"Green Shoots" in the Mortgage Biz with New MI Company, Vendors, and Business Plans; Builder Commitment Interest Upswing

I love it when regulators and politicians become upset about the environment which they've helped create - unintended consequences. One suggestion last week suggested, "Let's have the CFPB become the nation's servicer!" The latest squawking is focused on Wells Fargo controlling too big of a market share. And with the compliance, regulatory, financial, legal, and agency buyback hurdles in place, and growing, new companies have a welcoming environment? "Wells Fargo's grip on the U.S. mortgage market has tripped alarms among regulators and lawmakers concerned that the bank's control over one of every three new loans could hurt consumers and undermine markets." No kidding.

But others besides Wells are expanding. RMC Vanguard Mortgage, an internet-focused lender since 1999, based in Houston is looking for a lead analyst (as in internet lead purchased from lead seller, not as in "in-charge"). The position, which will report directly to the president, will focus on a deep dive into leads purchased, sources, contact rates, and close rates to improve RMC's "lead spend."  Candidate should have statistical and on-line lending experience, with possibly web analytics with SEO (Search Engine Optimization) experience. The ideal candidate does not need to be based in Houston. For more information on RMC check out RMCV.com; candidates should contact Owen Raun at Oraun@RMCV .com.

And I have been retained by a Northern California based retail mortgage bank, with offices in multiple states, that is seeking a VP of Compliance to manage all compliance and Quality Assurance. The ideal candidate should be knowledgeable in all aspects of mortgage compliance, fit well into a management roll, and be up to speed with the current regulatory environment. Commercial bank experience preferred. Interested candidates should send their confidential resume to rchrisman@robchrisman .com.

Last night I made the "mistake" of serving the sour cream in the sour cream container at the dinner table. I figured with a nice, white, clean attractive container, why not? Why have to wash yet another bowl? But given the reaction of the females at dinner, however, one would have thought I'd served a live giant squid.

I'd see the same reaction when I was running Capital Markets, and I'd quote a rate and price to an LO with a builder client who wanted to obtain pricing six months out. Yes, the fixed income markets have been relatively stable, but who knows where they'll be six months from now when the builder finishes construction? And yes, the builder market is heating up, as I am hearing from secondary marketing folks and LO's asking about pricing.

As a quick tutorial, one can't really sell a mortgage-backed security today that settles (closes) in six months. But companies turn to options, like puts and calls. (Don't lose your attention - I'll keep this basic and short!) Buying a "put" from a broker-dealer gives you the option (not the obligation) to sell something in the future at a certain price. Friday morning, puts on Fannie 3's (containing 3.5% 30-yr mortgages) were being sold at about 1 point in November and nearly 1.625 in February. Said another way, a builder who likes the rates and pricing six months from now could pony up 1.625 and the lender use it to buy a put. But most LO's never want to hear that, nor do builders, who often want lenders to guarantee today's rates and prices.

Still, many lenders offer extended locks out to 90 days - the MBS market actively trades out there, and sometimes investors like Chase or PHH will go out 120 days IF the client pays a deposit (often 1%). But capital markets folks continue to remind LO's that there is no free money. The commitments are rarely transferable, meaning that if the builder finds a buyer, and then the buyer cancels, the rate lock can't be given to someone else. And other lenders may offer some custom construction clients some type of float down option at today's prices - but usually the borrower pays interest until then. Regardless, the fact those questions have increased means that builders are seeing business improve - or they think rates are going up.

Speaking of improving, there are indeed "green shoots" in the mortgage banking, vendor, and MI industries, despite some challenging earnings reports within the MI industry last week (like Freddie & MGIC).

For example, last week I had the opportunity to visit a new firm, National Mortgage Insurance Corp. (National MI) based out in Emeryville, California. It is a great example of private capital returning to the market: National MI has successfully raised $550 million of capital and is currently working to secure its GSE and state regulatory approvals. National MI is currently building out its staff and infrastructure and anticipates writing business in the fourth quarter of 2012, subject to receipt of GSE and regulatory approvals - here's its website.

And in FHA origination land, with all the changes in the biz (some aggregators scaling back, or adding overlays onto products), one California investor has seen an increase in the number of requests for FHA & VA sponsorship as well as outlets for FHA test cases.  Whether this stems from a lack of alternatives, poor service from existing outlets or lender fears about underwriting the more complex FHA loans, the need for investors who offer such services to Correspondents is growing.  The increased requests could also be a result of new mortgage bankers looking to earn their Full HUD Eagle. The lack of warehouse banks willing to fund the type of loans FHA was created to insure is even a greater challenge.  Few warehouse lenders will fund for their mortgage bank clients loans to borrowers with FICO's below 640.  A handful will fund down to 620.  Correspondents, whether banks, credit unions or mortgage bankers, remain fearful of meeting the needs of the low to moderate income borrowers due to concerns about higher compare ratios, a backlash from the sub-prime/Alt A credit meltdown or both.

The ability to properly underwrite to FHA 4155 guidelines (along with investor overlays) remains problematic.  An increase in the number of loans with errors such as miscalculation of income and/or DTI, missing documentation, etc. is causing delays in purchase times or outright declines.  The most common errors stem from poor documentation of income, inability to substantiate gift funds or getting the necessary valuations (two independent appraisals) on property flips > 90-days with appreciation greater than 20%. (With the industry's biggest investors refusing to buy FHA Streamlines they don't already service, Correspondents need new outlets for this popular product. No, this is not a paid announcement, but if you're originating in the West, you may want to consider First Mortgage Corporation, headquartered in Ontario, CA.  With virtually zero overlays to the FHA 4155, you can find a home for your FHA Streamlines at fmccorrespondent.com.  For questions, please contact Sharon Magnuson at smagnuson@firstmortgage .com.

And there are indeed vendors starting services up that focus on counterparty risk - Secure Settlements, for example. It "is the first company to offer a standardized risk management process and information database of fully vetted mortgage closing professionals that protects both consumers and lenders - reducing fraud and ensuring that federal regulatory requirements are met. The Secure Settlements process delivers the most advanced closing fraud risk analysis in the industry and meets all risk management requirements for third-party vetting of vendor relationships, as outlined by Fannie Mae, Freddie Mac and the National Credit Union Administration. The program also encourages uniform best practices and ongoing monitoring of risk for banks and consumers, as mandated by Dodd-Frank and the Consumer Financial Protection Bureau under its April 2012 directive." Here is the company's website.

In another example, Money360, a lender out in California, has begun providing an internet marketplace for private residential and commercial real estate lending. Many of its investors have extensive involvement in real estate as developers and operators as well as investors and are often looking to invest in the same types of property with which they have had hands on experience. The company claims its lenders represent a potential pool of more than $500 million for residential and commercial real estate loans. Potential borrowers are put through an on-line screening process to qualify them by experience, abilities and capacity and their loans by size and the quality of collateral.  Money360 then matches borrowers with lenders who have been screened for their preferences in a similar manner. Once buyer and seller are put together, Money360 steps out of the picture.  The two parties negotiate the loan, close it and the lender arranges for its servicing.  The minimum loan size is $25,000 and there is no fractional lending although there is nothing to preclude groups or syndicates from participating. As Mortgage News Daily reports, "Money360's revenue model is simple.  Registered lenders review loans matching their parameters and can "purchase" more details and contact information on those they like for a small fee of $5 to $10.  If the loan closes the lender is charged a marketing fee of 50 basis points for commercial and non-owner occupied residential loans.  There is no marketing fee for loans that fall under RESPA laws. The CEO notes, that the company is not a competitor of traditional lending, especially in the residential area.  "If a borrower can qualify for a regular loan at low rates then our investors are not competitive," he says.  But there are a lot of good loans that aren't being funded because they are slightly outside the box of traditional lending even though the borrowers may have equity or cash for a down payment. Gentry even sees eventual reciprocity between his company and traditional loan originators where each could refer to the other those loans for which they would be the better and more cost efficient lender."

Lastly, I received this note. "With the news about Ally exiting warehouse lending and rumors regarding new counterparty rules, I thought your readers might have an interest in the RPM Independent Lending Partnership platform.  The platform we have developed works somewhat like a co-op and the partner continues to run their own Mortgage Banking p & l.  They retain their independent branding and can strengthen their lending capability by leveraging the RPM capital base, warehouse lines, GSE/Wall Street direct relationships, and the servicing portfolio.  The current environment for the independent Mortgage Banker continues to require an increasing commitment of capital and a partnership is something they may want to consider.  Rather than tie up capital to meet investor and warehouse bank requirements, they can invest in recruiting, marketing, creating more production, and increased revenues!  If interested in a discussion, my contact information is: Kimberly Schenck, kschenck@rpm-mtg .com." (And no, this was not a paid ad!)

We closed out the week Friday with some economic news that helped bond markets. Import Prices in U.S. fell unexpectedly - July was the fourth month in a row prices of goods imported into the U.S. fell. (I've been at this so long that I remember when inflation was a concern of the markets.) We also had more news from China indicating a slowing economy - and it is hard for rates to move higher when the world is slowing and there is less demand for capital for companies (and individuals) to expand. The yield on the benchmark 10-year note slid to 1.64%, a notable drop after holding above 1.7% for much or the previous session. But for the week the economic reports shows the economy continuing to expand at a modest pace and further diminish the downside risks. The trade deficit was smaller than expected, hiring plans increased to their highest level since June 2008 and weekly unemployment claims declined.

But that was last week - what about this week? Here in the U.S. it's heavy on the data front with PPI and Retail Sales tomorrow, CPI, Empire Manufacturing, Industrial Production and Capacity Utilization Wednesday, Jobless Claims, Housing Starts, Building Permits, and the Philly Fed on Thursday, and Michigan Sentiment and Leading Economic Indicators on Friday. Phew! In the early going the 10-yr is still around 1.65% and MBS prices are little changed from Friday.

For a little humor today, we have a couple videos with which to absorb your time if you don't quite feel like working. Anytime one combines cats in zero gravity environments (about 3 minutes in) with a physics explanation, it's worth a gander!. And Irish commentators who know nothing about sailing, narrating a race.