What say we end the week with something light, but near and dear to my heart: stuff. Whether it is my grandfather's army uniform from the Spanish American war, my high school oceanography notes, my bottle cap collection, or a license plate I found by the side of the road in St. Thomas in 1980, I've kept it. And it is all really valuable, right? (Snort.) But there are lots of us out there, and the SSA is here to help! You've never heard of the Self Storage Association? 10% of the households in the U.S. store stuff somewhere in a facility - I love seeing $50,000 cars parked in driveways because they won't fit in the garage. There are roughly 17,000 Starbucks worldwide, and 33,000 McDonalds worldwide - about equal to the number of public storage facilities just in the US! The self-storage industry in the United States has a collective $20+ billion in annual revenues (2010). The industry has been the fastest growing segment of the commercial real estate industry over the last 30 years.
Well, this was bound to happen. I was contacted by a non-bank lender, doing less than $50 million per month, who is about to be audited by the CFPB. It reminded me of something this commentary has written about several times: if you think you're not going to be audited by the CFPB, you're most likely incorrect. Management asked me if I knew of anyone they could speak with, who has been through this, or is going through a CFPB audit, on an informal basis about advice. So if that description fits, and you don't mind sharing information, let me know and I'll put you in touch. Or, if you'd like me to publish some anonymous comments in the commentary about what it was like, shoot me an e-mail. (I wish I had the technological savvy to set up an "Audited by the CFPB" user's group.)
Of course, while all this auditing is going on, and resources are dedicated to buybacks (see paragraph below), many lenders are stretched to the limit. Volume capacity remains a concern with lenders. While most lenders welcome loan origination volume, the recent activity that has been ongoing has caused some operational and fulfillment challenges. Remember when folks offered 10-day locks? I haven't seen that for a while. On average, most lenders are seeing the majority of locks at 60 days in order to satisfy back office support (processing, underwriting, appraisal orders, and scheduled closings). Although week over week origination activity is being reported by some lenders to be flat or down 5%-10%, mortgage pipelines are still remaining at all-time highs to manage.
In speaking with Capital Markets folks, I love hearing stories about how
they succeeded in defeating buyback requests. Negotiating skills are critical,
as is a sound knowledge of loan processing and underwriting - especially when
you're dealing with $10 billion in buybacks. So it even applies to the
big guys, like Bank of America and Fannie Mae. More
Private mortgage insurance is alive and well. It's been more than three years since mortgage insurance companies have insured as much in volume as they did in June. It's been even longer since policies in force increased. Mortgage insurers issued 34,169 policies for $9.459 billion during June. The last time dollar volume was that strong was in March 2009, when $9.859 billion in policies were written. June's total reflected activity at Mortgage Insurance Companies of America (MICA) members Genworth, MGIC, and Radian Guaranty. But the 2009 numbers additionally reflected volume from former MICA members PMI, RMIC, and United Guaranty. (Also current noticeably absent from MICA is Essent.) A year earlier, when data for PMI and Republic was still included, 24,161 policies were written for $4.769 billion. From Jan. 1 through July 31, mortgage insurers wrote 177,038 policies for $42.329 billion.
But all is not so rosy in the biz. MGIC Investment Corp.'s disclosure about a disagreement between its insurance regulator in Wisconsin and Freddie Mac (FHLMC) over how it uses capital sent its share price plummeting into possible de-listing status at the NYSE. Yesterday MGIC reported a $277 million second-quarter loss, down further from the $162 million loss suffered a year earlier. "Risk factors" are an important part of every MI company's reporting these days, and one of the risk factors involved MGIC Indemnity Corp., which was approved by Freddie Mac in January to conduct business in states where MGIC fell below required capital and couldn't obtain a waiver. Conditions of the agreement include a 20-to-one capital ratio for MGIC Indemnity. Industry followers know the status with MGIC, Freddie, the state of Wisconsin's Office of the Commissioner of Insurance, and the order that waives capital requirements until Dec. 31, 2013, but for more information you can read it here.
Conversely, AIG's UG (United Guaranty) "nearly quadrupled its operating income to $43 million in the quarter, as new delinquencies fell 17 percent. UGC, once seen as a peripheral asset, has become a core part of AIG's business as competitors stumbled and it gained market share." Insiders wonder about AIG (owned 61% by the U.S. Government) and paying back TARP money, but in the meantime.
Lastly, a story out of the Richmond Times-Dispatch notes that "Genworth Financial's acting chief executive officer said a spinoff or sale of its struggling U.S. mortgage insurance business may not be viable at this time. Comments made Wednesday by Martin P. Klein, the interim CEO of the Henrico County-based insurer, drove shares down 11% in one day. Klein said that 'delinking' the mortgage insurance business from the company 'may not necessarily be the most cost effective or most beneficial option for investors or bondholders.' He said a sale or spinoff may not be viable at this time 'due to potential capital required to execute the transaction.' The company's U.S. mortgage insurance business has suffered repeated quarterly losses because of the housing market downturn. In June, hedge fund Highfields Capital Management LP increased its investment in Genworth and said it would discuss options for the mortgage insurance operations that could include a sale or spinoff. In an interview, Klein noted that the mortgage insurance business has seen narrowing losses and is expected to return to a profit this year. The unit posted a loss of $25 million in the second quarter compared with a loss of $255 million in the same period in 2011. The company said the number of new delinquencies declined."
Let's take a quick look at some training, conferences, and other news items from around the biz.
Lenders One, the nation's largest mortgage cooperative, will be holding their bi-annual conference Aug 5th-8th in Chicago, IL. 500 of the top mortgage executives in the industry will do extensive networking, education and best practice sharing among industry leaders including FNMA, HUD and CFPB. For information regarding membership in Lenders One visit its website at www.lendersone.com.
Out in Northern California there are three complimentary training sessions of analyzing income for the self-employed borrower coming up, sponsored by Kinecta Federal Credit Union and Radian Guaranty. They're Wednesday, Aug 15 from 8:30AM-12PM in San Ramon and in San Rafael from 1:30-5PM, and again on Thursday, Aug 16, from 8:30AM-12PM in Cupertino. For more information, contact Rickey Juarez at firstname.lastname@example.org.
The Northeast Regional Conference of Mortgage Bankers is slated to include a panel on the proposed amendments to Pennsylvania's Mortgage Licensing Act and New Jersey's Residential Mortgage Lending Act. The panel will discuss how Pennsylvanian regulation is affected by HUD's SAFE Act Rule, which would change the circumstances under which a mortgage originator's license would be necessary, as well as proposed clarification regarding a Pennsylvania mortgage banker's net worth. The discussion will also cover the issues with fees and charges as dictated by New Jersey's RMLA, with special attention given to the definition of discount points. The conference will be held from October 9-11, and interested parties may register here.
There's nothing like Texas in August, and the FHA is offering training in Hurst. One session is on FHA Updates. "This free live half-day classroom training (not a webinar) will provide clarification to current hot topics and frequently asked questions (FAQs) in today's FHA lending environment. Covered topics will include: Credit Scenarios, Occupancy, Real-Estate Owned Properties (REO) and Refinance transactions as well as most recent Mortgagee Letters. Class size is limited, first come, first served." A second session is on Home Equity Conversion Mortgages (HECM) Training. "Help your borrower's use their home equity to work for them. This FREE live half-day classroom training (not a webinar) will provide an overview and updates to the HECM process to include HECM purchase transactions and refinances. Anyone in the lending and housing industry seeking to better understand the HECM process could benefit from this FREE training." HUD offers a lot of training.
There are several Texas Mortgage Bankers Association (TMBA) events approaching. The Southern States Servicing Conference takes place on September 19 & 20 at the Gaylord Texan Resort in Grapevine, Texas. The registration deadline is August 17. Also, on November 12 & 13, the 62nd Annual Education Seminar Marketplace takes place in Sugar Land, Texas at the Marriot Town Square. For more information and registration, check out http://www.texasmba.org/calendar.asp.
And I am looking forward to stopping by at the Mortgage Bankers Association of the Carolinas yearly conference from September 15-17 at Hilton Head. "One Voice - One Purpose" is the theme, and one can find out more information by clicking through some links at http://www.mbac.org/event_detail.php?id=182.
Yesterday we started off the day in the U.S. with the ECB news/news conference, with Draghi began the conference speaking with strong rhetoric saying "high yields are unacceptable and the Euro is irreversible." The immediate reaction was a selloff, however as the conference wore on it began apparent that no specifics had been determined and nothing new would be implemented. No real surprise there. So aside from a little intra-day volatility, which doesn't help hedging pipelines, rates didn't really do much. Back to the Olympics!
But does any of that matter now? Non-Farm Payroll, expected at +100k,
came out at +163k for July and the Unemployment Rate came in at 8.3% versus
June's 8.2%. (Prior month's revisions knocked 6k jobs off the numbers.) Much of
the Payroll change was due to private sector jobs, up over 170k, although it
was fairly broad-based. Is the economy really stronger? Perhaps -
equities are improving. Last Friday the 10-yr closed at 1.55%, yesterday we
closed it at 1.48%, and this morning in the early going we're around 1.53%. In
other words, not a lot of change to rates - look for MBS prices to be
The Dreaded Call
My boss phoned me yesterday, he said, "Is everything okay at the office?"
I said, "Yes, it's all under control. It's been a very busy day, I haven't stopped."
"Can you do me a favor?" he asked.
I said, "Of course, what is it?"
"Speed it up a little, I'm in the foursome behind you."