Legal and Regulatory Update; Credit Risk Transfers; 2016 Non-Agency Issuance Stats
Well, we have 24 business days until our next Federal holiday (President’s Day on February 20). Sigh. Much worse is this very, very sad, troubling statistic: News came out that drug overdoses are involved in more deaths than car crashes and guns. U.S. deaths from drug overdoses (driven by heroin and prescription painkillers) were up 11 percent in 2015, claiming 52,404 lives, per the annual statistics compiled by the Centers for Disease Control and Prevention. Terrible.
Legal & Regulatory Matters
Remember TARP? Last week the GAO announced the release of its report providing an update on the status and condition of Treasury's TARP-funded housing programs as of October 31, 2016. Per the report, Treasury had disbursed nearly 60 percent or $22.6 billion of the $37.51 billion assigned to TARP for helping struggling homeowners avoid foreclosure. The report also notes that the GAO's latest review yielded no new recommendations and that only five of the 29 recommendations GAO has previously made related to the TARP-funded housing programs remain open or not fully implemented. The report states that the GAO will continue to monitor and assess the status of these recommendations.
The Dodd-Frank Act is critical in strengthening the financial system and preventing another crisis, Federal Reserve Chair Janet Yellen said. While there is room for improvement in reducing the regulatory burden for small banks, the law should not be dismantled, she said.
Hank Davis with MetaSource writes, "Hi Rob, I thought your readership would find this White Paper on QC findings and TRID informative. I would pass this along to you to send out to your readership. We find our clients like to see how the industry is performing on the Quality Control side of the business and compare their performance to their peers. We are coming out with Peer to Peer performance metrics later this quarter but this is a good start.
It isn't the first, and won't be the last...Moody's has settled with the Justice Department and the attorneys general for 21 states and the District of Columbia for $864 million to settle federal and state claims it gave inflated ratings to risky mortgage investments in the years leading up to the financial crisis. It is certainly tough to have a security rated fairly when the rating agency is being paid by the entity wanting a high rating... That penalty is about a third of the $2.5 billion that Moody's earned in the four years leading up to the crisis. Recall that Standard and Poor's, after fighting the U.S. in court for two years, settled similar claims with the U.S. for $1.5 billion in 2016. While Moody's failed to abide by its own standards in rating some securities per the government, it said the settlement doesn't contain a finding it violated the law or any admission of liability. "Moody's has agreed to maintain, for the next five years, a number of existing compliance measures and to implement and maintain certain additional measures over the same period." What happens after five years?
Law firm BuckleySandler LLP kept us up to date on the CFPB machinations. Over the objections of the CFPB, the D.C. Circuit granted the request of PHH Corp. to file a supplemental brief responding to arguments in support of en banc review that were raised for the first time in a brief filed by the U.S. Solicitor General on the December 22, 2016. PHH's supplemental brief is due on or before January 27, 2017. For additional background, please see our summaries of the panel decision, the CFPB's petition for rehearing, and the D.C. Circuit's order directing PHH to respond and the Solicitor General to provide views.
What about foreclosure cases? I was sniffing around rulings from last year, and found this one that includes all kinds of infamous mortgage names. In June 2005, a borrower obtained a loan in the amount of $620,000 from WAMU. In April 2009, the servicer of the loan (Chase) recorded an assignment of the loan and transferred it to Deutsche. In that same month, the borrower began defaulting on the loan. Chase began foreclosure proceedings. In November 2009, Chase recorded another assignment of the loan and transferred the loan to BoA, notwithstanding the fact that it had already been assigned to Deutsche. On the same day, the trustee recorded a Trustee's Deed Upon Sale on behalf of BoA naming BoA as the foreclosing beneficiary. Confused yet? The Trustee's Deed noted that BoA was winner at the foreclosure pursuant to a credit bid. In December 2009, Chase recorded another assignment of the loan purporting to correct the assignment made in April. Prior to the foreclosure sale, the borrower filed a lawsuit in federal court. In May of 2012, that case was dismissed.
In February 2013, the borrower once again filed a law suit in state court alleging that Bank of America was not the lender of record for the loan as Chase had transferred the loan to Deutsche. In response, BoA filed a demurrer to the complaint alleging that the case was barred by the previous federal case and because the borrower did not allege any harm. The complaint/demurrer process continued.
The decision? The California Court of Appeals for the Fourth District reversed the lowers courts' ruling and held a borrower is automatically prejudiced by a foreclosure by a third party and does not need to specify any other damages. The court noted that the California Supreme Court's decision in Yvanova v New Century Mortgage Corp. has largely held that a foreclosure by a third party is actionable. While it may be true that the borrower would be unable to pay the loan, that was not relevant to the analysis of whether the borrower had been damaged. Given cases such as these, it would stand to reason that lenders should be more careful in making assignments of the loan. Although it is unclear why Chase recorded the second and third assignment in this particular case. Lenders will likely work to clean up the recording issues and work with each other to prevent further cases such as this from happening.
Turning from legal & regulatory matters to the secondary markets...
Are stated income mortgages returning to the residential mortgage-backed security bullpen? Certainly, with overall volumes sliding somewhat, lenders may become interested in other products in 2017. And yes, even as far back as October there were some noticing an increase in stated income loans in the capital markets.
One somewhat controversial topic is that of how best to transfer credit risk away from taxpayers, since we are "supporting" Freddie and Fannie's risk since they are wards of the state. Is the process a means to an end, as Faith Schwartz wrote a few months ago? Ms. Schwartz penned a second piece titled, "Credit Risk Transfer - Front and Back End Execution. Why Does It Matter?"
And a write-up by Lew Sichelman explains the how the process of credit risk transfer is drawing mixed reactions.
John Bancroft with IMF writes that non-agency production (measured by securities in the capital markets, not production that flowed into portfolios) fell sharply last year. "In 2016, a mere $42.93 billion of non-agency MBS were issued, down 38.9 percent from the previous year, per a new Inside MBS & ABS ranking and analysis. It was the second-lowest annual output since 2012."
"The picture would look a bit brighter if Fannie Mae and Freddie Mac credit-risk transfer deals were included, as well as single-family rental securitizations, which both compete for the investors that might be interested in non-agency MBS. But the government-sponsored enterprise CRT deals are debt issues and they couldn't be any more 'agency,' while the SFR securitizations look a lot more like commercial MBS than residential MBS.
"The prime jumbo market hit a four-year low with just $9.32 billion in new issuance, and that included a pair of non-agency MBS issued by JPMorgan Chase that were backed by agency-eligible home loans. It's safe to say, that until something gives, the prime jumbo sector looks to be good for about $10 billion a year in new issuance. Chase, Redwood Trust, Shellpoint Partners and Social Finance (SoFi) are the only active issuer-aggregators in the sector." Thanks John!
Recall that MBS prices and the 10-year worsened about .125 on Friday (closing yielding 2.38%). This morning we've seen Empire Manufacturing (-2.5 to 6.5, whatever that means). Wednesday, we can look forward to the MBA's application data for last week, the Consumer Price Index, the Industrial Production and Capacity Utilization duo, and NAHB Housing Market Index from the builders. Thursday, we have Initial Jobless Claims, the Housing Starts and Building Permits couplet, and the Philly Fed figures. The 10-year is yielding 2.34% and agency MBS prices are better by .250 versus Friday's closing levels.
Jobs and Announcements
Turning to more optimistic news, companies are hiring. Orange Coast Title Company, "an industry leader since 1974 and one of the largest independently owned title insurance companies, is growing again and has an excellent opportunity for a National Sales Executive. As our National Sales Executive, you will acquire, build, and maintain strong, long-lasting client relationships with the top mortgage lenders in the country. The ideal candidate will possess a broad knowledge of the loan origination and servicing space, have sales experience with a proven track record of exceeding goals, and be self-motivated to succeed in a fast-paced, competitive environment." Interested candidates should send their resumes to Tim Curtis, National Sales Manager.
In retail job news, Utah-based Castle & Cooke Mortgage, LLC is "kicking off 2017 with optimism, continuing its trend of accelerated expansion after a banner year in 2016. Despite its tremendous, rapid nationwide growth, Castle & Cooke Mortgage has stayed true to taking care of its employees and has been repeatedly recognized as a top employer, most recently by Utah Business Magazine as one of the 50 Best Companies to Work For. Company President, Adam Thorpe, discussed in a recent article how smaller lenders struggling with industry complexity might benefit from the company's culture of excellence. If you're a branch manager or loan officer looking for a new opportunity, want to be part of the success story and are curious why employees love working for Castle & Cooke Mortgage, contact Heidi Iversontoday!"
Republic Bank, a publicly traded Bank headquartered in Louisville KY, is expanding its retail mortgage operations and actively seeking seasoned sales managers and loan originators to join its Louisville, Nashville and Tampa Bay markets. Republic's goal is to make banking easier for its clients, so a focus on creating a great customer experience, while offering an expanded credit box with competitive pricing, and unrivalled service! Offering an expanded credit box, nationwide footprint, portfolio products, and more allow you to maximize your earning potential! Republic Bank enables the mortgage professional to serve the home buyer on a local level, while having the power, resources and flexibility to meet customer's needs. So, if you are a manager or LO who is committed to excellence, driven and focused we want you! Resumes can be submitted online at Republic Careers www.republicbank.com/careers look for the Mortgage Lending tab. Republic Bank is an Equal Opportunity Employer: Minorities/Females/Veterans/Individuals with Disabilities/Sexual Orientation/Gender Identity.
In wholesale job news, First Community Mortgage is looking for an established account executive for the IL, PA, FL, MD, ARK & LA markets. "At First Community Mortgage, we offer our Account Executives the ability to sell Delegated Correspondent, Non-Delegated Correspondent and Wholesale. By focusing on our Human Mortgage approach, we can connect with our clients and provide specific service models for each client, which gives FCM a great advantage in today's competitive marketplace. First Community Mortgage is a direct Fannie, Freddie & Ginnie seller servicer, and FCM's new Specialty Lending Group division features niche products like bank statements, foreign nationals, non-warrantable condos and multiple investment properties, so our AEs can offer mortgage services to more borrowers in more markets. Please send resumes to Dennis Patchett.
Assurance Financial continues to expand after increasing production by 29% in 2016 while opening several offices in new markets throughout the country! The company has a solid reputation for closing loans on time, appealing to anyone wishing to grow their origination business. Our back office supports its mortgage loan originators and branch managers so they can focus on originating more new loans rather than worrying about closing their pipeline. Assurance plans to expand its footprint further this year by selectively hiring producing branch managers and MLOs in good markets. For more information, contact Paul Peters, CMB at 225-239-7948 or visit LendTheWay.com/Careers.