Morgan Stanley Settles, MI Operating Stats & USMI Weighs in on PMIERs

First time home buyers include more than just Millennials - see the note a few paragraphs down. The group includes recent immigrants, newly divorced people, and long-time renters. With this last group in mind, if you care about the subject (as should every LO or Realtor) here is a NY Fed write-up titled, "Why Aren't More Renters Becoming Homeowners?" I'll spoil the conclusion: "...with a stronger economy and eased credit standards, flows into homeownership would pick up. However, one caveat is that many potential buyers with relatively low credit scores (35 percent of renters in our sample think that their credit score is below 680) might now be 'discouraged,' meaning that they are convinced that they would not be granted credit and thus may fail to apply for a mortgage even after an easing in standards. Also, relaxing credit standards may, of course, have undesirable consequences down the road, since borrowers with lower credit scores are at higher risk of default." Yup, not everyone should own a home...

Why is credit so tight for first time homebuyers and people with low FICOs? Ask Washington. It seems like the authorities are now forcing buybacks and fines over relatively minor errors, and as a result, lenders are refusing to extend credit to low-income / low FICO borrowers. Of course the Administration continues to exhort the industry to loosen standards at the same time it announces record settlements.

Wendy's once had a popular commercial with a persnickety old woman inquiring, "Where's the beef?" In today's parlance it would have gone "viral" for about a fortnight, and then gone the way of William Hung's and his version of "She Bangs". However, the U.S. Census Bureau asks, "Where's the wealth?" Median net worth increased between 2000 and 2011 for households in the top two quintiles of the net worth distribution (the wealthiest 40 percent), while declining for those in the lower three quintiles (the bottom 60 percent), according to new statistics released today by the Bureau. The result was a widening wealth gap between those at the top and those in the middle and bottom of the net worth distribution. Each quintile represents 20 percent, or one-fifth, of all households.

Remember that there are plenty of reasons that mortgages are more expensive and thus dampening refinancing, including loan level price adjustments, compliance costs, and gfees. For example, the Community Home Lenders Association (CHLA) submitted a comment letter to the Federal Housing Finance Administration (FHFA) that opposes any increase in G-fees, and also urges more transparency, and well as complete parity, with respect to G Fee pricing among lenders of different sizes. The CHLA believes that all of these policies are important to promote access and affordability, particularly with respect to borrowers served by community lenders who might be adversely affected by differential pricing or policies. "Like others weighing in, the CHLA does not believe that further G Fee increases are warranted,"   said David Wind of Odyssey Funding.  "But we feel an equally important issue is to promote transparency and parity with respect to pricing among different sized lenders, in order to protect all consumers." The CHLA comment letter notes that any G-fee increase would be passed on to borrowers, increasing the cost and affordability of a home purchase, particularly for minority and low income borrowers. The letter also questions the effectiveness of G-fee increases as a strategy to bringing private capital back into the market, arguing that risk sharing is a better way to do this. CHLA notes that it would be more open to G Fee increases if they were used to build up Enterprise reserves, but that does not take place under the Treasury Agreement.

Sunday night I was fortunate enough to spend some time with the president of Radian Guaranty, Teresa Bryce Bazemore. The conversation revolved around kids and their jobs, travel schedules, and our shared beliefs that people need home loans and that the industry is filled with people who want to help those people obtain them. Coincidentally, yesterday morning Radian released its monthly operating statistics for August. New default notices increased 10.0% from July and the ending delinquent inventory declined 1.1% M/M. August new insurance written (NIW) came in at $3.59 billion, down 7.9% M/M. Cures of 3,497 were down 6.0% M/M vs. an 8.2% increase in July and a 2.3% increase in August 2013. The August cure ratio came in at 80.2%, down from 93.8% in July and from 110.1% a year ago. The ending delinquent inventory of 47,364 was down 1.1% M/M from 47,870, versus a decline of 2.1% in July. Paid claims increased 13.2% M/M versus a decline of 40.3% last month and a decrease of 18.4% in August 2013.

For those who like even more numbers, MGIC also reported monthly operating statistics for August. Credit trends were positive with the new notices declining by 18.0% Y/Y and down 5.7% M/M. Total delinquent inventory was down 26.1% Y/Y and 1.4% M/M. New Insurance Written (NIW) ticked down to $3.5 billion from $3.6 billion in July but QTD volume is still up 16% YOY. Cures of 6,750 were up 6.8% M/M vs. a 3.6% decrease in July and an 8.8% increase in August 2013. The cure ratio rose to 90.8% from 80.1% in July and 92.9% in August 2013. The ending delinquent inventory of 83,748 was down 1.4% M/M from 84,946, versus a decline of 0.6% in July. Ending delinquent inventory was down 26.1% YOY vs. down 26.6% YOY in July and down 24.6% a year ago. Paid claims decreased 6.3% M/M versus an increase of 0.1% in July and a decrease of 3.5% in August 2013.

"Today, the 60-day comment period closed on revised Private Mortgage Insurer Eligibility Requirements ("PMIERs") that set standards for approving mortgage insurers (MIs) covering GSE loans. MI is an integral part of the mortgage finance system because it provides first position credit loss protection for higher loan-to-value loans guaranteed by Fannie Mae and Freddie Mac (the "GSEs"). USMI members appreciate the opportunities to engage with FHFA and the GSEs on this important issue. USMI member companies have submitted responses to the Request for Input published in the Federal Register. USMI members remain united in support of the need to update the PMIERs. When finalized, those standards will confirm the long-term value of MI for mortgage borrowers, lenders, and taxpayers. Accordingly, USMI will continue to work closely with FHFA and the GSEs to finalize and implement the PMIERs...In addition, in August, USMI submitted a letter responding to the Request for Input regarding g-fees.  G-fees must be set at levels that fully recognize the risk mitigating benefits of MI to avoid double charging consumers." (The comment period for that Request also closed Monday.)

The value of a mortgage lender is largely intangible - in large part based on the quality, depth and sustainability of the sales force.  However, lenders often do not understand the characteristics and composition of their originators versus peers and therefore can't manage to specific outcomes. For example, what is the average productivity of your top & bottom quintiles of producers versus peers? What is your turnover by age, tenure, or by production quintile? Analyze your key originator characteristics by quintile and how that compares to your peers through the STRATMOR 2014 Originator Census survey. The survey will look at data from 2012 and 2013 to provide historical perspective on these and many more topics. STRATMOR Group is excited as regards to lenders' initial response to this survey which will close soon so register as soon as possible to participate and receive these great survey results. For more information, visit the 2014 Originator Census website or email Angie Middlebrook.

I got this email from a broker out west, "Hey Rob, can a lender refuse to close a loan in which the applicant is pregnant or on maternity leave?" Yes, yes they can...especially if they want to spend the next few years being investigated and fined by a handful of government agency lawers for violating the Fair Housing Act's prohibitions against discrimination on the basis of gender and familial status, and the Equal Credit Opportunity Act (ECOA) prohibitions against discrimination on the basis of gender. In all seriousness, no a lender may not discriminate against a pregnant borrower. It's funny how far we've come in this conversation: NY Times July '04.

Turning to the bond markets, occasionally it is good to be reminded that investors have a wide variety of bonds to buy. And even buyers of securities backed by mortgages have many different options when buying: old versus new pools, fixed or adjustable, specified pools or vanilla groupings. Mortgage securities aside, low rates and an improving U.S. economy are drawing strong corporate bond deals. As of late last week, almost $40 billion in debt had been sold by high-grade companies in the U.S., helping propel totals this year to new highs, according to data from Dealogic.

There are plenty of ducats out there to buy the stuff. Research by the Fed finds households have $2.15 trillion sitting in savings accounts - about a 50% increase over the past 5 years. The research indicates that following the crisis, people are much less willing to spend money. And this is regardless of age group.

There was no news out yesterday (and nothing of substance scheduled for today) and the 10-yr. T-note closed at a yield of 2.47% (versus Friday's 2.46%). Agency MBS prices were down/worse slightly. This morning rates have crept even higher, with the 10-yr at 2.50% and MBS prices worse between .125-.250. Nuff said.

Jobs and Announcements

On the job front, Private Mortgage Insurance company Genworth Financial is seeking two experienced Account Managers: one in Genworth's Charlotte NC territory, and one in its Iowa/Nebraska/South Dakota territory. Candidates should have exceptional customer interaction skills as well as a proven track record of sales execution and leadership. "The person hired will be expected to provide the highest level of internal and external customer service, manage customer relationships, and develop growth strategies for assigned accounts. The successful candidate will be responsible for developing calling plans to cover all assigned accounts, monitor branch volume and calling activity, and take necessary actions to achieve account volume goals. The Account Manager will execute and lead implementation of Genworth products and initiatives, and identify and communicate new opportunities to provide solutions to customer needs. The ideal candidate will have 4+ years of experience in a regional or territorial sales role, have a college degree or equivalent industry/sales experience. They will need to have strong presentation and communication skills, and have the ability to work flexible hours with occasional overnight travel. Interested Candidates should send their resume to Kristin Miller, and for more information on the company visit Genworth."

For those wondering about your career, Carrington Mortgage Services is having a Career Webinar this Thursday, September 11, from 10-11AM PDT. "Join Carrington Mortgage Services and Ray Brousseau, EVP Mortgage Lending, to learn about opportunities for Loan Officers, Managers and Branches...great compensation, benefits and wide variety of programs that can help you take your performance and sales to the next level." Here is the Registration Web Link.

Congrats to industry vet James Matarazzo. Primary Capital Mortgage added him to its team as Divisional Vice President for the wholesale and correspondent presence in the Eastern United States. "I could not be more pleased with the addition of James to our team," said George Phelps, President.  "Given his reputation and proven track record in the mortgage business, he is certainly a valuable asset who will strengthen and grow our talented sales force and help ensure Primary Capital retains its position as a recognized leader in the mortgage industry." James is based in Florida and will be responsible for hiring and supporting sales staff throughout the Eastern states.

And congrats (I guess) to Morgan Stanley who agreed to pay $95 million to settle a lawsuit by buyers of residential mortgage-backed securities who accused the bank of making false and misleading claims about the underlying loans. The deal stemmed from a lawsuit pursued by the Public Employees' Retirement System of Mississippi (MissPERS) and the West Virginia Investment Management Board. Morgan Stanley admitted no wrong doing, and lawyers for the plaintiffs said they expected investors would on average receive a distribution of $2.63 per $1,000 in original face value offered.