Wells Layoffs; Groups React to Tax Changes; Chatter About "Subprime" Loans is Misleading
springs eternal, right? As the residential lending industry wraps up a
couple rough months tomorrow, everyone is hoping for a more robust March
and April. They are basing this hope on the seasonality of the purchase
business out there, and the hope that the worst of the winter storms
are past. Few are banking on lower rates, lower costs to originate, or a
big influx of HARP-related business. Others are repeating the mantra,
"Hope is not a strategy," and are moving ahead with expansion &
hiring plans, scaling back operations staff due to production
predictions that were too optimistic, analyzing capital increases or
decreases, and adjusting projections. Life goes on and people need home loans - just not as many industry-wide as a year ago.
Wells Fargo announced layoffs of 700.
News out of Congress regarding possible changes to the tax code certainly turned some heads out there. Here is a statement by National Association of Realtors President Steve Brown: "NAR
supports reforms that promote economic growth, but we strongly oppose
severely altering the rules that govern ownership and investment in real
estate. Real estate powers almost one-fifth of the U.S. economy,
employs more than 17 million Americans, and contributes a quarter of all
federal and state tax revenue and as much as 70 percent of local taxes.
We are extremely disappointed with several of the provisions contained
in U.S. House Ways and Means Chairman Dave Camp's tax reform draft
released today, namely proposed limits on the mortgage interest
deduction and capital gains, and the repeal of deductions for state and
local property taxes. These proposed changes to the taxation of real
estate will impact every single American, either directly or indirectly.
NAR will carefully analyze the details of the Chairman's plan so we can
best educate Congress and the public about how this plan would impact
the owners, consumers, and producers of both residential and commercial
And Barbara Thompson, the Executive Director of NCSHA
(National Council of State Housing Agencies) issued a statement on
Chairman Camp's Tax Reform Discussion Draft. "On the one hand, we are
pleased that House Ways and Means Committee Chairman Dave Camp's tax
reform discussion draft preserves the Low Income Housing Tax Credit,
though we are still analyzing the impact the many changes the draft
proposes would have on the program. On the other, we are deeply
disappointed that the discussion draft eliminates the ability of states
and localities to issue tax-exempt bonds to finance affordable housing
by terminating private activity bond authority. This authority allows
states and localities to issue bonds for affordable housing, student
loans, energy projects, water facilities, transportation developments,
and other vital uses. State Housing Finance Agencies (HFAs) issue
tax-exempt Housing Bonds to finance affordable mortgages for first-time
homebuyers and rental housing developments. Forty percent of all Housing
Credit production annually is made possible by Housing Bonds. Both
programs have a proven track record of success in providing affordable
housing help to the growing number of lower income people who need it.
We urge Congress to ensure that any tax reform plan it advances
preserves and strengthens both of these essential programs."
The CFPB said it is making mortgage loan servicing a "significant priority"
for itself as it plans to make sure servicers are actively reaching out
to customers in default to try to help them. The regulator said they
expect servicers to pay "exceptionally close attention" to servicing
transfers and only use force-placed insurance "as a last resort." But what happens when you combine servicing and subprime loans? Here is a take from Reuters.
The press loves to use the word "subprime" since it seems to incite the
pubic and regulators, and the industry should do what it can to stop
using the term. Borrowers who don't have sterling credit have always
existed, and always will, and will always want to borrow money - a fact
somehow lost on some reporters.
But the definition of the word has always been nebulous,
especially when it is tied to a FICO score (much to the dismay of other
credit score providers). And "inconsistent income" has always been a
problem for self-employed borrowers, generally the group mentioned as
left behind in the Ability to Repay movement. Forgotten are compensating
factors, such as LTV or assets in the bank. When Wells Fargo announced
its retail group extending credit to that segment, it never uttered that
term, but somehow it garnered plenty of press in spite of dozens of
other lenders offering similar products especially in the FHA segment.
Even Bloomberg jumped on the bandwagon with the headline, "Subprime
Called Safer Makes Comeback as 'Nonprime'" (here's the link) on a story highlighting NewLeaf Lending. But gosh, haven't we been through this "slide down the credit curve" before?
are the days when lenders handed out mortgages without requiring
documentation and down payments. Today's purveyors of subprime call the
loans 'nonprime' and require as much as 30 percent down to safeguard
their investment. And they see a big opportunity for growth as tougher
federal lending standards shut out millions of Americans with poor
credit from the mortgage market. You're going to have to make all types
of loans, ones that conform to all the new standards and ones that
don't, to keep powering the housing recovery," said Bill Dallas, CEO of
Skyline Financial Corp. in Calabasas, California. "There needs to be a
solution for people who don't fit in the box, and rebuilding nonprime
lending is it."
$3 billion of subprime mortgages were made in the first nine months of
2013, matching the year-earlier period, according to Inside Mortgage
Finance. In 2005, subprime originations reached $625 billion. But even
that number, combined with jumbo securitizations, is less than 5% of
overall historical production. Most
companies are doing what they can to avoid non-QM lending, but in my
discussions with CEOs they admit that eventually, if the investor market
improves for this product, they will take a hard look at it. And
then instead of Household, Beneficial, and Associated, we'll be hearing
names like Advancial Mortgage, Athas Capital Group, B of I Federal Bank,
Citadel Servicing, Impac, LoanStream Mortgage, New Leaf Wholesale, New
Penn Financial, Parkside Lending, Quick Funding, Union Bank, Virage, and
Western Bancorp. Regardless, the industry, and the press, should not equate non-QM with subprime.
While we're discussing companies, a player to watch on the scene these days is FirstKey.
FirstKey is an independent lender based in Rye Brook, NY, backed by an
international private equity firm and global investor, providing a wide
range of real estate financing products and services for all sectors of
the industry. FirstKey's correspondent and retail origination businesses
operate under FirstKey Mortgage. Rental finance products (loans for
owners of 1-4 family rental properties) are offered by FirstKey Lending.
"FirstKey Mortgage's correspondent and retail channels provide their
clients with proprietary jumbo and agency loan products. If you're a
mortgage banker or rental property investor looking for a new company to
support your business, FirstKey should be at the top of your list. To
learn more about FirstKey, email firstname.lastname@example.org.
Fannie Mae has
increased the repayment plan incentive fee to $500, which applies to
each new and existing repayment plan that meets the criteria outlined in
the servicing guide and successfully brings the mortgage loan current.
The new incentive will go into effect for loans brought current on or
after March 1st.
a reminder, Fannie has suspended the approval of affiliates of MGIC,
Radian, and Genworth, which were approved through December 31, 2013; as
such, loans insured by any of these entities must have note dates on or
before the 31st and pool issue dates on or before July 1st or delivery dates on or before July 31st as applicable. This includes both borrower-paid and lender-paid policies. The parent companies are still approved and doing business as usual.
Freddie Mac has
revised sections of the seller/servicer guide to extend state
foreclosure timelines when certain allowable delays occur, provide
additional guidance on default legal matters, add a timeline for
notifying borrowers of interest rate adjustment for Step-Rate mortgages,
and update the requirements for reimbursement costs associated with
foreclosure notices and related legal proceedings. The
guide has also been updated to permit authorized third-party service
providers to use Workout Prospector and BPODirect and to provide
additional guidance on Electronic Default Reporting. For full details, refer to the original Freddie bulletin.
The MBA spread the word that the SEC announced that it was re-opening the comment period for the 2011 Re-Proposal
of Reg AB II's disclosure rules. Recognizing the potential privacy
issues associated with the Re-Proposal, the SEC is specifically seeking
comment on a staff memorandum that proposes a potential solution. Comments are due by March 28, 2014.
bond market had a nice little rally Wednesday, although, as Thomson
Reuters observed, "it was instigated by headlines related to Russian war
games that will take place near Ukraine, not by weak economic news. In
fact, today's New Home Sales report for January was surprisingly
strong." New Home Sales were up nearly 10% in January, and December's
numbers were revised higher. But that was in January, and the MBA's
application numbers from last week showed levels not seen since autumn
1995. And remember that a portion of housing sales are all-cash buyers
which tend to help Realtors and title companies but not lenders. And
lenders drive the production of mortgages, which in turn drive the
production of mortgage-backed securities. Anyway, when the dust had
settled current coupon MBS prices improved about .125 and the 10-yr
closed at 2.67%.
(Read More: Mortgage Purchase Apps not Living up to Historical Standards)
head out this morning for a brief visit to Orange County, but today
will have Durable Goods for January and Initial Jobless Claims for last
week, along with Fed Chair Yellen's testimony before the Senate Banking
Committee - don't look for much deviation from her appearance before the
House Financial Services Committee two weeks ago. In the early going
the 10-yr is down to 2.64% and MBS prices are once again a shade better.