Agency Updates; Another GSE Reform Plan; Bank M&A - Branches Still Popular

For 2015, retail originators averaged total compensation of $88,415 versus $80,376 for Consumer Direct originators, per a STRATMOR Insights report on the subject. While retail originators averaged higher overall compensation, it was due to higher incentives (commissions). The CD originators were paid a higher base salary and/or draw amount than the traditional retail MLO but their average incentives were smaller even with higher productivity.

Bank News

Bank earnings season is well underway, with scores of banks reporting so far. Overall, the results seem solid, but not inspiring. Banks have reported improved net interest margins but sluggish and variable loan growth. As always, some beat estimates, others don't, reminding us to ask if the estimate was wrong or the analyst. Banks stocks have been volatile during this earnings season.

Bank experts love to debate the question about whether bank branches are a thing of the past. Well, the answer would appear to be "not yet." The overall branch count in the U.S. is down only 3.5% from its peak despite massive changes in technology allowing most branch activity to be done electronically from remote locations. Large banks have been reducing branch count by only about 2% per year, and the economics of branch banking is improving with higher rates and continued low interest paid out on deposits. And it seems that the banks with large branch footprints are planning to reconfigure their branch footprint, not significantly reduce them.

Bank M&A continues, over the last week or so it was announced that in South Carolina First Community Bank ($913mm) will acquire Cornerstone National Bank ($146mm) for about $25.8mm in cash (30%) and stock (70%) or roughly 1.39x tangible book. In Washington, Washington Federal ($14.9B) will acquire Anchor Bank ($441mm) for about $63.9mm in stock (100%) or about 1.0x tangible book. Central Valley Community Bancorp (Fresno, CA) will Acquire Folsom Lake Bank (Folsom, CA). In Pennsylvania Riverview Bank ($543mm) will acquire CBT Bank ($481mm) for about $50mm in stock (100%) in a merger of equals. This is about 1.27x tangible book. UMB Bank ($20B, MO) will sell its Scout Investments unit to Raymond James (FL) for about $172.5mm in cash (100%). United Community Bank ($10.7B, GA) will acquire Horry County State Bank ($376mm, SC) for about $66mm in stock (100%) or about 1.42x tangible book. South State Corporation (Columbia, SC) has agreed to acquire Park Sterling Corporation (Charlotte, NC).

Dr. Rick Roque, Managing Director at Menlo Company, suggests, "As rates increase, there is a 'race' to move on purchase or refinance decisions to save money in the short term and not get locked into a higher 'rate' later. So, higher rates, counter intuitively, become a driver to new originations and not a 'drag', but over time it levels off, where consumers, once they have purchased a home, due to rates, their desire to move or take out another loan diminishes and at that point is where rates become a dampening effect on consumer lending and/or mortgages.

I do not see this 'effect' taking place until rates are in the 7-8% range; rates can climb to 5-6% with little to no dampening effect on mortgage lending.  The mortgage market will continue to expand simply on demand for new housing - Millennial and Immigrant home buyers are going to seek smaller, 'smarter' homes, built in communities rather than the 'McMansions' of the prior decade built on low interest rates. Millennial and immigrant home buyers are an exploding demographic that will drive housing demands to $3T (approximately 2x the housing market we are in today) largely despite rate increases by the Federal Reserve.

Agency Updates

Fannie Mae announced several programs recently, including one that allows homeowners to refinance by combining their mortgage with student loans which may result in a sizable drop in monthly payments. The team at SoFi, who has been exclusively working with Fannie on these products for six months, writes, "The borrowers love the product. On our funded loans for this product we have saved borrowers an average of almost 2% on their previous student loan rate and about .25% on their previous mortgage rate."

Yes, the Fannie Mae Selling Guide has been updated. It provides new, sustainable solutions for lenders to serve borrowers with student loan debt. For more details, read the fact sheet. It "Improves efficiency by waiving the project eligibility review requirement for Fannie Mae to Fannie Mae limited cash-out refinances on condos and PUDs, simplifies lender processes by allowing cash-out refinances on properties that have been listed for sale in the past six months. This Selling Guide update contains other changes, including improving the streamlined Project Eligibility Review Service process, allowing truncated asset account numbers, eliminating the processing fee for Flash MBS execution, increased flexibility for the Servicing Execution Tool."

Effective April 30, Fannie Mae will update the LoanSphere Invoicing system. Changes include updates to the mapping capability of the Create Invoice Line Item to Fannie Mae Claim Line Item, Pending Submitter Review (formerly Pending Servicer Review), and the auto-population of the referral date for foreclosure attorney fees, where applicable. Refer to the Release Notes for details. For more information, visit the Expense Reimbursement page. 

PennyMac posted updates to tax transcript requirements and underwriting help NPPI reminder. Effective immediately, for Fannie Mae, Freddie Mac, FHA and VA transactions, Lenders may provide The Work Number written VOE, or a written VOE (WVOE) from an equivalent income verification company in lieu of tax transcripts for salaried borrowers.  The written VOE must have full income figures supporting the qualifying income. 

No changes are required to the Arch MI Underwriting Manual as a result of the updates announced in Freddie Mac Bulletin 2017-3. In regard to Freddie Mac Bulletin 2017-2, its Manual will be updated to reflect Arch MI's credit policy position. These changes will be made during its next update to the Manual. A summary of Arch MI's position regarding these updates can be found in its latest Credit Risk Bulletin.

Citi Correspondent Lending's recent bulletin covers general policy updates including foreign assets, multiple properties: agency loans and property appraisal sales comps.

Fannie Mae's new invoicing system is on its way targeted to launch in the third quarter of 2017. The system will provide a simple, enhanced web-based portal for servicers to access consolidated loan-level invoices, resolve claims, add/retrieve documentation, and communicate with Fannie Mae operations teams.

GSE Reform

Some of the smartest folks in the room think, if reform is going to occur, we should start with housing, then the FHA, and then the GSEs (government sponsored enterprises - namely Freddie Mac and Fannie Mae). Sure enough, Treasury Secretary Steven Mnuchin says once the Trump administration has its major tax reforms underway, it will turn its attention to a fundamental overhaul of housing market finance. The issue has remained problematic since the financial crisis of 2008, and many market participants would welcome an initiative to bring private capital investment back into the market and avoid the need for further taxpayer bailouts of Freddie Mac and Fannie Mae. But I'll be darned if "private capital" doesn't want a higher return than the government - tell the borrowers...

Like the MBA last week, this week the ICBA, which represents independent community banks, released its blueprint for reform. "ICBA Principles of GSE Reform and a Way Forward" notes that the placement of the GSEs in conservatorship in 2008 was described back then as a "temporary time-out" to allow both companies to stabilize. "After eight years, and into a third presidential administration, Fannie and Freddie, although they have returned to profitability, worked through most their defaulted loans, and continued to provide liquidity to the housing market, have less capital today than when they were placed under government control."

The release of the white paper, detailing its principles and recommendations for reforming Fannie Mae and Freddie Mac to support continued access to the secondary mortgage market for community bank lenders, calls on policymakers to allow Fannie and Freddie to rebuild their capital buffers and preserve equal access to lenders of all sizes.

Capital Markets

Zzzzz.... Or so it seems. Agency MBS prices did a shade better than Treasury securities on Thursday, but hardly enough to budge rate sheets. There were the usual slight movements in price between Ginnies, Fannies, and Freddies, between 30-year and 15-year maturities, and between coupons, but not enough to impact borrowers in a meaningful way. The 10-year note price improved .125 to close at 2.30%, where we've been much of the week and agency MBS prices also improved .125 - a little unusual.

This morning, as capital markets folks prepare to head off to New York for the conference, we've had the first look at Q1 GDP (+.7% - weak), Q1 Employment Cost Index (+.8% - strong). Coming up is the Chicago Purchasing Managers Index and the University of Michigan Sentiment Index. After the initial volley of stats, the 10-year is yielding 2.33% and MBS prices are worse .125 versus last night.

Jobs and Announcements

By popular demand, REMN will once again be hosting another Certified Military Home Specialist (CMHS) webinar to help lending professionals learn the critical elements and language skills needed to attract the important military home buyer. REMN's previous CMHS webinar had more than 2,000 registrants and was so well received that REMN account executives were continuously hounded by customers asking when another one would be scheduled. The free CMHS webinar will take place on May 4th and feature Beverly Frase, one of the leading experts in training mortgage professionals on the intricacies involved in working with military personnel and their families. Attendees will learn the best ways to communicate with VA loan applicants, how to strengthen relationships with their local military community and how to accurately calculate borrower income using the Leave and Earning Statement (LES). Those who participate will be able to add CMHS training to their resumes, increasing their qualification level for Department of Defense and military niche jobs, and can take a free online exam to receive their CMHS certificate.

MORTGAGE EQUITY PARTNERS, a veteran independent mortgage banker in New England, is searching for lenders operating on the East coast who would like to merge or sell. The ideal candidate is funding less than $15 million a month. There are several purchase options available depending on the situation. For a confidential discussion, please e-mail Mark Lance to be connected with the principals. Principals only please.

"Lenders may be looking for a new subservicer and choosing the right subservicer is more difficult than ever. Adding to that choice, is the fact that some of the firms providing subservicing may be under tremendous financial pressures limiting their abilities to continue as going concerns or, at a minimum, curtailing their operational capabilities to afford proper levels of customer and client service. If your subservicer is currently experiencing significant operational or financial challenges; has been recently downgraded or is not in good-standing with the regulatory community, RoundPoint can help. If your portfolio has two thousand loans or more and can be boarded before year-end, we will waive all boarding fees to help reduce the expense of transferring assets. For complete information on RoundPoint's subservicing, contact Allen Price (704.426.8846)."

SocialSurvey continues to add new clients to their enterprise reputation management platform. This week, they welcome NOIC, Inc; Embrace Home Loans; Capstone Direct Mortgage; Envoy Mortgage; NJ Lenders Corp; and Washington First Mortgage. SocialSurvey provides a platform for lenders to collect, share, and organize customer feedback. Since launching 20 months ago, SocialSurvey has added 55 retail lenders and never lost one. This is due to a commitment to client service and a product that delivers a high ROI. Email GetStarted@SocialSurvey.com to find out how SocialSurvey can help your company.

"It's an exciting time to be at Fannie Mae! Are you looking? We might be looking for you. We have an immediate opening for a Customer Account Risk Manager in our Pasadena, CA office. The ideal candidate has knowledge of the mortgage process, strong critical thinking skills, ability to assess risk-related issues, savvy relationship management skills and a proven record as a contributing team member. Underwriting, product background and/or credit risk experience a huge plus for the candidate with a positive attitude and mindset. Join a high performing team serving a portfolio of top customers for Fannie Mae in Southern CA.  Travel required. Well-qualified applicants may email a resume with cover letter to Cathy Wilkes, VP-Customer Delivery Team Leader."

It seems that few people actually retire from lending, but Texas Capital Bank announced that Gary Ort, president of its Mortgage Finance Division, is retiring at the end of June and will be succeeded by Director of Correspondent Lending Jack Nunnery. "Gary has been a key architect in the growth and success of Texas Capital Bank," said Texas Capital Bank President and CEO Keith Cargill. "We owe him a tremendous amount of gratitude."