Did you know that the number of female chief executives of Fortune 500 companies this year declined by 25 percent (from 32 to 24)? Not good. One of the highlights for me of this week’s MBA Secondary Marketing Conference was the mPower lunch. Besides some great networking and meeting some new folks, the lunch featured author Joanne Lipman who spoke about unconscious biases that many have (if you want to test yours, visit this site), strategies for improving your workplace, and closing the gender divide. Yes, there are differences between men and women, but companies are better off by constructively realizing them and using them to their advantage. (If you have questions about the mPower program, which is also having events at various conferences around the nation, please contact the MBA’s COO Marcia Davies.)
Alt, Jumbo, Non-QM, and ARM Changes
If you own a factory, and have the manpower, to produce blue jeans made from cotton, and the market shifts away from cotton to polyester, well, you shift some of your production to polyester. Many lenders have veered away from non-QM lending due to the perceived class action liabilities, the reputational stigma, and the sales challenge while seated in front of a borrower. And, while any downtown appears far off, plenty of lenders are wading into the non-QM pool to give their LOs, and back office staff, more flexibility. Hey, it’s not subprime, right?
On the investor/demand side, it isn’t new. In fact, last summer the financial markets observed that big money managers were swapping corporate debt for mortgage backed securities, particularly subprime MBS from before the crisis. Corporate debt simply got too expensive, and MBS got too cheap. The supply of subprime MBS has been shrinking however as loans get paid off, and non-agency MBS outstanding are about 25% of what they used to be. For fixed income managers, MBS outperformed most everything. The appetite for MBS paper was encouraging, as it opened the origination business to more outside-the-box product and allow credit to be extended to borrowers who have been more or less shut out of the market post-crisis.
And the WSJ discussed how banks have ramped up subprime lending not directly but instead by extending credit to nonbank financial firms who in turn are making loans to individuals. It’s all counter-party risk, right? Who is responsible? The article singled out WFC the most exposure among large US banks to this type of subprime lending.
A paper suggests that the ratings agencies largely got it right with the bubble-era RMBS. The AAA tranches (even subprime) were largely money good, and the study pours cold water on the popular narrative that inflated ratings on RMBS caused the financial crisis.
In jumbo land, as the competition for business has gotten fiercer in the mortgage market, banks and other lenders have eased up on their lending criteria, making it easier for borrowers to obtain a jumbo loan. A few years ago, jumbo borrowers had to make significant down payments and hold hefty cash reserves. Now a few lenders are lending up to 95 percent of the value of a home, and a 10 percent down payment jumbo loan is becoming the norm.
We might assume that skyrocketing home prices are forcing more and more people to apply for high-balance loans. Jumbo loans remain the norm in pricey cities. On a nationwide basis, however, the demand for jumbo loans appears to be cooling off somewhat. Looking at the MBA data, jumbo purchase apps leveled off in the first four months of 2018 after demand rose significantly in 2016 and 2017. The MBA’s index measuring the monthly application counts for home-purchase loans with balances over $729,000 was up just 30 basis points in April compared to the same period in 2017.
Chase Correspondent has posted an update to its guidelines which applies to its Agency ARM product line(s) Maximum LTV/CLTV.
CALCAP Lending LLC is offering Jumbo loans, loan amounts to 5 million and LTVs to 75%, no income or employment. Contact Brett Griffin for details.
Ditech Financial rolled out its new Jumbo product that offers 95 LTV with No MI, allows unlimited financed properties for investment properties & second homes (with a 70 LTV) and has a Non-Warrantable Condo option.
Have you been searching for a NIVA (No Income - Verification of Assets) Program? At ACC, contact Kelly Brown for information on its 3-1 and 7-1 ARM programs. Up to $2 million, low as 640 FICO,
Angel Oak Mortgage Solutions offers a Non-Prime program benefiting people with credit scores as low as 500. Non-prime mortgages require 10% or more down to qualify.
Plaza added more flexibility to its trade line guidelines for five of its programs including Preferred Purchase Jumbo Program, Elite Jumbo & Elite Plus Jumbo Programs, Closed-End Second Liens and Solutions Non-QM Program.
made several credit changes when it announced “Portfolio Prime”, officially changing the name of its “NonQM” program to “Portfolio Prime”. “The new name speaks to the product being a portfolio product as well as the ‘Prime’ supporting prime credit. “We have increased our cash out limits on our Portfolio Prime Program. For example, on a primary residence, the cash out limits match our loan amounts/LTV’s. We will allow a recoup of funds within 12 months (previously had to be done within 6 months) and will consider it a Rate & Term refinance. We now require 4 years seasoning on a short sale, modification and NOD (previously this was 5 years) and we require 5 years seasoning on a foreclosure and bankruptcy.”
A while back (and be sure to check for its current guidelines!) Impac Mortgage Corp. lowered its FICO scores to 600 on all IQM products. It has also added a 90% Tier on Agency Plus Purchase and R/T Refi’s, an 85% Tier for Agency Plus Cash Out Refi’s., a 90% Tier on Alt Doc Purchase and R/T Refi’s, and an 85% Tier for Alt Doc Cash Out Refi’s.
Plaza has introduced its new Credit Policy, formally known as Conventional Underwriting Guidelines. The new Credit Policy streamlines credit guidelines. Its Program Guidelines are where you will find all loan level requirements, including overlays for all loan programs. The Credit Policy will supplement the Program Guidelines with additional information needed when submitting loans to Plaza. For requirements not addressed in the Credit Policy and/or Program Guidelines, Plaza defers to the guidelines established by Fannie Mae, Freddie Mac, VA, USDA or HUD guidelines.
Sun West has updated its manual underwriting guidelines specifically for the review of a borrower's credit. The updated guidelines include additional information on how various risk factors associated with a borrower's credit are analyzed during a manual underwriting review.
Yes, the trend in rates is higher, but it won’t be a straight path, as we’ve seen this week. Nonetheless, overall the U.S. economy is doing well enough to warrant the Fed to have 2-3 more short term rate increases in 2018. The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.4 percent in April, with positive contributions from the yield spread, weekly hours in manufacturing, the ISM new orders index, initial claims for unemployment insurance and consumer expectations for business conditions outweighing negative contributions from stock prices and building permits. The increase points to moderate growth throughout the second half of 2018; however, the six-month growth LEI rate declined slightly, suggesting a strong acceleration in growth is not likely.
Industrial production increased 0.7 percent in April, its third consecutive monthly increase. The increase was driven by mining and utilities which were up 1.1 and 1.9 percent respectively. After being flat in March, manufacturing rebounded for a 0.5 percent increase. Capacity utilization rose 0.4 percentage point to 78.0 percent which is 1.8 percentage points below the long-run average. Capacity utilization is a signal of how much the economy can continue to grow before becoming inflationary. Manufacturers continue to voice concerns over trade policy and tariffs on steel and aluminum driving up commodity prices.
Overall, the economic indicators from mid-May remain positive and point to continued growth throughout the second and third quarters of 2018. The financial markets remain convinced that an increase in the fed funds rate range to 1.75-2.00 is imminent in June with a strong probability of another increase in September. If there is a fourth rate hike this year, it will likely come at the end of the FOMC meeting in December, however at this time the markets are only pricing in a 41 percent probability.
Turning to the housing market, housing starts fell 3.7 percent in April though they were 10.5 percent higher than one year ago. The decline was led by a 12.6 percent decline in multi-family housing starts but completed multi-family projects were 18.7 percent above March’s deliveries and the number of single family homes under construction continues to trend higher. Though the headline is disappointing, optimism remains strong with builders. Housing news continues to point to the same thing: notable supply constraints continue to act as a drag on overall sales. The limited inventory -- and the high prices on available inventory -- is crimping affordability, particularly for first-time buyers; moreover, all prospective buyers are going to feel added affordability pressures from rising mortgage rates.
Looking at the bond market & interest rates, we have an early close today ahead of Monday’s holiday. News out of the U.S. is not nudging rates lower, although the $30 billion 7-yr Treasury note auction was met with very good demand. It is international unrest which usually results in a flight to quality: U.S. securities.
This morning we’ve had the usually volatile durable goods: -1.7%, more than forecast due to commercial airline orders (+.9% ex-transportation). We’ll have a volley of Fed speakers (Powell, Bostic, Evans, and Kaplan), along with the University of Michigan Consumer Sentiment number. Friday begins with the 10-year yielding 2.94% and agency MBS prices better nearly .125 versus last night’s close.
Employment and Personnel Moves
“Pacific Union Financial named experienced wholesale ‘rock star’ Michael Royer EVP of Wholesale Lending. ‘As Pacific Union makes strategic moves to build our Wholesale team, Michael Royer is the obvious choice to lead the division. His reputation in the industry is without comparison. Michael led his previous organization to the number one Wholesale position in the industry. We are confident that with Pacific Union’s onboarding team, great marketing, and rock Star company culture, Michael will be able to take our Wholesale team to new levels,’ Evan Stone, Pacific Union Founder and CEO said. Pacific Union is raising the bar and redefining the standard for Wholesale Lending.” If you are interested in joining the Pacific Union Wholesale Lending team contact Brad Hoke.
Arch MI is searching for an Account Manager in Northern CA who builds and maintains long-term relationships in customer organizations to ensure that growth and quality targets are met or exceeded. The AM develops advocacy with key branch level decision makers and grows profitable market share by proactively identifying and capitalizing on new business opportunities. S/he provides support to National Accounts consistent with organizational objectives and ensures customers receive superior quality and responsive service. Will be responsible for Arch’s visibility in the marketplace, calls patterns, and results of lender client relationships. Achieves or exceeds stated account growth and NIW goals. Uses Solution Selling to sell a variety of complex products and services that will improve customers’ business. Understands competitors’ strengths and weaknesses and how Arch US MI stands in comparison. Effectively articulates to customer the differentiated impact of Arch US MI’s offering on the customers’ business and processes. Interested parties should contact Tonya Battle, HR.
Recently Freddie Mac announced that John Krenitsky has joined the company as SVP and chief compliance officer (CCO). “Krenitsky brings with him extensive experience in managing compliance programs gained from over two decades working in the global financial services industry,” and will fully transition to the position of CCO effective June 1 following the retirement of current CCO Carol Wambeke.