Eminent Domain Update; GMFS/ZAIS/HF2 Combination; Virginia Lawsuit; New Penn's Non-QM Fact Sheet

By: Rob Chrisman • Wed, Sep 17 2014, 11:00 AM

Want some numbers that none of us will remember, but that are indicative of demographic trends that won't help lending? In 2010, households headed by those under age 35, the Millennials, had median income of $37,600, now it's just $35,300. Worse, 41% of them have student loans, up from 34% in 2007 and 23% in 1998, and the balances are up from $10,000 in 1988 to $17,300 in 2013. The IRS tells us that 47% of tax returns filed in 2012 reported adjusted gross income (AGI) of less than $30,000 but that 3.6% of tax returns reported AGI of at least $200,000. There are about 300 million of us, but in 2012 only 145 million tax returns were filed: 64% of the returns paid federal income tax while 36% of the returns did not pay any federal income tax. But hey, it all depends on the state in which you live, right?

Things are alive and well in mergers and acquisitions. As I head to Lincoln, Nebraska today, the latest example comes to me from out in California: rumors of Comstock Mortgage being purchased by Guild. Supposedly there is a press release somewhere internally. Stay tuned...

The commentary has mentioned this before, but when you multiply the number of states and federal agencies by the number of banks, lenders, and rating agencies, and throw in the number of investment banks, the myriad of possible lawsuits is staggering. The latest example came yesterday as Virginia sued 13 banks for $1 billion over alleged mortgage bond fraud. The legal shadow hanging over the industry is not going away any time soon.

Remember ZAIS Financial? In August we learned that the REIT had plans to become much more involved in originations and secondary market by ramping up its efforts in both areas. ZAIS entered into an agreement to purchase Baton Rouge's GMFS, a privately owned mortgage company that operates primarily in the southern U.S, for $61 million in cash. As a licensed mortgage banker in 29 states that did about $1.4 billion in 2013, the company originates residential mortgage loans and holds the servicing rights on over $2 billion of its loans.

Now news comes to us that HF2 Financial Management Inc. will be acquiring a majority interest in the ZAIS Group. The "transaction facilitates the public flotation of a high quality investment management business focused on specialized credit investments" and has approximately $5.0 billion of assets under management on behalf of domestic and foreign institutional investors. "Following the transaction, ZAIS's management team, under the leadership of Christian Zugel, Founder and Chief Investment Officer, and Mike Szymanski, President, will lead the combined organization. "ZAIS expects to leverage its strong investment track record and significant experience in specialized credit investing to drive the long-term growth of its platform. ZAIS' objective is to optimize the structured credit process in order to enhance value and deliver superior returns to its clients. ZAIS plans to continue its expansion into origination, securitization and other segments of specialized credit. ZAIS has a variety of initiatives to broaden its platform including, (i) a residential mortgage conduit business, (ii) a commercial real estate CLO business and (iii) a credit derivatives trading and structuring business. The Company is well positioned to leverage its existing capabilities and infrastructure to implement and grow these business lines."

The MBA spread word that, "The Mortgage Bankers Association asked for an extension of a comment period for a Federal Housing Finance Agency proposal that would make fundamental changes to membership criteria for the Federal Home Loan Bank system. The proposal, issued Sept. 2, would prohibit captive insurance companies from becoming members of an FHLB and would phase-out membership of existing captive insurance members over a five-year period (non-captive insurance companies would not be affected). The proposal would also establish ongoing asset tests for members, as well as clarify standards for determining an insurance company's "principal place of business" for purposes of FHLB membership. MBA President and CEO David Stevens asked that FHFA extend the comment period, currently for 60 days, by an additional 60 days to allow stakeholders sufficient time to fully analyze and respond to the proposal, noting that an advance notice of proposed rulemaking issued in 2010 that addressed FHLB system eligibility issues was open for a 90-day comment period. The [FHLB] System plays a critical role in providing liquidity to the housing finance system and the Proposal raises significant business, legal and policy issues that must be reviewed carefully," Stevens wrote. MBA had previously expressed concerned that the proposal undermines the mission of the FHLB system and could weaken the housing market as a whole. To analyze the proposal in greater detail and develop a response, MBA will form a working group."

Eminent domain is back in the news out in California. It seems that the upcoming November election could change the composition of the Richmond City Council, and either help or hinder beginning the process of eminent domain proceedings.

Let's see what some investors have been up to in recent weeks...

Flagstar Wholesale provided a complete memo regarding the recent earthquake activity in the state of California, properties located in Napa County will require a satisfactory re-inspection dated on or after August 25, 2014.

New Penn released a primer on non-QM products.

Fifth Third Correspondent's previous announcement regarding adherence Fannie Mae products Agency Policy Expansion as related to significant derogatory credit event requirements, has been expanded to include Pre-Foreclosure/Deed-in-Lieu of Foreclosure and Foreclosure. However, FTMC does not currently permit FNMA extenuating circumstance policy to be used for a reduced waiting period after a bankruptcy. Additionally, shorter waiting periods involving mortgage debt charge off accounts and mortgage debt discharged through a bankruptcy does not apply to loans with mortgage insurance provided by United Guaranty.

Penny Mac addressed Rural Housing Administrative Notice (AN) 4757, effective with loans obligated on or after October 1, 2014, the annual fee is increasing to 0.5%, while the upfront fee is remaining the same. The chart posted fee increase illustrates a side by side comparison. The launch of its new LTV Plus Program, which provides for an 85% LTV/CLTV on loan amounts up to $750,000, other program highlights can be viewed. The product will be available on rate sheets for commitments taken on or after Thursday, September 4th, 2014.

Wells Fargo Correspondent partner connect users are encouraged to begin using the Share button now to ensure the process change in fully implemented when electronic routing begins on nonconforming loans to help avoid processing delays. 30 and 45 day lock options are now available on non-conforming products; conventional conforming, VA, FHA, GRH have a 75 day lock option available. Requirements for self-employed borrower documentation on non-conforming loans were updated for loan applications taken on or after August 4th. An updated non-conforming initial loan submission checklist is available for use to help streamline loan review process. Wells policies for the use of credit card payments of fees for both conforming and non-conforming loans are updated for applications dated on or after September 1st. New conditions agency ULDD requirements are in effect regarding borrower paid discount points.

Other recent Wells announcements include reduced refinance adjusters on both 20 and 30 year non-conforming fixed rate products, the URL display will no longer be required on internet documents/downloads of credit reports, income, employment and assets for conventional conforming and non-conforming loans. Single premium LPMI is available with additional programs including Fannie Mae MyCommunityMortgage, Freddie Mac Home Possible and Wells Fargo Home Opportunities. Additionally, income analysis and asset requirements for non-conforming loans will be updated and effective on September 22nd. Rent loss insurance in no longer required on 2-4 unit primary residence properties when rental income from the subject property is used to qualify. Requirements for VA loans with water purification systems policy has been updated to align with VA requirements. Reminder on RESPA loans with applications dated on or after September 1st, a disclosure outlining a list of counseling agencies compliant with CFPB rules will be required.

The MBA reported on last week's applications (not the same as rate locks!): they were up almost 8%. Refis shot up 10% (but are still down 22% on year) and applications to purchase a home rose 5 percent from the previous week but are down 10 percent on year. The refinance share of mortgage activity increased to 57 percent of total applications, the highest level since February, while the adjustable-rate mortgage (ARM) share of activity increased to 7.6 percent.

Rates - there just is no volatility, which is fine with many capital markets folks out there. As a proxy for the bond market, look at what the riskless 10-yr T-note has done recently at the end of every day: Friday 2.61%, Monday 2.59%, and yesterday was 2.59%. The Producer Price Index number didn't move rates much yesterday. Today brought us the Consumer Price Index (CPI), down -.2%, core rate unchanged. We'll also have the NAHB Housing Market Index.

But more importantly, today brings us the Federal Open Market Committee meeting announcement with its policy decisions and brief comments on the FOMC's view of the economy and how FOMC members voted. The mainstream press certainly believes that this has the potential to move interest rates, especially if the Fed changes the wording by even the slightest measure. We'll see later. For now things are pretty quiet with the 10-year at 2.56% and agency MBS prices better by about .125.

Jobs and Announcements

On the job front, Impac Mortgage Corp. is seeking experienced Account Executives for coverage in the New York, Ohio, Michigan, Indiana, Georgia, Mississippi, Alabama, Tennessee and Kentucky areas. Candidates should have extensive knowledge of the mortgage banking principles, preferably in a business to business correspondent environment. "The person hired will be expected to seek out and cultivate new client partnerships, which is accomplished through networking activities such as obtaining referrals, conference attendance, social media sites, partnering with other IMPAC business channels and cold-calling. The successful candidate will be responsible for managing a portfolio of mortgage banker and community bank relationships driving increased revenue share, oversee monthly loan production by managing his/her pipeline, and work with IMPAC internal partners to ensure client satisfaction is exceeded. The ideal candidate will have 5 years' experience in the Mortgage Correspondent industry with 3 years' experience in sales and relationship management with knowledge of mortgage products and guidelines. Interested Candidates should email resumes to Impac Mortgage Corp., and for more information on the company visit Impac Mortgage Corp. Correspondent.

And on the recruiting side, "Almost every mortgage bank and depository institution is actively recruiting purchase focused producers, leaders and operations talent nationally. As you are open to new opportunities, it is more important than ever to 'Model Match' the business you do and the geography/market you are in to the companies recruiting you. Hammerhouse, a national mortgage production recruiting firm, forms trusted confidential relationships with loan officers, branch managers, and other sales and operations leadership open to hearing about new opportunities with the Mortgage Bankers and Depository clients we support nationally. Contact Steve Rennie (West), Eric Levin (East) or Eric Petersen (Central & West) OR fill out our Model Match Assessment tool to learn about your own Model Match and be contacted about potential opportunities in your market relative to the Six Core Components of your business (leadership, culture, business model, operations, technology, and geography)."

Congrats to Ted Norman who will join TIAA-CREF as a Senior Director/Head of U.S. Commercial Mortgage Investments, based in Charlotte NC. He will be reporting to Rick Coppola who is Managing Director, Head of Transactions/Global Real Estate. Norman previously worked for TIAA in its commercial mortgage unit, and later separately ran a unit at Capmark that was responsible for commercial mortgage originations and securitization for a TIAA sponsored national "private-label" mortgage program.