Broker, Underwriting, Tax Products; Conventional/Conforming News, and an MSR Valuation Primer

News

On the trading desk we would always chuckle when someone would occasionally cry out, “Oh! I was working so hard I forgot to eat!” Really? One thing is for sure, though, and that is they’re forgetting to eat at Subway Sandwiches. Subway, the world’s largest fast-food chain, is struggling to adapt to more health-conscious, tech-savvy customers. So it’s rapidly downsizing. Subway closed more than 1,000 restaurants in the United States last year. Yikes! And Virginia’s https://livewell.com/ is the latest casualty of slim margins and steady origination volumes. (“Effective May 03, 2019, LiveWell Financial with no longer be in operation. LiveWell Financial will not accept any new submissions or take in locks effective immediately…”)

Lender Products and Services

Comerica Bank is proud to recognize Trey Worley as the recently elected President of the Texas Mortgage Bankers Association (TMBA). Since joining Comerica Bank in 2009, Trey has been an active member of the TMBA. Trey currently serves as a SVP and Manager of Comerica Bank’s Warehouse Lending Group for the western and southern markets. Comerica Bank is proud of its warehouse bankers for their industry support, advocacy, and volunteer efforts at the local, state and national level. Comerica Bank values serving the community, that is why involvement is one its core values. If you’re looking for a partner who gives back and serves, let Comerica Bank raise your expectations of what a bank can be. Please contact Von Ringger (313-222-9285) or Trey Worley (214-462-4279). Member FDIC. Equal Opportunity Lender. Loans subject to credit approval.

Unlock opportunity in a growing market with Loan Product Advisor® asset and income modeler (AIM) for self-employed borrowers. AIM for self-employed is Freddie Mac’s solution to automate the manual lender process of assessing borrower income using tax return data. It’s also the industry’s only AUS-integrated self-employed borrower income calculation solution. AIM for self-employed makes it easier to do more business, close loans faster and get immediate income rep and warranty relief related to certain borrower employment income. Freddie Mac has teamed up with third-party service provider, LoanBeam®, in leveraging their expertise and powerful optical character recognition (OCR) technology to supply qualifying income for any applicant. Freddie Mac’s broad release of AIM for self-employed on March 6 is the next step in their journey to provide AIM for self-employed borrowers … and get YOUR edge.

LoanCraft’s Tax Return Analysis gives visibility to loan officers and saves time for underwriters. LoanCraft provides a full analysis of income for self-employed borrowers, based on tax returns. The accuracy is warranted, the current turn time is less than three hours for typical files. Set up is quick and easy. There are no setup fees, minimum volume commitments or minimum term. Most important, LoanCraft does all the work. They fill any calculation gaps and warrant the accuracy. Visit LINK or contact Ron George.

NEXA Mortgage is a pure Broker leading the way out of retail with growth across the entire country. If you are a retail LO, BM, TL or Processor, contact NEXA now to experience why brokering is so much better. The average Loan Officer doubles their production within the first 3 months of joining. Best in industry support, compensation, underwriting (you don’t really believe brokers lose control I hope), rates, products, leadership, marketing, technology and processing (you will love our processing structure). Mark your calendars now to join us on our national calls that we host every Thursday at 11am PST. Just login any Thursday to NEXA Support at www.NEXAmortgage.com/support and our wonderful support staff will put you into the meeting. If you can’t wait to learn more, login now and ask for Mike Kortas. Currently in 8 states, submitted in 11 more and will add any requested.  

Conventional Conforming News

The MBA just announced that FHFA Director Mark Calabria will give his first public speech since being sworn in at its Secondary Market Conference in NYC on May 20th. Mr. Calabria, prior to recent months, was no big fan of Fannie Freddie, believing that they represent significant risk to taxpayers in their current form. Recall that in January Senator Crapo wrote a four-page outline on reforming our multi-trillion dollar industry. It’s a little more complicated than that…

But now, into the weeds! Would you like to view a sampling of Fannie Mae’s APIs across the loan lifecycle? Each API on the map highlights a real customer challenge with a corresponding solution that can be addressed by the API.

Beginning in May 2019, Freddie Mac’s Investor Reporting Change Initiative (IRCI) will revise Single-Family investor reporting requirements. This includes moving the investor reporting cycle from mid-month to end-of-month and updating remittance cycles. IRCI updates will be effective beginning with the June 6, 2019 monthly factor/disclosure for all currently issued PCs. This initiative will also apply to the new Freddie Mac UMBS and MBS, which Freddie Mac expects it will begin issuing on June 3, 2019. Here is more information regarding the IRCI changes for PCs, and here are more details on the IRCI effort.

Per the IRS issuance of 4506T changes, all loans for Wells Fargo Funding requiring a 4506T, effective April 30, 2019, the sellers must ensure the Closed Loan Package includes a signed 4506-T with line 5b left blank. WFF has also updated its conventional guidelines on the Home Opportunities Program – Prior Approval, LTV/TLTV/CLTV, effective May 20, 2019. Additionally, Wells Fargo Funding has new pricing adjuster for Second Home Conventional Conforming loans with LTVs greater than 85%, effective May 13, 2019.

PRMG announced the release of the WHEDA Valor Conventional DPA Program (Available in the state of Wisconsin only). Available for the Wholesale Channel, Broker must be approved by PRMG for Wholesale WHEDA transactions. 30 year fixed Conventional first mortgage for Qualified Veterans, defined as a military veteran with an honorable discharge or release. Borrowers who qualify for the VALOR program are NOT eligible to receive the Mortgage Credit Certificate. Product is posted to PRMG’s Product Profiles in the existing WHEDA Conventional Product Profile.

MIAC’s Steve Harris passed along some notes from Mike Carnes, MIAC’s Managing Director of MSR Valuations. “I want you to be aware of some upcoming changes to Freddie Mac’s remittance requirements. Effective 05/16/19, all 1st Tuesday remittance loans will be converted to ARC PI remittance loans. Currently Freddie Mac ARC loans are remitted on the 3rd Business Day after the 15th of month cutoff. Beginning in June, the PI draft for all loans will be determined based on a 15th of the month PI determination date.  Freddie Mac will draft the PI funds on the 2nd business day after the PI determination date. The principal remittance will represent non payoff principal collections from the 16th – 15th each month. Scheduled interest will be forecasted based on the UPB as of the prior EOM cutoff. Payoff remittances will remain the same.”

MSR valuation can seem very complex and somewhat esoteric, but it does impact borrower pricing, and thus we care. An MSR is the contractual obligation to service designated pools of mortgages. This right is frequently sold for a fee that reflects the underlying value to the owner. Basic mortgage servicing right typically involves a servicing fee, providing the obligation to “service” a pool of mortgages by receiving and processing mortgage loan payments while also handling additional financial requirements such as negotiating loan modifications, supervising foreclosures and calculating periodic payment adjustments.

Banks own the vast majority of mortgage servicing rights, though with these financial institutions increasingly having to deal with challenges such as regulatory changes and the need to improve capital reserves, banks are more inclined to sell the MSR assets. For an investment asset as complex as excess mortgage servicing rights, it is vital to have an in-depth understanding of both benefits and limitations.

There are several benefits of investing in mortgage servicing rights. MSRs represent a significant investment opportunity with the ability to “scale up” to larger transactions, as banks have sold MSRs worth more than $3 trillion over the last decade. The asset produces predictable and steady cash flow without increasing financial liabilities, and can act as a hedge as fixed-rate debt instruments typically decrease in value as interest rates increase. MSRs are based on well-defined obligations that are tied to a pool of existing mortgage loans. While they can be readily bought and sold, creating “new” MSRs requires new loan pools and more mortgages. This creates a solid foundation for the asset’s value. Finally, there is high supply of MSRs in 2019.

However there are some limitations. As a key source of potential MSR value is derived from pricing discrepancies due to forced institutional sales and misunderstanding of asset values, realizing this benefit of MSRs requires active portfolio management and expert knowledge of how MSRs should be valued, and substantial capital resources to execute purchases with a quick turnaround, an in an industry predicated on strong relationships.

As we have seen a lot recently, if the fee exceeds a “normal” figure based on prevailing transactions, an Excess MSR is created — equal to the amount of the total MSR fee that exceeds the basic value. For example, if an MSR for one loan has a total monthly fee of $25 and the basic servicing fee is normally $15, then the Excess MSR is $10. MSR contracts are often expressed in terms of basis points (BPS) of the mortgage payment that are allocated to the MSR and basic servicing fees. Owning the excess MSR assets does not result in the accompanying liabilities or obligations of the basic MSR. But the asset does produce additional cash flow and value for the portfolio.

Incenter Mortgage Advisors announced that its web based end-to-end automation eMSR platform now allows co-issue Sellers and Buyers the ability to compete with daily mandatory aggregator bid programs through new Spot Bulk capabilities. Sellers can now see a true all-in-pricing comparison to current aggregator bids as spot bulk MSR bids are visible to combine with their Agency pricing. The seller can run MSR Best Ex on their current MSR take outs, and incorporate in both loan level, or aggregate bulk MSR bids, to determine the best MSR partner for them to deliver the MSR. Buyers are able to see the actual loan level information and determine if the actual profile warrants any price adjustments from their standard Co-Issue grid for that particular seller. Buyers are ensured of consistent data from the sellers through an automated direct data feed into the buyer’s specific format, and sellers get the benefit of their MSR partners enhanced pricing along with operational efficiencies related to delivering directly to the agencies. For more information, please visit www.incenterms.com, or contact gabie.batista@incenterms.com.

Who is buying servicing? Plenty of companies, and for various reasons. Recently MT Bank bought a $13 billion MSR portfolio. This is a surprising move given that the capital treatment for MSRs (how much regulatory capital they are required to set aside) is more than the value of the MSRs themselves. Of course regulatory capital issues don’t necessarily determine investment decisions by themselves, but this is an interesting move.

Capital Markets

U.S. Treasuries continued their post-FOMC retreat on Thursday under pressure ahead of today’s payrolls report. The 10-year yield hit over 10 bps higher than the low on Wednesday, closing at 2.55 percent. Global markets responded to a slight improvement in Manufacturing PMI readings across the eurozone. Eurozone’s Manufacturing PMI ticked up and beat expectations in the final reading for April. The retreat in treasuries coincided with Fed Chairman Jay Powell pushing back against growing expectations for a rate cut in his press conference. Separately, Stephen Moore is no longer in consideration for a spot on the Federal Reserve’s Board of Governors. Sure enough, U.S. economic activity is solid while inflation pressures are muted.

The BLS April employment report kicked off today’s calendar, with headline payrolls at 263k, hourly earnings (up 6 cents), and the unemployment rate (3.6%). March advanced indicators are also out, including the goods trade balance along with wholesale and retail inventories. Later this morning the April Markit Services PMI and April ISM Nonmanufacturing PMI will be released. Today also sees a long list of Fed speakers, including Chicago’s Evans, Fed Vice Chair Clarida, New York’s Williams, Governor Bowman, and finally St; Louis’ Bullard, San Francisco’s Daly, Dallas’ Kaplan and Cleveland’s Mester will participate in a panel discussion. We begin today with Agency MBS prices worse .125 and the 10-year yielding 2.57%.

 

Employment

A large non-QM investor is looking to expand its Correspondent Sales team in the western and central states. “If you want a company whose focus is providing the best product and customer experience, this is where you want to work. Candidates must have a correspondent sales background, be willing to travel, and be highly motivated to educate sellers on the advantages of offering non-QM.” Confidential inquiries should be addressed to Anjelica Nixt for forwarding on to the principals.

Opus Capital Markets Consultants, LLC, (Opus CMC) leading provider of mortgage due diligence, a wholly-owned subsidiary of Wipro Ltd.(NYSE: WIT), a leading global Information Technology, Consulting and Business Process Services company, is seeking a Director of Business Development. The candidate will be responsible for business development nationally and have the additional advantage of also selling technology and outsourcing tools and services.  He/she will have deep diverse experience from more than 15 years in the industry, close relationships within Wall Street firms, originators, servicers, mortgage banks, regulators as well as knowledge and an understanding of the broader industry. “Our industry continues to evolve and digitize, so given current market conditions, assisting our clients with methods to gain efficiencies through new tools while maintaining customer centricity is critical to our collective success.” said Pete Butler, Executive Managing Director/Business Unit Head, Opus CMC.  For more info, contact Tony Veasy.

 

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