Fifth Third Exits Broker Channel; M&A Updates; MI Companies Dissolve MICA; NY/NJ Foreclosures

I will go on the record as saying that I have never earned $63.9 million doing anything - certainly not for selling my bone marrow back in college to make ends meet. But Keith Edwards did (make nearly $64 million) not from selling marrow but from providing tips on JPMorgan to the U.S. Government under the False Claims Act. J.P. Morgan was alleged to falsely certified FHA and VA loans as early as 2002, basically approving thousands of FHA & VA loans that didn't meet underwriting standards. I wonder if he occasionally looks out his windows to see if any unmarked black cars are parked across the street...

Fifth Third's brokers received some tough news yesterday from its president. "...Based on the current environment, and after careful consideration, we have decided to exit the Wholesale business and focus third party origination on Correspondent Lending. While this was an extremely difficult decision to make, we intend to build on our leadership position in the correspondent market and remain committed to purchasing loans from smaller financial institutions and independent mortgage companies. Please consider this official termination, effective March 14, 2014, of your Residential Wholesale Loan Broker Agreement with us. We are committed to working closely with you to ensure that loans currently in the pipeline are fulfilled and processed for your customers. New registrations will be accepted through March 14, 2014, and we will continue accepting applications until March 31, 2014."

Basel III was thought to put a damper on the value of servicing. But has it? Per a story from Reuters, per global banking supervisors, "The world's top banks have nearly met new capital rules in full five years ahead of a 2019 deadline set by regulators. (How does one snag the job of being a global banking supervisor?) "The Basel Committee, made up of regulators from nearly 30 countries, said the world's top 102 banks had a combined shortfall of 57.5 billion euros by June 2013, half the 115 billion euro shortfall seen at the end of 2012. The committee's new, tougher capital rules known as Basel III, a core global response to the 2007-09 financial crisis, are being phased in and must be complied with in full by the start of 2019. Market and regulatory pressure has meant that banks have moved early to build up their capital buffers to dispel doubts about their health."

The ABA has renewed its efforts to change Basel III's treatment of mortgage servicing assets, and has taken the discussion to the regulators and Congress. One can find out more information by paging down once or twice here. And the ABA has an upcoming real estate lending conference from April 6-8 in Charleston. (It is designed to get back to the business of lending, and the program is managed "by bankers for bankers" to help navigate new risks on the road to mortgage profitability. 

While we're droning on about banks, a banking analyst at Guggenheim Partners expects bank stocks could rise 15% in the next 3-5 years. The analyst pointed to increased economic growth and the expectation for rising interest rates as key drivers. Certainly M&A and consolidation are continuing in the banking world, just as there are plenty of rumors about mortgage banks near the edge of their existence looking at doing the same. The First ($940mm, MS) will acquire Bay Bank ($79mm, AL) for about $6.6 million. The Libertyville Savings Bank ($203mm, IA) will acquire Farmers Savings Bank ($94mm, IA) for an undisclosed sum. And the parent company of Simmons First National Bank ($3.2B, AR) and 6 other banks said it will consolidate all banks under one charter in an effort to improve efficiencies.

For mergers in the mortgage banking world, St. Louis' Cornerstone Mortgage will be merging with Missouri's Mortgage Resources Incorporated.  Why should two companies not save on departments like HR, secondary, compliance, and accounting?

Remember MICA? Well, you can forget about it - but you can learn a new acronym: USMI. Six of the leading active U.S. mortgage insurance companies announced the launch of a new trade association, U.S. Mortgage Insurers (USMI): Arch MI, Essent, Genworth, MGIC, National MI and Radian are the founding members of USMI.  The new organization replaces Mortgage Insurance Companies of America (MICA), which wound up operations a month or two ago. USMI is led by a board of directors from the six member companies: Teresa Bryce Bazemore - President, Radian Guaranty, David Gansberg - President and CEO, Arch MI, Rohit Gupta - President and CEO, Genworth Mortgage Insurance, Adolfo Marzol - EVP, Essent, Patrick Mathis - EVP, Chief Risk Officer, National MI, and Patrick Sinks - President and COO, MGIC. It even has a snazzy website.

The old trade association (MICA) was disbanded because of legacy/non-legacy lack of common ground, and the companies have been trying to form a new association for about a year. All major MIs except for UGIC participate in USMI and interests and goals are "more aligned." It is rumored that UGIC chose to be excluded due to voting rights, but I don't know the inside scoop - ask your UG rep.

There have been some positive real estate numbers which have been released over the last month: low inventory, short listing durations, etc. So I was intrigued by the recent Bloomberg article saying that foreclosures are climaxing in New York and New Jersey markets. Considering this is such a densely populated region of the country, many people may believe that it's an important indicator as to the overall health of the real estate market. It might be, or as this article points out, it is merely a lag in the marketplace. Prashant Gopal of Bloomberg News explains, "New Jersey has surpassed Florida in having the highest share of residential mortgages that are seriously delinquent or in foreclosure, with New York third, a Mortgage Bankers Association report showed last week. By contrast, hard-hit areas such as Arizona and California have some of the lowest levels of soured loans after allowing banks to quickly foreclose after the 2007 property crash." According to the article, the number of New York and New Jersey homeowners losing their houses reached a three-year high in 2013, mainly due to banks slowly working through a glut of delinquent loans, whereby borrowers were allowed to skip mortgage payments for years. These properties are only now reaching the marketplace: Bloomberg.

A smart Capital Markets guy I know called me up one day and asked, "Do the Blackstones of the world really want to settle for picking up a 2-3% gain in rent every year...?" It's a good question. They could certainly give their money to the Treasury and collect 2-3% over the next 10 years....but then again, it would make those "how's my money doing?" meetings with clients a little awkward. It's basically a continuation of the so-called "rental bonds" conversation the industry has been discussing over the past six months. Everything I have heard, and or read, over the past month supports growth in this niche market too. Why? In a word: arbitrage. Institutional investors have bought as many as 200,000 U.S. properties in the last two years, mainly in Texas, Florida, Arizona, California, and Georgia...anyone want to take a guess as to why? Capitalizing by taking advantage of real estate prices off by as much as two-thirds from '06 highs, and a rental market fueled by displaced homeowners who now, ironically, possess a higher credit rating for "renters" than in the past fifteen years. According to Bloomberg News, "Wall Street ultimately may sell more than $20 billion a year of rental-home bonds": 200,000 Properties in Two Years.

Yesterday the commentary reminded folks that, "Arch US MI, the US-based subsidy of Arch Capital Group Ltd., has acquired CMG Mortgage Company from PMI Mortgage Insurance, allowing it to serve lenders in all states, including CMG MI's existing credit union customers." It is NOT CMG Mortgage (Northern California) - it is CMG Mortgage Insurance Company: http://www.cmgmi.com/.

M&T has updated its USDA guidelines to remove the CLTV limit in cases where the second lien is an affordable housing grant and is no longer permitting manufactured homes on its SONYMA FHA plus program. The language on credit qualifying in the FHA Streamline Refinance guidelines has been expanded to include transactions that follow an assumption of mortgage where the due on sale clause was not triggered (i.e. a divorce where the transfer of title took place less than six months prior to the application date).  In cases where the Release of Liability/Assumption took place more than six months before the application, the transaction may be processed as non-credit qualifying if the borrower can provide evidence that they have been making timely mortgage payments.

Looking at the bond markets - I am not going to waste your time. Nothing happened - rates ended Monday about where they ended Friday. It would be nice to think that the world financial markets' minds were on the families of those on Malaysia Airlines Flight 370, but they probably weren't.

There's isn't anything on tap for today of substance, aside from the 1PM EST Treasury auction of $30 billion 3-yr notes. And the 10-yr is still around 2.78% and agency MBS prices are nearly unchanged from Friday afternoon's levels.