Freddie’s Q1 Buyback Totals; EverBank Goes Public; The CFPB and Diversity


is Cinco de Mayo, hence the real-life, true, yes, really true, well kind of
true tale at the end of the commentary. Anyway, tomorrow celebrates the
legendary Battle of Puebla on May 5, 1862, in which a Mexican force of 4,500
men faced 6,000 well-trained French soldiers. The battle lasted four hours and
ended in a victory for the Mexican army under Gen. Ignacio Zaragoza. Along with
Mexican Independence Day on Sept. 16, Cinco de Mayo has become a time to
celebrate Mexican heritage and culture. This is important, given that there are nearly 32 million U.S. residents
of Mexican origin living here
, or 63% of the total Hispanic population (up
from about 21 million only ten years ago), and 61% of those with Mexican
heritage live in California. The median age of this population is only 25 years
old, versus 37 for the entire U.S.! (The rumor that the descendants of the
defeated French went on to establish the current regulatory environment for
mortgage bankers is unfounded.)

With its guarantee fee announcement, Fannie
really gave those of us going to the MBA’s National Secondary
conference something to talk about. One hopes that it will not be applied
retroactively. (Can you imagine receiving a letter saying, “We’re raising
the g-fee on your production for the last year by 5 basis points, so send us a
check for…”?) But many are quick to point out that the first sentence
says, “Fannie Mae is updating the terms that pertain to Fannie Mae’s ability to
change the pricing applicable to lenders’ deliveries of mortgage loans under
the standard Selling Guide provisions as well as under any existing Master
Agreements and related MBS contracts.” Attorney Brian Levy wrote, “No
one really ever thought that repurchase remedies would be used on loans that
had errors that were not material to the loss either, but that all changed when
people tried to figure out how to pin losses on someone else.  Unless they
clarify their intentions in writing, I would not be complacent assuming that
Fannie will not use this Announcement to change deals after they close.”

There may be a little good news out there, if you look hard enough.  The CFPB outlined how the bank regulators
plan to implement a mandate in the Dodd-Frank Act to promote diversity
the workplace at financial institutions through the Office of Minority and
Women Inclusion (OMWI). Dodd-Frank also called on the regulators to jointly
develop standards for assessing diversity policies at the institutions that
each regulator oversees. Stuart Ishimaru is now the head of the CFPB’s
diversity office, bureau officials said the banking regulators may soon collect
from banks information about their diversity practices as part of the process
for developing best practices. Per an article in the American Banker, “None of the diversity offices within the
regulatory agencies have authority to write rules or require bank or nonbanks
to change their hiring practices or other diversity-related policies
CFPB plans to work with banks and nonbanks, as well as other regulators with
similar office – including the OCC, FDIC, Federal Reserve Board, and the FHFA
to develop the standards over time.” The office is also responsible for
developing similar standards for the diversity of the CFPB’s workforce,
including senior management, and increasing participation of minority- and
women-owned businesses in the agency’s programs and contracts. Credit:

Some wonder why CFPB enforcement lawyers
are accompanying CFPB examiners on CFPB exams
. According to news reports,
Mr. Cordray stated that the practice is intended to allow supervisory and
enforcement staffs to learn more about how each other operates.  He was
quoted as saying that the CFPB wants “the supervision teams to understand where
enforcement works and why and how” and that the CFPB also wants “the
enforcement team to understand how supervision and examinations work.” Critics,
however, noted that the reasoning had changed from the earlier explanation, which
was that (per Deepak Gupta, formerly the CFPB’s Senior Counsel for Enforcement
Strategy) the enforcement lawyers were being sent to exams to provide legal
advice to the examiners, who are non-lawyers. Those critics suggest that the
CFPB’s practice and the purpose of the exams is to obtain information and
documents that the CFPB can use to initiate enforcement actions.

Hey, hats off to EverBank, which
went public yesterday at $10/share.
Many in the industry are seeking to raise capital for things like financing
mortgage servicing rights (MSR’s) through other means, and EverBank went public
for other reasons, but it is still a positive for the biz.

The financial services mergers acquisitions wires have been humming
lately. In Maine Camden National Bank
is buying 15 branches from Bank of America, picking up $414 million in deposits
at a 3.70% premium. Bar Harbor BT
will purchase Border Trust Company for 97% of tangible book (3.9% premium on
its loans) – it’s the first acquisition in Bar Harbor’s 125 year history. In
California, PacWest Bancorp will
purchase American Perspective Bank for $58 million in cash, or about 1.4x
tangible book. On the Eastern Seaboard the Bank of Hampton Roads (VA) will sell
3 branches to First Bancorp (NC).
The parent of Encore National (FL)
has agreed to purchase a substantial amount of Royal Palm Bank (FL) from
Mercantile Bancorp (IL) to include branches, loans and deposits.

Investment banker KBW announced its
participation in a few deals of late
. Public company Independent Bank
Corp., parent of Rockland Trust Company, and Central Bancorp, Inc., parent of
Central Bank, jointly announced the signing of a definitive agreement under
which Independent Bank will acquire
Central Bancorp
, and Rockland Trust Company will acquire Central Bank. KBW
also helped with Brynn Mawr Bank
(parent of The Bryn Mawr Trust Company)’s plan to acquire certain consumer and
business deposit and loan accounts, along with a branch location, from the
First Bank of Delaware.

In fact, Banc Investment Daily
reports that, “Of the 31 banks that disclosed sale prices in 2012, the
average price to tangible book was 1.16x up from 1.08x last year. Deal flow is
now 31% ahead of last year based on the number of transactions and 28% ahead
based on volume.”

What is
Freddie Mac’s tangible book value? Good question (don’t ask me!), but Freddie Mac has reported net income for the
first quarter of 2012 of $577 million
, down from $619 million in the 4th
quarter of 2011, and comprehensive income of $1.79 billion. Freddie will
request a draw from the U.S. Treasury of $19 million, but only because of its
dividend obligation to the Treasury under which it will be paying back $1.81 billion.
The net income dropped slightly due to higher derivative losses and lower net
interest income, although it was partially offset by a decrease in the
provision for credit losses related to single-family loans.

Taking a
step back, including the 1st quarter Freddie has received about $72
billion in support from the U.S. Treasury since 8/08. At the same time it has
paid, under its Senior Preferred Stock Purchase Agreement, a total of roughly $18
billion in dividends to the government, resulting in net draws of $54.0
billion. The dividends do not reduce the draw principal balance, but to the
best of my knowledge are pure interest and do not reduce the draw balance. Us Average Joe’s see the press report the
total draw amount, but has to dig a little to see how much in dividends have
been paid to the government/taxpayer.

lenders have their eye on buybacks,
and for Freddie, its pending requests to lenders for refunds on faulty mortgages
rose about 19% in the first quarter to
$3.2 billion
. This includes 38% that were outstanding for more than four
months – in other words the unpaid balance on requests to sellers and servicers
of single-family home loans, and the increase is measured from the end of 2011.
The total decreased from $3.4 billion in the first quarter of last year.

Yesterday PennyMac Mortgage Investment Trust reported
net income of $19.1 million for the first quarter of 2012, on net investment income
of $46.6 million. Basically its financial picture is shaped by two channels:
investment activities and correspondent lending. Correspondent funding volumes
reached $1.8 billion for the quarter and interest rate lock commitments (IRLCs)
were over $2.4 billion, both up for the quarter. Of total correspondent
fundings, conventional loans amounted to $992 million, FHA loans were $795
million, and jumbo loans were $5 million. Pretax income attributable to the
correspondent lending segment was $10.3 million for the quarter, primarily
resulting from a $13.4 million net gain on mortgage loans acquired for sale and
$2.8 million of interest income.

Turning our
attention to the markets, yesterday we
had a spate of news which still didn’t move the 10-yr. or MBS prices out of
their recent ranges
. (The 10-yr closed at 1.92%.) Initial jobless claims
dropped by 27,000 to 365,000 in the week ended April 28, the biggest drop in a
year and following three weeks of disappointingly high readings. And Non-Farm
Productivity declined 0.5% in the first quarter while Unit Labor Costs
increased 2%. And the Institute for Supply Management Service Index fell
to 53.5 in April from 56.0 in March, “rekindling” some concerns about the
endurance of the U.S. economic recovery. Mortgage banker selling was apparently
easily consumed by the usual Fed, REIT, money managers, and hedge fund buying. (The
Fed is buying over 70% of supply.)

The market
was unchanged prior to the 5:30AM PST unemployment data. Non-farm Payrolls were
only up 115k versus a revised +154k, revised up by 34k, for March. (February
was also revised higher, from +240k to 259k.) So although the number was much
less than expected, i.e., fewer people have jobs than want them, the back month
revisions basically make up for it. The Unemployment Rate dropped to 8.1%, the
lowest since January of 2009, but the size of the labor force is decreasing. Lastly,
the average workweek was unchanged, as were hourly earnings. So after the
numbers, ithe 10-yr yield is at 1.89% and MBS prices are better. 

Most people don’t know that in 1912, Hellmann’s mayonnaise was manufactured in
England. In fact, the Titanic was carrying 12,000 jars of the condiment
scheduled for delivery in Vera Cruz, Mexico, which was to have been the next
port of call for the great ship after its stop in New York.
This would have been the largest single shipment of mayonnaise ever delivered
to Mexico. But as we know, the great ship did not make it to New York. The ship
hit an iceberg and sank, and the cargo was lost forever.
The people of Mexico, who were crazy about mayonnaise, and were eagerly
awaiting its delivery, were disconsolate at the loss. Their anguish was so
great that they declared a National Day of Mourning, which they still observe
to this day.
The National Day of Mourning occurs each year on May 5th and is known, of
course, as Sinko de Mayo.

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