MI Update - Radian in The NYT is Rarely a Good Thing
Overheard yesterday here at the National Secondary Conference: “She is not the brightest crayon in the box.” Funny. But there are plenty of “bright crayons” working on IT. The global market for blockchain technology is expected to grow to $5.43 billion by 2023, up from $228 million in 2016, according to an Allied Market Research report. "Blockchain-based solutions are projected to be adopted earlier in some industries such as financial services and the supply chain industry as compared to many other industries," the report notes. It is expected to become mainstream. But there is a risk with being "too mainstream": your financial fortunes rise and fall with the general industry. Just look at Ellie Mae, whose fortunes are tied to the overall lending climate.
Mortgage insurance
No mortgage insurance company wants to see their name in the headlines, especially when it is combined with "whistle blower." But such is Radian's fate.
Speaking of Radian, its new mortgage insurance written jumped 25% in the first quarter 2017, helping drive a strong start to the year. According to its first-quarter earnings release, new mortgage insurance written hit $10.1 billion for the quarter, compared to $13.9 billion in the fourth quarter of 2016 and $8.1 billion in the prior-year quarter. "Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended March 31, 2017, of $76.5 million, or $0.34 per diluted share. This compares to net income for the quarter ended March 31, 2016, of $66.2 million, or $0.29 per diluted share. Consolidated pretax income for the quarter ended March 31, 2017, was $114.7 million, which compares to consolidated pretax income of $102.4 million for the quarter ended March 31, 2016."
Unfortunately, the numbers missed estimates. Compass Point writes, "We reiterate our NEUTRAL rating on RDN and lower our price target from $20 to $19 (10x FY18 EPS). Our updated FY17 and FY18 EPS estimates are $1.72 and $1.90 (vs. $1.84 and $2.01 previously). We expect new insurance written (NIW) will be down slightly in FY17, while insurance in force will increase almost +9%. Given the current valuation (~9.0x FY18 EPS and ~1.4x P/TBV), along with continued revenue headwinds if refi activity remains muted, we don't see a major catalyst to drive RDN higher. Potential positive catalysts for earnings include: better-than-expected credit performance, acceleration of growth in the Mortgage and Real Estate Services segment, a more aggressive stance on share repurchase, or expansion of front-end risk transfer programs. The biggest uncertainty over the next two years will be the status and scope of any potential GSE reform.
"While the entire MI group sold off following the RDN miss, it seems unlikely that the industry-wide decline in refinance volumes would impact earned premiums at other companies to the same magnitude as Radian. Based on our analysis of the different mortgage insurers' single premium refund schedules, the lower than expected earned premium that drove a large portion of RDN's earnings miss yesterday looks like a RDN specific issue. RDN appears to have a more aggressive single premium policy cancellation refund schedule than the other MI's we examined."
After the Radian news KBW put out, "...we revisited earnings for peers that have not yet reported. We are reducing our estimate for 1Q17 earnings to $0.12 from $0.14 to incorporate a lower average premium margin. We calculate that NMIH's average premium was 41.7 bp last quarter. Management has guided to a longer-term average premium in the mid-40 bp since that's where the company is putting on new business (net of reinsurance). We had been assuming a modest increase in the premium margin reflecting this trend but we now assume a roughly flat premium margin in 1Q relative to 4Q. We believe our longer term premium margin assumptions for NMIH (43.7 bp in 2018) remain reasonable."
USMI published a Q&A between USMI President and Executive Director Lindsey Johnson and USMI Chairman and Mortgage Guaranty Insurance Corp. (MGIC) CEO Patrick Sinks. In their discussion, Johnson and Sinks discuss the past, present, and future of the MI industry, and how MI has helped people affordably become homeowners for 60 years.
What about non-private mortgage insurance? FHA published Mortgagee Letter 2017-10, Additional Period of Eligibility for 203(h) Mortgage Insurance for Disaster Victims of Specific Presidentially-Declared Major Disaster Areas (PDMDA) in Louisiana, which announces an extension in the period of eligibility for Section 203(h) mortgages for victims of the March 31, 2016, and August 14, 2016, Presidentially-Declared Major Disaster Areas in Louisiana. The period of eligibility for this program allows the FHA case number to be assigned within one year of the date the PDMDA is declared, unless an additional period of eligibility is provided. To allow for the long-term recovery of Louisiana disaster victims, the eligibility period is being extended to no later than September 8, 2017. This guidance is effective immediately.
Capital markets
Anyone looking for exciting, thrilling news out of the NY MBA Secondary conference will be somewhat disappointed. Talk from the 30,000-foot level is still, as it has been for years, focused on GSE reform, the role of the FHFA, the solvency of the FHA, updates on the common securitization platform, and the like. At the 5,000-foot level there is a little more going on as capital markets folks look for a few basis points here and there, and talking about mortgage servicing rights trends, a few new investors, the possibility of a Caliber IPO, and such.
And anyone looking for interest rate volatility is sorely disappointed out there. It's been "steady as she goes" which is fine for lenders, since volatility doesn't help bottom lines. But Monday fixed-income securities, like Treasuries and MBS, marked new highs in the wake of below-consensus Personal Income, Personal Spending, Core PCE Prices, March Construction Spending, and the April ISM Index. And you can throw into the mix comments from Treasury Secretary Steve Mnuchin who said that GDP growth could accelerate to 3.0%, but it would take up to two years to reach that level with help from tax cuts and reduced regulations.
One would have thought rates should have improved, given the mediocre economic news, but once again we were reminded that being a day trader would be tough even if you knew the news in advance. Rates surprisingly moved slightly higher by the end of the day with the 10-year moving up to 2.33% and 5-year T-notes and agency MBS prices worsening about .125.
And there isn't much scheduled to move rates today, with just a couple minor numbers (Redbook Same-Store Sales Index, the ISM New York Business Conditions Index, and April auto & truck sales). Perhaps of more interest, although no change to interest rates is forecast for tomorrow, day one of the FOMC two-day meeting will commence. We start the day with rates slightly higher than last night: the 10-year is yielding 2.33% and agency MBS prices are worse about .125.
Products for brokers and LOs
I am often asked to predict if technology will replace loan officers. The reality is technology should be helping humans, not making them more anxious and inefficient. Sure, people make mistakes (they're humans after all), but only people can add value through expertise, knowledge and advice that would be difficult to replace with technology. Maxwell recently published a great piece, "The Secret to Winning in the Mortgage Business," on how technology can be used to create a world of technology-assisted humans -- empowering loan officers to do what they do best and ultimately win in the mortgage business. This world where technology and loan officers co-exist and thrive shines a bright light on the future of the mortgage industry for both borrowers and lenders. Download the piece for the story of one originator's secret sauce.
In wholesale news, Cardinal Financial has announced the launch of its new wholesale channel led by industry vet Amy Mahar. "We saw the way most lenders do business and thought, there's got to be a better way. Cardinal Financial has spent years and millions of dollars developing proprietary technology called Octane that completely transforms the manufacturing process and user experience. Mortgage brokers desire a consistently reliable partner who can offer modern solutions and evolve with their changing needs and those of the borrower. The power of Octane is enhanced by human expertise and a 'We can do that!' culture. It's our job to make our brokers look good and our dynamic, automated approach to workflow is a game changer!" Cardinal is actively recruiting visionary AEs and Sales Leadership who are Influencers in their markets and want to be part of transforming the future of wholesale. Email Amy Mahar or call (704) 413-6956.
And brokers should know that Carrington has extended its Spring Streamline Special with reduced LLPAs on FICO < 600 on government Streamlines (FHA and VA IRRRLS), available for all loans locked through May 31st. These promotions and recent guideline changes are just a few of the changes made recently in their ongoing effort to become easier to use and with a commitment to their 'under-served' strategy! Visit CarringtonWholesale for a current rate sheet or to become a broker call 866.453.2400.
Jobs and Announcements
Evergreen Home Loans is seeking a Chief Financial Officer (CFO) to join its Senior Management team and "make significant contributions toward continuing to achieve dynamic growth and profitability. This individual will be actively involved in ensuring Evergreen continues to be the industry leader in customer service by delivering On Time and As Promised; and the very best place to work in the mortgage industry. Since 1987, our focus has been on providing a WOW full service home buying experience. We originate, fund, and service home loans and have approvals with Fannie Mae, Freddie Mac and Ginnie Mae. Evergreen was recognized as part of Washington's 100 Best Companies to work for by Seattle Business Magazine in 2016, 2015 and 2014. Fortune Magazine ranked Evergreen no. 12 in their national survey of best workplaces in finance and insurance and Fortune named Evergreen a 2016 Great Place to Work for Women. Join our team today!" Please contact Arlene Evans -Talent Acquisition - or apply online.
CoastalStates Bank continues to grow its warehouse offering and is looking to add relationship managers in key markets. "As a depository headquartered in Hilton Head, South Carolina, CoastalStates has developed a warehouse offering with sound lending practices while providing mortgage bankers competitive pricing with the excellent customer service they expect from their funding team." Interested individuals can forward inquires to Tim Haug, VP, Warehouse Lending (843-341-9969).
New Penn Financial is pleased to announce two new additions to its Third-Party Originations business channel. George Andrews has joined the team as VP, Wholesale Regional Sales Manager for the Northwest region. George has 20+ years wholesale sales management experience. He will be responsible for expanding our footprint in Northern California, OR, WA, and ID. He is seeking talented sales professionals in the SF Bay Area, Central Valley, Sacramento, and WA. Please contact George (408-718-5761) if you are a top performing AE interested in joining his team. And Jeremy Hebert has joined the team as VP, Wholesale Regional Sales Manager for the South-Central region. Jeremy comes to New Penn with 15+ years of mortgage lending experience. He will be responsible for expanding our footprint in Texas, Colorado, Utah, Kansas/Kansas City, Louisiana, Arkansas and is currently seeking AEs for these locations. Please contact Jeremy (214-930-9997) if you are a top performing AE and would like to find out more about the great opportunities available with New Penn.