Fraud Stats Overstated; Mortgage Banker Margins; Fine-Tuning Nation's LO and Lender Numbers
They say that sensational headlines sell newspapers, but when incorrect, the retraction shows up on page B3 at the bottom. In this case, "President Barack Obama's administration significantly overstated statistics from a year-long mortgage-fraud initiative, including total number of victims, their losses suffered and number of individuals criminally charged, according to an FBI memo." Of course, the lending industry has an uphill battle in public relations, and this helps somewhat.
Arnold Schwarzenegger supposedly said, "Having more money doesn't make you happier. I have 50 million dollars but I'm just as happy as when I had 48 million." Thus we have a humorous lesson on the marginal benefit of $2 million - not much versus, say, the marginal benefit that $2 million would give someone with only $50k in the bank. I mention this because margins are important, and every day every capitalist out there sets margins for their goods and services with an eye on profitability, competition, and staying in business. Mortgage bankers who have been around for a while focus not on units or volume, but instead on net income and margin (wouldn't you rather than do one $400k loan versus four $100k loans? Wouldn't you rather make 3 points on $10 million a month versus 2 points on $13 million?).
Obviously margins are impacted by the cost of doing business, and issuing a credit decision. "Rob, what do you hear about Fannie charging DU users when the lender doesn't sell the loan directly to Fannie?" I first suggest that you ask your Fannie (or Freddie for LP) rep. But yes, I have heard that from a few pretty good sources. F&F are not in the non-profit business. Revenue is revenue, margin is margin. In Fannie's case, it is interesting that the company purports to be focused on adding clients, listening to its clients, and striving to be the mainstay of the industry at some level. Yet it is also contemplating another gfee increase, continued with buyback requests across the industry thus tying up resources and capital, and is continually being accused of funneling business through its cash window rather than having clients securitize their own product. But opining aside, like I said, ask your rep!
Mr. Rick Roque with MenloCompanyGlobal.com wrote, "What do you think of the concept of non-depository, mortgage banking margin strategies? I am getting a number of phone calls from, what were $100M+/month refi call center shops who are now at $25-$30M/month, and are looking at launching retail. Despite my discouragement and numerous conversations, the large margins of old, especially in self-generated call center, refi business models are probably never to be repeated; or perhaps not for another 20 years. But many of them are insistent, I dare say in denial trying to make big margins in retail - 200bps+ net. My rule of thumb is a healthy retail, non-Ginnie-Mae servicer, should make 70-100bps net (after all expenses paid out, both corporate and retail) and I think this is even possibly stretching it. Perhaps with agency approvals this could add another 50-70bps, but then you are talking about a range between 130-170bps net after all expenses both corporate and retail."
Rick goes on. "Naturally, these firms haven't touched a purchase loan and aren't staffed to underwrite FHA competently in various markets, and would need to staff up ($$) to accommodate this; they haven't developed a retail strategy ($$), so this would have to be done; and there would need to be the HR ($), Accounting ($), technology ($) and branch support structure ($$$) and recruiting structure ($) to grow and support retail. So, my advice has been: don't do it unless you simply have 8-10 months to burn money before you even break even, and then probably another 6+ months to recoup your original investment. And, to do this in a rising rate, margin sensitive environment, is again, almost ridiculous."
Certainly companies are out there eliminating over time for corporate staff. Others are at least relying on attrition to reduce their ranks without spooking the herd. I received this note from the West Coast: "Here is a good go-to for laid off updates - pretty no non-sense. I think this misses all the institutions that know their WARN Act rules, and suspect most sophisticated mortgage companies that came through 2007/2008 shed staff in a serial fashion so no single round is large or penalizing. In the Chase round last week, rumor has it management got rid of the USDA independent broker side of things, which was purportedly 2-3% of overall originations. But Chase seemed to be the largest USDA lender out there."
Regarding more refined originator and lender statistics And Ginger Bell with go Go2training writes, "I want to provide you with the "other" link from the NMLS Q1 report - it is for the State Licensed Mortgage Entities. There are two reports; one for Federally Registered and one for State Licensed with the NMLS. It can be confusing because the title says Federal Registry....should really be Federally Registered. Federally Registered are the banks and credit unions and State Licensed are the rest. State Licensed Mortgage Entities can be found here while Federally Registered Entities can be found here.
Ginger writes, "On the topic of NMLS and State Licensed Originators, I have been working on preparing a course for the Uniform State Test and found, from the NMLS brief outline, that the test will focus on what they call a 'High-level state content'. This means that one will need to know about the S.A.F.E. Act as well as regulatory authorities, licensing laws and advertising. Uniform State Test Implementation Information can be found here. The Uniform State Test does NOT include state-specific content; it consists of high-level state content based on the SAFE Act and Model State Law covering the topics such as the Department of Financial Institutions or Mortgage Regulatory Commission, regulatory authority, responsibilities and limitations, state law and regulation definitions, and so on."
And Michael Ehrlich with ThomsonReuters notes, "I just took a look at the 2012 NMLS annual review which states: 'at the end of 2012, NMLS contained active state licenses or federal registrations on approximately 30,000 unique companies and 520,000 individual licensed or registered MLOs.' Those numbers would include mortgage broker individual licenses in the total of 520,000.The 30,000 unique companies does not appear to include mortgage broker or non-depository mortgage banking firms that only conduct business in the states of Delaware, Missouri, Texas and Utah as those states' agencies do not currently manage company licenses on NMLS. So the 30,000 total would be a bit short of the real total of all depository banks, credit unions, non-depository mortgage banks, and mortgage brokers (not included would be non-depository mortgage banks and mortgage brokers that do NOT do business in any of the other 46 states, which is likely not a very large #).
"I would be interested in figuring out the total # of depository institutions, credit unions, and non-depository mortgage banks that are active in mortgages. The missing piece is the total # of non-depository mortgage banks, as NMLS lumps this in with mortgage broker firms at the state level and is missing 4 states (one of them being Texas). However, one could take a reasonable guess by taking the total # of unique company licenses at the state level (for the 46 states that require such NMLS company registration at the state level) at the end of Q1, 2013 (15,842) and subtracting the # of federally registered institutions from those 46 states (9,116) to get 6,726 non-depository mortgage banking/broker firms. To come up with the # of state registered non depository mortgage banks in those 46 states, it's best to multiply that # by 20% (the % of state licensed mortgage companies engaged in first mortgage lending). That # is 1,345. Add that to the # of federally registered institutions nationwide and the total is then 11,896. We would be missing out on those non-depository mortgage banks that are only registered in Texas, Utah, Missouri and Delaware (I would guess that this # is small as many of those mortgage banks are likely registered in another state as well). We would also be missing those non-depository mortgage banks that only provide home equity lending and/or reverse mortgage lending. So, we can take an educated guess and comfortably say that there are a bit over 12,000 depository or non-depository banks/mortgage banks active in mortgages in the country. If you want to exclude those federally registered institutions that have less than 3 MLOs, the # drops to 9,345. Excluding those federally registered institutions with less than 6 MLOs and the # drops to 6,547 and less than 11 MLOs, we get 4,480." Thank you very much Michael!
Let's move on to some investor, bank, and agency news.
On Friday regulators closed Bank of Wausau, Wausau, Wisconsin, and it opened Monday with Nicolet National Bank, Green Bay, Wisconsin, on the stationary.
Following Loan Prospector purchase eligibility messages enhancements completed on July 22nd, Freddie has updated the system's VA Residual Income Table with the Department of Veterans Affairs' most recent data. The next update is scheduled for August 25th and will add Information Searching Company as a credit reporting company and update the names of Birchwood Credit Services, CoreLogic CREDCO/Credstar, and CIC Credit.
PHH has revised its Conforming fixed and ARM guidelines to allow DTIs of up to 45% on loans with LTVs greater than 80%, replacing the previous 41% maximum.
The FHA 203(k) is back in the spotlight and Freedom Mortgage Corporation announced "MVP", the newest addition to its Renovation Lending program. MVP stands for "Managed vs. Partnered," which allows correspondent lenders the freedom to choose the draw processing model that best fits their needs. The new "Managed" option allows lenders to sell 203(k) loans to Freedom right after closing and have the entire draw management phase handled by Freedom's expert team. MVP enhances the 203(k) options offered by Freedom which include both the Standard and Streamlined 203(k) and a full range of features allowed by the FHA program. Freedom provides in-depth, personalized training and support in all phases of renovation lending. By delivering quick turn times on pre-funding reviews and draw processing, lenders can depend on Freedom for successful renovation transactions. (To learn more about Freedom's 203(k) program, send an email to renovation@freedommortgage.com.)
Fifth Third will be discontinuing its interest only loan products as of August 17th, which is the last day when they can be registered. All interest only loans will be required to fund on or before December 31, 2013.
Effective August 13th, Fifth Third will be suspending leasehold estates as eligible property types.
Fifth Third has expanded its HARP condo project review requirements to include non-Fifth Third to Fifth Third transactions, which allows for a reduced review and approval. Insurance requirements still apply (hazard, flood, liability, HO-6, and fidelity), and the Condo Review Department must verify that the collateral is not a condotel, co-op hotel/motel, hotel/resort project, timeshare project, or project with fragment or segmented ownership. Delegated correspondents will need to warrant the above requirements before delivering loans.
The markets? I am not going to waste your time: on Monday we saw some volatility, although stocks barely budged. The 10-yr closed at 2.61%, and in the very early going here in Michigan is now 2.65% overseas so one can expect agency MBS to be worse about .125-.250. We will have Retail Sales and Import & Export Prices this morning.