Nov. 2, 2012: Redwood Trust continues growth; National Mortgage Database; Sandy & warehouse banks; do mortgage brokers add value?
Rob Chrisman
"Spring
ahead, fall back!" Sunday morning, folks in most states will
receive an extra hour of snooze time!
What's the difference between a hurricane and a "superstorm?"
Well, Sandy was a hurricane that turned into a superstorm when
it, laden with energy and moisture from the tropical Atlantic,
combined with a winter storm fuelled by the southward plunge
of Arctic air. Although late-season hurricanes sometimes
undergo a similar “extra-tropical transition” as they travel
up from the tropics, this normally happens safely out to sea
over the Atlantic. Sandy’s path is extremely unusual because a
static area of high pressure south of Greenland has blocked
the jet stream route northeastward across the ocean and
instead forced the hurricane into the continental US. But now,
supposedly, insurance companies are on the defensive. I don't
profess to know the details, but apparently there is a
difference between storm insurance, hurricane insurance, and
flood insurance. And what the press is calling the event from
earlier this week seems to be changing. If that is true,
it is unfortunate that a home owner's or lender's coverage
turns on the term or phrase used.
What, in general, are warehouse lenders doing about the
damaged residences/collateral? "Warehouse providers all seem
to have a little different twist on their practices depending
on the type of portfolio clients they have. Assuming a smaller
possibly less sophisticated borrower, or where the warehouse
provider actually underwrites or re-underwrites the loans,
they may require an actual 442's (re-certs) as required by
their investors. But some warehouse providers will require a
notation on their monthly compliance that stipulates they meet
all investor requirements and certify to that degree. If the
particular clients are more sophisticated and financially more
stable (a relative definition), the warehouse provider may
depend on them to have the necessary requirements met for they
should know what their investors require. In many cases
because if the loan is deemed unsalable, the lender will have
to buy it off the line." Thank you Jerry D.!
"Rob, I thought your information on LO and branches was spot
on. One thing that people should keep in mind is in the
current RESPA environment, if we draw docs, and the
borrower decides they want more cash because of the holidays
coming up, then we have to re-disclose, and that makes us blow
through the lock period, so we need an extension for a week or
so, and it costs us 5 basis points a day, but the minimum is 5
days so suddenly we're down .250... The list goes on and on!"
This
led to a comment about mortgage brokers. “I am tired of
brokers being considered the ‘underbelly’ of the lending
world. The wholesale model, if done prudently, is a viable
model, especially as the lender controls the process. Why
should the mortgage broker be allowed to continue their
existence? The first and simplest answers are
professionalism and cost. The MLO for a broker or small banker
is licensed, background checks and educated. The SAFE Act has
transformed the broker/ banker MLO into a heavily regulated
professional with a license at risk. Further, the use of a
mortgage broker is generally cheaper than that of a banking
institution. Cost can be derived in a number of manners: speed
to closing, advice on rate locks, interest rate, credits, fees
charged, professional guidance through the process and
outright cost of the transaction in pure dollars.
“Secondly,
when the mortgage markets seemed to come apart, the access to
credit rapidly diminished. The demand by the brokers to
operate as conduits for varying clientele and developing new
sources of credit for the consumer became paramount. As the
capital markets recognized the demand, there were a large
number of wholesale operations increasing in a rapid manner to
fill the void. Without brokers this would have been missed or
diminished. There is room in the market place for all aspects
of originators. The greater the competition among the varying
groups the better pricing, availability and programs for the
consumer.
“And
third, brokers allow for a stronger banking system from the
bottom on up. Brokers allow community and regional banks
access to areas of the country that would otherwise not be
financially advantageous for the lending institutions to
establish a presence. This also allows community and regional
banks to diversify their portfolios across counties, states or
even regions of the nation, with minimal cost for physical
presence or increased operational expenses.
“I
will finish up by saying brokers should exist because we live
and work in our community. Many have been operating as small
businesses in the same community for 20-30 years. Bank LOs and
retail LO’s come and go, yet we have a vested interest in our
community. The SAFE Act further solidified this fact and
commitment. If it weren’t for brokers serving their
communities, especially undeserved areas, many consumers would
not have the opportunity or the access to credit to buy a
home. We offer more products and options, better service and
better rates than most bank LO’s. Our experience in lending
and the community is unmatched. We service minority borrowers
better than bank LO’s and we do it with much lower rates.”
This
commentary has often mentioned the ability for residential MBS
holds to drill down during their due diligence and track the
performance of LO loans based on NMLS numbers. Data is
critical, and Adam Quinones from Thomson Reuters wrote
yesterday, “FHFA and CFPB Partner on Development of
National Mortgage Database: Initiative will help
streamline disparate datasets and support regulators’ efforts
to monitor the market. The National Mortgage Database will
include information spanning the life of a mortgage loan from
origination through servicing and include a variety of
borrower characteristics. Specifically, the database will
include loan-level data about the mortgage including: the
borrower’s financial and credit profile; the mortgage product
and terms; the property purchased or refinanced; and the
ongoing payment history of the loan. Data will be updated on a
monthly basis and track as far back as 1998.” Here is the
announcement: http://www.fhfa.gov/webfiles/24621/NMDFHFACFPB110112F.pdf.
He goes on. “This FHFA announcement gives stakeholders equal
access to a benchmark database of mortgage/housing
information. This benchmark database will be the standard
starting point for all mortgage and housing related analysis.
Whether you’re forecasting production volume by MSA or running
cash-flows in your MSR model, this data provides perspective
from origination to securitization to cash-flow optimization.
This is a BIG STEP toward improving investor confidence in US
housing finance.”
How about some investor news?
Redwood
Trust announced its 3rd quarter earnings. It,
like practically anyone else in the lending arena these days,
is making money. It had earnings per share of $0.48 and
operating EPS of $0.36. Operating EPS excludes $13.9 million
($0.17 per share) in realized gains and $3.5 million of
negative market value adjustments (-$0.04 per share). Total
REIT taxable income was $0.21 which included $0.02 of income
from the taxable REIT subsidiary (TRS). While mortgage banking
income benefited from an accounting change as the company
started marking balance sheet loans to market, the increase in
valuation reflects the improved profitability of these loans
and would otherwise be realized through higher gain-on-sale
margins. At the end of 3Q, the company had 49 active
sellers of loans to the conduit, an increase of 12 from
2Q12. Redwood expects this number to increase to 55 by
year-end and noted that it is in negotiations with 46
other sellers, most of whom are likely to become active
sellers in the near term. The company is also in the
process of becoming a licensed seller/servicer for the GSEs
and expects to be offering loans in this market by early 2013.
Redwood completed a $313 million securitization of prime jumbo
loans and closed a $320 million securitization after quarter
end. The company also completed two whole loan sales totaling
$53 million during 3Q.
Kinecta reminds clients that all wholesale and
correspondent loans must be accompanied by a Loan File
Submission Form that has been signed by the respective
business partner upon submission. The representations
certified on this form are key in ensuring that files comply
with regulation.
M&T Bank has amended its guidelines on removing
co-borrowers from the note for all HARP loans as per recent
changes to the program. Relief Refinance and Refi Plus
borrowers must be qualified according to the guidelines used
for payment increases over 20%, and the respective requirement
of removing the co-borrower from the deed and title has been
eliminated. For Open Access and DU Refi Plus condo projects,
M&T is no longer requiring reviews except to verify that
the project is not a hotel, houseboat, or timeshare and does
not have segmented ownership. However, M&T will not be
adopting the appraisal revisions outlined in the Fannie and
Freddie updates.
M&T has announced that it will permit the use of Hardest
Hit Fund resources with HARP loans provided that the HHF funds
are used to pay down financing costs and don’t result in a
lien being placed on a property. The loan file should include
a copy of the promissory note, and the HUD-1 should provide
evidence of the transfer of the funds from the relevant
Housing Finance Agency. In cases where there is repayment and
the HARP application requires borrower qualification, the
monthly payment must be included in the monthly total DTI
ratio. M&T will not accept any Hardest Hit Fund program
transactions that require matching dollars.
We had a lot of news yesterday, and it tended to push rates
higher. There is still too much going on with Sandy, today’s
unemployment data, and the election I guess. Jobless Claims
fell 9,000 to 363,000, the fewest in three weeks, and less
than the forecast for 370,000. The four-week moving average, a
less-volatile measure, fell to 367,250 from 368,750. Non-Farm
Productivity rose at a 1.9% annual rate in 3Q2012, and Unit
labor costs decreased 0.1% as hourly compensation increased
1.8%. Unit labor costs have risen 1.1% over the last four
quarters. Construction Spending increased 0.6% in September
and is up 7.8% year over year. Private construction rose
1.3%, and residential construction was up 2.8%. And lastly the
Institute for Supply Management Factory Index climbed to 51.7
in October, the highest since May.
Of
more importance to the MBS markets, however, was the usual
Thursday afternoon announcement by the Fed about its purchases
for the week. Fed purchases dropped to $13.4 billion, with a
slight shift into conventional 30’s from 15’s. This amount was
lower than the $15-16bn in each of the last few weeks due to
market closes related to Hurricane Sandy. The Fed shifted
slightly towards 30’s over 15’s, with conventional 30’s
comprising 62% of the week's purchases versus 60% last week.
The Fed increased its gross purchases of 30yr conventional
3.5’s to 22% of the total compared to 18% the prior week. 3%
coupons declined by 1% to 58% of the total. Purchases of 15-yr
conventional 2.5’s declined by 3% to 16% of gross purchases.
Overall purchases of 15-yr conventionals also declined to 19%
from 21% the prior week. The purchase share of Ginnie 30-yr
3’s remained steady near 15%, while 3.5s remained near 4%, but
the Fed continued to stay out of the Ginnie 15-yr sector.
By
the end of Thursday prices on current coupon agency MBS were
worse by about .250, and the 10-yr closed at 1.72%. But that
was yesterday, and this morning we’ve had the unemployment
data. Nonfarm Payrolls were projected at +125k while the
unemployment rate is expected to tick higher to 7.9% from
7.8%. The numbers actually came in at +171k, with some
back-month revisions higher, and the unemployment rate came in
at 7.9% as expected. Early on the 10-yr is up to 1.77% and
MBS prices are worse .125-.250.
He asked me, “Why are married women heavier than single
women?”
I said to him, “Single women come home, see what's in the
fridge and go to bed. Married women come home, see what's in
bed and go to the fridge.”
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 some of the considerations facing
the FHFA regarding Fannie and Freddie. 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.
