Disaster Updates, Impact on Secondary Markets; Lender and Bank M&A

Calling out attorneys with the U.S. Consumer Financial Protection Bureau for its "blatant disregard" for judicial instructions, the CFPB was dealt a legal setback recently that has caught the attention of lenders. What - the CFPB needs facts? While there continues to chatter about its Director heading off to run for Governor of Ohio, the bureau filed a proposed final judgment that would resolve its previous actions against Prime Marketing Holdings. A few weeks ago the bureau filed a lawsuit against Prime Marketing, claiming that the company charged illegal advance fees and misled consumers about the cost and effectiveness of its services and the nature of its money-back guarantee.

Disaster News and Lender/Investor Reaction

With the natural disasters already plaguing regions across the United States, the FEMA website lists all declared incidents with a link to provide details specific to that area, including leaking chemical plants.

After Hurricane Harvey's floodwaters subside, credit analysts will assess the damage to tax bases in Houston, southeast Texas, and Louisiana. Dollar amounts never go down in this kind of thing, and CoreLogic anticipated $40 billion of damage before Harvey made landfall. Recovery will take years, and probably damage the area's credit ratings. Terri Wenck, director at Fitch Ratings, said the first clients to be contacted will be utilities, particularly water and sewer operators. Both of Houston's city-owned airports, George Bush Intercontinental Airport and Hobby Airport, closed to commercial operations Sunday "until further notice."

In a Municipal Market Analytics commentary, analyst Matt Fabian wrote that the storm's effects are unlikely to interrupt national municipal market outperformance or create a material break in strong southeastern Texas growth trends and/or related issuer credit quality improvements. Analysts point to poor zoning controls, building housing developments in areas susceptible to flooding - or even dried lake beds, and the overall elevation of the area. But Texas' population growth is not expected to be impacted. In fact, Fitch Ratings analyst Steve Murray, who has analyzed storm damage in the region for years, said that Fitch does not anticipate any immediate downgrades due the storm. "We're not anticipating any long-term implications."

Hurricane Harvey does, however, hold the threat of inflicting significant losses on property and casualty insurers and reinsurers, according to a report released by Moody's Investors Service. "Primary insurers will face the largest effect from Harvey, with regionally focused carriers most vulnerable given their geographic concentrations," the Moody's report said. And gasoline prices have already spiked in anticipation of significant refining capacity disruption extending from South Texas to the Houston-Galveston area, but the gasoline market is currently well supplied and the US driving season is nearing an end.

The press seems quick to jump to conclusions and point out their belief that Texans won't pay their mortgages.

Caliber Home Loans, the fourth largest non-bank mortgage provider, and a Coppell Texas company, has announced that it is partnering with the American Red Cross to provide financial support to consumers affected by Hurricane Harvey. A matching gift program has been established for all employee donations received through October. "As a Texas-based company we are proud to be able to support those in need in the Gulf area", said Sanjiv Das, CEO of Caliber. 

"As we work together to support borrowers affected by Hurricane Harvey, lenders are reminded that Fannie Mae has selling and servicing policies to assist borrowers (or potential borrowers) affected by disaster. Refer to the Assistance in Disasters page for information about its policies for providing assistance to borrowers impacted by a disaster. Fannie will provide additional policy guidance in a separate lender communication. 

In light of the devastation caused by Hurricane Harvey, if you have mortgages secured by properties in the affected areas that are in the delivery pipeline, you should remove these mortgages from a Guarantor pool or Cash commitment."

Additionally, you should review Freddie Mac requirements related to properties affected by disasters to prepare to address impacted mortgages you originated and planned to sell to Freddie. "While it's premature to determine the full impact of Hurricane Harvey, review the applicable sections of the Single Family Seller/Servicer Guide and your procedures for inspecting and updating a property's value, condition and marketability when a major disaster or emergency occurs. Guide Section 5601.2 (c) - Requirements for properties affected by disasters, Guide Section 5601.2 (b) - Requirements for incomplete property improvement, Guide Section 4201.13 - Circumstances that adversely affect the value of the property.

We rely on you to determine the number of mortgages secured by impacted properties and the extent of damage to each property that may affect its acceptability as security for the mortgage.

As we continue to closely monitor the situation, we are grateful to our Seller/Servicers who are responding to requests for assistance from borrowers who are facing unexpected hardships because of the hurricane."

Capital Markets

Bank of America Merrill Lynch, who knows a thing or two about mortgage-backed securities, believes that Hurricane Harvey will have a limited impact on Agency MBS prepayments or production. "Up to 2% of mortgages are in the affected areas, but only a fraction will be affected. About 10% of TX loans may be impacted. The impact on CPRs and origination will be small. Speeds will slow initially on closing delays, but will increase with defaults. Based on the Katrina experience in 2006, CBRs are likely to rise 0.1 CPR on aggregate for a year, 1.5 CPR on 100% TX pools."

Certainly, there is not much going on price-wise, and we finished Wednesday pretty much flat. I won't waste your time talking about tiny movements between maturities, coupons, securities, or spreads that are nearly invisible to borrowers. The bond market is being moved more by North Korea, not U.S. economic news or Donald Trump's talk of tax reform. China's Foreign Minister Wang Yi said that China will abide "fully and completely" by UN resolutions, but added that China opposes unilateral sanctions against North Korea. The UN Security Council condemned DPRK's latest test following an emergency meeting on Tuesday.

The 10-year note closed Thursday yielding 2.15%. Tomorrow is the employment data, but this morning we've had some economic news here in the U.S. that are over-shadowed by the flooding and overseas events. Challenger job cuts for August were 33,825, an increase from July; weekly initial jobless claims (+1k to 236k) and personal income and spending (+.4%, +.3%). The core PCE deflator was tame. Coming up is August Chicago PMI and July Pending Home Sales - but really, the impact of any of this on rates is minimal. Rates aren't much changed versus Wednesday's close with the 10-year at 2.13% and agency MBS prices better a wee bit.

Opportunities, Events, Awards

A large Southern California lender seeks a Mortgage Servicing Manager to lead the company's internal Servicing Department and provide oversight and management of its sub-servicer. This lender is a national mortgage lender and servicer, located in Orange County, California with an extensive and growing servicing portfolio, consisting of conventional and government loans. To express interest in the position, and/or to request the job description and further details, please reach out to me. 

Ross Mortgage, a regional, full-service residential mortgage lender headquartered in Troy, Mich., was recently honored at the moCADEMY Awards for its ability to use Motivity Solutions' mortgage business intelligence software to drive culture and behavior that results in a more efficient, productive and compliant organization. Ross Mortgage has been utilizing the mortgage business intelligence software since July 2011 to document and measure all aspects of business procedures, streamline processes, increase productivity, improve communication and produce meaningful and real-time reporting. "Customer satisfaction is our number one focus, and we're always looking for new ways to improve our processes that allow us to continue serving our customers," said Ross. Since incorporating the software, Ross Mortgage has scaled their business and improved operational efficiency. 

"Western Bancorp has made yet another great hire by welcoming Gary Scarsella, Regional Sales Manager for the Southwest region. Gary has over 25 years of experience in the Wholesale and Residential mortgage business and a background that encompasses Mortgage underwriting, Loan origination and Sales and Management. Gary has been a leader of variety of leading wholesale companies such as Caliber home loans and Aegis Wholesale. Gary thrives on building high level sales team and will be leading Texas, New Mexico, Arizona and Southern California. Please join us in welcoming Gary to the team."

National MI will be hosting a Mortgage Leadership Roundtable in Southern California. "Fannie Mae, Freddie Mac, MCT representatives are among the speakers who will discuss a variety of hot topics relevant to mortgage lenders and servicers" on September 7, 2017 at the Ultimate Skybox in San Diego, CA. The free event is being hosted by National MI, a subsidiary of NMI Holdings, Inc. (Nasdaq: NMIH) a California-based private mortgage insurer, along with Mortgage Capital Trading (MCT), a leading Capital Markets advisory firm focused on technology and services, and BKD, a national CPA and advisory firm. Speakers include Fannie's Julie Jones, Freddie's Sam Luna, MCT's COO Philip Rasori, BKD's Ryan Sailor on "Internal Audit's Critical Role in Operational Excellence," and Kristin Messerli of Cultural Outreach Solutions. To register for the roundtable, contact Tracy Berry.

HousingWire and Maxwell just released results from a study highlighting the implications of shifting consumer demand and evolving digital workflow on originators and their companies. Originators and branch managers across the country were surveyed on their views on the future and opportunities of independent lenders. Some of the results are not surprising, but you'll definitely get a sentiment of your peers of just how much our industry is changing. Download the free industry study here.

Opendoor plans to enter the mortgage business. The company is currently piloting a mortgage program in Phoenix, touting its ability to save money for homebuyers when they buy one of Opendoor's properties, and by using Opendoor Mortgage will be eligible for a 1% discount off the purchase of an Opendoor home in the form of a credit towards closing costs. Buyers using Opendoor Mortgage can get prequalified in 30 minutes. The company also claims that a buyer can close on an Opendoor Mortgage in as little as 15 days, every buyer will have a dedicated loan expert who allows them to lock in a mortgage tailored to their financial situation, and works through its own title insurance operation, Opendoor Title to cover all parts of the real estate transaction. HousingWire reports that Opendoor will act as a licensed mortgage broker that works with correspondent lenders.

Mergers and Acquisitions 

Out of San Diego came news that Residential Wholesale Mortgage, Inc. is acquiring RJS, Inc. dba West Coast Mortgage. West Coast Mortgage is a midsize mortgage bank also based in San Diego with annual loan volume of $175M. Brad Livingston, President of RWMI states, "We look forward to adding seasoned mortgage professionals to our company. It was a natural fit, from culture, ethics and laser focus on serving client needs first and foremost". RWMI anticipates opening a branch along the I-15 corridor early in 2018 to accommodate the growth.

If you don't agree that aging bank owners, and those tired of the cost and regulatory environment, are exiting banking, did you know that FDIC data finds that from Q2 2016 to Q2 2017, the number of financial institutions with assets <$1B declined by 292 or about 5% to 5,035?

Through Aug. 15, S&P Global Market Intelligence counted 160 deal announcements in the U.S. banking sector with an aggregate disclosed deal value of $21.23 billion. S&P Global Market Intelligence reports that through Q2 of this year US banks and thrifts closed a net 2,238 branches vs. 1,453 for the same period last year.

In the last couple weeks or so it was announced that in Arkansas Arvest Bank ($17.3B) will acquire Bear State Bank ($2.2B) for about $391mm in cash (100%). In neighboring Tennessee, Reliant Bank ($1.0B) will acquire Community First Bank & Trust ($479mm) for about $59.0mm in stock (100%) or about 1.86x tangible book, and Commercial Bank ($930mm) will acquire Citizens Bank ($196mm). In Missouri, Southern Bank ($1.7B) will acquire Southern Missouri Bank of Marshfield ($92mm) for about $15.1mm in cash and stock or about 1.4x tangible book. National Bank of Commerce ($2.4B, AL) will acquire FirstAtlantic Bank ($451mm, FL) for about $107.7mm in cash (10%) and stock (90%) or about 1.77x tangible book.

Lake Michigan Credit Union ($5.2B, MI) will acquire Encore Bank ($418mm, FL) in an all-cash deal. In Louisiana Investar Bank ($1.2B) will acquire The Highlands Bank ($155mm) for about $22.1mm in cash (18%) and stock (82%) or about 1.3x tangible book. First Bank & Trust ($1.4B, SD) will acquire 2 bank holding company Duke Financial Group ($408mm, MN). Old National Bank ($14.8B, IN) will acquire Anchor Bank ($2.1B, MN) for about $303.2mm in cash (10.5%) and stock (89.5%) or 1.89x tangible book. In California Pacific Premier Bank ($6.4B, CA) will acquire Plaza Bank ($1.2B, CA) for about $226.3mm in stock (100%) or about 1.87x tangible book. In Maryland Howard Bancorp ($1.1 billion in assets) plans to acquire First Mariner Bank ($975 million in assets) for $163.4 million, a deal creating the largest community bank in Greater Baltimore.