Let’s end the week with a non-mortgage question, but one that you mathaletes will enjoy. What would happen if you were hit by a penny falling from a skyscraper? Fannie Mae and Freddie Mac will transfer one trillion pennies ($10 billion) in earnings to the U.S. Treasury today. There continues to be a lot of chattering about the future of the Agencies - more below.

In lender & personnel news, from PHH Corporation came news that CEO Glen Messina is stepping down from his roles as both CEO and President of the Board at the June annual meeting. The current CFO Rob Crowl has been named the next CEO and President. Analysts were quick to point out that this could be a sign that a sale is more likely and/or the company is at least listening to their activist investors. Other management changes were also announced alongside, including an internal promotion to replace the CFO position. The resignation was noted not to be due to any internal disagreement or concern with the company's accounting, operations, policies, or practices.

Poor Fannie & Freddie - always in the news, their future subject to constant debate.

A bipartisan group of senators has warned FHFA Chairman Mel Watt to not suspend Fannie Mae's dividends to Treasury, as it would affect efforts to revamp the housing finance system. Note that the dividends from Fannie Mae have been used to prop up Obamacare, and the constant draining of capital means that Fannie is becoming less safe and more likely to need a bailout should home prices fall or we have a recession. 

Brent Nyitray, CFA and Director of Capital Markets for iServe Residential Lending, notes, "If there is anything in Washington that should have bipartisan support, it is finding a solution for Fannie Mae and Freddie Mac. The current situation is untenable, as the government is sweeping all their profits, which is making them more and more undercapitalized. The Trump Administration has indicated that dealing with the GSEs is a high priority, but they have yet to give any sort of indication of how they think the future housing market should look. The model the MBA supports is to turn them into regulated utilities, with a capped rate of return. The Obama Administration supported nationalizing them, while another plan would get them out of the securitization business and into the mortgage insurance business. There are many stakeholders in this discussion, including the affordable housing types who want to ensure underserved areas can get credit, hedge funds who own the common and preferred shares, as well as lenders and borrowers."

The CHLA released its version of a comprehensive GSE reform plan. "As the Trump Administration begins to wade into this issue, and Congress is starting to do the same, CHLA wanted to weigh in with a detailed set of recommendations. They focus on key CHLA priorities - broad consumer access to mortgage credit, small lender protections to ensure full and equitable access both to the Cash Window and for securitization execution, and protection of taxpayers.

"The plan identifies a series of recommended steps, starting with FHFA suspending dividends to build a GSE capital buffer, the FHFA as conservatorship developing a recapitalization plan using a so-called "Utility Model" and then agreement and implementation of a Plan by FHFA, Treasury, and Congress. CHLA believes it is critical to formalize in rule and law key small lender protections, such as G Fee parity, addressing concerns about vertically integrated banks using up-front risk sharing, and preserving the Common Securitization Platform for use by the GSEs.

"While Congress must continue to play a strong oversight and advisory role, comprehensive legislation is not needed now," CHLA argues in its Plan. "This CHLA GSE Reform Plan would recapitalize and re-privatize Fannie and Freddie using a Utility Model under a plan to be developed by FHFA as conservator, and then agreed to by the Treasury Department and Congress. Taxpayers would be protected by private GSE capital, risk sharing, strong FHFA regulation, and sound underwriting. Other provisions in the Plan protect small lender access and consumer access to mortgage credit."

Some argue that dealing with Fannie and Freddie is not an immediate priority, at least not for this year. Staffers are now starting from scratch to come up with a plan. One possibility is to end the profit sweep for the GSEs and let them retain that profit to build up their capital, which would take a decade or more. This would not require a legislative fix: Under the 2008 law, HUD Secretary Mel Watt has the authority to make that change.

Others are chomping at the bit for a change. Reuters reports that a group of investors have filed for a rehearing of a case on whether the government improperly seized profits of Fannie & Freddie. "The investors, led by Perry Capital LLC and Fairholme Funds, are asking a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia to reconsider its earlier decision. The move indicates that hedge funds and other investors are not giving up in their fight to reclaim profits in the mortgage companies, which were seized by the government as part of their bailout following the subprime mortgage crisis. In February, a panel of the appeals court ruled 2-1 that a lower court had ruled correctly when it rejected investor claims the government exceeded its authority in eliminating dividend payments to Fannie and Freddie shareholders in 2012.

The Fannie Mae Selling Guide has been updated with the following changes: Clarifies that lenders may obtain a verification report (formerly known as a vendor report) from a report supplier or from a report distributor when using the Desktop Underwriter® (DU®) validation service. A report supplier generates a verification report and sends it electronically to DU. A report distributor obtains the report from an authorized report supplier. Provides that loans with Collateral Underwriter® risk scores of 2.5 or below on the appraisal are eligible for certainty on appraised value regardless of whether the loan was underwritten through DU.

Wells Fargo Funding is aligning with the agencies by removing our overlays for separated borrowers on conventional Conforming Loans to follow Fannie Mae and Freddie Mac guidelines applicable on or after April 18th. This change does not apply to non-conforming loans. Wells Fargo Funding is updating its Non-Conforming FICO adjusters to more accurately reflect the market, risks, and associated costs for these transactions.  The new, improved amounts are effective for Non-Conforming Loans locked on and after March 14, 2017.  Pricing will be updated accordingly and these changes will be reflected on page 4 of the Wells Fargo Funding Best Effort Rate Sheet on March 14, 2017.

Citi Correspondent Lending's latest bulletin includes Credit policy updates regarding Taxpayer Identification Theft & IRS Transcripts, Expired Visas and Verifying Source of Funds. Clarifications include DU Agency Loans: Day 1 Certainty, Employment Stability, and Student Loans.

AmeriHome is updating its Fannie Mae program guidelines and guides as follows: When delivering a loan secured by a condominium with a Full Lender Review without CPM, sellers may utilize an "acceptable equivalent" form in lieu of the AmeriHome Lender Full Review Condo Project Eligibility Certification form.  Unless otherwise directed by the Desktop Underwriter findings, credit documents must be no more than four (4) months old on the Note date, B11-03, age of credit documents and federal Income tax returns. Clarification for DU Version 9.3 underwriting requirements for multiple financed properties have been removed from the program guides.  

Although Freddie & Fannie are lumped together all the time, there are differences. From Northern California loan officer Guy Schwartz writes, "We are always looking for slight guideline differences between Fannie Mae and Freddie Mae to help our clients qualify for home loans. One of our past favorites was the Freddie Mac guideline that allowed for 1 year of tax returns if the individual was self-employed for two years. Additional criteria included a credit score in the mid 700's and cash reserves. Fannie Mae required 2 years of tax returns in all instances of self-employed borrowers.

"The challenge with providing 2 years of tax returns is we are required to either average the income over the two-year period or in the event the income in the most recent year is less than the income in the previous year we have to use the lower income from the most recent year. Generally, the result is less purchasing power for the borrower. Very recently Freddie changed this wonderful guideline, here is the current version: Self-employed income must be supported by signed complete federal individual and business tax returns as applicable. If the business has been in existence five years or more, provide personal and business tax returns for the most recent year. If the business has been in existence for less than five years provide personal and business tax returns for the most recent two years.

"How do we document five years of self-employment? We can use a letter from the CPA stating that the client has been self-employed for 5 years, show a business license for the past five years or use tax forms 1120's which shows the date of incorporation. Even with the guideline change Freddie may still be still be the best option for many self-employed borrowers."

Capital Markets

Here's the final tally on Fannie & Freddie's Credit Risk-Sharing in 2016. Per the FHFA report the GSEs transferred $18.1B of credit risk on mortgages with $548B in unpaid principal balance through capital markets, insurance, and pilot credit risk transfer transactions.

The bond market has been well-behaved as of late: up a little, down a little. Yesterday long-term rates moved slightly higher after we saw an upward revision to Q4 GDP (to 2.1% from 1.9%) and a larger than expected weekly initial claims reading (258k, remaining below 300,000 for the 108th consecutive week). Yup - the economy is doing just fine. What we had Thursday was pretty much a reversal of Wednesday's session. The 10-year T-Note lost .250 in price to close at 2.42%, and the 5-year T-Note and MBS prices sold off about .125.

This morning we've had February personal income and spending (+.4%, +.1%, respectively). Coming up is the Chicago PMI for March (expected to decline), the University of Michigan Consumer Sentiment Index for March, and another pod of Fed speakers. And rates are nearly unchanged versus Thursday's close: the 10-yr. is yielding 2.42% and current coupon MBS prices are better a shade.

Jobs and Announcements

In warehouse lending news, Sterling Bancorp and Astoria National announced their intention to enter into a $2.2 billion merger agreement. The transaction is expected to double the asset size of the bank to $29 billion and is expected to close in the fourth quarter of 2017. The leadership team of the combined company will be assembled from both organizations, with Sterling Bancorp's Jack Kopnisky serving as President and CEO and the combined company will operate under the Sterling Bancorp name and its principal banking subsidiary will operate under the name Sterling National Bank. Sterling Mortgage Warehouse Lending offers warehouse lines up to $100 million, competitive pricing, a streamlined funding process, and excellent customer service. Please call or email Patti Robins (212-273-5880), Jeff Bonner (978-810-2027), or Louis Politi (856-296-2238) to learn more about the program

DocProbe, "one of the nation's premier providers of trailing document fulfillment services, seeks a full time ambitious Vice President Business Development to join our close-knit national sales team. DocProbe strategically works to deliver trailing document services that are customized to our clients' specific needs. Please visit our website at www.docprobe.net to learn more. As VP Business Development, you will be responsible for generating new business through prospecting and networking, as well as introducing our services to your existing contacts. The position is geared for an Account Executive with experience in sales to Mortgage Bankers, who possess the drive and ambition to make calls, network, and have the face-to-face visits necessary for success. The ideal candidate is detail oriented, possesses outstanding interpersonal skills, and an established mortgage banker client base within which they can network. Interested contenders may confidentially submit resume and cover letter for consideration to Libi Pruzansky."

"One of Utah's fastest growing mortgage companies, Citywide Home Loans, is now hiring an experienced Encompass Administrator to join our busy team. Relocation is available but working remotely can also be considered. Citywide is one big, happy, adventurous family and we are looking for someone who will thrive in our environment. Citywide Home Loans is an Equal Opportunity Employer. Our corporate office is located at 9785 S. Monroe Street, Sandy, UT 84070. (NMLS ID 67180). Apply today."