MBA President Explains the Reason for Overlays; Lack of Demand for MBS?
Here's a story for the guys in IT. In "the old days" hotel rooms actually had keys, and hotels didn't have computers. But now most hotels are reliant on computers for controlling not only the registration process but other vital functions as well such as letting you into your room, air conditioning, lighting, and alarm systems. And that leads to hackers being able to control a hotel over the internet.
The bank news rolls on. First off, banks have asked the Federal Reserve to delay by up to seven years full implementation of a Volcker rule measure that requires them to sell private equity and venture capital arms. Banks are concerned that they will be forced to sell at a disadvantage if a deadline for next summer remains in place.
Bank M&A continues for a variety of reasons. Awaiting shareholder approval, Walla Walla's Banner Bank will buy Siuslaw Bank, an Oregon chartered commercial bank with 10 branch offices in Lane County, including in Eugene. Banner Corp., the parent company of Banner Bank and Islanders Bank, announced the merger of Siuslaw Financial Group into Banner giving Banner $5.1 billion in assets and a spot as the fourth largest commercial bank based in the Northwest based on assets along with 93 branches. (This is the second purchase Banner has made of an Oregon chartered bank this summer having purchased six branches of Umpqua Bank, a successor to Sterling Savings Bank, in June.)
In Michigan Talmer Bank and Trust ($5.4B) is going to acquire Signature Bank ($233mm) for about $13.4mm in cash. In Cajun country Louisiana Community Bancorp ($479mm) is going to purchase Coastal Commerce Bank ($400mm), and in nearby Florida 121 Financial Credit Union ($440mm) will buy Duval Federal Credit Union ($51mm). Mutual of Omaha Bank ($6.5B, NE) will sell 5 branches to Centennial Bank ($470mm, CO), and First Community Bank ($2.6B, VA) will sell 13 branches to CresCom Bank ($917mm, SC) for a deposit premium of about 3.1%. First Community is selling the branches as it adjusts to its own recent agreement to acquire 7 branches from Bank of America.
If anyone asks you want a credit overlay is, refer them to the explanation given by Dave Stevens of the MBA, which also provides reasons why banks don't take a chance on certain borrowers. (Dave is much more tactful than I am and goes into great detail. I would have simply replied, "Because certain borrowers don't deserve to be lent money.")
My colleague Garth Graham recently did a 3 part story inspired by his wife's visit to the hospital. By the way, I have met his wife, and she certainly suffers enough being married to a mortgage banker. But she also had a rough few days in the hospital, which ended well, but inspired Garth to throw some shots at the emergency room treatment and how it's like we sometimes treat mortgage customers. His observations about waiting in line, about how to get to see the real expert, and how customer service seems to be an after through are very appropriate for the mortgage industry too. So read WorseThanMortgage for more details.
To repeat a story that ran yesterday (and the day before), the Federal Housing Finance Agency has proposed launching a common mortgage-backed security for Fannie Mae and Freddie Mac. The agency said the goal is for investors to treat securities backed by the mortgage giants as equivalent in the secondary market. The FHFA is seeking feedback from investors on whether the proposal might pose a risk to financial markets.
Originators have become increasingly concerned over demand for mortgage backed securities, and rightfully so. I have been a part of some interesting conversations over the past few weeks, and have read equally interesting research papers by banks, banker's banks, and government agencies. As the Fed measures out its retreat of QE, we are left in what could be a perfect storm for mortgage bankers and buyers of MBS. Fact: during the first half of the year, domestic bank holdings of agency MBS has increased by $32B while their Treasury (plus agency debt) holdings have increased by roughly $70B. At first I thought this was a robust number, however, if you consider that total agency MBS and Treasury holdings of domestic banks at the beginning of 2014 were about $1.3T and $410B respectively, the percentage growth in Treasury holdings is a lot higher than that in agency MBS.
It is speculated by some that banks are actively growing their Treasury instead of MBS holdings considering the very tight spreads prevailing on agency MBS in general. Banks holding loans and leases on their books have seen a rapid increase, as domestic banks have increased this asset by as much as $139B in the first half of the year, versus $131B in all of 2013. Large bankers are behaving slightly differently than smaller bankers, as exhibited in treasury-to-MBS holdings; YTD large banks have increased their Treasury holdings by as much as $68B, while there was no noticeable change in Treasury holdings of small banks (about $2.7bn increase).
Small banks have increased their real estate loan (both commercial and residential) holdings by $62B but large bank holdings of the same decline by $4bn YTD. For originators, industry wide, closed-end residential loans have increased by $18B in 1H'14 versus a decline of $63bn in 2013. It appears that the securitization rates of residential mortgages has declined in 2014 which partly explains the sharp decline net issuance of agency MBS in 1H'14. Most of the reports and conversations I have been involved with end in one conclusion, taking into account that agency MBS spreads are a lot tighter now than the average spread level in the first half of the year, coupled with the Fed's QE 3 program nearing its end, many bankers will not be as aggressive in growing their MBS holdings over the remainder of the year.
Let's continue playing catch up somewhat recent lender & investor updates. They are moving targets, and it is best to read the full bulletin for complete details.
Nationstar Mortgage Correspondent updated its 2014-15 selling guide. Topics include: Sales contract contingencies, Reminders, Financial Reform (Dodd-Frank Act): Nationstar Correspondent Information and Documentation Requirements. Water Catchment Systems in the State of Hawaii, Final Documents, Tax Information Worksheet, Freddie Mac's Loan Prospector (LP) Enhancements, questions. To view or download the guide: Nationstar.
US Bank published bulletin 2014 - 047 regarding AUS Requirements for Portfolio Products and Refinance Payoff Statement Requirement Correction. To view the bulletin: US Bank.
Penny Mac's 14-37 Announcement provides guidance regarding interpreting appendix Q. In order to ensure QM compliance on all Jumbo loans, jumbo loans must at a minimum, meet the requirements outlined in appendix Q: pennymac.
First Community Mortgage expansion of AMC relationships will be effective August 15th. Ro view announcements regarding changes to Appraisal Service providers and procedures, visit: fcmkc.
Fifth Third Correspondent weekly updates include Open Access - Policy Expansion: Net Tangible Benefit to Borrower, o Non-Agency Jumbo - Policy Restriction: Mortgage/Rental/Housing History Requirements, all Products - Restriction: Fifth Third Mortgage Ineligible Condo List, Common File Deficiencies, and update: Wholesale Connect Retirement.
Homeward Residential joined Ellie Mae's total quality loan program. TQL is designed to further enhance the loan quality, compliance and salability of loans that are originated through Ellie Mae's Encompass® mortgage management solution.
Plaza Wholesale's weekly updates include Non-Borrowing Spouse allowed on HECMs Effective August 4; pricing incentives of .75% on FHA loan programs for properties located in Plaza-designated census tracts (see web site for details and restrictions).
NFIP offers up a "Theory of Elevation Rating Online Video Tutorial" at Flood Insurance Tutorial.
Citibank Correspondent has updated its credit policies and POA guidelines as well as additional reminders, to view the full bulletin Citibank.
MountainView Capital is offering a webinar today, August 14th, regarding NPL Whole-Loan valuation. If you would like an invite, email ckennedy@mv-ips.com
Citi Correspondent: 4506 example for business returns.
Weslend Wholesale program updates and clarifications include USDA condo projects that can be approved by any of the agencies, not just FHA (borrowers who have recently amended tax returns are ineligible). Minor amendments that do not affect the income (or loss) are acceptable. This applies to all programs; and FHA Flood policies must be NFIP policies and cannot be privately insured.
Penny Mac updated website released information regarding Jumbo program guideline changes and expanded Jumbo program underwriting guidelines and eligibility requirements: Announcement 14-39.
M&T Bank Product Bulletin 2014-023 updated procedures on FHA 203K & FNMA HomeStyle programs.
NMLS will place a "license item" on every MLO license not yet compliant for Continuing Education (CE) in 2014. The purpose of the license item is to remind individuals that they need to complete CE as a condition to renew their license for 2015.
U.S. Bank Home Mortgage modified transmittal for early TIL to capture needed information resulting in the Removal of GFE itemization form requirement.
Fannie Mae Announcement 2014-10 covers policies pertaining to significant derogatory credit events including a newly created policy to address charge-offs of mortgage accounts; property insurance requirements for condos, co-ops, and PUDs; updates and clarifications to the lender quality control policy requirements. Government loans gift reminder provides important details on how gift funds for FHA loan case files should be entered in Desktop Underwriter® (DU®) for government loans to ensure calculations are performed correctly by DU and the correct information is sent to the FHA TOTAL Mortgage Scorecard. Upcoming UCDP Changes is an interesting read. Not using QAS? Lenders can upload supporting loan documentation through the Fannie QAS instead of sending it via encrypted email.
Flagstar Wholesale will be making the LPMI price adjustment updates effective for loans locked on Monday, August 11, 2014.
Franklin American updated its Extended Lock Fees for the No Floatdown option effective August 11th. In addition, it has added this option to Conventional Conforming & High Balance ARM products. Changes are reflected on the rate sheet and the online pricing engine.
We are bombarded with housing and job statistics to the point of distraction. One thing that most economists agree upon, though, is that high-paying construction and manufacturing jobs lost in the recession have been replaced by work in low-wage industries. The numbers come from a report by the U.S. Conference of Mayors - and they're never wrong, right? On average, such positions pay 23% less than the ones that disappeared after the financial crisis, the report says.
Regarding interest rates, an easy proxy (and quoted most often) is the 10-yr T-note. It has barely budged in the last several business days, sitting comfortably in the low to mid 2.40%'s. Wednesday we saw a bit of a rally, for no particular grand reason, down to 2.41%. That may change today as we have Jobless Claims and some import price statistics; tomorrow things pick up with the Producer Price Index, Empire Manufacturing, and the Industrial Production and Capacity Utilization duo. But in the early doing we're still at 2.42% and agency MBS prices are roughly unchanged.
Jobs
Bay Equity Home Loans continues its methodical push into key markets with the addition of Roy Meshel in Scottsdale, AZ. Roy has been a fixture in the greater Phoenix market having previously run State Mortgage with great success. When Roy was at the helm of State Mortgage they were named Best Place to Work in the Phoenix Business Journal 7 times and plans on partnering with Bay Equity to reproduce that same fun culture he had at State. Bay Equity is funding company record volumes and has developed a Bay Way Best Practice method to the business that emanated from the best habits of its top producers. Originators can plug into this systemic and highly automated system and expect to increase their production and realize their personal goals. Bay prides itself on producing quality loans in an environment that provides transparency, strives to have the best tools to attract the best originators and sells to all three agencies. LOs looking for opportunities with Bay Equity in AZ or elsewhere can contact Casey McGovern, who runs production.