Gfee083112.pdf.
Will
investors in lower coupon 30-yr MBS’s likely benefit from FHFA
announced g-fee hikes? Stay tuned, but there are two specific
changes: increasing g-fees on loans with tenure greater than
15 years relative to those below. (This is to reduce
cross-subsidies between higher risk loans and lower risk
loans), and increasing g-fees charged to large lenders to
bring them more in line with smaller lenders. One implication
of these changes (assuming that the g-fee increase is applied
across the 30-yr sector) is an additional refinancing
hurdle for lower coupon 30-yr borrowers. Being
for-profit institutions, lenders typically pass on the entire
increase in g-fee to the borrower.
Some
of it was probably priced in already – it is really no
surprise to anyone - but on the Friday before a three day
weekend? FHFA said the change to the g-fee pricing is intended
to encourage greater participation in the mortgage market by
private firms, a goal set in the agency's Strategic Plan for
Enterprise Conservatorships. Acting FHFA Director Edward J.
DeMarco (when will he be promoted to the actual director?)
said "These changes will move Fannie Mae and Freddie Mac
pricing closer to the level one might expect to see if
mortgage credit risk was borne solely by private capital."
As
a word of warning, in previous reports, the FHFA has
repeatedly pointed out that weaker credit borrowers (chiefly
higher LTV and lower FICO) are cross subsidized by better
credit borrowers. FHFA Director DeMarco has indicated the
overall policy position to be in favor of raising g-fees for
these borrowers. That would result in a much steeper loan
level price adjustment (LLPA) matrix across most
characteristics – further inhibiting refinancing but helping
investors in existing MBS.
How
about
some recent industry news?
It
is heavily rumored that Intercap shut down their
wholesale division last week, although I have seen nothing in
writing. Hopefully it is just a rumor.
Chicago’s
Guaranteed Rate announced that it has struck a
strategic alliance with Manhattan Mortgage Co., one of
the largest residential loan brokerage firms in the New York
area. Apparently they have “formed an alliance that will
enhance both firms’ future growth” per NMN. Manhattan Mortgage
was hit by Wells withdrawing from wholesale, and found a ready
partner with Guaranteed Rate who has funded more than $8
billion through June.
Over
in France, the government plans to intervene to rescue Credit
Immobilier
de France after the struggling mortgage lender was hit
by a liquidity crisis following a recent downgrade by credit
rating agency Moody's. CIF's board met on Friday night and
formally demanded government help, the newspaper said. CIF has
about 300 branches throughout France. Supposedly CIF has been
looking for a buyer since at least May after its future was
thrown into doubt by the evaporation of once-cheap funding
from credit markets, on which it depends to finance its
operations. The mortgage lender at this point is most likely
to be wound down with government backing rather than being
sold or revived, the paper said.
Umpqua
Holdings
($11.5B, OR) will buy the parent company of Circle Bank
($322mm, CA) for about $25mm or 1.5x book. The move gives
Umpqua 6 more branches in Northern CA.
A
few weeks ago Mortgage Solutions Financial announced
that it would cease to accept Forward locks for DU Refi Plus
loans as of August 20th and will only accept locks for loans
that have been approved. Lock periods of 15, 30, or 45 days
are available for loans with Ready for Clear to Close status,
and a 45-day period is available for approved loans. Loans
with any other status cannot be locked.
SCBT Financial Corporation entered a definitive merger
agreement with The Savannah Bancorp under which the
former will acquire the latter in a deal valued at $67.1
million. At present, the two serve four common counties in
South Carolina and Georgia; with the closing of the
transaction, SCBT’s network will comprise 87 branches
throughout the Carolinas and Georgia. Financial advisor
Keefe, Bruyette & Woods says that the merge should close
by the end of 2012.
Last
week, in spite of some economic news and a Treasury auction in
the U.S., the markets seemed more concerned about Bernanke’s
speech on Friday. And although he didn’t say too much new, the
fixed-income markets, including mortgages, ended the week at
higher price levels and lower rate levels. Bernanke wisely did
not commit to implementing any additional easing measures
during his speech, but his comments caused investors to raise
their expectations for a third round of Fed asset purchases
(called quantitative easing or QE3). The possibility of
additional monetary stimulus also caused stocks to rally on
Friday – yes, stocks and bonds often improve on the same day.
In
related news, four Fed presidents (out of the twelve
districts) have come out in favor of an open-ended
strategy for bond buying, with three calling for the
program to begin now. Rather than specify a fixed amount of
bonds to purchase by a certain date, such a strategy would
leave the Fed able to announce a pace of purchases that it
could adjust as the economy gets closer to Bernanke’s goals.
“You would be able to react to the incoming data in an
incremental way and not be in a situation where you have to
either drop the bomb or do nothing,” St. Louis Fed President
James Bullard said in an interview last week during the Fed’s
annual monetary policy symposium in Jackson Hole, Wyoming.
“That might take the form of announcing a flow of purchases of
securities per month” that would continue “for as long as
appropriate,” Williams said in an interview at Jackson Hole.
The Fed would then “adjust this program as time goes on,
either to increase it or decrease it, end it sooner or later,
depending on how economic conditions develop.” Perhaps such a
program would be more effective because it “would emphasize
the unlimited nature of the Fed’s balance sheet and that
they’re willing to do as much as necessary.”
For
this week the biggest economic event next week may be the
European Central Bank (ECB) meeting on Thursday. But if you
think about it, these meetings have been long on expectations
and short on actions – I doubt if this one will be any
different. For economic news in the U.S., we're off to the
races today with the ISM Index and Construction Spending (both
at 7AM PST). Tomorrow is some 2nd quarter productivity and
unit labor cost numbers, and on the 6th we have Initial
Jobless Claims, the Challenger Job Cuts, and ADP Employment
Change. Friday the 7th has the monthly employment data.
On
Friday
the U.S. risk-free 10-yr T-note closed at a yield of 1.56%,
and this morning (so far) we’re little changed at 1.57% with
MBS prices nearly unchanged.
WORLD SURVEY BY PHONE
Last month a world-wide survey was conducted by the UN.
The only question asked was: "Could you please give your
honest opinion about solutions to the food shortage in the
rest of the world?"
The survey was a massive failure because of the following:
1. In Eastern Europe they didn't know what "honest" meant.
2. In Western Europe they didn't know what "shortage" meant.
3. In Africa they didn't know what "food" meant.
4. In China they didn't know what "opinion" meant.
5. In the Middle East they didn't know what "solution" meant.
6. In South America they didn't know what "please" meant.
7. In the USA they didn't know what "the rest of the world"
meant.
8. In the UK they hung up as soon as they heard the Indian
accent.
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.
