FEMA Update, Bond Markets Closed; Bank Merger Trend Persists

Thank you to Julie F. from NJ on the FEMA declarations and re-inspections normally required on properties in a disaster area. (A 2070, or 2075, with photos is the form typically required.) Here is the site for updates: http://www.fema.gov/disasters. Hurricane Sandy may cause as much as $20 billion in economic damage, much of it to residential areas. It shut the federal government and state administrations, and prevented U.S. stock markets from opening yesterday and today. Insured losses may reach $5 billion to $10 billion, or about half of the total, according to the estimates today by Eqecat Inc., an Oakland, California-based provider of catastrophic risk models.

FEMA hasn't yet issued a specific list of areas affected by Hurricane Sandy, but it's predicted that the list, when released, will include parts of Connecticut, Delaware, Massachusetts, Maryland, Maine, North Carolina, New Hampshire, New Jersey, Pennsylvania, New York, Virginia, and Vermont. Every investor will have its own protocol, but given its market share, some may follow Wells Fargo's lead. Wells Fargo has announced that, even though there hasn't been any official communication from FEMA, all sellers must follow the Disaster Policy for all properties affected by the storm and have them reappraised. Once the effects of Sandy have been fully assessed, Wells will either apply its disaster policy to the counties published by FEMA or issue its own list of zip codes where reappraisals are required. The storm has also forced the closure of the bond market today, which means that the Wells Mandatory Trade Desk will not be operating.

But on the other coast, companies continue to hire. Licensed in 18 states, Nations Direct Mortgage is seeking DE & VA underwriters as well as seasoned Account Managers for their Irvine, CA Wholesale Operations Center.  With both FNMA and GNMA approval, the company, which will fund nearly $1 billion this year and is on track to fund $1.7 billion in 2013, continues to grow steadily. Nations Direct has built an energetic employee-centric culture and offers strong compensation to high performing individuals.  Interested parties, who can work remotely, should forward their resume to careers@myNDM .com and more information about the company can be found at nationsdirectmortgage .com.

And PMAC Lending Services, Inc. is searching for an Operations Manager in Concord, CA and Wholesale Regional Sales Managers for the Western and Eastern U.S. PMAC is a national wholesale and retail lender that continues to grow nationally. More information on the lender can be found at https://www.pmacwholesale .com, but PMAC is a Fannie, Freddie and Ginnie-approved mortgage bank with a multi-billion dollar servicing platform. Confidential resumes can be sent to careers@pmac .com.

Appraisals, and their lagging improving markets, continue to be a concern. The latest movement comes from a petition by the NAIHP saying, "Read and Sign the Petition concerning the Interim Final Rule on Appraiser Independence." For those interested, here you go: http://www.naihp.org/.

Home improvement is on the rise, according to the Harvard Joint Center for Housing Studies, and based on the line I saw at Orchard Supply Hardware this weekend.  Based on the Leading Indicator of Remodeling Activity, the Center projects strong gains in home improvement activity (defined as "remodeling, additions, and major replacements to owner-occupied properties after the completion of the original building") over the rest of 2012 and the first half of 2013.  The predictions are based on the recent growth in sales of existing properties and housing starts, which, in conjunction with the low rates available for both purchasing and refinancing, makes it likely that homeowners will embark on remodeling efforts over the coming months.

Shawnna A. from Washington reminds us, "Bank of America forgiving all those 2nd liens is going to end up biting homeowners when they want to go and refinance or purchase a new home.  Investors look at loan mods, short refinances and debt forgiveness (voluntary or not) as derogatory credit and require the same waiting times as if the borrower had done a short sale."

A few days ago the commentary had some mention of FHA Compare Ratio news, and I received this note from Frank Fiore, the president of Matchbox LLC. "As a follow up to your compare ratio comment, being that streamlines have been taken out of the compare ratio equation, firms that have had streamlines as a big part of their prior and current pipelines should take notice. The effect on a company that has closed a significant amount of streamlines over the past year is significant. With rates so low, and MI and HARP loans becoming more competitive, FHA originations have dropped for most, especially if you exclude streamlines."

Frank continued, "An unexpected drop in the denominator combined with the national default rate dropping has left many bankers seeing a significant spike in their compare ratio causing some stress as we head into year end and doubts in submitting a Ginnie application. As an example, a company's CR analysis should account for defaulted loans dropping off after the 24 month mark and being offset by new originations which add to their existing 24 year rolling pipeline. We have seen companies focusing on streamlines over the past year as 'low hanging fruit' as low rates and a low cost to originate allowed many to beef up their denominator. Although excluding streamlines has helped some bankers, others are extremely confused and concerned as they experienced unexpected spikes. And it's great that bankers can still pull their data including streamlines, but it's now private and counterparties will be pulling the public data which will be an issue for some and certainly create increased volatility as originations for all have dropped and the sample set of FHA loans originated over the last 24 months (excluding streamlines) is limited, and likely shrinking month over month. We are advising our clients to analyze their compare ratios with the streamlines added back in to better reflect trending and to compare apples to apples. Analyzing historical data excluding the streamlines is important as well, since we expect this to be the new standard - after all, these are the loans which the lender is truly underwriting and qualifying. A final note: As originations have been so strong over the last few years, the denominator in the compare ratio calculation has been on a tear for most, keeping the ratios pretty low. As FHA volume is stabilizing (or even dropping) on this rolling 24 month look-back, compare ratios for many were already on the rise as the denominator has stopped increasing and the aging of loans has reflected increased defaults. Lenders better understand their historical data and be able to explain current trending to keep their ratios under 150, or better yet 100." Thank you Frank!

Turning to some bank M&A and investor news, things continue to evolve. As always, it is best to read the actual bulletin, but these recent tidbits will give you a flavor for what is happening.

First, last week I noted, "San Francisco-based Parkside Funding has just rolled out Park Xpress, which allows clients to submit certain refinance loans to an "Xpress Lane" for accelerated underwriting." It is Parkside Lending, not Funding. I apologize for any confusion.

Every lender doing business along the Atlantic Seaboard, whether regionally or as a nationwide lender, sent out bulletins (too numerous to repeat here) with changes to lock desk hours, processing times, fundings (it helps to have good data!), rate locks, emergency contact lists, extension costs (mostly waived), delays in funding (particularly FHA loans), inspection policies, and so on.

$120 million Cattail Bancshares in Atwater, Minn., has agreed to buy the $61 million-asset Citizens State Bank of Waverly in Minnesota. Citizens had a core capital (leverage) ratio of 9.29% and a total risk-based capital ratio of 15.58% at June 30, according to the Federal Deposit Insurance Corp. Its noncurrent loans were 1.55% of total loans, according to the FDIC. Citizens was looking to sell because of new regulations. "The regulatory environment has been brutal the last several years," Catherine Jackson, chief executive of Citizens, said, according to the Business Journal. "Going forward, a small independent bank is not going to be the model of the future."

(There were 175 bank and thrift mergers announced through the end of September, putting 2012 on track to exceed the 178 transactions announced in 2011, according to SNL Financial. The average seller has agreed to a multiple of 114% of tangible book this year compared with 101% in 2011. Bank M&A remains deeply depressed by historical standards. There were 293 deals in 2006, the peak of the last bank consolidation wave, and the average seller got 244% of tangible book, according to SNL Financial. The best targets could expect 300% or more in those days.)

On the other side of this, Friday the Pennsylvania Department of Banking and Securities closed the $483 million-asset NOVA Bank in Berwyn on Friday, but the Federal Deposit Insurance Corp. was unable to find a buyer for the failed bank's operations. The failure is expected to cost the Deposit Insurance Fund $91.2 million. It is the 47th bank to fail this year.

The FDIC said it would mail checks to depositors who were covered by its $250,000 insurance limits. The bank had $432.2 million of deposits, and the FDIC said the amount of uninsured deposits will be determined once it obtains additional information.

The bond markets are closed today after being open only a few hours Monday. Anyone looking to lock a rate had better think twice: with many mandatory desks closed, and no way to hedge new locks today, most lenders issuing rate sheets will err on the conservative side. There was a smattering of economic news yesterday as Personal Spending rose by more than expected (+.8%, the most since February) while Personal Income was only up +.4%, but was the biggest jump since March. Therefore consumers outspent their incomes again in September - it would appear that improving consumer confidence and credit availability in the presence of pent-up demand is a potent combination, capable of fueling consumer spending even as job growth remains weak and wage gains are meager.

As mentioned, the fixed-income markets are closed. Yesterday the 10-yr T-note closed at a yield of 1.75% - the best guess would be that it would be about unchanged today or maybe a shade better with equities falling.