Colorado and MSAs; Lender Profitability Figures; Collateral Underwriting Changes

While the industry waits for the ruling on the CFPB versus PHH case to give more clarity on the MSA question for lenders, the Colorado Division of Insurance has adopted a ban on marketing services agreements (MSA) for title industry members, effective Aug. 15. The move, one of a host of new changes adopted in Reg. 8-1-3, is believed to make Colorado the first state to institute a ban on MSAs for the industry.

When one is comparing residential mortgage lenders, whether in the usual statistics or at a conference, unfortunately the usual metric is volume. But if you think about it, wouldn't a lender rather do one loan and make three points rather than three loans and make one point on each? Of course if a lender is going to make a set amount on each loan, size matters. According to the Mortgage Bankers Association's newly released Quarterly Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks in the U.S. reported a net gain of $1,686 on each loan they originated in the second quarter of 2016, up from a reported gain of $825 per loan in the first quarter of 2016.

Whether or not politicians or regulators pay attention ("See? They do lots of loans and make a lot of money doing it!") remains to be see, but "Production profits more than doubled in the second quarter of 2016, as production volume rose and expenses dropped to a level not seen since the third quarter of 2015," said Marina Walsh, MBA's renowned VP of Industry Analysis. "Mortgage lenders also benefited from higher loan balances that reached a series-high of $245,394 and drove production revenue to a series-high of $8,807 per loan."

"With elevated prepayment activity, we continued to see hits to servicing profitability resulting from mortgage servicing right (MSR) markdowns and amortization.  Nonetheless, the profitability on the production side of the business generally outweighed servicing losses.  Including all business lines, 90 percent of mortgage lenders in our study reported pre-tax net financial profits in the second quarter of 2016, compared to 73 percent in the first quarter of 2016."

But as everyone knows, however, it is much more expensive to originate a perfect loan that will be free of potential liability for 30 years, which is one of the reasons lenders are merging. Determining the value of your company? This is a major stumbling block for many owners, and for companies of all sizes.  This has been especially challenging for servicers whose margin calls have undermined profits and seriously undercutting the value of their portfolios. So how should this be argued? "There is without question value to establish market share and a methodology to help substantiate this separate from the revenues and/or profits of a company; the value of something isn't simply are based on the profit and loss, because it is to substantially expensive for a company to enter the market and attempt to establish new relationships, drive branding, secure leases and infrastructure - and higher top," says Dr. Rick Roque, founder of MENLO, a boutique investment and M&A firm for mortgage banks. "Probably the biggest mistake multichannel platforms make is underestimating the expenses and the challenges in market adoption. There are costs in setting up the loan pipeline for fulfillment - it is not just simply measuring the profits of the pipeline once it is in place: an astute seller and an empathetic buyer will both very much appreciate this, and this dynamic will act as the healthiest of foundations moving forward." 

Throughout it all lenders and investors are concerned with collateral, and changes continue in the way properties are viewed, appraised, and underwritten.

Flagstar has updated its Condo & Project Review submission process. A new document type, Condo Documents, is now available in Paperless File Manager under the Underwriting Single Document Upload option. When documents are received under the Condo Documents header, through either a single document upload or multiple document upload, the Project Review department will be automatically notified and the documents will be reviewed according to Project Review's posted turn time. The commitment letter will be updated with any remaining requirements.

Franklin American Mortgage posted that property inspections may now be dated prior to the incident end date (or even prior to an end date being established by FEMA), with the exception of certain FHA transactions.  Please refer to the Disaster Counties Requirements chapter on the website for detailed requirements. Additionally, FAMC is increasing the funding fee for closed loans purchased from $275 to $325 per loan. There will continue to be an additional charge of $25 for loan files that are delivered via hard copy.  This change will be effective on loans that are funded on or after 11/1/2016. 

M&T Bank issued a MERS Closing reminder for Manufactured Homes. At closing, in all cases, mortgage lenders consider a manufactured home that is permanently affixed, to be real property. But there are 10 states where manufactured homes are not considered real property and thus cannot be attached to real property (by state definition). M&T allows manufactured home financing in 3 of these states: MD, NJ and NY. In these 3 states, manufactured homes may not close in the name of MERS. Each of these state's DMV will require a lien to be filed on the vehicular title for the unit (just like a lien filed on an automobile). Thus DMV step is in addition to lenders recording the first lien mortgage at the County Clerk's office. This is currently part of the lien perfection process that M&T requires the engagement of Nations Title to perform. For these loans, M&T expects delivery of paper recorded Assignment of Mortgage (non-MERS) as well as evidence that the vehicular lien has been filed on the vehicular title through the states DMV.

Beginning with Jumbo loans registered on or after September 1 and Doctor loans registered on or after September 12 Flagstar Bank will require originators to order a Collateral Desktop Analysis (CDA) and a Value Reconciliation from Clear Capital based on requirements outlined below. When a Broker Price Opinion (BPO) is required, Flagstar will order the BPO from Clear Capital.   

In capital markets news, Mortgage Capital Trading, Inc. (MCT), has entered into a strategic collaboration with Fannie Mae to "facilitate new technology deployment, collaborative planning, and better service to mutual clients. The initial impact of this collaboration is to enable MCT to connect to live Fannie Mae pricing for real-time distribution to mutual clients within the MCTlive! platform. This connectivity allows for timely best-ex analysis and faster execution for Fannie Mae sellers.

Remember when inflation was a worry? Lower energy prices kept consumer inflation at bay in July as the Consumer Price Index was unchanged. Oil prices now trading above $48/barrel. Gasoline prices remain low with the national average for regular at $2.14 according to AAA. Some people took the July FOMC meeting and Bill Dudley's comments to mean that there was going to be a rate hike in September but many believe that this is still a very divided FOMC. The minutes make clear that there is a significant faction within the FOMC that will not favor raising the fed funds rate in September.

Bopping over to interest rates, we began the week with a nice rally for both Treasuries and for agency MBS prices. The 10-year note retraced Friday's range and then some extending the post-payrolls low yield, hitting 1.53% after, given a lack of substantive news, another weak ISM report, this time the ISM Non-Manufacturing Index which missed estimates by a wide margin. A miss for August's ISM Manufacturing Index last Thursday and the August jobs report on Friday had already hurt the prospects for a September rate hike but the Tuesday news of deteriorating sentiment in the service sector may have been the nail in the coffin. For those quantitatively inclined the 10-year T-Note improved .5 in price while the 5-year and MBS prices rallied about .250.

Today doesn't include much in the way of market-moving news. We've already had the MBA's weekly report on mortgage applications for last week (up about 1% across the board). Coming up are some figures on weekly chain store sales and the JOLTS job openings number at 10AM ET, some Federal Reserve President testimonies, and the latest Beige Book. In the early going the 10-year is at 1.53% and agency MBS prices are unchanged from Tuesday's close.

Jobs and Announcements

In other product news, combined with job opportunities, FirstREX is changing the way people buy homes by offering smart new financing alternatives. "We make long-term equity investments in partnership with individual buyers through our REX HomeBuyer program allowing consumers an unprecedented level of flexibility to buy and own the home they really want. Visionaries in investment management, product development and financial technology are joined by innovative real estate and consumer finance experts to embrace a culture of intellectual curiosity, analytical rigor, and deep appreciation for the customer. We hire individuals that like to be challenged, think creatively, are inspired to build something big and desire to add value immediately in a highly collaborative team environment. Our equity investment platform is rapidly expanding through partnerships with multiple national lenders and we are looking for top-tier talent to join us. Specifically, we are currently seeking Regional Sales Managers with Wholesale and Loan Origination experience in our fast growing areas, such as Mass, Conn, NY, NJ, PA, & SoCal." Please reach out to Pat Gilmore (818.517.0448) for additional information and consideration. 

REMN Wholesale "knows a thing or three about hitting home runs through renovation lending. One of the nationwide leaders in the reno space, they're taking a few VIP brokers and bankers out to the ball game and holding a renovation mortgage educational event at Houston's Minute Made Park this week. The REMN Renovation Champions event will take place on September 9 in a suite REMN has rented on-site at the park. The event will provide an intimate venue for industry professionals to speak with Damon Richardson, REMN Wholesale's renovation lending specialist, along with other others from the REMN team, to learn about proven ways they can to promote reno products throughout the great state of Texas. After the Q&A session, attendees will be able to relax and take in the Astros game with the REMN team in their hosted suite. The free event is currently wait-list only, but if you'd like to be notified about potential openings, register online here. As REMN continues to grow, it continues to look for all-star AEs in all markets, especially the Southeast, who share the company's dedication to an excellent broker experience. If you know someone who fits that description, have them send their resume to AErecruiting@REMN.com.

Element Funding, a division of Primary Residential Mortgage Inc., and headquartered in Atlanta, is searching for LOs. Our branch locations have local decision making authority to offer mortgage loans for residential properties primarily in the Southeast. Element Funding is a high performing mortgage banking. Element Funding is continuing to grow and looking for experienced loan officers in our current and new branches located in Georgia, Florida and the Carolinas.  Element Funding provides an unsurpassed platform for growth. Element Funding enables the mortgage professional to serve the home buyer on a local level, while having the power of a national mortgage bank. Our goal is to provide the home buyer with the experienced loan experts, a wide variety of mortgage programs, unbeatable service levels, and a worry-free home financing experience. Please contact Larry Sutton, Regional Manager, for additional information about joining Element Funding.

Assurance Financial is rapidly expanding its footprint throughout the southeast, southwest and eastern U.S. The company is looking to hire great branch managers and MLOs in Arizona, Colorado, New Mexico, Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Tennessee, Alabama, Ohio, Virginia, West Virginia, North Carolina, South Carolina, Georgia, and Florida. "Our value proposition is simple: the company has a solid reputation for closing loans on time. It's what we do. Our back office supports our mortgage loan originators and branch managers so they can focus on originating more new loans rather than worrying about closing their pipeline." For more information, contact Paul Peters, CMB at 225-239-7948 or visit lendtheway. com/careers.

In wholesale news, Endeavor America Loan Services has rolled out their updated rate lock policy to better serve their loyal brokers. EA has enjoyed record growth and is looking for experienced Account Executives based on the West Coast. You can explore EA's job openings or reach out directly to Steve Curry, Executive Vice President of Sales at Endeavor America.