New Rep & Warrant Product; Citi Settles; What Wells' Earnings Tell Us; Adios Mini-Corr?
Sometimes it is hard to tell if things are legit or not, especially
when it comes to legislation. In 2014 Congress has reminded us of how it
is nearly impossible for the current batch of politicians to actually
pass meaningful legislation, but that won't stop it from introducing headline-garnering proposals on housing reform.
I would wager my cat Myrtle that Congress does nothing this year on GSE
reform - too much vacation and election time coming up - but this and
other proposals show us where Congress' heads are.
seems to have a lot going on, and most recently announced that it has
completed the sale of its fleet business for net proceeds of
approximately $821 million.
What does one do that those kind of dubloons? PHH says it intends to
use up to $450 million to repurchase shares over the next year and
retire $170 million in debt in 3Q14. Some would say that is a drop in
the bucket given that financials show, including the net proceeds, PHH
would have had $1.74 billion of cash as of March 31. PHH also announced
several strategic initiatives. The company will deploy up to $200
million to re-engineer operations and support infrastructure, focusing
on restructuring its Private Label business, reducing expenses,
increasing efficiencies, and investing in technology. The company also
intends to spend $150 million on growth initiatives to expand its target
market for the Private Label business and to grow its origination
volume through outsourcing opportunities. The company will also evaluate
inorganic growth opportunities. (Hey, maybe buy a daily commentary
Wells and Chase
- does the comparison revolve around a domestic focus versus foreign
interests, or mortgage banking performance? Wells' market value has come
to dwarf that of Chase ($275 billion versus $210 billion based on
price/book value). Chase, who normally leads off or at least ties for
announcing quarterly big bank earnings, reports tomorrow. (In the first
quarter Chase reported mortgage banking net income fell to $114 million
in the quarter, a drop of $559 million from the year-earlier period,
with mortgage originations falling 68% to $17 billion from a year
earlier, and were down 27% from the fourth quarter.) But Wells' came out
Friday, and it reported a 39% drop in mortgage revenue for the second
quarter as lending volume dropped. Actually, mortgage originations
increased for Q2, but they have been steadily declining since Q3 of
2012, and are certainly down year-over-year.
compared to what analysts were expecting, WFC's mortgage banking
results were good. Both mortgage volumes and applications were up
materially, with origination volume up 30.6% to $47 billion from $36
billion, and apps up 20% over last quarter. WFC's gain-on-sale margin
declined 20 bps to 1.41% from 1.61%. In fact, compared to some of the
trends reported by the MBA's application index and industry estimates,
the numbers were pretty strong. On the servicing side of things, WFC's
MSR capitalization rate decreased 5 bps to 80 bps from 85 bps last
quarter and the estimated multiple of the servicing fee decreased to
3.08x from 3.27x. of course, this is very interesting given that bulk
and flow deals are trading at north of a point for solid counterparties
gain on sale margin of 1.41% (verus 1.61% in the first quarter) was
slightly weaker than expected. The primary-secondary spread was slightly
wider in 2Q than 1Q, although the percent or retail versus
correspondent production dropped (53% of mortgages originated through
the retail channel versus 56% last quarter). Although the amount of
loans from purchase transactions has grown dramatically, the overall
size of the mortgage market thus far has been disappointing, and could
set a subdued tone for the mortgage business through the rest of the year not only for Wells but other banks as well.
was also in the news, this time by resolving the huge majority of its
outstanding residential mortgage issues with the government.
CitiGroup/CitiBank/CitiMortgage and the Department of Justice announced
that Citi will pay $7 billion in fines, including a civil penalty of $4 billion.
Romeo and Juliet, Act II, Scene II, we find the quote, "What's in a
name? That which we call a rose by any other name would smell as sweet."
Does "mortgage broker" smell as sweet as "mini-correspondent?" As this
commentary has mentioned several times last year and earlier this year, any business model designed to "get around" something is not a long term recipe for success. The CFPB has published guidance
regarding mortgage brokers transitioning to a "mini-correspondent"
lender model as it is concerned that some mortgage brokers may be
shifting to the mini-correspondent model under the belief that
identifying themselves as such would automatically exempt them from
important consumer protection rules affecting loan officer (LO)
compensation. The guidance that came out Friday sets out how the CFPB
evaluates mortgage transactions involving mini-correspondent lenders and
confirms who must comply with the broker compensation rules regardless
of how they may describe their business structure.
the financial crisis, consumers seeking mortgages were steered toward
high-cost and risky loans that were not in the consumer's interest,"
said CFPB Director Richard Cordray. "The CFPB's rules on mortgage broker
compensation are intended to protect consumers from this type of abuse.
Today, we are putting companies on notice that they cannot avoid those
rules by calling themselves by a different name."
connect borrowers with lenders who underwrite and fund loans. In
contrast, a correspondent lender, as generally understood in the
mortgage industry, processes applications, provides legally required
disclosures, frequently underwrites the loans, makes the final credit
approval decision, funds the loans, and sells them to investors.
CFPB is concerned that some mortgage brokers may be setting up
arrangements with investors in which the broker claims to be a
'mini-correspondent lender,' when in fact the broker is still
essentially just facilitating a transaction between a borrower and a
lender. While some brokers may be setting up such arrangements because
they intend to grow into full correspondent lenders, the CFPB is
concerned that other brokers may simply be attempting to evade consumer
protection rules. This guidance confirms that mortgage
brokers who merely choose to describe themselves as mini-correspondent
lenders are not automatically exempt from applicable consumer protection
guidance sets out some of the questions the CFPB may consider in
evaluating mortgage transactions involving mini-correspondent lenders in
order to understand their true nature. This evaluation involves
examining how the mini-correspondent lender is structured and operating,
for example: whether it is continuing to broker loans; its sources of
funding; whether it funds its loans through a bona fide warehouse line
of credit; its relationship with its investors; and its involvement in
mortgage origination activities such as loan processing, underwriting,
and making the final credit approval decision.
CFPB Director set a stern tone when he let the mortgage industry know
the Bureau is taking official action on the increase of mortgage
originating 'mini-correspondents' in recent years," said John H.P.
Hudson, VP of regulatory affairs at Premier Nationwide Lending. "It
would appear there is a push towards a 'you are either a mortage broker
or a mortgage banker' environment."
we just had yet another proposal on Fannie and Freddie, and recently
the House of Representatives overwhelmingly passed The Mortgage Choice
Act (H.R. 3211), which makes important changes to the way "points and fees" are calculated under the Qualified Mortgage (QM) definition
in the Dodd-Frank Act and ensures that consumers have greater access to
mortgage credit and also more choices in credit providers. The MBA free
grassroots lobbying effort, Mortgage Action Alliance,
writes, "Now it is the Senate's turn to weigh in on this bipartisan
legislation (which is referred to as S. 1577 in the Senate). Your
support is needed to get this legislation passed. We need to you to
contact your Senators to urge them to support this important legislation
by asking the Senate Majority Leader to schedule a vote on it as soon
as possible. This is an easy assignment. You can do it in two steps,
both of which take no more than five minutes: step 1: Join the Mortgage Action Alliance (MAA), step 2, visit the MAA homepage and TAKE ACTION."
Rates continue to be up a little, down a little. We all know what the Fed is going to do every day
in terms of QE and security purchases. And I don't see any big reason
for huge lock days from lenders. So we're back to looking at scheduled
economic news here in the United States, and we have quite a bit of it. I
will just list it off - too busy preparing for the Western Secondary in
SF to be clever. Tomorrow is Retail Sales, Empire Manufacturing, and
Import Prices. Wednesday is the MBA's applications numbers - the
announcement doesn't move rates, but instead provides information about
the health of lending. We also have the Producer Price Index, Industrial
Production and Capacity Utilization, some NAHB Housing Market Index
number, and the Beige book. Thursday is Jobless Claims, Housing Starts
& Building Permits, and then on Friday is the University of Michigan
Consumer Confidence number and Leading Economic Indicators.
of that may tend to shift rates, but it is highly doubtful we'll be
moving out of the range we've been in since the Spring. For actual
numbers, we closed the 10-yr Friday at 2.52%. All is quiet this morning, rate-wise, with the 10-yr and agency MBS prices roughly unchanged.
the private sector, lots of companies are trying to bring new talent on
board - some would say it is almost a recruiting war out there. The EMAC Group has announced the release of its EMAC Recruiting Academy 60 Day Mortgage Recruiting Boot Camp. "Learn how to attract your local talent. Join us for a special on-going training series '60 Day Mortgage Recruiting Boot Camp'
starting Wednesday, July 16th at 3PM EST! The buzz is in the air and
mortgage professionals at all levels are exploring their career options,
and the question is, 'Are there prospects in your talent funnel?'"
Venta Financial Group, based in Las Vegas, NV, is searching for a Controller.
"We are a unique and growing mortgage firm. If you're an exceptional
Controller who is looking for a meaningful role in a great culture of
peers who play like champions, we can offer a compelling opportunity. If
you have very sharp intellect, coupled with experience and are ready to
move to the next level in your career we are prepared to offer an
excellent package including an annual salary ranging from $90,000 to
$110,000+ a year. The position involves preparing profit and loss
reports and analysis, implementing monitoring & enforcing policies
and procedures, monitoring budgets by establishing schedules;
collecting, analyzing, and consolidating financial data, monitoring and
confirming financial condition by reconciliations and daily cash
reports, and providing information to external auditors. The ideal
candidate should have a minimum of 3 years relevant experience, strong
financial acumen, and excellent management & leaderships skills.
Confidential resumes and inquiries should be sent to Christina Reyes, Human Resources Coordinator.
On the new product side, CastleLine has created a Certified Loan Insurance Program.
"In an effort to protect themselves from losses associated with
Representation & Warranty violations, lenders, aggregators and other
loan purchasers are participating in the Certified Loan Insurance
Program provided by CastleLine and its affiliates. Under the program, CastleLine
offers up to 100% coverage for defects (including, errors, omissions
and fraud) that occur during the loan manufacturing process. All types
of loans, including Non-QM loans, are eligible for coverage. The
program provides meaningful protection to all participants and should
provide a catalyst in attracting private capital into the secondary
market. Contact Justin Vedder, Executive Vice President of CastleLine Risk and Insurance Services, LLC to learn more.
PHH Mortgage will be expanding its outsourcing product offering to
serve the needs of regional community banks and credit unions.
This will afford financial institutions the flexibility of multiple
executions through direct marketing programs, private label, a financial
wholesale option, and correspondent. "We look forward to the
opportunity to bring value to our financial clients. It will complement
our current correspondent partners in an evolving mortgage market of
cost increases and regulatory changes", said Len Patton, Senior Vice President, Correspondent Lending. PHH
Mortgage will post job opportunities for Regional Sales Directors and
Internal Account Executives during the month of August for positions
across the country.