May 2, 2013: Earnings from PHH, BOK, MGIC, Radian, and others indicate industry trends; focus on the Senate regarding FHFA
Rob Chrisman

The first 10 days of May include two important milestones in Asian/Pacific American history: the arrival in the United States of the first Japanese immigrants (May 7, 1843) and contributions of Chinese workers to the building of the transcontinental railroad, completed May 10, 1869. In 1992, Congress deemed May Asian/Pacific History Month – the last time Congress agreed on something. Life is never simple in dealing with groups of people, however, and per a 1997 Office of Management and Budget directive the Asian or Pacific Islander racial grouping was separated into two categories: one being “Asian” and the other “Native Hawaiian and Other Pacific Islander.” The estimated number of U.S. residents in 2011 who were Asian was over 18 million, either alone or in combination with one or more additional races, nearly 6 million of who live in California (outdistancing NY’s 2 million. The Asian alone-or-in-combination population represented 57 percent of the total population in Hawaii. Median household income for the Asian alone population in 2011 was $67,885.


Lots of lenders do loans in rural areas, and lots of lenders do loans with escrow accounts, and/or escrow holdbacks (different, of course). The CFPB issued rules on those topics a couple weeks ago, and I continue to receive questions about them. Here’s a well-written link with the gist of the CFPB’s take on what “rural” actually means:


Zandi who? Tozer what? President Barack Obama nominated Congressman Mel Watt (D-NC) to be the director of the Federal Housing Finance Agency (FHFA). Watt, who has served in the House of Representatives for 20 years, will succeed Edward J. DeMarco who has acted as director through most of the Obama presidency. But does it really mean anything? In the Senate, 60 votes are required for his confirmation – good luck with that one! In announcing the nomination the President said the Congressman "has led efforts to rein in unscrupulous mortgage lenders, he's helped protect consumers from the kind of reckless risk-taking that led to the financial crisis in the first place, and he's fought to give more Americans in low-income neighborhoods access to affordable housing." Certainly there is one good thing, given the apparent lack of business background in the CFPB’s and government ranks: Watt has two decades in the private sector as a small business owner. There were plenty of platitudes, but Watt's confirmation is far from assured. Several Republican senators have already expressed opposition to the appointment including Senator Bob Corker (R-TN) who sits on the Senate Banking Committee which must vet the appointment. Corker said he could not be more disappointed in the President's pick.


What did the markets do? Loan originators don’t care, directly, about securities filled with higher coupons (like 4.5% and above) but investors do, and hhigher coupons underperformed significantly. Some market players seem to believe Watts could reopen discussions on principal forgiveness. The FHFA has never had a confirmed chief as the Senate has never had the political environment to confirm anyone – there is too much debate over GSE reform, particularly around the issue of using principal forgiveness in some circumstance as a loan modification tool. Ed DeMarco was a Bush Administration holdover, and a prior nomination in 2011 (Joseph Smith) was blocked. But hey, at least the White House can dodge criticism about its lack of progress on a reform plan for F&F and perhaps shift that onto the shoulders of Senate Republicans: there is a difference between, “Why doesn't the administration have a plan?” and “Why are the obstructionist Republicans blocking housing progress?”


One industry vet wrote me, “I see that the Administration has nominated Rep. Watt to replace DeMarco, and that once again this will split the vote down party lines. Watt has been on the House banking committee for 20 years.  Now why does that qualify anyone to head FHFA? Many believe that DeMarco was not so great, and are glad he will eventually be replaced. But why nominate someone that really knows nothing about the industry? At least DeMarco didn’t rollover when it came to principal reductions – and many housing markets are improving nicely. Why not find someone with practical experience from the industry that is apolitical? Fortunately F&F are profitable, which takes some of the immediacy out of the equation.”


While we’re on the agencies, Fannie’s Forum is up and running for those that like to keep up on current events:


And over at Freddie, it launched Loan Quality Advisor for lenders to flag data and credit issues before a loan is delivered. “Loan Quality Advisor is a new online loan tool that gives lenders an automated way to identify credit, data and purchase eligibility issues before they deliver loans to Freddie Mac. By helping lenders spot and fix potential problems earlier in the loan manufacturing process, Loan Quality Advisor can make Freddie Mac’s purchase requirements more transparent and give lenders greater certainty in the loans they sell to Freddie Mac. Loan Quality Advisor also gives lenders Freddie Mac’s view of credit risk on mortgages that were not originated on Loan Prospector®, Freddie Mac’s automated underwriting service.” It seems like a good idea, but hey, why take my word for it – here you go:


Tulsa has a lot going on. Besides the Fleetwood Mac show last night, BOK’s CEO may be spending more time at Harden’s Hamburgers – he is going to retire after quite a career: And BOK announced its results, and showed a higher first-quarter profit due to loan recoveries and higher fee income. The company has $27.4 billion in assets – above the $10 billion publicized CFPB examination minimum. Its first-quarter profit rose 5%, to $88 million, with mortgage-banking revenue up 21% to $40 million. Nice! Plenty of banks, especially community and regional banks, are watching their net interest margin (NIM) shrink, and BOK is no exception: it tightened by 27 basis points, to 2.92%, even though BOK's loan portfolio increased by 4%, to $12.1 billion.


On the other hand, for the 1st quarter of 2013 PHH announced what KBW titled “Operating Miss but Positive MSR Mark Supports GAAP earnings per share.” The earnings miss, relative to what was expected, was driven by lower mortgage volumes, higher expenses and lower servicing fees. PHH reported 1Q diluted GAAP EPS of $0.79; operating EPS excludes a positive $82 million fair value mark on the MSR and $16 million in derivative losses. Pre-tax mortgage banking income declined to $45 million from $99 million in 4Q12. Interest rate lock commitments (IRLCs) declined 20.1% to $4.96 billion quarter over quarter, total closings fell 7.6% to $13.3 billion from $14.4 billion in 4Q, and KBW calculates a gain-on-sale margin (as a percentage of IRLCs) of 3.77%, down from 3.98% in 4Q12. Core mortgage servicing income, a traditional hedge against any fall in production, increased modestly to -$48 million from -$54 million last quarter, driven by higher actual prepayments and lower core servicing fees, reflecting a decline in the average owned servicing portfolio driven by run-off.


Showing the difference between new business gains and legacy business losses, Genworth Financial’s first-quarter profit more than doubled, beating analysts' estimates, helped by strong performance in its U.S. mortgage insurance business. Net income rose 124 percent to $103 million, or 21 cents per share, for the quarter ended March 31, from $46 million, or 9 cents per share, a year earlier. The company's operating profit was $151 million, or 30 cents per share, in the quarter. And what a difference a year makes: operating income from the U.S. mortgage unit, which Genworth separated in January, was $21 million, compared with a net operating loss of $44 million last year. It is hard to believe that it’s been nearly 10 years since GE spun Genworth off.


Things are not so rosy, however, over at MGIC Investment Corp., which has raised more than $1 billion in capital this year: for the 1st quarter the net loss increased to $72.9 million from last year’s 1st quarter $19.6 million. This was MGIC’s eleventh straight unprofitable period.


Misery loves company, and Radian Group reported a net loss for the quarter of $187.5 million. It wrote nearly $11 billion of new MI business, down slightly from the 4th quarter but nearly double from 2012’s 1st quarter, and the total number of primary delinquent loans declines by 17% from first quarter of 2012. “We took the opportunity this quarter to significantly improve our capital and liquidity positions, providing a competitive advantage for Radian in an extremely attractive business environment,” said Chief Executive Officer S.A. Ibrahim.  “Building on our momentum with a strong risk-to-capital ratio, financial flexibility at the holding company, and the number one mortgage insurance market share position in the fourth quarter of last year, we kicked off 2013 with a 69% jump in new mortgage insurance business written year-over-year.” (I have seen S.A. at the local farmer’s market – he buys his lettuce just like the rest of us!)


Residential mortgage solution provider Ellie Mae posted higher first-quarter earnings as the firm's revenue shot up 48% from year ago levels. The company posted a 1Q profit of $3.9 million, up from $3.6 million in 1Q 2012. Total revenue, meanwhile, increased 48% to $30.9 million, up from $20.9 million a year ago. "Through solid execution we delivered robust growth in both revenue and profits while generating significant free cash flow," said Sig Anderman, CEO of Ellie Mae. He added, "We sold a record number of SaaS Encompass360 seats, with continued strong progress in adding new customers, increasing users from existing customers, and upgrading existing customers to our SaaS platform." Ellie Mae announced a record of 80,710 active Encompass360 users as of March 31, 2013, increasing 37% year over year.


A little training never hurt anyone. How about some free information on 203(k) loans? If you’re around today from 2-3 EST, here you go:


Denver’s W.J. Bradley Mortgage Capital has been on a growth tear, and is acquiring the principals and employees of the Pacific Northwest’s Legacy Group Lending along with 23 offices and an operations center.


Also in Denver, MountainView Capital Holdings, a fixed income capital markets firm specializing in residential mortgage assets, announces the appointment of Art Yeend as Managing Director, Head of Sales and Marketing. Mr. Yeend will work to enhance MountainView’s service offerings and partnerships that it currently enjoys with its customers. Yeend joins MountainView from Got Appraisal Management Services. And it hardly seems like it has been 17 years since we were both partners at Tuttle & Co.


Wednesday was a decent day in the fixed income markets, and MBS prices improved resulting in a couple lenders improving their price. MBS ran up to the highs for the day ahead of the Fed announcement, and then moved lower in spite of the weaker-than-expected ADP Employment, ISM Manufacturing, and Construction Spending numbers. The economy continues to grind along. I am not going to waste your time: the Fed’s announcement was much ado about nothing – there was very little change from the last one. There just hasn’t been much change.


As I head to Utah this morning, the fixed income markets are down/worse slightly after we learned that the Initial Jobless Claims number fell 18k to 324k, the fewest in five years! The ECB cut its main financing rates 25 basis points, which had little impact on the markets.  Wednesday the 10-yr closed at 1.64% and it is currently 1.66% and MBS prices are worse about .125.



If you have a spare 3-4 minutes some time, this is very funny. Even if you only have 90 seconds:



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