Blackstone Rumored to Buy More Lenders; DOJ Sues Quicken; General Industry Trends

Filling key positions in our industry is not an easy task sometimes, but as one banking vet I know likes to say, "give me someone with a little bit of smarts, and a little bit of drive, and I'll hand them back a career." Of course, she doesn't live in New York, and maybe hasn't read Business Insider's Companies Can't Find Employees Who Can Hold a Conversation or Show up on Time. Myles Udland writes, "According to the latest supplemental survey from the New York Fed's manufacturing and business leaders surveys, employers in the New York area are facing two main problems: finding workers who can show up on time and workers who can hold a conversation." Yikes.

Last week this commentary reported on the purchase of California's Pinnacle Capital Mortgage by The Blackstone Group. Yesterday Blackstone was at it again, this time word quickly spread of its purchase of Pennsylvania's Gateway Funding Services, and rumors of buying PMAC. Blackstone is active in several sectors of the industry and owns 46 percent of Bayview Asset Management, a correspondent buyer of non-qualified mortgages. There are plenty of critics who believe that investment banks know plenty about the security markets but know nothing of how to originate a home loan. We'll see...

And under the "we'll see" banner, the Justice Department filed a lawsuit yesterday against Quicken Loans contending that it made hundreds of improper loans through the Federal Housing Administration lending program, costing the agency millions of dollars. Interestingly enough, Bill Emerson, the CEO of Quicken Home Loans Inc., serves as the Vice Chair of the Mortgage Bankers Association and is scheduled to serve as its Chairman in the 2016 membership year. I don't have the research staff to find out if a chairman of the MBA has ever run a company that is being sued by the Justice Department, but the industry is sure rooting for Quicken in this matter.

I know when a Secondary Marketing friend of mine has had one too many glasses of red, he starts equating the economy to a heroin junkie, and the Federal Reserve to the methadone clinic....Wall St, in his analogy, is best described as Pablo Escobar. While we're told the Federal Reserve is to credit for helping me and the wife avoid standing in line at the soup kitchen, we're also told the run of "cheap money" is coming to an end. But the Fed is in a precarious position, act too slowly to restore normality to monetary policy and the risk is unmanageable inflation and destabilizing asset bubbles; act too quickly and the economy could lose momentum and get stuck in a cyclical pattern, ala the Japanese economy. Wells Fargo's Economic team writes in Lessons from History, "Following the most recent Federal Open Market Committee (FOMC) meeting, all eyes turned to the committee's updated economic projections. Arguably the most notable change was the downshift in the Fed's projections for the appropriate pace of policy firming. Committee members' median fed funds projection for year-end fell 50 bps, motivating us to shift our call for the first rate hike to September."

Lenders are faced with the "QM versus non-QM question," and know that investors are shying away from buying new mortgage securities without government backing because of a lack of trust and confidence. Current laws don't offer protection to investors from borrowers using home equity loans to reduce their ownership stakes in properties, increasing default risks. Government policies have also reworked loans for consumers in bonds owned by investors and new "risk-retention" rules are allowing issuers to avoid holding stakes in debt. Other concerns include the lack of monitoring loan servicers, to ensure lenders take back misrepresented debt. The market for U.S. home-loan securities absent of government backing has remained frozen for seven years, reducing options for borrowers and increasing risk for taxpayers. Issuance of debt from loans too large to be financed in government-backed programs totaled to less than $9 billion last year, which only includes high quality credit loans. This is in stark comparison to the peak of $1.2 trillion before the housing meltdown. Many investors are proponents of hiring an ombudsman or deal manager for each transaction to protect their interests.

The Collingwood Group recently released its Mortgage Industry Outlook Report, a survey of top mortgage industry leaders assessing the state of the industry. Notable results from the survey include, the majority of mortgage professionals agreed that Fannie Mae and Freddie Mac should be doing more risk sharing transactions in order to jumpstart the private securitization market. Survey respondents were also concerned that keeping the GSEs in conservatorship is leading private capital to abandon the mortgage lending sector and many believed that GSE reform would not occur during the Obama Administration. The report also indicated that the most important thing the new Congress can do to improve the housing market is to temper arduous regulations and amend the structure of the CFPB so there is more accountability and transparency in the exam process.

If I said the U.S. economy will grow nearly 3 percent on an inflation-adjusted basis this year compared to 2.5 percent last year, I'm sure some eyes would roll, and maybe a few emails from friends requesting I seek medical attention. However, this is according to the Economic Advisory Committee of the American Bankers Association, which by the way, is a committee of 15 chief economists from among the largest banks in North America. So you're telling me a group of bankers are long the banking industry? Shocking. The group writes, "Sectors that were severely damaged during the 2008-2009 crisis have healed significantly. In particular, the banking and real estate sectors are in much better health. Household balance sheets have also improved, with strong gains in asset prices and a dramatic drop in debt service burden." As a group the economists: expect the Federal Reserve to maintain near-zero interest rates through mid-2015; see falling energy prices as a net positive for the economy; see continued monthly job gains of 200,000 or higher through this year (however, the bank economists expressed concerns that job gains had not yet triggered healthy wage growth...but I say, who needs wage growth when you can work part time at Target); mortgage rates will rise only from about 4 percent now to 4.5 percent by year-end; low inflation resulting from falling energy prices; and views the biggest near-term threat to the economy coming from outside the United States.

Are rates moving lower? I don't know, it's darned early and the bond market has yet to open; however, many mortgage, real estate, and portfolio manager professionals believe rates are headed that way, and as KBW writes, many believe there's an instinctive expectation that mortgage REITs make good safe havens. This isn't always the case, though, "We suggest caution in that view. The sector has outperformed the broader market and financials year-to-date, but it's important to understand that this was primarily valuation multiple expansion. mREIT book values are down 5% on average from 3Q levels by our estimates." KBW notes a few key areas of concern within the mREIT sector with recent rate moves: (1) book values have been generally falling by analyst estimates; (2) rate volatility tends to exacerbate book value declines; (3) prepayment speeds are likely to rise (negatively impacting EPS and dividends); (4) a flatter yield curve pressures net interest spreads on new investments, all else being equal; and 5) hedging becomes more challenging as MBS durations become shorter and less certain.

Housing and jobs, jobs and housing - and unfortunately for those who believe that they can shape a business model off of interest rate predictions, the news is all over the place. Yesterday we learned that Jobless Claims increased 1k to 295k in the April 18 week, and the four-week moving average of claims, which smooths weekly volatility, rose by 1,750 to 284,500. But in stark contrast to the housing news the prior day, New Home Sales fell 11.4% in March - the biggest drop in more than 1-1/2 years and snapping three straight months of hefty gains. Ouch! For a little good news sales in prior months were recalibrated to be stronger than previously estimated and over the past year, new-home purchases have risen 19.4%.  The months' supply of homes, reflecting how long it would take to exhaust all homes on the market at the March sales pace, rose to 5.3, the highest since November.

The impact on the bond market wasn't much. Treasuries were deeply oversold in the short run after Wednesday's sell off so one would expect to see a little bounce back - and we did and closed the 10-year at 1.95%. For thrills today we will have March Durable Goods Orders and Durable Goods Orders ex-Transportation at 8:30AM Atlanta time. So far the bond market is roughly unchanged from Thursday afternoon.

Jobs and Announcements

In jobs news Crescent Mortgage Company (NASDAQ: CARO), a bank-owned national Correspondent and Wholesale lender founded in 1993 continues to grow its business. Management is currently interviewing for an Account Executive to cover the southern half of Texas. Crescent's primary customers include over 1,000 community banks, credit unions, and high quality mortgage brokerages throughout the country. Product offerings including Fannie Mae, Freddie Mac, FHA, VA, USDA Rural Development, and portfolio Jumbo options along with Financial Institution-specific products such as its One-Time Close, and Two-Time Close construction to permanent programs as well as optional contract processing services to Crescent's partners. If you are interested in joining the Crescent Mortgage Family and working with high quality financial institutions, please send resume and cover letter to Alex Williams, SVP of Sales.

1st Alliance Lending, LLC, a national leader in FHA lending to the underserved borrower, recently announced the roll out of its Wholesale and Premier Partner channels nationwide. The Company is expanding its footprint across the country and is currently hiring Wholesale Account Executives in most major markets throughout the U.S. including Chicago, Dallas, Houston,  Sacramento, Phoenix, Southern California,  Southeast Florida, Virginia and for its inside sales team in Connecticut. "The Company offers a truly competitive salary and bonus plan and a best in industry benefits plan. The East Hartford, CT based approved GNMA issuer/servicer also offers VA, USDA and Conventional products." Qualified mortgage sales professionals can forward their confidential resumes to Kelly Shepard, HR Administrator.

Certified Credit Reporting, a nationwide information firm, has an opening for a few qualified sales people in locales across the country including Texas, Utah, Illinois and others. Headquartered in Ontario, California, "we have been around for 30 years and are going strong. With a forward looking focus, a wide range of products to sell, and a positive, stable corporate culture, Certified Credit is well positioned for immediate and long term growth. Our customers love us and you will too. The ideal candidates will have extensive industry connections and a background in selling credit and related products, or, at minimum, an extensive mortgage background with a desire to learn another side of the business. Enthusiastic, energetic and driven to succeed? Send your resume to John Labriola."

Paramount Residential Mortgage Group announced the recent hiring of 20 year veteran Phil Gouskos, Regional Manager, to head up its operations in the Central United States and the Midwest Region. Congrats! He will be responsible for originations in all three business channels, while overseeing a full-service fulfillment operation for wholesale and retail for IL, IN, KY, OH, WV, MO, WI, MN, and IA.