Interesting economic times, the latest example being gunmaker Remington filing for bankruptcy. Lenders wish things weren’t so interesting: Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net gain of only $237 on each loan they originated in the fourth quarter of 2017, a significant drop from the reported gain of $929 per loan in the third quarter, per the Mortgage Bankers Association (MBA). MBA VP of Industry Analysis Marina Walsh noted, "The end result was lower overall volume and production expenses that grew to $8,475 per loan…” Watch those free extensions, price concessions for low producing LOs, and signing guarantees!
The Basel Committee has announced it intends to revise its requirements for the capital that banks must hold in reserve, with the revisions coming into effect in January 2022. Industry bodies have welcomed the announcement and expect it to result in a lightening of the banks' financial burden.
An ICBA survey of community bankers finds: 60% expect compliance spending to increase by at least 5% this year, 36% expect it will stay roughly the same and 4% expect it will decrease by at least 5%.
In recent merger and acquisition news, from Indiana comes news that Evansville Teachers Federal Credit Union ($1.5B) will acquire American Founders Bank ($113mm), and in Illinois Morton Community Bank ($3.5B) will acquire State Bank of Speer ($183mm). In Kansas the Plains State Bank ($107mm) will acquire Bank VI ($105mm), and in the Northeast HarborOne Bank ($2.7B, MA) will acquire Coastway Community Bank ($741mm, RI) for about $125.6mm in cash (100%) or about 1.74x tangible book.
Analysts report that some community banks have been dropping national charters and shifting to state charters. Since 2000, hundreds of community banks have converted to state charters. There are, of course, pros and cons to each type of charter, but banks that have made the switch typically point to a few main reasons for converting.
One that is commonly cited is that state regulators understand community banks more than national regulators. Switching banks also point to cost savings, and some say it gives them a boost in earnings. PCBB reports that, “Some of this might make sense as national banks do tend to pay more in regulatory and examination fees than state-chartered banks. That said, there are many filing and legal fees associated with switching charters.
“Banks that have converted to a state charter may also benefit by having local access to regulators. Regulators of all types are reaching out to banks these days, but some analysts say state-chartered banks gain an added benefit of working with local decision-makers who do not have to check with DC on meatier issues perhaps. Still others say state regulators should also have a better handle on issues weighing on banks in their state, of course.
“Community banks point out is that the nature of their business isn’t about operating nationally, so such a charter is overkill. After all, they point out that unless the bank has operations in several states, the value of leveraging federal law to pre-empt state laws is moot.
“Certainly, the conversion process is time-consuming and it’s not a decision to be made lightly. It is also dependent on the banking laws in your state, so do your research and talk to experts. After all, you wouldn’t want to go through the hassle of converting, only to discover that some of your activities are now limited based on your new charter.”
As continually mentioned in this commentary, the value of servicing is an important component of the price that borrowers see on rate sheets. And part of the value of servicing is contained in the handling of escrow accounts. MCT reports that, “Oversimplifying escrow calculations in servicing valuations can cause buyers and sellers of servicing to underestimate or overestimate their escrow balances. This happens because the traditional method of valuation takes the ‘average’ monthly escrow balance from the average of tax and insurance payments. One overlooked consideration that causes these averages to be misleading is that these payment frequencies differ vastly from state to state.”
Essent Group announced that it has issued $424.4mn of mortgage insurance notes to protect its subsidiary Essent Guaranty. Three series of the Radnor Re 2018-1 mortgage insurance notes were listed on the Bermuda Stock Exchange (BSX). The fully collateralized excess of loss cover will provide reinsurance on insurance policies written in 2017 by Essent, the insurer said in a press release. It was the first time that Essent had used this type of capital.
Many of the headline economic releases present seasonal biases and therefore the reporting agencies adjust their data to diminish the noise and create a smooth trend. This makes the data easier to digest and easily identifies the underlying trend. Not all data is adjusted for seasonality, such as Treasury rates, however some like to check for seasonality nonetheless. A recent analysis of the 10-year Treasury yield revealed seasonal behavior over the last seventeen years. Over this time yields typically peaked in May, remained elevated through July then declined in August and September before flattening for the remainder of the year.
Looking at rates, U.S. Treasuries, and to a large extent agency MBS prices, ended the week mostly flat, a welcome relief for those thrown off by the volatility seen earlier in the week. Of interest to lenders, new home sales declined 0.6% MoM in February to a seasonally adjusted annual rate of 618k. New home sales declined for the third consecutive month but are up 0.5% YoY. Hopefully this turns around as homebuying season begins in earnest.
Although not a federal holiday, stock & bond markets are closed Friday with an early close on Thursday. And this brings the end of the month and the quarter! Today kicks off with the Chicago Fed's National Activity Index for February, followed by the March Dallas Fed Texas Manufacturing Index. The Fed speakers are out in force with outgoing New York Fed President Dudley speaks on regulatory reform at the US Chamber of Commerce in Washington, Cleveland's Mester on "The Economic Outlook, Monetary Policy and Some Future Policy Considerations," and Governor Quarles on "The Roles of Consumer Protection and Small Business Access to Credit in Financial Inclusion."
Looking to the rest of the week, tomorrow sees the January S&P Case-Shiller Home Price Index and March Consumer Confidence released. We have the MBA’s application data and the third estimate of Q4 GDP on Wednesday, along with February Pending Home Sales and Weekly Crude Inventories. Thursday has Initial Jobless Claims, February Personal Income and Spending figures in addition to PCE numbers and Chicago PMI before bond and equity markets close for Good Friday. The short trading week starts with the 10-year yielding 2.85% and agency MBS prices worse .125 versus Friday’s close.
Jobs, Personnel Moves, and Promotions
Opes Advisors/Flagstar Bank is pleased to announce Steve Rennie has joined its retail mortgage division as Executive Sales Recruiter, to build and lead an in-house recruiting team. “I’m excited to be working with one of my favorite leaders in the business and partnering with a team of people I have spent many years recruiting for from the outside,” said Steve. “I see changes in the industry that lead me to believe that adding regional and national banking capability to a well-established correspondent platform will provide benefits from cost of funds (as margins continue to compress) along with the ability to create niche product and more opportunities for Mortgage Advisors to help qualified borrowers succeed. Opes and Flagstar Bank have done just that, they have merged their strengths together to create a new hybrid banking retail platform. Opes Advisors/Flagstar Bank is a nationwide originator. If you are a business-minded producer or leader and want to have a conversation or get to know each other for the future, you can contact Steve and schedule some time to talk confidentially.”
Lending solutions provider Data Facts recently announced it is addressing wire transfer fraud by offering a complimentary webinar about this growing crime. The FBI and Fannie Maereport a 270% increase in fraud related to transfer instructions diverting funds from the intended recipient. The webinar will dig into wire transfer fraud and offer solutions lenders can use to minimize their risk. The presentation is scheduled twice in March (including tomorrow) for your convenience: register here. “Keep Data Facts in mind as a trusted partner you can rely on for credit reports, fraud products, tax return and social security verifications, flood certs, appraisal ordering platform, and more. Talk with a live person and take advantage of their personalized support for your business. They offer a variety of seamless LOS integrations (Encompass, Calyx, Byte, etc.) and a 100% US-based customer support team that helps lenders close more loans, faster and easier.”
Towne Mortgage Company is looking for a Senior Account Executive in nation-wide geographical markets. This rarely available position will have access to multiple operation centers and all product offerings including FHA, 203K, Fannie Mae HomeStyle, HomePath, HomeReady, DU Refi Plus, VA, USDA, and Manufactured Programs. Towne is looking for a seasoned, high-energy, sales leader who can partner with Towne to expand its book of business. This AE will have the ability to add an array of account types including Brokers, Banks, and Credit Unions with Wholesale and Mini-Correspondent offerings. Towne offers competitive compensation packages including Medical and 401K. Sound Interesting? Email Cassi Sluka for more information.
Lenderworks is a provider of fully-integrated, back-office process outsourcing solutions for the mortgage banking industry. The Lenderworks suite of services offer mortgage lenders an opportunity to improve service levels and gain economies, while retaining complete control of the borrower experience. Its 100% on-shore team focuses on the areas of Accounting, LOS Administration and IT Operations, Secondary/Capital Markets, Legal/Compliance, QC, Shipping, Vendor Management and Interim Servicing Support. Whether you are a startup or an established lender, partnering with Lenderworks can boost your growth by swapping fixed costs for variable, lowering barriers to entry, and streamlining your operations. Learn more about how Lenderworks can become your comprehensive, virtual back-office by visiting its website or by emailing.
Eustis Mortgage Corporation recently named Kate deKay CEO of all Eustis Family of Companies brands (Eustis Mortgage Corporation; Finance Home America; Verity Mortgage; Legacy Mortgage Corporation; and Prosperity Mortgage Advisors), which provides loans in LA, MS, TX, TN, KY, IN, AR and AL. Kate is third generation Eustis Family. The company also announced thatMichael Fooshee, in the top 1% of originators in the nation, is joining Verity Mortgage in Dallas. “In Michael, the company welcomes a high-caliber producer with amazing character. The brands entered the arena against competition that assumed because of our size they could beat us. The good news is people are growing tired of Goliath in the mortgage industry. The company welcomes interested driven individuals to see why people are joining Eustis and taking back control by being able to make their own decisions for their customers.”
Gibran Nicholas, CEO of CMPS Institute and the Momentifi companies, invites you to a free webinar on Thursday, April 5: The Three Most Important Business Lessons You’ll Ever Learn. Topics include:  The Hero’s Journey: how to understand the most powerful framework in human history, and how to apply it to your life and business;  The Power of Habit: how to win back more time and get better results during each stage of your business process; and  The Importance of Timing: how to think more strategically about your business and create a step-by-step action plan for growth. “This webinar is meant for sales professionals, team leaders and CEOs from all walks of the housing and financial industry,” says Gibran. “These three lessons could help you get to the next level in your business this year.” CLICK HERE to sign up for the free webinar.
Congrats to Ari Kavour and Mike Llodra. The investment banking and capital markets business of Wells Fargo has named both as co-heads of its real estate financing, structuring, and capital markets advisory team. They head up the mortgage finance group at Wells Fargo Securities, which offers warehouse and term financing to companies and investors that own, originate, or invest in residential real estate loans or securities.
Huh? Rumors abound that Bill Dallas is the new CEO of Finance of America, and that Robert Boliard, founder of Pinnacle, is in transition. Rumors from inside the Blackstone company abound, prompting some to suggest that the complications from a merger from four years ago are still occurring, that all the operations are not consolidated, etc. But as both margins and volumes drop there are plenty of rumors about every residential lender.