ABA Renews Freddie's Alliance; Agency & Non-Agency Lawsuit News; Analyst Digs at Stonegate
"On Thursday, June 19, issues of latency and connectivity were reported by the public across multiple Internet Service Providers. The public can observe trends in reports of issues with various major Internet Service Providers at sites like 'downdetector.com'. Today - Friday, June 20, we are observing that the issues of yesterday are resolved as reported by the public at sites like 'downdetector.com'." It is a clever site to see if anyone is reporting internet problems. Of course, many vendors have their own sites such as the Ellie Mae Status Center.
Lenders still wonder about FHA mortgage insurance premiums. Let's ask Compass Point. "Questions regarding mortgage credit availability invariably lead to questions regarding the FHA's role in the market and its mortgage insurance premiums. As we stated in our most recent update, our conversations lead us to believe that Castro is unlikely to deviate materially from the existing FHA single-family strategy. We continue to believe that the FHA will not reduce its mortgage insurance premium (MIP) before the Mutual Mortgage Insurance Fund (MMIF) clears the Congressionally-mandated 2.0% capital threshold...the FHA's most recent estimates project that the MMIF will reach the 2.0% threshold in 2015. We believe that the FHA's annual actuarial report, which is expected in November, will provide additional clarity on the financial health of the FHA's MMIF and thereby the likelihood of future MIP reduction
One thing that will help the FHA regain the business it has lost due to high insurance premiums is Fannie & Freddie further increasing their G-fees. MBA president Dave Stevens sent a note out regarding potential G-fee hikes by Freddie and Fannie (through their conservator the FHFA). The story, from Inside Mortgage Finance's Charles Wisniowski, notes, "A coalition of investors in Fannie Mae and Freddie Mac stock wants the Federal Housing Finance Agency to increase the guaranty fees that the two charge their seller-servicers, a position that lenders won't be too thrilled with. In a comment letter to FHFA Director Mel Watt, Investors Unite Executive Director Tim Pagliara urged the agency to take into account 'the critical purpose of setting appropriate guaranty fees,' noting that the Finance Agency does not have a mandate (as conservator) to manage Fannie and Freddie as not-for-profits. Pagliara is also chairman and CEO of CapWealth Advisors. Fannie and Freddie have 'profit-making purposes onto which public mandates are layered' and they should charge g-fees that earn an 'appropriate market-based return on the capital employed,' whether its taxpayer funds or private capital, Pagliara writes. G-fees are now north of 50 basis points. 'Increasing guaranty fees will provide more cash flow, with which the GSEs can build capital and be restored to safe and solvent condition,' the letter added. 'Maximizing returns is not only consistent with, but arguably required by, the conservatorship.' The FHFA issued an official call for public comment on how the GSEs should calculate guaranty fees and whether the agency should proceed with a planned 10 basis point hike that was announced last year but postponed."
And while we are yammering about the agencies, Freddie Mac is pretty excited about the ABA renewing their alliance "to help banks compete in the mortgage market." Apparently a 0% cost of funds isn't enough! Seriously, "the American Bankers Association - through its Corporation for American Banking subsidiary - has renewed its Freddie Mac alliance to provide ABA members with endorsed solutions which provide exclusive benefits to assist in their mortgage lending business. The alliance offers ABA member banks access to a special set of secondary market advantages including loan origination tools, customized training, and portfolio management services." After the usual glowing comments from officials, the release explained, "The Freddie Mac/ABA alliance offers member banks reduced service fees from third-party vendors and other price benefits, compliance software, and cash sale advantages on a variety of Freddie Mac fixed-rate mortgage products. Participants can obtain Mortgagebot at a reduced cost and utilize the online originating software to directly access Loan Prospector, Freddie Mac's automated underwriting service."
JPMorgan Chase & Co. is a bank, and also sells its shares to Freddie Mac, but for a little variety is reportedly planning a $303.7 million sale of non-agency 15-year home-loan bonds. The non-agency ice is starting to thaw a little: Premium Point Investments LP's WinWater Home Mortgage LLC completed its first non-agency bond transaction, a deal tied to about $250 million of jumbo loans, and Citigroup Inc. is planning a similar $219 million offering. Many banks are perfectly happy to put those loans on their books to match their liabilities (deposits), of course, but, "We're seeing repeat and new issuers attempt to bring the market back," said Michele Patterson, a senior director at Kroll Bond Rating Agency.
Who buys non-agency securities? Well, institutional investors do, and a group of them, including Blackrock and PIMCO, filed a lawsuit against several residential mortgage-backed security trustees. The lawsuit claims that trustees failed to protect bondholder interests as they did not enforce repurchase obligations of sponsors/originators on loans with Rep and Warranty breaches, and that trustees failed to act upon Events of Defaults (EODs) committed by the Master Servicer/servicers for faulty servicing practices including improper foreclosures and robosigning, which caused meaningful losses to bondholders. Additionally, servicers were not notifying the trust about R&W breaches they were made aware of during the course of servicing the loans and that too constituted an Event of Default upon which trustees failed to act.
Analysts think that the filing of this case could have broader implications for the RMBS market including potential disclosure of tolling agreements on specific deals by trustees, and possible delays in reviewing JP, Citi G&B proposed offers. I have not seen the court filing, but supposedly some of the trustees mentioned in the suits reportedly include Deutsche Bank, US Bancorp, Wells Fargo, Citigroup, HSBC, Bank of New York, and my dog Sweetie. (Okay, just threw Sweetie in to see if you were reading this.) The plaintiffs claim that the trustees failed to properly administer the mortgage trusts by not forcing lenders and issuers to repurchase faulty loans. Trustees have long argued that their role is far narrower and that their primary responsibility is to administer the operations of the trust.
Lawsuits and settlements are now a way of life for the industry. The latest noted settlement came last week as the "FHFA notches new MBS settlement for Freddie, Fannie", this time with the Royal Bank of Scotland. "The Federal Housing Finance Agency has reached a settlement with RBS Securities for $99.5 million as it works as a conservator to settle lawsuits on behalf of Freddie Mac and Fannie Mae related to sales of mortgage-backed securities."
Kroll Bond Rating Agency has the advantage of not being around years ago to mistakenly rate billions of dollars of residential mortgage-backed securities. KBRA released its ABS Report for the 1st quarter of 2014. "KBRA released the first quarter 2014 U.S. consumer credit update report, (highlighting) trends within the U.S. economic and consumer landscape and provides insight into the potential impact of these trends on the performance of consumer asset-backed securities. Kroll, among many things, noted that unemployment for younger cohorts remains high particularly for the 20-to-24 year old cohort, temporary employment continues to rise which bodes well for the unemployment rate, student loan balances continued to exhibit strong growth, auto loan balances have exhibited growth while credit card balances have decreased, and mortgage debt levels grew slightly.
Speaking of consumer behavior, it is obviously important, and there is a lot going on with all of us. I took the liberty of writing a little more in-depth piece about where the consumer is, what we're worried about, and what it might mean for the economy.
One of the disadvantages of being a publicly held stock is having analysts weigh in on your company. Stonegate Mortgage found this out, with Seeking Alpha writing, "We believe Stonegate Mortgage investors will suffer significant losses as many issues we identify play out...We believe management changed definitions for adjusted earnings without appropriate disclosures, and excluded recurring expenses (that don't reconcile). Both appear violations of SEC reporting guidelines (Reg G)...Stonegate continues to raise capital on overstated projections and an MSR mark 32% higher than its peers..." One must ask if these statements apply to other residential lenders as well; note that the analyst is short Stonegate.
Last week we had a lot of news, and not much market movement. (That is fine by Capital Markets crews: who wants to deal either renegotiations or rate lock extensions?) The Consumer Price Index was on the strong side (2.1% higher than a year earlier - much of it due to food but generally broad-based), the factory sector is looking considerably better (improved Industrial Production), and strength in manufacturing is poised to continue into June as well (Fed manufacturing surveys out of New York and Philadelphia beat expectations).
But the housing sector continues to disappoint. After posting strong growth in April, housing starts fell again in May, erasing hopes that 2014 would be the year when residential construction finally accelerated. With the exception of the South, where lots are more available, every region saw a decline in homebuilding. Single-family construction has struggled the most, though starts are still 4.7 percent higher than a year ago. Although single-family permits increased in May, they are still lower than a year ago, which indicates that the pace of construction will not see much acceleration in the near term. The multifamily market has also hit a rough patch, with permits tumbling in May to below their year-ago levels.
This week we have a lot upon which to chew (one never wants to end a sentence in a preposition!). Today is Existing Home Sales, tomorrow is New Home Sales, the FHFA House Price Index (what housing prices have done that have Fannie & Freddie loans), along the S&P Case Shiller Indices with their two month lag, and Consumer Confidence. Wednesday will be Durable Goods Orders and GDP - very important. Thursday we can look forward to Personal Income and Consumption/Outlays, some PCE numbers, along with the usual Jobless Claims, and on Friday, if anyone's still around, the University of Michigan Consumer Confidence survey numbers.
For you quantitative folks out there, the yield on the 10-yr closed Friday at 2.62%; in the early going today we're at 2.60% and agency MBS prices are a shade better.
Jobs
"Join the 50+ team members at Alpine Mortgage Planning, Seal Beach, who enjoy a great culture while closing loans quickly. Alpine is the retail division of Pinnacle Capital Mortgage (ranked as a top ten lender in 2012 and 2013 Scotsman Guide). The Seal Beach branch is located at the 405/22 interchange, convenient to both OC and LA. We specialize in purchase transactions derived from a loyal base of Realtors and past clients. Our processors and support staff are on-site, leading to increased productivity and efficiency. Our Loan Officers, who consistently rank in the top 10 of the company, receive support from our amazing, onsite marketing team to develop and strengthen Realtor relationships. Being a direct lender, combined with brokering as needed, Alpine is poised to take advantage of the current market as well as being prepared for whatever the market may bring. Alpine is looking to build upon our many successes and we are seeking Loan Officers, Processors and LO Assistants. Contact our Branch Manager Chris Fenoglio or our Operations manager, Claire Jackson. See Chris' reviews on Zillow and Yelp."
And on the new product side of things, Total Mortgage Services is pleased to announce that it is expanding its Condo and Co-op product offerings. "Condos and co-ops present unique funding and underwriting challenges, and we believe that our expanded product offerings and our growing team of in-house experts will allow us to provide even better service to our borrowers as well as our broker partners," said John Walsh, President of Total Mortgage. In addition to making representations and warranties on conforming Agency Limited and Full review condominium projects, TMS will be able to approve non-conforming Jumbo coops in the NYC Metro-area, new condo projects, process waivers direct with agencies for non-warrantable projects, and certify expired FHA approved projects. TMS has built a talented team of underwriters and project specialists to meet the needs of our clients." Credit Manager Chuck Zadravec is the point of contact for lenders looking for a new investor.
A quick congrats to Michael Thomas, brought on by Paramount Residential Mortgage Group, Inc. to be its Hesperia, CA Retail Branch Manager. He's a rookie, having only 31 years in the mortgage industry. And to Essent Guaranty, Inc.'s CEO Mark Casale who was named as the regional winner in the financial services category of the EY Entrepreneur of the Year 2014 Award in Greater Philadelphia. "The award recognizes outstanding, high‐growth entrepreneurs who demonstrate excellence and extraordinary success in such areas as innovation, financial performance and personal commitment to their businesses and communities. Regional award winners go on to compete at the national level."