Tomorrow is Cinco de Mayo, hence the real-life, true, yes, really true, well kind of true tale at the end of the commentary. Anyway, tomorrow celebrates the legendary Battle of Puebla on May 5, 1862, in which a Mexican force of 4,500 men faced 6,000 well-trained French soldiers. The battle lasted four hours and ended in a victory for the Mexican army under Gen. Ignacio Zaragoza. Along with Mexican Independence Day on Sept. 16, Cinco de Mayo has become a time to celebrate Mexican heritage and culture. This is important, given that there are nearly 32 million U.S. residents of Mexican origin living here, or 63% of the total Hispanic population (up from about 21 million only ten years ago), and 61% of those with Mexican heritage live in California. The median age of this population is only 25 years old, versus 37 for the entire U.S.! (The rumor that the descendants of the defeated French went on to establish the current regulatory environment for mortgage bankers is unfounded.)

With its guarantee fee announcement, Fannie Mae really gave those of us going to the MBA's National Secondary conference something to talk about. One hopes that it will not be applied retroactively. (Can you imagine receiving a letter saying, "We're raising the g-fee on your production for the last year by 5 basis points, so send us a check for..."?) But many are quick to point out that the first sentence says, "Fannie Mae is updating the terms that pertain to Fannie Mae's ability to change the pricing applicable to lenders' deliveries of mortgage loans under the standard Selling Guide provisions as well as under any existing Master Agreements and related MBS contracts." Attorney Brian Levy wrote, "No one really ever thought that repurchase remedies would be used on loans that had errors that were not material to the loss either, but that all changed when people tried to figure out how to pin losses on someone else.  Unless they clarify their intentions in writing, I would not be complacent assuming that Fannie will not use this Announcement to change deals after they close."

There may be a little good news out there, if you look hard enough.  The CFPB outlined how the bank regulators plan to implement a mandate in the Dodd-Frank Act to promote diversity in the workplace at financial institutions through the Office of Minority and Women Inclusion (OMWI). Dodd-Frank also called on the regulators to jointly develop standards for assessing diversity policies at the institutions that each regulator oversees. Stuart Ishimaru is now the head of the CFPB's diversity office, bureau officials said the banking regulators may soon collect from banks information about their diversity practices as part of the process for developing best practices. Per an article in the American Banker, "None of the diversity offices within the regulatory agencies have authority to write rules or require bank or nonbanks to change their hiring practices or other diversity-related policies...The CFPB plans to work with banks and nonbanks, as well as other regulators with similar office - including the OCC, FDIC, Federal Reserve Board, and the FHFA to develop the standards over time." The office is also responsible for developing similar standards for the diversity of the CFPB's workforce, including senior management, and increasing participation of minority- and women-owned businesses in the agency's programs and contracts. Credit:

Some wonder why CFPB enforcement lawyers are accompanying CFPB examiners on CFPB exams. According to news reports, Mr. Cordray stated that the practice is intended to allow supervisory and enforcement staffs to learn more about how each other operates.  He was quoted as saying that the CFPB wants "the supervision teams to understand where enforcement works and why and how" and that the CFPB also wants "the enforcement team to understand how supervision and examinations work." Critics, however, noted that the reasoning had changed from the earlier explanation, which was that (per Deepak Gupta, formerly the CFPB's Senior Counsel for Enforcement Strategy) the enforcement lawyers were being sent to exams to provide legal advice to the examiners, who are non-lawyers. Those critics suggest that the CFPB's practice and the purpose of the exams is to obtain information and documents that the CFPB can use to initiate enforcement actions.

Hey, hats off to EverBank, which went public yesterday at $10/share. Many in the industry are seeking to raise capital for things like financing mortgage servicing rights (MSR's) through other means, and EverBank went public for other reasons, but it is still a positive for the biz.

The financial services mergers & acquisitions wires have been humming lately. In Maine Camden National Bank is buying 15 branches from Bank of America, picking up $414 million in deposits at a 3.70% premium. Bar Harbor B&T will purchase Border Trust Company for 97% of tangible book (3.9% premium on its loans) - it's the first acquisition in Bar Harbor's 125 year history. In California, PacWest Bancorp will purchase American Perspective Bank for $58 million in cash, or about 1.4x tangible book. On the Eastern Seaboard the Bank of Hampton Roads (VA) will sell 3 branches to First Bancorp (NC). The parent of Encore National (FL) has agreed to purchase a substantial amount of Royal Palm Bank (FL) from Mercantile Bancorp (IL) to include branches, loans and deposits.

Investment banker KBW announced its participation in a few deals of late. Public company Independent Bank Corp., parent of Rockland Trust Company, and Central Bancorp, Inc., parent of Central Bank, jointly announced the signing of a definitive agreement under which Independent Bank will acquire Central Bancorp, and Rockland Trust Company will acquire Central Bank. KBW also helped with Brynn Mawr Bank (parent of The Bryn Mawr Trust Company)'s plan to acquire certain consumer and business deposit and loan accounts, along with a branch location, from the First Bank of Delaware.

In fact, Banc Investment Daily reports that, "Of the 31 banks that disclosed sale prices in 2012, the average price to tangible book was 1.16x up from 1.08x last year. Deal flow is now 31% ahead of last year based on the number of transactions and 28% ahead based on volume."

What is Freddie Mac's tangible book value? Good question (don't ask me!), but Freddie Mac has reported net income for the first quarter of 2012 of $577 million, down from $619 million in the 4th quarter of 2011, and comprehensive income of $1.79 billion. Freddie will request a draw from the U.S. Treasury of $19 million, but only because of its dividend obligation to the Treasury under which it will be paying back $1.81 billion. The net income dropped slightly due to higher derivative losses and lower net interest income, although it was partially offset by a decrease in the provision for credit losses related to single-family loans.

Taking a step back, including the 1st quarter Freddie has received about $72 billion in support from the U.S. Treasury since 8/08. At the same time it has paid, under its Senior Preferred Stock Purchase Agreement, a total of roughly $18 billion in dividends to the government, resulting in net draws of $54.0 billion. The dividends do not reduce the draw principal balance, but to the best of my knowledge are pure interest and do not reduce the draw balance. Us Average Joe's see the press report the total draw amount, but has to dig a little to see how much in dividends have been paid to the government/taxpayer.

But lenders have their eye on buybacks, and for Freddie, its pending requests to lenders for refunds on faulty mortgages rose about 19% in the first quarter to $3.2 billion. This includes 38% that were outstanding for more than four months - in other words the unpaid balance on requests to sellers and servicers of single-family home loans, and the increase is measured from the end of 2011. The total decreased from $3.4 billion in the first quarter of last year.

Yesterday PennyMac Mortgage Investment Trust reported net income of $19.1 million for the first quarter of 2012, on net investment income of $46.6 million. Basically its financial picture is shaped by two channels: investment activities and correspondent lending. Correspondent funding volumes reached $1.8 billion for the quarter and interest rate lock commitments (IRLCs) were over $2.4 billion, both up for the quarter. Of total correspondent fundings, conventional loans amounted to $992 million, FHA loans were $795 million, and jumbo loans were $5 million. Pretax income attributable to the correspondent lending segment was $10.3 million for the quarter, primarily resulting from a $13.4 million net gain on mortgage loans acquired for sale and $2.8 million of interest income.

Turning our attention to the markets, yesterday we had a spate of news which still didn't move the 10-yr. or MBS prices out of their recent ranges. (The 10-yr closed at 1.92%.) Initial jobless claims dropped by 27,000 to 365,000 in the week ended April 28, the biggest drop in a year and following three weeks of disappointingly high readings. And Non-Farm Productivity declined 0.5% in the first quarter while Unit Labor Costs increased 2%. And the Institute for Supply Management Service Index fell to 53.5 in April from 56.0 in March, "rekindling" some concerns about the endurance of the U.S. economic recovery. Mortgage banker selling was apparently easily consumed by the usual Fed, REIT, money managers, and hedge fund buying. (The Fed is buying over 70% of supply.)

The market was unchanged prior to the 5:30AM PST unemployment data. Non-farm Payrolls were only up 115k versus a revised +154k, revised up by 34k, for March. (February was also revised higher, from +240k to 259k.) So although the number was much less than expected, i.e., fewer people have jobs than want them, the back month revisions basically make up for it. The Unemployment Rate dropped to 8.1%, the lowest since January of 2009, but the size of the labor force is decreasing. Lastly, the average workweek was unchanged, as were hourly earnings. So after the numbers, ithe 10-yr yield is at 1.89% and MBS prices are better. 

Most people don't know that in 1912, Hellmann's mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery in Vera Cruz, Mexico, which was to have been the next port of call for the great ship after its stop in New York.
This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was lost forever.
The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great that they declared a National Day of Mourning, which they still observe to this day.
The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.