Wells Fargo, More than $1 Billion Per Day; State Examiner Guides Could Be Useful; MERS Training; Conference Talk
"Buy real estate - they're not making any more of it." Most of the time that is true, but here is a somewhat interesting 50 seconds of the entire side of a cliff disappearing - England has a new beach.
For a mortgage bank, what is your warehouse cost of funds versus the average mortgage rate for your originations? If your mortgages are at 4%, and your warehouse is at 3%, you're earning a 1% spread. For Wells Fargo, its net interest margin, the difference between what it pays to borrow and what it earns on loans and securities, was 3.84% last quarter. But no matter, as...
Stocks dropped yesterday after Citigroup and Wells Fargo said quarterly revenue "dropped amid economic weakness and market turmoil linked to Europe." (Wells' stock dropped over 7% in one day, while Citi was "only" down about 1%.) Looking at mortgage banking, Wells Fargo saw $89 billion in new residential loans go through its system during the third quarter of 2011. Not accounting for weekends, that is about $1 billion per day per my HP-12C. It did not help, however, that Wells increased its mortgage repurchase provision by 61%. Citi reported a 50% jump in residential mortgage originations in the third quarter but also with a large write down related to mortgage servicing rights. Wells took it on the chin with a 6% slump in revenue from a year earlier although third-quarter profit rose 22% percent to $4.06 billion. Citigroup's net income jumped 74% to $3.77 billion.
Bank of America reported $6.2 billion of net income for the third quarter, up from a $7.3 billion loss one year ago. The worst performer in the DOW 30 stock index this year, the bank extended $33 billion in mortgages during the quarter, with more than half being refinances. And Goldman Sachs (see questionable letter at bottom of commentary) reported a loss for the 3rd quarter, which is only the second reported loss since 1999! The numbers are worse than expected, and Goldman's share prices are down as a result.
Here's a note I received yesterday, if anyone has thoughts: "With the coming demise of Bank of America correspondent, we are at a loss for a source which will purchase our few remaining test cases as we move toward getting our DE approval. Any suggestions?"
"Information
is power," as they say. With
LQI, and NMLS, a vendor or investor that controls that loan's data occupies a
very important place. I received a note asking, "I have a friend who
is fond of the no cash out, no closing cost refinance. He applied, locked, and
funded when rates were at 4.375% covering his costs. Now he's already begun
refinancing with another broker for a slightly lower rate, his point being that
is a no cost loan. And by doing back-to-back refi's, there is no harm to the
borrower. He can't be the only one out there like that. When do you think investors will get to the level where they're
checking prepayment speeds on individual borrowers, or originators, using NMLS
numbers? Are they already doing that?" First off, and this is common
knowledge, investors have had early pay-off penalties in place for several
years. Borrowers are required to make X number of payments, X depending on the
investor, since each investor assumes that it will have the loan on their books
for a certain period of time. In my opinion, if investors or vendors are not
looking at property, borrower, or loan agent level refinance & delinquency
information yet, it is just a short period of time.
For regulators out there, and those who are subject to regulators, "The Multistate Mortgage Committee (MMC) of
the CSBS/AARMR has recently issued two separate guides intended for use by
state examiners. While the MMC's focus is on national lenders with
operations in 10 or more states, the guides may prove useful tools for all
mortgage companies now that everyone is subject to examination. The first item
is a 263 page Mortgage Examination Manual which provides guidance about the
process and objectives of the examinations as well as information that may be
useful to examinees in preparation for examinations. The second item, released
on October 7, 2011 is a 42 page guide for examiners to use when reviewing
compliance by non-depository mortgage companies with the FRB's final loan
originator compensation rule. The guide does provide mortgage company
management some insights about the "map" the state examiners may be using to
determine compliance. Copies of both the Mortgage Examination Manual and the LO
Comp Rule Compliance Guides are available as links on the home page of the
IMMAAG website: http://immaag.com/.
Yes, MERS does things that don't make
the headlines, like give training. This next one is November 8th, and for
$75 you'll hear all about, "New compliance requirements, Reconciliations and
quality assurance topics, The Corporate Resolution Management System, and
Upcoming system releases." (The $75 includes Danish!) Don't be the last to
register: http://www.mersinc.org/events/details.aspx?eid=287.
Last week I received this interesting note. "I was at the MBA conference, and I
loved it b/c it was fascinating to see the different perspectives you get from
Mortgage Bankers versus those you get from the Realtors or Mortgage Brokers
(the people who frequent the conferences I usually attend). I very much enjoyed
the panel discussions because the information was not stale to me. Here is my
biggest take-away: The current crop of seasoned
managers and owners has been out of the trenches too long to see what is really
going on in today's lending environment. And this results in two big flaws
in judgment/assessment. 1. They are too "accepting" of new regulatory
constraints. Too many seem to embrace or grudgingly accept the new rules either
already here or coming our way, no matter how destructive or irrational. HVCC
guidelines, comp rules, and disclosure requirements are often ridiculous,
costly and harmful for the consumer because they cause us to lose locks and/or
preclude us from crediting fees. But, unless one is "in the trenches,"
this is often not fully absorbed. Everyone should be "fighting
mad". And (2) loan officers and most industry professionals "of
yore" are simply too "dumb" (for lack of a better word) to close
loans in today's environment. We let all of our less than brilliant people go
years ago, and we now only hire college grads with 3.5 GPAs or better. We test
them before we hire them too. And we are rolling. A company can market and originate all it
wants, but more business is worthless if nobody is capable of closing the many
the tough deals that surface today. The ONLY firm I saw at the conference
that was aware of the above facts was Academy Mortgage. Others are so far
behind the curve it was shocking." So wrote Jay Voorhees with JVM Lending in California.
The markets out there are nervous. Aren't "markets" always nervous? Analysts note that transitions to foreclosure have started to increase, which will probably prompt some action from the government. And while they are at it, the government will probably soon announce their long-awaited updates to HARP, which will spook the herd on its impact on prepayments. Agency mortgages are doing pretty well, but no so for non-agency production, which saw an index (PrimeX - more on this tomorrow) take a tumble. And over in the commercial sector, the CMBS market showed some life with synthetic prices moved modestly higher.
For economic news, yesterday the Federal Reserve Empire State Manufacturing general business conditions index remained negative and was nearly unchanged. We also learned that Industrial Production rose by 0.2% in September and Capacity Utilization rose to 77.4%, but neither moved rates. Generally news like this pales in comparison to what is happening in Europe, and a spokesman for German Chancellor Angela Merkel warned not to expect all issues to be resolved by the Oct. 23 meeting, calling it an "impossible dream." Bonds "caught some wind," the 10-yr yield dropped to 2.16%, and many investors had price improvements.
This morning rates have improved again, and the 10-yr is down to 2.09% ahead of the PPI number at 8:30AM EST. Agency mortgage securities are along for the ride to some extent, with early MBS prices better by .125-.250 depending on coupon. Latest MBS Prices
I cannot attest to the validity of this letter, forwarded to me yesterday:
NEW YORK - The following is a letter released today by Lloyd Blankfein, the
chairman of banking giant Goldman Sachs:
Dear Investor:
Up until now, Goldman Sachs has been silent on the subject of the protest
movement known as Occupy Wall Street. That does not mean, however, that
it has not been very much on our minds. As thousands have gathered in
Lower Manhattan, passionately expressing their deep discontent with the status
quo, we have taken note of these protests. And we have asked ourselves
this question:
How can we make money off them?
The answer is the newly launched Goldman Sachs Global Rage Fund, whose
investment objective is to monetize the Occupy Wall Street protests as they
spread around the world. At Goldman, we recognize that the capitalist
system as we know it is circling the drain - but there's plenty of money to be
made on the way down.
The Rage Fund will seek out opportunities to invest in products that are poised
to benefit from the spreading protests, from police batons and barricades to
stun guns and forehead bandages. Furthermore, as clashes between police
and protesters turn ever more violent, we are making significant bets on
companies that manufacture replacements for broken windows and overturned cars,
as well as the raw materials necessary for the construction and incineration of
effigies.
It would be tempting, at a time like this, to say "Let them eat cake."
But at Goldman, we are actively seeking to corner the market in cake
futures. We project that through our aggressive market manipulation, the
price of a piece of cake will quadruple by the end of 2011.
Please contact your Goldman representative for a full prospectus. As the
world descends into a Darwinian free-for-all, the Goldman Sachs Rage Fund is a
great way to tell the protesters, "Occupy this."
Sincerely,
Lloyd Blankfein
Chairman, Goldman Sachs
If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog takes a look at Fannie & Freddie & the FHFA, and the changes they have in the hopper. 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.