Plethora of Job Openings for Mortgage Originators; Negative Convexity Explained; Clean Energy Loans; Freddie Mac Earnings

By: Rob Chrisman • Thu, May 6 2010, 10:43 AM

When I was a kid, my parents thought that I should be a doctor or a lawyer. Heck, they should have pointed me toward becoming a loan agent (or a DE underwriter).

There seems to be a plethora of job openings for qualified originators. WesLend Financial is hiring wholesale AE's in CA as well as regional managers for the Eastern and Western US. Resumes can be sent to Robert.Bates@weslend.com. Mission Mortgage (TX), which has been in the business for 25 years, is currently recruiting branches and loan officers throughout Texas. The company is an approved Seller/Servicer with FNMA, Full Eagle/DE with HUD and VA Automatic along with some in-house programs. Contact glopez@missionmortgage.com. Equitable Mortgage Group is a new combination of three older mortgage originators and "features the banker/broker model" and will be establishing offices throughout the San Francisco area. It is looking for loan officers, branches, and sales managers. Contact bruce.barbera@gmail.com. Towne Mortgage Company (MI) is expanding its retail lending footprint, and is actively recruiting new branches and loan officers in MI, OH, IN, WI, MN, IL, TN, KY, GA, SC, NC and FL. Anyone interested should contact bvieaux@townemortgage.com. Kinecta is looking for quality loan consultants as well. Contact its Sales Manager at MWaite@kinecta.org. Guild Mortgage (CA) is also looking for branches and branch managers and originators in Northern CA. Contact sue.rainwater@gmail.com

Don't say we aren't doing our part to help jumpstart job creation! HERE are more mortgage related openings and HERE are a few more.

Freddie Mac reported a net loss of $6.7 billion in the 1^st quarter of 2010 (compared to a loss of $9.9 billion a year ago) and needs an additional $10.6 billion in assistance from U.S. taxpayers. Freddie has gone for three straight quarters in not needing any cash infusions from the Treasury. Analysts point to a change in accounting rules whereby starting this year companies like Freddie are required to move all mortgages they guarantee - but don't own - onto their books. This shift alone caused Freddie's equity to drop by $11.7 billion, and when combined with the firm's loss and a $1.3 billion dividend payment to the Treasury, led to the red ink.

If you know what a PACE loan is, you probably already received this. Fannie Mae has issued a "Lender Letter" clearing up some questions on the Property Assessed Clean Energy Loans. These are loans that are government-sponsored to finance energy-efficient home improvements that generally have automatic first-lien priority over previously recorded mortgages - Fannie tells us that the terms of the Fannie Mae/Freddie Uniform Security Instrument prohibit loans that have senior-lien status to a previously recorded mortgage. Questions should be directed to Resource_Center@fanniemae.com with the subject line "PACE."

ING gave its brokers a tip on GFE's, which was to "Disclose all your compensation in Block 1". Any lender-paid rebate (formerly YSP) will only be considered a credit to the borrower. The concept of "front-end" and "back-end" compensation to brokers is gone and all compensation brokers expect to receive must be clearly indicated upfront and may not change, and entered in Block 1. In ING's case, for "GFE Block 1 - 'Our Origination Charge' must include: ING's underwriting fee of $795 and your total compensation which is the sum of all fees to be paid to you for arranging the loan (except any pass-through fees for the credit report and appraisal) including fees for: origination, application, processing, commitment, admin, courier, transaction coordination, doc scanning, 4506 transcripts, underwriting, doc prep, fax/email/postage.

It is Thursday, which means Jobless Claims. But for mortgages yesterday, they "widened", and there was some "convexity related buying" as 10-yr yields moved down near 3.50%. What does "negative convexity" actually mean? With price volatility increasing, it helps to know. In the past, mortgage prices would compress into rallies and expand into sell-offs, relative to US Treasury prices. Yesterday, for example, current coupons mortgages were "wider" versus Treasuries.

Remember that for fixed income instruments, when rates go up, prices go down, and if rates go down, prices go up - simple! But if the bond is "callable", meaning that the issuer can pay it off, like a borrower and a mortgage, as interest rates fall, the incentive for the issuer to call the bond at par increases; therefore, its price will not rise as quickly as the price of a non-callable bond. In fact, the price of a callable bond (like a mortgage) might actually drop as the likelihood that the bond will be called increases. This is why the shape of a callable bond's curve of price with respect to yield is concave, or "negatively convex." A very simple way to explain it is that mortgages pay off when rates drop, just when servicers and investors don't want them to pay off, so mortgage prices don't improve as much in a rally as, say, a Treasury bond!

On Wednesday the flight to quality, fortunately of holders of US debt, continued with our fixed income securities rallying in price and dropping in rates to December levels. Notes and bonds rose 0.5 in price by day-end, and mortgages improved by .250. As a quick aside, the U.S. Treasury cuts its debt offerings for the first time in three years and reduced its overall planned sales for its upcoming quarterly refunding due to a growing economy. Next week's quarterly refunding was cut to $78 billion from $81 billion in the previous quarter: $38 billion of 3-yr notes, $24 billion 10-year notes, and $16 billion of 30-year bonds. The frequency of auctions of 10-year TIPS will increase from four to six to meet increased market demand.

Turning to Greece, since that situation is certainly impacting our markets, the fear that a) the problems will spread beyond Greece, b) Greece may leave the 11-yr old single currency "euro-zone, or c) this is the beginning of the entire euro experiment are causing a drop in the value of the euro and a rally in the dollar. (Not that the dollar should be in great shape, but hey, we'll take what we can get.) A general strike shut down Greek airports, tourist sites and public services and some 50,000 demonstrators marched against the planned public spending cuts and tax rises, demanding that tax cheats and corrupt politicians be put on trial. Off with their heads!

So what does it mean to our mortgage business (rates) if Europe "tightens its belt"? This would actually continue to help our rates since it would slow the recovery in Europe, reduce the chance of inflation around the world, and allow our Fed to keep short-term rates low (monetary policy to be more accommodative) for longer than expected. A stronger US dollar is good for keeping inflation down.

Turning to our employment picture, yesterday we had the ADP National Employment report, which measures private sector employment, today we had Initial Claims, and tomorrow we Non-farm Payroll numbers. The ADP number has always had a reputation for being a dubious predictor of the Non-farm Payroll number (under or overestimating it for long stretches) although it was pretty accurate from Dec-Feb. The four-week moving average of Initial Claims yesterday, generally thought to be a better measure since it irons out weekly volatility, are much better than they were a year ago but still high on a relative basis. Deutsche Bank reminds us that other employment measures are improving: employee tax receipts, corporate profits per worker, lay-offs have decreased, temporary hiring has picked up, etc. Forecasts for tomorrow's April number seem to be running around+225k or +150k excluding census workers, with the unemployment rate perhaps moving lower to 9.6% versus 9.7% in March.

Today we will have another day of credit crisis hearings in Washington DC, along with a number of Fed speakers. The economic news scheduled is pretty much limited to Initial Claims for Unemployment and a Productivity/Unit Labor Cost number, both already out. Initial Claims were expected to drop slightly. Jobless Claims indeed came in at 444,000, with Continuing Claims dropping somewhat, and the 4-week moving average dropped by 4,750. Productivity rose to a level +3.6%, and Unit Labor Costs were reported as declining. After this news the yield on the 10-yr is at 3.56%, and mortgage prices are better by between .125 and .250, depending on coupon. HOW DO LABOR COSTS AND PRODUCTIVITY INFLUENCE MORTGAGE RATES?

A man dies and goes to hell. There he finds that there is a different hell for each country.

He goes to the German hell and asks, "What do they do here?"

He is told, "First they put you in an electric chair for an hour. Then they lay you on a bed of nails for another hour. Then the German devil comes in and whips you for the rest of the day."

The man does not like the sound of that at all, so he moves on.

He checks out the American hell, as well as the Russian hell and many more. He discovers that they are all more or less the same as the German hell.

Then he comes to the Greek hell and finds that there is a long line of people from all nationalities waiting to get in. Amazed, he asks, "What do they do here?"

He is told, "First they put you in an electric chair for an hour. Then they lay you on a bed of nails for another hour. Then the Greek devil comes in and whips you for the rest of the day."

But that is exactly the same as all the other hells. Why are there so many people waiting to get in?"

He is told, "Because the maintenance crew is always on strike, there is no electricity so the electric chair doesn't work; Albanians have stolen all the nails from the bed; and the Greek devil is a former Greek government employee, so he comes in, signs the register, and then goes to have his kafethaki (coffee) and eat kourabiethes (cookies) all day."