Servicing & Bank Deals Persist; Analyst's Take on Ocwen & Walter; HECM & HELOC Trends
am hearing that lock desk activity is picking up, which is nice to see.
New apps mean running credit, and just in time for changing your clocks
this Sunday (in most states) the CFPB has published a blog post for
consumers about disputing errors on their credit report. As you're
working with borrowers who may wish to dispute items on their credit
report, it may be helpful to provide them with a link.
Bank transitions continue to take place.
Only five have been closed this year, including two on Friday: Vantage
Point Bank, Horsham, PA became part of First Choice Bank of Mercerville,
New Jersey. And Millennium Bank, National Association (VA) didn't make
it to the next one. It became part of Virginia's WashingtonFirst Bank.
Also reducing the number of banks is the continued M&A,
with recent nominees being Southern Bank ($941mm, MO) acquiring Peoples
Bank of the Ozarks ($273mm, MO) for $22.9mm in cash and stock or about
1.49x tangible book, and Oconee State Bank ($280mm, GA) announcing it
will acquire Stephens Federal Bank ($158mm, GA) for an undisclosed sum.
And servicing deals persist - mortgage bankers need cash. Mortgage Industry Advisory Corporation (MIAC) came to market with a $471.05 Million FNMA mortgage servicing portfolio. MountainView Servicing Group, LLC brought out a portfolio of $156 million FNMA/FHLMC non-recourse servicing (99% fixed rate and 100 percent 1st
lien product, 100% retail, weighted average original FICO of 743 and
weighted average original LTV of 73%, weighted average interest rate of
4.29%, mostly from AZ, CA, and WY, average loan size of $185,535).
MountainView also came out with a small pool of $22 million - this one
from Texas and Michigan. No one size fits all!
The scrutiny of Ocwen continues, especially in regard to the four other publicly held companies controlled by Ocwen's CEO.
Investment banking firm KBW reduced their "target price" for Ocwen's
stock from $57 per share to $43. "The reduction in our price target
reflects both the meaningful decline in our 2015 EPS estimate but also a
lower target multiple; we had been using a target multiple of 10.9x our
EPS estimate. We believe that a lower target multiple is justified
given the regulatory uncertainty, which could result in an increase in the company's cost to service. We are reducing our EPS estimates to incorporate a slower pace of acquisitions. We now assume that the Wells Fargo portfolio closes in the second half of 2014 and boards in 4Q14."
KBW also sent out similar news regarding Walter Investment Management Corp.,
another non-bank company that has beefed up its servicing portfolio in
the last year or so - thus it is generally lumped in along with
Nationstar, PennyMac, and other non-bank servicers. KBW missed
accurately predicting Walter's earnings, "driven by weaker mortgage
banking and higher operating expenses. We are reducing our EPS estimates
and taking our price target to $30 from $41. Mortgage banking trends
were weaker than expected. Total volumes of $4.7 billion were down from
$6.1 billion in 3Q and below our $5.5 billion forecast...The servicing
portfolio increased to $218 billion from $209 billion last quarter...WAC also disclosed that Green Tree will likely be the target of enforcement action by the CFPB
in regards to alleged violations of various federal consumer financial
laws. The company also disclosed that it is awaiting approval from
certain of the GSEs on the acquisition of servicing rights from
Federal Housing Finance Agency (FHFA) announced it has reached a
settlement with Société Générale, related companies, and specifically
named individuals for $122 million. The settlement resolves claims in
the lawsuit FHFA v. Société Générale, et al alleging violations of
federal and state securities laws in connection with private-label
mortgage-backed securities (MBS) purchased by Fannie Mae and Freddie Mac
And PNC is cooperating with the Department of Justice over potential problems with FHA loans.
A group of non-borrower surviving spouses of Home Equity Conversion Mortgage (HECM) recipients filed a class-action lawsuit
against HUD alleging that the agency did not prevent them from being
foreclosed upon after the death of their spouses as required by federal
law. This lawsuit follows a federal court decision from last year that found that HUD violated federal law with a rule
which allows a lender to foreclose on or demand repayment from a
surviving non-borrowing spouse where the deceased spouse had received a
This is of interest, of course, since one of the mortgage products that contributed to the housing crash is booming again: New home equity credit line borrowings soared 42% in the final three months of 2013 and were up sharply for the entire year, to $111 billion. But
does this point to a return to the "my house is an ATM" mentality that
characterized excessive home equity borrowing from 2004 through 2007,
just before the crash? Should consumers - and the banks doling out the
cash - be cautious about this trend? Researchers at Experian Information
Solutions estimate that originations of HELOCs rose 58% in the final
quarter of last year in the Western states, 38% in the Northeast and 36%
in the Midwest.
It is especially interesting since Chase listed stand-alone 2nds as one of the products being eliminated from its product line up going forward.
Perhaps the bank, which anecdotally has become more aggressive in
pricing other products, wants to stay away from borrowers with lower
credit scores: new equity credit lines extended to owners with "deep
subprime" scores (300 to 499) increased faster than in previous years
and averaged more than $60,000, roughly triple the amounts in late 2010.
Serious delinquencies in outstanding HELOCs continued to be low,
generally well under 1%. A rebound in owners' equity due to rising home
prices is helping fuel this. (Between the third quarter of 2012 and the
same period last year, Americans' real estate equity expanded by $2.2
trillion, according to the Federal Reserve.)
Depository commercial banks are also pushing equity line products: home
equity lines are much less expensive than a refi, and have less
paperwork. Besides, think of the sale skills involved in refinancing
someone with a 3.5% 30-yr fixed into a 4.25% 30-yr fixed rate loan.
There is a correction to yesterday's investor updates. Changes to CSFB's guidelines were mistakenly attributed to Redwood Trust.
It should have read: "Credit Suisse has made a number of underwriting
updates, including raising the maximum LTV/CLTV for all ARM and 15-year
amortized products from 75 to 80% and allowing second home purchases,
rate/term refinances, and cash-out refinances of co-ops. With
regard to risk assessment, borrowers who do not meet the three
tradeline requirement will be considered eligible if they have six
months additional reserves and the loan has a DTI below 35, LTV below
65%, or FICO above740; and first-time homebuyers' payment shock may not
exceed 250% when deposits and gifts are verified with the borrower. The
additional LTV requirements for multiple financed properties have been
removed, and condo projects with less than 10 units will be permitted
provided that they are typical for the area and the appraisal shows
similar comparables. Hobby farms will also be permitted if the property
has between 10 and 20 acres, does not have any income-producing
attributes, and has a land to value ratio of 35% or below."
But speaking of Redwood Trust,
during its earnings release in late February (net income for the fourth
quarter of 2013 of $25 million versus $42 million for the fourth
quarter of 2012) CEO Martin Hughes said, "Having recently obtained approval as a Fannie Mae and Freddie Mac seller/servicer,
however, we now have the ability to acquire and distribute conforming
loans to these government-sponsored enterprises, thus significantly
expanding our market opportunities....While we continue to create and
retain credit securities through our Sequoia securitization program, our
entry into the much larger conforming market positions us to pursue
investments in conforming credit through potential risk-sharing
arrangements (recourse and other types) with the GSEs."
The following public announcement of an LOI appeared this week concerning Axis and Zaio,
heralding the formation of a new family of familiar companies in the
AMC space: "Axis has been a long time partner of Zaio's and is a leading
Appraisal Management Company in the United States.... Upon closing of
this acquisition, Axis would become a subsidiary of Zaio and continue to
function as it has, but with greater resources, technology and systems
to support its base of appraisers and clients. The net result is a
nationwide network of over 5,000 appraisers, 100,000 realtors, and
highly skilled and knowledgeable staff and management, all powered by
proprietary technology from Zaio and Valuation Vision. Our network will
operate out of San Rafael, CA, Tempe, AZ, and Carlsbad, CA, with
additional sales personnel in Dallas, Chicago, and New York,
representing a truly national entity with deep and experienced
leadership and management."
I received a note from Jeff Detwiler with real estate company Long & Foster regarding the recent lawsuit news. Mr. Detwiler noted that, "The
original suit named a variety of individuals and entities. Long &
Foster and Carla Northrop were dismissed for the suit as the court
reviewed it, and that Lakeview Title has no affiliation with Long &
has expanded its guidelines on the Parkside Collateral ARM product,
which now allows a Debt Coverage Ratio of 1.3 for LTVs from 50-60%, 1.2
for LTVs from 40-50%, and 1.1 for LTVs of 40% and below. All transactions are subject to a maximum LTV of 80%, and DCR exceptions will be permitted on a case-by-case basis.
has rolled out a non-QM Stated Interest Only product that allows LTVs
up to 80 for owner-occupied properties and 75 for non-owner occupied. Additional features include an ITIN and Foreign National program and a bank statement program for W2 and SE borrowers. Athas
also allows sub-500 FICOs, bankruptcies, foreclosures, and short sales
and does not require reserves or seasoning on the title. Rates start at 7.00%.
had a lot of news yesterday, but it had little impact on the markets.
Personal Incomes rose by 0.3%, in line with expectations while Spending
rose by 0.4%, above the 0.1% expected. Inflation,
as measured by the Core Personal Consumption Expenditure, was also in
line at 0.1%, while the year-over-year Core ticked down to 1.1% from
1.2%. Inflation is still a non-issue. The ISM Manufacturing Index in February rose to 53.2, more than expected.
instead of trading much off of this news, the stock and bond markets
turned their attention, once again, to overseas - in this case Russia
& Ukraine. From a human perspective, it is difficult, but the
resulting nervousness caused money to flow toward dollars, and an easy
way to do that is to buy fixed-income securities. And thus the 10-yr
yield ended the day at 2.61%. And there is no scheduled news in the U.S.
to move things, so direction comes from Asia/Europe again.
"Unfortunately" things have quieted down over there, and yesterday's
market moves have reversed themselves somewhat so the U.S. 10-yr.'s
yield is back up to 2.64% and agency MBS prices are worse a shade in the
very early going.