CFPB Goes After PHH; Thoughts & Surveys on Current Builder & Lender Environment - Good & Bad News
The industry is changing. The first half of 2013 is a distant, fond memory for residential lenders. Subprime, non-prime - what's the diff? Business Week reports on it. And the lender landscape is changing - one East Coast correspondent rep wrote me, "The
Johnny-Come-Latelies who were attracted by the huge margins in
2008-2012 are finding that those margins just aren't there anymore,
especially with the Agencies in the play. Smaller lenders can't afford
compliance and legal staff, and will be exiting. But some of that will
be delayed as due to the large amounts of cash and servicing portfolios
that some have accrued. But
even there, many are currently selling their servicing portfolios for
cash to survive, so I expect to see a lot of consolidation in the second half of this year when that runs out." Those are tough words!
For those looking at an accurate read on current events & trends in the biz, Zelman & Associates released the results of its recent polls, including one focused on builders and one focused on lenders.
There is definitely some growth in the builder segment! "We have spent
the past two weeks talking to builders across the country, with
operations spanning more than 30 of the top MSAs, to read the tea leaves
on current market activity ahead of our official January Homebuilding
Survey. In addition, we recently spent several days in the field touring
communities in Phoenix, Las Vegas and Southern California. Although it
is still early in the year and winter weather has been a clear headwind
in many parts of the country, the majority of builders we spoke to reported a healthy sequential improvement thus far in January
and are looking forward to February with cautious optimism, which we
believe will be a similar tone voiced by public builder management teams
during the upcoming earnings season. Builders reported an acceleration
in traffic and activity but at a healthier pace than in the first half
of 2013 when a lack of new product and limited labor capacity fostered
unsustainable price appreciation. While the true success of the spring
selling season will not be known until February and March are in the
books, we remain optimistic that year-over-year new order growth is set
to accelerate through the year, posting a mirror image of 2013, as new
community openings work to slowly regain share from the existing home
market, the shock of last summer's spike in mortgage rates fades and
economic momentum provides an additional tailwind to consumer
confidence, employment growth and household formation."
the lender side, Zelman & Associates reports, "The purchase
mortgage market has become competitive in recent months as refinance
activity has plummeted largely due to rate volatility. As such, many
contacts have reported that in order to remain competitive, they are
sacrificing margins by engaging in aggressive pricing, which has been to
the benefit of consumers, and spending heavily on marketing.
Additionally, contacts have noted that they are exploring new business
channels or considering expanding product offerings to offset declining
overall business. As an indicator of the impact of competition on
mortgage pricing, we monitor the primary-secondary mortgage rate spread,
which measures the difference between the rate lenders offer to
consumers (30-year fixed mortgage rate - the "primary" rate) and the
rate secondary market investors offer to lenders for those mortgages
(the current coupon on a 30-year Fannie Mae MBS - the "secondary" rate)...
During December, the primary-secondary mortgage spread tightened
approximately four basis points to roughly 94 basis points, suggesting
some price competition. This was down considerably from 143 basis points
at the peak in September 2012 and the average of 101 basis points
during 2013, which benefitted from both elevated refinance activity as
well as higher HARP originations which offer outsized economics. Despite
the recent tightening, the spread remains well above the historical
average of 45-50 basis points, suggesting that borrower financing costs
could improve further as competition intensifies among originators,
although the approximate 25-30 basis point increase in guarantee fees
over the last several years coupled with potential additional increases
in fees will limit the extent of compression this cycle, indicating the
spread could contract 10-15 basis points before reducing lenders'
origination revenue to below-average levels. We would also note that
although higher overhead costs for originators could impact historical
comparisons, the significant decline in the refinance index would
suggest spreads are likely to continue compressing."
(The amount of information is material & significant, and Zelman & Associates is welcoming questions and additional participants in its surveys. For more information, contact Ivy Zelman at firstname.lastname@example.org.)
Speaking of input, "The
House Financial Services Committee wants to hold the Bureau of Consumer
Financial Protection (CFPB) accountable, so it's asking those who have
been impacted by the Bureau's work to come forward and tell their story.
Starting this week, the committee's website offers individuals a web
form to let committee members know how the CFPB has impacted them as
consumers, as business owners or how the Bureau has affected their
customers. 'Holding Washington accountable to hardworking taxpayers is a
never-ending battle. That's
especially true when it comes to the Bureau of Consumer Financial
Protection, the most powerful and least accountable government agency in
all of Washington,' said Chairman Hensarling (R-TX). 'The Financial
Services Committee is committed to true consumer protection. True
consumer protection means you not only protect consumers from 'Wall
Street' but from Washington as well.'" Here is the link to tell your
In an example of "Regulator Creep" the CFPB has proposed a rule that will give it oversight of the 25 largest nonbank providers of international money transfers, forcing such entities to comply with recent consumer remittance rules.
I continue to be asked about CFPB-related housing counseling. Start
with this - every application must give a list of counselors. And then you see what Quicken has to say on the matter.
PHH has been accused of taking kickbacks from MI companies by the CFPB.
The CFPB said it is seeking fines and repayment to customers from New
Jersey-based PHH and several of its mortgage-related subsidiaries. The
bureau filed the case in an administrative forum at the agency, and it
will be tried by an administrative law judge. Here are the facts in the
Turning to some quick vendor and investor news (lots more tomorrow)....
I owe an apology to Richard Donine, since I misspelled his name yesterday. (Richard Donine, formerly of Stearns Lending, Opteum Funding, and Impac, joined First Guaranty as
an SVP and National Marketing Director. He will head marketing for the
correspondent, wholesale, and retail lending channels in addition to
Capital Markets and warehouse lending.)
The CLD group of Envoy Mortgage
announced the following product updates: the minimum loan amount for
all products, excluding FHA, is increasing from $30,000 to $50,000; New
York CEMA refinance transactions are now eligible; refundable MI on
conventional loans is not allowed at this time; Texas Cash-out 50(a)(6)
conforming fixed rate product is now available (specific lender approval
Zipping over to the markets, we saw a nice increase in bond prices, and a drop in rates, Wednesday. But few lenders were seen re-pricing for the better - why not?
Adam Quinones with Thomson Reuters writes, "A number of reasons can be
cited to explain this defiant behavior. It's a chicken or the egg
debate. 1) Lenders are protecting pull-through - no need to adjust the
hedge. 2) Fallout is a problem but new apps are filling fallout holes -
originators would basically be swapping pipelines and migrating
down-in-coupon if fallout was an issue, and it is too soon for that
approach. Why swap coverage down-in-coupon when prices are still
rallying? 3) Whole loans are going directly into the servicing
portfolio, likely the case for larger money center banks that originate
loans against deposits - which also helps explain the short squeeze: a
general lack of supply and stack compression. Lastly, 4) maybe desks are
protecting newly acquired MSRs (mortgage servicing rights).
expected, the Fed cut its asset purchases by $10 billion. Current
buying levels from the Fed continue to be supportive, with a Deutsche
Bank MBS analyst noting that Fed demand is likely to absorb all net
supply well into spring. Through February, buying outright and through
reinvestment of paydowns is estimated to average $2.2 billion per day,
against originator supply that is running at around $1 billion.
What was unexpected was the
major stock markets losing over 1 percent as the bid for risk
deteriorated despite efforts from some emerging market central banks
(Italy and South Africa) to shore up their currencies by raising
benchmark rates. When the closing bond bell rang (there is no actual
bell, so don't send me an e-mail) agency MBS prices had improved about
.5 and the 10-yr's yield was down to 2.67%.
we had our first look at Q4 GDP. Expected at +3.3% following +4.1% in
Q3, it came out at +3.2% - about as expected. Initial Jobless Claims
were expected higher at +330k from +326k previously, and came out at
+348k up from a revised 329k, so down 19k. We'll have some
housing-related news with December's Pending Home Sales Index, and we'll
also have two auctions: $35 billion 5-year notes and $29 billion 7-year
the early going, after the GDP and Jobless numbers, rates are slightly
higher with the 10-yr at 2.70% and MBS prices worse about .125.