"The reason the golf pro tells you to keep your head down is so you can't see him laughing." Someone, somewhere, is laughing at the press' focus on "the return" of the subprime lending business. Well, maybe not, but certainly the American public is seeing it in the press.
On the jobs front, AmeriSave Mortgage Corporation is currently looking for a new President to lead the company into its 13th year of business and beyond. The candidate must have a minimum of 15 years' experience in an executive role in the mortgage industry; specifically in retail lending, call center environment, as well as the TPO market. The lender and its 200 employees is looking for an inspirational leader with strong business development, sales, operations and secondary marketing experience who is able to lead AmeriSave to reach its strategic goals and objectives. Headquartered in Atlanta, AmeriSave Mortgage Corporation is one of the nation's leading online retail mortgage lenders with a very successful third party channel as well. It has full agency approvals and is retaining servicing. Qualified individuals should express their interest by contacting Michelle Compton at mcompton@amerisave .com.
A few thousand miles away, independent retail mortgage banker VITEK Mortgage Group is seeking a senior level Compliance Officer/Leader for its Sacramento headquarters. VITEK has been in business for more than a quarter-century and has both FNMA & GNMA seller/servicer approvals. The CO will lead an established and talented compliance team, manage and continue implementation of a fully developed CMS, as well as training MLOs and business partners on compliance topics, and must be able to drive an appreciation of the value of compliance within all levels of the organization, crossing functional areas with ease. The ideal candidate should have 5-10 years' mortgage banking / mortgage compliance experience along with a Bachelor's degree in Finance, Business Administration or related field. Candidates should send their resumes to Libby Feyh at lfeyh@teamvitek .com.
Over on the banking side of things, consolidation continues. In California ("Eureka"), Grandpoint Bank ($2.0B) will acquire Wedbush Bank ($243mm) for an undisclosed sum. Not to be left out of things, in Texas ("Friendship") CommunityBank of Texas ($2.5B) will acquire Memorial City Bank ($280mm) for an undisclosed sum. In Ohio ("With God, all things are possible"), Westfield Bank FSB ($830mm) will acquire Valley Savings Bank ($128mm) for an undisclosed sum. And in Missouri ("Salus populi suprema lex esto") Commerce Bank ($23B) sold 3 branches to New Era Bank ($263mm) for an undisclosed sum. And investment banker KBW announced that CT's Salisbury Bancorp, Inc. and NY's Riverside Bank have entered into a definitive agreement and plan of merger in an all-stock transaction valued at approximately $28 million. The combined organization expects to have approximately $808 million in total assets, $630 million in total loans and $682 million in total deposits with 13 branch locations across Connecticut, Massachusetts and New York.
Yes, the evolution of the banking industry continues. At least we have the flood bill out of the way. (NAR's president Steve Brown released, "Realtors commend President Obama for signing into law the Homeowner Flood Insurance Affordability Act, H.R. 3370, to curb flood insurance rate hikes for homes and commercial properties...NAR welcomes this law for the relief and protection it will bring to businesses and families nationwide, who are experiencing financial hardship because of the extreme and sudden premium increases triggered by the Biggert-Waters reforms to the National Flood Insurance Program. We believe the law is a responsible and balanced solution to the skyrocketing rate hikes and will ensure a slow and steady phase in of risk-based increases.")
And who can keep track of the servicing business? Many folks attended the recently held IMN conference on residential mortgage servicing rights (MSRs) in Manhattan. The primary focus of attendees was on the regulatory front and the consensus view was the regulators might slow down the process and increase the costs but MSR transfers were going to continue. Another point that came up regularly was the sharp decline in returns on investing in prime MSRs as the number of participants in that market has increased sharply. Returns on prime MSRs were generally seen as being in the high single digits. Hey, that beats what I'm earning on my bank account!
Seriously, a representative of the CFPB was there (Laurie Maggiano) and went as far as saying that the CFPB's views on many of the changes that are happening in the servicing market, such as sales of excess servicing and servicing advances, is still evolving. Maggiano reiterated that the focus of the CFPB was on the impact that these changes in the market are having on the borrower. It's tough implementing new rules and successfully completed six million modifications! Selling large blocks of servicing is not quick, nor necessarily easy. Starting in 2014 the FHFA has had to approve all transactions over $3 billion in UPB. Interestingly, say people "in the know", it has a different focus from the GSEs so it adds to the time-line to close sales.
What will mortgage servicing look like next year? In five years? I don't know, but I do know that everything will change, in one way or another; from the interaction with the customer, to operational responsibilities, to information systems, to accounting valuation, to trading, it will all be conditioned to comply with governmental oversight. Last month CFPB Deputy Director Steven Antonakes, at the MBA's National Mortgage Servicing Conference & Expo gave a strongly worded speech in which he stressed compliance and industry expectations. Mr. Antonakes stated, "Nearly eight years have passed and I remain deeply disappointed by the lack of progress the mortgage servicing industry has made. For a man who has spent the last 24 years, the bulk of his career, as a banking regulator, his words should not be undersold. With "the fundamental rules have changed forever" and that "business as usual has changed in mortgage servicing," his comments ring loud and clear. The Deputy Director explained the CFPB's expectations to servicers: reach out to the customer, monitor transfers closely, honor any modifications made by prior servicers, forced place insurance as a last resort.
But the servicing buyers are out there. Prime MSR sales are very competitive with 15-25 bidders, 8 of which are very competitive. As a result returns on prime MSRs investments have contracted from the mid-to-high teens a couple of years ago to high single digits currently. And while we're on numbers, one driver of MSR sales currently is the high capital consumption with new MSRs being booked in the 110 basis point range (over 4:1 for 25 basis point agency servicing). This makes origination meaningfully cash flow negative. A year ago MSRs were being booked at smaller levels and gain-on-sale margins were much higher so there was less cash flow pressure on originators.
Curtis Mayfield, an American R&B singer said we gotta "keep on, keeping on." I agree, and so do MSR traders. Below are a few deals which have come across my desk over the past week or so, and a fairly good representation of what we have been seeing in the market place.
Interactive Mortgage Advisors is currently offering two MSR's for trade. The first is $493.9 million GNMA bulk residential mortgage servicing rights. The portfolio is 100% originated VA IRRL loans with a pool characteristic of a 2.50% WaC, with 5 months of seasoning, geographically dispersed around the country, and Ocwen sub-serviced. The second is for $89.7 Million of FNMA/FHLMC/GNMA bulk residential mortgage servicing rights, with a characteristic of a 3.870% WAC, with 5 months of seasoning, WaFICO 722, UT/CO concentration, and Cenlar sub-serviced.
MountainView Servicing Group is offering $235 million, with 100% fixed rate, FNMA/GNMA non-recourse servicing portfolio. The package breakdown: WaC 3.96%, WaFICO 721, WaLTV 74%, an average loan size of $249k, low concentration of HARP servicing, with loans in CA (88%), CO (3%), WA (3%) and TX (2%).
Mortgage Industry Advisory Corporation, or "MIAC" to some, as exclusive representation for the seller, is offering $150M, or more, per month of concurrent flow mortgage servicing. The flow servicing is being offered by a well-capitalized mortgage company that originates nationally. The seller will be providing full reps and warrants for the loans included in this offering, which is 99.6% fixed-rate, has a WaLA of $168,417, GNMA (55%) FNMA A/A (31%), FHLMC (14%), geographically dispersed, with an average escrow balance of $1,667.
Lastly, earlier in March Phoenix Capital, Inc. brokered a $20-$30+ million/month conventional and $15-$20+ million/month government flow mortgage servicing rights deal. Seller is an independent mortgage banker established in 1996. (The conventional flow deal was 100% Fannie A/A, 75% wholesale, 22% correspondent, 21% from Georgia, 83% fixed rate. The government flow production was 60% FHA, 86% wholesale, 96% fixed-rate.)
What do these flow and bulk deals mean? Well, for one, many mortgage banks that thought they would hold onto their servicing for decades, and the steady cash flow from the asset, have found that they needed the cash now. Tax implications aside, they need to sell the servicing. Secondly, and in a related issue, the sale of servicing effectively bypasses the traditional aggregators. My capital markets gal at fictional "Chrisman Mortgage" may not like the SRP values that she is seeing by selling to Wells, or Chase, or by selling to the agencies and simultaneously spinning off the servicing to one of the agency's servicing partners. So we hold the servicing and sell it through bulk sales, or we sign a deal with a non-bank buyer to buy it on a flow basis. Either way, the implications to the traditional bank/aggregator correspondent business model are obvious, and not good for that channel. But how much experience do new servicers have in evaluating the cost to service? Time will tell, and although the marginal cost to service loans goes down as the portfolio increases, the regulatory and compliance costs are only expected to increase.
For a slightly more in-depth view, I wrote up a "Primer on Trends in Holding Mortgage Servicing Rights." It can be found on the STRATMOR Group web site located at stratmorgroup.com.
Is the Tri-State MBA conference April 9-11 on your calendar? It will be held at the Peabody in Memphis (don't step on a duck!), and if you go say hello - I will be there: tristatemba.com.
Wholesale lenders and vendors in California can reach out to hundreds of mortgage originators through Silicon Valley CAMP's annual one-day trade show. This year's event will be held Friday, May 9 in Campbell. Sponsorship opportunities are still available for $350 and up, with booth spaces and one major sponsorship opportunity left. Breakout sessions this year will focus on regulatory update and compliance, and social media marketing. SV CAMP has some fun events scheduled that day to help you meet as many originators as possible. Contact Arlene Taylor-Mooney at ataylorm@ att.net for more details.
CSFB announced that it will pay $885 million to settle two lawsuits with the Federal Housing Finance Authority (FHFA) over $16.6 billion of mortgage-backed securities it sold between 2005 and 2007. Simplifying the math leads to this being about a nickel on every dollar.
Sun West spread the word to its broker clients about its new FHA 203(k) PowerSaver program. "Sun West is one of the few lenders approved by HUD to offer the combination of FHA 203(k) and PowerSaver, the FHA 203(k) PowerSaver. FHA 203(k) PowerSaver allows borrowers to finance in energy-efficient improvements using PowerSaver's federal grant funds to cover certain closing costs. To be eligible for grant funds, the applicant must choose to make energy-efficient improvements for a minimum of $3,500 and combine it with the rehabilitation amount on a FHA 203(k) loan. Go here to view complete guidelines.
President Truman famously called for a one-handed economist, so he would not have to hear, "on the other hand..." But there continues to be a lot of conflicting information about the U.S. economy. And we have certainly learned, through developments in China, Europe, and Russia, that our numbers aren't the only determinant of rates.
But this week we have a fair amount of scheduled U.S. news that could nudge rates one way or the other. As I head to Denver this morning there is zip; tomorrow is Personal Income and Personal Spending/Consumption, and Consumer Confidence. There is also a slew of housing numbers: the House Price Index, S&P-Case Shiller numbers, and New Home Sales. On Wednesday, March 26th, Durable Goods Orders will reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Investors watch this as durable goods is a leading indicator of industrial production and capital spending. On Thursday Gross Domestic Product (GDP) will represent the total value of the country's output; we'll also have Initial Jobless Claims and Pending Home sales.
Here's the one for and about economists, and efficient market theory.
Two economists are walking down the street when ones sees a hundred dollar bill and points it out to his friend. "Is that a $100 bill lying in the gutter?" "No" his friend replies. "If it were a $100 bill, someone would have picked it up already." So they walk on by.