A rare blue moon (two full moons appearing in the same calendar month) will be visible in the sky today for the first time in three years. We won't see the next one until early 2018 - and imagine how residential lending, market share rankings, and compensation may change between now and then. How'd you like to have a job where your pay is determined by Congress? And your family and co-workers pick up the newspaper in the driveway and see "Lawmakers Move to Halt Fannie, Freddie Pay Raises?" Yes, the House has gone on summer vacation but not before the House panel bill advanced with broad bipartisan support and many experts think that Senate passage is likely. A few weeks ago the regulator of Fannie Mae and Freddie Mac (FHFA) awarded the companies' chief executives multimillion-dollar pay increases. Now, Congress is moving to take it all away. Few in Congress don't mind anyone associated with the government earning more than they do. Anyone care to volunteer for the top jobs?
I have good news and bad news. The good news is that the Senate passed an extension to the federal Highway Trust Fund that would partially fund (roughly $2 billion) in new transportation spending for the next three years by extending a previous increase in Fannie Mae's and Freddie Mac's guarantee fees, and thanks to the efforts of the MBA and its PAC members that bill (H.R. 3236) does NOT contain a g-fee provision designed to raise revenue for infrastructure. The bad news is that we have to do it all over again in 3 months, since the bill merely kicks the can down the road. As the MBA put it, "You must continue to let your Senators and Representatives know that an extension of the 2011 g-fee increase used to fund a portion of any long-term highway bill agreement will effectively prolong a tax on prospective homeowners and curtail consumers looking to refinance their mortgages. Using the housing GSEs as a piggybank to fund unrelated government programs is bad policy - plain and simple - and it puts the nascent housing market recovery in jeopardy."
Speaking of policy, Wells Fargo Bank announced that it will immediately begin winding down its marketing services and desk rental agreements with real estate firms, builders, and some other referral sources. Franklin Codel, executive vice president for mortgage production said the company was exploring a number of new options for enhancing and strengthening those relationships over the long term. A press release issued by the company said that the withdrawal decision was made as a result of increasing uncertainty surrounding regulatory oversight of these types of arrangements "and as part of Wells Fargo's ongoing efforts to simplify the process that customers experience as they weigh all of their choices when shopping for a mortgage." What a great spin! Yesterday this commentary noted the withdrawal of Prospect from this general business source, and earlier in the week noted the rumor that Wells would do exactly that. Stay tuned for Bank of America and others...
At least the CFPB probably relishes the news noted above. Speaking of the CFPB, it has issued a Spanish version of "Your Home Loan Toolkit" that is designed to be used with disclosures provided under the TILA/RESPA Integrated Disclosure ("TRID") rule. The Toolkit will replace the current "Settlement Cost Booklet" (also known as the "Special Information Booklet") when the TRID rule goes into effect on October 3. The CFPB has also released a Spanish translation of the disclosures that a company must include in the Toolkit for it to place its logo on the Toolkit cover. Among other things, the Toolkit provides questions consumers should consider to help define their homeownership goals and mortgage lending choices. Lenders must deliver or mail the Toolkit to consumers no later than three days after receipt of an application. The CFPB has also encouraged all market participants, including realtors, to integrate the Toolkit with its consumer marketing materials.
Turning to capital markets, student loans have been in the news this week. Social Finance Inc., the four-year-old lender that's made its name in both refinancing student debt and in making home loans (and is said to be in talks to raise about $800 million in a new round of capital), is getting top ratings for the first time on securities backed by its student loans. DBRS Ltd. is granting AAA grades to $387 million of the notes in a $418 million offering. While other student lenders often get top rankings on securities backed by their loans, the AAAs were a first for bonds backed by debt originating from a new breed of online finance firms that also includes LendingClub Corp., On Deck Capital Inc. and CommonBond Inc. SoFi Chief Financial Officer Nino Fanlo said his firm has issued about two-thirds of the rated transactions from such lenders so far.
And yesterday we learned that Social Finance (SoFi) got a solid response for its asset-backed security with orders totaling US$1.7 billion, but still 20 basis points "wider" than its prior deal. "We launched the deal with whispers on a Monday morning in late July," said SoFi CFO Nino Fanlo. "We were fully subscribed by Tuesday morning and four times oversubscribed (Wednesday) morning." That proves that nobody puts Nino in the corner! (SoFi has plans to move beyond student loan deals and Mr. Fanlo told IFR on Thursday SoFi plans to sell its first consumer loan bond in August.)
Has refinancing student debt been a good business for SoFi? Apparently of the $2.3 billion in student loans it's originated, only five have been charged off, with borrowers dying in most of those cases. Moody's Investors Service is offering Aa2 ratings to the SoFi securities that received top grades from DBRS, two levels lower.
The deal came as Citigroup Inc. issued $377 million of bonds backed by consumer loans from Prosper Marketplace Inc. Investors accepted lower yields relative to benchmark rates on the various slices of the Citi deal on Wednesday than offered in BlackRock Inc.'s first sale of similar debt in February, people with knowledge of the offerings said. SoFi's bonds sold at even lower spreads.
But Matt Scully with Bloomberg reported that, "Debt investors are growing anxious that potential ratings downgrades on billions of dollars of student- loan securities will squeeze Sallie Mae spinoff Navient Corp. Credit traders have pushed the cost of derivatives protecting against losses on the company's debt to the highest in three years. Holders of the company's bonds have lost 6.2 percent this month as prices of the debt plunged, Bank of America Merrill Lynch index data show. Navient is the largest servicer of government-backed student debt...As more Americans avoid paying down the nation's $1.2 trillion of outstanding student loans, investors are growing concerned that the turmoil it's causing for bonds backed by such debt will crimp Navient's access to one of its sources of funding..."
And along those lines Jody Shenn with Bloomberg Business reported that, "Thanks to a push by President Barack Obama's administration, more and more student-loan borrowers are signing up for income-driven repayment programs, allowing them to pay a fraction of what they would otherwise owe. That's been making their debt more affordable each month but also longer-lasting (since the balances aren't getting paid down as much or at all and could even increase-although the balances can eventually be forgiven, in some cases after 20 years). The repayment slowdown is filtering into the bond market, where credit graders are now considering downgrades on almost $40 billion of securities tied to government-backed loans because the bonds might not pay off by their promised maturities."
Prosper Marketplace Inc., the second-largest online provider of consumer debt, is selling the loans of its low performing to investors. And one can bet that investors, hungry to earn some yield, will buy the stuff. Prosper will pool together loans more than 120 days into default and auction them to a single buyer on a monthly basis. Citigroup Inc. is at work preparing to bundle more than $300 million of these loans into securities.
In MBS-land, Freddie Mac's inaugural $300m "whole-loan" risk-transfer bond deal will be followed by another offering later in 2015, probably quarterly issuance next year, Kevin Palmer, VP of strategic credit costing and structuring, said in telephone interview with Bloomberg. Frankly, the details of the deal are known by those that want to know about them - the takeaway for everyone else is that deals are being done, there are moves toward sharing risk, and there is demand for various types of product.
Yesterday the commentary talked about the fall in commodity prices. It seems that may people believe that with the recent drop in commodities, there will come a drop in the economy. David Zervos says: more power to you global economies! (Well he doesn't say that exactly.) He believes that with a drop in commodities comes a positive for developed market economies. Let's take a history lesson. From 1996-1999, the average QoQ annualized growth rate for the U.S. was +4.6% (No quarter ever fell below +2.7%). I think we all can agree that's pretty good? Well, if you take a look at commodities during that time, they are a different story. The JOC industrial price index was at 65 in 1996, it then crashed in 1997-1998 to below 50 before leveling off at 55 in 1999. In 1996, the CRB was around 300. Then when the U.S. economy was thriving, from 1997-1999, the CRB crashed to 220. Returns during the commodity crash of 1996-1999 were booming as well. Spoos were up to 1470 in 1999 starting from 600 in 1996. With the recent commodity price drop, there is more reason to be positive than negative.
Rate-wise, the bond market has been up a little, down a little, and capital markets folks don't mind the lack of volatility. Yesterday's news (a good 7-year auction, GDP at 2.3% annualized growth - not bad, decent Jobless Claims) caused MBS prices to improve slightly - but not enough to show up on rate sheets.
I don't know how we're here at the last day of July already, but we are, and we have some news. We've had the Employment Cost Index for the 2nd quarter (+.2%), along with some weak oil company earnings. Later is the July Chicago PMI and Michigan Consumer Sentiment figure. Whether any of this moves bonds on a summer Friday remains to be seen. For those who like numbers we closed the 10-year Thursday at 2.27% and we're now sitting around 2.22% with agency MBS prices better by .250.
Jobs and Announcements
Speaking of jobs, Wells Fargo Funding is hiring a Mortgage Correspondent Inside Sales Manager. The Inside Sales Manager will be responsible for strategic business development nationally, to attain growth and financial objectives while ensuring adherence to compliance regulations, and policies. They will also coordinate the sales effort for the Correspondent Inside Sales Account Executives to develop, maintain, and monitor client relationships and marketplace approach. To view this job description and apply go to www.wellsfargojobs. com and search by Job ID# 5124283. Don't dally: the application deadline is August 7th.
Dallas-based residential mortgage originator PrimeLending, a PlainsCapital company, is proud to announce that Mike Watkinson has joined the company as Regional Manager for the Northeast region. Mike's enthusiasm, creativity and commitment to excellence make him a great fit for PrimeLending's team-oriented, performance driven culture. Mike brings a proven track record of leadership, with more than twenty-five years of experience in the home loan industry. If you are an experienced loan officer or branch manager interested in a fast-growing company with the leadership opportunities and a caring environment, check out PrimeLending or e-mail careers@primelending. com or call 855-886-9704.
And a 30 year old company in the Western United States is looking for an experienced Director of Marketing. The company is a Ginnie, Fannie, and Freddie approved lender, issuer and servicer. The company is currently funding $1 billion per month in loan originations through correspondent, third party origination and retail channels. If you are interested please forward your resume to rchrisman@robchrisman. com, and specify the opportunity.