Mar. 2, 2013: Chatter on Ginnie's future & Fannie recent events; warehouse banks eye risk weighting; Fed continues to watch social media
Rob Chrisman

Women and minorities are never off limits in this commentary… let’s discuss them both right now.


March is National Women’s History Month, and the roots go back to March 8, 1857, when women from New York City factories staged a protest over working conditions. International Women’s Day was first observed in 1909, but it wasn’t until 1981 that Congress established National Women’s History Week to be commemorated the second week of March. In 1987, Congress, back in the days when it could agree on things, expanded the week to a month. There are about 158 million females in the United States, which is a little muddled due to Chastity Bono. Of those, 58% participated in the labor force (73 million). The Census Bureau tells us that 42% is the percentage of employed females 16 and older who worked in management, professional and related occupations, compared with 35% of employed males. But unfortunately, the median annual earnings of women 15 or older who work year around is $37k versus $48k for men, or about 77%. And this is especially unfortunate given that women outnumber men in high school diplomas, bachelor degrees, and masters’ degrees. There are nearly 8 million women owned businesses, which generate $1.2 trillion in revenue, and there are four states with at least 500,000 women owned businesses: CA, TX, NY, and FL.


Look at this faux-pas: Bloomberg Businessweek apologized on Thursday for their feature story, "The Great American Housing Rebound: Flips. No-look bids. 300 percent returns. What could possibly go wrong?" The problem? All fingers point to the cartoon on the cover portraying…..well, you be the judge and jury. The magazine, not known from shying away from inflammatory covers, lamented today by issuing a statement to, "Our cover illustration got strong reactions, which we regret," wrote Josh Tyrangiel, "If we had to do it over again, we'd do it differently." The artist who was commissioned to draw the cover, Andres Guzman, a Peru-born, Minneapolis-based artist, posted on his website, "I was asked to make an excited family with large quantities of money…..I slipped in my lovely cat, Boo, which was my favorite part. Too bad I wasn’t asked to draw large quantities of cats. Drawing dollars was a drag." I say we blame Boo: Last month, by the way, was Black History Month, celebrating the many achievements and place in our country’s fabric.


But we can’t dwell on either topic too long, and have to move on to capitalism. My colleague Garth Graham at STRATMOR recently attended the MBA Servicing and was actually impressed by the keynote speaker. And it was not just that Billy Beane is played by Brad Pitt for the movie. Here is Garth’s take on it:


Every once in a while it is good to refresh our memories on who the primary dealers are, and the NY Fed obliged us by reminding us of Bank of Nova Scotia, New York Agency, BMO Capital Markets Corp., BNP Paribas Securities Corp., Barclays Capital Inc., Cantor Fitzgerald & Co., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Daiwa Capital Markets America Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co., HSBC Securities (USA) Inc., Jefferies LLC, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Mizuho Securities USA Inc., Morgan Stanley & Co. LLC, Nomura Securities International, Inc., RBC Capital Markets, LLC, RBS Securities Inc., SG Americas Securities, LLC, UBS Securities LLC.


And primary dealers & overseas investors love Ginnie securities, made up primarily of FHA & VA loans. Yes, the cost of originating a loan is going up, but the program is still popular. What is Ginnie’s management up to lately? Ted Tozer, President of Ginnie Mae gave a presentation entitled "Ginnie Mae & the Future of Housing Finance". First off, remember that Ginnie Mae guarantees the timely payment of principal and interest payments on residential MBS to institutional investors worldwide. Ginnie Mae guarantees only securities backed by single-family and multifamily loans insured by government agencies, including the FHA, VA, the Department of Housing and Urban Development’s Office of Public and Indian Housing, and the Department of Agriculture’s Rural Development. Ginnie Mae neither originates nor purchases mortgage loans. It does not purchase, sell, or issue securities. Mr. Tozer informed the public that the mix between FHA & VA loans within Ginnie pools has shifted towards VA loans of late, but prepay speeds are not likely to be significantly affected. Rather than resulting from a greater percentage of veteran borrowers, a change in fees encouraged borrowers eligible for either program to take out VA loans. So the mix of borrowers is actually little changed.


Ted, as we can call him since no one seems to use Mr. or Ms. anymore, happily announced that Ginnie Mae continues to modernize/update their securitization platform, and expects to be "ahead of Fannie and Freddie" in terms of loan level disclosure by year-end. (Rumors of the IT group at the FHFA swinging into overtime abound.) A third point is that Basel III, or at least rumors of Basel III being implemented, has led to a dramatic shift in servicing away from banks, and Ginnie Mae expects this to only increase going forward and closely follows performance of these new servicers. (You’re warned, Ocwen & Nationstar, PHH…) Lastly, Mr. Tozer believes that MIPs are likely to continue increasing, moving toward “market levels.” Also, as a quick editor’s note, Ginnie Mae is wildly profitable, especially based on revenue per employee.


Turning over to Fannie, a couple weeks ago a loan officer wrote, “"In my opinion the reason that Florida foreclosures continues to rise is that HAMP, and the lenders, continue to refuse to modify second homes. They will modify rentals and primaries but not second homes. About 55% of the houses in FL that I know that are in foreclosure are second homes. Every homeowner has told me they tried multiple times to refi or modify and are denied. Even in HARP it is very difficult to do second homes. It took me a year, literally to get a Freddie approval on a second home condo in FL. In my latest, the borrower squeaks; $450k in income, 800 FICO and $1.2M in cash. No one would do the loan until 2 weeks ago."


Fannie’s response was logically, “The borrower was not eligible for a modification because he had significant cash reserves.  Fannie Mae has a number of options for borrowers who are having difficulty, and servicers follow a waterfall of options, including for second homes and investment properties.  However, a borrower with significant cash reserves may not be eligible for options such as a modification designed to help borrowers who have a hardship. In that case, a refinance would likely be the best option for that borrower and should be the first option for a borrower who is current on their loan and doesn't have a hardship. Fannie Mae's guidelines are clear that second homes and investment properties are eligible for HARP.  While some lenders may have their own overlays or standards, it is Fannie Mae's expectation that they will pursue HARP refinances for eligible borrowers, including for those with second homes or investment properties.”


“Rob, my secondary guy mentioned something about Fannie’s gfees being changed for a couple days, and then changed back. What’s that all about?” My first answer is for you to ask your Fannie rep. But perhaps I can shed a little light on things. Both Freddie and Fannie publish buyup and buydown grids which, basically, establish the cost (or benefit) for a lender to put various note rates into a security. There apparently were four note rates that were impacted, resulting in about a 20 bps price differential. These were soon adjusted. The exercise, whether or not it really did happen, calls into question the prices to buy up or buy down a mortgage rate in order to place it into a security. Most secondary folks and hedging companies open wonder how those ratios are derived, how couched they are in the reality of the market place, how quickly they adjust, and so forth – especially as they directly impact borrower pricing on rate sheets. One thing is certain, however, and that is as pricing has become so state-specific, rate-specific, product-specific, coupon-specific, old-fashioned lock desk pricing has continue to decline and the use of pricing engine vendors has increased.


Fannie also responded to this issue, which a few folks have asked about: “Fannie & Freddie are now allowing mortgage companies to offer incentives of up to $500 to induce consumers to do business with them.  They will allow you to offer a $500 gift card for closing a loan with you?  So is it not a RESPA violation if Fannie & Freddie say you can do it?” Here is the announcement from January: And Fannie noted, “We issued the guidance on the refinance incentives at the specific request of lenders who wanted clarity on our rules.  As with any Fannie Mae guideline, these standards simply reflect what is acceptable to us. It is always the responsibility of the lender to ensure they are following all applicable laws, rules, and regulations as they operate their businesses.”


Yes, it could only be a matter of time until risk weighting impacts banks offering warehouse lines. Any mortgage banker with a warehouse line (as opposed to one owned by a bank that can draw on those funds) has its hands full keeping up on the warehouse situation. Recently Texas Capital published the following in its financial reports which takes recent changes and the impact of the regulatory environment from rumor mill to public disclosure in SEC filings: “Regulators may change capital requirements including previous interpretations of practices related to risk weights that could require us to raise additional capital or reduce asset balances to maintain minimum and well-capitalized levels of regulatory capital. One such change could relate to the assets generated by our mortgage warehouse division. Balances shown as “loans held for sale” are comprised of ownership interests in mortgage loans to which we currently assign a risk weight applicable under current regulation to mortgage loans (50% or 20% for loans guaranteed by the FHA or VA). The OCC is considering whether assets which do not qualify as “participating interests” under ASC 860, should be assigned to the 100% risk weight category associated with loans to mortgage companies that are secured by a pledge of mortgage loans as collateral. We believe we have applied the correct risk weights to the ownership interests in mortgage loans held by us and are prepared to defend that position. We cannot predict the likelihood of our success if the OCC chooses to contest risk weights currently applied. We believe our business practices could be changed to maintain the risk weights currently applied, but those changes would create operating and financial risks to which the Bank currently is not exposed. The outcome of a review by the OCC of our approach to the application of risk weights to the ownership interests in mortgage assets is uncertain. An increase in risk weights applied could require the Bank to obtain additional capital to support future growth or reduce our loans held for sale to the detriment of our operating results.”


Does this indicate another warehouse liquidity crunch? Let’s hope not. But here is more information on ASC 860 for those CFOs out there:


The FFIEC Wants You! What’s an FFIEC and why do they want you? The Federal Financial Institutions Examination Council helps to ensure uniform principles, standards, and report forms for the federal examination of financial institutions (such as the growing empowerment of the CFPB). It is seeking feedback on proposed guidance to help financial institutions manage the risks of interacting with consumers through social media. The FFIEC, which comprises several financial regulatory agencies, published a notice in the Federal Register in January, seeking recommendations. One of many tasks on the front burner is to design an adequate risk management program for social media. The FFIEC noted that “the program needs the involvement of several departments of an institution—compliance, technology, information security, legal, human resources, and marketing.” Several? The first obstacle appears to define exactly what “social media” means, although the council noted that financial institutions using social media have the potential to improve market efficiency due to the broader distribution of information among consumers. Maybe it’s time for people to remove their Facebook shorts. And who knew our government had the time to run its own daily blog? Here you go:



Okay, you made it through February. This story deserves either a PG or an R rating, and has no redeeming qualities. But it reminded me of another joke about Bill Gates receiving a fax… (“Hey, who’s that calling?” “I dunno. Some ----.”)



If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog is how "Basel III Could be a Game Changer for Lenders and Servicers." 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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