The Office of the Comptroller of the Currency tells us that 13 out of every 14 mortgages (93.1%) in the United States were "current and performing" at the end of the 1st quarter 2014 compared with 9 out of 10 (90.2%) at the end of the 1st quarter 2013. Why doesn't the press ever pick up on stats like that? Or remind the industry of the product mix of well-known lenders? For example, Mark Mozilo writes, "Although Countrywide was a leader in the subprime business, subprime only accounted for 10% of its overall production. 90% of Countrywide's production was prime loans with an average FICO of 700+. Countrywide began its business in 1969 as a FHA/VA & Conventional lender, later moving into jumbo loans, and the last business it moved into was subprime. Since it had such an efficient machine, any product that you 'fed' the machine would immediately produce enormous volumes quickly! Subprime makes headlines, 'boring' prime loans don't!" And yesterday the lender was in the news regarding the latest settlement north of a billion dollars.

Why are banks and lenders merging? Leave it to the ABA to give us a graphic reminder. By the way, the FDIC reports that over the past 10 years about 67% of the time a community bank is acquired, the acquiring bank is another community bank. In the last week we learned that Peoples Bank ($1.2B, NY) will acquire Madison Square Federal Savings Bank ($144mm, MD) for approximately $14.4mm in cash. Columbia State Bank ($7.2B, WA) will acquire Panhandle State Bank ($908mm, ID) for approximately $121.5mm in cash and in stock. Business First Bank ($690mm, LA) will acquire American Gateway Bank ($377mm, LA) for an undisclosed sum. In Minnesota (home of a state fair where people make realistic sculptures entirely out of butter) Bremer Financial ($8.9B) will acquire Eastwood Bank ($670mm) and Grand Rapids State Bank ($230mm) will acquire Crow River State Bank ($84mm). But last Friday, in Illinois (home of "Honest Abe" who is so deeply revered he was elected Lieutenant Governor in 1998), regulators closed Green Choice Bank and sold it to Providence Bank under a purchase and assumption agreement.

For you servicers out there, J.D. Power released the results of the 2014 Primary Mortgage Servicer Study. (Yes, they do more than cars.) Here's a link to last year's release and rankings. But why settle for last year's when this year's is out? Congrats to Quicken!


"The study measures satisfaction in four factors of the mortgage servicing experience: billing and payment process; escrow account administration; website; and phone contact. Mortgage servicers are making substantial progress in improving the overall customer borrowing experience-specifically for "at-risk" customers-with technology helping to simplify and streamline the experience... Overall satisfaction averages 754 (on a 1,000-point scale) in 2014, up from 733 in 2013. Improvements in satisfaction are even more pronounced among at-risk customers-those who are currently behind with mortgage payments or concerned about keeping current with their payments during the next year-increasing by 42 points year over year to 703 in 2014.


Traditionally most lenders' monthly production is more than 5-10% of jumbo loans. But that doesn't stop the constant chatter about non-agency MBS, and the fabled private money coming back into the market. So it was of great interest that the Wall Street Journal had a piece titled, "Is the Private Mortgage Bond Market Dead or Dormant?"  But let's face it: plenty of jumbo loans are being originated, and plenty of them are heading into bank portfolios.


But the non-agency MBS market is truly heating up, and I have had trouble over the last week or two keeping up on the news. We continue to hear the names that have become popular over the last year or so, with some of them branching out into pooling different types of loans. And once again people in the industry are bickering about the benefits of securitization (adding liquidity, the transfer of capital, satisfying investor appetites) versus the drawbacks (confusing pools of mortgages, reliance on rating agencies, dubious transfer of risk).


For example, last week Heather Perlberg and John Gittelsohn of Bloomberg wrote, "Blackstone Group LP, the largest U.S. landlord of single-family homes, is working with Deutsche Bank AG to sell about $700 million of securities tied to mortgages on rental properties, its third such deal...The offering would be the sixth of bonds backed by rental homes, the largest of which was a $993 million sale in May, also by New York-based Blackstone. Wall Street has issued $3 billion of securities backed by houses owned by Blackstone, Colony American Homes Inc. and American Homes 4 Rent since last year. Blackstone, which has amassed 45,000 houses since early 2012 through its Invitation Homes LP unit, became the first to tap the securitization market in November by selling $479.1 million of debt." Colony American Homes is no slouch: it owns more than 17,000 houses.


What kind of loans are in the pool? "Loan to BPO values" of 79% are in the offering, vs. 65% for Silver Bay deal in market (noted below), 70% for second Colony American Homes issuance, or 75% for first 2014 deal by Blackstone's Invitation Homes deal, according to ratings-firm presale reports. We have a new buzzword: Class G. Kroll notes that the issuer indicated principal-only Class G is included in structure to comply with European Banking Authority risk-retention regulations, according to Kroll, and Moody's said the sponsor agreed to hold the Class G certificates (about 5% of the loan amount) for the life of transaction. "While risk retention can be viewed as a credit positive," Kroll opined, "it does not believe it mitigates the impact of increased leverage, as the entire loan proceeds will need to be refinanced at maturity."


But there are twists! In one deal Deutsche Bank, the lender, isn't responsible for remedying material document defects in latest deal backed by single-family rental properties managed by Invitation Homes, a switch from last offering by Blackstone affiliate, according to Moody's presale report. The report notes that, "Instead, the responsibility falls on the sponsor, Invitation Homes, and its affiliated depositor, neither of which is as financially strong as Deutsche Bank and may not have as strong an incentive to find and cure errors." [Danger Will Robinson!] The write up went on: with last deal, "the put-back risk provided a strong incentive to the lender to make sure all documents were in order and, if necessary, to get the borrower to correct defects." The latest Blackstone deal includes the highest LTVs yet due to inclusion of Class G certificates to meet risk-retention regulations, according to Kroll.


There has been news of Two Harbors marketing a $255m jumbo RMBS. And this month Silver Bay Realty Trust and the Blackstone Group were in the market with single-family rental (SFR) bonds, the first offering juicier yields than its predecessors and the latter inching up leverage from its prior issues. Silver Bay's US$312.667m debut was titled "SBY 2014-1". But the pricing was initially viewed as worse (therefore the market demanded higher yields) than the last deal that priced in June for Colony American Homes since it was smaller and in fewer markets versus the last deal.


For you traders out there, "Whispers on the US$147.746m Triple A slice were heard at Libor plus 100bp, which was 5bp wide of where Colony printed its Triple As, according to IFR data. But the differential was much bigger at the riskier end of the stack, with whispers on the bottom US$46.691m NR/BB+/BBB F heard at L+365bp, a hefty 30bp wide of the same notes from Colony. For the rest, its US$37.681m Aa2/AA+ class was whispered at L+150bp; its US$32.978m A2/A/AA+ class at L+200bp; its US$30.423m Baa3/BBB+/BBB+ at L+250bp; and its US$17.148m Ba2/BBB/BBB at L+325bp."


Jody Shenn with Bloomberg wrote, "Though Silver Bay was the first public REIT set up in the wake of the financial crisis to buy distressed homes to fix up as rentals, it has been slower coming to market as it acquired fewer homes and at a slower pace than other big institutional buyers. The deal is backed by rentals from nearly half of the 5,800 homes the REIT owns in eight states as of April 30...Its maiden SFR deal is also the smallest of the seven bonds that have emerged in the sector since Blackstone priced the first deal of its kind in November last year. (The latest US$720m deal from Blackstone, the biggest issuer in the sector, is backed by 3,750 homes out of its much larger 44,000 property portfolio.) Analysts also focused on other differences between the two Silver Bay and Blackstone trades. Silver Bay has no employees of its own, unlike Blackstone, Colony and American Homes 4 Rent. Instead, the REIT is externally managed by affiliates Pine River Capital Management and Provident Real Estate Partners, which handle day-to-day operations, investment criteria, acquisitions and asset management of the properties, according to Kroll."


But the good times keep rolling, and Bloomberg's Jody Shenn and Christopher DeReza scribe regarding a deal backed by 526 prime residential mortgage loans: "CSMC Trust 2014-IVR3." It has a total principal balance $363 million of loans acquired by DLJ Mortgage Capital. [What? DLJ is still around?] The originators are Quicken Loans (33%), Fifth Third (13%), First Republic Bank (11%), Caliber (6%), Sierra Pacific (5%), and several others, and the loans will be serviced by Select Portfolio Servicing (69%), Fifth Third (13%), FRB (11%), PHH (5%), New Penn doing business as Shellpoint Mortgage Servicing (2%).


Lastly, Shenn also reported that HomeStreet Bank sold $211 million of held-for-investment single-family mortgages in 2Q, recognizing a $3.9m gain, MSRs for ~$3b of loans, resulting in $4.7m gain. The loans were sold in "an effort to reduce mortgage concentration in its portfolio." Apparently the MSR sale was tied to capital management in preparation for Basel III, and intended to be "one-time sale". HomeStreet also sold $84 million of jumbo loans where margins are tight due to competitive pressures (versus government loans where margins are higher, for example).


How about the news yesterday!? The big surprise over the past week was the GDP report at +4.0%: good news for the economy but bad news for rates. (In theory an improving economy leads to a higher demand for credit, and possible inflation.) The stronger-than-expected growth revealed in the GDP data was good news for the economy, but it caused mortgage rates to shoot higher and the 10-yr T-note closed at 2.55%.


But arguable of equal importance was the Fed's announcement. "In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions" the FOMC has announced a further $5 billion per month reduction in MBS purchases. This brings the monthly MBS purchase rate to $10 billion, or about $500 million per business day. It also reduced Treasury purchases by $5 billion/month. And lenders found themselves selling (hedging) pipelines - will locked loan pull through go above 80%? Take your pick of the coupons being sold, but overall 30-yr agency MBS ended the day worse between .375 and .625 - back to where we were a month ago.


Today we had Argentina's default (does anyone care?), Jobless Claims (+279k last, were +302k this week) and the second quarter's Employment Cost Index (+0.3% previous, this time +.7% - much higher than forecast). As of this writing we can look forward to the non-market moving July Chicago PMI which left off at 62.6 last time around. But more emphasis will be put on tomorrow's employment report. (The consensus forecast is that the economy added 220K jobs in July.) After the Jobless Claims & ECI numbers we're up to 2.59% and agency MBS prices are worse .250.




The Secondary & Capital Markets department at Opes Advisors is looking for confident, self-motivated individual(s) with a background and interest in post-funding operations.  As the role represents the critical last step to loans being purchased, the candidate must be able to work efficiently in a fast-paced environment in order to meet hard deadlines. The position involves significant interaction with the underwriting and sales teams (so the ability to build strong cross-functional rapport is essential), and also work closely with the trading desk and have critical input into the trading strategy. As such this is an excellent opportunity to gain a deep and comprehensive understanding of the Secondary and Capital Markets. Strong organization skills are crucial, as the position requires being able to multitask under time pressure in order to maximize the profitability of trades, and the candidate must be detail-oriented and willing to learn quickly in a fast-paced environment. Well-qualified candidates should send their resumes to