Lender Disaster Updates; Big Bank 3rd Quarter Mortgage Results - Industry's Barometer?
If you are a residential lender and volume in the 3rd quarter was up about 10% over the 2nd quarter, you’re right in line. Industry sources, including Fannie Mae, Freddie Mac, and the MBA, are forecasting that industry volumes will be up roughly 8% Q/Q…and we’re seeing that with Wells, Chase, and Bank of America – more below on big bank home loan metrics.
As Madonna sang, "Some boys
try and some boys lie but I don't let them play. Only boys who save their
pennies make my rainy day." Most of us save their money in a bank, and there's a lot going on with banks,
and the news usually provides non-bank lenders with a clue about trends and the
general health of residential lending. This is especially true in dissecting
the "Big Bank" quarterly earnings.
Wells
Fargo reported
earnings Friday. Origination was
up 11% QOQ to $70 billion. Purchase activity accounted for 58% of originations.
The banking giant beat revenue expectations - thanks in large part to a push
from mortgage originations - despite an ongoing scandal and the loss of its CEO.
And JP Morgan Chase reported
earnings Friday as well. Mortgage
origination was up 8.4% QOQ to $27.1 billion. On an annualized basis, it is
down 9.4%.
Bank
of America reported this morning with
solid earning numbers. Its mortgage banking income surged 45 percent to $589
million.
Mortgage banking earnings and
volumes for both JPM and Wells Fargo came in largely in line with expectations.
The gain-on-sale margin and MSR mark were also in line. These results showed a strong residential lending
showing in the third quarter for the two. Chase's mortgage
origination volume of $27.1 billion was up 8% Q/Q from $25.0 billion, while
WFC's origination volume was up 11% to $70 billion from $63 billion Q/Q. JPM's
volume was driven by an 11.6% increase in correspondent volume, while retail
volume was up 4.5% Q/Q. JPM's retail volume as a percentage of total volume
decreased to 43% from 45% in 2Q, per Bose George at KBW.
Bose George also reported at
Chase & Wells, "Gain-on-sale (GOS) margins looked about in line with
expectations. JPM's GOS was down to 0.91% from 1.04%, while WFC's was up to
1.81% from 1.66%. We believe that the decline in the GOS margin at JPM was at
least partially driven by the mix shift as correspondent volume increased to
57% of production from 55% last quarter. We are expecting relatively flat
gain-on-sale margins for the industry in 3Q given a slight tightening of
primary secondary spreads, offset by an increase in application volume."
What about servicing? JPM's MSR capitalization
rate declined to 80 bps from 81 bps last quarter (vs. a decline of 6 bps last
quarter), and the multiple of the servicing fee declined to 2.29x from 2.31x.
WFC's MSR capitalization rate rose slightly to 69 bps from 68 bps (vs. a
decline of 4 bps last quarter), and the multiple of servicing fee rose to 3.59x
from 3.32x. Many were expecting MSR marks to be minimal due to mortgage rates
being relatively stable Q/Q. JPM's servicing portfolio declined to $609 billion
of UPB from $630 billion Q/Q and WFC's portfolio decreased to $1.703 trillion
from $1.728 trillion Q/Q.
Another big bank released its
earnings: PNC.
Of the mortgage-heavy banks that reported earnings Friday, MSR values increased
+3% QoQ on average. PNC had the largest increase (+7% QoQ), which makes some
sense given its MSR valuation had seen the largest YTD markdown as of 2Q16
(-29%). Average gain on sale (GoS) margin dropped -1.2% QoQ among JPM, PNC and
WFC.
Citi is not the mortgage
powerhouse it once was although its 3rd quarter numbers showed that mortgage originations
increased 2% from last quarter's $6.4 billion to $6.5 billion. This is down,
however, by 13% from last year's $7.5 billion. Earnings from Citigroup's
mortgage division decreased 9% from last quarter, and down from last year by
30%.
Turning to...disasters, every
part of the nation has its share, all of which impact residential lenders who
lend in various areas and the investors who buy loans across the nation.
HUD's Secretary Julián Castro
awarded a total of $500 million to help Louisiana, Texas and West Virginia to
recover after severe flooding events that occurred earlier this year.
Provided through HUD's Community
Development Block Grant - Disaster Recovery (CDBG-DR) Program,
these recovery funds will assist the most impacted communities that experienced
the most serious damage to their housing stock. For this allocation, HUD
allocates CDBG-Disaster
Recovery funds based on the
best available data from the Federal Emergency Management Agency (FEMA) to
identify the areas of greatest level of 'unmet housing need.' In the
hardest-hit counties of Louisiana (6 counties), Texas (3 counties), and West
Virginia (2 counties), more than 102,000 households experienced some level of
damage to their homes including more than 41,000 families who saw the most
serious level of damage or destruction and unmet needs.
Last week FEMA issued Amendments No. 3
and 4 to DR-4285 granting 6 additional North Carolina counties individual
assistance to supplement recovery efforts in the areas affected by Hurricane
Matthew beginning October 4, 2016, and continuing. AmeriHome is reminding Sellers
that they are responsible for determining potential impact to a property
located in an area where a disaster is occurring or has occurred. Irrespective
of whether a property was included in the area covered by the declaration, if a
Seller has reason to believe that a property might have been damaged in a
disaster the Seller must take appropriate action to ensure that the property is
free from damage and meets AmeriHome requirements at the time of purchase by
AmeriHome.
In response to the flooding
along the east coast, effective immediately, Sellers must follow Wells Fargo standard Disaster Policy
for all properties located in ZIP codes that Wells Fargo Funding has determined
were impacted by Hurricane Matthew. Precautions must be taken for Loans
originated within affected areas. Regardless of whether FEMA has formally
declared a disaster, all transactions showing any indication of damage to the
collateral should comply with the published Disaster Policy Guidelines as
outlined in Seller Guide Section 820.19: Disaster Policy and 820.20: When
Required both found in our Conforming Underwriting Guidelines. (Government
Loans must follow FHA/VA guidance.)
Pacific
Union is monitoring the impact
of recent severe storms, flooding and disaster declarations in additional
states for which specific impacted areas have not been identified by
FEMA. These include, but are not limited to: Hawaii, as well as states
impacted by Hurricane Matthew including Florida, Georgia, North Carolina, and
South Carolina. At this time, loans secured by properties located in impacted
areas are subject to standard Pacific Union protocol. Standard requirements for
disaster areas apply for these properties as they relate to expectations from
appraisers for existing pipeline and new applications.
Due to the
severe storms, flooding, landslides, and mudslides that occurred in Hawaii from September
11, 2016 (incident start
date) to September
14, 2016 (incident end date), the President issued a federal
disaster declaration on October 6, 2016 for the county of Maui. NewLeaf requires all
subject properties in the areas impacted by the disaster require
evidence that the subject sustained no damage from the identified
disaster. NewLeaf's disaster requirements also include the effects of
Hurricane Matthew.
A Flagstar announcement stated due to the recent
damage done by Hurricane Matthew in Florida, Georgia, North Carolina, and South
Carolina, affected counties will require a satisfactory re-inspection dated on
or after October 10, 2016. If an appraisal was not
required due to PIWs or product requirements, a satisfactory property
inspection with photo will be required. Loans that have already been issued a
Final Approval Clear to Close status will be placed in an Approved with
Conditions status until a re-inspection is performed. Please note that
appraisal re-inspections are not required to be completed by the original
appraiser; however, a Flagstar Bank eligible appraiser must be utilized. For
loans that have an appraisal that was ordered via Loantrac, an appraisal
re-inspection may be requested via the Appraisal Management module by selecting
"Yes" to the "Do you need a Property/Disaster Inspection" question.
Here's something impacting the
demand for agency mortgage-backed securities. The Wall Street Journal reports
that Japan's San-In Godo Bank is halting the purchases of JGBs (Japanese
Government Bonds) andbuying
$1 billion worth of Ginnie Maes.
That has to make the Honorable Ted Tozier, who runs Ginnie Mae, happy!
Rates keep nudging higher. At
least long term rates are moving higher, causing the yield curve to steepen.
This actually helps bank earnings, as well as anyone else "lending long and
borrowing short." On Friday Fed Chair Janet Yellen alluded to the desire to see
inflation run above target. But heck, inflation has not reared its ugly head in
decades. Still, Friday the 10-year worsened .5 in price settling at 1.79% while
5-year T-notes and agency MBS prices worsened about .125.
Still, practically every day
it is a mixed bag. Friday, for example, producer price inflation ran hotter
than expected in September while Michigan Sentiment fell to a one-year low for
October. The Producer Price Index is more important, but it's still "two steps
forward, one step back." Retail Sales were mostly in line with forecasts, and
then we had Fed Chair Yellen saying that the FOMC should have a debate about
running the economy a bit above capacity to try to entice people back into the
labor force and to stimulate capital spending.
And this week we'll all have
more numbers thrown at us so we can second guess the Federal Reserve's Open
Market Committee. (It meets a few days before the election, but most of the
telegraphing as pointed to a rate hike at the December meeting.) And this week
includes a couple meetings by central bankers overseas. We've already had the October Empire
Manufacturing figure (-6.8, worse than expected); September Industrial Production and
Capacity Utilization are later. Tomorrow is September Consumer Price Index and
Core CPI, and the October NAHB Housing Market Index.
On Hump Day we'll have the
MBA's Mortgage Index for last week, September Housing Starts and Building
Permits, and the October Fed Beige Book. Thursday is the usual Initial Jobless
Claims (for the week ending 10/15), October Philadelphia Fed, and September
Existing Home Sales. Friday is zip. In the early going the 10-year is yielding 1.78% with
agency MBS prices better than Friday afternoon by .125.
Jobs and Announcements
In Ops job news, the Cedar Band Corporation is seeking an experienced Quality Control Manager to manage file submissions to Mortgage Compliance Advisors, respond to deficiencies, write Management Response reports, institute internal processes to address file defects, work with outside file review vendor to ensure such deficiencies to not recur, and provide training and guidance to employees. "Work with a rapidly growing, nationally chartered Housing Finance Authority. Candidate to help us carefully manage expansion in working with some of the nation's largest Correspondent Lenders." The Candidate will report directly to Executive Management. Apply directly here; confidential questions can be addressed to President Richard Ferguson (801.205.6227); the person can work remotely.
MIAC Analytics has an opening for a Senior Account Executive to manage sales in the Western United States. This position will be responsible for developing strategic prospects and maintaining decision-level relationships for the firm's complete products and services offerings. The Candidate should have proven experience in residential mortgage capital markets and secondary marketing, broad knowledge of mortgage lending, capital markets and mortgage servicing, general familiarity with secondary, valuation and risk management software solutions, and excellent selling, communication and negotiation skills. Learn more or apply here; inquiries can be addressed to Managing Director Rob Branthover.
And continuing in the Ops vein, Right Start Mortgage, Inc., which saw its retail production jump 45% last year, has openings for senior underwriters to work from its Pasadena, CA headquarters or remotely. Right Start Mortgage has in business for over 26 years and is a Fannie Mae and Ginnie Mae Seller/Servicer. "Underwriters will be provided world class technology, industry leading compensation structure and full suite of benefits including a matching 401k and full medical. Candidates must have at least 5 years' experience with FHA, VA and conventional products and full FHA DE and VA SAR designation. Please email confidential resumes to Pat Cox if would like to join our growing team!"
In personnel moves Ditech Financial's president David Schneider left the company, according to a filing with the Securities and Exchange Commission. I wish Mr. Schneider well; he was the EVP & COO of Walter Investment Management Corp. as well as President of Ditech Financial LLC. I don't keep track, but someone told me that Walter Investment has been through four CEOs in the last year.