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!
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.
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.
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).
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.
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
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
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."
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%).
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%.
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.
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.
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