Election Results Push Rates Down; M&A Trend Rolls On; Increased Regulations Ahead; Ocwen, Nationstar, Zillow Stock Movements
Usually I put the bank, M&A, investor, and agency news down lower.
But today I am putting it here - the trends in M&A are unmistakable
as companies band together for various reasons, not the least of which is sharing
increased compliance and regulatory costs.
Republic Bank, a private bank & wealth management company
(and frequent contributor to Redwood Trust jumbo deals), announced that Luminous
Capital Holdings, LLC, one of the nation's leading independent wealth
advisors will become part of First Republic Investment Management.
KBW, who was itself acquired, announced that Nasdaq-traded companies PacWest
Bancorp and First California Financial Group signed a definitive agreement and
plan of merger. First California (not the California wholesaler) is the parent
of First California Bank and had approximately $2.0 billion in assets and 15
branches across Los Angeles, Orange, Riverside, San Bernardino, San Diego, San
Luis Obispo and Ventura Counties.
Keefe, Bruyette & Woods also announced another merger on the other
coast: New Traditions National Bank will become a subsidiary of Old Florida
Bancshares, Inc., which owns and operates Old Florida National Bank and Mercantile
But "the hunter became the hunted" when boutique investment bank Stifel
Financial announced the $575 million acquisition of KBW Inc. (KBW), making
this Stifel's 10th purchase since 2005. KBW operates the Keefe Bruyette &
Woods broker dealer. Stifel has been busy in recent years, acquiring Legg
Mason's capital-markets business and Thomas Weisel Partners Group. It was among
the companies that bid on all or part of bond-trading firm Gleacher & Co.,
according to press reports.
Lastly (for now) in Kansas Bank of Hays ($204mm) will buy Farmers'
State Bank of Jetmore ($26mm) for an undisclosed sum.
Fifth Third reminded clients that all HARP 2.0 loans with LTVs that
exceed 105% must be delivered by November 30th and funded by December14th.
For all self-employed borrowers with loan applications dated October 20, 2012
or after, Fifth Third is requiring the most recent two years' signed tax
returns as verification of income, regardless of AUS findings.
Beginning November 5th, Flagstar began requiring all loan files to
contain a copy of the Undisclosed Debt Acknowledgement and will be auditing
files to ensure its inclusion with the underwriting and post-closing
Flagstar is allowing the use of Hardest Hit Funds for HARP loans provided that
they don't result in a recorded lien on the property and are used to pay down or
curtail the outstanding balance on a borrower's existing loan and/or associated
financing costs. The file should contain documentation that verifies the
terms and conditions of the HHF funds, which should be disclosed on the HUD-1
and included in the monthly DTI ratio upon repayment unless repayment is due
only upon sale or default. Currently, the HHF funds are available only in
Arizona and Nevada, but other states' HFAs are expected to get theirs rolling
in the near future.
M&T Bank began pricing its new SONYMA Conventional Plus loans in the
correspondent channel for New York properties on October 22nd. The
program is based on Fannie's MyCommunityMortgage and offers 30-year fixed-rate
loans that can be partnered with SONYMA's Down Payment Assistance Loans (DPALs)
as an alternative to FHA financing. In addition to potentially lower
monthly payments, borrowers can benefit from further savings if they're
eligible for a SONYMA-issued Mortgage Credit Certificate, which allows them to
convert 20% of their annual mortgage interest into a tax credit. The
SONYMA Conventional Plus program isn't restricted to first-time homebuyers,
doesn't have purchase price limits, and doesn't qualify based on household
income, unlike traditional SONYMA programs. Participating lenders must be
SONYMA-approved and must execute a tri-party agreement with SONYMA and M&T.
All M&T properties in the Florida counties affected by Hurricane Isaac
whose appraisals were completed before August 27, 2012 must be re-inspected as
per the disaster policy. The original appraiser should complete the
inspection and must include exterior photos, confirmation that the property
hasn't damaged, and commentary on conditions that may affect the property's
Back to trivia - like the election results! Elizabeth Warren, the CFPB
architect and frequent bank critic, was elected to the Senate, much to the
dismay of the financial services industry, and we all know about Barack Obama's
"Rob, don't you find it somewhat intriguing that one of the most important
and critical actions we as Americans partake in is voting for of all things a
President. At the same time we hear about the regulators bearing down on us and
forcing us to upgrade our LOS's, due to new regulations. Isn't it somewhat
puzzling that so many voting machines under the care of government are failing,
not responding and causing millions in legal minutia as they are asked to
perform the simple task of scanning a document (something we do all day
everyday) or using a touch screen? Compared to a LOS and the tasks we are asked
to perform this is child's play!"
Regardless of which politicians won yesterday, the government will still
have to deal with the "fiscal cliff" and its profound economic
consequences. The market was expecting a knee-jerk reaction to President Obama
being re-elected is a rates rally and a sell-off if Governor Romney is elected.
This appears to be largely related to what the next president will have to
address almost immediately - the fiscal cliff. A quicker resolution is seen
with Romney while the acrimony between the Democrats and Republicans suggests a
longer time to resolution which would weigh on the economy's growth.
Impacting not only folks in our industry but the whole nation are the longer
term issues related to the housing market, the future of the GSE's including
the FHFA leadership, as well as a possible new Fed chairman in 2014, along with
their policy actions. Experts believe that there will be no threat to QE3
under Obama, but that higher coupons are at risk if a new FHFA director comes
in who supports principal forgiveness. Yes, Obama (and Elizabeth Warren) won,
and banks can look forward to even more regulations and oversight. More
Certainly investors fear that Obama (and Romney, if he won) will struggle
to reach a compromise with the leaders of the opposing party in Congress to
halt $600 billion in expiring federal tax cuts and automatic spending cuts at
year-end. The lack of a resolution could push the world's biggest economy into
a deep recession, a consensus view supported by analysts at the Congressional
Budget Office. "I think the current situation politically hurts us very
badly in trying to deal with our problems economically," veteran bond
investor Dan Fuss at Loomis Sayles in Boston said of the so-called fiscal
cliff, his No. 1 worry. Neither an Obama nor a Romney win will change Fuss'
market outlook. Many warn the Fed is only postponing a destabilizing rise in
rates that would hurt economic growth. There's a sense that with Obama's win,
the Fed accommodation (QE3) will continue as planned.
Let's take a moment to look at share prices of non-bank mortgage
servicers Ocwen Financial (OCN) and Nationstar Mortgage Holdings (NSM).
Both sank 5% and 6%, respectively, on Monday in an apparent response to an
announcement that MetLife agreed to sell its mortgage servicing portfolio
JPMorgan Chase. At this point we know that MetLife is selling its $70 billion
mortgage servicing portfolio to JPMorgan, boosting JPMorgan's servicing
business by more than 5%.
As an astute reader wrote, "The major reason for the purchases by Ocwen
was to move away from the run-off of the subprime servicing portfolio, and
expand the FHA servicing portfolio. If you take a look at the moves from the
spinoff of Altisource, the purchase of LendersOne ( part of C1), after 18
months, a GNMA Seller/Sevicer of both residential and HMBS, and now the
purchase of ResCap and Homeward, this will put Ocwen in a long term growth
pattern in the GNMA space."
Given the looming threat of Basel III's capital requirements for banks, especially
with regard to servicing, non-depositories Ocwen and Nationstar have competed
aggressively for mortgage servicing operations as banks lighten up on that
business. Last month, Ocwen outbid Nationstar in a $3 billion deal for the
mortgage servicing unit of Residential Capital, owned by auto-financier Ally
Financial. As noted above, Ocwen also picked up Homeward Residential Holdings
last month. Those purchases make it the fifth-largest mortgage servicer in the
country, the company said.
Last week, Ocwen reported lower-than-expected quarterly profit. Nationstar
came out yesterday showing a strong origination 3rd quarter, and
a servicing pipeline up to $600 billion. The difference between reported and
operating numbers reflected $3.9 million of ResCap and other
transaction-related expenses. Total servicing revenues came in less than
expected, but this was largely offset by higher origination income and lower
operating expenses. The servicing portfolio increased to $198 billion from $193
billion and the gain-on-sale margin increased sharply, and management expects
to close $30 billion of UPB purchases this quarter! During the 3rd
quarter origination volume of $1.82 billion increased modestly from $1.81
billion in 2Q. However, gain-on-sale (GOS) income increased to $139 million
from $102 million on stronger margins. Analysts suggest that the increased
margins reflect the strong lock volume in 3Q of $4.4 billion, as rate locks
are the primary driver of margins. The total application pipeline increased to
$5.5 billion from $3.1 billion in 2Q.
Sticking with stock moves, no sooner do we find out that Zillow
purchased Nebraska's Mortech than the stock market smacks it. Zillow posted
a record decline after forecasting fourth-quarter revenue that trailed
analysts' estimates. Sales this quarter will be $30-31 million, up from $19.9
million a year earlier. It is good, but lower than the $32.4 million average
estimate of analysts, according to data compiled by Bloomberg. Darn that
Trulia! (Trulia, the online real estate site, went public in September.)
But Zillow's numbers are strong, regardless of expectations: revenue in the
third quarter jumped 67%, the company swung to a profit by recording net income
of $2.33 million after reporting a loss of $570,000 a year earlier. Still, its
stock price dropped 18% at one point.
Speaking of market events, as a follow up to a recent Barron's article on
Radian, folks should check out comments section, where there's a Letter
to the Editor posted from a Radian investor.
Tuesday was not a good day for the fixed-income markets. Mortgages "took
it on the chin." Dealers reported above average originator selling -
locking ahead of the election results perhaps? Traders also saw the FED and a
few money managers try to step in and add a few blocks but their buying was not
been able to stem the tide. By the end of the day the 10-yr was worse by about
.5 in price, closing at 1.74%, and MBS prices were worse by about the same.
But with some uncertainty removed after the election, overnight Treasuries
rose, with 10-year yields falling the most in two months as Obama's re-
election bolstered speculation the Federal Reserve will stick to its policy of
buying bonds to support the economy. After all, Obama backs government
intervention through the Fed's QE3 plan and buying more than $40 billion a
month of agency MBS. The 10-yr. dropped to 1.66%, the lowest level since
Oct. 16. Interestingly enough, ever since Lyndon B. Johnson defeated Barry
Goldwater for the presidency in 1964, yields on 10-year Treasuries have dropped
about 40 basis points in the first month when a Democrat wins, and risen 19
after a Republican victory, according to data compiled by Bloomberg.
This morning we've had the MBA application index for last week, greatly
influenced by Sandy. (Who wants to lock in a loan to refinance after their car
floated into their living room?) Applications dropped for a 5th
straight week, this time down 5% with both purchases and refi's down about 5% -
refi's still make up about 80% of industry applications (mostly due to large
banks' refi work). Later we'll also have the second leg of this quarter's
Treasury Refunding with $16 billion 10-year notes auction at 1PM EST. But in
the early going it is hard to complain much about the 10-yr going down to 1.64%
and MBS prices better by about .250.
A driver is stuck in a traffic jam on the highway outside Washington DC.
Nothing is moving. Suddenly, a man knocks on the car window.
The driver rolls down the window and asks, "What's going on?"
"Terrorists have kidnapped the members of Congress and they're asking for
a $100 million ransom! Otherwise, they are going to douse them all in gasoline
and set them on fire. We are going from car to car collecting donations."
"How much is everyone giving, on average?" the driver asks.
"Roughly a gallon."