NAR Weighs in on Cliff Deal; M&A and Concentration in Banking - Could Lenders Share Back Office Functions?
On this Wednesday that seems like a Monday, politicians in Washington celebrated after kind of averting a completely unnecessary crisis that was entirely
of its own creation. One blog noted, "'This deal proves that if we all
procrastinate long and hard enough, we can semi-solve any self-inflicted
problem at the very last minute in a way that satisfies no one,' said Senate
Minority Leader Mitch McConnell (R-Kentucky)...In a related story, an arsonist
received an award for putting out his own fire."
This is sadly true - our elected officials seem to have kicked the can
down the road (as much as I am growing to dislike that saying). Very little
about the situation is resolved, and yet rates have shot higher due to possibility
of an expanding economy and a small amount of uncertainty being removed from
the markets. By waiting until the last minute to scrape together a limited
bill (which extends the Bush-era tax rates for most Americans and extends
long-term unemployment insurance, among other things), Congress sidelined some
major fiscal issues they initially sought to resolve before the new year.
Leaders in Washington deferred for two months the $1.2 trillion in
across-the-board spending cuts (known as "sequestration") set to hit
the Pentagon and domestic programs this week. Additionally, the bill passed
this week failed to raise the debt ceiling, even though the Treasury
technically hit the $16.4 trillion limit Monday - so we have that to worry
about now. Both of these issues will come to a head just as Congress is
expected to vote on a new federal budget. The convergence of these issues
practically guarantees that within a matter of weeks, Washington will once
again find itself embroiled in another fiscal crisis.
National Association of Realtors weighed in on the agreement, and answers many
real estate and mortgage business concerns. Here is the link.
Well, any time The Rolling Stone writes about Angelo Mozilo and
Countrywide, it makes for an interesting article. And we receive a lesson
on "stated" versus "verified" income.
There is little debate about Countrywide being a force in the industry. But
let's not forget the massive concentration that exists in banking now. The
5 biggest banks in the U.S. control about 44% of deposits, up from 37% in 2007
and 28% 10 years ago. The information can be found at the Federal Reserve. Here are the Reserve's websites that any
reader can refer to: http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx,
If one takes the time to take the first report's top bank assets, one can see the
trillions add up. If you look at the last two reports, you can come to some
conclusion of what the total asset percentage for domestic holdings is. Recently,
domestically, the top 10 largest banks have moved toward holding more than 65%
of domestic total assets.
(Speaking of concentration, let's not forget that Government Sponsored Entities
- pretty much Ginnie, Fannie, and Freddie - now guarantee roughly 95% of the
conforming mortgage market.)
Concentration is not confined to the United States, of course. Recently
there was a story about how several stockbrokers in London are in talks about
merging back office operations, in a bid to cut costs and avoid becoming takeover
targets in a rapidly consolidating sector. In London, at least, talks have been
prompted by increasingly difficult market conditions that have led to a spate
of job cuts and acquisitions among brokers. If a deal to join back office
functions is agreed, it would demonstrate an unprecedented level of co-operation
in the fiercely competitive sector. There is no reason to think that this won't
happen in mortgage banking once rates creep up and volumes begin to slide. When
business is scarcer, companies will inevitably be more attentive to costs and
save wherever they can. Moving back to this chatter from London, a practical
plan to merge the back offices has not been drawn up but one proposal was to
pool resources for settlement and clearing, which would potentially deliver
greater cost savings for
the firms involved than if they individually outsourced those functions. A big
concern is how client confidentiality would be protected, how regulations would
be met, and how company information would be kept confidential. November 1 saw
the introduction of EU short selling regulations had highlighted the potential
benefits of sharing costs. Imagine a world where major lenders, or smaller
lenders forged agreements, and had one funding group, one pool of underwriters,
one compliance group, one "back office".
The New York Times and many other sources reported that banking regulators are
close to a $10 billion settlement with 14 banks that would end the government's
efforts to hold lenders responsible for foreclosure abuses like faulty
paperwork and excessive fees that may have led to evictions, according to
people with knowledge of the discussions. "Under the settlement, a significant
amount of the money, $3.75 billion, would go to people who have already lost
their homes, making it potentially more generous to former homeowners than a
broad-reaching pact in February between state attorneys general and five large
banks. That set aside $1.5 billion in cash relief for Americans. Most of the
relief in both agreements is meant for people who are struggling to stay in
their homes and need the banks to reduce their payments or lower the amount of
principal they owe."
And those outside the industry wonder why companies are wary about
lending or servicing mortgages! Apparently a mandatory review of millions of
bank loans was not yielding meaningful examples of the banks' wrongfully
evicting homeowners who were current on their payments or making partial
payments, according to the people. But we're still grappling with the $26
billion settlement between the five largest mortgage servicers and the state
attorneys general, Justice Department and the Department of Housing and Urban
Development after allegations arose in 2010 that bank employees were churning
daily through hundreds of documents used in foreclosure proceedings without
properly reviewing them for accuracy. Supposedly under the terms of the
settlement being negotiated, $6 billion would come from banks to be used for
relief for homeowners, including reducing their principal, helping them
refinance and donating abandoned homes. And the proposed settlement would also
halt a separate sweeping review of more than four million loan files that the
comptroller's office and the Federal Reserve required the banks undertake as
part of a consent order in April 2011. Here is the story.
M&A, investor, and agency news rolls on. Over in Louisiana Red River
Bancshares ($1.1 billion in assets) will buy Fidelity Bancorp ($126 million)
for an undisclosed sum. TF Financial ($701mm, PA) will buy Roebling Financial ($162mm,
NJ) for $14.5mm in cash and stock. TF is the parent of 3rd Fed Bank. And Carlyle
and other private equity firms will buy financial advisory and investment banking firm Duff & Phelps for about $665 million.
Flagstar is now
offering additional options for subordinate financing on Freddie Mac Relief
Refinances. These include subordinate financing that doesn't fully
amortize under a level monthly payment plan for which either the maturity of
balloon payment date is under five years and subordinate financing that
restricts payment, such as subordinate liens with prepayment penalties.
Note that new subordinate financing isn't eligible for Relief Refinance loans.
Effective immediately for all construction-to-permanent conventional
transactions, Flagstar is no longer requiring cash-out refinance borrowers to
have held legal title to the lot for the six months preceding the date on which
the permanent mortgage was closed. The requirement to use the lesser of
the current appraised value or the lesser of the purchase price plus
improvements in order to calculate the LTV for FNMA delayed financing has also
been removed. For FHA and VA properties, Flagstar no longer requires
evidence that the borrower has a history of managing rental properties when
departing the current residence, though they still need to document 25% equity
in the property and the lesser of two months' reserves for both properties or
the reserve requirement as dictated by the TOTAL Scorecard findings. For
conventional loans where the borrower is using rental income to qualify, proof
of a two-year landlord history will suffice if the loan is submitted to LP.
Flagstar is no longer requiring appraisals for IRRRL transactions that
refinance Flagstar-serviced VA loans. Appraisals are, however, still required
for VA loans not serviced by Flagstar that are refinanced by an IRRRL.
As of December 27th, Flagstar has suspended the Condo-Hotel Program, which
means that new registrations won't be accepted and that loans currently in the
pipeline will be processed on a case-by-case basis.
In training and events news, the FHA is hosting a webinar on all things
TOTAL Scorecard on January 16th. Setting up to use the scorecard,
reviewing files, downgrading files to manual underwriting, and documentation
are all on the agenda. Register at http://www.visualwebcaster.com/FHA/90907/reg.html.
A 203(h) Home Mortgage Insurance for Disaster Victims and 203(k)
Rehabilitation Mortgage Insurance webinar is being offered by the FHA on
January 17th. The first half, which is devoted to the Disaster
Victims Program, will discuss the program eligibility requirements, maximum
insurable mortgages, closing costs, prepaid expenses, borrower cash investment,
mortgage terms, MIP payment, and refinancing. The second half, which is
aimed at loan officers, processors, brokers, and agents alike, will give an
overview of the Rehabilitation Mortgage Insurance Program and cover the
relevant underwriting strategies. For more information and to register,
On to recent news: the housing industry received more good news when we
found out that pending home sales increased in November for the third
consecutive month and reached the highest level in two-and-a-half years,
according to the National Association of Realtors (NAR). Remember that the data
reflect contracts but not closings, and LO's often discuss the problems they
continue to have with cancellations. Lawrence Yun, NAR's chief economist,
observed, "Home sales are recovering now based solely on fundamental
demand and favorable affordability conditions." On a year-over-year basis,
pending home sales have risen for 19 consecutive months.
While Congress did wind up approving a bill Tues, the "fiscal cliff" has
in effect been broke into two pieces, w/the "tax cliff" getting resolved on New
Year's Day while a big "spending cliff" looms on the horizon in the first
quarter of 2013. And analysts believe that the spending cliff will be a lot
harder to negotiate vs. the tax one. As tough as the tax debate wound up being,
the harder negotiations will happen in Q1 of 2013 when Republicans are likely
to demand further spending cuts (and entitlement changes) before countenancing
a higher debt ceiling.
For scheduled news we'll have Construction Spending, ISM Manufacturing, and
ISM Prices Paid - not big market movers. On Monday the 10-yr closed at a yield
of 1.75%, but in the early going today we find the 10-yr up to 1.83% and MBS
prices, which will certainly make their way onto rate sheets, are worse
Well, there was a bit of confusion at the grocery store this morning.
When I was ready to pay for my groceries, the cashier said, "Strip down,
I gave her a startled look and made a mental note to complain to my Congressman
about Homeland Security running amok, however, I did just as she had
When the hysterical shrieking and alarms finally subsided, I found out that she
was referring to my credit card!!
Consequently, I have been asked to shop elsewhere in the future.
They need to make their instructions a whole lot clearer for us senior