HELOCs for Sale; CashCall Fined; CFPB & FTC Team up for Discipline; Texas Tea’s Impact on Mortgages

News

Friday the 13th comes three times this year, and this is one of them.

I
can think of three more companies that won’t be sending chocolate to
the CFPB or Federal Trade Commission tomorrow. None of the companies
admitted wrongdoing, but were accused by the FTC and fined by the CFPB
for falsely implied affiliation with the U.S. government. The
CFPB filed a lawsuit
against reverse mortgage lender All Financial
Services and issued consent orders against Flagship Financial Group and
American Preferred Lending. The allegations stem from a joint review by the FTC CFPB.
The agencies surveyed consumer complaints and 800 randomly selected
mortgage ads to catch potential wrongdoing. The CFPB said the three
companies “imitated U.S. government notices” in mailings to consumers
such as an eagle resembling the Great Seal of the United States. Headers
on the notices read, “GOVERNMENT LENDING DIVISION” and “Housing and
Recovery Act of 2008 Eligibility Notice.”

Utah’s
Flagship has agreed to pay a civil penalty of $225,000 while
California’s American Preferred will pay $85,000 – probably enough to
really hurt but not put them out of business.

Reverse
mortgage lenders are particularly interested in All Financial. It is
also accused of claiming reverse mortgage borrowers had no monthly
payments without informing them they still had to pay taxes and
insurance, and supposedly failed to disclose that payments could come
due if the borrower dies and the spouse, who did not sign the mortgage,
remains in the home.

The CA Department of Business Oversight has fined online loan servicer CashCall
$1 million to settle allegations the company deceived consumers,
exceeded interest rate caps for nonbank lenders and lied to regulators
about how much they would charge for personal loans.

“Well a great black river a man had found

So he put all his money in a hole in the ground

And sent a big steel arm drivin’ down down down

Man now I live on the streets of Houston town.

Packed up my wife and kids when winter came along

And we headed down south with just spit and a song

But they said ‘Sorry son it’s gone gone gone’.”

So
sang Bruce in “Seeds”. Will the decline in oil prices have the same
impact on the Texas economy
, and other states like North Dakota, Alaska,
and Alabama? Remember when a pipeline shut down in Nigeria would cause a
spike in oil prices? Now none of our oil comes from Nigeria. Citibank
says the US gets about 25% of its oil from overseas sources, and the
drop in oil prices is projected to put $1,400 into the pockets of every
household in the US. That certainly helps consumer confidence in
general, but not if your livelihood is oil. And the New York Times
reports lower oil prices could hurt large bank lending to the energy
sector and reduce fees. Meanwhile, it could also hit banks in energy
producing states with more defaults and also extend to companies that
service oil producers in other states.

Jeff
B. sent me a note recently saying, “I was amused to learn the price of
gas may enable first time homebuyers to save more for a down payment.  In most areas they can buy without any money – the underlying challenge remains- lack of wage growth.  Middle America is still not enjoying a real recovery.”

With
oil’s stature as a high-demand global commodity comes the possibility
that major fluctuations in price can have a significant economic impact,
and thus an impact on mortgage rates. The two primary factors that
impact the price of oil are supply/demand and market sentiment. As
demand increases (or supply decreases) the price should go up and vice
versa. The price of oil as we know it is actually set in the oil futures
market. (Remember that an oil futures contract is a binding agreement
that gives one the right to purchase oil by the barrel at a predefined
price on a predefined date in the future. Under a futures contract, both
the buyer and the seller – either a trader, hedger, or speculator – are
obligated to fulfill their side of the transaction on the specified
date.)

But
speaking of price, analysts are quick to point out that oil prices
aren’t actually that low
on a historical basis. Sure it has gone from
more than $100 per barrel to less than $50 in a few months, helping all
of us every time we put gas in our car or turn on our thermostats. But
$50 a barrel for oil is still kind of high, compared to what it has cost
in the past, especially when you adjust for inflation. The average
price for imported oil from 1986 to 2004 was $33 per barrel. And there
have only been two times in the past 40 years when oil prices jumped to
an inflation-adjusted $100 a barrel: in the 1970s and starting in 2008.

While
all oil-producing nations are suffering as oil prices collapse, the
hardest hit nation is Venezuela. It’s getting crushed as oil prices
collapse since oil accounts for 95% of export earnings, 45% of budget
revenues and 12% of GDP. If oil prices don’t rebound soon, Venezuela
will default on its $35 billion in foreign debt, unless Beijing
continues lending Venezuela more money on top of the $50 billion already
lent. And no, I don’t know what mortgage rates have down there.

While
oil prices here are down 56% since 7/1/14, the picture is vastly
different elsewhere because oil is quoted in US dollars. Because the
Canadian dollar has fallen vs. the US dollar, when converted into
Canadian currency the decline has been less severe at just 49%, while in
Russia, oil prices in Rubles are unchanged. Thus, all else equal, oil
exploration and production will fall less there than here.

Although
lower oil prices are generally good for most Americans, the decline
presents another side for states and countries that produce oil, and
thus the mortgage banks and banks in those states. Vox Media reports
that low oil prices will boost economic activity in 42 US states but
will cause economic contraction in 8 others (the largest effect will be
felt in AL, ND and TX). Those states whose economic miracles have been
based on shale drilling, fracking and more expensive extraction
techniques will particularly be at risk. Given their size, community
banks are most likely to be involved in lending to smaller companies
that support the activities of large oil and gas (OG) companies or
the exploration and production segment (EP).

Among
the unique aspects to EP is that certain extraction techniques
like fracking and oil shale drilling are only profitable and sustainable
if oil prices remain reasonably high. A report by Goldman Sachs finds
that at $90 a barrel or less, many hydraulic fracturing projects become
uneconomic and fracking producers often need a price of $80 or $85 in
order to break even.

Underwriters
and bankers know that any lending based on commodity pricing carries
increased risk and oil gas companies also typically cannot lower
expenses if revenue declines, leaving them in a tough spot if the
current environment persists. Banks that have been active OG
lenders should take another close look at their portfolios and consider
the ability of borrowers to maintain their cash flows and debt service
if the price drop is long term. For banks proactively addressing the
riskiest loans and developing damage control strategies at this point is
critical.

So
yes, the drop in prices generally equates to more money in most
people’s pockets. There are, however, drawbacks for lenders who have
commercial loans with those companies, individuals who have investments
tied to them, and borrowers employed in that industry. Caution is
advised.

Oil
price changes certainly change the economic picture. Economic
forecasters are always looking ahead and as the refinance business has
heightened analysts are not afraid to opine the implications this may
cause. Mortgage-backed securities are sensitive to sudden shifts in
rates, resulting in potential negative effects on returns, as borrowing
costs impact the rate at which homeowners refinance, resulting in
securities being paid off sooner than expected. When securities are paid
off more quickly
, returns can suffer, which was evident last month. For
example, according to Bank of America index data, the mortgage-backed
securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae last
month returned 0.95 percentage points less than other comparable
government debt. This was the largest underperformance since November
2008.

Within
the past seven years, oil fell to the lowest level last month;
similarly, the interest rate for a 30-year fixed rate mortgage fell to
3.59 percent at the beginning of February. The refinance share has
boomed among the low interest rate environment, as refinance
applications grew 84 percent in the last three weeks of January. This
can negatively impact the return on mortgage bonds as more homeowners
repay at par loans that are bundled within securities that trade for a
higher value. Yet, as
oil prices begin to stabilize, bond yields are expected to rise
, which
should move interest rates above 4 percent, downsizing the refinance
market share.

Turning
to the markets ahead of this three-day weekend, yesterday we learned
that Retail Sales fell 0.8% in January following a 0.9% decrease in
December.  Initial
jobless claims increased 25,000 to 304,000. The 4-week moving average
(a better measure) was 289,750, a decrease of 3,250 from the previous
week’s revised average. With no news of substance this morning the 10-yr closed Thursday at 1.99% and this morning we’re at 2.02% with agency MBS prices worse about .125.

 

Jobs and Announcements

Lucky Union Home Mortgage, a privately-held lender, is currently seeking a VP of Secondary Marketing who is looking to be a valuable member of the Senior Management team. Headquartered in Strongsville, Ohio, UHM is led by industry leader, Bill Cosgrove, the 2015 MBA Chairman.
This successful candidate will be in charge of running day to day
secondary operations including, pipeline and interest rate risk
management, managing best execution and working with an outside advisory
firm. UHM is pursuing executives with the ability to grow with it as
UHM doubles its current production of $150 million per month over the
next 18-24 months. This person must have experience selling to
FNMA/FHLMC (cash and MBS) as well as, GNMA securities. If you want to
join a company with a successful track record as a retail lender and be a
part of an expanding wholesale and correspondent channel contact, Lucas Engle. Relocation assistance available.

Citibank,
N.A. is searching for experienced, high-performing Home Lending
Officers (HLOs) in key Citibank retail markets including New York,
Boston, Washington, D.C., S. Florida, Chicago, Los Angeles and San
Francisco. 
HLOs work with customers to offer lending solutions that meet their
home financing needs and promote Citi and its financial services.  HLOs
work as a team with bank branch staff to drive mortgage originations and
will develop key referral relationships with Realtors, Builders, etc.
to develop self-sourced business.  Ideal candidates will have expert
knowledge of lending products, services and pricing alternatives and the
ability to explain them to clients and referral sources. Citibank
offers the best of both worlds – an established global brand with a
200-year history that operates in many ways like a small local lender.
Citi has exclusive products and relationship pricing discounts and
offers one of the best retail branch partnership models in the
industry.  To learn more about Citibank and this opportunity apply today here.

And a
well-established Southern California lender is looking to sell “new
production, high quality, prime based piggy-back HELOCs on a servicing
released bulk or flow basis. The HELOCs are originated behind a DU underwritten agency
first mortgage. The HELOC structure is a 30-yr term with 10-yr initial
IO period where borrowers are qualified at fully amortizing 20-yr
PI payment. Recent bid tape stratifications show a WAC of 5.345,
CLTV 79% (max CLTV 89.9), FICO 745, DTI 42, and average balance of
$105k. If you are interested in this great opportunity to add net
interest margin to your balance sheet at a low risk, please contact me.

A big shout out to Steve Plaisance who took over the role of CEO of Arvest Mortgage and Central Mortgage, subs of Arvest Bank. (I am proud to say my son and I had burgers with Steve and his kids in Tulsa at Brownie’s.)

And a quick congrats to Bret Wedding. AK-47 Holdings appointed him to EVP of AMC Links,
LLC. Mr. Wedding is a former military combat veteran who will lead all
National Marketing and Business Development efforts of Lehi, Utah’s AMC
Links. AMC Links is the nation’s first statutory registered appraisal
management company.

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