Every lender has seen rates move higher, and nearly every lender has seen the inventory of homes for sale decline. With rates moving higher, which should not be a big surprise to anyone, the press has latched on to the question of the impact of 5% mortgages on the industry. With the economy doing well, and unemployment very low, we’ll have more borrowers qualify – but will the prequals merely stack up given the lack of places for sale?

Mergers and Acquisitions 

It’s a rough environment out there, lenders, large or small, are looking for solutions and ways to survive, and entire company shifts shouldn’t surprise anyone, especially Mr. Cooper. The latest biggest example of this is Nationstar (NSM) announcing that it is entering into a merger agreement with WMIH Corp (WMIH). WMIH Corp. is a publicly-traded company, grouped under “insurance companies,” that is focused on acquiring other companies. WMIH’s shareholders include several institutional investors, the largest of which is KKR. 

Nationstar shareholders may elect to receive $18 in cash (it closed yesterday at about $17 a share) or 12.7793 shares of WMIH common stock for each share of Nationstar common stock they own, subject to an overall proration to ensure that 32% of the total outstanding Nationstar shares are exchanged for the stock consideration. Upon completion of the transaction, Nationstar shareholders will own approximately 36% of the combined company and WMIH shareholders will own approximately 64%.

There have also been some recently announced depository bank mergers and acquisitions. In Georgia Ameris Bank ($7.8B) will acquire Hamilton State Bank ($1.8B) for about $405.7mm in cash (10%) and stock (90%) or about 2.05x tangible book. In Minnesota Hometown Community Bank ($32mm) will acquire Quality Bank ($28mm). Swiss banker Joseph Benhamou and certain members of his family have agreed to acquire Brickell Bank ($492mm, FL). The Benhamou family owns an $8.5B private bank in Switzerland. And in Texas Guaranty Bank & Trust ($2.0B) will acquire Westbound Bank ($228mm) for about $30.5mm in cash (21%) and stock (89%) or about 2.08x tangible book.

Capital Markets

Switching to the markets, it is important to remember that the Fed is not going to sell anything from the portfolio. It is just not buying, which is a big deal in and of itself. Moody's warned about a potential credit downgrade for the U.S. government due to deteriorating fiscal discipline following the morning passage of a budget that will increase spending on military and domestic programs by $300 billion over two years, leading to increased debt issuance at a time where there are growing concerns about the market's ability to handle the incoming supply.

Despite no economic data released yesterday, markets still had much to react to. After last week saw asset repricing to reflect rising inflation expectations in an economy driven by excessive fiscal and monetary stimulation, the 10-Year Treasury yield rose to a 4-year high Monday as concerns over inflation continued, even as global stock prices rebounded.

Traders are waiting for new consumer price data coming Wednesday but fears that inflation numbers might creep up faster-than-expected were affecting the bond market Monday. Expectations are that central banks around the world will increase rates as well. The U.S. job market is strong, and coupled with the inflation mentioned above, many investors now expect the pace of Fed hikes is going to increase through the course of 2018.

Why should lenders care that President Trump presented a budget, which projects that deficits over the next ten years will total $7.095 trillion, up from previous expectations for total deficits of $3.150 trillion, and assumes GDP growth of 3.0% in 2018? Pricing of mortgages and other fixed-income securities depends on supply and demand, and if the U.S. government is issuing more debt, therefore increasing the supply, and demand is stagnant, well, prices will drop, and rates will move higher.

The annual budget will be sent to Congress next week, though it will be largely obsolete because the big decisions on government tax and spending priorities have already been made on Capitol Hill. The budget projects an $873 billion deficit (prior $440 billion) in fiscal year 2018 and a $984 billion deficit (prior $526 billion) in 2019. The Treasury Budget for January showed a surplus of $49.2 billion versus a surplus of $51.3 billion for the same period a year ago but is not seasonally adjusted, so the January surplus cannot be compared to the $23.2 billion deficit for December.

Also hidden within the proposal, and a bit of a surprise to the MBS market, was the proposal to increase the FNMA and FHLMC’s g-fee from 10bp to 20bp from 2019 to 2021 and extend the 20bp fee through 2023. The White House estimates that the increase will generate $26bn over the 10-year budget window while claiming it will level the playing field with the private sector. The increase would also slow conventional premium speeds on the margin while further dampening G2/FN swaps.

The Fed took a break yesterday but will be back today with a Class A operation targeting up to $1.305bn max 3.5% ($545mn) and 4% ($760mn) at the usual 11:45am time slot. In addition, the Desk will release a new two-week FedTrade schedule, commencing with Wednesday’s operation, in addition to tentative four-week MBS reinvestments which are estimated at $12.7bn based on $20.7bn in paydowns in January minus the $8bn taper cap.

Today’s economic calendar kicked off with the January NFIB Small Business Optimism Index (increasing slightly). The Redbook Same-Store Sales Index will be released at 8:55am and the New York Fed’s Quarterly Report on Household Debt and Credit (Q4 2017) will be released at 11:00am. And we should see more headlines on the back of the release today release of the administration’s FY2019 budget proposal with OMB Director Mulvaney also scheduled to testify before the Senate Budget Committee starting at 10AM ET. Versus Monday’s close rates aren’t much changed: the 10-year is at 2.85% and 30-year MBS prices are a tick or two better.

Employment, Products, and Promotions

“Not many lenders last 30 years anymore, especially with the same owners. But then, most lenders aren’t Mortgage Network, one of the largest and fastest-growing independent mortgage bankers on the East Coast. What’s their secret? ‘We’re 100% privately owned and in it for the long haul,’ says EVP Brian Koss. ‘We value happiness—there are no egos and no ivory tower here. We simply invest heavily to make sure our originators deliver the ultimate customer experience.’ The formula works: 98% of Mortgage Network customers say they’d refer the lender to family and friends. And with 40 offices in 27 states, Mortgage Network is looking to hire veteran originators as well as those just entering the field. Says Brian: ‘My mission is to find people who fit into our culture and help transform their business goals into reality.’ If you like how that sounds, contact Brian!”

Midwest Equity Mortgage’s roots are in direct to consumer mortgage lending. However, over time, its developed a significant retail presence in the 15 states it currently serves. In 2017 alone, MEM funded $119 million in retail production. MEM is seeking an established Retail Production Channel Leader to lead this channel, serve its dedicated retail production leaders through additional support, and grow its presence. Inquiries should be directed to Eric Meadow, COO.

A "Top 5 National Retail and Wholesale Lender, with deep-pockets parent, is looking to purchase/merge originating independent lenders with production of $500M to $10B annually. We offer a revenue sharing plan that is excellent for those teams that want to maximize income on production. If you are a lender who has been caught in the interest rate environment changes, and would like to focus on production, please contact us.  We were recently featured at the IMN Conference in the M&A breakout session as one of the key lenders in the Country still looking to expand. Areas of the Country that we would like to expand are: New England, VA, MD, Midwest from Chicago to Texas, and many other areas of the Country where we would like to fill-in with a great tea of people! We will negotiate the best terms for the best companies commensurate with their current financial status and footprint. A 'plug n play' approach allows for smooth transitions with little interruption to business flow. If interested in having an initial discussion, please email me so a direct connection can be made.

A study by the STRATMOR Group stated that 85% of all senior mortgage executives are focused on building a borrower focused culture. Great loan officers paired with intuitive technology has become standard of borrower expectations. Of course, technology doesn’t just need to work, it needs to be simple, time-saving and designed for real people. Maxwell, recognized by HousingWire as one of the most Innovative Companies in Real Estate, is leading this charge. Maxwell’s digital POS was designed by leaders from Google and the Stanford Institute of Design. With a focus on design-thinking, embedded in behavioral theory, driven by powerful algorithms, the Maxwell experience is second-to-none. It’s no wonder than hundreds of lending teams across the U.S. use Maxwell every day. And best of all, with their white-label platform embedded in your website, you’ll get all the credit. To learn more about Maxwell request a live demo.

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Congrats to Kelly Morgan who NattyMac, Home Point Financial Corporation’s wholly owned warehouse lending company, promoted to Senior Director - National Relationship Manager.