Where should a lender reduce expenses? I received this note from STRATMOR’s Jeff Babcock. “In our numerous conversations with client mortgage origination companies regarding necessitous cost cutting, the target is virtually always operations and fulfillment. Technology applications are generally justified based on operational efficiencies. Yet the MBA and STRATMOR Peer Group Roundtables (PGR) data over the last three years for Mid-Size Independents confirms that Fulfillment accounts for approximately 27% of direct production expense (average of about $2,000 per loan) while Sales costs run 73% (average of about $5,300 per loan). The real opportunity for achieving meaningful expense reductions clearly rests with the all-encompassing arena of sales functions. If a lender had been successful at reducing 2017 sales expense by only 10% (e.g., $530 per loan), the average 2017 profit would increase from $1,015 per loan to $1,545 per loan for a 52% improvement). Given the tighter margin environment, a 10% cost reduction in sales could make the difference between a profit or a loss in 2018.”
Capital Markets
Let’s see… there are sporadic issuances of securities backed by non-QM or jumbo loans, but for the most part banks and investors are happy to keep those on their books. There are billions of agency MBS issued every week, but Freddie and Fannie do plenty of other things in the debt markets. Let’s check in.
Fannie...
Fannie Mae priced their fourth Multifamily DUS REMIC in 2018 under its Fannie Mae Guaranteed Multifamily Structures (GEMS) program, offering a total of $705.9 million at a weighted average of 97.75. The deal boosted the Green GeMS total to $5 billion. The comes after pricing an $858.2 million deal in March, offered at a weighted average of 98.49 across the three tranches.
The GeMS program supports a liquid secondary market for Fannie Mae Green MBS, by allowing some borrowers to make property improvements that decrease their expenses and reduce the drain on natural resources. The flexibility of the DUS program allows for multiple tranches from a short floater to a 12-year fixed, attracting new investors to the program, increasing liquidity and ultimately improving borrowers’ financing execution.
Fannie Mae Priced $2 billion of 2.5% coupon New Issue 3-Year Benchmark Notes due April 13, 2021 and set to yield 2.552% at 99.851.
... and Freddie
On April 13, 2018, Freddie Mac announced the pricing of $503 million in Multifamily SB Certificates, their fourth multifamily mortgage-backed SB Certificate Transaction of 2018 (SB48), underwritten by Freddie and issued by a third-party trust. The SB48 certificate is comprised of small balance loans ranging from $1 million to $6 million on properties with five or more units. The certificates are offered across three classes at a weighted average of 99.96 and is expected to settle on or about April 24, 2018.
On April 09, 2018, Freddie priced a new offering of Structured Pass-Through Certificates (K Certificates) which are backed by underlying collateral consisting of fixed-rate multifamily mortgages with predominantly 7-year terms. The company expects to issue approximately $1 billion in K-731 Certificates that are expected to settle on April 13, 2018. That was predated by approximately $239 million in K Certificates which settled on March 27, 2018, and $568 million, $667 million, and $1.2 billion deals all settling March 29, 2018.
On April 03, 2018, Freddie announced that it auctioned a $250 million reopening of its 2.375% three-year USD Reference Notes security that matures on February 16, 2021. The stop yield for the issue was 2.459%, priced at 99.767. The bid-to-cover ratio was 4.94 to 1. After the reopening, which was conducted via an Internet-based Dutch auction, the outstanding size is $2.5 billion.
On March 29, 2018 Freddie announced it sold via auction 113 deeply delinquent non-performing loans (NPLs), settling in May, and serviced by New Penn Financial d/b/a Shellpoint Mortgage Servicing to VRMTG ACQ, a minority woman-owned business. The sale is part of Freddie Mac’s Extended Timeline Pool Offering (EXPO). Freddie Mac, through its advisors, began marketing the transaction in February to active investors in the NPL market, including minority and women-owned businesses (MWOBs), non-profits, neighborhood advocacy funds and private investors. The loans have been delinquent for over two years, on average, with the borrowers likely evaluated previously for or are already in various stages of loss mitigation (e.g., modification, other alternatives to foreclosure, or in foreclosure). Mortgages that were previously modified and subsequently became delinquent comprise approximately 65 percent of the pool balance and the loan-to-value ratio is approximately 113 percent.
On Mar 20, 2018 Freddie Mac priced two credit risk transfer offerings as part of the Structured Agency Credit Risk (STACR) series, Freddie Mac's flagship credit risk transfer (CRT) offering. The offerings, STACR HQA1 and STACR SPI1SM, are the first offerings for each series in 2018. Since 2013, Freddie Mac has transferred a portion of credit risk on approximately $951 billion in unpaid principal balance (UPB) on single-family mortgages, the leader in the industry, growing investor base 220 unique investors, including insurers and reinsurers.
STACR Series 2018-HQA1 is a $985 million Structured Agency Credit Risk (STACR) debt notes offering, the first high loan-to-value (LTV) deal of the year. The M-1 class is priced at one-month LIBOR plus 70bps, the M-2 class at +230bps, and the B-1 class at +435 bps. The UPB is approximately $40.1 billion, consisting of a subset of fixed-rate, single-family mortgages acquired by Freddie Mac between April 1, 2017 and Sept. 30, 2017. Freddie Mac holds in its entirety the senior loss risk A-H bond and the first loss B-2H bond in the capital structure. Freddie Mac also retains a portion of the risk in the class M-1, M-2 and B-1 tranches.
The company has also priced a $139.9 million STACR - Securitized Participation Interests (STACR 2018-SP1) transaction for investors who prefer a securitization backed by mortgage-related assets. The aggregate principal balance of approximately $3.5 billion is backed by 25- to 30-year fixed-rate mortgage loans, distributed across three classes of certificates; Freddie Mac will initially retain a five percent interest in each of the three classes, maintaining alignment of interests with credit investors. Under STACR SPI, a securitization trust will issue unguaranteed certificates backed by participation interests in a specified percentage of mortgage loans; the remaining percentage in each mortgage loan will be evidenced by a participation interest that will be used as collateral, leveraging the liquidity and efficiency of that market. The STACR SPI securities are REMIC regular interests.
In other rate news, a new LIBOR (Libor) substitute is here. The Bank of England is launching a modified version of the Sterling Overnight Index Average (SONIA) as an alternative to the London Interbank Offered Rate. Sonia is based on real transactions, rather than estimates, and swaps traders have used the original version.
In the U.S. rates were up again Monday, with the 10-year closing higher 2bps at 2.97% and garnering most investors’ attention as it nears its highest level since 2014. The yen weakened after the dollar climbed, while aluminum prices plunged with the U.S. softening its position on sanctions against Russia’s United Co. Rusal.
Yesterday lenders paid attention to the existing home sales number: An increase of 1.1% MoM in March to a seasonally adjusted annual rate of 5.60 million from an upwardly revised 5.54 million in February, exceeding expectations. Total sales were 1.2% lower than the same period a year ago, as notable supply constraints continue to act as a drag on overall sales. The limited inventory, and high prices for what is available, are a big hurt on affordability, particularly for first-time buyers. Moreover, all prospective buyers are going to feel added affordability pressures from rising mortgage rates. Separately, the European Central Bank will reportedly shelve a plan that would have required banks to increase their provisions for bad loans.
Today's calendar began with the Philadelphia Fed Non-Manufacturing Indices (cooler than expected). The Redbook Same-Store Sales Index for the week ending Apr 21 will be released roughly half an hour later, as will two February updates on home prices. The FHFA Home Price Index seen is increasing 0.6% MoM and 7.0% YoY (vs. 0.8% and 7.3% previously) with the S&P/Case-Shiller Home Price Index expected to increase 0.7% MoM and 6.4% YoY (vs. 0.8% and 6.4%). Things pick up at 10am, with March new home sales seen increasing to 646k vs. 618k, April consumer confidence seen falling to 126.9 vs. 127.7, and the April Richmond Fed Manufacturing and Services Indices expected at 12 and 20 vs. 15 and 25 in March. Tuesday starts with rates versus Monday’s close: the 10-year stands at 2.99% and agency MBS prices are worse nearly .125.
Misc. Lender News
In New Jersey, WEI Mortgage suffered a data breach. Here is what happened and what management is doing about it. In Illinois, Diamond Residential Mortgage’s license was suspended. “The suspension claims that Schaller used a bank trust for which he is the only beneficiary to hold ownership interest in his customers’ property and failed to provide proper documentation or details to those requesting a mortgage. Customers then made payments to Diamond Residential, thinking they were paying toward a mortgage that didn’t actually exist, the order says.” And in Missouri, the owners of Vinson Mortgage Services Inc. are going to court to regain their right to do business with the federal government, specifically FHA home loans.
SunTrust Banks Inc. has announced that it will offer the Experian IDnotify identity protection for free to current and new consumer customer after discovering a data breach by a former employee. The company stated that the breach impacted 1.5 million clients and included contact data and certain account balances but did not include confidential information including Social Security numbers or passwords and PINs.
Lender Products and Employment
Interesting times for loan traders in the secondary market. Resitrader is averaging over $10B in monthly bid volume on its platform. That sounds like really “big data” for developing market surveys of loan pricing, doesn’t it? Resitrader makes the data available in what they call “ResiCOLOR” reports to their participants.
“In today’s purchase-driven market, every detail matters to grow your business, especially who you choose to partner with. Close your loans faster, build stronger long-term relationships and gain flexibility with pricing a loan through the new TMS Emerging Banker Program (Non-Delegated Correspondent). Register today to hear from industry veteran James Hooper, SVP of TMS Wholesale, on how partnering with TMS as an Emerging Banker will not only deliver the above list, but we’ll even purchase loans off warehouse lines in average of 3 days to help grow your business. As a top-ranked mortgage employer and one of the largest correspondent lenders in the U.S, we have more than 20 years of industry experience to help your business prosper. To get more information, register by emailing EB.training@themoneysource.com today for the webinar on April 26 at 1 EST. Don’t miss out since space is limited.”
New American Funding, a national mortgage banker, is seeking an experienced SVP, Manager of Default Services for its Austin, TX servicing center location who will be responsible for collections, loss mitigation (home retention), bankruptcy, foreclosure and REO account management on all loans serviced by New American Funding. The SVP, Manager of Default Services is responsible for establishing and enforcing policies and procedures that ensure compliance with company, investor, federal and state regulatory guidelines and servicing guidelines established by the CFPB governing loans in default. The SVP, Manager of Default Services is responsible for the day-to-day management of staff, assignment of accounts, work-flow and systems having a direct impact on loans in default. Relocation package available. Please submit resumes to Katie Traviglia or call New American Funding at 877-478-5476.
Guaranteed Rate has chosen Total Expert as its strategic technology partner to deploy their new proprietary marketing operating system (MOS), named Red Arrow Connect. The system is designed for the modern top producer, bringing together best-in-class marketing tools and existing industry leading technology, custom built by Guaranteed Rate’s in-house technology team. “As part of Guaranteed Rate’s commitment to leading the industry in innovation, we selected Total Expert as a partner who most closely aligns with our needs and vision for the future,” said Chief Operating Officer Nikolaos Athanasiou of Guaranteed Rate. “Total Expert demonstrated their ability to scale to our needs, allowing us to customize our existing best-in-class technology platform. This streamlines the process for our loan officers to make it easier to build their brand and generate more business.”
Center Street Lending has announced the promotion of Dan Baruch to Chief Executive Officer. He previously served as President of the firm and will now oversee the day-to-day operations and strategic direction moving forward. With more than 25 years in real estate lending, Baruch has held several executive positions with top lenders including Chief Operating Officer of W. J. Bradley Mortgage Capital, Partner at Banc of Manhattan Capital, President of Banc of Manhattan Warehouse Lending, and EVP of Countrywide Warehouse Lending. He earned an MBA in finance from the University of Southern California. Center Street Lending has built a reputation as a premier private money portfolio lender providing business-purpose loans through wholesale and retail channels for investments in: fix and flip, fix and rent, buy and rent; buy, tear down and build; new construction, and bridge loans. For more information, visit www.centerstreetlending.com.
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