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Before You Chime in on G-Fee Changes, Know The Implications; More Bank Mergers
Posted to: Pipeline Press
Friday, June 06, 2014 8:51 AM

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In what has become nearly a bi-weekly feature in this commentary, the list of banks merging, dissolving, waxing and waning continues without stopping. The regulators, and the CFPB, have never said anything about "leveling the playing field", and it makes sense for banks to save money and join forces. Is the consumer better off with fewer, but larger, banks around? We'll see! In Virginia EVB ($1.1B) will acquire Virginia Company Bank ($134mm) for about $9.6mm. Down in Georgia United Bank ($1.1B) will acquire Monroe County Bank ($97mm). Five Star Bank ($3.0B, NY) will acquire insurance agency Scott Danahy Naylon Co. (a full service insurance agency with 6,000 customers in 44 states). First Tennessee Bank will buy 13 branches in TN from Bank of America for a 3.32% deposit premium, temporarily capturing $660mm in deposits. BBVA Compass ($75B, AL) has closed 6 branches in TX as it continues to refine its branch network.

Out in the Golden State California United Bank ($1.4B) will acquire 1st Enterprise Bank ($776mm) picking up 8 branches in the transaction. Evansville-based Old National Bancorp and Lafayette-based LSB Financial Corp. announced the execution of a definitive agreement under which Old National will acquire LSB Financial through a stock and cash merger adding its 5 branches. In the Lone Star State Independent Bank ($2.4B) will acquire Houston Community Bank ($323mm) picking up 6 branches in the deal. And in the Keystone State National Penn Bank ($8.5B) will acquire 3rd Fed Bank ($849mm) and its 19 branches in the deal.

The fact that the CFPB "is aggressively going after mortgage, title and real estate companies that it believes are violating laws prohibiting payments or incentives for customer referrals" is not news to those in the industry. What many will find interesting in this story is what the CFPB actually does with the money it collects.

I find myself worrying more and more about the younger generation....which I shouldn't really be doing; I should still be worrying about the older generation according to the CFPB's recent report Snapshot of Older Consumers and Mortgage Debt. The Bureau writes, "The CFPB's analysis of Census data shows that the percentage of homeowners' age 65 and older carrying mortgage debt increased from 22 to 30 percent (3.8 to 6.1 million) from 2001 to 2011.16 Additional data from the Federal Reserve shows that consumers over age 75 had the greatest increase during this period. The proportion of consumers 75 and older with mortgage debt more than doubled from 8.4 to 21.2 percent." According to the report, in addition to mortgage debt, the Bureau found that older Americans are also carrying more credit card and student loan debt into retirement than they were during the same period. Student loan debt into retirement? Are people retiring when they hit 32 ½ nowadays?

Contrary to popular opinion, Benjamin Lawsky did not crash the MBA conference last month; he was actually scheduled to speak. Although rumor has it, he was initially turned away from entering by a guard who claimed he did not have the appropriate credentials...the guard has since been fired, but I've been told Credit Suisse Group has hired the gentleman as their new Vice President of LOL. When Lawsky finally took the podium, he mainly discussed his concern regarding conflicts of interest in providing of ancillary services by special servicers. "Recently...there has been an evolution in the mortgage servicing industry. Regulators are - appropriately, in the wake of the financial crisis - putting in place stronger capital requirements for big banks.  In particular, they are giving those banks less credit for the - often distressed - mortgage-servicing rights on their balance sheets...rather than building up stronger capital buffers in response, many large banks are instead offloading those MSRs to nonbank mortgage servicers - which are often more lightly regulated." I hate it when regulators are actually correct; "Now, one of the things we're concerned about as a regulator is whether these MSR sales trigger a race to the bottom that puts homeowners at risk.  Remember, in most cases, the compensation to be paid for servicing is fixed by the PSA; it cannot be diminished," Lawsky said. "So the cheaper a servicer can service those mortgages, the more profit it expects to earn from the fixed servicing fees, and the more it can offer the banks to buy these MSRs."

Speaking of the MBA, it spread the word yesterday that the "FHFA announced that it is seeking input on the guarantee-fees that Fannie Mae and Freddie Mac charge lenders. As you may recall, upon taking office Director Watt suspended planned g-fee changes, pending a comprehensive policy review. This request for input seeks to ascertain the optimal g-fee policy to balance the need to protect the taxpayer against the implications for mortgage credit availability.  The request for input, along with specific questions, can be found here. Responses are required by August 4, 2014. The MBA will be forming a working group to review and respond to this request. Any member interested in participating in crafting this response should reply to this e-mail no later than cob Wednesday, June 11th."

It is a good thing to put this gfee thing in perspective. They impact a lot of things: the price a borrower pays for a loan, the share of business MI companies receive, the reason why jumbo pricing is better in many areas than conforming loans, the level of private capital entering the mortgage market, etc. In fact, it is no mystery why many borrowers are not refinancing even with low rates: the gfees and other fees (upfront fees are called Loan Level Price Adjustments - LLPAs - by Fannie Mae and post-settlement delivery fees by Freddie Mac) serve to make conforming conventional loans more expensive by 50-75 basis points.

Remember that in mid-December the FHFA, under Ed DeMarco, had announced a 10 basis point across-the-board increase in guarantee fees and an increase in upfront fees charged to higher risk borrowers. These increases were put on hold by Mel Watt after he became director of FHFA five months ago. Industry experts believe that the announcement and commentary from the FHFA further reinforces views that Mel Watt will take a broader view of FHFA's role as conservator of the GSEs, which they believe will be positive for the housing market.

But it isn't a matter of everyone writing in saying they want lower g-fees. The announcement from FHFA yesterday asks for industry input on a number of key issues including the appropriate return on capital that should be driving g-fees, is there a level of g-fees that will drive private capital back into the market, the impact of rising g-fees on overall mortgage volume, and whether the GSEs should charge higher LLPAs if it means that these loans move into FHA programs. The FHFA report suggests that the g-fees being charged by the GSEs are already reasonable to cover the risk taken by the government, so perhaps further broad increases are unlikely. And who knows - the possibility exists for LLPAs to be reduced and potentially offset by slightly higher across the board g-fees.

On May 27, Fannie Mae announced numerous selling policy updates. The announcement includes changes to Fannie Mae policies related to cash-out refinance transactions to provide additional flexibility and clarity with regard to delayed finance, continuity of obligation, and multiple finance properties for the same borrower. The announcement also details several asset-related updates, including, for example, that Fannie Mae will no longer require documentation for any deposit on a borrower's recent bank statement that exceeds 25% of the total monthly qualifying income for the loan. Instead, Fannie Mae is changing the definition of a large deposit to 50% of the total monthly qualifying income, and states that when a deposit includes both sourced and un-sourced portions, only the un-sourced portion must be used when calculating whether the deposit meets the 50% definition. Fannie Mae also announced: (i) updates to the definitions for retail, broker, and correspondent origination types; (ii) clarification of the requirements for use of a power of attorney; and (iii) revised requirements for reporting lender financial statements.

Looking at rates, the big news yesterday driving our markets was not anything that happened between our borders. The European Central Bank (ECB) announced a package of policy changes intended to stimulate economic growth in the Eurozone and thereby reduce the probability of a mild deflationary environment taking hold. The policy moves can be broadly divided into changes in policy rates (intended to guide short-term interest rates in the Eurozone lower) and policies that the ECB hopes will jumpstart lending to the private sector. The ECB cut its deposit rate below zero for the first time and reduced its benchmark to a record 0.15%.

What is interesting about this, of course, is that it the 180 degree opposite of what is happening here in the United States as our Fed is winding down its QE program of the monthly asset purchases. (The Bank of Japan continues with its asset purchase program begun about a year ago.) Analysts and investors continue to closely monitor the technical situation of supply and demand: with the Fed tapering and some seasonal increase in supply, there are increased risks of temporary technical imbalances, which will pressure spreads. The Fed is buying about $1.6 billion a day of agency product compared to whatever lenders are producing.

But today we've had the unemployment data. Yesterday's rally of about .125 in agency product and in the 10-yr (which closed at 2.58%) is exactly that: yesterday's news. The Bureau of Labor Statistics told us that nonfarm payrolls were up 217k, spot on with expectations, and the Unemployment Rate was 6.3%. The labor force participation rate was unchanged. After the news, in the early going, we're looking at an unchanged market for rates and prices.

Jobs

MGIC, a private mortgage insurance company, is looking for an experienced Account Manager to join its team in the Chicago, IL market.  The individual hired will provide programs to our customers, and maintain a strong sales relationship while offering problem-solving services. The ability to work closely with internal and external customers including National Accounts, Underwriters, and our Regional Processing Centers is critical. The primary focus of the Account Manager will be to identify opportunities for MGIC to enhance its customer relationships using appropriate customer needs analysis and program execution. The ideal candidate will have a college degree and more than 3 years of experience in a sales capacity, ideally in the mortgage lending industry. Excellent communication and presentation skills a must as the person will represent MGIC at seminars, local and national conventions. Compensation will include a base salary plus an incentive program. To apply please visit MGICJobs.

And out in California First Mortgage is expanding its retail operation and is looking for LOs. "One of the West's longest established (founded in 1975) and well-positioned independent mortgage lenders is expanding its retail operations in Central and Northern California. Throughout its many years of successful operation, FMC has learned that the production of high quality loans begins with top quality personnel.  FMC is therefore proud to announce the recent addition to its management team of several highly qualified and respected individuals who are well known throughout the Central Valley of California.  These include Kirk Nimmo, John Lowe and Craig Chalk.  Although FMC has been serving the borrowing public in Central and Northern California for many years, it looks forward to greatly enhancing this service with the addition of such accomplished individuals." Those interested LOs should confidentially contact Jeana Kobielsky of Synergy Recruiting Solutions at jeana@synergyrecruitingsolutions. com.




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Mortgage Rates:
  • 30 Yr FRM 4.21%
  • |
  • 15 Yr FRM 3.32%
  • |
  • Jumbo 30 Year Fixed 4.04%
MBS Prices:
  • 30YR FNMA 4.5 107-20 (0-00)
  • |
  • 30YR FNMA 5.0 110-10 (0-04)
  • |
  • 30YR FNMA 5.5 110-28 (0-03)
Recent Housing Data:
  • Mortgage Apps 2.43%
  • |
  • Refinance Index 4.14%
  • |
  • FHFA Home Price Index 0.67%