HOA Foreclosure News; QRM Update; Volatility's Impact on Lenders
Outside of California's Santa Clara Valley, the words "Affluent" and "Millennial" aren't used too often together. But it turns out that when affluent millennials receive their inheritance, the odds are about 50/50 that they keep the financial advisor used by their parents, according to a survey by Morgan Stanley and Campden Research (they only asked 87). And PCBB reports that a study by Oliver Wyman finds the primary sources people go to when deciding what bank to switch to from their current provider are: family and friends (30%); visiting a bank branch (20%); visiting bank websites (18%); speaking with a bank representative (18%) from personal experience (14%) or searching online (11%).
The HOA foreclosure situation in Nevada is attracting national attention. Here's the latest. "Lenders say that the Nevada Supreme Court's interpretation of the law could lead to higher mortgage rates or restricted lending in Nevada. But it's important to remember why HOAs have resorted to running their own foreclosure auctions in the first place, says Dawn Bauman, senior vice president of government and public affairs for the Community Associations Institute.
The crux of the problem: Mortgage servicers sometimes take years to foreclose on properties. That leaves HOAs out of their back dues for years and can also prevent a new owner from moving in and beginning to pay new dues. A lack of payments can lead to higher dues for other owners in the community or to services being cut."
During the last week we learned that in California Heritage Bank of Commerce ($1.5B) will acquire factoring company Bay View Funding ($44mm) for about $22.5 million in cash. Up in Indiana IAB Financial Bank ($960mm) will acquire The First State Bank, Bourbon ($88mm) for about $18.3mm in cash or 1.14x tangible book. The First State Bank ($319mm, KS) is going over the Nebraska border to acquire The First National Bank of Holdrege ($108mm). First American Bank ($863mm, NM) will consolidate operations and merge its sister bank AmBank ($131mm, NM) into the larger bank. In No' Carolina NewBridge Bank ($2.4B) will acquire Premier Commercial Bank ($173mm) for about $19.8mm in cash (25%) and stock (75%) or 1.13x tangible book. Mortgage and mortgage insurance financial services company Complete Financial Solutions Inc. (WA) will inject capital into and then acquire Northern Star Bank ($20mm, MN) for an undisclosed sum. (Is that the opposite of what a black widow spider does?) Heritage Bank of the South ($1.5B, GA) will acquire a branch in GA from The PrivateBank and Trust Co. ($14.6B, IL) for a 3.8% deposit premium. The branch has $129mm in deposits and $40mm in loans.
"Rob, is there anyone out there doing non-warrantable condo loans?" I receive questions like that all the time, and turn the reader over to www.mortgageelements.com. I asked Mark Paoletti, the creator of the site, and he sent this list: ACC Mortgage, Advancial, Athas, Angel Oak, Banc Home Loans, B of I, Bayview (as Bayview with is Portfolio, Lakeview is only agency product), Caliber, First National Bank of America, FirstKey, Loan Stream, (Santander (NY & NJ only). If there are others, contact Mark.
Remember QRM? Perhaps it will be a non-event as evidenced by a story from the WSJ saying "...regulators are poised to finalize long-delayed mortgage market standards next week, adopting a relaxed set of rules designed to ensure credit is broadly available. In a victory for real estate and mortgage industry groups, regulators are expected to finalize a far looser set of standards for mortgages packaged into securities and sold to investors than initially proposed in April 2011. The Federal Reserve on Wednesday said it would consider the issue at an open meeting Oct. 22, and five other regulators, including the Federal Deposit Insurance Corp. and the Securities and Exchange Commission, are also expected to sign off on the rules this month." Gone will be the 20% down requirement (after an uproar from real-estate agents, lenders and civil rights groups), and "regulators would include a broad exemption for banks and other issuers of mortgage-backed securities from having to retain 5% of the loan's risk on their books." Loans through Fannie, Freddie, and other federal agencies are expected to satisfy the federal risk-retention standards.
"Under the new rules expected to be voted on next week, loans would have to comply with a separate set of mortgage standards written by the U.S. Consumer Financial Protection Bureau. Those rules outline steps lenders must take to demonstrate that a borrower has the ability to repay a mortgage. Borrowers' monthly debt payments must not exceed 43% of their income, though looser standards apply to loans sold to mortgage-finance companies Fannie Mae and Freddie Mac."
How about these markets?! Elliot F. Eisenberg, Ph.D. points out that, "The euro's dramatic fall against the dollar, due to Europe's economic weakness, will reduce US inflationary pressures, hurt US exports and reduce equity values. Therefore, the Fed may wait longer before raising rates. However, the ECB is hoping the Fed raises rates faster thus weakening the euro more. As a result, any Fed delay in raising rates will force the ECB to very reluctantly act more swiftly and forcefully."
Our ten year note yield is approaching levels which recover ground lost since 2013's "taper tantrum" and shows a near 60 basis point drop in yield since the FOMC meeting on September 18 at which QE was announced to end this month. Suddenly the smartest guys in the room (yes, the same ones that a year ago said rates were going to go up in 2014) are asking, "Did QE really help?" Mortgage pricing has lagged of course - time and resources are tied up with every lock, LOs are doing a better job of educating borrowers about what "lock" means, so they aren't as transient as in the past.
But LOs are salivating and rifling through their rolodex (I know - found in museums) to call borrowers about refinancing. Companies who have recently purchased servicing are worried it won't be on their books long enough to recoup the purchase price. Lenders are reminding originators about "lock out periods" and early pay-off penalties to branches & LOs should a refinance occur too soon. Capital Markets employees are worried about their locked pipelines going to another lender and being replaced with someone else's pipeline at lower rates - and hedge costs wiping out their performance. They are also dealing with a spate of margin calls from broker-dealers on outstanding MBS hedges. And lenders, big and small, are thinking that swelled pipelines heading into the 4th quarter are going to be a big help for all of 2014.
And sure enough, the MBA reported that mortgage applications rose 5.6% last week, with purchases falling .7% while refis rose 10.6%. The average loan size increased by $23k to $247k which indicates more organic refis. "Growing concerns about weak economic growth in Europe caused a flight to quality into US assets last week, leading to sharp drops in interest rates," said fabled MBA Chief Economist Mike Fratantoni. "Mortgage rates for most loan products fell to their lowest level since June 2013. Refinance application volume reached the highest level since June 2014 as a result, with conventional refinance volume at its highest since February 2014." But are the MBA's numbers accurate? The WSJ wonders...
I am here in Dallas for a Supreme Lending sales rally and if the staff here is any indication of the broader industry, calmer heads will prevail. Many think that the rate move is short-lived, and even if not, while not ignoring rates are more focused on long-term business plans, expansion, maintaining corporate culture, training, and being competitive in its markets. It makes sense to me.
Perhaps our economy is indeed being dragged down by the rest of the world, and will pause while the Ebola crisis is put under control. Yesterday we learned that Retail Sales fell .3% in September on falling energy prices. Ex-autos and gas they still fell .1%. The Producer Price Index fell .1% in September - all those fears of QE-related inflation have vanished.
One broker dealer conjectured that yesterday could have been the most memorable trading session since March 2011 after news hit the tape of the nuclear reactor leak after the Japanese earthquake. Any monthly numbers out of the U.S. pale in comparison to geopolitical and Ebola fears which caused a "three handle day" in MBS. The yield level on the 10yr treasury dropped from an opening of 2.16% all the way down to 1.86% or thereabouts, before cooling off a bit and floating back above 2.10%, finally closing at 2.09%.
Informal estimates from the McDonald's corporation put the number of Americans who have worked at one of the many corporate or franchise stores at roughly 20% of the total population, or 60 million people. I don't know why I bring that up, although this morning we had the Thursday Jobless Claims numbers. (+264k from +287k last, -22k). Out at 8:15AM CST will be Industrial Production and Capacity Utilization for September (seen generally higher), and then 9AM CST is the October Philly Fed and NAHB housing market index. In the early going the 10-yr has dropped to 2.05% from its Wednesday close of 2.09% and agency MBS prices are slightly better - lagging but still improved.
Jobs and Announcements
For a new products update, Silvergate Bank is one of the pioneers of non-QM and has purchased over $70 million on a closed loan, correspondent basis. Silvergate is accepting both retail and wholesale originations for Alt Doc and full doc programs, so if your company is considering moving into non-QM and looking for ways to increase production and profitability please contact Alan Peviani.
And the Warehouse, Correspondent, and Construction & Renovation Lending divisions of Banc of California now offer a comprehensive Renovation Lending solution in all 50 states to banks, lenders and Credit Unions. "The turnkey initiative makes closing renovation loans simple and will drive more production to the platforms of our lending partners. BOC and its RenovationReady® division provide 'bundled' services including pre-close bid and contractor acceptance services thru post-close draw administration for FNMA HomeStyle Renovation, FHA 203K, FHA 203K Streamlines and a soon to be released Construction-to-Perm initiative. The warehouse division offers 100% financing of the note amount and rehab balance. Other niche products from the Correspondent division include: an expansive non-agency Jumbo offering (to $5M; $750K cash-out, 2nd homes and Investment properties); Non-Warrantable Condos, and Expanded Criteria (1 day out of FC, Deed-in-lieu & Short Sale; to 80 LTV; 660 FICO). For more information on how Banc of California can help grow your business or to schedule an appointment with them at the MBA's Annual Convention Oct 19-21 in Las Vegas, please contact Larry Maitlin.
The holidays are right around the corner, and here's a nifty new application that loan originators and mortgage firms who often thank their clients should know about. "They want to order gifts fast, while on the go and when it's fresh on their minds. You will not forget to send that thank-you gift, to that important client, if you download the Schmooze iPhone or Android application. Built by salespeople with sales people in mind, you will be happy with the gift selection and usability of this unique application. 5 taps and you have sent a thoughtful gift and will be on the way to the next sale. So try it by downloading at www.schmoozeme.net, the App stores, from the iTunes store, or Google Play. (The website, by design, is only for using the QR - quick response - code to download Schmooze and to use as an administrative tool for registered members (change passwords, etc. ...)