May 14, 2013: Mortgage jobs; a reminder that rates are artificially low; a reminder of a lack of motivation to lend to certain credit score borrowers
Do lenders have lives outside of lending? Of course they do - Digital Risk announced the “Battle of the Banker Bands” at last week’s MBA conference. “The competition will pitch rivaling company bands against one another competing to win the ultimate glory of the being named the best Banker Band at a live concert held during the MBA 100th Annual Conference in D.C. come October.” This event will feature bands voted on by the industry and final judging by a panel of celebrity judges (including several well-known classic rockers). Submissions are now being accepted through Facebook at https://www.facebook.com/Battle3B or by contacting Randy Lightbody at Rlightbody@digitalrisk.com.
Music aside, lenders continue to search for good personnel. Sierra Pacific Mortgage is a 27-year old, national mortgage banking firm (www.sierrapacificmortgage.com) licensed in 47 states with regional fulfillment centers across the country. Sierra Pacific is searching for a Manager of Servicing that will be responsible for all aspects of the company's loan servicing activities, including a very large and rapidly growing retained servicing portfolio. Qualified applicants must have a proven track record of managing a large servicing portfolio containing agency (Fannie Mae and Freddie Mac) and government (Ginnie Mae) loans. Ideally, the candidate would be willing to relocate to the company's corporate office in Folsom, CA, however other locations would be considered. Interested parties should send their resumes to National Recruiter Glo Blue at firstname.lastname@example.org.
And a regional lender & servicer is seeking a Chief Credit Officer to oversee their credit risk as they expand into other states. Headquartered in Northern California, this position will be responsible for managing the existing and expanding underwriting staff in multiple locations as the company continues their growth. The ideal candidate will be a seasoned professional familiar with agency, government and jumbo loan underwriting. The role will be a key addition to an experienced management team and will be instrumental in actively managing the risk of the company as it expands. Interested parties should send their confidential resumes to me at email@example.com.
Finally, there is a clarification on a job ad that ran last week. “Affiliated Mortgage Company's Retail Division is growing their residential lending platform and is looking for professional, experienced loan officers to expand their Dallas, Houston, San Antonio and Austin markets.” Many folks realized that the e-mail listed was incorrect, and LOs who are interested should submit confidential resumes through firstname.lastname@example.org.
“Rob, why would Warren Buffett recommend stocks and not bonds? And do they always move in opposite directions?” The answer is no, they don’t always move in opposite directions. Rates are still very low, yet several measures of stock market performance are near or at their all-time highs. But the more important concern, long term, is that everyone knows that rates are being held artificially low by the Fed’s QE3 program. Buying $85 billion a month move markets: demand is held high, supply is steady, and that drives prices higher and rates lower. Just look at the market last week, and especially Friday: Treasuries sold off on Friday sending the 10 year yield north of 1.90% for the first time since mid-March. Why? The sell-off was sparked by rumors that the Fed would cut back on MBS and Treasury purchases by the end of 2013. This was followed by a story in the WSJ giving some educated insight into the Fed strategy for winding down the $85 billion a month bond purchase program. Officials say they plan to carefully reduce and/or vary the amount of purchases as they become more comfortable with their outlook on the overall market. Setting expectations is important. Where will agency mortgage rates be when they stop buying MBSs? Most seem to think they could be much closer to where jumbo rates are, but probably a little less, of course, given the government guarantee.
No one who knows anything about lobbying will say that the National Association of Realtors is not a powerful machine. When folks wonder about the tax deductibility of home loan interest, they should remember that NAR is behind it 100%. “As Congress pursues comprehensive tax reform it should focus on doing no harm to housing and America’s 75 million homeowners by maintaining current tax laws for homeownership and real estate investment. Homeownership has had long-standing support in the country because of its many benefits to individuals and families, communities and to the nation’s economy. Preserving the current tax measures for homeownership would allow millions of Americans to continue to build the kind of financial security that owning a home can provide.” It is easy to see Congress, however, beginning to nip away at the outer edges of this, such as interest on huge mansions, on vacation homes, or on wealthy tax payers. The current tax code contains housing-related provisions that help facilitate homeownership, build wealth for families and provide stability to communities. NAR believes that, “Altering these policies could marginalize current and future home-buyers as well as jeopardize the nascent housing recovery and the overall economy. The current mortgage interest deduction helps many families become home owners, which is the foundation for a healthy middle class, and it is vital to the health and stability of housing markets. The mortgage interest deduction makes sustainable homeownership more affordable for millions of middle-class families. The National Association of Realtors is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.”
Another group with some lobbying clout is the credit unions. On the QM front, the National Association of Federal Credit Unions announced its opinion that preventing Fannie Mae and Freddie Mac from purchasing mortgages outside the parameters of the ability-to-repay rule will further constrict lending to non-traditional borrowers and rural areas. We learned that the Federal Housing Finance Agency (FHFA) issued a new rule, saying Fannie Mae and Freddie Mac will no longer purchase a mortgage that does not follow the ability-to-repay rule. "NAFCU is concerned that this new policy will only serve to further constrain the mortgage lending market to qualified mortgage loans.” QM loans are not against the law, and the CFPB has addressed this issue in the past, saying lenders should continue giving non-QM loans so long as lenders continue to consider the ability-to-repay provisions.
Nonetheless, most knowledgeable people in the home lending business know that not everyone who wants a loan deserves a loan. But last week we had Federal Reserve Governor Elizabeth A. Duke observe that purchase-originations remain “subdued,” especially among individuals with less than stellar credit scores. In what few would say is “late breaking news,” she said that the drop in originations has been most pronounced among borrowers with lower credit scores. As proof, from 2007 to 2012, purchase originations among borrowers with credit scores higher than 780 declined by 30 percent. In contrast, purchase originations for borrowers with credit scores between 620 and 680 declined by 90 percent, and originations among borrowers with credit scores below 620 were “virtually nonexistent. “New mortgage regulations will provide important protections to borrowers but may also lead to a permanent increase in the cost of originating loans to borrowers with lower credit scores,” Duke said.
That being said, I had an industry vet write to me last week about this lending shift. “I would like to add that the loans in the 620-680 range are much more difficult to originate, process, and underwrite. They are generally (in our experience) lower mortgage amounts and have borrowers that have had many more challenges in their lives. Multiple jobs, residences, banking accounts, many times cash deposits and obviously credit issues. In many cases an enormous amount of effort and time is required to help that borrower achieve their goal of homeownership. In the past the loan officer and company was rewarded for their efforts. Today, the commoditization of the loan officers and/or brokers’ income has eliminated any incentive to invest time on such borrowers. Why not go after two or three easy deals and walk away from the one difficult? When the income is the same there is no incentive to invest more time or effort in to one borrower over another and in many cases because of the lower loan amounts – even less! In fact, like water seeking the lowest level lenders will seek the easiest transaction and with a plethora of refinances and Fed supported low rates, right now that’s easy to do. While the Fed may disagree, we are in this business to make a living.”
The tax deduction does not appear that it will go away, and another thing that won’t go away is the need for training for loan officers. LO’s have been struggling for the past few years to balance licensing, compliance issues, product changes and then actually get out the door and market so they have loans to originate. Both managers and loan officers are worried about future production as we all know refi’s will dry up and purchase loans will need to pay the bills. Bliss Sawyer has created a new marketing product combined with a personal coaching session to give loan officers the tools and motivation to work on getting new business in the door. “Go Ahead…Steal my Stuff” is a tool for loan officers that want to make sure they are focusing on the right activities to increase production – in any market: http://www.blisssawyer.com/stealmystuff/index.html. (And no, this was not a paid announcement.)
Back in the 1980’s and ‘90’s I sold mortgage-backed securities to many sales folks at many firms. One of those was Tom Dolan who was at Salomon Brothers at the time, and it was recently announced that Tom has joined Angel Oak Funding, LLC as a Managing Director. Tom will focus on identifying opportunities for the Angel Oak family of Companies. “Tom brings significant fixed-income experience in sales, trading, loan origination and portfolio management to the Angel Oak Funding team. He recently was a partner at RMBS Management, a structured products asset manager.” Congrats! (Before his career on Wall Street, Tom was a Special Agent in the U. S. Department of Justice, DEA for six years!)
Originators in Indiana know that the state followed the trend we’re seeing among other states. “The Indiana Department of Financial Institution (IN-DFI) has notified NMLS that effective Monday, May 13, 2013, the agency will no longer require two (2) hours of Indiana-specific pre-licensure (PE) education as a condition for MLO licensing. PE requirements for DFI will be as follows: 3 hours of Federal Law, 3 hours of Ethics (must include fraud, consumer protection, and fair lending issues), 2 hours lending standards for Non-Traditional mortgage products, 12 hours of General Electives, for a total of 20 hours. The Indiana Secretary of State will continue to require two (2) hours of IN-specific education as a condition for licensure.”
The dust has settled somewhat on the PennyMac IPO that occurred on Thursday May 9. PennyMac Financial Services, which originates, acquires and services residential mortgage loans, raised $200 million by offering 11.1 million shares at $18, at the midpoint of the range of $17 to $19. PennyMac Financial Services lists on the NYSE under the symbol PFSI and has a market cap of about $220 million. Citi, BofA Merrill Lynch, Credit Suisse and Goldman Sachs acted as lead managers on the deal. On Friday the 10th, its shares climbed 2.6% from the $18.25 Thursday price. News stories that I read indicate there are 600 employees at its headquarters.
Google has purchased an interest in peer to peer online funding company LendingClub. LendingClub takes funds from retail and institutional investors and directs them to consumers and small businesses seeking loans of up to $35,000 currently and has funded $2B so far.
Economic numbers go up, they go down. Last month’s Retail Sales showed a drop of .5%, but April’s, announced yesterday, showed an increase of .1%. It is not going to set the world on fire, but it is an improvement – and that is what the market clued in on. And the fact that MBS sales were below average didn’t help too much. There was some shuffling going on among coupons and types of securities (Fannie, Freddie, or Ginnie), but for the most part not much of that made it onto rate sheets in the primary markets for borrowers.
Today we’ll have the Import Price Index (expected down 0.5 percent again). But in the early going the 10-yr yield, which closed at 1.92%, is back down to 1.90%, and agency MBS prices are roughly unchanged from Monday’s close.
My neighbor was working in his yard when he was startled by a late model car that came crashing through his hedge and ended up in his front lawn.
He rushed to help an elderly lady driver out of the car and sat her down on a lawn chair.
He said with excitement, "You appear quite elderly to be driving."
"Well, yes, I am," she replied proudly. "I'll be 97 next month, and I am now old enough that I don't even need a driver's license anymore.”
She continued, "The last time I went to my doctor he examined me and asked if I had a driver's license. I told him yes and handed it to him. He took scissors out of the drawer, cut the license into pieces, and threw them in the waste basket, saying, 'You won't need this anymore,' so I thanked him and left!"
If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “Mortgage Backed Securities: Life After QE3." 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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