Forecast on FHA Compare Ratios; MetLife Chatter; Importance of Contingency Plans for Lenders

I was speaking to my 88-year old dad the other day on the way to Costco for a hot dog lunch. (No, this is not elder-abuse - he actually likes them.) I told him, "Dad, I am helping a company with a HUD license" and he replied, "How could a whole company have head lice?" Ah, to be 88...

PERL Mortgage, already a nationwide lender, is expanding - particularly in Illinois and the Midwest. Currently licensed in 14 states (including AZ, CA, CT, FL, MA, and MI), PERL is seeking individuals, and/or teams of professionals, "who have the desire to excel and be the best at what they do." PERL Mortgage has been around for 18 years, and has 140 employees including a sales team of over 60 Mortgage Advisors who consistently originate greater than 1 billion dollars in mortgages annually.  The company has recently brought on 25-year veteran Mark Daly as SVP/National Sales Manager. Inquiries pertaining to PERL Mortgage, its sales team, or expansion can be emailed to mdaly@perlmortgage.com and for more information visit www.perlmortgage.com.

Out west, Intercap Lending is expanding both its wholesale and retail channels. The lender, headquartered in Irvine, CA, is a FNMA and FHLMC seller/servicer as well as a GNMA issuer that services its own loans.  The wholesale channel is seeking experienced inside and outside wholesale AE's to call on brokers in California, Texas and Washington. The retail channel is recruiting experienced LO's for its Irvine office.  "Both channels have ability to go direct to FNMA, FHLMC and GNMA, which insures the highest capture rate for our Mortgage Bankers and the ability to go outside the normal conduit box (no bank overlays), and the company's fully matured hedging process provides the sales force with the best pricing available."  Interested parties should contact Jim Storm at jstorm@intercaplending.com.

Obviously PERL and Intercap are on the upswing, while MetLife is...not. I have received several e-mails asking if they are "collapsing" (would that surprise anyone) and wondering if anyone is going to be around much longer to handle clean-up issues. Here is some LinkedIn chatter.

I receive my fair share of grumbling about various companies all the time (especially those that seem to blatantly disregard the LO comp rules), but the murmurs about MetLife are steadily growing in significant numbers. "Nobody is selling loans to them currently - that would be foolish. And on the back end, they are not fulfilling their obligation to us and funding loans in a timely manner.  MetLife is exiting the industry with disgrace.  They had some of the best rates but now they are not funding and they are setting up clients loans incorrectly.  All of our contacts have changed and they are unable to tell us any updates.  We are receiving findings from loans closed in January and they are not focusing on the loans from December. It is a mess." And another note: "Have you heard anything on what is happening at MetLife?  They appear not to be funding loans, and when they are it is after asking for things they don't need.  We still have loans from December that are not being funded.  Our warehouse bank is backed up with all of their clients that have MetLife loans as well...   They are beyond acceptable timelines and we can get no answers...   Are we watching a TBW event unfold?  Are they out of capital?"

That being said, a memo sent out by a regional MetLife sales executive noted, "Great News!!! I was just informed by our management that we will be at 15 days or less for loan reviews by next week - January 31st. We now have 44 underwriters with more coming on board and we should be working thru your pipeline very quickly. You should be seeing a daily incremental pick up in reviews as we get caught up over the next 7 days. Hopefully we'll have minimal pends at time of review and can fund your loans immediately. However if we pend a loan, please expedite return of those requested items so we can fund the loan without any additional delays. I will keep working with your shipping departments until all loans have been addressed and your pipelines are clear."

It must be tough for lenders who only sold to MetLife, which reminds us that it is good to have a back-up plan. When was the last time you checked those batteries in your flashlight? (Yeah, same with me.) But having backup plans is very important to any mortgage company, and I received this note from Len Tichy, a principal at STRATMOR: "Rob, a number of our clients are asking for help and advice in setting up contingency plans -- being able to continue doing business if something goes wrong is a big concern for management. Not just disruption caused by your 'garden variety' disaster like fire, flood, or earthquake, but from unusual events you might not normally think about. For example, last August's outage of pricing engines froze many lenders -- they couldn't generate rate sheets or take locks. They don't want that to happen again, and wonder what vendor or internal system might be next. Whether it's a multi-day catastrophe or a 30 minute power outage, it doesn't matter. Companies need to understand the most critical risks of failure inherent in their key systems and the best path, or 'roadmap', to mitigating those that have the greatest potential to disrupt operations -- in underwriting, pricing, secondary marketing, servicing, whatever -- and in the Company's other dependent business units. This is especially true for lenders who have been growing and who intend to grow more. They may have made earlier disaster recovery planning choices that need to be re-visited but have been too busy or inappropriately staffed to do justice to the problem." I know that Len's had a lot of experience setting these up - if you're interested shoot him an e-mail at len.tichy@stratmorgroup.com.

Analysts continue to ruminate on President Obama's announcement that he will send Congress a plan that will allow responsible homeowners who are current on their payments to save $3,000 a year on their mortgage by refinancing. If this plan requires Congressional approval, it will probably have a very low likelihood of succeeding in 2012. And investors wonder if this plan impacts mortgages securitized in the agency MBS market (FN/FH/GN MBS), mortgages securitized in the non-agency MBS market, or mortgages on bank balance sheets in unsecuritized form. Changes to help underwater borrowers refinance that could be made without Congressional approval, however, such as further easing of HARP, further streamlining, eliminating LLPA's, or further reducing buyback risk were seen as having a better chance.

Not that what anyone says in the mortgage industry matters anymore in Washington, but the FHFA director is likely to argue against a mass refi program of agency mortgages considering that such a program could actually hurts the retained portfolios of the GSE's by up to $30-$35 billion. But what if the government cuts the GSE's preferred dividend payment to make up for some of it? Still, existing investors won't be in favor of it. And what if, in some miracle, the government used some of the $25 billion-or-so in the proposed settlement between the bank and the state AG's to fund a plan? Stay tuned - maybe the government will just use that money to help fund the temporary payroll tax cut extension a few more months.

The FOMC spoke. "The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability."

This FOMC announcement turned some heads, especially if overnight rates stay low for 2-3 more years. (Remember - overnight rates are set by the Fed, longer terms rates like mortgages are set by supply and demand.) Banks must continue to survive in a low rate, low margin environment for an even longer haul - healthy banks will have to learn to subsist off lower earnings and a sub-optimal return on capital. Watch for them to continue to cut expenses and move business units around, especially with the specter of Basel III hanging over the industry. And the consumer can certainly expect to earn near 0% on, or even pay for, their checking accounts.

The announcement that overnight rates will stay low through 2014 certainly moved the fixed-income markets. The 10-yr T-note shot up by 1.25 in price, but then only ended the day better by about .5 at a yield of 2.01%. MBS prices were marked higher by nearly 3/8s of a point on 30-year 3.5s, while 5.5s and 6s were basically unchanged on the day. On the housing front we received mixed signals Wednesday with NAR's Pending Home Sales Index dropping more than expected (still having contract failures) but the FHFA reported home prices unexpectedly rose 1% in November (on Fannie & Freddie loans).

This morning we've had Durable Goods for December +3.0%, stronger than expected, and Jobless Claims +21 from 356k to 377k. Later we have Leading Economic Indicators and a $29 billion 7-yr note auction. In the early going the 10-yr is at 1.95%, and MBS prices are better.

The room was full of pregnant women with their partners. The class was in full swing. The instructor was teaching the women how to breathe and was telling the men how to give the necessary help and assurance to their partners at this stage of the pregnancy.
She said, "Ladies, remember that exercise is good for you. Walking is especially beneficial. It strengthens the pelvic muscles and will make delivery that much easier." Just pace yourself, make plenty of stops and try to stay on a soft surface like grass or a path."
She looked at the men in the room, "Gentlemen, remember -- you're in this together. It wouldn't hurt you to go walking with her. In fact, that shared experience would be good for you both."
The room suddenly got very quiet as the men absorbed this information.
After a few moments, a man named Larry at the back of the room slowly raised his hand.
"Yes," said the Instructor.
"I was just wondering if it would be all right if she carries a golf bag while we walk?"

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses residential lending and mortgage programs around the world. 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.