Category Archives: Secondary

Why Wells Fargo Says Its Portfolio Lending Is So Safe

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Brad Blackwell, who heads portfolio lending at Wells Fargo, calls his bank’s underwriters the “fighter pilots” of the lending industry they belong to a force trained to attack very specific targets.

Bull’s-eyes in this case are mortgage borrowers with credit criteria that make them good risks in Wells’ eyes, even when they don’t meet the Fannie Mae and Freddie Mac molds, and produce loans worth keeping.

Bankers like Blackwell say they are motivated to make “high-quality mortgages” because they are holding a lot more of them for the long haul. “If a lender is making a loan on balance sheet, they have 100% skin in the game, so they can ensure the borrower has the ability to repay,” Blackwell said.

Wells’ portfolio of on-balance-sheet mortgages rose 42% in the past three years to $210.3 billion at March 31. This shift is going on at other banks as well as they become comfortable with loans that have high credit scores, low loan-to-value ratios and few defaults.

These are the reasons many lenders argue that all loans held on banks’ balance sheets should get the ultrasafe “qualified mortgage” stamp of approval from the Consumer Financial Protection Bureau, a controversial proposal currently before Congress.

Blackwell, who spent 17 years early in his career at the former World Savings Bank, was tapped in 2012 by Mike Heid, the president of Wells Fargo Home Loans, to create a portfolio lending unit. Jumbo loans to the wealthy are a big portion of the portfolio but far from all of it. The San Francisco bank is now keeping all high-balance conforming loans those between $417,000 and $625,500 on its own balance sheet. Such loans would have been sold to Freddie Mac or Fannie Mae before 2012.

Blackwell discussed how Wells underwrites nonconforming and non-QM loans, why some borrowers have been shut out of the mortgage market and the perks Wells offers jumbo borrowers.

Why do you prefer keeping loans on balance sheet?

BRAD BLACKWELL: When you originate a loan to be held in portfolio, you get to make your own rules. You get to decide, “Do I like this loan, or don’t I?” You can exercise a degree of judgment on risk.

When I originate to investor guidelines, I create policies that satisfy those guidelines, so judgment is less important.

You might have a loan that meets every guideline that Fannie or Freddie would have or a private investor would have but you may not make that loan yourself. On the other side of that same coin, you may have a loan that doesn’t meet the guidelines, but you would make that loan every day.

What are the parameters you’ve set for underwriters?

We have a strong emphasis on the fundamentals of lending: the borrower’s ability to repay, credit history, commitment to the transaction, which is skin in the game and the quality of the collateral.

This is going back to the fundamentals of lending. This type of lending hasn’t really been done since the mid-1990s. As soon as automated underwriting engines were created, you started to lose that capability in the nation’s mortgage lending competency level. We need to sharpen the [underwriters’] experience in these areas.

We want to do high quality lending for our portfolio, and rules-based underwriting might not bring in quality.

Jumbo borrowers often have very complex financials. I internally call these underwriters the fighter pilots of the underwriting industry. It gives us a tremendous amount of flexibility to meet the needs of our customers.

We still have guidelines and quality-control discipline, but it’s all aimed at judgment.

How do you actually underwrite non-QM loans?

We look at lots and lots and lots and lots of loans together. We’re very disciplined at doing what we call deal reviews on nonconforming loans, and in teams looking at transactions together. We have 400 underwriters in six separate locations too many locations, and you lose quality control.

We say, if you were to change this one feature say, the borrower has more cash, income or savings then we run through various scenarios so we get everybody used to thinking about how to approve loans and what loans we want or not.

Why should loans held on a bank’s balance sheet be exempt from the CFPB’s qualified-mortgage rule?

It makes sense because the intent of Congress in creating QM was to ensure lenders are making decisions that are smart. If a lender is making a loan on balance sheet, they have 100% skin in the game, so they can ensure the borrower had the ability to repay.

Are lots of qualified borrowers not getting home loans?

There are so many people that know they’re qualified and the rules may not allow them to get a loan today.

We’re able to do things with our portfolio that other lenders can’t do.

Because we’re very confident, and have such strong controls and can originate very high-quality loans, we are originating both QM and non-QM loans if they make sense.

We’re comfortable doing non-QM lending [even though] you expose yourself on ability-to-repay lawsuits in the future. We are very disciplined that the loans we’re making are to customers that are very highly qualified; they just can’t meet the test of 43% debt to income [or others tests in the CFPB’s] Appendix Q, or are interest-only loans.

We don’t have a cap on non-QM; we want to make them QM when possible but there are many customers that are complex. The rules of Appendix Q do not make sense for all the customers.

Is it a tough balancing act?

Legislating underwriting is very challenging. The concern lies at the margin. Either I make the rules too tight, and there are always exceptions to the rule. If I want nothing but high quality I have to make them too tight, but if I loosen them I might bring in customers I don’t want. Finding that line with rules [is hard] when every customer is different. That has been the challenge for the industry with the QM rule.

To what degree can you customize products?

I can do a non-QM borrower, a 10%-down borrower and condos that Fannie and Freddie haven’t approved.

We rolled out an 89.9% loan-to-value program with no mortgage insurance in mid-2014 to meet a specific need for first-time homebuyers in high-end markets or move-up buyers who didn’t have appreciation.

And we do mixed-use condos, with retail down and residential up, that Fannie and Freddie would not approve.

Pricing on jumbo loans is still lower than conforming?

A jumbo borrower will get a slightly better price today than a conforming loan borrower. Banks’ cost of funds is still low, and the agencies have added quite a bit in guarantee fees and other costs. Wells is not the low-priced leader. We are mid-market price. We believe providing a fair price with lots of value.

Article source: http://www.nationalmortgagenews.com/news/origination/why-wells-fargo-says-its-portfolio-lending-is-so-safe-1050561-1.html

Sutherland Launches Commercial Bridge Lending Platform

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Sutherland Asset Management has launched a bridge lending division called Ready Capital Structured Finance to strengthen its existing direct commercial lending platform.

RCS will provide nonrecourse, bridge and mezzanine commercial real estate debt financing.

“The addition of this dedicated platform with a highly regarded team provides Sutherland with the ability to provide small- to mid-size balance commercial loans to finance real estate through its entire life-cycle, from development and rehabilitation through stabilization, with a wide range of financing products from senior to subordinate debt,” said Sutherland’s chief investment officer, Thomas Buttacavoli.

Sutherland is a full-service real estate finance company managed by Waterfall Asset Management that acquires, originates and manages commercial real estate loans and real estate-related securities.

RCS is offering nonrecourse floating and fixed-rate loans on transitional, value-add and event-driven commercial and multifamily real estate opportunities, and up to five years and $25 million to middle-market and institutional commercial real estate sponsors.

The division will also offer short-term, interest-only loans with advances of up to 80%, for cash-flowing and non-cash flowing properties. Flexible prepayment schedules and customized structuring solutions will be available.

David Cohen joins RCS as its national production manager and Dominick Scali as its head of credit. Both were previously at Doral Property Finance, where they helped grow the national bridge lending platform.

Article source: http://www.nationalmortgagenews.com/news/origination/sutherland-launches-commercial-bridge-lending-platform-1050382-1.html

Mortgage Hiring Gains Continue in March

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Mortgage banking and brokerage firms added 1,900 full-time employees to their payrolls in March, thanks to this year’s unexpected pickup in both refinance and purchase lending.

Employment in the mortgage banking/broker sector rose to 284,500 in March, up from 282,600 in February, the Bureau of Labor Statistics reported Friday.

It’s the second consecutive month of employment gains at nonbank mortgage firms, after a sharp drop in jobs at the beginning of the year. Industry employment is up about 4.2% from March 2014, when nonbank lenders employed 273,100 full-time workers.

And forecasts for mortgage originations bode well for additional hiring of loan officers and other mortgage professionals in the months ahead.

Economists at the Mortgage Banker Association expect a surge in mortgage originations in the second quarter. They are forecasting a 26% jump in single-family originations from the first quarter to $363 billion in second quarter.

Forecasts for home sales also are encouraging.

“New home sales have gotten off to a strong start this year and builders generally report a rising order backlog. We expect new home sales to rise 19% this year and look for a 4.3% rise in existing home sales,” according to an April 30 report by economists at Wells Fargo Securities.

Friday’s jobs report shows that homebuilders and other construction companies added 45,000 workers to their payrolls in April.

“Employment in specialty trade contractors increased by 41,000 in April, with gains about evenly split between the residential and nonresidential components. Employment declined by 8,000 in nonresidential building construction,” according to BLS commissioner Erica Groshen.

Overall, the U.S. economy created 223,000 new jobs in April and the unemployment rate was “essentially unchanged,” at 5.4%, the BLS reported. The results follow a dismal March when just 85,000 workers were hired, and March figures were revised downward from 126,000 new jobs.

“Today’s April jobs report suggests that the weak hiring in March was an aberration. The snapback in construction employment, the biggest gain since the start of 2014, supports our view that a weather-boost impact will show up in the current quarter economic growth,” Fannie Mae chief economist Doug Duncan said in a statement.

“While wage gains remain muted, reflected by the trend-like rise in average hourly earnings of little more than 2%, accelerating growth in broader measures, such as the Employment Cost Index and the continued decline in the unemployment rate, point to a tighter labor market,” Duncan added.

Article source: http://www.nationalmortgagenews.com/news/origination/mortgage-hiring-gains-continue-in-march-1050355-1.html

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