Here’s something the funders can try in the lunch room today: bet a shipper that they can't catch a dropped dollar bill with their fingers.
Last week this commentary had some interesting information on loan servicing - the value of servicing can impact borrower's rates and prices just as much as the mortgage-backed security market. Michael Ehrlichwith ThomsonReuters has some timely comments for any company considering servicing, or selling bulk blocks of the asset. "There may also be additional on-boarding costs for initially using a sub-servicer when the plan is to transfer the servicing mini-bulk at the end of the quarter. Larger mini-bulk sellers may also benefit by making their best-ex decision post-close...current market flow/co-issue contractual agreements from servicing buyers will normally have a 3 or 6-month commitment on their pricing grid, but variance exists across the buy-side and nuances must be completely drawn-out to ensure clarity. MSR buyers have unique formulas used to determine par rate and typically bake into their agreement the 'definition of par', to allow for as needed par-rate adjustment options. After the initial term, agreements may continue on the same period, or even a month-to-month / week-to-week basis; though the end objective is to have the buyer and seller agree to a term that suits both parties best."
LOs should be interested to know that early payoff protection (EPO) is typically 3-4 months for conventional and 3-6 months for FHA/VA originations. Often there is a "non-solicit" imposed on the seller for the life of loan. "If the loan is paid off during that initial protection period, the seller will typically be required to reimburse the buyer for the sale cost of the MSR. Early payment defaulted loans (EPDs) are covered under distinct legalese and should be similarly monitored, as should any enhanced VA 'write-off/no bid' risk protection components."
Who is buying co-issue servicing, where the loan is sold usually sold to Fannie or Freddie and then the servicing goes elsewhere? Mr. Ehrlich writes, "Acquiring over 30% of the Co-Issue/CSR servicing of 2015 issuance was Pingora, tops for GSE and GNMA. Roundpoint was also an aggressive buyer, 2nd in both Co-Issue GSE and GNMA (PIIT) servicing acquisitions. Acquiring co-issue servicing from Stearns ($7.5B), Prosperity Home Mortgage ($1B) and a handful of other sellers, Seneca Mortgage added $10.6B in co-issue servicing (2015 issuance). Central Mortgage (Arvest) acquired through Co-Issue (FNMA and Freddie) and CSR (primarily Freddie). $2.2B of their $10.4B in co-issue/CSR servicing acquisitions were from a co-issue arrangement with Guaranteed Rate. Nationstar acquired $8.4B co-issue of which $2.37B was sourced from Movement Mortgage.
"Lakeview was by far the top buyer of mini-bulk/bulk servicing (2015 Issuance), acquiring over 37% of the bulk/mini-bulk servicing. Their top sellers included: Impac ($4.1B), Prospect ($3.7B), Flagstar ($2.8B), Franklin American, ($2.2B), Plaza ($1.9B), and New American Funding ($1B). Matrix Financial (Two Harbors) acquired $6.5B in bulk/mini-bulk from: Prospect Mortgage ($2.7B), Nationstar ($2.2B), American Pacific ($943M), and PHH ($611M)."
Yesterday we learned that the NAHB index of home-builder sentiment was unchanged at 58 in May - less than expected. The "expectations sub-index" rose to 65 from 62; current sales conditions were unchanged at 63; buyer traffic was unchanged at 44. What about other building and sales trends?
Going back to the autumn, cash home sales were 32.5% of all transactions in September, down from 35.9% 12 months ago. Cash sales peaked in 1/11 at 46.6% and have historically averaged 25% of sales. At the current rate of improvement, cash transactions should return to 25% by mid to late 2017. Cash sales were 58.3% of REO sales, 32% of resales, 29.1% of short sales and 15.9% of new home sales. Since this time it appears that all-cash sales are heading back down, as a percentage - much to the happiness of lenders.
Doug Duncan, Fannie's chief economist, said that affordability is the housing market's top issue. Interest rates, long predicted to rise, will not go up as much as people might expect, Duncan said: he's expecting only a 3.7 percent rate on a 30-year mortgage by the end of 2016. A boon for real estate? Not necessarily. Housing sales grew by 7 percent last year, the largest rate since 2007. They are expected to grow by only half as much as this year. It's because "housing affordability constrains as the expansion matures," Duncan said.
How high are home prices in California? According to Zillow, even the generous salaries for those in the tech industry in Silicon Valley are unable to afford the expensive homes and high tax burden in California, compared to similar tech employees in less expensive and lower tax states like Washington. Zillow compared income information and household data for software development engineers in Silicon Valley and in Seattle. Entry-level software engineers at the two largest tech companies in Silicon Valley must dedicate more than half of their after-tax salary to afford a home in their community, compared to 30 percent for those living in Seattle. The average home value for those who work at or near Apple's Cupertino, CA headquarters reached $1.1 million at the end of 2015 compared to the median home value of $522,000 for people who work at or near Microsoft's headquarters in Redmond, WA and $437,000 for people who work at/near Google's campus in Kirkland, WA.
Rent is also higher in the Silicon Valley, as rent in the areas where Apple and Google employees often live ranges from $3,748-$3,985. This is greater than the average of $2,106 - $2,346 for Goggle or Microsoft employees living in Redmond or Kirkland. To compensate for the higher cost of living, the median base annual salary of an entry-level software engineer in Silicon Valley in 2015 was $115,000-$120,000, slightly lower than the $110,000 salary for entry-level software engineers in the Seattle area. For those working in Silicon Valley at a higher income, earn $417 more per month in pre-tax income, but $357 less per month in after-tax income compared to those working in the Seattle area.
The U.S. Treasury market, and fixed-income securities backed by mortgages, had a bad start to the week as global risk appetite increased and investors abandoned safe-haven assets. The disappointing readings on the Empire State Manufacturing Index and the NAHB Housing Market Index for May, both weak and which should have nudged rates lower, had no effect. Here in New York the Empire State Manufacturing Index fell 50 -9.0 in May from +9.6 in April.
For excitement today we'll experience the Consumer Price Index (8:30AM EDT), Housing Starts & Building Permits (8:30EDT), and Industrial Production & Capacity Utilization (9:15AM EDT). If you're trying to figure out rate sheets, we closed the 10-year Monday with a yield of 1.75% and in the very early going it is unchanged, as are agency MBS prices.
Jobs and Announcements
Congratulations to the Q1 Top 5 Customer Satisfaction Leaders. With thousands of customers weighing in, the winners averaged 4.85 out of 5.0 Stars. Here are the results; 1st - Diamond Residential Mortgage, 2nd - Absolute Home Mortgage, 3rd - American Financial Network, 4th - Allied Mortgage Group, 5th - Security National Mortgage. (Freedom Mortgage, is not on the list, but deserves honorable mention: in its first week withSocialSurvey, over half of Freedom's customers weighed in to give it an average score over 4.9.) To be on the list, lenders must have a minimum of 500 Reviews. SocialSurvey must be connected to the LOS, which eliminates selection bias and automates the collection and sharing of online reviews. To read the full story, click here or to learn more about SocialSurvey, or have their experts do a FREE analysis of your company's online reputation, contact Craig Pollack (888.701.4512).
Rushmore Loan Management Services is a rapidly growing mortgage servicer based in Irvine, CA and is looking to hire a VP of Cash and Loan Administration. The candidate will ensure that the Cash Management and Special Loans Departments perform in accordance with the policies and procedures of the company and manage all areas of Cash Management, including Payment Processing, Exceptions Processing and Liquidations processing, ARM and MOD account maintenance, notices and changes, Index maintenance and SCRA loans. Additionally, the candidate will be responsible for payoff quotes processes, billing statements, ACH management, credit bureau reporting and related research. Ideally, the candidate should have 10 years or more (preferred) direct experience in managing borrower cash operations in a mortgage servicing environment and related experience in MSP system is required. Interested parties can send confidential resumes to recruiting@rushmorelm. com.
In wholesale job news, "Got swagger? Impac Mortgage Corp. Wholesale division is looking for more rock stars to add to its team. Whether you're in the middle of the U.S., or on the West Coast, if you play to win in your market, Todd Kesterson would like to hear from you. And, word on the street is they'll be making some interesting non-QM product announcements soon."
On the retail side Assurance Financial is expanding and has an immediate need for branch managers and loan officers throughout the Southeast and Southwest. Assurance Financial supports all of its LOs with ready-to-use marketing materials and customized webpages plus a dedicated back-office team that is focused on consistently closing loans on time. If that sounds good to you, reach out to Paul Peters, CMB at 225-239-7948.
"M&A slowed its pace in 2016 because mortgage volume was strong Q1 (remember Q1 of 2014?) and remains steady", says Dr. Rick Roque (413.297.6895). "This year is expected to be a relatively flat year as compared to 2015, but remember, 2015 ended up higher than every analyst predicted due to the micro-boom in rates in the first quarter of 2015 driving many refinance pipelines and maintaining rates for purchase transactions. But as the summer volume transpires, M&A activity will increase substantially because the multiples are there for the right buyers and sellers."
A leading Mergers & Acquisitions (M&A) firm is seeking mortgage banks in the Midwest or Mid-Atlantic markets to be purchased either by selling their stock or assets. Applicable mortgage companies would have closed between $300M-$1.2B in 2015, or on pace to doing so in 2016, either consumer direct or referral partner (Realtor) based originations. No Agency approvals are necessary since they are already in place. If you would like to have your firm acquired, possibly receive a 2-4x after tax multiple, maintain your leadership and control, but rapidly accelerate your growth with significant access to capital, a broad array of new/innovative and non QM products, please contact me with confidential inquiries. (Please specify opportunity.)
And a West Coast private equity firm is seeking small to mid-size mortgage origination company as acquisition target. Companies seeking interest in this strategic partnership should possess 6 or more regionalized state licenses, and a Fannie Mae seller servicer license or a Ginnie Mae seller servicer license. The lender should be currently engaged in the origination of wholesale or retail residential lending, and be originating a minimum of $15mm/month for the past 12 months. Lastly, the inquirer should have a minimum net equity of no less than $3 million on its balance sheet. Principals only; inquiries should be directed to me. (Please specify opportunity, and excuse any delays in response due to attending the MBA's Secondary Marketing Conference.)
According to the 2014 STRATMOR Technology Insight Survey, roughly 3 out of 4 lenders are not satisfied with the value they are getting from their LOS systems. Will TRID experiences change the opinions of lenders? STRATMOR has launched this year's Technology Insight survey to uncover the answer as well as capture detailed information on both LOS and vendor satisfaction. This survey is for Lenders Only and should take less than 20 minutes to complete. Participation is FREE and lender respondents will receive a high-level summary of overall market share by vendor. Detailed survey results and STRATMOR's proprietary analysis of our findings will also be made available for purchase this fall. To sign up to take this important industry survey go to: STRATMOR Tech Insight Survey.