Do Mortgage Brokers Add Value?; National Mortgage Database; Sandy and Warehouse Banks
"Spring ahead, fall back!" Sunday morning, folks in most states
will receive an extra hour of snooze time!
What's the difference between a hurricane and a "superstorm?" Well,
Sandy was a hurricane that turned into a superstorm when it, laden with energy
and moisture from the tropical Atlantic, combined with a winter storm fueled
by the southward plunge of Arctic air. Although late-season hurricanes
sometimes undergo a similar "extra-tropical transition" as they travel up from
the tropics, this normally happens safely out to sea over the Atlantic. Sandy's
path is extremely unusual because a static area of high pressure south of
Greenland has blocked the jet stream route northeastward across the ocean and
instead forced the hurricane into the continental US. But now, supposedly, insurance
companies are on the defensive. I don't profess to know the details, but apparently
there is a difference between storm insurance, hurricane insurance, and flood
insurance. And what the press is calling the event from earlier this week seems
to be changing. If that is true, it is unfortunate that a home owner's or
lender's coverage turns on the term or phrase used.
What, in general, are warehouse lenders doing about the damaged
residences/collateral? "Warehouse providers all seem to have a little
different twist on their practices depending on the type of portfolio clients
they have. Assuming a smaller possibly less sophisticated borrower, or where
the warehouse provider actually underwrites or re-underwrites the loans, they
may require an actual 442's (re-certs) as required by their investors. But some
warehouse providers will require a notation on their monthly compliance that
stipulates they meet all investor requirements and certify to that degree. If
the particular clients are more sophisticated and financially more stable (a
relative definition), the warehouse provider may depend on them to have the
necessary requirements met for they should know what their investors require. In
many cases because if the loan is deemed unsalable, the lender will have to buy
it off the line." Thank you Jerry D.!
"Rob, I thought your information on LO and branches was spot on. One thing
that people should keep in mind is in the current RESPA environment, if
we draw docs, and the borrower decides they want more cash because of the
holidays coming up, then we have to re-disclose, and that makes us blow through
the lock period, so we need an extension for a week or so, and it costs us 5
basis points a day, but the minimum is 5 days so suddenly we're down .250...
The list goes on and on!"
This led to a comment about mortgage brokers. "I am tired of brokers
being considered the 'underbelly' of the lending world. The wholesale model, if
done prudently, is a viable model, especially as the lender controls the
process. Why should the mortgage broker be allowed to continue their
existence? The first and simplest answers are professionalism and cost. The
MLO for a broker or small banker is licensed, background checks and educated.
The SAFE Act has transformed the broker/ banker MLO into a heavily regulated professional
with a license at risk. Further, the use of a mortgage broker is generally
cheaper than that of a banking institution. Cost can be derived in a number of
manners: speed to closing, advice on rate locks, interest rate, credits, fees
charged, professional guidance through the process and outright cost of the
transaction in pure dollars.
"Secondly, when the mortgage markets seemed to come apart, the access to
credit rapidly diminished. The demand by the brokers to operate as conduits for
varying clientele and developing new sources of credit for the consumer became
paramount. As the capital markets recognized the demand, there were a large
number of wholesale operations increasing in a rapid manner to fill the void.
Without brokers this would have been missed or diminished. There is room in the
market place for all aspects of originators. The greater the competition among
the varying groups the better pricing, availability and programs for the
"And third, brokers allow for a stronger banking system from the bottom
on up. Brokers allow community and regional banks access to areas of the
country that would otherwise not be financially advantageous for the lending
institutions to establish a presence. This also allows community and regional
banks to diversify their portfolios across counties, states or even regions of
the nation, with minimal cost for physical presence or increased operational
"I will finish up by saying brokers should exist because we live and work
in our community. Many have been operating as small businesses in the same
community for 20-30 years. Bank LOs and retail LO's come and go, yet we have a
vested interest in our community. The SAFE Act further solidified this
fact and commitment. If it weren't for brokers serving their communities, especially
undeserved areas, many consumers would not have the opportunity or the access
to credit to buy a home. We offer more products and options, better service and
better rates than most bank LO's. Our experience in lending and the community
is unmatched. We service minority borrowers better than bank LO's and we
do it with much lower rates."
This commentary has often mentioned the ability for residential MBS holds
to drill down during their due diligence and track the performance of LO loans
based on NMLS numbers. Data is critical, and Adam Quinones from Thomson Reuters
wrote yesterday, "FHFA and CFPB Partner on Development of National Mortgage
Database: Initiative will help streamline disparate datasets and support
regulators' efforts to monitor the market. The National Mortgage Database will
include information spanning the life of a mortgage loan from origination
through servicing and include a variety of borrower characteristics.
Specifically, the database will include loan-level data about the mortgage
including: the borrower's financial and credit profile; the mortgage product
and terms; the property purchased or refinanced; and the ongoing payment
history of the loan. Data will be updated on a monthly basis and track as far
back as 1998." Here is the announcement.
He goes on. "This FHFA announcement gives stakeholders equal access to a
benchmark database of mortgage/housing information. This benchmark database
will be the standard starting point for all mortgage and housing related
analysis. Whether you're forecasting production volume by MSA or running
cash-flows in your MSR model, this data provides perspective from origination
to securitization to cash-flow optimization. This is a BIG STEP toward improving
investor confidence in US housing finance."
How about some investor news?
Redwood Trust announced its 3rd quarter earnings. It, like
practically anyone else in the lending arena these days, is making money. It
had earnings per share of $0.48 and operating EPS of $0.36. Operating EPS
excludes $13.9 million ($0.17 per share) in realized gains and $3.5 million of
negative market value adjustments (-$0.04 per share). Total REIT taxable income
was $0.21 which included $0.02 of income from the taxable REIT subsidiary
(TRS). While mortgage banking income benefited from an accounting change as the
company started marking balance sheet loans to market, the increase in
valuation reflects the improved profitability of these loans and would
otherwise be realized through higher gain-on-sale margins. At the end of 3Q,
the company had 49 active sellers of loans to the conduit, an increase
of 12 from 2Q12. Redwood expects this number to increase to 55 by year-end and
noted that it is in negotiations with 46 other sellers, most of whom are
likely to become active sellers in the near term. The company is also in the
process of becoming a licensed seller/servicer for the GSEs and expects to
be offering loans in this market by early 2013. Redwood completed a $313 million
securitization of prime jumbo loans and closed a $320 million securitization
after quarter end. The company also completed two whole loan sales totaling $53
million during 3Q.
Kinecta reminds clients that all wholesale and correspondent loans must be
accompanied by a Loan File Submission Form that has been signed by the
respective business partner upon submission. The representations
certified on this form are key in ensuring that files comply with regulation.
Affiliated Mortgage has published several helpful tips about compliance issues
with disclosed finance charges understated by more than $100, GFEs, HUD-1s, and
notices of Intent to Proceed.
M&T Bank has amended its guidelines on removing co-borrowers from the note
for all HARP loans as per recent changes to the program. Relief Refinance
and Refi Plus borrowers must be qualified according to the guidelines used for
payment increases over 20%, and the respective requirement of removing the
co-borrower from the deed and title has been eliminated. For Open Access
and DU Refi Plus condo projects, M&T is no longer requiring reviews except
to verify that the project is not a hotel, houseboat, or timeshare and does not
have segmented ownership. However, M&T will not be adopting the
appraisal revisions outlined in the Fannie and Freddie updates.
M&T has announced that it will permit the use of Hardest Hit Fund resources
with HARP loans provided that the HHF funds are used to pay down financing
costs and don't result in a lien being placed on a property. The loan
file should include a copy of the promissory note, and the HUD-1 should provide
evidence of the transfer of the funds from the relevant Housing Finance
Agency. In cases where there is repayment and the HARP application
requires borrower qualification, the monthly payment must be included in the
monthly total DTI ratio. M&T will not accept any Hardest Hit Fund
program transactions that require matching dollars.
We had a lot of news yesterday, and it tended to push rates higher. There is
still too much going on with Sandy, today's unemployment data, and the election
I guess. Jobless Claims fell 9,000 to 363,000, the fewest in three weeks, and
less than the forecast for 370,000. The four-week moving average, a
less-volatile measure, fell to 367,250 from 368,750. Non-Farm Productivity
rose at a 1.9% annual rate in 3Q2012, and Unit labor costs decreased 0.1% as
hourly compensation increased 1.8%. Unit labor costs have risen 1.1% over
the last four quarters. Construction Spending increased 0.6% in September and
is up 7.8% year over year. Private construction rose 1.3%,
and residential construction was up 2.8%. And lastly the Institute for
Supply Management Factory Index climbed to 51.7 in October, the highest since
Of more importance to the MBS markets, however, was the usual Thursday
afternoon announcement by the Fed about its purchases for the week. Fed
purchases dropped to $13.4 billion, with a slight shift into conventional 30's
from 15's. This amount was lower than the $15-16bn in each of the last few
weeks due to market closes related to Hurricane Sandy. The Fed shifted slightly
towards 30's over 15's, with conventional 30's comprising 62% of the week's
purchases versus 60% last week. The Fed increased its gross purchases of 30yr
conventional 3.5's to 22% of the total compared to 18% the prior week. 3%
coupons declined by 1% to 58% of the total. Purchases of 15-yr conventional 2.5's
declined by 3% to 16% of gross purchases. Overall purchases of 15-yr
conventionals also declined to 19% from 21% the prior week. The purchase share
of Ginnie 30-yr 3's remained steady near 15%, while 3.5s remained near 4%, but
the Fed continued to stay out of the Ginnie 15-yr sector.
By the end of Thursday prices on current coupon agency MBS were worse by
about .250, and the 10-yr closed at 1.72%. But that was yesterday, and this
morning we've had the unemployment data. Nonfarm Payrolls were projected at
+125k while the unemployment rate is expected to tick higher to 7.9% from 7.8%.
The numbers actually came in at +171k, with some back-month revisions higher,
and the unemployment rate came in at 7.9% as expected. Early on the 10-yr is
up to 1.77% and MBS prices are worse .125-.250.
He asked me, "Why are married women heavier than single women?"
I said to him, "Single women come home, see what's in the fridge and go to bed.
Married women come home, see what's in bed and go to the fridge."