The average used car depreciated about 23% last year, faster than the historical average annual rate of 18%, per the National Automobile Dealers Association report. Years of rising U.S. auto sales are starting to work against carmakers, and a glut of used vehicles has started to depress prices. That trend will intensify as this year Americans will return 3.4 million leased cars and trucks, another jump after a 33 percent surge in 2016, according to J.D. Power. (When auto lenders lease out vehicles, they charge the customer a monthly payment and make an assumption of the car or truck’s value when it will be returned for resale. If vehicles are depreciating more than expected, losses can pile up.) Yes, things change outside of residential lending.

Government news

I received a few notes regarding Dr. Ben Carson, the nominee for HUD Secretary. We should know that he was approved by the Senate Banking, Housing and Urban Affairs Committee, but is expected to be approved by the full Senate soon. Aside from that, one reader noted, "Regardless of party, most Secretaries come from the private sector or academia. Carson is no exception. You certainly could have mentioned, though, that this is a guy who dealt with HUD as a kid with housing issues. Who better to lead an organization with that mission than someone who has real life experience? If anything, he's the most qualified guy to do this." And another reported, "I met Dr. Carson and his wife here in Arizona. Even away from the medical world, he is very smart, well read, and very intuitive in our world. He is interested in what's best for America, not the politicians."

On to another nominee: Donald Trump's nominee for the Secretary of Treasury, Steven Mnuchin, testified that he supports bringing the CFPB into the appropriations process, and would like to tweak the Volcker rule (which prohibits proprietary trading) to eliminate the negative effects it is having on market liquidity, to ease the regulatory burden on small banks, and to bring back a "21st century" Glass-Steagall law, whatever that means. 

Recall that Glass Steagall was implemented during the Great Depression because investment banks were putting busted underwritings (i.e. underwritten bonds they couldn't sell to the public) on the balance sheets of their captive commercial banks and insurance companies at par to hide the losses. Glass Steagall ended this practice by requiring all of these transactions to be arm's length. Brent Nyitray, Director of Capital Markets at iServe, writes, "Fast forward to 2007, the crisis wasn't caused by JP Morgan the investment bank stuffing bad paper on Chase the commercial bank's balance sheet. For what it's worth, the US is the only country on the planet that separates investment banking and commercial banking, or even draws a distinction between the two. Everywhere else, it is just called 'banking.' Indeed, the reason Glass-Steagall was repealed in the first place was that reason: Wall Street investment banks like Morgan Stanley and Goldman couldn't compete with foreign banks because they had to fund their balance sheets at LIBOR while the foreign banks could borrow at much lower deposit rates. As the derivatives business expanded in the 1990s, 'Wall Street' was becoming Credit Suisse, Deutsche Bank, Nomura, and Barclay's." Thanks Brent!

Let's see what's new in the capital markets.

Ginnie Mae is implementing changes to the HMBS Pool New Issuance Disclosure Files (Daily, Weekly and Monthly Pool New Issuance). Beginning March 2, 2017, Ginnie Mae will discontinue publishing the HMBS Enhanced Pool Weekly file and only publish a cumulative HMBS Pool Daily New Issuance along with a Monthly New Issuance File. Note that the Daily New Issuance disclosure is a cumulative file containing all new issuance data from the beginning of the month to the end. The release time for both the HMBS Pool Daily and Monthly New Issuance disclosures will also change to 7:00 a.m. of the following business day (from the date of new issuance).

Ginnie Mae is also making the Ginnie Mae REMIC Data Search available on ginniemae.gov. This search function allows users to search for and download specific REMIC data by any of the following search criteria: CUSIP Number, REMIC Series Number and Tranche, Payment Date, and Payment Period and Programs Type. On February 1, 2017, the legacy REMIC search will be redirected to the REMIC Data Search on ginniemae.gov.

Along those lines, U.S. Bank issued the following reminder. Recently, U.S. Bank Home Mortgage has noticed a substantial increase in the number of incorrect insuring certificates in loans that we have received for purchase. The certificates in question include the following: Mortgage Insurance Certificates (MICs), Loan Guarantee Certificates (LGCs) and Loan Note Guarantees (LNGs). Data elements on the original note must match the certificate exactly. All government insuring certificates are reviewed for accuracy. Incorrect information on these certificates delays the loan review process and causes the loan to be out of compliance with the investor, GNMA.

Ditech announced that Janney Montgomery Scott LLC has been added as an approved counterparty for our AOT program.

Bloomberg's Matt Scully reports that, "A bond-market startup is a step closer to reviving crisis-era derivatives that let investors bet on U.S. homeowner defaults. JPMorgan Chase & Co., Bank of America Corp. and Credit Suisse Group AG have given price data to the startup, New York-based Vista Capital Advisors, which rolled out the latest version of its pilot initiative this month...The firm plans to use that data to create indexes of mortgage securities, which in turn would become the basis for the derivatives..."

"The derivatives would work much like ones created in the run-up to the U.S. housing crisis. Those products, known as the ABX indexes, were blamed for amplifying risks as big traders like American International Group Inc. wagered that subprime mortgage bonds would perform fine. After losses surged and the government had to bail out the financial system, demand for ABX bets faded. The new derivatives, however, would be tied to higher-quality mortgages that are less likely to default. The indexes Vista is building are linked to mortgage bonds issued by Fannie Mae and Freddie Mac known as "credit-risk transfer" securities, which force investors to bear losses when borrowers default on their loans...The underlying loans are safer, but the bonds are still riskier for their owners than standard Fannie Mae and Freddie Mac mortgage bonds, which are fully supported by the government."

"Credit-risk transfer notes are an important mechanism for the government to reduce its support for Fannie Mae and Freddie Mac...Since 2013 when Fannie Mae and Freddie Mac began selling credit-risk transfer notes, the companies have offloaded nearly $40 billion of risk to bond investors. Derivatives could help boost these sales and lower taxpayer risks, ultimately, by making it easier for dealers to hedge their exposure to the notes, and by increasing the trading activity in the securities, Barclays Plc wrote to housing regulators last year."

For the daily markets, stock prices are garnering all the publicity. (They're more glamorous than bonds anyway, right?) Yesterday longer-dated treasuries hit yield highs for the year as the market continued to struggle amidst tapering concerns (the NY Fed stopping reinvesting monies), lower reinvestments in the near term, and duration extension. Regardless, the 10-year yield hit the highest level, 2.54%, since late December after dropping nearly .5 in price. Agency MBS prices and the 5-year T-note worsened about .250.

Today we've seen weekly jobless claims (w/e Jan 21: +22k to 259k), the advanced goods trade balance and inventories (at $65 billion down slightly), and the Chicago Fed's National Activity Index for December (above trend at +.14). Coming up are December New Home Sales (expected to decline slightly), December Leading Economic Indicators, the KC Fed Manufacturing Index (Jan), and a $28 billion 7-year note auction. The 10-year starts the day sitting around 2.53% with MBS prices worse nearly .125 versus last night.

Jobs and Announcements

In wholesale job news, "Attention Call Center Loan Officers. Have you seen your pipelines become much smaller in the last 90 days? Endeavor America Loan Services wants you to know they have more leads (brokers) than it can handle in their call centers in Santa Ana. Ca. and Phoenix, AZ. Are you interested in making a move up? Inside Account Executive positions pay a base + commission incl. full benefits package. You can explore their job openings or reach out directly to Steve Curry, EVP of Sales at Endeavor America. This is a great opportunity for hard working mortgage call center professionals."

For retail jobs, "LenderFi.com a nationwide retail direct lender, is continuing to expand. 'We have immediate openings for 100 loan originators who are self-driven and looking for an opportunity to work in our Calabasas office, Los Angeles' premier call center. We provide 100% of the leads needed to be successful which allow our originators to solely focus on producing as opposed to traditional methods of prospecting. We are a LendingTree certified lender and buy the best leads in the industry. We can close loans in 3 weeks or less. By leveraging technology, we have created a culture where our average mortgage banker is earning $13,951 monthly.'" Please send your confidential resume to Edwin Eshaghian.

And on the other side of the nation, Republic Bank, a publicly traded Bank headquartered in Louisville KY, is expanding its retail mortgage operations and actively seeking seasoned sales managers and loan originators to join its Louisville, Nashville and Tampa Bay markets. Republic's goal is to make banking easier for its clients, so a focus on creating a great customer experience, while offering an expanded credit box with competitive pricing, and unrivalled service! Offering an expanded credit box, nationwide footprint, portfolio products, and more allow you to maximize your earning potential! Republic Bank enables the mortgage professional to serve the home buyer on a local level, while having the power, resources and flexibility to meet customer's needs. So, if you are a manager or LO who is committed to excellence, driven and focused we want you! Confidential resumes should be sent to Alan Kalell, SVP, Managing Director of Mortgage Lending. Republic Bank is an Equal Opportunity Employer: Minorities/Females/Veterans/Individuals with Disabilities/Sexual Orientation/Gender Identity.

In vendor product news, Village Mortgage Director of Marketing, Robbin Myers, says this about LOsocialbot "Corporate" after the December rollout. "Loan Officers come to Village Mortgage because of the wide range of services that we provide - like LOsocialbot - that help them make building relationships and closing loans easy. Having a strong social media presence is critical. Not only does social media assist borrowers in conducting their due diligence on the best lender for their needs, but it also helps cultivate relationships with referral partners and is a vehicle to educate homeowners. LOsocialbot delivers daily, relevant information to each of our Loan Officers' Facebook and LinkedIn pages automatically.  The content is always fresh and interesting and our LOs love it because they don't have to worry about generating content ideas. Our goal is to help LOs focus their time on what they do best - putting people into the homes of their dreams." For more information on LOsocialbot Corporate contact Jason Lutz.

In company news, 3-year old Nexera Holding LLC announced that funds affiliated with Warburg Pincus, a $40 billion global private equity firm focused on growth investing, have agreed to make a significant growth investment in the company. The investment will be used to further advance Nexera's technology platform and accelerate its expansion plans. "Founded in 2014 by Steve Abreu and a team of industry veterans, Nexera is focused on building business channels that combine proprietary technology, an efficient operating model, and a personal touch to reshape the way customers shop for and close a mortgage. It operates under two national brands: Newfi for consumer-direct business and Blustream for wholesale lending."