Happy May Day! After good a good March and a decent April, mortgage banks are left wondering what May will look like. Today I travel from Chicago to Richmond, VA and then to Austin early next week; I have covered a fair amount of ground in recent weeks (TN, MN, WA, WI, AZ, CO, KS) and it is definitely a mixed-bag out there in terms of inventory, volumes, margins, and optimism. Meanwhile, some pretty smart folks out there are scaling back their predictions for 2014's overall volumes making the $1.2 trillion estimates from a few months ago look optimistic. We won't have definitive numbers for 2013 until the HMDA data comes out, but most believe it to be somewhere around $1.7 trillion - which means quite a drop for 2014. Lender management teams continue to examine overhead, scraping up basis points, and investing in long-term production resources. And lenders with multiple channels (retail, wholesale, DTC, and correspondent) continue to evaluate them - expect to see more lenders extracting themselves from unprofitable ventures. As one CFO mentioned, "If we're not that good at it, why don't we just stop?"
But some lenders continue to grow. "If growing happiness equals growth, then Endeavor America is doing just that! Endeavor America is continuing its nationwide growth into 2014. Over the past 90 days Endeavor has hired over 50 new team members around the country, 80% of which were on the operations and administrative side of the company. Endeavor America is currently looking for a Technical Writer. This candidate would work directly with senior management to update, maintain and create all of the Policies and Procedures within all divisions of the organization. Endeavor America Loan Services is a nationwide wholesale and correspondent lender based out of Walnut Creek, CA and for anyone who might be interested please forward your cover letter and resume to resumes@ealoans. com.
And PMAC Correspondent is now hiring operations personnel for the Boca Raton, FL location, as well as continuing to build and hire experienced Correspondent AEs across the country. Interested candidates should go to PMAC's career page to apply online. Speaking of PMAC, congrats to Van Evans, Tom Davis, and Bill Scammell who recently joined PMAC Lending Services, Inc.'s Correspondent Lending Division as Regional VPs. They are responsible for hiring, developing and supporting PMAC Correspondent sales teams in their respective regions. Van, Tom, and Bill are industry experts in the USDA Guarantee Rural Housing program and "will help grow your USDA business. PMAC was founded in 1995, is headquartered in Chino Hills, California with offices and operations centers nationwide, is a nationwide direct lender and seller servicer with Fannie Mae, Freddie Mac and Ginnie Mae, has a substantial servicing portfolio, and offers a full line of product and delivery methods for correspondent lenders. You will find that PMAC Correspondent sets itself apart in our commitment to execution and service to both you and your customers. We pride ourselves on building strong relationships with our correspondents."
The bank news just won't stop. Two Nasdaq-listed companies are merging. Southside Bancshares, parent company of Tyler, Texas-based Southside Bank, and OmniAmerican Bancorp, Inc., the holding company for Fort Worth, Texas-based OmniAmerican Bank, announced that they have signed a definitive agreement under which OmniAmerican will merge into Southside. The combined company will have nearly $5 billion in assets and will be the ninth-largest bank headquartered in Texas, by deposits. In Florida Seacoast National Bank ($2.3B) will acquire BankFIRST ($652mm). Banner Bank ($4.2B, WA) will acquire Idaho Banking Co. ($100mm, ID) for $2.6mm. In Minnesota Peoples National Bank of Mora ($161mm) will acquire Neighborhood National Bank ($47mm). Sandler & O'Neill + Partners announced that in Georgia First Landmark Bank and Midtown Bank & Trust Company have agreed to combine in a merger of equals.
But we're not done! In Maryland NBRS Financial ($207mm) will sell a branch to Howard Bank ($500mm). (Howard receives $17mm in loans and $21mm in deposits.) Vantagesouth Bank ($2.1B, NC) will sell or close 5 underperforming branches as it seeks to cut costs and improve performance. Union First Market Bank ($4.2B, VA) will close 13 branches as it seeks to save expenses relating to overlapping branches picked up as a result of its acquisition of StellarOne. State Bank and Trust Co. ($2.6B, GA) will acquire Bank of Atlanta ($187mm, GA) for about $25mm in cash. In Tennessee Reliant Bank ($385mm) will merge with Commerce Union Bank ($253mm) in a merger of equals. And over in Montana, the Yellowstone Bank ($481mm) will acquire 1st Bank ($154mm).
The dust has settled, and what pundits have been predicting for quite some time seems to be looming: that Congress may not come up with a plan for Freddie & Fannie & the FHFA before the election that is six months away. It's been all over the press, so I won't belabor it. Although the situation is not stable, both are making decent coin, and the personnel of both agencies are only too happy to carry on.
While we're at it, let's dive into more lender and investor news.
Fifth Third Mortgage Wholesale Connect and Correspondent Connect System Maintenance Notification System will be unavailable for scheduled maintenance Saturday 5/3/14, at 11:00 pm EDT until approximately Sunday 5/4/14, at 9:00 am EDT.
Fannie Mae has announced during the weekend of May 3, 2014, Desktop Underwriter® (DU®) and DU for government loans will update a message regarding Social Security Number (SSN) verification to only indicate that the SSN may not be associated with the borrower; and no longer state that the SSN is associated with a deceased individual. For more information review the DU Version 9.1 Releases Notes and DU for Government Loans Release Notes.
Texas Mortgage Bankers Association is offering a training webinar on Reverse Mortgage Lending in Texas. The webinar will cover the latest information on the current state of reverse mortgages in Texas. The webinar is scheduled for May 14, 2014 at 10:00 am CST. Register today, registration form and a complete list of events can be found here.*members register for free as a part of their TMBA member benefit.
MBA's National Secondary Market Conference and EXPO scheduled for May 18-21st at New York Marriott Marquis in NYC. As the mortgage industry relies upon Ginnie Mae, Fannie Mae, Freddie Mac and FHFA for liquidity and stability, MBA's 2014 conference and expo will include leaders from these organizations provide important updates on their respective agencies' operations and plans, including insights on current and future market conditions. The complete schedule of events and speakers is available on the web site.
SNL is offering up a Fundamentals of Bank Valuation seminar in New York next month. If you'd like to learn how to value a bank, it is probably worth your while.
Yet another wholesale lender is offering up another non-QM product. "JMAC's Imperial ARM Program" with an interest only option and alternative documentation. Alternative Documents for Self Employed Borrowers, 5/1 ARM with Interest Only Option, Minimum FICO score 620, Short Sale / Foreclosure only 1 year seasoning, cash-out up to $2.5 million with no title seasoning required, second Homes, investment and flipped properties allowed, no add-on to fee for FICO score, loan amount, refinance type, or occupancy, gift allow for all occupancy including Investment after 30% down payment from borrower own funds." Christina Pham, president of JMAC Lending said, "We are currently transforming our business model to better serve our broker customers. Our transformation is focused on three critical success factors: expanding our product array to better serve the purchase money market; implementing world class technology for our customers to utilize; and establishing an innovative customer service and support platform."
Affiliated Mortgage Company revised its guidelines on FHA/VA requirements. Loans locked or relocked on or after April 21, 2014 will require a minimum 3 credit trade lines reported on the credit report. Loans with credit Scores 620 - 639 will require the following: Effective immediately, no late payments on mortgage or rental history in the last 12 months, LOX for all derogatory credit in the past 24 months, no more than 1 x 30 day late-payment on installment/revolving accounts. Qualifying Ratio requirements are 31%/43% - Manual downgrades due to BKR. 45% maximum with credit scores 620-639, both Delegated and Non Delegated. Credit scores for 1-2 Unit Owner Occupied requirement is 620-639, and 3-4 Unit Owner Occupied minimum credit score is 640. New FHA reserve requirements have been added with Case Numbers assigned on or after April 21, 2014: 1-2 Unit Properties must equal or exceed 1 total monthly mortgage payment. 3-4 Unit Properties must equal or exceed 3 total monthly mortgage payments. All Manually underwritten loans must meet or exceed the following minimum reserve requirement.
The USDA has stipulated that the local health authority or a state-certified laboratory must perform a water quality analysis and that the results must "meet" or "exceed" the EPA minimum thresholds for lead, nitrates, nitrites, and coliform. The written results must state that the four tests were conducted, list the results, and show that they exceed the established thresholds. Properties that require a water treatment system for the well water to meet the minimum potability standards are not considered eligible.
Franklin American has aligned its minimum borrower contribution requirements with those of the Agencies, added alternative methods of validating income for self-employed borrowers when the tax transcripts are not yet available, removed the requirement for Operating Income Statement 216, limited escrow holdbacks to 45 DTIs on LP loans, and expanded guidelines to allow PERS (Type T) as an acceptable project review type. All changes are effective immediately. For all products, FAMC is now allowing non-weather related escrow holdbacks for new and existing construction and has added parameters for weather and non-weather related escrow holdbacks for REO properties.
For all FHA products, FAMC has removed the requirement for Energy Efficient Mortgages to be accepted on an exception basis and has expanded guidelines to allow owners in certain detached condo projects to obtain individual coverage when the HOA's coverage does not meet the blanket policy requirement.
WesLend has launched its new Direct ARM program, available for 5/1 and 7/1 purchases, rate/term refis, and cash-out refis of up to $417,000 for primary residences and second homes. The program does not require mortgage insurance, regardless of LTV, which is capped at 90%, and is currently being offered in AZ, CA, CO, DC, FL, GA, IL, KY, MD, MN, NJ, OH, PA, TN, TX, VA, WA, and WI. WesLend has also updated its FHA High Balance guidelines to lower the minimum FICO to 640 for purchase and rate/term refinances and its Jumbo guidelines to allow escrows in California.
We had a bit of a rally yesterday, which was nice to see. Few want to see a big improvement in one day, however - no one in capital markets wants to dust off their renegotiation or float down policies. (Ask any Wall Street firm about its "float down" policy on MBS hedges during a rally...) I will cut to the chase: as expected, the Fed will continue to reduce its monthly asset purchases by $10 billion to $45 billion per month. The Fed noted that barring unexpected events, tapering of purchases would continue. What caught the Fed by surprise was the initial report on Q1 2014 GDP growth which came in barely positive at +0.1%. While it was expected to be a weaker number than the last quarter due to severe weather in parts of the country, this was significantly below expectations of an increase of 1.2%. This is the slowest pace of economic expansion since Q4 of 2012. The pullback was not expected to alter Fed policy and is expected to be temporary.
(Read More: MBS RECAP: Weak GDP Helped Some, FOMC got out of the way)
And thus fixed-income securities, which of course include MBS, rallied as markets focused on the weaker-than-expected GDP numbers instead of the better-than-expected results in ADP Employment and Chicago PMI. So beginning in May, monthly outright MBS purchases will decline to $20 billion from $25 billion, where it is expected to remain through June as the next meeting is not until June 17-18. And this tapering is priced into the market.
May opens with a full calendar of key economic news to occupy markets as participants await Friday's employment situation. We have Initial Jobless Claims, expected to decline to 318k from 329k, April's Personal Income and Consumption (forecast to increase to +0.4 and +0.6, respectively, from +0.3 for both in March), March's Construction Spending (+0.6 versus +0.1), and April's ISM (+54.2 from +53.7). Phew! In the very early going the 10-yr yield is at 2.62% after closing at 2.65%, so, pre-unemployment data, agency MBS prices would be expected to improve slightly.