Leadership Changes at Freddie Mac; Overzealous Regulations; CMBS Redefault Rate; Fed Sees Second Half Bounce

By: Rob Chrisman •

Fun with numbers...In the 2010 Census, for you reverse mortgage lenders, seven states had a median age of 40 or older: Maine (42.7), Vermont (41.5), West Virginia (41.3), New Hampshire (41.1), Florida (40.7), Pennsylvania (40.1) and Connecticut (40.0).  Maine overtook West Virginia and Florida as the state with the highest median age in 2010. For you first time home purchase specialists, the states with the lowest median age (excluding the District of Columbia) remained the same as they were in 2000: Utah (29.2), Texas (33.6), Alaska (33.8) and Idaho (34.6). Utah had the highest percentage of population under age 18 (31.5 percent) and remained the only state with a median age under 30. Lots of youngin's!

JPMorgan Chase's CEO Jamie Dimon asked Federal Reserve Chairman Ben S. Bernanke whether regulators have gone too far by reining in the U.S. banking system and are slowing economic growth. "Dimon asked whether the central banker has measured the cumulative effects of new capital requirements, mortgage standards and other rules imposed on the system in the wake of the U.S. financial crisis. Dimon asked Bernanke if he "has a fear like I do" that overzealous regulation "will be the reason it took so long that our banks, our credit, our businesses and most importantly job creation to start going again. Is this holding us back at this point?" It is hard to disagree: DimonBernanke. (More below on Bernanke's speech.)

What was formed by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets? If you guessed OSHA, the PBS, or the EPA, you were kind of close - the year is right. Freddie Mac! A while back I received this e-mail from an ex-Freddie employee. "Since leaving I have seen several officers throw in the towel. Peter Frederico EVP CIO resigned , Kathleen Zaderacky VP Quality Control resigned, Shelly Poland VP Credit policy resigned, Connie Ferran VP Credit announced her retirement and there is a rumor that Mike May the EVP Multifamily wants to leave , but they are trying to convince him to stay [it didn't work]. I hate to see this as Freddie has lots of good folks and great customers they need to serve."

Yesterday came news that Freddie Mac announced several organization changes, and named new leadership for its Single-Family, Multifamily, Capital Markets and Compliance Divisions. Tony Renzi has been named the executive vice president of a new Single-Family and Operations & Technology Division, David Brickman has been named as the new senior vice president in charge of the Multifamily Division, Carol Wambeke is its new Chief Compliance Officer, and Devajyoti "Doc" Ghose the senior vice president of Freddie Mac's Investments & Capital Markets division and the company's Treasurer. On top of those, Freddie announced that Paul Mullings is senior vice president of Single-Family Sourcing and Securitization, Tracy Mooney was elevated to a new role as senior vice president of Single-Family Servicing and Real Estate Owned areas, and last year Rob Lux was named senior vice president and chief information officer. "David Brickman will assume the role of head of the Multifamily Division after Mike May, the current head of Multifamily, leaves the company on July 15." Best of luck, and hope to see you all at the next mortgage conference!

Freddie Mac also rolled out more details on the Servicing Alignment Initiative and non-performing loan servicing standards - no lender should ignore them! Visit Servicing and SFHNews. 

Both Freddie and Fannie spread the word that starting on June 27, "the Uniform Collateral Data Portal (UCDP) will be available for submitting appraisal data files to Fannie Mae and Freddie Mac." There's a support center, a toll free number (1-800-917-9291, operators standing by!), and plenty of information on the web. Ignorance of the law is not an excuse! Go to FannieUCDP or FreddieUCDP.

With hurricane season here, and the recent terrible tornadoes, Fannie reminds us that it does have a disaster plan and information available for clients: FannieDisaster.

(Wells Fargo's correspondent group also released information on Disaster Policy Enacted for Certain Zip Codes in Louisiana and in Missouri.)

In Oregon (unofficial state motto: "Spotted Owl... It's What's For Dinner"), an attempt by the finance industry to waive Oregon mortgage recording laws in most foreclosures died when the Oregon House Judiciary Committee voted to approve Senate Bill 519 without an amendment sought last week by loan servicers, title companies and credit unions. The amendment would have relieved lenders of ensuring a property's ownership history is properly recorded in public records before foreclosing outside a courtroom. Recently Federal judges in Oregon have blocked MERS-related foreclosures, saying MERS failed to record underlying documents properly as required by Oregon law in out-of-court foreclosures. (Oregon allows non-judicial foreclosures to take place outside of a court.)

In Texas (unofficial state motto: "Armadillo is the Other White Meat) the four Texas branches of the Texas Association of Mortgage Professionals are disaffiliating themselves from the state nonprofit and potentially changing their names. Why would they do that? TAMP filed for Chapter 7 bankruptcy protection with plans to close up shop. (It is not to be confused with the Texas Mortgage Bankers Association, which appears to be alive and well.) "The dramatic erosion in membership and the downward pressure on revenue generation, the financial constraints as a consequence have placed TAMP in an untenable position," said the president. TAMP has/had four branch chapters located in San Antonio, Houston, Dallas and Austin.

In the commercial sector, analysts at the Royal Bank of Scotland looked at 155 loans in commercial mortgage-backed securities and found 44% re-default after modification! CMBS followers have noted that since 2008 commercial securities have rebounded much faster than residential mortgage-backed securities deals, and may even hit $40 billion this year. Most of the loans RBS studied were modified in 2010, so we may not know for sure until 2012 how things go because it takes roughly two years before a modified loan re-defaults. But so far RBS analysts found that 87 of the loans, totaling $944 million, re-defaulted at an average loss of 23% but this was actually a lower loss severity than loans where no modifications were made (50%).

As mentioned above, Ben Bernanke spoke yesterday, but for the most part reiterated the previous Fed stance. He is looking for a second half bounce. While several indicators "suggest some loss of momentum," Bernanke expects growth to "pick-up somewhat in the second half." The economic recovery, broadly speaking, is continuing at a "moderate pace" but "frustratingly slow" in that the unemployment rate is not descending in a more appreciable way. Looking at inflation, Bernanke reiterated his core position: first, the slack in the US labor market "should continue to have a moderating effect on inflationary pressures." Second, inflation expectations remain well anchored and "reasonably stable."

Sometimes I am asked, "How much riskier are agency residential mortgage-backed securities than 'risk-free' Treasury securities?" In answering that, the current coupon MBS yield is at 3.93%, which is about the same level as where it was on December 3rd. The 30-yr Treasury bond is at 4.23%, while the "benchmark" 10-yr is sitting around 2.97%. The difference is relatively straightforward, but with the decline in MBS production and continued demand, many believe that mortgage rates will improve relative to Treasury yields. Overall, mortgage rates should continue to benefit from benign prepayments, favorable technical factors noted above, and attractive carry.

Zooming in on yesterday, MBS prices ended the day better by .125. We had a decent 3-yr note auction, which helped the fixed-income markets in general. Today the only news besides the MBA application index (which was little changed) is the 2PM EST Fed's Beige Book, with economic anecdotes from the 12 Districts in preparation for the two-day FOMC meeting that begins June 21. We also have a Treasury auction of $21 billion in 10-year notes at 1PM EST. With that the 10-yr is down to 2.97% and MBS prices are up 25bps.

The Washington Post has a yearly contest in which readers are asked to supply alternate meanings for common words.  (Neologism - a new word, meaning, usage, or phrase.) The winners are:

  1. Coffee (n.) the person upon whom one coughs.
  2. Flabbergasted (adj.) appalled over how much weight you have gained.
  3. Abdicate (v.) to give up all hope of ever having a flat stomach.
  4. Esplanade (v.) to attempt an explanation while drunk.
  5. Willy-nilly (adj.) impotent.
  6. Negligent (adj.) describes a condition in which you absent-mindedly answer the door in your nightgown.
  7. Lymph (v.) to walk with a lisp.
  8. Gargoyle (n.) olive-flavored mouthwash.
  9. Flatulence (n.) emergency vehicle that picks you up after you are run over by a steamroller.
  10. Balderdash (n.) a rapidly receding hairline.
  11. Rectitude (n.) the formal, dignified bearing adopted by proctologists.
  12. Pokemon (n) a Rastafarian proctologist.
  13. Oyster (n.) a person who sprinkles his conversation with Yiddishisms.
  14. Frisbeetarianism (n.) (back by popular demand): The belief that, when you die, your Soul flies up onto the roof and gets stuck there.
  15. Circumvent (n.) an opening in the front of boxer shorts worn by Jewish men.

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog is new and takes a look at the opinions on QRM's impact on our industry. If you have both the time and inclination make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.