Bank of America is Back in Lending; Thoughts on Basel III and MSR's; Investors Like Residential Mortgages

Fixed rate 30-yr. mortgages at 2.6%! Yippee!!! Oh...wait a minute...the New York Fed tells us why they aren't there yet.

CMG Financial is a multi-billion dollar lender that has experienced phenomenal growth and is focused on continuing to expand its national footprint.  It is currently recruiting nationally, with an emphasis on the San Francisco Bay Area, Phoenix, Dallas, Jacksonville, and San Diego locales. CMG has various mortgage banking positions open, including closers, loan processors, underwriters, QC, registration, origination, management, etc. The company's lending channels include wholesale, retail, correspondent, and Strategic Field Engagement. Established in 1993, CMG Financial is a privately held nationwide mortgage bank headquartered in northern California, CA and lends in 43 states. "Developers of the only patented mortgage product on the market, creativity and innovation are hallmark characteristics of the culture and environment, our competitive advantages include FNMA/FHLMC Direct Lender, HARP 2.0 Unlimited LTV Authority, top tier pricing and product mix, operational superiority, compliance and regulatory support as well as forward-thinking leadership." All interested individuals should send an e-mail to our Corporate Recruiter-Amy Gallow Agallow@cmgfi .com. Learn more about the company at cmgfi.com.  We welcome candidates who would flourish in an environment that pushes the standards of excellence.

Stonegate Mortgage Corporation, one of the nation's largest and fastest growing independently-owned mortgage lenders and servicers, is currently looking to hire underwriters in several locations. Stonegate Mortgage fulfillment centers are located in Indianapolis, Ind.; Kansas City, Mo. and St. Petersburg, Fla. There will also be remote hires for Charlotte, N.C.; Denver, Colo.; Phoenix, Ariz. and Dallas, Texas. (Stonegate Mortgage was recently featured in a six-page spread in Mortgage Banking Magazine, being highlighted for its expansion across the United States as well as its rapid growth of hiring over the last few years. To read the article about Stonegate Mortgage click here and go to pages 42 to 49.) Interested candidates should send their resume to resumes@stonegatemtg .com.

Many lenders and loan officers are reaping the rewards of the government-sponsored low rates and the government-sponsored refinance programs - although things are starting to fade a little with rates and the programs. The FHFA recently released Home Affordable Refinance Program (HARP) data for October. The data show that HARP volume decreased 10.1% month over month in October while non-HARP GSE refi's increased 5.5%. This followed an 8.2% sequential decline in HARP volume in September. HARP volume as a percentage of total refinance activity declined to 18.5% from 21% in September, probably due to rates. Also, high LTV loans (to borrowers with LTVs above 125) declined 19.4% month over month. Analysts think that the low rate environment will keep rate driven refinances high, which will likely prevent the HARP percentage from rising in the near term, but for 2013 look for HARP to continue to be a significant part of the refi mix, and to help contribute to strong industry gain-on-sale margins into 2013.

And blame it on the time of year, or the theory that if rates stay here we will see a natural decline in refinance volume, but this morning we learned from the MBA that applications for home mortgages fell last week for the third consecutive week as refinancings fell to the lowest level since last April. The numbers confirmed what lock desks everywhere are seeing, but apps dropped nationwide over 10% in the week ended December 28. Both purchases and refi's were down over 10%, and refi's stayed at 82% of all applications.

The Financial Times reports that Bank of America is ramping up mortgage and corporate lending after two years of focusing on capital levels and cost-cutting under chief executive Brian Moynihan. Mr. Moynihan said the company should overtake JPMorgan Chase in direct-to-consumer mortgage lending in the next six months and he had directed bankers to be "more aggressive" in lending to companies. "BofA ended 2012 as the best performer in the Dow Jones Industrial Average, with a 109 per cent increase in the stock, which rose an additional 3 per cent on Wednesday after the fiscal deal in Washington. Much of investors' renewed faith stems from the bank's improved capital position after years of concern stemming from multibillion-dollar compensation claims against soured mortgages, many underwritten by Countrywide. BofA has $134.6 billion of tier one common equity, or 8.97 per cent of risk-weighted assets, under the new Basel III regulatory standards, the bank said last quarter."

While we're on Countrywide, regarding yesterday's mention of the Rolling Stone article on Angelo Mozilo and Countrywide, Bill Lawton wrote, "There's a rising tide of ex-employees that are sick and tired of the bashing Angelo gets every time the bad mortgage economy comes up.  Matt Taibi and the rest of the so-called elite journalists that do so (and know nothing of what they write) should take a step back and understand that Angelo and David Loeb built a company that flourished for 40 years.  They may also want to take into consideration that Countrywide provided employment, internationally, to thousands of people. It provided benefits to its employees that were far better than competitors. They gave people the opportunity to grow and excel.    And, as far as 'FOA' loans, yes they existed. So what? Has anyone ever heard of 'Good 'Ol Boy Loans' at small banks? There isn't a lender out there that hasn't done a deal for one if its customers. That doesn't mean it was underhanded or illegal, the lender just made less money on it.  Whether it's a tangible commodity or a mortgage, at some point in time you are called on to discount your product. Actually, in the position I had at Countrywide, I could, and did, offer better pricing to customers from time to time.  And typically better pricing that what Angelo would do. Angelo is smart, savvy and the best mortgage banker I ever worked for.  Time to recognize those attributes gained over his 55 years in the business and stop judging him for the last 28 months of Countrywide's existence."

Love 'em or hate 'em, investors in mortgages wind the clocks. Put another way, there is always a supply of people wanting to borrow money - but at what rate that equates with the risk borne by the investor? In a Bloomberg story by Heather Perlberg and Pierre Paulden, "The world's biggest bond managers are betting housing debt, that rallied as much as 41 percent last year, will again beat other fixed-income investments in 2013 as the U.S. real estate recovery strengthens. TCW Group Inc., Pacific Investment Management Co. and DoubleLine Capital LP are forecasting gains for mortgage bonds without government backing, including those tied to subprime loans, even after hedge funds and other investors piled into the market last year, reducing potential returns." Here is the complete story.

Remember Basel III? It hasn't gone away, and I received this e-mail (and spoke to this student, in spite of my Cal MBA): "For a research project at Stanford Law School, I am researching what is likely to happen as a result of Basel III, a set of regulatory reforms that are designed to increase banks' capital requirements and, presumably, create a more stable global banking system. Among experts, a common theme is that regulators cannot keep up with financial innovations. Or maybe financial innovators and financial regulators have reached a cozy coexistence in which universal banks are allowed to keep taxpayer backstops for risky bets while regulators gain greater power over these institutions in the event of a crisis. The Fed has already delayed the start of Basel III implementation in 2013, but one place where Basel III might be taking shape is in mortgage servicing rights (MSRs). Universal banks have unloaded some MSRs to increase their equity buffer and comply with the possibility of Basel III, but the top servicers have been slow to shed MSR assets. My hypothesis is that Basel III is likely not to be implemented as planned, and the hesitance of big banks to unload their MSRs is a real-time example of skepticism about Basel III. Am I thinking about MSRs and Basel III correctly, or am I wrong in my hypothesis? Does the MSR industry today support the hypothesis that Basel III will not pan out? Insights and critiques are welcome at bwolfe3@stanford .edu. Thanks very much, Brandon Wolfe."

The real estate and lending industries are chewing on the pros and cons from the recent passage of the fiscal cliff legislation. Extension of the Mortgage Debt Forgiveness Act was included, providing protection for homeowners seeking a short sale - without the passage of the extension many homeowners who were granted a short sale or reduction in principal would be subject to additional taxes. Legislators also left in place exemptions for profits on home sales, and kept the mortgage-interest deductions. The stock prices of homebuilders rose nearly 3% after climbing 84 percent in 2012. And how about those MI company stocks? Borrowers with mortgage insurance, from private guarantors or the U.S. government, will be able to deduct their premiums. That perquisite had expired at the end of 2011. The change will apply retroactively to 2012 for homeowners making less than $110,000 a year and will remain in force this year. MGIC Investment Corp. jumped 12 percent to the highest since July and Radian Group Inc. rose 3.3 percent.

Consumer advocates still want a provision that excludes loans in which borrowers tapped their home equity while refinancing to be dropped (because it creates a large paperwork burden for everyone who claims an exemption). This week's bill will also limit some mortgage-related deductions by reviving so-called Pease limitations for itemized filers including individuals earning more than $250,000 and couples with more than $300,000 in income. Taxpayers will gradually lose the value of deductions up to a total of a 20 percent reduction, according to the NAR summary mentioned yesterday in this commentary. Congress otherwise left unchanged interest breaks and exclusions for capital gains on sales of owner-occupied homes of as much as $250,000 for individuals or $500,000 for couples.

(Now that Congress and the president have agreed to a deal that addresses part of the fiscal cliff, the attention will shift to the next major milestone: the need to raise the debt ceiling. Yahoo! Something else for us to worry about.)

Yesterday was not a great day for rates - but don't forget we have the Fed buying about $4 billion a day - about twice the average daily mortgage production. So rates aren't going anywhere fast: unless something drastic changes, demand will outstrip net organic issuance primarily due to the Fed's expected buying of $500 billion this year. Prices on 30-year FNMA 3.0s and 3.5s declined/worsened .250-.125, respectively, while 10-year T-notes were marked down about .750 in price and closed at 1.84%.

We had a preview of tomorrow's nonfarm payrolls print via the ADP Employment Report (Dec) with jobs creation projected at +133k from +118k in November.  The U.S. added 215,000 private-sector jobs in December, per ADP's estimate today, led by a gain of 187,000 services jobs. (Currently, analysts expect the government to report that nonfarm employment rose 153,000 in December, compared with a gain of 146,000 in November.) The fun continues with the 1PM EST Treasury announcement of the details of next week's auctions of 3- and 10-year notes and 30-year bonds (expected unchanged at $66 billion) and the 2PM EST release of the minutes from its December meeting. The news so far - Jobless Claims coming in at 372k, higher than the 360k that was expected, has not helped us much: the 10-yr is at 1.85% and MBS prices are roughly unchanged.

(Parental discretion advised.)
An elderly couple was sitting on the sofa watching TV.  The husband was using the remote to click back and forth, back and forth, between the Fishing Channel and the Porn Channel.

After a while, exasperated, the wife said, "Oh for goodness sake, Harold, just keep it on the Porn Channel...you already know how to fish!"