Critics of mortgage companies owned by money management firms (versus family or employee-owned companies) will often say that equity firms are in it for the “return of capital” and are “quicker to pull the trigger” versus realizing residential lending is a “part of communities” and in it for “the long haul.” There’s a flip side to that discussion - everything is debatable, of course, but the latest example of a private equity firm changing its strategy is Cerberus Capital Management eliminating its rental home money lending operation FirstKey Holdings. Nope, it isn't the first and won't be the last, and in this case more than 30 people in the company are being fired. "The volume of loans being made wasn't large enough to justify the infrastructure costs."
Regarding some recent Ditech collections center layoff news from Missouri, I received this note from Steve Stein, SVP of Mortgage Originations at Ditech. "We actually are in the process of transitioning the site to an originations call center, and have extended offers to every employee in the site. We will pay for training and licensing of the employees and management staff, and have opened additional job requisitions in the St. Louis market to build out the center. Because of the size of the group and the re-class of the roles for employees we felt it appropriate to offer severance to any employee who didn't wish to move into originations, but fortunately the great majority of staff have accepted our offer and many have already begun training for their new roles."
Fourteen new lenders recently joined The Mortgage Collaborative, an independent mortgage lending cooperative founded in 2013 to empower mortgage lenders with better financial execution, reduced costs, enhanced expertise and improved compliance. The full list of new additions can be found here.
With all this talk of growth and expansion, it is easy to forget that some companies are taking a different approach to business. Bloomberg's Heather Perlberg scribes, "Seven months after Blackstone Group LP said it planned to expand into online consumer lending, the firm is pulling back. Several executives at Blackstone's B2R Finance, including CEO Jason Hogg, have left as the company reorganized to focus more on its original mission, real estate financing... Blackstone is aborting its foray into an industry that was going to rewrite the rules of banking, yet is now facing scrutiny after a scandal at LendingClub. Prospects for marketplace lenders have darkened as investors reassess the quality of their loans, shares of publicly traded companies have fallen and a study released Tuesday by the U.S. Treasury Department said the lenders needed stricter oversight."
And as noted in the opening paragraph, earlier this week, it was reported that FirstKey Mortgage, LLC will cease making loans backed by single family rental (SFR) properties to smaller borrowers under its "express" loan program. However, its affiliate, FirstKey Lending, LLC (FKL) will continue to consider originating larger SFR loans under the "premier" loan program. Both FirstKey Mortgage and FKL are affiliates of FirstKey Holdings, LLC which is indirectly majority owned by funds managed by affiliates of Cerberus Capital Management, L.P.
Cerberus jumped into landlord financing three years ago along with Blackstone Group LP (last year) and Colony Capital Inc., all competing to back people with limited ability to fund their purchases. (Let's not forget that BlackRock Inc. is the world's largest money manager - the 800-pound gorilla.) The firms initially targeted landlords with multimillion-dollar loans and then expanded to offer financing for people with as few as one rental home, a much larger market.
Cerberus, Blackstone and Colony started packaging the loans of multiple landlords into bonds, putting together over $1 billion in deals. (Colony announced another $255 million transaction recently.) And FirstKey still plans to consider making larger investor loans as opportunities arise, although with so much appreciation having taken place some of the proverbial bloom is off the rose.
Switching gears to servicing, yesterday the commentary contained some servicing information about trends and developments in the market for servicing. It is interesting to see who is buying servicing from smaller lenders, and then in turn selling it to others. It is also interesting to note, as several people did, that the market for servicing is concentrated in a handful of firms that advise both buyers and sellers.
The information prompted one servicing industry vet to send, "For any company that actually uses program guideline drivers to assess servicing costs, (and not just the value of average note rate against par.... Along with loan amount, state, etc...) the recent change in the HUD Handbook will affect FHA servicing values. This will most likely affect servicing value in states where T&I are high - Texas, OR, CA properties with Mello Roos, etc., and also judicial foreclosure states where the servicer has to advance T&I for a longer period of time while the foreclosure is resolved in courts.
"It basically means that servicers will have to carry unpaid T&I cash advances on their balance sheets with no ability to charge interest for those advances to the delinquent borrower, who is in effect 'borrowing' the money by not making their payment. 'FHA: HUD Handbook 4000.1 issued March 14, 2016 - For mortgages assigned a case number on or after March 14, 2016, the Mortgagee may assess a late charge, not to exceed 4% of the overdue payment of Principal and Interest....'"
As noted yesterday, the number of deals seem to have lessened. That may change as we approach Basel III forcing the hand of some depository banks. But to give you a taste of recent pools...
MIAC announced a $25 million per month FNMA/GNMA concurrent flow offering. The seller of this deal is looking to enter into a 12-18-month future flow delivery, with a minimum 6-month commitment. Bidders can present their flow bid pricing matrices for the GNMA or Conventional MSRs separately if they choose. The FNMA portion of the deal will be $10-15 million per month, 100% conventional, 100% first lien, average balance 30yr $207k, average balance 15yr $230k, 80% O/O 14% Investment, 5% 2nd home, 758 WaFICO, Note Rate Range: 54% loans between 4.00% and 4.50%, 24% loans between 3.500% and 4.00%, with top states of: Virginia (29%), Pennsylvania (16%), Delaware (19%) and North Carolina (15%). The GNMA portion of the deal will be $10-15 million per month, 44% FHA 48% VA 7% USDA, 100% first lien, average balance 30yr $210k, average balance 15yr $252k, 100% O/O, 707 WaFICO, Note Rate Range: 72% between 3.500% and 4.00%, 12% between 3.00% and 3.500%, with top states of: Virginia (42%), Pennsylvania (17%) and North Carolina (12%).
I've seen two MSR deals out of MountainView Servicing Group recently. The first is for a $4.7 Billion FHLMC/FNMA/GNMA servicing portfolio. As stated in the tape I received, the seller of the package prefers an all-in bid, but will consider bids on either the Conventional or Government portfolios separately. Pool characteristics are as follows: Conventional portion is 96% fixed rate and 100% 1st lien product, weighted average original FICO of 740 and weighted average original LTV of 72%, weighted average interest rate of 4.14% (4.26% on the 30yr fixed rate product), top states: California (82.9%), Oregon (3.7%), Arizona (1.8%), and Nevada (1.6%), with an average loan size of $265,487; Government portion is 99% fixed rate and 100% 1st lien product, weighted average original FICO of 681 and weighted average original LTV of 93%, weighted average interest rate of 3.95% (3.97% on the 30yr fixed rate product), top states: California (73%), Oregon (4%), Arizona (2.4%), and Nevada (1.9%), and an average loan size of $272,184. The second is a $1.33 Billion FNMA package which is 100% fixed rate 1st lien product, 100% retail, 76% purchase originations, 763 WaFICO, 77% WaLTV, 3.89% WAC, low delinquencies, top states: Utah (26.3%), Colorado (12%), Arizona (9.9%), and California (8.7%), and an average loan size of $234,034.....MIAC had a $268 million FNMA servicing portfolio out for bid which was 99% FRM, a $148k average loan size, 100% FNMA A/A, 4.181 WAC, weighted average loan age of 37 months, 752 WaFICO, 100% retail originations, with a geographic concentration in Illinois....Phoenix Capital currently has a $1.46B Fannie Mae/Freddie Mac & $592M Ginnie Mae servicing rights offering currently out for bid (bids due May 24th). The conventional package: 78% FNMA, 8% FNMA MBS, 7% FHLMC ARC, 7% FHLMC STD, 82% Fixed 30, 14% Fixed 15, 4% ARM, 4.182% WAC (F30) 3.448% WAC (F15), average balance of $289K, geography: 60% CA, 8% MA, 6% FL, WaFICO 748, WaLTV 72%; the GNMA portion of the package: 56% FHA, 22% VA, 22% USDA/RHS, 98% Fixed 30, 1% Fixed 15, 3.870% (F30) 3.461% (F15) Note Rate, $223K average loan size, geography: 25% CA, 8% FL, 5% MA, WaFICO 684, WaLTV 95%.
Rates? They continue up a little, down a little. Thursday they decided to move a little higher - for no reason. Initial Jobless Claims were worse than expected and hit a 14-month high, which ordinarily would suggest a weak economy and therefore lower rates. The $15 billion Treasury bond auction was met with mediocre demand. Boston Fed President Eric Rosengren (FOMC voter) reiterated that interest rate markets are wrong, saying "The market remains too pessimistic about the fundamental strength of the U.S. economy, and the likelihood of removing monetary accommodation is higher." Don't fight the Fed!
Today we've actually had some news of substance with the potential to move rates if they came in much different from expectations. The first revision to Q1 Eurozone GDP growth was released. In this countryApril's Retail Sales came in at +1.3%, higher than expected, and the Producer Price Index came in at +.2%. Later is the May Michigan Sentiment, and one Fed Speaker: San Francisco Fed President Williams here in Sacramento. I'll say hello for everyone! We wrapped up Thursday with the 10-year sitting at a yield of 1.76% and this morning it is at 1.75% with agency mortgage-backed security prices approximately unchanged.
Jobs and Announcements
Financial Partners Credit Union is seeking an experienced Mortgage Loan Consultant in Orange County to meet the demand of its spreading retail business. FPCU recently hit $1.1 billion in asset size, increased staff, opened two more branches in Orange County and acquired three branches in San Diego. Since 1937, FPCU has established itself as a financially strong mortgage lending resource to members, realtors and the communities it serves. A full product suite that includes FNMA/FHLMC, FHA/VA, Portfolio Conforming & Jumbo, HELOCs and 2nds is available to offer to new and established members nationwide. "All with a 15-day, Ready to Close Guarantee. Come work for an innovative and growing credit union! A competitive commission plan, marketing support and exceptional benefits are offered to successful candidates. Contact Jesse Rivera for more information."
As a result of increasing demand, Matic Home, the premiere mobile app & web portal for loan officers and borrowers, is announcing a price increase effective June 1, 2016. Signups, however, will remain free until May 31. After that, all new loan officers and processors will incur a monthly charge. The company launched its software just last year and is now nationwide. "With Matic an originator can stay up-to-date with every loan in their pipeline with easy-to-read dashboards and real-time notifications: Matic can now onboard any LO or broker and their system does not have to be connected or tied to the LOS." Contact Ben Madick with inquiries.
And under the management banner, Plaza Home Mortgage, Inc. has excellent opportunities for a Vice President of National Correspondent Operational Support in its National Correspondent Branch located in San Diego, CA. Plaza Home Mortgage, Inc., a national mortgage company headquartered in San Diego, was originally founded in December of 2000 to serve the San Diego area mortgage market. "Due to our growth and success, we now have branches throughout the United States and we are continuing to grow and expand in anticipation of market demands. Plaza is privately owned and operates as a full service Mortgage Banker, and we originate mortgage loans on both a wholesale and correspondent basis. This position is responsible for managing the operational activities within the National Correspondent channel. This includes oversight of all support fulfillment functions; Loan Set Up, Sales Support, and Purchase Review. Please visit us at www.plazahomemortgage.com."
And in personnel moves, Mason-McDuffie Mortgage Corporation is pleased to announce Area Manager Rhonda Beathard will be heading up the new La Jolla branch office. "Rhonda has been building her team of high performing Loan Officers and working with them to deliver excellent customer experiences. Rhonda was honored in 2016 with the Five Star Mortgage Professionals award from San Diego Magazine for highest performance in service and overall satisfaction. For information on opportunities or congratulations contact Rhonda at (619) 921-0013.
And Starkey Mortgage announced that Jim Anderson is filling its newly created position of SVP - Chief Marketing Officer.