ESNT Starts Trading; Agency Updates; Primer on Primary-Secondary Spread
I travel to a lot of engagements (this week is Los Angeles, Kansas, and North Carolina, and then to DC for the conference) and am jealous of my colleague Garth Graham who will be speaking at a virtual summit this week - no travel, and he has a chance to talk about the mortgage business and make some jokes in the process. The topic is, "How lenders and brokers must make the most of existing conditions to successfully compete." Don't miss out on Velocify's unique one-day Mortgage Sales Virtual Summit - "Driving Growth through the Market Shift" on 10/23 from 9AM-3PM PDT (12PM-6PM EDT)
What is ESNT? It is the New York Stock Exchange symbol for Essent Group Ltd., which announced that it has commenced an initial public offering of 19,710,118 of its common shares pursuant to a registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the "SEC"). The Company is offering 17,000,000 common shares and certain selling shareholders are offering 2,710,118 common shares. The Company expects to grant the underwriters a 30-day option to purchase up to an aggregate of 2,956,517 additional common shares. The estimated initial public offering price is between $13.50 and $15.50 per common share. The Company intends to use the net proceeds of the offering for general corporate purposes, which may include capital contributions to support the growth of the Company's insurance subsidiaries.
Let's keep going with some aggregator, bank, and vendor news, other than the $13 billion Chase/WAMU/Bear settlement. I think that works out to about $18.94 per loan, but I haven't run the numbers yet. (Seriously, while the overall sum is large, it is chopped up: $6 billion as compensation for investors like pension funds that suffered losses from mortgage securities sold by JPMorgan, Bear Stearns and Washington Mutual, $4 billion will take the form of relief for struggling homeowners in cities like Detroit, $3 billion will represent the only fine in the case and that is for the civil investigation into mortgage securities that JPMorgan itself sold in the run-up to the financial crisis.)
Keeping it local, Ashland, Kentucky's Poage Bankshares, Inc. (NASDAQ: PBSK, "Poage"), the parent company of Home Federal Savings and Loan Association announced the signing of a definitive agreement to acquire Town Square Financial Corporation, the holding company for Town Square Bank. The combined company will have over $450 million in assets, create the sixth largest bank within the Ashland, KY MSA in total deposits and operate 10 banking offices. Per KBW, as of September 30 the transaction value represents 104% of Town Square tangible book value and 13.3 times Town Square's last twelve months earnings.
Plaza let clients know that, "USDA issued an announcement today that the Guaranteed Underwriting System and the processing of lender submitted loan closings will be delayed until next week. (USDA announcement) Until further notice: Plaza will continue to fund/purchase USDA loans with Conditional Commitments issued 'subject to commitment authority.' At this time, and barring further Congressional action, current eligible areas for USDA Rural Housing Programs will remain unchanged through January 15, 2014."
In BOK-land, its mortgage company is expanding its origination abilities nationwide. It announced the launch of HomeDirect Mortgage, an online sales channel designed to meet home buyers where they are increasingly shopping for mortgages at home, the office, and on the go. The new channel compliments BOK Financial's mortgage operation that originated about $4 billion in loans in 2012 with the ability to generate new mortgage applications, outside its eight state footprint, to all 50 states. Todd Geiman, previously of National Bank of Kansas City, runs the new channel which is based in Kansas City, KS.
As part of its Risk Management System product suite, Mortgage Capital Management has rolled out Diffusion Analysis, which provides real-time reports of market activity by tracking direction, momentum, and volatility. For more information, contact Lori Sansoucie at lori@seroka.com.
KBW reports that Capitol Bancorp Limited announced that it has entered into a stock purchase agreement to sell the common stock of its remaining consolidated entities, Bank of Las Vegas, Indiana Community Bank, Michigan Commerce Bank and Sunrise Bank of Albuquerque, to Talmer Bancorp, Inc., a bank holding company located in Troy, Michigan
NY-based Constellation Value Protection has rolled out an interesting offering: through securitization of reinsurance and various capital market participants, it is rolling out a service that promises to protect borrowers from having their property depreciate in value over a specific period of time. Contact Kenneth Herzberg (kherzberg@constellationvpi.com) to find out more.
Fannie Mae has updated its flood insurance guidelines on attached condo projects to require a master policy that covers the lower of 80% of the replacement cost or the maximum insurance available from the National Flood Insurance Program per unit (currently $250,000). If any part of the security structure (e.g. any structure securing the mortgage) on the subject property lies within a Special Flood Hazard Area, it too must have flood insurance, and any units that do not comply with this or are not covered sufficiently will not be eligible for purchase. This policy will go into effect for all loans whose applications are dated February 1, 2014 and after.
As of January 1st, Fannie will be assessing each lender an Eligible Lender Maintenance Fee at the beginning of ever calendar year that can be waived if the given mortgage loan delivery, servicing portfolio unpaid principal balance, or DO/DU fee threshold has been met in the previous 12 months. The mortgage loan delivery threshold will also be changed from $2 million in dollar volume to one loan.
Following up on its January bulletin, Fannie has clarified that inter vivos revocable trust loans securing primary residences will be treated as Ability to Repay Covered loans, while any such loans securing investment properties are treated as ATR Exempt loans. Both transactions remain eligible for purchase.
Fannie implemented several changes to DU for Government loans that are submitted on or after the weekend of October 19th. These include no longer displaying accounts/assets, income types, or underlying attribute triggering the message with zero values (i.e. when the down payment is cash on hand and the down payment is zero) in the DU Underwriting Findings Report.
Freddie Mac has removed the delivery fee for all California condo loans with settlement dates of October 1st and after.
Along with the fraud prevention training required for employees, Freddie seller/servicers must now train any third-party vendors who perform services related to origination and servicing and have written procedures in place for doing so. In addition, seller/servicers are required to report fraud in connection with any mortgage sold to or serviced for Freddie "when they first know or suspect" any such incident, rather than waiting until they have "reasonable belief."
Effective for all mortgages whose settlement dates fall on or after March 1, 2014, Freddie will be updating its asset documentation guidelines for large deposits, whose sources of funds will need to be documented if the deposit is over 25% of the total monthly qualifying income. Sellers will also have to document deposits of any amount if there is an indication that the funds are borrowed, but if the source of funds is evident from the account statement's deposit information (e.g. direct payroll deposits) or other documented income or asset source (e.g. tax refunds disclosed on the tax returns) no further verification is necessary. As for IRS-qualified employer retirement accounts, the loan file must contain documentation of the retirement plan's terms that allow the borrower to withdraw funds regardless of their current employment status in order for the vested amount to be used as reserves. Freddie will also be adding more specific documentation requirements for direct verification of assets but will only be requiring the borrower funds and reserves used in the evaluation to be documented.
Freddie is also updating the underwriting guidelines for borrowers on temporary leave for mortgages currently being delivered.
Effective immediately, Freddie is allowing restructured mortgages to be refinances as Relief Refinances, which may be delivered through a Purchase Contract. Loans being considered for an FHLMC modifications are also eligible for a refinance under the Relief Refinance program. Freddie will be retiring the chapter of the Selling Guide that outlines the requirements for Relief Refinances with Application Received Dates before November 19, 2012 (C24); as such, all Relief Refinances whose applications were received before that date must have settlement dates before January 1, 2014.
"Rob, what is the 'primary-secondary spread' my Capital Markets gal keeps talking about?" That is an easy one. MBS investors, capital markets personnel, and originators keep an eye on the difference between the primary markets (rate sheets for borrowers) and the secondary markets (where mortgage-backed securities trade). For example, a recent analysis on "primary-secondary" pricing showed that lenders' buy-sell pricing spreads have been cut by 75-100 basis points since early in the year. Undoubtedly, those spreads had some capacity-managing fat in them during Q1 and part of Q2, but they may have moved beyond cutting out that fat and many lenders appear to be on a real lean diet. Traditionally, folks simply look at the spread between the daily "survey rates" of lender offerings and the effective yield of current mortgage coupons. That can provide some decent trend indications. Others drill deeper and perform some actual loan sale execution analysis tied to those survey rates, you get what I think is a more granular look at what pricing spreads are really doing. Look at the spreads all you want - companies fearing for their future are cutting margin to the bone, thus making less on fewer loans in an effort to stay in business, which impacts everyone else in that market. Same ol' thing, different decade. Obviously, some lenders are cutting more, and could be gone in the not-to-distant future. Those who have had to cut less will probably weather the storm and gain market share through their competitors leaving the business.
Harsh realities aside, NAR put aside its lobbying efforts long enough to report on Existing Home Sales. It came in pretty much as expected, although August was revised lower, and there is a five month inventory nationwide. First time home-buyers accounted for 28% of all sales, all cash deals were 33% of the total, and non-owner deals (investor) were 19%. The median home price rose 11.7% from last year to $199,200.
That really didn't impact rates on Monday. Rates worsened slightly, and, given nothing else to blame it on, traders blamed it on nervousness about Tuesday's unemployment data. The employment situation for September was released at 2:30AM Hawaii time. Consensus on nonfarm payrolls was +180k versus +169k in August, while the unemployment rate was expected to be unchanged at 7.3 percent. It actually came in at +148k, 7.2%, and July & August were revised. The 10-yr. yield closed Monday at 2.61%, prior to the number was 2.58%, soon after the number was down to 2.54% and agency MBS prices were better by .250-.375.