ABA on GSE Reform Bill; Freddie Changes Low Activity Fee; Affiliated Adds Mini-Corr/Mandatory
"May a lender decline a mortgage applicant because the applicant became involved in a lawsuit subsequent to his or her initial loan application?" Darned if I know, but the Mortgage Bankers Association of the Carolinas notes, "A lender may decline a loan if an applicant's involvement in a lawsuit negatively impacts that applicant's income with regard to creditworthiness determinations. - See 12 CFR 1002.6(b)(5)". Sounds reasonable to me.
Mark Hammond, ex-CEO of Flagstar (#5 correspondent in the first quarter, per National Mortgage News) has joined United Shore Financial Services as Co-Chairman. "Hammond will work closely with Jeff Ishbia, current chairman and founder of USFS, in leading the 27-year-old company. USFS operates three brands: United Wholesale Mortgage (UWM), the fourth largest wholesale mortgage lender in the country*; Shore Mortgage; and Capital Mortgage Funding.
There is a lot of securities market chatter, and tomorrow , June 27, SIFMA will be hosting a 'Spotlight Session' in NYC on the TPMG (Treasury Market Practices Group) recommendations regarding the margining of forward settling agency mortgage backed securities transactions (TBAs). The recommendations were initially intended to be implemented by June, though the recommendation now states that market participants "substantially complete the process by December 31, 2013". Here is the registration link for this 'spotlight session' to be held from 3-6PM EDT.
The Secondary Marketing Committee of the MBA is very tuned in to this, and there have been lots of questions and uncertainty as to the impact this will have on smaller mortgage bankers who may now be required to post margin. There will likely be impacts on the regional and primary dealers. Exactly how these new requirements are applied and whether they are applied in the same manner to non MBSCC members are among the questions attendees hope to have answered. If you have specific questions for tomorrow's session, write to Michael Ehrlich at email@example.com.
By the way, at times, I have made reference to comments made by Adam Quinones, Head of Mortgages at Thomson Reuters. Adam's daily color is directed toward secondary marketing and capital markets. If you are interested in receiving Adam's commentary direct to your email, please click this link to submit a request to be added to his daily distribution. This is made available to capital markets/secondary marketing professionals and those in senior mortgage banking leadership roles.
The laws of supply and demand dictate that without demand, price falls - and rates go up. So the industry is acutely aware of changes in the secondary markets, which obviously include Freddie and Fannie and their future. The ABA (American Bankers Association) sent out a statement on the GSE reform legislation. Frank Keating, ABA President and CEO, noted, "The American Bankers Association commends Senators Corker, Warner, Tester, Johanns, Hagan, Heitkamp, Heller and Moran on the introduction of the Housing Finance Reform and Taxpayer Protection Act of 2013 to address the federal government's role in the mortgage market and resolve the longstanding conservatorship of Fannie Mae and Freddie Mac. This bi-partisan legislation is a positive first step in what is certain to be a long process toward creating a sustainable, rational and limited role for the federal government in supporting and regulating a mortgage market that is appropriately and predominately filled by the private sector. The bill follows principles long advocated by ABA, and builds upon the framework detailed by the Bi-Partisan Policy Center's Housing Commission on which I served."
And Freddie was in the news yesterday with a story from Bloomberg saying, "Freddie Mac is preparing to begin selling notes tied to the default risks of pools of home loans, according to a person with knowledge of the plans." (Just once I'd like to be the person with knowledge of the plans.) Supposedly Freddie has hired Credit Suisse to manage its first deal and plans to meet with potential investors. "The offering reflects an effort by the Federal Housing Finance Agency to reduce the role of Fannie Mae and Freddie Mac in the residential-mortgage market, where government-backed loans now account for more than 85 percent of lending. The FHFA, which has overseen the firms since they were seized in 2008, has been directing the companies to raise how much they charge to guarantee their traditional mortgage bonds and asked them to each attempt to share risk on $30 billion of home loans this year."
While we're discussing Freddie, let's move on to some agency & investor news.
Yesterday Freddie Mac adjusted its policy which penalized lenders with a "low activity fee." "In Single-Family Seller/Servicer Guide ("Guide") Bulletin 2013-8, we introduced a low activity fee to be assessed annually beginning January 1, 2014 to Seller/Servicers not meeting certain activity thresholds for the prior calendar year. We have reassessed our low activity fee requirements based on industry feedback and, with this Bulletin, are changing the low activity fee to a no-activity fee. To avoid being assessed the $7,500 fee, Seller/Servicers must meet at least one of the following activity thresholds: Sell to Freddie Mac during the immediately preceding 36 months, or service, or be a Servicing Agent for, a Mortgage portfolio for Freddie Mac as of December 31 of the immediately preceding calendar year. New Seller/Servicers are exempt from the fee until they have been approved by Freddie Mac for three years."
Flagstar announced on Friday that it had entered into a settlement agreement with Assured Guaranty in exchange for a $105 million payment. As a result Flagstar will recognize $48.3 million of income ($0.86 a share). In early May, the company had entered into a settlement agreement with MBIA for $110 million and the company took no charges related to that settlement. "We believe that this settlement will be viewed positively as it removes the last major private label litigation issue for the company. It should also give investors some comfort that the company has adequately reserved for its legacy credit risk." Wouldn't that be cool?!
As part of the effort to streamline its underwriting process, the California Homebuyer's Downpayment Assistance Program (CHDAP) is scheduled to implement several CalFHA first mortgage guideline changes on July 1st. These include capping CLTVs at 103% and DTI at 43% and requiring a minimum borrower investment of $1500 for FICO scores between 640-679 and $1000 for FICO scores of 680 and above. Any tax savings derived from Mortgage Credit Certificates will not be eligible for credit qualifying purposes, including qualifying income or DTI calculations.
In Ohio, the Croghan Colonial Bank ($630mm) will acquire National Bank of Ohio ($219mm) for cash (30%) and stock (70%) worth about $28.9mm or roughly 1.4x capital.
REMN sent out a note to its broker clients: "Effective August 1st, broker compensation buckets at REMN will be imposed by submission date. This is a change from our previous policy of lock date. Please take this into consideration when disclosing your loans."
Affiliated Mortgage has made the leap into the wholesale sector, adding a Wholesale/Mini-Correspondent Division that will be headed by Jerry Alred, formerly of Classic Home Financial. The operations team will be based out of Houston with an initial focus on expanding its client base throughout Texas, with plans to look further afield in the near future. In addition to its foray into wholesale, Affiliated has begun offering a single loan Mandatory program for clients with a net worth of $2.5 million or more. Loans can be locked for 7- and 15-day periods, with pay up options included in daily rate sheets, and lenders will have the option to switch the delivery from Mandatory to Best Efforts if necessary (note that any lock periods longer than 15 days will result in the loan being reset to Best Efforts automatically). Anything locked under this option will not be included in lenders' monthly performance analysis.
Headlines this morning talk about how the housing market is shrugging off higher rates. What the headlines seem to conveniently forget is that the numbers (like Case-Shiller with its two month lag) are backward looking. Rates began moving higher in May, and probably don't have a tremendous bearing on the numbers we're seeing. But no one can deny that housing is doing well. For example, yesterday we learned that sales of new U.S. homes climbed more than forecast in May to the highest level in almost five years: New Home Sales were +2.1%. The median selling price climbed 10% from May 2012. And Durable Goods came in better than expected, although revisions to last month offset these gains and so there was little change to most analysts' GDP estimates.
So are traders going to drive rates higher until the economy does not do well? No - common sense would suggest that equilibrium will be reached. Yesterday some stability was restored, and both stock and bond prices were higher as trading got underway. Bonds sold off on the stronger-than-expected news, but equities had a good day. Current coupons mortgage-backed securities were nearly unchanged by the end of the day and the 10-yr closed at 2.58%.
For excitement today we had the MBA's application numbers for last week: overall numbers were -3% with refis down 5% but purchases were up 2%. Refis are now 67% of total apps, and ARMs were steady at 7%. We also have the final Q1 GDP reading at 8:30AM EDT and a $35 billion 5-year note auction. In the early going the 10-yr is better by .250 in price and yielding 2.56%, MBS are tagging along for the ride somewhat.