MSI Exits Lending Channels; Cherry Hill & Freedom Concerns; Floating Note Rate Auction Primer; MBS Margin Requirements
"After much discussion, research and deliberation, Mortgage Services III (MSI) has decided to exit the Wholesale Mortgage Broker and Non-Regulated Financial Institution Correspondent mortgage business. Additionally, MSI will no longer offer Delegated Underwriting Authority for Correspondent business. The existing regulatory environment would force us to use too many valuable resources to remain competitive in the wholesale environment. We have decided to direct our primary focus towards non-delegated Correspondent/Mod Corr business from our Bank and Credit Union partners as well as Retail lending. The friends and relationships made over the past 7 years have been very rewarding and will be sorely missed. I would like to thank each and every one touched by this letter for your professionalism and loyalty over these many years and wish everyone future success Effective January 28, 2014, we will no longer be accepting new registrations. Loans that are submitted, but not locked, must be locked within 7 calendar days from January 28, 2013 to be honored. Existing locks will be honored and will be granted a one-time extension of no more than 15 days, if necessary." I assume that this note from Bob Sword, president & CEO, meant to say "2014". Nonetheless, many believe that we'll continue to see similar announcements through Memorial Day, if not the 4th of July as the industry changes.
And while we're on the Eastern Seaboard, Seeking Alpha reports that "Cherry Hill finds itself in the middle of a heavy conflict of interest in that the primary manager of Cherry Hill, Stanley Middleman, also owns 100% of Freedom Mortgage. Given the fact that Cherry Hill is purchasing MSRs primarily from Freedom Mortgage, one can see how there is a heavy conflict of interest dynamic at play. While I believe that Mr. Middleman truly wants Cherry Hill to succeed, and he should given his ~13% ownership, investors should be cognizant of this potential conflict. Cherry Hill has filed an S-8 in which they have stated that the company is setting aside 1.5M shares for its equity incentive plan. Given that there are currently only 7.5M shares outstanding, this is clearly a substantial amount of stock. As of now, I do not know what type of performance thresholds that management needs to hit to start issuing equity awards so investors should keep a sharp eye on developments in this plan to better understand what type of dilution they can expect in the future." There is certainly chatter out there that Freedom's pricing has become very aggressive.
Yesterday the commentary discussed some current topics on appraisals, which reminded one reader of a recent article about the new appraisal rules supposedly helping consumers. Thank you Sharon N.!
And Michael Simmons, SVP with Axis AMC writes, regarding the Newday article, "Fascinating mess of an article - stuck in a time warp and inaccurate on a number of levels. First, HVCC was never 'retracted' - it expired statutorily in, if memory serves, November of 2010 and was replaced, essentially intact, by AIR (Appraiser Independence Requirements). An even bigger distortion was the false assertion that HVCC mandated that appraisers work for AMCs. What it did require was there is a buffer between the appraiser and anyone in loan origination ordering an appraisal. The intent was to remove the potential threat of direct coercion upon appraisers. That did have a substantial effect on diminishing individual intimidation of appraisers by loan officers - but, in the view of some, replaced that personal intimidation with institutional pressure. In truth, the explosive growth in AMCs was the result of many lenders seeking ways to reduce their own costs and liabilities by outsourcing. What's most disheartening in the article is the insinuation that all AMCs are evil and fail to use local appraisers or pay reasonable and customary fees. Under the regulatory environment today, lenders can ill afford to use an AMC that underpays appraisers or employs a bidding process for assignments or brings out-of-area appraisers in to do reports. While at times uncomfortable and inconvenient, and perhaps destined for some change, regulation that mandates best practices and compels compliant behavior will and should endure."
Turning to the actual markets, rates are not doing much, which is fine for those in capital markets. The big news might be the Treasury holding its first Floating Rate Note (FRN) auction today of $15 billion. It raises many issues: why would any secondary guy look at floaters? Should anyone be hedging with USTs and short rising interest rates? What about the ARM market? EPDs risk? It's tough to say, considering there's no consumer credit built into treasuries. I did a lengthier write-up of it - check out "Rob Chrisman's Recent Blog Posts" in the right-hand column of www.stratmorgroup.com.
Late last month when most people were fighting through their Christmas shopping list, Ginnie Mae announced the release of four new systems applications for issuers. The new applications are part of Ginnie Mae's Integrated Pool Management System, or IPMS, modernization initiative. These new applications include: Request for Pool Numbers, Request for Commitment Authority, Submission of Master Agreements for Certification and Recertification, and Request Transfer of Issuer Responsibility. In the release GNMA writes, "The new applications will be available to Issuers via the GMEP and, with the exception of pool number assignments, will be accessed via an RSA token, rather than biometrics. The token will enable seamless and secure access to the new systems for purchasing commitment authority, submission of master agreements, and submittal and acceptance of pool transfers. The RSA token is a state of the user authentication process that replaces a very inefficient process to verify users of the system." More information on the system roll-outs...
There are plenty of companies buying and selling MBS (both agency and non-agency) and whole loan packages. MIAC Analytics announced a new whole loan trading platform. MIAC is acting as a broker on various types of loan trades: Scratch & Dent, Investor Overlays, Portfolio Performing Loans, Non-performing Loans, and Re-performing Loans. "We have outlets for all FIXED/ARMs/Hybrids/1st liens/2nd liens/non-QM loans, pretty much anything that has a mortgage attached to it." Contact Anjali Kumar is you're interested at Anjali.Kumar@MIACanalytics.com.
Monday FINRA released proposed amendments to its rules governing margin requirements for TBAs. The proposed rule change provides that all FINRA members would be required to collect variation margin for transactions in Covered Agency Securities (which includes TBAs) when the current exposure exceeds $250,000. The MBA is currently reviewing the proposed amendment, but times are getting tougher for the mortgage company's not wanting to post margin. There are only 2 or 3 regional dealers now willing to transact without the expectation of posting but with rules changing it just a matter of time before the regionals ability to post will be affected as well. The text of the proposed amendments can be found here. Additional FINRA commentary can be found here. Comments are due to FINRA by February 26th.
We did have some housing news yesterday in the form of the S&P/Case-Shiller Index, with its two-month lag. Home prices in 20 U.S. cities rose in November from a year ago by the most in almost eight years, providing a boost to household wealth: the index climbed 13.7 percent from November 2012, the biggest 12-month gain since February 2006, after a 13.6 percent increase in the year ended in October. In terms of prices, agency MBS prices closed "higher and tighter" Tuesday after a weak Durable Goods number - prices improved between .125-.250 on average volume and the 10-yr's yield finished the day at 2.75%. (Rates are unchanged this morning.)
Besides the Floating Rate Note auction (mentioned above), today the MBA announced its applications index (basically unchanged last week), and we'll have the results of the Federal Open Market Committee meeting - look for another cut of $10 billion. And as the next meeting is not until mid-March, there is the possibility that the FOMC could announce a cut for March as well, helping remove a little uncertainty from the market. Expectations have been that the Fed will wind down its outright purchases by around October; an equal monthly taper would conclude the program sooner and with less total purchases.