Parkside's REIT & Non-QM ARM; Mergers & Acquisitions for Lenders; FHFA Delays Gfee Changes
There were a lot of happy lenders
yesterday when they learned that the FHFA's new director, Mel Watt, announced that he intends to delay guarantee fee changes that were announced last month by his predecessor, Ed DeMarco. The FHFA
plans to conduct an evaluation of the proposed changes and will give
not less than 120 days' notice after completing the evaluation before
implementing changes. The press release from FHFA noted that the
implications for mortgage credit availability and how these changes
might interact with the new qualified mortgage standards could be
significant. The FHFA wants to fully understand these implications
before deciding whether to move forward with any adjustments to g-fee
(Read More: Many Borrowers Saving 0.375% as FHFA Officially Delays Fee Hikes)
Didn't our brethren at the FHFA do their homework and fully understand
the implications of any adjustments to g-fee pricing when they announced the increase a while back?
What am I missing here? It is good news, and the industry will take it,
but... Regardless, we'll take it! (The 0.25% adverse market fee that was
planned to be eliminated, however, will remain in effect during the
examination period.) Many think that the FHFA's focus on the way fee
increases interact with the new QM rule indicates that the FHFA will be
very focused on affordability.
While the GSEs are currently exempt from
QM (LP & DU DTI approval levels have not been tinkered with, for
example), this will phase out once the GSEs are out of conservatorship
or after 7 years. The increase in loan level price adjustments (LLPAs)
could result in some loans exceeding the upfront 3% points and fees cap
which would make them non-QM. But hey, if Mr. Watt wants to focus on
affordability for homebuyers, then it will be a positive for credit
availability, which should help the mortgage sector as a whole and
specifically help the mortgage insurers.
response to Elizabeth Warren's comments, J.S. writes regarding QM
helping buyers, "This does not help borrowers. More small banks are
exiting the business completely. One of the main beefs that Dodd-Frank
tries to address is the role that the mega servicers played in the
foreclosure crisis and their poor practices (see 'robo-signing'). I am
not arguing for less regulation - we all know where that got us. Due to
the high cost of complying with this and other regulations, community
lenders will no longer play in this space. Just this week, Bay Cities Bank in Tampa announced the elimination of its 9 person Home Lending department. I know we will see more of this very shortly."
Hey, tomorrow is QM!
There is still confusion, not the least of which involves wholesalers
asking, "Many lenders are excluding the affiliate title company fee for a
broker as their position is that it is not an affiliate of the
'lender'. What is the rule?" I have not seen a "rule" and different
companies are taking different approaches. Mortgage attorneys love this
kind of ambiguity. Lenders and investors are
spending millions for compliance and legal, and some really do not
believe anyone has a clear idea about what CFPB is doing. They liken it
to the CFPB's staff redesigning the internal combustion engine and they
want it to have no pistons.
I am sure it will all be sorted out, and of
course much of it is needed - but really, the borrower will be
absorbing the cost either through increased lender compliance overhead
or in lack of competition from lenders exiting the business or scaling
back dramatically. The FDIC's Quarterly Banking Profile showed that
out of 6,891 banks, 2,117, or 31%, are under $100 million in size - how
can they all possibly keep abreast of all the new regulations? We can
expect more M&A in the banking arena.
How is the current market downturn impacting the M&A marketplace?
STRATMOR's Jeff Babcock and Jim Cameron write, "After the euphoria of
2012 and early 2013, a sort of hardscrabble reality has definitely set
in, pushed along by the many markets that are experiencing the grips of
seasonality (which was basically masked during the refi boom.) STRATMOR
has been in communication with numerous lenders who closed $1 billion or
more in 2012, and the vast majority of these CEO's are now
expressing concern about their financial and competitive viability under
a market outlook which is characterized by declining origination
volume, profit margin compression and enhanced compliance expense. Lenders
who felt invincible during the balmy days of 2012 are now increasingly
receptive to exploratory discussions with prospective buyers. And we
can report that many of these conversations are productive and
encouraging for the players.
who comprises the buy-side of this marketplace equation? While there
are certainly fewer 'committed investors' than we encountered say during
the 3rd Quarter of 2013, there are still a handful of
qualified investors who are strategically motivated to expand during
2014 via selected acquisitions. It's a diverse group of buyers, but
there are a few common descriptors: well-capitalized larger independents
who were above average performers in 2013 and mid-size bank-owned
lenders seeking to leverage their competitive advantages (e.g.,
compliance expertise, low cost of funds, licensing exemption and updated
technology platforms). These buyers have a stated preference to acquire
origination platforms which are regionally concentrated (rather than a
geographically dispersed network of smaller branches), limited number of
DBA's and 'for profit' branches, highly compliant LO compensation
programs, demonstrated ability to originate over 70% purchase business
and imbedded Government lending experience.
"The common ground of this marketplace is a
shared belief that an affiliated franchise (merging of seller and
buyer) will bring economic staying power, pricing and product advantages
and sufficient production scale to better weather the challenges of
2014's comparatively dismal outlook. You may be asking, 'At this
stage how mortgage companies will be valued under these market
conditions?' That is a relatively complex topic which doesn't lend
itself to easy rule-of-thumb parameters." If you wish to discuss
mortgage company valuation methodology and parameters, feel free to
reach out to the STRATMOR Group for a private, confidential
conversation: email@example.com or firstname.lastname@example.org.
Finally, an important correction to some investor news noted yesterday, and I apologize to Green Tree and its clients for the confusion. The Green Tree Correspondent Funding Announcement removed
these overlays: "...its guidelines to state that it will not purchase
loans to principal owners or majority shareholders (25% or greater
ownership) of Business Lending clients. Additional revisions stipulate
that investment property borrowers have a two-year history of rental
property management within the last three years, that the LTV/CLTV/HCLTV
be based on the lesser of the sales price or current appraisal value,
that a Lender Full Review be provided for all primary residence existing
Florida condo projects, that seller contributions to high balance
primary residence and second home transactions are subject to a 3%
maximum, that all foreign assets used for down payment and closing costs
be deposited into a US bank account prior to closing..." Clients of Green
Tree should consult recent bulletins for details.
all this going on, who has time to worry about rates? Rates did,
however, give back some of their movement from Monday and Tuesday - in
some part due to a stronger-than-expected ADP Employment.
(Read More: Mortgage Rates Back up to Monday's Levels)
little reaction to the Minutes from the December 18 Fed Meeting, at
which Fed officials decided to taper. The Minutes revealed widespread
confidence in sustained labor market improvement which called for a
reduction in bond purchases. Agency MBS prices worsened about .250. The
yammering about tomorrow's unemployment data is less than in recent
months, but the predictions continue, and the consensus on Nonfarm
Payrolls is +196k with the unemployment rate steady at 7 percent.
we've learned that Greece has taken over the EU's rotating presidency.
(Prime Minister Antonis Samaras says he will press for establishment of a
banking union for Europe.) Economic releases include Initial Claims
(+335k expected) and the conclusion of the Treasury's auctions with $13
billion 30-year bonds. Wednesday the benchmark 10-yr T-note closed at
a yield of 2.99%, which is where we are this morning, and MBS prices
are also roughly unchanged.