Suntrust Exits Wholesale; Letters from Waters & NAR; Thoughts on the MBA Conference Atmosphere
I am 100% positive that this announcement is not the last one like it we'll see in the next several months, if not days. "SunTrust Mortgage to Exit Broker Lending Effective December 31, 2013. Several weeks ago, SunTrust Mortgage, like many competitors, announced that we will realign our business to a smaller overall mortgage market. As mortgage lending has become more complex and increased interest rates have reduced refinance volume, we must sharpen our business focus on a few key areas. To this end, we will cease Mortgage Broker Lending, effective December 31 of this year. We will stop accepting new applications from Brokers on and after October 30, 2013. This was a difficult decision, given how long we have been in Broker Mortgage Lending and the loyal relationships we have developed." Loans were to have been registered by yesterday, locked by 11/8, credit package by 11/12, and funded by 12/13.
Let's continue looking at the MBA conference earlier this week in Washington. (Next year's is in Las Vegas.) I had the good fortune to moderate a panel during the conference on purchase business. Aldo C. writes, "Great job moderating the panel. I was disappointed that you were wearing a BLUE suit! Didn't you call for change last week? I showed up in a white suit and thought you would join me. (Nobody else did either.) So much for Hope and Change." Superb.
"Rob, yesterday you mentioned rumors about lenders - what are folks at the conference saying?" I tend to disregard what others are saying - they have too much tact and common sense. My two cents was that the mood of the conference was very good. And why not, with most of the companies there having record 2012s and first half of 2013s? And many in the business are optimistic about the future - people still need home loans, right? Vendors were excited about their QM offerings, like Coester Appraisal's new automated artificial intelligence based appraisal review system (see tomorrow).
Investors were excited (for lack of a better term) about their relaxed guidelines and improved turn times. That being said, there were some 800 pound gorillas sitting in the room. The first is the lack of clear rules and guidance from the various agencies who have taken it upon themselves to offer clear rules and guidance. And the industry deserves nothing less. Another gorilla is chatter that any venture capital or hedge firm demands a certain return on their money. And if an investment is not meeting that return, then off with its head!
And the third gorilla is that many are wondering how small or mid-size mortgage lenders will prosper - those with no servicing income, those that don't have any special bells and whistles, those that have not opted to pay for, or can't afford, hundreds of thousands in yearly compliance costs - how those companies are going to keep from eating into their hard-earned income reserves from the last two years. And we've all seen it in past business cycles where these companies cut their margins to non-profitable levels, or, in an attempt to lure production talent, offer compensation plans or programs that are way down the risk spectrum. And unfortunately productive, long-standing, reputable lenders have to compete with these companies that in some cases are doing unreasonable things. It will be a very "interesting" time between now and Easter.
Being in Washington DC, one of the opportunities afforded a few of the MBA conference attendees was to meet with their representative(s), or other members of Congress. Through the efforts of SolomonEdwards I was fortunate enough to spend some time with staffers from Congressman Jeb Hensarling's office - he is the Chairman of the House Banking Committee & responsible for the PATH Act. As anyone who has dealt with politicians will tell you, their staffers are the key to putting a message through, and this was no exception - there are just too many issues for every politician to be an expert on. In fact, his staff began the meeting with a report on what Elizabeth Warren had to say about their being "little liability with non-QM lending."
After this little attention-grabber, they went on to discuss their concern with the CFPB, citing examples like a letter they wrote Director Cordray asking about key officials leaving the CFPB and setting up a purported non-QM loan buyer, and the potential conflict of hiring away CFPB employees. The Congressman's staff felt that the CFPB has provided little in the way of certain guidance with regard to Fair Lending, and that it is not complete. Of interest to our group was the discussion of attempting to move the CFPB from an "agency" to a "commission", giving it increased accountability and checks & balances. The group is very concerned about the NSA-like collection of data by the CFPB, along with its source of funding (the Federal Reserve and not Congress).
Fortunately the staff was happy to hear and receive our input about the impact of the government shutdown, the impact of loan level price adjustments and gfee increases (let's not forget that increase for ten years paying for the short-term payroll tax issue), the impact on low loan amount borrowers, and so on. Overall, it was a good visit, and we were happy to have the time with the group.
We all know that 0 risk means 0 lending, right? Lew Ranieri spoke at the conference, and if you ask him what is worse, the bad lending that supposedly created the credit crisis, or the expected lack of credit given the current regulatory and QM environment, he'll say the current environment!
I don't know if the MBA times its announcements to coincide with the NAR convention, but this week the NAR's president Gary Thomas came out with a couple of note. The first NAR letter dealt with flood insurance issues. "The bipartisan 'Homeowner Flood Insurance Affordability Act' introduced today in the Senate by Sens. Robert Mendendez, D-N.J.; Johnny Isakson, R-Ga.; and Mary Landrieu, D-La., and in the House by Reps. Michael Grimm, R-N.Y., and Maxine Waters, D-Calif., will help millions of homeowners who are facing sudden and extreme increases in flood insurance premiums, which are an unintended consequence of legislation to reform the National Flood Insurance Program. The bill takes the crucial first step toward delaying further implementation of some rate increases in the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12). This will allow the Federal Emergency Management Agency to complete an affordability study that was mandated by BW-12; propose targeted regulations to address any affordability issues found in the study; and give Congress adequate time to review those regulations...Unfortunately, implementation of the new rate structures in BW-12 has caused serious confusion and hardship for some property owners. FEMA's continued delays and missed deadlines, in combination with the legally required transition to true-risk rates, has been a recipe for disaster. NAR supports the 'Homeowner Flood Insurance Affordability Act.'"
The second NAR bulletin dealt with Mr. Thomas' testimony before the Senate Committee on Banking, Housing, and Urban Affairs. "As lawmakers debate how best to reform the secondary mortgage finance market, they must ensure that any new system retains access to safe, secure and affordable sources of mortgage capital for creditworthy consumers in all market conditions or risk a major disruption to the economy...Realtors support a stable secondary mortgage market with strong, reasonable lending standards and access to credit. We believe that the current system can be transitioned into a marketplace that is bound by an explicit government guarantee and a sustained flow of private capital while protecting taxpayers from unnecessary risk...We fear that without the government's backing, the only mortgage products available in the secondary market for the average homebuyer would not be aligned with their best interests." Here is a link to the full statement.
On Tuesday, as I was wandering around the Rayburn Building, I walked in to Congresswoman Maxine Waters' office and chatted with the staff - more just to say that I did it rather than having any agenda. She is the ranking member of the House Financial Services Committee, and coincidentally delivered the following opening statement regarding the Federal Housing Administration's (FHA) reserves shortfall and directed to Commissioner Galante. "I would like to applaud your work in managing the FHA, which has provided an affordable pathway to homeownership for hundreds of thousands of first time and low-income Americans. During the worst of the 2008 crisis, when the private sector virtually left the market, the Federal Housing Administration stepped up and provided the liquidity that kept our struggling housing market afloat. This is the countercyclical role of FHA, as it has been throughout the course of its nearly 80-year history.
"Despite corrective action taken in recent years, the severity of the financial crisis weakened the health of FHA's Mutual Mortgage Insurance Fund. Recently, FHA announced a number of changes designed to shore up its finances. Since that time, FHA has raised premiums on multiple occasions, strengthened down payment and credit requirements, enhanced underwriting and increased enforcement measures. In addition, FHA recently issued a mortgagee letter for the Home Equity Conversion Mortgage program, to help stabilize a segment of FHA's business which has accounted for the majority of FHA's losses. (Although the recent book of business is very strong) on September 30, 2013, FHA was required to take a mandatory appropriation of approximately $1.7 billion. Although this one-time transfer of funds from the Treasury is legally necessary, it's important to note that FHA is far from bankrupt. In fact, the FHA holds over $48 billion in cash on hand. And the agency continues to generate revenue. This mandatory appropriation is only required because FHA is bound by law to hold the revenue necessary to pay any potential claims over the next 30 years, without taking into account future business."
Her letter goes on to describe the FHA's recent changes, their expected positive impact on the its financial health including, "Higher interest rates are likely to reflect positively on the Fund, as existing borrowers prepay more slowly and pay mortgage insurance premium payments for longer periods." It closes with, "Since 2010, I have joined the Obama Administration in pushing for comprehensive FHA solvency legislation that would have achieved just that. Unfortunately, obstruction by Senate Republicans prevented any progress. Now, House Republicans are focused on the PATH Act, which does not address FHA solvency. Instead, it guts the program and severely restricts the ability of FHA to provide affordable access to credit."
Turning to rates, aside from some intra-day volatility yesterday, they just haven't done much in almost a week. Yields are still sitting around a 3-month low. Of special note, however, is the MBA's report on last week's mortgage applications - apps were up over 6%, with refis up almost 9% and purchases up over 2%. Refis are now about 66% of total apps. The ADP employment numbers for October were lower/worse than expected.
Voting by the FOMC on monetary policy action was 9-1 yesterday, with only Kansas City Fed President George concerned about continuing the high level accommodation practice increasing the risk of future imbalances, and could increase long term inflation expectations.
For scheduled news, this morning we have Initial Jobless Claims and the Chicago Purchasing Manager's Index for October (expected to drop slightly). The 10-yr closed Wednesday at a yield of 2.53%, and this morning we're back to 2.50% - we've pretty much been here all week - and agency MBS prices are slightly better.