With two business days left in May, one can feel the anticipation of the start of the “National Standing Desk League” opener coming up soon. I’m excited about that, and I’m excited that it’s garbage day here at the house. Taking out the garbage... What to wear, what to wear? What isn’t exciting for investors in mortgages are delinquencies. Mortgage delinquencies had a record surge in April. At 6.45%, the national delinquency rate nearly doubled from 3.06% in March, the largest single-month increase recorded, and nearly three times the prior record for a single month’s change during the height of the financial crisis in late 2008, Black Knight said. For context, it took more than 18 months before the first 1.6 million homeowners became delinquent during the Great Recession, says Andy Walden, economist and director of market research at Black Knight, adding that there is still potential for a second wave of delinquencies in May.
Lender Services, Products, and Training
Stearns Lending continues to stay nimble to support the Wholesale community through these times. Recent releases include a hybrid e-close option. Borrowers can now apply through the digital mortgage application, bSNAP, to receive updates in real time throughout the loan process and spend less time at the closing table. Around 90% of the documents are available to be signed electronically allowing for a convenient and secure experience from the comfort of home. In addition to borrower benefits, hybrid e-close can reduce the potential for missed signatures, reduce print & shipping costs, and ultimately deliver a more custom solution. Non Delegated and Broker clients can reach out to their Account Executive for details, or to partner with Stearns, click HERE to be contacted.
Join MCT today at 11AM PT for its webinar on MSR Management through Market Disruption. MCT’s Phil Laren and Bill Berliner will provide an in-depth analysis on MSR market conditions, cash management and forbearance strategies through market volatility. MCT has also recently released a new post for MSR managers looking for additional guidance titled MSR Retain-Release Decisions in a Volatile Market. In the post, you will find information on making speedy and informed retain-release decisions during periods of market volatility. View the post then register for today’s webinar at 11AM PT for additional MSR management strategies.
You’ve read the story about how DocProbe became the go-to Trailing Document solution for lenders. Those lenders have been coming on board for a reason. A lender’s core business is closing and selling loans. Behind the scenes, processing, underwriting, closing, and post-closing takes place. The challenge is that Final Docs, Corrections, and Investor exceptions are areas that simply aren’t efficient. Moving operational staff, or hiring in a refi boom and then laying them off when loan levels drop, results in error-prone and delay-filled deliverables creating friction and stress on critical investor relationships. DocProbe’s only focus, and specialized experience, is trailing docs. By partnering with DocProbe, lenders get a well-oiled, transparent process that delivers accurate and complete Trailing Docs to investors on time. Onboarding is simple, and costs stay fixed in tandem with loan volume. And, oh yeah, investors are thrilled. Come see for yourself at www.docprobe.net or get more info from Nick Erlanger.
California’s Legal Challenge
Given that roughly 25 percent of residential originations come from California, much of the industry watches that state for policy and legal changes. Recently I shared with you information on AB 2501 the California legislative measure that would have a dramatic negative impact on the real estate finance industry. The bill has passed its first policy committee and is poised to fast-track to a vote before the State Assembly. The California MBA partnered with the national MBA to send a Call to Action through the Mortgage Action Alliance. If you are in California, be a part of the advocacy efforts and use this link to defeat this bill and contact your representative to encourage a no vote.
The Impact of COVID on MI Companies
KBW’s Bose George released thoughts on mortgage insurance performance in Q1 and the slowing growth of the mortgage forbearance rate in May. Mortgage origination volumes fell -15 percent QOQ, which was slightly better than the MBA's -19 percent forecast. Mortgage GOS margins generally expanded as would be expected given the wider primary/secondary spreads. However, there were some instances where the volatility in March caused pipeline hedge-related losses (via TBAs) that prevented reported margins from expanding even further. While mortgage origination profitability was generally strong, mortgage servicing was weighed down by the decline in interest rates that resulted in large negative MSR marks.
Growth in private mortgage insurance remains well above the pace of growth in mortgage debt outstanding, but that is expected to moderate. MI companies noted that they had raised prices to reflect the higher expected loss content and higher capital charge required as forbearance-driven delinquency rates are expected to jump in the months ahead. The objective of the rate increases was to move the ROEs on new business back up to targeted levels, and the pricing updates also had the added effects of enabling the MIs to better fine-tune their new risk exposures.
NMI Holdings lowered estimates to build in higher loss provisioning (using conservative assumptions for forbearance take-up) and reduced IIF growth rates (credit tightening), partially offset by higher average premium margin (given higher new pricing). They noted the market focus shifting to capital preservation as opposed to growth. Management expects the default-to-claim rate on loans that go into forbearance to be meaningfully lower than it was for pre-COVID delinquencies.
Essent was hurt by higher taxes, though EPS beat consensus. Credit came in better with a reported loss ratio driven by a positive prior period reserve adjustment. Though the company did not provide its excess PMIERs capital in the release, it did note it is applying the 0.30x FEMA adjustment to nearly all new delinquencies. KBW tells us that management estimated that tighter credit standards from the GSEs focused on the riskier credit cohorts: 95+ LTV, sub-700 FICO, and layered risks took roughly 6-8 percent of potential borrowers out of the market. Estimates have been lowered to capture the impact of elevated default notices expected over the coming months driven by forbearance take-up, as well as lower insured portfolio growth trajectory with a tighter credit box.
MGIC showed it has PMIERs capital to withstand a 24.3 percent delinquency rate. After recording reserve releases on prior delinquencies for the past several quarters, the company booked a $3 million adverse loss reserve development in 1Q20. The other notable piece of the provision was increasing the incurred but not reported reserve by $8 million. The portfolio delinquency rate ticked down to 2.53 percent in Q1 from 2.78 percent in Q4 2019. However, the company disclosed that April metrics used to calculate the delinquency rate ticked back up. Management's estimated default-to-claim rate on new delinquencies in 1Q20 was up slightly from the rate used for the last several quarters to reflect the more uncertain economic outlook. Management added that they have assumed lower default-to-claim rates for hurricane-related delinquencies in the past. The rate used by management for COVID-related forbearances represents the big unknown for how high loss provisions will amount to over the next few quarters.
Radian experienced lower incurred losses than expected. Delinquencies ticked down after the company entered another quota-share reinsurance agreement (both sources of capital relief previously announced). The 12.8 percent MI loss ratio was better than estimates, per KBW, and the company also saw positive improvement in prior period defaults with lower provisioning on new notices. The company shows no signs of credit weakness. After issuing a 3rd ILN and entering another quota-share reinsurance agreement (both sources of capital relief previously announced), PMIERs excess capital grew and the company projects it has capital capacity to weather forbearance take-up rate of 25 percent by June. On the downside, there will be increased provisioning driven by higher forbearance-driven default notices over the coming quarters.
Genworth experienced lower incurred losses than expected in Q1, though his was more than offset by weakness in Life/Runoff. U.S. MI. KBW points out that operating income of $148m beat estimates, driven primarily by a lower loss ratio as the company noted there were neither any new delinquencies related to COVID-19 nor any deterioration in the performance of existing delinquencies that would warrant reserve strengthening. Genworth applied the adjustment to PMIERs required capital for new NPLs given every state has been designated a FEMA Declared Major Disaster Area. The PMIERs cushion rose at quarter-end, but is expected to decline as delinquencies increase. To preserve capital, the company noted further dividends from the U.S. MI subsidiaries may not be paid up for the remainder of the year. Apart from credit, the rest of U.S. MI earnings were generally in line.
Treasury and MBS traders continue to watch international news grab the majority of the headlines. The European Commission unveiled a larger-than-expected rescue plan to tackle the current economic downturn, and provide help to Italy and Spain, the hardest hit of European nations. To our west, Japan is reportedly planning a $1.1 trillion bailout package and Secretary of State Pompeo said the U.S. no longer considers Hong Kong politically autonomous from China. Really? The change in status could have far-reaching consequences on the city's special trading status, leading to tariffs and visa restrictions on top local officials.
Domestically, the big release on the day was the Federal Reserve’s Beige Book for May. The U.S. business outlook remained "highly uncertain and most contacts were pessimistic about the potential pace of recovery” and noted a sharp decrease economic activity in all districts. The most severe declines were observed in leisure and hospitality, while auto sales also fell significantly and steep job losses were reported in most districts. St. Louis Fed President Bullard said April was likely the worst of it, while New York Fed President Williams said we are close to the low point and that he expects a "pretty significant" rebound in the second half. He also said policy makers are "thinking very hard" about targeting specific yields on Treasuries as a way of ensuring borrowing costs stay at rock-bottom levels. U.S. Treasury yields ended the day unchanged for shorter maturities and slightly lower on longer ones, including the 10-year yield closing the day -2 bps to 0.68 percent.
Turning to today, we’ve already had a whole slew of economic releases. Weekly Initial Claims for the week ending May 23 (2.123 million), Continuing Claims (21.05 million, actually dropping), April Durable Orders (-17.2 percent), Durable Orders ex-transportation (-7.4 percent), Q1 GDP -- Second Estimate (-.2 to -5 percent). The only other releases on the economic calendar today are April Pending Home Sales and the KC Fed Manufacturing Index in a couple hours. There are two scheduled Fed speakers: New York Fed President Williams and Philadelphia Fed President Harker. The NY Fed will conduct two FedTrade purchase operations totaling up to $4.23 billion. We begin the day with Agency MBS prices roughly unchanged and the 10-year yielding .69.
Caliber Home Loans recently launched Caliber University, a robust, multi-year training and mentoring program. Aimed at providing an end-to-end mortgage education to recent college graduates, Caliber University gives participants exposure to leading-edge technology and extensive sales training from industry experts. The program reached a successful milestone earlier this month when Caliber proudly announced the graduation of their inaugural class. Graduates are now partnering with high-performing mentors in their home markets, to support Caliber’s priority of helping customers achieve their dream of homeownership. To learn more about this program and rewarding career opportunities with Caliber, contact Tom Lott.
Digital mortgage platform Maxwell continues its record growth with its new Maxwell Fulfillment Platform feature, a complete technology and outsourced solution to enable Maxwell lenders to scale their business with access to teams of onshore operations experts. To support its growth, Maxwell is hiring processors, underwriters, closers, and operations managers and supervisors. In addition, Maxwell is seeking VP-level candidates for mortgage operations and leadership roles. All positions are remote roles, but with a focus on Minneapolis / St. Paul; Dallas / Ft Worth; Chicago and Denver. Please send resumes to firstname.lastname@example.org or apply here.
“On Q Financial’s mission is to simplify the mortgage process to make the dream of home ownership a reality for everyone. During this time of social distancing amidst the COVID-19 pandemic, On Q Financial’s Georgia Branches have been thriving! The Georgia Branch Managers, Clarence Daws, Roberta Rustin, and Ben Thacker are working diligently to provide outstanding service to the Southeast. “We are thrilled and excited to see how well the Georgia leadership has adapted to these times,” says Nick Suwanvichit, Corporate VP of Strategy & Development at On Q Financial. Daws, Rustin and Thacker are helping bring the mortgage industry into the 21st century with On Q’s Simplicity Mobile App and Mortgages Simplified automated processing. It’s never been easier to remotely begin and complete the closing process. Want to be a part of this dynamic team? Please contact us to arrange a quick 15-minute demo.”
Tired of those sleepless nights? Stop worrying if your loans will fund and start a new opportunity with Sierra Pacific Mortgage. Sierra Pacific is growing in multiple markets nationwide and continued to fund loans daily throughout the Covid-19 pandemic. Sierra Pacific has built an exceptional capital base and have created a business with longevity in mind. Retail Loan Officers and Wholesale Account Executives who are tired of worrying about their next paycheck should contact email@example.com.
There's a lot of buzz about REMN Wholesale lately, and with good reason. While many are doing record volume on refis, REMN is hitting all-time numbers on the purchase side, due in large part to their Platinum product. REMN introduced Platinum earlier this year to provide brokers with the highly competitive pricing on government purchase products they want, combined with the speed and quality they need to compete. In order to continue to provide its industry-leading turn times and exemplary level of customer service, REMN is looking for purchase-driven account executives, and knowledgeable underwriters, to join its team. If an underwriter does not have their DE certification, REMN has the training in place to help them receive it. Applicants should reach out to REMN's recruitment team ASAP at firstname.lastname@example.org.
Ike Suri, FundingShield Chairman & CEO shared, "FundingShield wants to thank its clients for a record breaking month in our firms history. Over the past 2 months the firm saw an approximate 230% increase in loans processed. With the WFH market transition lenders are adopting our wire & title fraud prevention technology at record pace allowing their staff to leapfrog tech skill-gaps by leveraging our plug n play, malleable, scalable, pay-per-use, MISMO certified fintech automation tools. Our proprietary customer-centric solutions leverage machine learning & AI while maintaining the necessary human touch to deliver real-time wire & title fraud loss prevention while lowering operating costs. The result is client ROIs of 100%-300% while reducing risk and freeing up the brain-trust of precious back-office and closing team resources allowing you to close more loans." Contact Sales@fundingshield.com to learn more about our Encompass LOS and API integrated Solutions. FundingShield is hiring for operations and tech integration roles – send your CV and cover letter to email@example.com.