Let's see...10-year rates are close to 6-month lows, Fannie 3.5% MBS prices are at a 6-month high, yet the refinancing index is at a 6-year low. Has nearly everyone who could refinance done so already? You'd think that with those "great" unemployment numbers on Friday, rates would have moved higher. But it doesn't help that hundreds of thousands of jobless workers give up looking for work every month - more on this, and its impact on the markets, several paragraphs down.
1st Portfolio Lending is opening a new office in Fairfax, VA, and is looking for additional underwriters, processors, and IT staff (preferably with a degree in Management Information Systems) in the immediate area. The company is a retail lender in the Washington DC Metro area, is an approved Fannie & Freddie seller, "offers a great compensation package with matching 401K, and its origination staff is knowledgeable and seasoned." Interested applicants should email Banks Gatchel at bgatchel@firstportfolio. com.
Due to growth, PMAC Lending Services is looking to hire a Compliance Manager to join its team in PMAC's corporate office in Chino Hills, CA. The Compliance Manager will primarily be responsible for monitoring, assessing, and implementing State and Federal compliance parameters and guidelines as well as performing periodic reviews of mortgage transactions to ensure compliance with company guidelines and applicable regulatory requirements. "Think you are up for the challenge? Apply here." PMAC was founded in 1995, has offices and operations centers nationwide, and is a nationwide direct lender and seller servicer with Fannie Mae, Freddie Mac & Ginnie Mae.
And Envoy Mortgage is looking for branches to join its team. "Why are top branches gravitating towards Envoy? Recognized as one of the Nation's top mortgage lenders, Envoy Mortgage offers only the best of the best in resources, professionalism and stability required by top mortgage producers to amplify their earning success! Envoy Mortgage is designed to give our branches and originators the highest quality of top-tier tools and services available such as paperless technology and eSign, interactive hands-on training and breakthrough marketing potential with unlimited access to Marketing materials and support. Our investment in valuable resources and our network of outstanding service produces consistent results with strong customer loyalty, consistent referrals and customers for life. We have teamed up with some of the industry's best and are seeking to add top-performing branch partners and originators to our line-up. Do you like to win? Then be a part of a champion mortgage team! Propel your pipeline to the next level and experience the Envoy difference by contacting RecruitingTeam@envoymortgage. com for current open opportunities."
How many days do we have to cure a GFE tolerance violation? The Mortgage Bankers Association of the Carolinas wrote, "Regulation X provides: 'If any charges at settlement exceed the charges listed on the GFE by more than the permitted tolerances, the loan originator may cure the tolerance violation by reimbursing to the borrower the amount by which the tolerance was exceeded, at settlement or within 30 calendar days after settlement.' -12 CFR 1024.7(i)."
One important event scheduled for next week (May 13th) is a live webcast hosted by the Brookings Institution in which they will have a conversation with Federal Housing Finance Agency Director Mel Watt about the future of Fannie Mae and Freddie Mac. Ya'll remember Director Watt, right? He took over from Ed DeMarco, and this is the first time in 5 months that Mr. Watt will be making public statements. At this point, it is unclear if he will make any major policy announcements, but it is likely that the recent slowdown in housing activity has caught his attention. Will the FHFA direct Fannie & Freddie to loosen up the GSE credit box so that they become more willing to make loans to first-time home buyers with lower credit scores (700-740)? Perhaps - the smartest guys in the room point to lending standards in other consumer products (credit cards, auto loans, water heaters, whatever) easing. Credit standards remain very tight and are not reflective of where we are in terms of the credit cycle.
Continuing on with this macro look at lending, most lenders have seen a significant drop in mortgage, and therefore MBS, issuance during the first quarter. Lenders are already moving down the credit curve. (Don't confuse accepting different credit standards as accepting lower documentation or income standards - investors don't much care for that right now, so put those IndyMac guidelines away.) Wells Fargo retail lowered the minimum FICO for conventional mortgages from 660 to 620, but one has to keep these announcements in perspective as average FICO for purchase originations is still around 750. And it apparent that the large correspondents view their competitors not as other correspondents, but Fannie & Freddie, as well as the non-banks buying servicing.
Regardless of the players, I continue to hear analysts scale back their estimates for 2014 production volume. Granted, much of this decline will occur in the big banks, but as an industry it is a concern. It is also important to keep in mind that even in the years (2004-2006) when gross issuance levels were closer to what we expect for this year, the issuance in the non-agency market was much stronger. It is practically non-existent right now as banks are holding on to portfolio product to earn income.
From time-to-time we get mired down in the tall weeds; the drudgery of the mortgage industry, sometimes we forget other analysts are looking at our little world from a different perspective, with different expectations. It's good now-and-then to step back and look to see how mortgage banking as a whole is performing, by looking at how publicly traded banks are performing. I think this is where I'm supposed to insert some disclaimer that I'm not recommending the purchase, or sale of, yada yada yada. Here we go....
Flagstar Bancorp, Inc (FBC): Flagstar reported an operating miss driven by a sharply higher loan loss provision and a fair value loss on repurchased loans. Analysts have cut their 2014 and 2015 estimates primarily driven by lower assumed loan growth. According to reports, weaker-than-expected operating results were driven by a sharply higher loan loss provision ($112.3 million from $14.1 million in 4Q) and a fair value loss on repurchased loans ($21.1 million). Gain-on-sale income rose modestly to $45.3 million from $44.8 million in 4Q, and the GOS margin rose to 101 bps from 66 bps. Total origination volume was down 22.5% Q/Q to $5.0 billion from $6.5 billion. Analysts have a stock price target set at $22.
PNC Financial Services Group (PNC): PNC reported strong quarterlies that demonstrated the strength of its business model and the significant capacity it has to cut expenses in what is widely considered a difficult operating environment for a bank. Analyst's reports which I have read state that lower asset yields, the run-off of acceptable yield, and poor mortgage banking results were more than offset by a significant drop in the expense base. Considering the mortgage bank lost money this quarter (even though gain on sale margins benefited from a big hedging gain), analysts believe there remains significant room for the company to cut expenses and improve the efficiency of the overall business. PNC reported period-end loan balances of $198B, representing a 1.3% increase compared to 4Q13. As evidenced in the prior quarter, CRE and C&I lending were the primary drivers behind the growth as both categories rose by 4.5% and 3.1%, respectively.
First Horizon National Corp (FHN): FHN reported an operating earnings number in-line with analyst estimates, a penny better than the street estimate of $0.15/share, but the stock still traded down. Analysts believe the pressure on the stock was primarily due to a 10 bps drop in net interest margin (which is performance metric that examines how successful a firm's investment decisions are compared to its debt situations), combined with the continued deterioration of profits from the Capital Markets segment and toned down comments from large regional banks regarding M&A activity. This quarter FHN's stock still trades a little cheap on both tangible book value and earnings compared to mid-cap bank and asset sensitive peers.
Fifth Third Bancorp (FITB): FITB traded off about 4% following the most recent earnings release, primarily because the company reported its second consecutive quarter of higher charge-offs and guided to a higher charge-off rate for 2014. This was the first time the company reported two consecutive quarters of higher charge-offs since 2009. This may be slightly disconcerting to investors, as the emergence of higher charge-offs in an environment where credit quality has been improving the last few years will obviously cause the market to re-assess the blind-faith assigned to improving credit trends. Broader credit trends for the company remain positive, and analysts have little reason to believe the recent tick-up in charge-offs will reveal a broader long-term change in credit trends for FITB. While mortgage income was down roughly 13% sequentially due to a significant decline in origination volume, FITB reported $109M in mortgage revenues compared to a $99M estimate. The stronger than expected mortgage banking number was primarily driven by better than expected hedging results and gain on sale margins (up to 241 bps from 227 bps in 4Q13). The improving margin was likely due to the bank's recent exit from the wholesale lending channel in March. Going forward, management expects mortgage banking revenues to decline to $425M in FY14 from the $700M seen in FY13.
Synovus Financial Corp (SNV): SNV reported another decent operating result and guided to a continuation of its expense saving initiatives that have been in place for the past couple of years. Operating metrics were generally in-line with expectations as core PPNR remained stable in what is otherwise a seasonally-weak quarter and loan growth continued to move higher. SNV grew period-end loan balances 0.5% from 4Q13, primarily due to a 2.1% increase in CRE loans, though partially offset by a 4.3% decline in land loans and 3.8% decline in residential loans. Excluding the sale of Memphis branches that occurred during the quarter (which was previously announced), total loans grew 1.0% from last quarter. The pickup in loan balances is a positive sign given management continues to guide to 4-5% loan growth in 2014. Analysts currently estimate average loan balances will grow 4.5% in FY14 and 7.9% in FY15.
Turning to the markets, last week was a very interesting week for U.S. economic data. For employment it was the best of times - or so we thought. Nonfarm payrolls bid adios to the sluggish pace of employment growth during the winter months and shot up by 288,000 jobs in April with upward revisions to February and March. The unemployment fell to 6.3 percent. The drop in the unemployment rate, however, was due to a significant decline in the labor force. And if more people give up on looking for work, well then, the economy is not as hot as the headlines suggest. But GDP, earlier in the week, was poor: the first estimate of 2014Q1 real GDP growth was a sad +0.1% - much less than the 2-3% everyone is hoping for.
But neither a weak GDP report nor a strong payroll report had any significant effect: Treasury rates continued range-bound as the Fed predictably stayed on course in last week's policy statement. That being said, the 2.59% Friday close on the 10-yr attracted some attention since the last time we were down here was February 1.
For economic news this week there just isn't much to be excited about. Today we'll have an Institute of Supply Management non-manufacturing number, tomorrow is the trade balance, on Wednesday are some Nonfarm Productivity and Unit Labor Costs, and Thursday is Jobless Claims. So the market may continue to trade on last week's more important news, or it may glom onto some news from overseas.