Did you know that November is American Indian and Alaska Native Heritage month? There are currently 5.4 million American Indians and Alaska Natives, making up 2 percent of the national population and 15 states have 100,000 or more American Indian and Alaska Native residents. These states include California, Alaska, Oregon, Colorado, Arizona, Washington and Florida. The median age of those who were American Indian and Alaska Native in 2014 was 31 years old, less than the national median age of 38. Roughly 53% of single-race American Indians and Alaska Natives owned their own home in 2014 compared to 63% for the total population, and the median household income was $37k compared to $54k for the nation as a whole.
Yesterday the commentary mentioned the rumors that continue to swirl around the industry regarding legal settlements. Sure enough, retail lender Prospect Mortgage, LLC, confirmed an agreement has been reached with the Multi-State Mortgage Committee (MMC) on behalf of 50 state mortgage regulators. "This agreement resolves findings contained in a Report of Examination issued to Prospect on May 2, 2013, covering the period of October 1, 2010 to March 31, 2012. This settlement relates to alleged activities that ceased years ago and occurred prior to the present management. Prospect has not admitted to any alleged violations of applicable laws, regulations or rules governing the conduct and operations of its mortgage lending business, and the parties are entering into the agreement prior to the commencement of any formal enforcement actions or proceedings and without any adjudication of the allegations in the report."
Recently I received an email from John S. regarding the approval by the FDIC for margin requirements on "non-cleared swaps", "Rob, does this affect our Secondary Marketing team's hedging strategy?" Good question, John....in your case I don't know, but I doubt it. Although I know one or two mortgage banks that have used swaps to hedge certain bank products, there are more correlated & liquid markets to hedge traditional mortgage pipelines. Let me explain. The term "swap" can be an overly complicated conversation, sometimes a conversation better reserved for broker/dealers, investors and traders, or with the cashier at the grocery store when they ask how your day is going. At its core, a swap is merely an agreement between two parties. Sometimes the swap is an exchange of cash flows, predicated on specified financial instruments, which have an established settlement date; a financial contract if you will. A good example is the interest rate fixed-to-float swap; whereby, John S. gives me the cash flows on a bond which is floating (like an adjustable rate mortgage), and I give him the cash flows on a bond which is fixed (like a 30yr fixed mortgage). We would do this to hedge our respective interest rate positions, or if we were institutional traders, would be doing this as an overall "interest rate strategy," which some people would define as speculating.
Another example of a swap, and maybe even more important to mortgage bankers than an interest rate swap, is the credit default swap (CDS). At its core, a CDS is a swap of premiums-to-risk, and should be thought of as a financial insurance policy. The seller of a CDS, like AIG, says, "don't worry about the mortgage-backed security defaulting, if it does we'll make you whole on the trade....or not." The buyer of a CDS says, "hey, I'm an investor and don't have time to worry about some guy not sending in his mortgage payment." Although I joke, this is exactly what happened in 2008 to AIG, who as most of us know by now, managed to sell enormous amounts of credit risk insurance without the financial resources necessary to cover potential payments. By end-June 2008, AIG had taken on $446 billion in notional credit risk exposure as a seller of credit risk protection via credit default swaps. Much of the half-a-trillion dollar exposure in CDS sales was unknown, mainly due to the lack of market transparency.
The vast majority of swaps are traded over-the-counter (OTC), with the transaction, clearing, and settlement being done bilaterally between the respective parties without the use of an established exchange. It should be noted that exchanges mandate that trades be settled centrally, through a third party known as a clearing house, which assumes counterparty risk. If the transaction takes place in the OTC market, there is no clearing house. It is this OTC trading of swaps, the lack of transparency, and the implied risks associated with the transactions that Dodd-Frank is attempting to address. Title VII of the DFA established a comprehensive new regulatory framework for derivatives, in this instance the Act generally characterizes as swaps, which include: interest rate swaps, commodity swaps, equity swaps, and credit default swaps - that's a lot of swaps. Sections 731 and 764 of Dodd-Frank require the governing Bureaus to adopt rules imposing capital and margin requirements to their applicable swap entities. While the recent adoption of rules governing capital and margin requirements, and matriculation of central counterparties to the OTC markets may not impact mortgage bankers directly today, by way of extension, the markets it helps synthesize have a direct correlation to Secondary Marketing trade craft.
The Fed's QE: Help or Hindrance to Lending?
Fannie Mae's trading desk continues to spread the word that eCommitting and eCommitONE access is being retired on December 5. Over the past year, all Fannie Mae sellers were migrated from eCommitting (eC) and eCommitONE (eC1) to the new Pricing & Execution - Whole Loan (PE - Whole Loan) application.
Nationstar Mortgage priced its first rated securitization of inactive reverse mortgages on Thursday, a $217 million deal that attracted institutional accounts new to the niche asset class. In theory this is an "agency" deal since reverse mortgages are guaranteed by the Federal Housing Administration (FHA) and allow homeowners over the age of 62 to monetize equity in their homes without having to sell outright. ThomsonReuters reports that it is Nationstar's third since debuting in 2014 but the first to carry ratings. What does inactive mean? The borrowers are deceased, in default, or being foreclosed upon. If borrowers fail to pay, the amount owed is recovered by selling the property. The FHA insurance helps cover shortfalls.
The bond market's volatility has really died down this week, much to the enjoyment of capital markets staff. A few basis points one way or the other is fine. Remember that the Fed continues to buy agency MBS, the residual of QE where the Fed is not using "new" money to buy securities but is using early payoffs and other payments to buy MBS: yesterday the NY Fed bought $1.802 billion of 30-year conventional 3.5% and 4% for example. Today it is slated to buy up to $1.025 billion of GNII 3% through 4%.
There are no scheduled economic releases of consequence this morning as the world watches the hotel hostage drama from Mali. We wrapped up Thursday with the 10-year sitting at 2.25% and this morning in the very early going we're unchanged on both the 10-year and agency MBS prices.
Jobs and Announcements
Peoples National Bank in Colorado is in search of a Chief Credit Officer for its core commercial banking segment. Peoples is a $325 million commercial community bank that also originates $1 billion in annual mortgage production. The Bank has experienced strong growth (20+%/yr.) over the past 3 years in its commercial banking division with a continued strong trajectory. Qualified candidates will be responsible for the overall management of the Bank's credit policy, loan program development, credit administration, underwriting, and loan review analysis functions. Interested parties should contact HR Director Angela Gramlich; employee will be required to be in Colorado Springs a minimum of 3 days/wk.
Due to continued growth Network Capital, a direct retail lender, is interviewing candidates for an Underwriter Manager and underwriters. Underwriters can work remotely and should have experience with government programs; the underwriting manager should either live near, or prepare to relocate to, Irvine CA or Miami, FL. Network Capital has been in business since 2002, licensed in 25 states and on pace to do $1.5billion in loan volume for 2015. "We are a highly technologically-advanced & automated company with everything being top of the line. We use Encompass but our team of in-house developers has made it like it is on steroids. If you google Network Capital and 'see inside' our Irvine offices, I think you'll be impressed. Located in Irvine, CA, we've been rated as one of the Best Companies to work for by the Orange County Business Journal for the past 3 years and the INC 500/5000 Magazine Honor Roll award for fastest growing companies for the past 5 consecutive years. We also produce 'The Mortgage Radio Show' with 4 million listeners a week." Contact Underwriting Director Rick Asrani.
Essent Guaranty, a leader in the mortgage insurance industry and a great place to work, is looking for a results-driven Regional Director in the Midwest. Strong candidates will be able to use their professional sales skills and knowledge to promote Essent MI, ensure customer loyalty and develop relationships with regional lenders, small to mid-sized mortgage bankers, banks, and credit unions. This dynamic individual will represent Essent as the senior field sales leader in a multi- state region and will directly manage a team of 6 to 8 sales people. If you have 5 to 10 years of sales management experience in Financial Services, Mortgage Lending, or Mortgage Insurance and a history of leadership with the ability inspire a sales team to exceed corporate targets send us your resume.
Indecomm Global Services, a leading provider of mortgage technology, training, and outsourcing services is seeking experienced loan processors. Clients include prominent top tier, mid-tier lenders, and regional lenders as well as title and settlement companies. The successful candidate will provide a high level of customer service, communicating well with loan officers, brokers, and processors with the primary function being to ensure the timely and accurate packaging of loans. The candidate may also be assigned additional duties as required. This position can be located in St. Paul, MN, or Charlotte, NC. The ideal candidate should have 3 years minimum, 5 years preferred, of continuous loan processing experience. An active NMLS license is preferred. Interested candidates should send their resume to HR Manager Candy Mechels.
The announced depository bank mergers and acquisitions continue unabated. Two bank holding company United BankShares ($12.7B, WV) will acquire Bank of Georgetown ($1.2B, DC) for about $269mm in stock. Bank of the Ozarks ($8.7B, AR) will acquire C1 Bank ($1.7B, FL) for $402.5mm in stock. In Indiana First Farmers Bank and Trust Co ($1.4B) will acquire The Citizens Exchange Bank ($60mm). Out in California Royal Business Bank ($1.0B) will acquire TomatoBank ($452mm) for $15 per share or about $83mm. In Illinois First Midwest Bank ($9.7B) will acquire The National Bank & Trust Co of Sycamore ($640mm) for $71mm in cash (20%) and stock (80%) or about 1.27x tangible book. And in the great states that looks like a mitten Eastern Michigan Bank ($278mm) will acquire Ruth State Bank ($35mm).
On the mortgage side of things First Bancshares, Inc. (NASDAQ: FBMS) announced the signing a definitive agreement to acquire The Mortgage Connection, LLC located in Jackson, MS. The transaction is expected to close in early December. "The Mortgage Connection was founded in 1997 by Margaret and Tony Byrd and has grown to become one of the premier independent mortgage companies in the Jackson area. The company employs 14 mortgage loan originators serving the metropolitan Jackson area with offices located in Brandon and Madison, MS."
At the other end of the spectrum, remember Privlo? Things aren't so good there, and folks report that they are having trouble reaching anyone at the company. Rumor has it that management has sold themselves to one of their capital providers (the company was backed by Spark Capital and QED Investors). And along those lines Loren Picard, suggesting that here will be more casualties, posted this on LinkedIn Monday.