Flagstar - MBIA Settlement; Redwood Trust Earnings; a Primer on Economic News Categories
The seminar, earning, and agency news just won't stop! Richey May & Co., an accounting firm based in Denver that specializes in serving mortgage banking companies nationally, will be hosting its 4th annual Mortgage Banking Roundtable on June 20th in Denver. The event is designed specifically to facilitate peer-to-peer discussion among the CEO's and Presidents of independent mortgage banking companies regarding trends in the industry and best practices. I am looking forward to attending and helping out on a panel. Last year, there were more than 100 attendees representing approximately 60 companies. For more information, email Nathan Lee at nathan@richeymay.com.
And in just a couple weeks the Texas Mortgage Bankers Association will be hosting its annual conference, May 19-21. Who wouldn't want to visit Austin? I am certainly looking forward to it, and for more information visit the TMBA site.
Well, here's one more lawsuit settled, this time between Flagstar and MBIA.
We've had several MI companies release earnings, and it is important to keep things in perspective and that the details are important. For example, one industry observer wrote to me saying, "It is true that MGIC lost more in Q1 2013 than Q1 2012 but that was primarily driven by substantial realized gains taken in Q1 2012 that were not taken in 2013. Adjusting for the lower realized gains shows improvement in the operating performance. Losses incurred were $266mm, down from $689mm last quarter and $337mm in Q1 2012. The level of new insurance written was up 55% year over year. The number of new default notices received was down 20% year over year and down from Q4 levels while only 2% of new notices came from books written since 2009. The number of delinquent loans fell 9.5% in the quarter and 21% over the year. So while the legacy book losses still impact financial results as disclosed, improvements shown in new business written since 2009 along with its recent capital raise (bringing MGIC's risk to capital to 20.4:1) paint a more optimistic future."
Redwood Trust released some impressive numbers for the first quarter. RWT reported income of $61 million, which includes $12 million of gains on the sale of securities but certainly shows the growth in mortgage banking income. Folks who track these things know that RWT completed four non-Agency securitizations totaling $2.2 billion during the first quarter, and as of March 31 had $832 million of loans held for future securitization with a pipeline identified for purchase of $2.2 billion. Loan acquisitions in the quarter totaled $2.6 billion. The company increased its goal to securitize $8 billion of jumbo loans during 2013 (from $7 billion previously). At the end of 1Q, the company had 80 active loan sellers. Management noted that they expect jumbo margins to normalize to the high end of the 25-50 basis point range this year from the more elevated levels they have seen. And Redwood obtained approval to sell conforming-balance loans to Freddie Mac and is working to obtain similar approval from Fannie Mae.
Recently the FHA has issued further guidance on servicing in Presidentially-Declared Major Disaster Areas, in which there is a 90-day moratorium period for foreclosure beginning from the date of the Declaration. This applies to the initiation of foreclosures as well as those already in progress, and HUD does have the authority to extend the moratorium period for any given disaster. Servicers are expected to "make every effort to communicate with and assist affected borrowers" when it comes to keeping delinquencies to a minimum and repairing damaged properties, which includes evaluating the borrower for a forbearance, either Formal (in writing, effective for up to 12 months' pay period) or Informal (not in writing, effective for up to three months' pay period). The FHA has also clarified that borrowers who aren't currently occupying damaged properties must be offered all loss mitigations as long as the property was a principal residence, the borrower intends on re-occupying the property as soon as it becomes habitable, and the total accumulated arrearages have not exceeded 12 months' PITI.
In addition, borrowers in Presidentially-Declared Major Disaster Areas, are eligible for rate/term modifications without going through the standard financial evaluation if the loan is current or payments less than 30 days past due as of the date of the Declaration, the Verification of Employment confirms the borrower's employment hasn't changed since the disaster, any damage to the property has been repaired, the PITI on the modified loan is less than or equal to the existing payment on the FHA-insured loan, and a three-month Trial Payment Plan has been successfully completed. Servicers must suspend any delinquency reporting to credit repositories (unless such reporting is necessary for loan modification) and waive late charges for any borrower on an agreed-upon loss mitigation plan. To read the FHA bulletin in full, go to http://portal.hud.gov/hudportal/documents/huddoc?id=13-11ml.pdf.
A month ago the FHA Commissioner signed a waiver of the requirement for small supervised lenders (under $500m in assets) to submit their audited financial statements that was due to expired on April 7th. However, this has been extended until April 7, 2014; in the meantime, affected lenders must electronically submit a copy of their unaudited regulatory report signed by a corporate officer within 90 days of their fiscal year end. All other approval and renewal requirements remain in place, including the submission of the online certification and paying the renewal fee. For more information on submitting unaudited financials through the Lender Assessment Subsystem, see http://portal.hud.gov/hudportal/documents/huddoc?id=Lendfaqswaiver.pdf.
Each month, on the first Friday, the financial markets are literally hanging onto the edge of their seats waiting for the jobs report. The unemployment rate "the headline rate" because it shows up in every news publication and is widely used as a high level gauge of the state of the economy. The unemployment rate is also one of the benchmarks the Fed has said it will use to determine when policy tightening might occur. It is certainly an important number, but does it make sense to use it to determine how the economy is doing now? Generally, what measures of the economy really do indicate where we are versus where we have been and which ones point to where we might be going? Economists divide the plethora of statistics flowing around the markets every day into three major categories - leading, lagging, and coincident indicators. Leading indicators signal future trends and include things like building permits, home sales, business startups, manufacturing and inventories. Coincident indicators are events that occur at the same time as conditions they signify and include things like personal income, industrial production and trade sales.
Lagging indicators typically change after the economy as a whole has already moved. These are historical reports and represent outcomes that are results of other factors. They include statistics like profits earned and the headline unemployment rate. This is because employment typically increases two to three quarters after the economy has already begun to turn higher, so it lags increases in other economic indicators by a significant period of time. You might be wondering then, why the Fed would use the unemployment rate as the trigger to determine the appropriate time to begin tightening monetary policy. The lag in this statistic behind real improvement in the economy should mean that reaching this benchmark would be an indication of a real trend, not just a momentary blip in employment. In that context, it probably makes a lot of sense for the Fed to use a lagging indicator like the unemployment rate as a trigger for policy tightening.
The other benchmark the Fed has indicated it will rely upon is inflation and that is also a lagging indicator. Prices of goods and services typically don't rise until there has been a significant increase in demand for some time. This creates the classic scenario of too many dollars chasing too few goods, so prices begin to rise to balance supply and demand. Some pundits have questioned, however, whether it makes sense to use a volatile measure like inflation because it can move wildly, simply due to swings in energy prices. To compensate for that, consumer and producer inflation are measured at the core level, where the most volatile sectors have been removed. The problem here is that higher fuel prices can quickly percolate into prices overall, so that isn't perfect either. Perhaps the Fed announced this group of indicators so people have something to track and because it is seeking a reliable gauge that the economy is expanding in a sustainable manner. That is exactly what the Fed is seeking, so it makes sense to slow folks like me.
Rates have gone up a little, down a little, but this weak the fixed income markets have been pulled in many directions with the employment news, potential for the Fed to increase its pace of asset purchases, record share of HARP refinance applications, and a nomination for a new director for the GSEs' regulator. Overall the news and current economic environment has helped rates and in turn locks. The pickup in locks, which will show up quantitatively in the MBA's weekly survey next Wednesday, has led to increased mortgage banker selling - yesterday it was almost double the recent daily average. Mortgage prices didn't do much, and the 10-yr T-note's yield ended Thursday at 1.63%.
But that is so...yesterday. Today we had the Bureau of Labor Statistic's employment data. The consensus for nonfarm payrolls was for +145k jobs created from +88k previously with the unemployment rate holding at 7.6 percent. It came in at 165k, stronger than expected. March & February were revised higher by 114k. The unemployment rate ground down to 7.5% from 7.6%. The decent jobs news pushed the 10-yr yield up to 1.69% and agency MBS prices are worse roughly .250.
Most people don't know that in 1912, Hellmann's mayonnaise was manufactured in England. In fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery in Vera Cruz, Mexico, which was to have been the next port of call for the great ship after its stop in New York.
This would have been the largest single shipment of mayonnaise ever delivered to Mexico. But as we know, the great ship did not make it to New York. The ship hit an iceberg and sank, and the cargo was lost forever.
The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting its delivery, were disconsolate at the loss. Their anguish was so great that they declared a National Day of Mourning, which they still observe to this day.
The National Day of Mourning occurs each year on May 5th and is known, of course, as Sinko de Mayo.