MSI Exits Lending Channels; Cherry Hill & Freedom Concerns; Floating Note Rate Auction Primer; MBS Margin Requirements
"After much discussion, research and deliberation, Mortgage
Services III (MSI) has decided to exit the Wholesale Mortgage Broker
and Non-Regulated Financial Institution Correspondent mortgage business.
Additionally, MSI will no longer offer Delegated Underwriting Authority
for Correspondent business. The existing regulatory environment would
force us to use too many valuable resources to remain competitive in the
wholesale environment. We have decided to direct our primary focus
towards non-delegated Correspondent/Mod Corr business from our Bank and
Credit Union partners as well as Retail lending. The friends and
relationships made over the past 7 years have been very rewarding and
will be sorely missed. I would like to thank each and every one touched
by this letter for your professionalism and loyalty over these many
years and wish everyone future success Effective January 28, 2014, we
will no longer be accepting new registrations. Loans that are submitted,
but not locked, must be locked within 7 calendar days from January 28,
2013 to be honored. Existing locks will be honored and will be granted a
one-time extension of no more than 15 days, if necessary." I assume
that this note from Bob Sword, president & CEO, meant to say "2014".
Nonetheless, many believe that we'll continue to see similar announcements through Memorial Day, if not the 4th of July as the industry changes.
while we're on the Eastern Seaboard, Seeking Alpha reports that "Cherry
Hill finds itself in the middle of a heavy conflict of interest in that
the primary manager of Cherry Hill, Stanley Middleman, also owns 100% of Freedom Mortgage.
Given the fact that Cherry Hill is purchasing MSRs primarily from
Freedom Mortgage, one can see how there is a heavy conflict of interest
dynamic at play. While I believe that Mr. Middleman truly wants Cherry
Hill to succeed, and he should given his ~13% ownership, investors
should be cognizant of this potential conflict. Cherry Hill has filed an
S-8 in which they have stated that the company is setting aside 1.5M
shares for its equity incentive plan. Given that there are currently
only 7.5M shares outstanding, this is clearly a substantial amount of
stock. As of now, I do not know what type of performance thresholds that
management needs to hit to start issuing equity awards so investors
should keep a sharp eye on developments in this plan to better
understand what type of dilution they can expect in the future." There is certainly chatter out there that Freedom's pricing has become very aggressive.
the commentary discussed some current topics on appraisals, which
reminded one reader of a recent article about the new appraisal rules
supposedly helping consumers. Thank you Sharon N.!
And Michael Simmons, SVP with Axis AMC
writes, regarding the Newday article, "Fascinating mess of an article -
stuck in a time warp and inaccurate on a number of levels. First, HVCC
was never 'retracted' - it expired statutorily in, if memory serves,
November of 2010 and was replaced, essentially intact, by AIR (Appraiser
Independence Requirements). An even bigger distortion was the false
assertion that HVCC mandated that appraisers work for AMCs. What it did
require was there is a buffer between the appraiser and anyone in loan
origination ordering an appraisal. The intent was to remove the
potential threat of direct coercion upon appraisers. That did have a
substantial effect on diminishing individual intimidation of appraisers
by loan officers - but, in the view of some, replaced that personal
intimidation with institutional pressure. In truth, the explosive growth
in AMCs was the result of many lenders seeking ways to reduce their own
costs and liabilities by outsourcing. What's most disheartening in the
article is the insinuation that all AMCs are evil and fail to use local
appraisers or pay reasonable and customary fees. Under the regulatory
environment today, lenders can ill afford to use an AMC that underpays
appraisers or employs a bidding process for assignments or brings
out-of-area appraisers in to do reports. While at times uncomfortable
and inconvenient, and perhaps destined for some change, regulation that
mandates best practices and compels compliant behavior will and should
Turning to the actual markets, rates are not doing much, which is fine for those in capital markets. The big news might be the Treasury holding its first Floating Rate Note (FRN) auction today of $15 billion.
It raises many issues: why would any secondary guy look at floaters?
Should anyone be hedging with USTs and short rising interest rates? What
about the ARM market? EPDs risk? It's tough to say, considering there's
no consumer credit built into treasuries. I did a lengthier write-up of
it - check out "Rob Chrisman's Recent Blog Posts" in the right-hand
column of www.stratmorgroup.com.
Late last month when most people were fighting through their Christmas shopping list, Ginnie Mae announced the release of four new systems applications for issuers.
The new applications are part of Ginnie Mae's Integrated Pool
Management System, or IPMS, modernization initiative. These new
applications include: Request for Pool Numbers, Request for Commitment
Authority, Submission of Master Agreements for Certification and
Recertification, and Request Transfer of Issuer Responsibility. In the
release GNMA writes, "The new applications will be available to Issuers
via the GMEP and, with the exception of pool number assignments, will be
accessed via an RSA token, rather than biometrics. The token will
enable seamless and secure access to the new systems for purchasing
commitment authority, submission of master agreements, and submittal and
acceptance of pool transfers. The RSA token is a state of the user
authentication process that replaces a very inefficient process to
verify users of the system." More information on the system
There are plenty of companies buying and selling MBS (both agency and non-agency) and whole loan packages. MIAC Analytics announced a new whole loan trading platform.
MIAC is acting as a broker on various types of loan trades: Scratch
& Dent, Investor Overlays, Portfolio Performing Loans,
Non-performing Loans, and Re-performing Loans. "We have outlets for all
FIXED/ARMs/Hybrids/1st liens/2nd liens/non-QM loans, pretty much anything that has a mortgage attached to it." Contact Anjali Kumar is you're interested at Anjali.Kumar@MIACanalytics.com.
Monday FINRA released proposed amendments to its rules governing margin requirements for TBAs.
The proposed rule change provides that all FINRA members would be
required to collect variation margin for transactions in Covered Agency
Securities (which includes TBAs) when the current exposure exceeds
$250,000. The MBA is currently reviewing the proposed amendment, but times are getting tougher for the mortgage company's not wanting to post margin.
There are only 2 or 3 regional dealers now willing to transact without
the expectation of posting but with rules changing it just a matter of
time before the regionals ability to post will be affected as well. The
text of the proposed amendments can be found here. Additional FINRA commentary can be found here. Comments are due to FINRA by February 26th.
We did have some housing news yesterday in the form of the S&P/Case-Shiller Index, with its two-month lag. Home
prices in 20 U.S. cities rose in November from a year ago by the most
in almost eight years, providing a boost to household wealth: the index
climbed 13.7 percent from November 2012, the biggest 12-month gain since
February 2006, after a 13.6 percent increase in the year ended in
October. In terms of prices, agency MBS prices closed "higher and
tighter" Tuesday after a weak Durable Goods number - prices improved
between .125-.250 on average volume and the 10-yr's yield finished the
day at 2.75%. (Rates are unchanged this morning.)
the Floating Rate Note auction (mentioned above), today the MBA
announced its applications index (basically unchanged last week), and
we'll have the results of the Federal Open Market Committee meeting -
look for another cut of $10 billion. And as the next meeting is not
until mid-March, there is the possibility that the FOMC could announce a
cut for March as well, helping remove a little uncertainty from the
market. Expectations have been that the Fed will wind down its outright
purchases by around October; an equal monthly taper would conclude the
program sooner and with less total purchases.