Feb. 4, 2013: Mortgage jobs; soaking up shadow inventory; KBW's opinion of gain on sale margins; small lenders to increase share?
Rob Chrisman


If anyone asks you, “Whatever happened to that ‘Shadow Inventory’ we were all concerned about?” you can respond that part of it is being soaked up by large funds buying single family properties. “JPMorgan Entices Millionaires to Become Landlords” is one such program (http://www.bloomberg.com/news/2013-02-04/jpmorgan-joins-rental-rush-for-wealthy-clients-mortgages.html)where Bloomberg reports, “JPMorgan Chase & Co. is giving its wealthiest clients the chance to invest in the single-family rental market after other investments linked to the U.S. housing recovery jumped in value. The firm’s unit that caters to individuals and families with more than $5 million, put client money in a partnership that bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, said David Lyon, a managing director and investment specialist at J.P. Morgan Private Bank. Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold, he said.”


While this is going on, lenders continue to expand. Located in Southern California, an independent and locally owned mortgage lender and servicer is seeking a Head of National Operations. This position will be responsible for expanding current mortgage operations for wholesale, retail and correspondent lending to meet unprecedented growth and anticipated production volume. This person will be a key member of an entrepreneurial senior management team with the opportunity to build mortgage operations utilizing best in class technology and best practices.  Skills include the ability to develop and execute mortgage operations strategies to meet projected growth while partnering with other thought leaders to become an employer of choice for mortgage professionals.  Interested parties should send their confidential resumes to me at rchrisman@robchrisman.com.


And Residential Home Funding is hiring NMLS licensed Originators, Sales Managers, Team Leaders and Branch Managers. RHF (http://www.rhfbranch.com/), with headquarters in Parsippany, NJ, has been steadily expanding, and also has a need for staff underwriters, processors, and closing department personnel. If you are new to this industry or know someone who wants to make a transition, RHF has an in-house training facility. Check its website above for all of the licensed states or email Anthony Pepe at APEPE@RHFUNDING.COM for more information. All inquiries are held in strict confidence.


Lastly, Kinecta Federal Credit Union, one of the nation’s leading Credit Unions with more than $3.2 billion in assets, will be participating in the IMBA Job Fair on Wednesday, February 6 from 3-7PM at the Holiday Inn in Willowbrook, Illinois.  Kinecta managers will be interviewing for Wholesale Account Executives and operations positions including Lock Desk, Set-up, Sr. Underwriters, Underwriters and Underwriting Assistants.  To review all open positions and to apply online go to www.kinecta.org and click on the Careers Tab or send a resume to Daniel Borgstadt at dborgstadt@kinecta.org.


Speaking of personnel and growth, here’s an article about how the non-top 5 lenders are expected to pave the way into the future: http://www.foxbusiness.com/news/2013/02/04/analysis-small-lenders-ride-us-mortgage-wave-as-big-banks-cut-back/. Florida’s Walter (the company, not your brother in law) could figure prominently in that: with its acquisition of an origination platform and agency mortgage servicing rights complete, Walter Investment Management is now a top-10 mortgage servicer with a platform from which it can become an origination player. Thursday it completed the acquisition of servicing on $132 billion in Fannie Mae loans: $44 billion in loans from bankrupt Residential Capital LLC and $88 billion in servicing was acquired from Bank of America.


“Rob, on Saturday you discussed securitizing residential loans into mortgage-backed securities. Are MBS the same as Asset Backed Securities?” Good question and the answer is as simple or as complex as you want to make it. I wrote up some information on it – near the top right corner: http://www.stratmorgroup.com/.


Stephen Colbert recently said, "I don't pretend to know everything -- because I don't have to pretend." The ASF 2013 conference had the largest attendance since the financial crisis with 5,664 registered attendees – filled with many folks who probably take that quote to heart. The tone was generally positive but cautious; most investors expect the supply-demand balance to remain favorable in the near term and expect the housing recovery to continue, although collateral assumptions have become very aggressive. There were extensive discussions around the direction of rates and the housing market, as well as the reps and warrants upside in the non-agency sector. Servicing concerns continued to dominate discussions due to pending transfers and the lack of transparency regarding fees.  Going forward, many experts think that the RMBS sector will remain range bound or tighten slightly due to the significant dispersion in opinion among market participants. As one put it, “Although we do not expect assumptions to tighten much from current levels, the technical environment is likely to remain relatively strong and increased leverage may contribute to some spread compression as well.” The general tone of 2013 ASF conference was upbeat regarding recovery and resilience of the consumer ABS market; however with the spreads tightening to historic lows in the traditional on-the-run sectors, investors are feeling the need to diversify into esoteric sectors and look for opportunities down the credit and WAL curve. On the other hand, investors restricted by their mandates of ratings and prime sectors are finding it more difficult to find relative value opportunities.


One important thing to note is that in Saturday’s edition I had a link to CalHFA program. The link was fine, but CalHFA rescinded the change – thank you to folks who pointed that out. HUD granted CALHFA a reprieve until June 1st to give them time to implement changes to comply with the HUD ruling. They are accepting registrations for CHDAP seconds with FHA first mortgages again but the loans must close by June 1st. Program Bulletin #2013-02: http://www.calhfa.ca.gov/homeownership/bulletins/2013/2013-02.pdf


The market has been following the B of A/Fannie settlement and implementation of the new GSE rep and warrant standards, and I received this note. On the heels of B of A’s recent repurchase settlement with Fannie and the new rep and warrant standards from the GSE’s, many originators are considering global settlements with their investors to eliminate all liability for past originations.  Attorney Brian Levy noted, “Many of my clients, particularly banks and mortgage banks with conservative underwriting and fiscal management, want to put an end to the unprecedented repurchase risk that has haunted them for the past 5 or 6 years.  Even if they do not have repurchases pending, CFO’s, risk managers and Boards of Directors of originators are frustrated with the unpredictable and disproportionate costs of repurchase claims and are taking note of global settlements like B of A’s.  They are asking CEO’s and mortgage management whether similar settlements for their institutions can be obtained at reasonable cost.  The answer is definitely yes, but you need to be prepared for detailed and time consuming negotiations and you may need outside help to get across the goal line.  You will need to have patience along with realistic expectations around settlement parameters and actual risk exposure.  We have found in most instances that credibility with the investors in the negotiations can dramatically change the dynamics leading to mutually acceptable settlements on both a global and individual loan basis.”  If you want to reach Brian, he can be contacted at blevy@kattentemple.com.


For investor news, several folks pointed out a bad link on some New Penn information. Here is the matrix for LP Open Access: http://gonewpenn.com/wp-content/uploads/2013/02/LPOA2.pdf.


Regarding PHH, Keefe, Bruyette & Woods announced it is cutting “our EPS estimates for 4Q and 2013 to incorporate lower gain-on-sale margins. Our revised operating estimates are $0.55 in 4Q12, $2.99 in 2012, and $3.00 in 2013. We maintain our Outperform rating and $28 price target…The lower margins incorporate recent trends in spreads between primary and secondary mortgage rates as long-term rates have backed up since year end. We now forecast a gain-on-sale margin of 2.40% in 4Q12, down from 2.92% in 3Q12 and 2.64% in 2Q. Our prior 4Q12 estimate was 2.69%. We forecast a 2.24% margin in 2013, vs. 2.60% previously.” We can look for this trend among many mortgage lenders.


Down south, the Alabama Banking Association, which represents 80% of the state’s eligible community banks, has announced that it has selected AMC Valuation Management Group as its newest Endorsed Service Provider for Alabama Banking Services.


LoanSifter has added Essent Guaranty to its mortgage insurance Best Execution, which now includes Radian, Essent, and United Guaranty.  The company has ambitious growth plans, having just hosted a webinar on the conversion from broker to banker in conjunction with MQMR and warehouse First Tennessee that was attended by over 300.


Last week was filled with data – the next couple weeks not so much. The data Friday contained some misses from expectations but, in fact, no big surprises. The Employment Cost Index, as expected rose by +0.5% in Q4, up from +0.4% and showed a gain of +1.9% YOY. Personal Income and Personal Spending for December were off expectations but, after the GDP release, understandable so not overly surprising. The savings rate in December rose by 6.5%, highest since May 2009, greater than the 4% November gain and probably reflects the caution of consumers. The PCE Deflator for December was flat as expected. Jobless Claims rose sharply by 368K and above the survey +350K after prior gain of +330K. The Labor Department said there were no estimates and "absolutely" nothing unusual in the data. And with the unemployment data, the benchmark revisions came out showing that employers added 335,000 jobs in 2012, more than was originally reported. That brought the average rate of job gains per month in 2012 to 181,000 from around 150,000.  This is up from the 175,000 per month average seen in 2011. Overall, the labor market continues to improve, but at a very slow pace.


Clearly, the inflation measures are of no concern to the Fed except possibly to the downside, and will have no bearing on the decision to maintain balance sheet expansion. If anything these data serve to reinforce the idea that Fed will continue to be aggressive in accommodation, as hinted by the FOMC. Until there is more certainty as to the lessening of downside risks, the Central Bank will not be "exiting" ease any time soon: QE3 Unlimited rolls on!


But our old friend Europe is back in the news. Equities (stocks) are in the red across the board as peripheral political concerns weigh on sentiment. In Spain there are allegations that the leadership received illegal payments and the country’s opposition party called on the Prime Minister to step down. In Italy, Berlusconi delivered a speech over the weekend in which he pledged large tax breaks should his center-right coalition win upcoming elections (Berlusconi has been creeping higher in recent polls although Bersani is still expected to become Italy’s next PM).  10-yr Spanish yields are up about 17 basis points due to the Rajoy worries, hitting levels not seen since mid-Dec (although they remain under 5.5%).  Since hitting a recent low at ~4.85%, Spanish yields back backed up to ~5.4% in the last few weeks.


Here in the United States, we’ll have Factory Orders today, ISM Services tomorrow, Thursday has Jobless Claims along with some productivity and unit labor costs, and then Friday we’ll see some trade figures. None of it is expected to move rates too much. The 10-yr seems to be sitting at nearly unchanged from Friday’s close around 2.02%, as are agency MBS prices.



On a bitterly cold winter's morning a husband and wife in the north Hills of Pittsburgh were listening to the radio during breakfast.   

They heard the announcer say, "We are going to have 8 to 10 inches of snow today. You must park your car on the even-numbered side of the street, so snowplows can get through conveniently".  

So the good wife went out and moved her car as instructed.  

A week later while they are eating breakfast again, the radio announcer said, "We are expecting 10 to 12 inches of snow today. You must park your car on the odd-numbered side of the street, so the snowplows can get through."  

The good wife went out and moved her car again. 

The next week they are again having breakfast when the radio announcer says, "We are expecting 12 to 14 inches of snow today. You must park…"

Then the power went off, a la Super Bowl!

The good wife was very upset, and with a worried look on her face she said, "I don't know what to do. Which side of the street do I need to park on so the snowplows can get through?"  

Then, with all the love and understanding in his voice that men who are married to blondes (and those with grey hair) always exhibit, the husband replied, "Why don't you just leave the car in the garage this time?"



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 “A Primer on Asset Backed and Mortgage Backed Securities.” 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.


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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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