False Claims Act Penalty; Lender's Disaster News; Fed Does the Expected
I am currently in South Carolina, and as it turns out, no other U.S. region is more populous than the South Atlantic United States (Washington, D.C., Delaware, Maryland, Virginia, West Virginia, Georgia, North Carolina, South Carolina, and Florida). I realize that this commentary is focused on residential lending, but this area also represents a key portion of the CMBS market, as it carries the second-highest total of outstanding balance by region. A high delinquency rate, aftermath from natural disasters, and broader market trends, however, have put some stress on the South Atlantic region. It can't help but impact residential lending.
Legal News
Another fine was levied by the Department of Justice under the catch-all False Claims Act. A federal judge ordered Allied Home Mortgage Corp, Allied Home Mortgage Capital Corp., and Chief Executive Jim Hodge to pay $296.3 million to the U.S. government after a jury found them liable for inducing the government into insuring risky home loans.
And PricewaterhouseCoopers is set to launch a law firm in the U.S., a clear sign that the concerted push into legal services by the Big Four accounting firms continues. The firm, called ILC legal, will begin operating later this month with an office in Washington, D.C. It will assist U.S. clients on international issues and act as a marketing operation to generate work that can be referred to PwC's existing legal services network.
More Disaster Updates From Lenders and Investors
Hard to believe its almost been a month, but on August 24th Hurricane Harvey devastated the Texas Gulf Coast, dumping up to 51 inches of rain in some areas. Damage estimates are all over the map. Houston is home to the nation's number one market for single-family home building, and the losses resulting from this disaster will certainly become apparent in national economic indicators in the coming term.
Also important to note is that only 15 percent of the 1.6 million housing units affected by the storm are covered by flood insurance, meaning the out-of-pocket repair costs will be astronomical in total. Those without flood insurance can apply for federal disaster relief, which essentially means taking out a second mortgage on your home, but not all applications will be approved and those that are may still struggle to manage their costs and repair damages. Reduced population growth in the Houston area is expected, along with a drop in personal spending and potentially stricter building codes to reduce risks associated with future storms. Luckily the area's economy is tied to the capital-intensive energy business so it should rebound fairly quickly, but output will lack for some time and rebuilding damaged facilities will take even longer.
HUD issued this notice, waiving the requirement that inspections required in disaster areas not be completed until after FEMA issues a close date for the Incident Period. Inspections on single-family properties in the Hurricane Irma Presidentially Declared Major Disaster Area in Florida will be permitted beginning today. The MBA recommends we read the entire notice.
See Announcement 38-17W in regards to additional Florida counties receiving assistance in which Mortgage Solutions Disaster Policies must be followed.
Pacific Union Financial, LLC continues the temporary suspension of the purchase of loans secured by properties in south, mid- and north-eastern Florida counties. Purchase suspension for loans in specified areas is pending damage assessments, end of storms, and resolution of other issues impacting re-inspections/certification, such as power outages, lack of access, etc. Based upon current information, we are lifting the previous purchase suspension of loans in Georgia or South Carolina. While Pacific Union is not suspending purchases in additional areas affected by Hurricane Irma at this time, please re-inspect* to confirm there is no damage to impacted properties, in all affected states and locations as identified by the Federal Emergency Management Agency (FEMA). Re-inspection* of these properties is required for loans with valuations completed on or before September 10, 2017 in accordance with current agency and investor requirements.
Pacific Union Financial, LLC is revising all previous suspensions and allowing the purchase of eligible loans secured by properties located in Federal Emergency Management Agency (FEMA) - identified impacted counties provided they are re-inspected/reviewed in accordance with Pacific Union, agency and investor requirements. Pacific Union has added the requirement of exterior photos when a Lender Cert is required in keeping with standard market practices. Also note, If the date of the disaster is after loan closing, a Verification of Employment must be performed with an effective date after the date of the disaster to ensure that the borrower's employment has not been impacted.
Capital Markets
In hedging firm news, at its annual User Conference today, Compass Analytics announced the release of Compass' Lock Desk Vitals, mobile Command Center and significant enhancements to its enterprise level product, pricing, & eligibility engine, CompassPPE ("CPPE"). "This release gives capital markets executives tools to actively monitor their pricing and hedged position in real-time while greatly enhancing the PPE experience. Compass' Lock Desk Vitals and mobile Command Center deliver live market and production data from CompassPoint, Compass' risk management platform, and provides unprecedented mobile control of the lock desk, including updating rate sheets, freezing pricing, disabling AutoLock, and/or applying global price updates in real time; all from the ease of a mobile phone. Compass also announced its CompassPPE TPO Portal, which supports pipeline management, loan submission, pricing, locking, lock changes, and data change requests for third party originators. Third party originators can securely upload documents and review open and signed-off underwriting conditions."
The Federal Open Market Committee left the Fed Funds target unchanged, once again citing strength in the labor market and accelerating business investment, balanced by relatively low inflation. The statement acknowledged the potential for economic disruption due to the recent hurricanes, but indicated that historical experience suggests that any storm-related weakness would not have a meaningful medium-term impact on economic growth. Also, as widely anticipated, the committee at last gave a firm commitment to its balance sheet normalization program, providing guidance that the $4.5T gradual unwinding of the quantitative easing portfolio would begin in October.
So next month the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans. "For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month."
Chief Market Strategist Brett Ewing of First Franklin offered his reaction to the Fed announcement. "It is obvious Yellen and the Fed are perplexed about the current environment as it relates to inflation. They continually say the low inflation numbers are transitory, but their expectations for it to change continue to be pushed out. In June, Yellen said it was a couple month blip and in her press conference Wednesday she said it could be a year before it starts showing up. Translation: they have no idea."
Let's look at interest rates yesterday. The Fed did what everyone expected it to do. The 10-year moved slightly - 3-4 basis points higher. Hardly anything at all. Everyone saw plenty of mortgage price sheet changes, however, but a measure of the steepness of the yield curve - the difference in yield between 2-year and 10-year Treasury securities - barely budged.
Of interest to lenders was the existing home sales decline (1.7% month-over-month in August). Notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability.
With all this going on, the weekly or monthly economic numbers don't make much difference, as the Fed's path is well publicized. We've had Weekly Initial Claims (-23k to 259k) and the Philly Fed (18.9 to 23.8, whatever those mean). Coming up is the FHFA house price index. We start Thursday with the 10-year at 2.26% and agency MBS prices better almost .125 versus last night's close.
Opportunities, Products, Personnel Moves
Impac Mortgage Corp. is seeking an inside sales manager in Irvine, CA. Impac Mortgage Corp. is on the hunt for the right person to lead its inside Wholesale team. "Your core focus is to motivate, train, manage, and drive performance from your staff of Account Executives. As a key member of the management team, you use your keen market knowledge to plan and forecast, expand your team, and build internal and client relationships. The right candidate will be appropriately compensated, and enjoy full benefits. If this sounds like a fit, submit your resume to Brandie Young."
In wholesale and correspondent news, Sierra Pacific Mortgage is on a nationwide search for talented Wholesale Account Executives and Internal Loan Officers. "'Mortgage brokers have always been an important part of Sierra Pacific Mortgage for over 30 years. We are looking for professionals to solicit, build and cultivate long-term relationships in the broker community,' says Chuck Iverson, EVP. To keep up with its rapid expansion, Sierra Pacific is looking for highly talented people to work existing accounts as well! If you are someone who's looking to make a move to a company known for its strength, stability, and dedication to both their clients and employees, Sierra Pacific Mortgage may just be the company for you! Take the next step in your career and email careers@spmc.com with your resume!"
PHH Mortgage is assisting customers impacted by hurricanes. As communities impacted by Hurricanes Harvey and Irma work to get back on their feet, PHH has implemented initiatives to ease customers' burdens. For at least 90 days, PHH has suspended late charge assessments and credit reporting, placed a moratorium on foreclosures, and is offering forbearance of payments for customers adversely affected by the hurricanes. PHH will work with qualified customers to place them in a loan modification program if they cannot make their mortgage payments after the forbearance period. The company has also streamlined its insurance claims process. Steve Staid, Senior VP, Servicing, said, "At PHH we strive to make a positive difference for our customers and the communities in which we operate - during good times and bad. As our customers navigate through this difficult time, we want to do our part to make that process a little easier." PHH is also matching employees' donations to hurricane relief organizations with a donation to the American Red Cross.
Want to know how your bank's mortgage operation metrics compare to those of your peers? Richey May & Co., LLP has released its Mortgage Banking Dashboard for Depository Institutions, a counterpart to the expert data analytics already available to independent lenders on its website. This interactive, dynamic dashboard provides a comprehensive snapshot of quarterly key performance measures in relation to similar operations in the market. Using public data from FDIC Call Reports paired with production data from the Home Mortgage Disclosure Act (HMDA), users can identify areas for improvement, validate existing assumptions and establish performance expectations for the future. If you have any questions, or if you would like to learn more about using the data in your strategic planning, please contact Alex Haag.
Caliber Home Loans is excited to introduce the 5-Star ARM, a brand new adjustable rate mortgage product for home buyers. The 5-Star ARM incorporates a low initial interest rate with a five-year period between rate adjustments. And unlike other ARM products with annual rate adjustments, Caliber's 5-Star ARM limits them to once every five years. Notably, limited rate changes are built into the 5-Star ARM. Each five-year adjustment is limited to 2%, and can never increase more than 6% from the initial interest rate so borrowers won't worry about the possibility of making uncomfortably higher repayments in the future. Caliber's Executive VP of Retail Lending, John Bianchi, said: "The Caliber 5/5 ARM is a great solution for homebuyers who don't want to commit to a 30-year fixed-rate loan, but want the lowest starter rate they can find." To learn more about Caliber's 5-Star ARM visit Caliber.
In personnel moves, The Mortgage Collaborative (TMC), the nation's only independent mortgage cooperative, has promoted Rich Swerbinsky to the role of Chief Operating Officer. "Having served as its EVP of national sales and strategic alliances since 2015, Rich Swerbinsky will now serve TMC as its COO and also oversee national sales and strategic alliances as part of his new responsibility."