Shutdown Chatter; Maxine Waters Outraged by Her Own Flood Insurance Bill; M&A Activity

By: Rob Chrisman • Wed, Oct 2 2013, 9:57 AM

Anthony Bird, owner of Michigan's Riverbank Finance, writes, "I have done some research regarding the shutdown and how it will affect government agencies. My article is available here." Thanks!

The CFPB is funded by the Federal Reserve, not Congress. It is pretty much business as usual. For USDA loans, this government department has shut down its operations and will not issue any Commitment until funding has been restored. Don't expect any lenders to close or fund any USDA loan until funding has been approved and USDA is operational. The IRS staff is also staying in bed today, and lenders are telling staff that it is doubtful that Tax Transcripts can be obtained and therefore they can process and underwrite loans without the Tax Transcripts but will not be able to close or fund until the Tax Transcripts have been obtained.

"Does anyone know whether FNMA is offering relief on validation of tax returns since the IRS is not validating returns during the shutdown?" Fannie just issued a new selling guide announcement. It provides details on a number of underwriting considerations for lenders with regard to the shutdown. It is posted on www.fanniemae.com. The mortgage market, including Fannie Mae and Freddie Mac, should not be affected by the government shutdown, SIFMA Managing Director Chris Killian said. "Fannie and Freddie should be unaffected by the government shutdown (Freddie Mac went so far as to issue a client update stating this), Ginnie Mae informs us that their [mortgage-backed securities] and Multiclass Securities Programs and operations continue uninterrupted, and [the Federal Housing Administration] appears to be able to endorse loans," Killian said. "However, SIFMA urges Congress to come to a resolution as soon as possible."

Wells Fargo's correspondent clients received, "We expect that most Loan processes will continue with business as usual in the event that a shutdown occurs. This includes the following Loan types: Conventional conforming, Non-Conforming, FHA, VA, GRH. We will continue to monitor the situation and evaluate for potential impacts and will communicate any identified changes in Wells Fargo Funding requirements. Tax Return Transcripts: Wells Fargo Funding will not make any changes to documentation requirements in the event that a shutdown occurs and will continue to require documentation including, but not limited to: Tax Return Transcripts for all borrowers which must be included in the Loan file if income was used in the underwriting decision."

A Mountain West AE sent out, "Due to the government closure, and their inability to process IRS transcriptions in a timely fashion, our corporate office has authorized us to make the 4506 results a Prior to Funding condition on all loans. We are still able to send in orders and get them in line but they will not be processed until the shutdown is over. Please keep in mind that if there are any red flags where we might be questioning the validity of the tax returns, our underwriters have the option to not move the condition to a PTF."

And Cole Taylor Mortgage wrote, "As you are probably aware, due to the federal government budget expiration, certain government programs are at risk of shutting down beginning tomorrow, October 1, 2013. There are several agencies that could potentially be impacted by this shut down, some of whom we rely upon for the processing of mortgage applications. The following is a list of impacted areas and how it may affect your transactions: FHA Case Numbers - FHA Connection will be operational if there is a government shutdown. Case numbers will only affect manual processing requests at this time. Flood Insurance - Flood insurance through FEMA will not be obtainable. Cole Taylor Mortgage is unable to close a loan without the proper flood insurance in place. IRS 4506T Processing - Vendors through RealEC will continue to accept your IRS Income Verification requests, but hold them until the IRS begins operating again. There will be a delay in the processing of these requests and we are unable to close any loan without 4506T results. USDA Underwriting Approvals - Final approval on USDA transactions may not be issued if the government shuts down. We will continue to accept and send the loan files to USDA; however, there may be a delay in the approval process as USDA approval is required prior to closing. VA and FHA Case Binder Insuring - Fully approved VA and FHA loans will be allowed to close although there may be a delay in the insuring of these transactions."

The "sixth sick sheik's sixth sheep's sick" is said to be the toughest tongue twister in the English language...try it! How about the tongue twister, "My legislation led to huge flood insurance rate increases"? Huh? That's not difficult? On the eve of a multi-state rally to "Stop the Exorbitant Rise in Flood Insurance Premiums," Congresswoman Maxine Waters, Ranking Member of the House Committee on Financial Services, released the following statement: "I am outraged by the increased costs of flood insurance premiums that have resulted from the Biggert-Waters Act. I certainly did not intend for these types of outrageous premiums to occur for any homeowner. When I agreed to coauthor this legislation, our goal was to create a bipartisan solution to repair our National Flood Insurance Program. Neither Democrats nor Republicans envisioned it would reap the kind of harm and heartache that may result from this law going into effect. Plainly put, I am committed to fixing the unintended consequences of the Biggert-Waters Flood Insurance law. Since the law was enacted, we have seen a slew of confusion in FEMA mapping. In addition, many families now face increased costs that will make homeownership so expensive that many would be forced from their homes or find it impossible to sell. This is unacceptable. Not only does it undermine families, neighborhoods and the pursuit of the American dream, it would be devastating for our fragile economic recovery. Increased costs of this magnitude might kick off a similar cycle of stagnant home sales and depressed home values that was one of the leading drivers of the recent recession. As a result, I am working tirelessly with my colleagues in Congress and FEMA to fix the problem. I am pushing bipartisan legislation that would delay most rate changes for three years, to give FEMA the opportunity to ensure its maps are accurate and allow Congress to make certain rates are affordable. Earlier this year, a similar amendment, which I co-sponsored, passed by a vote of 281 - 146. However, the Senate has not even considered such a measure. I will continue to relentlessly push them to take up the measure. With these rate increases approaching, time is running out. Congress must act quickly to ensure flood insurance rates do not make homeownership unaffordable or harm our housing market. The time is now. And I urge all those affected to make your voices heard by with your members of Congress and Senators."

Shellpoint Partners LLC ("Shellpoint"), which the market is watching on the jumbo securitization front, announced that its wholly owned subsidiary, New Penn Financial, LLC acquired Resurgent Mortgage Servicing from Resurgent Capital Services. RMS is already the servicer of New Penn's residential mortgage loans, and upon completion of the acquisition RMS will be re-branded as Shellpoint Mortgage Servicing, operating as a division of and servicer for New Penn. "The acquisition of Resurgent Mortgage Servicing creates a complete residential mortgage operating platform for Shellpoint as we continue to expand our enterprise in the US Residential Mortgage markets," said Bruce Williams, Co-CEO of Shellpoint. "Resurgent Mortgage Servicing adds significant franchise value to Shellpoint's portfolio of companies and diversifies our revenue stream as a full service mortgage company and strategic partner for third-party servicing clients."

And Wintrust Financial Corporation announced that its subsidiary, Barrington Bank &Trust Company, N.A. through its division Wintrust Mortgage, "acquired certain assets and assumed certain liabilities" of the mortgage banking business of Surety Financial Services of Sherman Oaks, California. The acquisition opens up Southern California for Wintrust, since Surety "has served southern California with an extensive portfolio of residential real estate loan programs since its founding in January 1994. Working closely with real estate agents, relocation companies, builders, accountants, human resource professionals, business managers and attorneys, Surety's loan origination team delivers quality financing products for the diverse needs of the southern California housing market. Surety originated approximately $1.0 billion in mortgage loans during the previous twelve months through its five southern California offices."

On the banking side, Bridgehampton National Bank ($1.7B, NY) will buy First National Bank of New York ($272mm, NY) for about $5.3mm in stock.

Rates seem to be the least of our problems, and really haven't done much (so far) in response to the partial shutdown. A lengthy shutdown could easily lead to lower rates, but one must be careful what one wishes for. This morning we learned that last week's applications were up slightly, but any increase in MBS hedging sales has easily been absorbed by the Fed. Yesterday agency MBS prices improved slightly, and the 10-yr closed at a yield of 2.65%.

Unlike the possibility that the unemployment data will be postponed by the government's partial shutdown, today's data calendar is NOT impacted. We also had the September ADP report. The correlation between this and the actual government numbers on Friday has always been suspect, but the market may rely on it as the BLS report is not likely unless Congress quickly resolves the budget crisis. The consensus on ADP was +180k from +176k in August and it came out at +166k. The 10-yr is at 2.61% and MBS prices are a shade better.