Feb. 2, 2013: FDIC Advisory Committee; Trends in Fannie, Freddie, and Nationstar securitiziation
Rob Chrisman



 

The Federal Deposit Insurance Corporation (FDIC) has announced the selection of eight new members for its Advisory Committee on Community Banking, which has been providing advice and recommendations to the FDIC on a broad range of community bank policy and regulatory matters since it was established in 2009. The Advisory Committee members represent a cross-section of community bankers from around the country. The new members of the Advisory Committee are: Cynthia L. Blankenship, Vice President and COO, Bank of the West, Grapevine, Texas; Leonel Castillo, President and CEO, American Bank of Commerce, Provo, Utah; Jane Haskin, President and CEO, First Bethany Bancorp. Inc., Bethany, Oklahoma; Mark Hesser, President, Pinnacle Bank, Lincoln, Nebraska; James Lundy, Chief Executive Officer, Western Alliance Bank, Phoenix, Arizona; Kim D. Saunders, President, CEO and Director, Mechanics & Farmers Bank, Durham, North Carolina; David Seleski, President, CEO and Director, Stonegate Bank, Fort Lauderdale, Florida; Derek Williams, President and CEO, First Peoples Bank, Pine Mountain, Georgia.

 

The new members will join the following individuals already serving on the committee: Robert F. Baronner, Jr., President and CEO, Bank of Charles Town, Charles Town, West Virginia; Carolyn “Betsy” Flynn, President and CEO, Community Financial Services Bank, Benton, Kentucky; Walter E. Grady, President and CEO, Seaway Bank & Trust, Chicago, Illinois; Ann Marie Mehlum, President and CEO, Summit Bank, Eugene, Oregon; Joseph G. Pierce, President and CEO, Farmers State Bank, Lagrange, Indiana; Dorothy A. Savarese, President and CEO, Cape Cod Five Cents Savings Bank, Orleans, Massachusetts; Alan Thian, President and CEO, Royal Business Bank, Los Angeles, California.

 

We all know that without demand by investors for fixed income securities (like mortgages, and mortgage-backed securities) the home loan lending process would be dramatically different. Investors and lenders use MBS prices to set rate sheet prices that directly impact borrowers. And traders keenly watch the price movement of Ginnies, Fannies, and Freddies to ascertain the supply and demand dynamics.

 

Late last week one trader wrote, “The Gold/Fannie swaps continue to move in Fannies favor especially in the production 30yr coupons 3%, 3.5%, and 4%. The 3% coupon widened 1/32 closing -14+; the 3.5% coupon widened 2.75/32 closing at -11.75 and the 4% coupon widened 1.25/32 closing -9.  The impetus for this continued widening of the Gold/Fannie swap seems to just be a lack of buyers other than the Fed in Gold securities. Even with the Fed increasing its percentage of Gold securities to 44% this week versus a recent historical average of 33% per week the spreads still continue to leak wider.” If true, that is obviously not good news for Freddie securities.

 

Regarding Freddie Mac, after climbing into positive territory for the first time in two years, Freddie Mac's total mortgage portfolio decreased in December, shrinking at an annualized rate of 13% in the year’s final month from $1.98 trillion to $1.96 trillion, bringing 2012’s average monthly growth rate to -6%. Freddie Mac’s purchase and issuance activity was about $33.6 billion in December, a little more than half of what was reported for November. Purchase and issuance volume for all of 2012 was about $474 billion. Mortgage-related securities and other guarantee commitments shrank at an annualized rate of 13% in December—the greatest rate of contraction recorded all year. The average annualized rate of growth in 2012 was -3.7%. Freddie Mac’s single-family refinance loan purchase and guarantee volume was $22.5 billion in December, representing about 67% of its total mortgage portfolio purchases and issuances, with single-family seriously delinquency remained flat in December with a rate of 3%. The multifamily delinquency rate fell considerably, dropping to a 2012 low of 0.19 percent. According to Freddie Mac, the total number of loan modifications in its portfolio was 6,288 in December, down almost 400 from November. The GSE recorded 69,581 modifications throughout 2012.

 

Many lenders sell loans to an aggregator (like Wells or Chase or PHH) who in turns either issues their own securities or sells the whole loans to Freddie or Fannie, who in turn often issues their own securities. Lenders who are recently approved by the agencies to sell loans are usually limited in their execution, and in turn sell whole loans to the agencies rather than issue securities in their own name (kind of a “training wheels” stage).

 

Once a lender has the option to sell loans to Fannie’s window, in this example, or securitize themselves, it is important to have an overview of the MBS pool purchase contract process. For Fannie, a lender must obtain a pool purchase contract before it can deliver mortgages into a single-lender MBS pool or a Fannie Majors. The pool purchase contract evidences an agreement between Fannie Mae and a lender to buy and sell, respectively, mortgages for inclusion in a particular MBS pool. These contracts set forth the terms and conditions for delivery of specified mortgages for MBS. A lender must have a Master Agreement with Fannie Mae in order to obtain a pool purchase contract. Fannie Mae considers a number of factors prior to issuing an MBS pool purchase contract to a lender. “These factors include, but are not limited to, the following: the expertise of the lender's management in securitization, whether the lender's operational processes support MBS delivery and servicing requirements, the lender's ability to manage and maintain a delivery process that ensures the delivery of accurate data to Fannie Mae, the lender's prepayment speeds, and the lender's performance against outstanding Fannie Mae obligations.”

 

As some lenders have discovered, Fannie Mae does not accept requests for MBS pool purchase contracts from lenders whose selling or servicing privileges have been suspended or that have not performed satisfactorily under other pool purchase contracts.

 

While we’re discussing securities, Nationstar announced that they propose to sell securities backed by their P&I (principal and interest) and other fees - advances receivable? It is an interesting way to finance purchased servicing as an independent – and S&P seemed to like it. So Nationstar Mortgage Holdings priced a securitization from its special purpose vehicle Nationstar Agency Advance Funding Trust for an estimated $900 million in mortgage servicer advance receivable-backed notes. The Trust’s note issuance is an asset-backed securitization of servicer advance receivables made on Freddie Mac-backed residential loans. The series notes are backed servicing fee advance receivables. In other words, Nationstar is paid to service mortgages, and this deal securitizes those payments. As long as Nationstar can keep forwarding the payment portion to investors, the risk of nonpayment is slim.

 

The initial advance receivables as well as the additional advance receivables are created through the servicer’s advancing obligations under the designated servicing agreements.  Standard & Poor’s pre-rated the first deal of three series for the year – 2013-VF1, 2013-T1 and 2013-T2 -- giving the majority of the deal’s tranches AAA ratings. The deal noted credit enhancement of overcollateralization — where more mortgages sit on the trust sidelines for swapping out — as a structural mechanism strengthening the transaction. Interestingly, receivables from Fannie Mae backed loans can be swapped out of the series, to replace any underperforming Freddie mortgages.

 

For each funding period or payment period during the revolving period, the trust performs a collateral test to maintain a certain level of the overcollateralization of the trust asset. If the collateral test fails, the trust will use funds remaining after paying fees and interest payments to pay down the variable funding notes balance until the test is satisfied.

 

HousingWire writes, “’Receivables are first to get repaid so the principal should be safe," said David Akre, principal at residential loan and servicing capital markets consulting firm Whole Loan Capital. He added, ‘The biggest risk is probably the servicer’s oversight on advances, and their accounting of same.’ S&P ranks Nationstar 'above average' as a residential loan servicer, residential master loan servicer and subprime loan servicer. The company is also ranked average as a residential special servicer; another transaction strength. There is one general reserve account, separating reserve funds for the term notes and variable funding notes – a debt instrument representing borrowed funds which are payable on demand and accrue interest based on the funds. Generally, the reserve funds cover interest and fees. The advance rates are subject to automatic reductions through a trigger advance rate. ‘If the collateral's monthly reimbursement rate declines, the advance rates for the related rating category may decline because of the trigger advance rates, increasing the overcollateralization,’ S&P noted.” For more visit http://www.housingwire.com/news/2013/01/24/nationstar-brings-servicer-advance-securitization-secondary-market.

 

The agency, investor, and vendor news has really increased lately. As always, it is best to read the full bulletin, but these will give you a sense of where things are heading.

 

As per recent guidance, Fifth Third is revising their policy on proceeds used to determine the maximum mortgage amount allowed on LP Open Access transactions.  For loans with LTVs up to 80%, the lesser of 4% or $5000 in closing costs, prepaids, escrows, and financing costs  may be rolled into the new loan amount based on the unpaid principal balance of the loan being refinanced; as a reminder, the closing cost amount used for this calculation can’t be more than the actual cost.  The maximum amount may be up to the application fee if POC plus $250 cash back to the borrower so long as POC fees are clearly documented.  As a reminder, under no circumstance can cash back cannot exceed the maximum amount permitted.  Any Best Efforts that don’t comply with the policy changes should be locked before February 1st, delivered by February 15th, and purchased by March, while Mandatory commitments should be locked and delivered before the 15th and purchased by March 1st.

 

CMG Financial announced that it is back to accepting Wholesale Harp 2.0 with unlimited LTV through the wholesale channel.

 

 Franklin American has revised its pricing adjusters for Jumbo products in Florida, Nevada, and California.  For transactions with LTVs between 70.01 and 75%, the adjuster has been removed, while an adjuster of -0.500 will be applied to Florida and Nevada transactions with LTVs between 75.01 and 80%.

 

Affiliated Mortgage has named former Senior Vice President and National Sales Manager Jason Beene as president of its correspondent lending division and former JPMorgan Chase executive Kevin Payne as Chief Operating Officer.  Boris Firquain, a longtime Affiliated sales executive, will occupy Beene’s former position as Senior Vice President.

 

REMN has announced that its conduit platform HomeBridge plans to launch its correspondent platform for Q1 2013.  The sales team will be headed by Jim Loving (Midwest region), Patricia Hamilton, Jennifer Salsbury-Caldwell (Western region), Michelle Dawson (Pacific Northwest), Stuart Blend (Southwest), and Bill Bevan (key accounts).

 

Due to a dispute over the interpretation of the ruling of the 2008 Housing and Economic Recovery Act, The California Housing Finance Agency has announced that it has temporarily suspended all Homebuyer’s Downpayment Assistance Program loans combined with FHA-insured first mortgages.  No new reservations for CHDAP loans are currently being taken; however, this doesn’t apply to conventional, USDA, or VA-insured first mortgages.  CalFHA will continue to process and purchase active CHDAP loans currently in the pipeline, but lenders will be required to execute two separate blanket liability waivers, one of which will apply to loans in the pipeline not yet closed and the other of which will apply to loans that have closed.  See the CalFHA press release for more information (http://www.calhfa.ca.gov/homeownership/bulletins/2013/2013-01.pdf). 

 

 

California Law: The California Highway Patrol is cracking down on speeders heading into the Bay Area. For the first offense, they give you two Raider tickets. If you get stopped a second time, they make you use them.

 

Q. What do you call 47 millionaires around a TV watching the Super Bowl?

A. The Oakland Raiders.

 

Q. What do the Oakland Raiders and Billy Graham have in common?

A. They both can make 70,000 people stand up and yell ‘Jesus Christ’.

 

RAIDERS SPECIAL NEWS

OAKLAND. (CA)-- Oakland Raiders football practice was delayed nearly two hours earlier this year after a player reported finding an unknown white powdery substance on the practice field. Head coach Bill Callahan immediately suspended practice while police and federal investigators were called to investigate. After a complete analysis, FBI forensic experts determined that the white substance unknown to the players was the GOAL LINE. Practice was resumed after special agents decided the team was unlikely to encounter the substance again............... GO Niners!

 

 

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 role of the IRS and REMIC's in the current credit crisis. 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.

Rob

(Check out
http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

 

 



                  










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