CE, Sales Products; Ocwen/PHH update; Agency Deals; Why Does Extending a Lock Cost Money?
In less than 2 years, we'll be closer to 2070 than 1970! Does anyone feel that it’s silly to think of middle-aged mortgage bankers believing that they can still dance well to this song like they did 30-40 years ago? (Yes, Animal House is 40 years old!) And am I the only one that might consider the number of awards being handed out in the residential lending business has cheapened actually winning an award? (Does that even make sense?) It seems like every week some publication has a new list of award winners, whether companies or individuals. Most of the individuals, if not all, are well deserving, but is it just a way to publicize the publication? If a dozen whatever’s put out their top 20 awards, year after year… Such a curmudgeonly thing for me to say!
Capital Markets
Sure, the recent Fed rate increase, despite being entirely expected, as are four more, grabbed headlines, but there are other things going on lenders should know.
I continue to be asked about why extending a rate lock, if even for a few days for something beyond the control of the borrower, costs money. A good answer comes from James Hedvall, Director of Capital Markets of Mann Mortgage. “The cost to extend a best efforts lock reflects the cost incurred by Secondary Marketing to move the corresponding hedge to reflect the new closing date. It's an easier concept to understand if you acknowledge the inequity of hedging a mortgage pipeline: best efforts locks, which may or may not close, are given for FREE to Loan Officers, then hedged with mandatory security instruments. When a lock extension is granted, the hedge needs to reflect the change in delivery dates.
“For example, when a loan comes in with a 45-day lock, your hedge model will pull from your LOS the estimated closing date, to best execute that loan for delivery into the secondary markets. In the process it determines what month security needs to be sold to off-set the 45+ days of interest rate exposure that loan will incur. If that 45-day lock was taken out September 1st, with an October 15th estimated funding, a November security would probably be sold as the hedge instrument; a ‘only 7 days’ extension might just mean that loan now best executes into a December commitment, meaning you now must buy-back your November coverage, and sell a December security to match the new closing date. This ‘roll,’ from a front month security, to a back month has a transactional cost. Much of the fee charged to extend a loan with your secondary group reflects this cost.” Thanks James!
On September 20, Freddie Mac priced a new offering of Structured Pass-Through Certificates (K Certificates) backed by floating-rate multifamily mortgages with 7-year terms. The approximately $892 million in K Certificates (K-F51 Certificates) are expected to settle on or about September 27, 2018. The K-F51 Certificates will not be rated, and will include one senior principal and interest class, one interest-only class, and one class entitled to static prepayment premiums. The Class A offering (senior principal class) has a weighted average life of 6.52 years and a coupon of 1-month LIBOR +40. K-Deals are part of the company's business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the unguaranteed subordinate bonds. K Certificates typically feature a wide range of investor options with stable cash flows and structured credit enhancement.
On August 29, Freddie Mac announced an arrangement with Tradeweb Markets to develop a direct-to-Freddie Mac exchange path for institutional investors related to the Single Security Initiative. The proposed path will allow approved institutions to exchange eligible Freddie Mac Gold PC and Giant PC 45-day securities for the recently announced Freddie Mac 55-day, To-Be-Announced (TBA) uniform mortgage-backed security (UMBS) and 55-day, non-TBA mortgage-backed security (MBS) when Freddie Mac commences its proposed exchange offer next year. This arrangement will allow investors to use the Tradeweb platform to exchange their eligible Freddie Mac mortgage-backed securities, helping pave the way for a combined Freddie Mac and Fannie Mae To-Be-Announced market of Uniform Mortgage-Backed Securities. Freddie Mac expects to begin the proposed exchange offer in May 2019, when holders of eligible Gold PCs and Giant PCs currently are expected to be able to choose between two alternative exchange paths: directly with Freddie Mac as facilitated through Tradeweb or through dealers using Freddie Mac’s Dealer DirectSM portal.
On September 12, Freddie Mac announced the pricing of $820 million Structured Agency Credit Risk Trust 2018-DNA3, its third and final 60-80 loan-to-value deal of the year. As with the previous two STACR transactions, the notes are issued by a trust rather than as Freddie Mac debt. Through its STACR offerings, Freddie Mac transfers a significant portion of its mortgage credit risk on certain groups of loans to private investors. Freddie Mac rolled out multiple program enhancements for STACR 2018-DNA3, including extending the term to a 30-year legal maturity, introducing new credit class offerings, and offering new MAC notes for M-2, B-1, and B-2 classes. STACR Trust 2018-DNA3 has a reference pool of single-family mortgages with an unpaid principal balance (UPB) of approximately $30 billion, consisting of a subset of fixed-rate, single-family mortgages with LTVs ranging from 60 to 80 percent. The loans were acquired by Freddie Mac between Dec. 1, 2017, and March 31, 2018 and have an original term of 241 to 360 months. As with STACR debt, a hypothetical structure of classes of reference tranches has been established which is backed by the mortgage loans in the reference pool. Freddie Mac holds in its entirety the senior loss risk A-H reference tranche and the first loss B-3H reference tranche in the capital structure. Freddie Mac also retains a portion of the risk in the class M-1, M-2, B-1, and B-2 reference tranches.
Rates were unchanged yesterday as most eyeballs were busy watching the Kavanaugh/Ford testimonies (regardless of your perspective, they were riveting), the FOMC decision from Wednesday fading out of the news cycle without fireworks. Without much other domestic news of note, let’s turn internationally. Hong Kong's Monetary Authority increased its base rate by 25 basis points to 2.50% while HSBC raised its prime rate for the first time in 12 years. The rate was increased by 12.5 basis points to 5.125%. The Reserve Bank of New Zealand left its official cash rate at 1.75%, as expected. Italian officials were expected to present their fiscal targets for 2019 today, but the announcement was delayed due to continued inability to agree on the appropriate level of spending. The latest reports indicate officials have agreed that the 2019 deficit will be 2.4% of GDP.
Returning to the U.S this morning, August personal income and spending led off today's calendar. Respectively expected to be +0.5% and +0.3% MoM, they were both +0.3%. The core PCE price index was unchanged MoM, as expected. Chicago PMI for September is seen declining, while University of Michigan's final September Survey of Consumers is expected to rise. Today also sees two Fed speakers, Richmond's Barkin and New York's Williams. Friday begins with the 10-year yielding 3.04% and agency MBS prices better .125 versus last night’s close.
Lender Products, Services, and Training Events
The Knowledge Coop has some brand-new, killer continuing education content out again this year. It’s known for CE that doesn’t make you want to bang your head on the keyboard. Could even make you laugh - imagine that. If you haven’t checked your CE box yet this year, do yourself a favor and check out The Coop’s 2018 NMLS-Approved CE. They have online CE available in every state for 2018. Try them this year and receive 10% off with code CHRISMAN2018.
U.S. Bank, Freddie Mac and MGIC are joining forces to deliver an educational morning for Correspondent lenders in St. Louis. Aligned with Major League Baseball’s Wild Card race, “How to help Millennial Homebuyers Hit it out of the Park” will be hosted at Cardinals Nation in Ballpark Village on Wednesday, October 3. The morning will feature economic commentary from William R. Emmons, economist and assistant vice president at the Federal Reserve of St. Louis, in addition to presentations from Freddie Mac and MGIC, including “Millennial Myth: Understanding the Most Misunderstood Generation; Helping Millennials Buy Homes.” Correspondent Lenders in St. Louis can register to attend here.
“Join us for training and let Stearns Wholesale show you how we help brokers grow and brand their business. Marketing Tools for SNAP 2.0 offers flyers and social media graphics for our most popular products and services. Our marketing portal allows you to create personalized marketing pieces to help you extend your reach, grow your customer base and brand your business. Customizable flyer and social media templates can be personalized for both business-to-business and consumer relationships. It’s easy! We provide the flyers and graphics, with over 4,000 combinations available, then you add your logo and personalized information. Stay top of mind with your borrowers by providing relevant information to print on marketing flyers or social graphics to post on Social Media. Sign up here for training on October 3rd and learn more about Marketing Tools for SNAP 2.0 here.”
LBA Ware lifts the veil on LO performance trends and how they directly impact branch health in its white paper, Loan Originator Performance Trends: How to Build a Team of Hall of Fame Originators. Using data from its automated incentive compensation platform
CompenSafe, LBA Ware analyzed the production of 5,500 LOs over 30 months to show how LOs performing on different tiers impact branch-level bottom line. The report gives striking visuals of the distribution of LOs by performance, providing a clear-cut picture of efficiency, or lack thereof. For example, LBA Ware found that 70% of total loan volume is produced by only 3% of LOs. To help lenders make the most of their existing sales teams, the white paper offers 4 strategies for building a team of hall of fame producers. To read the full report for free, download your copy here.
M&A Update
Ocwen (“Newco” spelled backwards) and PHH’s acquisition is moving ahead. “The parties have now received all regulatory, governmental entity and contractual approvals and consents in order to be in a position to close. The approval from the New York Department of Financial Services is subject to certain conditions… The parties intend to close the transaction within the next 10 days. Under the terms of the merger agreement, Ocwen will acquire all outstanding shares of common stock of PHH for approximately $360 million in cash or $11 per diluted common share.”
Jobs
“Christmas is just around the corner! Question: If you’re an LO, what would you put on your ‘Wish List?’ More support, higher compensation, better execution, a flat management structure and direct communication with decision makers? Or maybe you’re where you can’t do it all on your own and need a LOA but can’t afford one? At The Mortgage Firm, we provide you a better way to maximize your income potential and regain your personal life. We are a corporation without the boardroom, offer a pro-sales culture with direct hands-on management, all while eliminating the politics and headaches you find at the big banks and larger corporations. We have access to a full range of mortgage sources, the top banks in the nation, and the connections we've made over 23 years in business, are invaluable.” For more details, contact Mickey Schilling and have an open discussion with her today.
ACC Mortgage just celebrated its 19th year in business by moving to a new office and tripling its size. ACC started as a Washington DC regional Non-QM lender in 1999 and has grown to an 18-state wholesale lender and has been leading the way with ITIN, Bank Statement, Foreign National, old-school Subprime, Jumbo and NIVA investment products to fill the non-traditional hole after 2008. ACC is looking to hire 10 additional Account Executives throughout the nation and 5 inside Account Executives for its new Rockville location. If interested, please send us a confidential resume.
Plaza Home Mortgage announced a new leadership structure and a realignment of some key executive responsibilities. Plaza’s two founders—Kevin Parra and James Cutri—are adding new titles of chairman and vice chairman, respectively. Mr. Parra will also continue to be president and CEO. “The titles reflect the more enterprise-focused roles that the two will be playing, while the day-to-day operations of Plaza’s businesses and its financial management continue to be led by Michael Fontaine, Plaza’s chief operating officer and chief financial officer.” Congrats to Jeff Leinan, SVP of national wholesale production, who has been named EVP, and will now, in addition to wholesale, be responsible for Plaza’s emerging reverse and renovation lending businesses. He will report to Mr. Parra.