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.
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.
