Bank Consolidation Continues; the Basics of What all These Servicing Sales Mean for Lenders
"The reason the golf
pro tells you to keep your head down is so you can't see him laughing."
Someone, somewhere, is laughing at the press' focus on "the return" of
the subprime lending business. Well, maybe not, but certainly the
American public is seeing it in the press.
On the jobs front, AmeriSave Mortgage Corporation is currently looking for a new President to lead the company into its 13th year of business and beyond. The
candidate must have a minimum of 15 years' experience in an executive
role in the mortgage industry; specifically in retail lending, call
center environment, as well as the TPO market. The lender and its 200 employees is looking for an inspirational leader with
strong business development, sales, operations and secondary marketing
experience who is able to lead AmeriSave to reach its strategic goals
and objectives. Headquartered in Atlanta, AmeriSave Mortgage Corporation
is one of the nation's leading online retail mortgage lenders with a
very successful third party channel as well. It has full agency
approvals and is retaining servicing. Qualified individuals should
express their interest by contacting Michelle Compton at mcompton@amerisave .com.
A few thousand miles away, independent retail mortgage banker VITEK Mortgage Group is seeking a senior level Compliance Officer/Leader
for its Sacramento headquarters. VITEK has been in business for more
than a quarter-century and has both FNMA & GNMA seller/servicer
approvals. The CO will lead an established and talented compliance team,
manage and continue implementation of a fully developed CMS, as well as
training MLOs and business partners on compliance topics, and must be
able to drive an appreciation of the value of compliance within all
levels of the organization, crossing functional areas with ease. The
ideal candidate should have 5-10 years' mortgage banking / mortgage
compliance experience along with a Bachelor's degree in Finance,
Business Administration or related field. Candidates should send their
resumes to Libby Feyh at lfeyh@teamvitek .com.
Over on the banking side of things, consolidation continues.
In California ("Eureka"), Grandpoint Bank ($2.0B) will acquire Wedbush
Bank ($243mm) for an undisclosed sum. Not to be left out of things, in
Texas ("Friendship") CommunityBank of Texas ($2.5B) will acquire
Memorial City Bank ($280mm) for an undisclosed sum. In Ohio ("With God,
all things are possible"), Westfield Bank FSB ($830mm) will acquire
Valley Savings Bank ($128mm) for an undisclosed sum. And in Missouri
("Salus populi suprema lex esto") Commerce Bank ($23B) sold 3 branches
to New Era Bank ($263mm) for an undisclosed sum. And investment banker
KBW announced that CT's Salisbury Bancorp, Inc. and NY's Riverside Bank
have entered into a definitive agreement and plan of merger in an
all-stock transaction valued at approximately $28 million. The combined
organization expects to have approximately $808 million in total assets,
$630 million in total loans and $682 million in total deposits with 13
branch locations across Connecticut, Massachusetts and New York.
Yes, the evolution of the banking industry continues. At least we have the flood bill out of the way.
(NAR's president Steve Brown released, "Realtors commend President
Obama for signing into law the Homeowner Flood Insurance Affordability
Act, H.R. 3370, to curb flood insurance rate hikes for homes and
commercial properties...NAR welcomes this law for the relief and
protection it will bring to businesses and families nationwide, who are
experiencing financial hardship because of the extreme and sudden premium increases triggered by the Biggert-Waters reforms to the National Flood Insurance Program.
We believe the law is a responsible and balanced solution to the
skyrocketing rate hikes and will ensure a slow and steady phase in of
And who can keep track of the servicing business? Many folks attended the recently held IMN conference on residential mortgage servicing rights
(MSRs) in Manhattan. The primary focus of attendees was on the
regulatory front and the consensus view was the regulators might slow
down the process and increase the costs but MSR transfers were going to continue. Another point that came up regularly was the sharp decline in returns on investing in prime MSRs
as the number of participants in that market has increased sharply.
Returns on prime MSRs were generally seen as being in the high single
digits. Hey, that beats what I'm earning on my bank account!
representative of the CFPB was there (Laurie Maggiano) and went as far
as saying that the CFPB's views on many of the changes that are
happening in the servicing market, such as sales of excess servicing and
servicing advances, is still evolving. Maggiano reiterated that the focus of the CFPB was on the impact that these changes in the market are having on the borrower.
It's tough implementing new rules and successfully completed six
million modifications! Selling large blocks of servicing is not quick,
nor necessarily easy. Starting in 2014 the FHFA has had to approve all
transactions over $3 billion in UPB. Interestingly, say people "in the
know", it has a different focus from the GSEs so it adds to the
time-line to close sales.
What will mortgage
servicing look like next year? In five years? I don't know, but I do
know that everything will change, in one way or another; from the
interaction with the customer, to operational responsibilities, to
information systems, to accounting valuation, to trading, it will all be
conditioned to comply with governmental oversight. Last month CFPB
Deputy Director Steven Antonakes, at the MBA's National Mortgage
Servicing Conference & Expo gave a strongly worded speech in which
he stressed compliance and industry expectations. Mr. Antonakes stated,
"Nearly eight years have passed and I remain deeply disappointed by the
lack of progress the mortgage servicing industry has made. For a man who
has spent the last 24 years, the bulk of his career, as a banking
regulator, his words should not be undersold. With "the fundamental
rules have changed forever" and that "business as usual has changed in
mortgage servicing," his comments ring loud and clear. The Deputy
Director explained the CFPB's expectations to servicers: reach out to
the customer, monitor transfers closely, honor any modifications made by
prior servicers, forced place insurance as a last resort.
But the servicing buyers are out there.
Prime MSR sales are very competitive with 15-25 bidders, 8 of which are
very competitive. As a result returns on prime MSRs investments have
contracted from the mid-to-high teens a couple of years ago to high
single digits currently. And while we're on numbers, one driver of MSR
sales currently is the high capital consumption with new MSRs being
booked in the 110 basis point range (over 4:1 for 25 basis point agency
servicing). This makes origination meaningfully cash flow negative. A
year ago MSRs were being booked at smaller levels and gain-on-sale
margins were much higher so there was less cash flow pressure on
Curtis Mayfield, an American R&B singer said we gotta "keep on, keeping on." I
agree, and so do MSR traders. Below are a few deals which have come
across my desk over the past week or so, and a fairly good
representation of what we have been seeing in the market place.
Interactive Mortgage Advisors
is currently offering two MSR's for trade. The first is $493.9 million
GNMA bulk residential mortgage servicing rights. The portfolio is 100%
originated VA IRRL loans with a pool characteristic of a 2.50% WaC, with
5 months of seasoning, geographically dispersed around the country, and
Ocwen sub-serviced. The second is for $89.7 Million of FNMA/FHLMC/GNMA
bulk residential mortgage servicing rights, with a characteristic of a
3.870% WAC, with 5 months of seasoning, WaFICO 722, UT/CO concentration,
and Cenlar sub-serviced.
MountainView Servicing Group
is offering $235 million, with 100% fixed rate, FNMA/GNMA non-recourse
servicing portfolio. The package breakdown: WaC 3.96%, WaFICO 721, WaLTV
74%, an average loan size of $249k, low concentration of HARP
servicing, with loans in CA (88%), CO (3%), WA (3%) and TX (2%).
Mortgage Industry Advisory Corporation,
or "MIAC" to some, as exclusive representation for the seller, is
offering $150M, or more, per month of concurrent flow mortgage
servicing. The flow servicing is being offered by a well-capitalized
mortgage company that originates nationally. The seller will be
providing full reps and warrants for the loans included in this
offering, which is 99.6% fixed-rate, has a WaLA of $168,417, GNMA (55%)
FNMA A/A (31%), FHLMC (14%), geographically dispersed, with an average
escrow balance of $1,667.
Lastly, earlier in March Phoenix Capital, Inc.
brokered a $20-$30+ million/month conventional and $15-$20+
million/month government flow mortgage servicing rights deal. Seller is
an independent mortgage banker established in 1996. (The conventional
flow deal was 100% Fannie A/A, 75% wholesale, 22% correspondent, 21%
from Georgia, 83% fixed rate. The government flow production was 60%
FHA, 86% wholesale, 96% fixed-rate.)
What do these flow and bulk deals mean?
Well, for one, many mortgage banks that thought they would hold onto
their servicing for decades, and the steady cash flow from the asset,
have found that they needed the cash now. Tax implications aside, they
need to sell the servicing. Secondly, and in a related issue, the sale
of servicing effectively bypasses the traditional aggregators. My
capital markets gal at fictional "Chrisman Mortgage" may not like the
SRP values that she is seeing by selling to Wells, or Chase, or by
selling to the agencies and simultaneously spinning off the servicing to
one of the agency's servicing partners. So we hold the servicing and
sell it through bulk sales, or we sign a deal with a non-bank buyer to
buy it on a flow basis. Either way, the implications to the
traditional bank/aggregator correspondent business model are obvious,
and not good for that channel. But how much experience do new servicers
have in evaluating the cost to service? Time will tell, and although
the marginal cost to service loans goes down as the portfolio
increases, the regulatory and compliance costs are only expected to
For a slightly more
in-depth view, I wrote up a "Primer on Trends in Holding Mortgage
Servicing Rights." It can be found on the STRATMOR Group web site
located at stratmorgroup.com.
Is the Tri-State MBA
conference April 9-11 on your calendar? It will be held at the Peabody
in Memphis (don't step on a duck!), and if you go say hello - I will be
and vendors in California can reach out to hundreds of mortgage
originators through Silicon Valley CAMP's annual one-day trade show.
This year's event will be held Friday, May 9 in Campbell. Sponsorship
opportunities are still available for $350 and up, with booth spaces and
one major sponsorship opportunity left. Breakout sessions this year
will focus on regulatory update and compliance, and social media
marketing. SV CAMP has some fun events scheduled that day to help you
meet as many originators as possible. Contact Arlene Taylor-Mooney at ataylorm@ att.net for more details.
CSFB announced that
it will pay $885 million to settle two lawsuits with the Federal Housing
Finance Authority (FHFA) over $16.6 billion of mortgage-backed
securities it sold between 2005 and 2007. Simplifying the math leads to this being about a nickel on every dollar.
spread the word to its broker clients about its new FHA 203(k)
PowerSaver program. "Sun West is one of the few lenders approved by HUD
to offer the combination of FHA 203(k) and PowerSaver, the FHA 203(k)
PowerSaver. FHA 203(k) PowerSaver allows borrowers to finance in
energy-efficient improvements using PowerSaver's federal grant funds to
cover certain closing costs. To be eligible for grant funds, the
applicant must choose to make energy-efficient improvements for a
minimum of $3,500 and combine it with the rehabilitation amount on a FHA
203(k) loan. Go here to view complete guidelines.
famously called for a one-handed economist, so he would not have to
hear, "on the other hand..." But there continues to be a lot of
conflicting information about the U.S. economy. And we have certainly
learned, through developments in China, Europe, and Russia, that our
numbers aren't the only determinant of rates.
this week we have a fair amount of scheduled U.S. news that could nudge
rates one way or the other. As I head to Denver this morning there is
zip; tomorrow is Personal Income and Personal Spending/Consumption, and
Consumer Confidence. There is also a slew of housing numbers: the House
Price Index, S&P-Case Shiller numbers, and New Home Sales. On Wednesday, March 26th, Durable Goods Orders
will reflect the new orders placed with domestic manufacturers for
immediate and future delivery of factory hard goods. Investors watch
this as durable goods is a leading indicator of industrial production
and capital spending. On Thursday Gross Domestic Product (GDP) will
represent the total value of the country's output; we'll also have
Initial Jobless Claims and Pending Home sales.
Here's the one for and about economists, and efficient market theory.
Two economists are
walking down the street when ones sees a hundred dollar bill and points
it out to his friend. "Is that a $100 bill lying in the gutter?" "No"
his friend replies. "If it were a $100 bill, someone would have picked
it up already." So they walk on by.