Borrower Satisfaction Survey; CRT's Help in Secondary; Credit Risk Increasing in Primary Market
Welcome to the first day of summer. Hey, I don’t where you’re going to be exactly two months from now, but on August 21, besides marking the anniversary of Hawai’i’s statehood, there are various places to watch the total eclipse. Here's a cartoon simulator - enter a town or city and then hit the arrow on the bottom left. (If its sunny for you all day, sorry.)
Servicing News
Lien releases and assignments are critical to moving loans into the secondary market and present a specific set of compliance challenges for servicers and investors. MetaSource's latest whitepaper tackles "The 3 Biggest Mistakes Servicers & Investors Make".
In a servicing-related matter, the California Department of Business Oversight issued a brief bulletin for licensees to be able to identify which documents may be used to comply with both the per diem statute and the Financial Code §50204 (o) (hereinafter referred to as §50204 (o)). The per diem statute prohibits a borrower from being required to pay interest for more than one day prior to the disbursement of loan proceeds from an escrow; §50204 (o) works in tandem with the per diem statute by prohibiting violation of the statute and provides guidance on licensee required documentation.
Phoenix Capital's recent deal, Project Brutus, is a $515 Fannie Mae Bulk and $40-60 million per month Fannie Mae flow servicing rights offering. The bulk portion is 100% FNMA, 90% 30 yr FRM, 10% 15yr FRM, 4.068 WAC, $194k average loan balance, 75% Purchase, 97% Retail, 94% Single Family, 90% OO, 744 WaFICO, 81% WaLTV, with top states: TX (25%), SC (19%) & KY (16%); the flow portion will be approximately $40-60MM per month of 100% FNMA AA, 89% Fixed 30, $230-240 average loan, 83% Purchase, 97% Retail Originations, 100% SFR, 92% OO, 749 WaFICO, 81% WaLTV, with Texas, California and South Carolina state disbursements.
IMACs #104205 is a pool of 1st and 2nd Scratch and Dent Loans: Total UPB of $5,538,878, 21 loans, 4.233 WAC, 86.10 WaCLTV, 6 year WALA, 692 WaFICO, 100% OO, with a national dispersion.
John Bancroft from IMF reports that, "The banking industry retreated a little further from the business of servicing mortgages for other investors during the first quarter of 2017, although a change in reporting requirements made the change look a little bigger than it really was. A new Inside Mortgage Trends analysis of bank call reports shows that commercial banks and savings institutions serviced $3.640 trillion of home mortgages for other investors, typically MBS trusts. These are mortgage servicing rights that the bank owns. The March servicing-for-others figure was down $167.2 billion, or 4.4 percent, from the amount reported for December 2016. However, in early 2017 new call-report requirements allowed smaller institutions to replace several call-report schedules with a more streamlined form."
Capital Markets
As expected, the Federal Open Market Committee increased the fed funds rate range by 25 basis points, to 1.00-1.25 percent. The FOMC members' new median economic projections stated that real GDP growth and expected year-end fed funds rates would remain essentially unchanged. However, unemployment rate predictions were a notable 4.2 percent lower in 2018, reflecting this year's faster-than-expected drop in the unemployment rate. And long-run inflation predictions were surprisingly unchanged at about 2 percent, which means the FOMC currently sees justification for more rate hikes even though recent inflation indicators have been weak. The addendum to the Fed's policy normalization principles gave a deeper look into balance sheet reductions, and FOMC chairwoman Janet Yellen said the reductions would happen "relatively soon".
Housing and jobs are the supports of the U.S. economy (beats graft & drugs, right?), but it is good to keep an eye on spending. Soft pricing contributes to soft spending in May. Retail sales, service station sales, and other categories all experienced small decreases, partially due to lower gasoline prices. Despite the month's soft decrease in spending, real consumer spending in Q2 is expected to bounce back and support stronger GDP growth after Q1's weak numbers. With lower gasoline prices, CPI continues its steady, gentle decline since last February. And though the Fed is still expected to raise fed funds rate, inflation rates have been tame which could impact Federal Reserve monetary policies.
"I hear my CEO & capital markets gal talking about this CRT stuff. Will it help me find more borrowers?" Good question, especially since every conference one attends where Fannie & Freddie (or the FHFA - their overseer) are speaking, the subject of credit risk transfer receives plenty of airplay. Both have been experimenting with frontend and backend deals in which part of the credit risk is shared with third party investors - for a price. In the deals, the investors pay cash up front and purchase debt securities that are designed to absorb the credit losses on GSE (government sponsored enterprises) loan pools. The goal is to attract private capital into the mortgage market and shift some risk away from taxpayers - since we are on the hook for Freddie & Fannie.
Supply and demand move mortgage rates. And if the demand for securities is strong, that helps the price, and therefore the rates to your borrower will be less. In theory. But to entice investors to participate, Fannie & Freddie must lower their gfees and backstop any mortgage insurance on loans with more than an 80% LTV. One way to think about it is if the Agencies contribute to lessen losses, through their guarantee fees, the and private MI companies cover a portion of the default risk on the underlying loans.
Investors who buy MBS like the fact that, with the high LTV CRT deals the GSEs provide a backstop to the MI component of that piece. You can follow along at home by watching for news about Connecticut Avenue Securities (Fannie) and Structured Agency Credit Risk (Freddie's STACRs). Both lower guarantee fees, and therefore help borrower's rates & prices.
And if you're worried about the private mortgage insurance companies, remember that the MI companies have recapitalized and must now meet FHFA financial standards, aka Private Mortgage Insurer Eligibility Requirements (PMIERs) to insure Freddie and Fannie loans.
All of that should be positive for rate sheets for borrowers.
But in the primary markets credit risk for new mortgages edged up according to CoreLogic. The index is at similar levels to 2001-2003, which CoreLogic considers a baseline for credit risk. Part of this is due to the impact higher interest rates have on credit scores. As CoreLogic observes: "Since 2009, for every one-half percentage point increase in mortgage rates, the average credit score on refinance borrowers has dipped by 9 points, and this pattern will likely continue if mortgage rates move higher. That is because when rates rise, applications drop off and loan officers spend more time with the applicants that have less-than-perfect credit scores, require more documentation or have unique property issues."
For rates, the U.S. Treasury market spent the day in a steady advance that was paced by a spike in the 30-yr bond, which climbed to levels not seen since immediately after the November election! Our buddy the 10-yr note erased yesterday's entire decline. If the Fed wants inflation it is not going to obtain it from oil: crude oil slumped to a fresh low for the year.
The recent curve flattening continued following last week's rate hike and Monday's hawkish rhetoric from NY Fed President Dudley. ThomsonReuters reported that, "Volumes were not all that impressive in MBS with Tradeweb indicating better selling on net on less than average volumes" and the 10-year note closed better by over .250 in price at a yield of 2.15% while agency MBS prices improved about .125.
This morning we've had the MBA's usual application survey data from last week, confirming what lock desks everywhere could tell you: overall apps were a shade higher but purchases were down. Existing home sales for May will be released at 10AM ET - look for a slight increase. We begin Hump Day with rates versus last night: the 10-year is yielding and agency MBS prices.
Jobs and Products - Borrower Survey Results
LoyaltyExpress, a fast-growing mortgage technology company headquartered in Boston, MA, is searching for a Vice President of Sales. "The company serves leading retail banks and mortgage companies across the United States by delivering high-impact solutions that accelerate lead-conversion and business-development objectives. The company's software is complimented by a world-class digital print and manufacturing infrastructure that empowers intricate branding guidelines and personalized communications. The executive team is seeking to add a Vice President of Sales who has experience building sales strategies and teams. The Vice President of Sales will be a crucial member of the executive team, working closely with the CEO and Founder to target green field market opportunities within a high-volume niche industry. For more information, please contact Trey Miller."
Midwest Equity Mortgage, LLC (MEM) is a member of the INC.5000 and Crain's Fast 50 fastest growing companies. We have an immediate opening for an Inside Sales Loan Officer to accept exclusive, qualified inbound leads from Spanish/English speaking borrowers. Along with your previous clientele and referral sources - the sky is the limit! MEM is searching for someone with a minimum of two years' current loan origination experience, strong sales skills and can speak fluently in both English & Spanish. MEM has offices in IL, CA, WI, MO & KS so come experience unparalleled service levels and a terrific culture to thrive. For interested candidates, please click here to apply.
What is the difference between the status quo and experiencing great service? In most businesses, the inches separating the two are the difference between great profitability and losing money. Great businesses generally control no more than 7% of the market share while controlling 70% of a given industries profitability. In 2015, The Money Source (TMS) decided to break away from the status quo of the subservicing world and bring their servicing in-house. What was the result? Lower delinquencies, increased servicing income, creating a world class technology to aid in servicing oversight, and much more. TMS is now offering the fruits of their labor to the entire market place. Tired of dealing with subservicers who treat you like they are doing you a favor providing "status quo" service, with 1990's technology to boot. Come and see what TMS Subservicing offers. Visit www.getSIME.com for more details.
For lenders looking for a new correspondent outlet, AmeriHome Mortgage is pleased to announce that Eric Watson has joined the company as a Correspondent Sales Account Executive. Eric brings over 15 years of Correspondent Sales experience to AmeriHome's team of seasoned and talented mortgage professionals. Eric will be assisting in business development of the Southeast region which includes TN, AL, GA, SC and FL. Contact Eric at eric.watson@amerihome.com or 747.242.3813 for those interested in partnering.
One area where top producers always differentiate themselves is communication. Consumers communicate with the brands and services they love completely differently than they did even 5 years ago. Borrower experience, for most loan officers is the number one factor to determine a successful or unsuccessful loan, and deeply rooted in a great borrower experience is seamless, connected, and consistent communication. Simple platforms like Maxwell have created mortgage-specific automation features that enable LOs and processors to communicate with borrowers -- almost as a second nature! Maxwell automatically notifies borrowers and their agents, and sends task reminders, by email and by text. They've also launched an innovative messaging platform to answer questions in seconds, whether you are away from your desk or in the office. Mention RC30 to receive a free 30-day trial on Maxwell. To start delighting your borrowers and to simplify your loan process, request a demo here.
STRATMOR Group's MortgageSAT data from the first quarter 2017 (20,000 sample size) suggests some problems are far more damaging than others to a borrower's overall satisfaction. The problems that cause the least damage are those involving the appraisal and closing processes, while the most damaging are those involving communications and the time it takes to complete the loan process. In this month's MortgageSAT Tip, Mike Seminari from STRATMOR suggests four tangible ways you can improve communication on the way to better borrower satisfaction.
At the opposite end of the growth spectrum, California lender Sindeo closed shop. Based in San Francisco, the "mortgage technology" company was four years old and is closing its doors immediately. Sindeo's CEO, Nick Stamos, published a letter on the company's website announcing the closure. "But, startups are hard and simplifying the highly regulated, complex business of mortgages is even harder. I believed we had overcome the biggest hurdles, but unfortunately, we didn't. Today, we made the difficult decision to wind down Sindeo." Sindeo had made some high-profile hires including Jobe Danganan (general counsel and chief compliance officer, an ex-enforcement attorney-advisor at the CFPB) and Deepak Kumar (COO and CFO, and a former Fannie Mae exec).