LenderNews by Rob Chrisman
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Dec. 28: Correspondent bus. opportunity; new MBS buyer; FHA, VA, PACE, Ginnie updates; RBS CA settlement

December 28, 2017

For further evidence of the uneven recovery among U.S. housing markets, how’s this: In the 10 most expensive U.S. metropolitan areas, median home values have increased by 63 percent since 2000, after adjusting for inflation. In the 10 cheapest metros, median values rose by just 3.6 percent.
 
Business opportunities, unfortunate stock moves, settlements
 
A mid-sized national mortgage company is seeking to divest of its national correspondent mortgage operation and sales division. The division is currently purchasing approximately $1 billion annually in delegated and non-delegated whole loans primarily on a best efforts basis, but has the capability to scale to 2, 3 or 4 times that volume. Potential suiters need to have the willingness and ability to retain the mortgage servicing rights and have the license necessary to purchase loans in most states. Confidentially, please email me to pass your note of interest along to the principals.
 
In the banking world, mergers and acquisitions continue, for various reasons: age of owners, declining margins, increasing complexity, possibility of extreme punitive penalties, etc. These factors, and a few others, certainly influence the decision making by non-depository lenders around the nation, and one can expect to see plenty of deals, ranging from branch movement to $1 billion/month lenders, making moves in 2018.
 
The news has not stopped leading up to the holidays, so let’s look at recent bank announcements from around the country. Whitney Bank ($27B, MS) will acquire the bank-managed high net worth individual and institutional investment management and trust business from Capital One ($407B, VA). The acquisition will put Whitney into the Top 50 trust firms in the US by revenue (at $75mm), assets under administration to $26B and assets under management to $10B.
 
Equity Bank ($2.4B, KS) will acquire both The First National Bank of Liberal ($310mm, KS) for approximately $45.1mm in cash (37%) and stock (63%) or about 1.41x tangible book, and Adams Dairy Bank ($127mm, MO) for a total of $15.8mm in cash (25%) and stock (75%) or about 1.53x tangible book. In California Tri Counties Bank ($4.7B) will acquire First National Bank Northern California ($1.3B) for about $315.3mm in stock (100%)
 
Over in balmy Minnesota Park State Bank ($53mm) will acquire The Pioneer National Bank of Duluth ($83mm). William Penn Bank ($313mm, PA) went across state lines and will acquire Audubon Savings Bank ($157mm, NJ). The First ($2.2B, MS) will acquire Sunshine Community Bank ($194mm, FL) for about $32.1mm in cash (25%) and stock (75%). In the Land of Lincoln First Mid-Illinois Bank & Trust ($2.8B) will acquire First Bank & Trust ($466mm) for about $73.8mm in cash and stock or about 1.61x tangible book. In the home of Tabasco, Union Savings and Loan ($83mm, LA) will acquire Hibernia Bank ($137mm, LA) for about $28.2mm in cash (100%).
 
For a Christmas present, California Attorney General Xavier Becerra announced that California reached a $125 million settlement with RBS over mortgage bond issues that took place from 2005-2007. According to Becerra’s office, the settlement covers “misrepresentations” about the underlying mortgages in several mortgage bonds sold to California’s public employee and teacher pension funds, CalPERS and CalSTRS. (Recall that earlier this year, the Royal Bank of Scotland reached a $5.5 billion settlement with the Federal Housing Finance Agency – overseer of Freddie and Fannie – over alleged violations of federal and state securities laws regarding private-label residential mortgage-backed securities trusts.
 
Becerra’s office said that an investigation found that descriptions of the RMBS in question “failed to accurately disclose the true characteristics of many of the underlying mortgages” to investors, “due diligence to remove poor quality loans from the investments was not adequately performed,” and that RBS was aware of the misrepresentations but “failed to correct them.”
 
There aren’t too many publicly held (e.g., anyone can buy stock in them) residential mortgage companies. So those in the industry tend to follow their performance closely to obtain a sense of investor’s thoughts on their future prospects. Thus the news that Impac’s stock hit a 52-week low is not something to celebrate.
 
In North Carolina, a group of mortgage bankers called on a North Carolina delegation to address housing finance reform. “We need a solution that continues to promote competition in the marketplace so that families of all income levels have the opportunity to be homeowners."
 
FHA, VA, PACE, and Ginnie news
 
FHA has completed an update to the Loan Review System (LRS) that expands functionality, making it easier for lenders to track specific cases and perform their own analytics using review data. Specifically, the LRS update consists of two new functions: “Search” – this function has been added to the main navigation header, allowing lenders to search their reviews by FHA case number, regardless of review status. It also allows lenders to filter and export results, which will be useful as additional search criteria are added in the future. “LRS Downloads” – this function has been added to the Reports section of LRS, allowing lenders to export detailed data on all their LRS reviews and incorporate it into their own reporting processes. 
 
Provident Funding has released FHA in 7 additional states: CT, MN, OR, SC, TN, TX and WI.
 
PennyMac posted a new announcement pertaining to FHA and VA 2018 Loan Limit Increases.
 
Last month Flagstar Bank made government price adjustment improvements. These adjustments can be found on page three of its Price Indication Sheets. 
 
Effective December 21, Sun West began accepting lock requests and underwrite Government Loans per the new 2018 National Conforming and High Balance Loan Limits.
 
PennyMac posted updates to Government LLPA tab on Rate Sheet.
 
Citi Correspondent Lending has posted updates on FHA and VA Loan Amount Change and 2017 Median Income Limit Changes.
 
Effective immediately, M&T has updated the Contingency Reserve policy on all FHA 203(k)
product pages to be consistent with the FHA Handbook 4000.1.  There is a difference in how 
contingency reserves may be released between the Standard (full) and Limited 203(k) products.
 
PACE? Maybe not so wonderful – is it the wrong way to make your house energy efficient? Here’s an article on the topic worth a scan.
 
PennyMac Correspondent posted FHA ML 2017-18 Updates to PACE Lien Requirements.
 
NewLeaf Wholesale posted the following about PACE obligations: Properties that will remain encumbered with a PACE obligation are not eligible for FHA mortgages effective for all case numbers assigned on or after January 7, 2018. For purchase transactions where the subject property is encumbered with a PACE obligation, the sales contract must include a clause specifying that the PACE obligation will be satisfied/paid by the Seller at or prior to closing. For refinance transactions where the subject property is encumbered with a PACE obligation, the PACE obligation may be paid off through a cash-out or rate-and-term refinance transaction.
 
Ginnie Mae announced that issuance of its mortgage back securities (MBS) totaled $39.13 billion in November. A breakdown of November’s issuance includes $37.215 billion of Ginnie Mae II MBS and $1.986 billion of Ginnie Mae I MBS, which provided access to $37.734 billion in capital for single family home loans and $1.467 billion for multifamily home loans. Issuance in Fiscal Year to 2018 November issuance is $79.341 billion. Ginnie Mae total outstanding unpaid principal balance increased to $1.904 trillion, which is up from $1.894 trillion in October 2016.
 
Of course, this Ginnie news leads right into…
 
Capital markets
 
Los Angeles-based money manager DoubleLine Capital is creating an investment advisor named Mortgage Opportunities Capital, according to recent regulatory findings, with the intention of purchasing or originating residential and commercial real estate loans to package into securities.  Like strategies employed by Angel Oak Capital Advisors, Invictus Capital Partners, and Varde Management, Double Line is pursuing mortgage assets back by borrowers who do not qualify for a conventional mortgage, even with stellar credit.  The cost of financing these loans through securitizations is becoming more favorable even as interest rates on conventional mortgage slowly rise, leading to potentially wider spreads on these deals. 
 
“A number of institutional investors, including the Philadelphia Museum of Art, Fairfax County Employees’ Retirement System, NPR Foundation and St. Lawrence University, agreed to back DoubleLine’s mortgage strategy in September through the purchase of partnership interests or notes issued by an Irish affiliate which entered into a revolving credit agreement with Wells Fargo & Co. the following month. Data from SEC filings shows the DoubleLine Mortgage Opportunities Master Fund LP raised $296 million earlier this year to originate and invest in mortgages. The fund would retain at least 5 percent of each securitization not meeting the qualifications set forth by Dodd-Frank.”
 
Looking at bond price movements, and therefore interest rates, Wednesday the 10-year Treasury note yield fell to 2.41% and MBS prices improved nicely. Why? Attribute it to year-end portfolio rebalancing, month-end index buying, and short-covering brought out the buyers. This buying occurred during a session where trade volume was only at 60% of the 30-day moving average, which amplified the price movement. The main headline of the morning was the Consumer Confidence Index, which fell 6.5 points to 122.1, from its 17-year high in November.  Even with the drop, the index remains at historically strong levels as we head into 2018. The Pending Homes Sales Index showed a small gain of 0.02 percent to 109.5 in November, continuing this month’s positive home sales data. As with last week’s data, the report highlighted tight supply and rising prices heading into 2018.
 
BJ Necel noted, “The buying today was helped by low volume, so it’s a supply/demand type of movement. Loan officers should know that when there is less trade volume, each transaction has a larger effect on the price movement and since there were more buyers today due to the year-end and month-end transactions. The market rallied more than if the same sort of buying occurred during higher volumes. It could just have easily moved the other way.”
 
Thursday’s calendar sees weekly jobless claims (245k, unchanged from the prior week), the trade deficit ($69.7 billion, a slight widening), and wholesale inventories (+.7%). At 10AM ET Freddie Mac’s Primary Mortgage Market Survey is released. We start Thursday with rates a shade higher than last night: the 10-year is yielding 2.43% and agency MBS prices are down/worse .125.
 
 
A pizza customer calls his favorite local pizza parlor and asks: “Is this Mike’s Pizza?
Pizza Operator: “No, sir, we are now Amazon Pizza. Do you want your usual”?
Customer: “How do you know my usual?”
Amazon Pizza: “Well sir, our records indicate you ordered pizza with pastrami and thick crust for your last seven orders. Do you want that?”
Customer: “Well, ok”
Amazon Pizza: “Sir, could I suggest you add some vegetables, this time”
Customer: “Why do you say that, I hate vegetables?”
Amazon Pizza: “Sir, by cross matching phone numbers we find that your medical records indicate you have a cholesterol problem.”
Customer: “I don’t need vegetables, I take anti-cholesterol medication”
Amazon Pizza: “But sir, we see that you have not reorder your medication in 4 months”
Customer: “To show you how much you know, I recently purchased over- the-counter cholesterol medication.”
Amazon Pizza: “But sir your credit card shows no such charge.”
Customer: “To show you how little you know, I paid in cash.”
Amazon Pizza: “But sir, your bank account shows no cash withdrawals in some time but our location finder on your iPhone indicates you are at the corner of 4th and Main and our drug distribution center is only a half a block down Main. Would you like me to order the medication to be ready for your arrival?
Customer: “This is too much. I am being hounded and spied on. Where is my privacy? I want to leave the country!”
Amazon Pizza: “Sir, I’m sorry to inform you, your passport expired five months ago, but if you go on our web site and click “Renew” we can have it processed and delivered to you within 5 days for only $50.”
 
 
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Servicing: All It’s Cracked Up to Be?” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
Rob
 
(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2017 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)