Primer on Servicing Economics; Impact of Negative Rates; Upcoming Webinars/Conferences
It would be interesting to find out the last time some political candidate wasn't on the front page of all the major newspapers. What did we talk about before this election? The volume has been turned up on specific economic plans, and with it thoughts of taxes. Of course campaign promises rarely pan out, especially regarding taxes, but it is interesting to see which states have the highest and lowest property tax rates for property owners. The worst are Illinois and New Jersey; the "best" are Hawai'i and Alabama.
The servicing market continues to garner attention. Yesterday I had some comments regarding the environment, and price changes. Also coming in was Rob Walters, Director at Denver's Incenter Mortgage Advisors. "When we have the type of volatility in the market starting with the rally in Q1, and especially with the velocity in rate movement around the Brexit, both Buyers and Sellers need time to evaluate the impact.
"Regardless, we have marketed 26 deals including the $9 billion we put out this week with only two that did not trade. We had $3 billion of conventional that bid last week that we are still working. We did have $470 million of GN (primarily VA) and $172m of FN that did not trade this summer. VA is tough given the speeds observed and the level of interest in GN servicing being low in general and for the other DNT ("did not trade"), we received bids that were close to our marketing range however the Seller chose not to hit them.
"The ability to get those deals done leading up to and in the aftermath of the Brexit speaks to Sellers who recognize that you have to be 'market sellers'. That is an important aspect to what IMA deployed in our advisory services and how we manage our accounts from the beginning of retention through the sale or released execution.
"There is a 'liquidity premium' for GN servicing that the remaining Buyers are pricing in but that may be short lived given the yields that are being generated. Where else can you generate yields in the high teens or greater today? Even the Agency loan trades that have been in vogue for the yields they generate are becoming equivalent to what you can achieve on GN MSRs...
"As for the outlook, I think we will continue to see deals come to market as Sellers will weigh monetizing the MSR asset against what they can make by investing the cash generated from a sale into originating more loans. To the extent Sellers have been proactive in writing their basis down with the gyrations in the market, the hit to the balance sheet will be minimal and the ability to grow originations will outweigh the urge to hold on to MSRs until rates rise. I have a handful of Sellers who are waiting to see rates rise but one comment recently stands out: 'the write-down on the MSR is eating into the gains we are making on originations - even though it's just a paper loss." Thank you Rob!
But why does anyone want to own the rights to service a loan? To make money and, for banks, to serve depositors in their footprint. Don't they know it is going to pay off at some point? Banks will often buy and/or keep servicing in their footprint due to cross selling opportunities and wanting to provide personal customer service. Larger banks are happy to use their deposit base to help fund the portfolio. Investors seem to think that loans stick around for 5-6 years whereas LOs hope they stick around 5-6 months.
Wander into any loan servicing department and you'll see folks overseeing the collection of interest, principal and escrow payments from borrowers. (Remember that Freddie, Fannie, and Ginnie don't service loans.) The payments collected by the mortgage servicer are remitted to various parties and usually include paying taxes and insurance from escrowed funds, remitting principal and interest payments to investors holding mortgage-backed securities (or other types of instruments backed by pools of mortgage loans), and remitting fees to mortgage guarantors, trustees, and other third parties providing services.
Servicing an "on time" loan is expensive, but the cost really goes up if things go wrong. The level of service varies depending on the type of loan and the terms negotiated between the servicer and the investor seeking their services, and may also include activities such as monitoring delinquencies, workouts/ restructurings and executing foreclosures.
To balance that out servicers receive servicing fees, and other ancillary sources of income such as float and late charges, based on a percentage of the unpaid balance on the loans they service. The fee rate can be anywhere from one to forty-four basis points depending on the size of the loan, whether it is secured by commercial or residential real estate, and the level of service required. Those services can include (but aren't limited to) statements, impounds, collections, tax reporting, and other requirements. Analysts wonder if 25 basis points of yield for servicing is enough for Fannie & Freddie loan.
Given the obvious touchpoint with consumers, and the potential for complaints, plenty of government regulators have a hand in servicing. For example, recall that last week the CFPB released 900 pages of addendums, clarifications, and proposals to existing rules! A nice primer for someone new in the industry, or to provide a borrower new to making mortgage payments, can be found on the FTC's website.
Let's look at the capital markets! Yields on US Treasury securities have fallen to near zero or below zero for Japanese and European buyers who hedge against currency fluctuations. Some analysts believe that this could threaten the strong foreign demand for Treasury bills, notes, and bonds. If the demand falls, prices drop, and rates move higher. There are some that feel like rates should be higher, but technical and supply & demand factors are keeping things lower. There hasn't been any noticeable inflation for decades, but economists and fixed-income investors still talk about it. If there's any marked increase in inflation it will hurt fixed-income investments.
In the markets Spain's 10-year debt fell below 1% for the first time as fixed-income investors search for yield. The bonds of many big developed economies are giving holders negative yields, so bond buyers are increasingly turning to the peripheral countries of Europe to buy debt. Central banks have adopted negative interest rates to stimulate national economies - thinking that people would rather spend their money then pay to keep it at the bank.
Is that plan working? It doesn't look like it: data show that consumers in many of those countries are increasing their saving instead of spending, the oppose of what negative rates are intended to achieve. Some bankers and economists believe that the negative rates themselves raise doubts about future growth and discourage people from borrowing and spending.
But wait! Between 50% and 75% of the European Central Bank's interest-rate changes were transmitted to the real economy, JPMorgan Chase economist David Mackie calculated in response to Bank of England Governor Mark Carney's disparaging remarks on negative interest rates last week. "The combination of sovereign [quantitative easing] and the [targeted longer-term refinancing operations] has ensured a greater pass through of changes in the policy rate to changes in bank retail deposit and lending rates than might have been expected on the basis of past experience," Mackie wrot
We did have a bit of a rally yesterday but our bond markets have been relatively steady. Sure we have a little intra-day volatility, and a little movement between coupon rates and securities (Ginnie, Fannie, Freddie), but overall prices haven't made a big move much since Friday evening's levels. There was some news of note yesterday morning. The Bank of England, in its new round of QE purchases, was unable to find enough sellers to meet its purchase target for longer term assets. That meant prices went up, and thus rates went down - all around the world. By the time Tuesday finished the 10-year note price had rallied .375 (a yield of 1.55%), the 5-year note improved .125 as did current coupon agency MBS prices.
This morning we've had the mortgage applications for last week (+7%, a nice rebound from the prior week, with refis +20% and purchases +2.6%) which doesn't move rates but gives investors an idea about supply. Coming up are the Job Openings and Labor Turnover Survey for June. Speaking of supply later is our very own Treasury Department selling $23 billion in 10-year notes.
We wrapped up Tuesday with the 10-year risk free T-note yielding 1.55%. In the early going it is sitting around 1.54% with agency MBS prices better by about .125.
Upcoming webinars and conferences
Plaza's FHA 203(k) Standard and Limited Renovation Loan Programs webinar is today, Wednesday, August 10th, register now.
The Collingwood Group's experts and former FHA staff will present a webinar on "the in's and out's" ofFHA's Neighborhood Watch system. On August 17th, learn how to proactively monitor your performance to stay ahead of Credit Watch Termination (DE and Originator by Branch), or Lender Insurance termination actions.
On August 30th, MBA Education will be hosting a webinar to provide a high level foundational understanding of the revised Home Mortgage Disclosure Act (HMDA) rule reporting requirements, implementation considerations, and to provide information on how to use the MISMO standards to support implementation of the revised rule. Click here to register.
NAWRB (National Association of Women in Real Estate Businesses), besides offering up a Women-Owned Business Certification, has its 3rd Annual Women's Diversity and Inclusion Conference coming up at the end of this month in Southern California. Questions should be directed to Desirée Patno.
Jobs and Announcements
Are you looking for a new career opportunity? With the aggressive nationwide growth Castle & Cooke Mortgage is experiencing, the company is hiring for many positions, including a Call Center Manager, LOS Administrators, an LOS Training Specialist and Processors. Castle & Cooke Mortgage takes pride in its top-quality employees, culture of support and standard of excellence. These same characteristics have earned the company recognition as a top employer. If you are looking for growth opportunities and great work environment at a thriving company, send your resume to Heidi Iverson.
Forget what the mortgage industry used to look like, we're here to offer you a new view. Lakeview Correspondent is looking for a Northern California Business Development Director to join our dynamic sales team. This territory includes Northern California, Washington, Oregon and Utah. As a servicing aggregator with a compelling value proposition for correspondent originators, Lakeview Correspondent offers consistent agency and government mandatory and flow pricing, as well as a suite of non-agency portfolio products. Improve your view and become part of a company that is positioned to compete today and into the future. Send us your resume at Careers@lakeviewloanservicing. com.
For underwriters, "Keeping pace with its strong partnership with Fannie Mae, Western Bancorp adopted the recent Fannie Mae Selling Guide Update (SEL 2016-05) on its Fannie Direct product. The following changes are now in effect: Self-employed income section has eliminated the requirement to prove access to income such as a partnership agreement or corporate resolution; the payoff of a restructure mortgage is now allowed and seasoning requirements no longer apply; and the continuity of obligation topic is removed in its entirety. Underwriters, if you want to expand your career and join a great team with simplified single product guidelines and direct access to decision makers, email your resume to careers@westernbancorp. com. Remote opportunities are available."
What's the number one reason mortgage loan originators and branch managers want to leave their current lender? It isn't compensation, says Assurance Financial. It's lack of support from the home office. Assurance has a simple but important value proposition for all producers - we have a solid reputation for closing loans on time. Our operations staff supports you and your team so you can focus on originating new loans rather than worrying about closing your pipeline. Assurance is expanding throughout the Southeast and Southwest and looking to hire branch managers and MLOs in Arizona, Colorado, New Mexico, Texas, Arkansas, Louisiana, Mississippi, Tennessee, Alabama, Ohio, Virginia, North Carolina, South Carolina, Georgia, and Florida. For more information, contact Paul Peters, CMB at 225-239-7948 or visit www.LendTheWay. com/Career
Congrats to Impac Mortgage Corp. Wholesale on the expansion of its sales team with the addition of Kristina Belshe as Account Executive in the Central Region. In her role, the 19-year industry veteran will add to the growth Impac is seeing in the Midwest wholesale market.