Lender Purchased; Swaps Primer; Nationstar Deal; Prospect Settles

News

Did
you know that November is American Indian and Alaska Native Heritage
month? There are currently 5.4 million American Indians and Alaska
Natives, making up 2 percent of the national population and 15 states
have 100,000 or more American Indian and Alaska Native residents. These
states include California, Alaska, Oregon, Colorado, Arizona, Washington
and Florida. The median age of those who were American Indian and
Alaska Native in 2014 was 31 years old, less than the national median
age of 38. Roughly 53% of single-race American Indians and Alaska
Natives owned their own home in 2014 compared to 63% for the total
population, and the median household income was $37k compared to $54k
for the nation as a whole.

Yesterday
the commentary mentioned the rumors that continue to swirl around the
industry regarding legal settlements. Sure enough, retail lender Prospect Mortgage, LLC,
confirmed an agreement has been reached with the Multi-State Mortgage
Committee (MMC) on behalf of 50 state mortgage regulators. “This
agreement resolves findings contained in a Report of Examination issued
to Prospect on May 2, 2013, covering the period of October 1, 2010 to
March 31, 2012. This settlement relates to alleged activities that ceased years ago and occurred prior to the present management.
Prospect has not admitted to any alleged violations of applicable laws,
regulations or rules governing the conduct and operations of its
mortgage lending business, and the parties are entering into the
agreement prior to the commencement of any formal enforcement actions or
proceedings and without any adjudication of the allegations in the
report.”

Recently I received an email from John S. regarding the approval by the FDIC for margin requirements on “non-cleared swaps”, “Rob, does this affect our Secondary Marketing team’s hedging strategy?” Good
question, John….in your case I don’t know, but I doubt it. Although I
know one or two mortgage banks that have used swaps to hedge certain
bank products, there are more correlated liquid markets to hedge
traditional mortgage pipelines. Let me explain. The term “swap” can be
an overly complicated conversation, sometimes a conversation better
reserved for broker/dealers, investors and traders, or with the cashier
at the grocery store when they ask how your day is going. At its core, a swap is merely an agreement between two parties. Sometimes
the swap is an exchange of cash flows, predicated on specified
financial instruments, which have an established settlement date; a
financial contract if you will. A good example is the interest rate
fixed-to-float swap; whereby, John S. gives me the cash flows on a bond
which is floating (like an adjustable rate mortgage), and I give him the
cash flows on a bond which is fixed (like a 30yr fixed mortgage). We
would do this to hedge our respective interest rate positions, or if we
were institutional traders, would be doing this as an overall “interest
rate strategy,” which some people would define as speculating.

Another example of a swap, and maybe even more important to mortgage bankers than an interest rate swap, is the credit default swap (CDS).
At its core, a CDS is a swap of premiums-to-risk, and should be thought
of as a financial insurance policy. The seller of a CDS, like AIG,
says, “don’t worry about the mortgage-backed security defaulting, if it
does we’ll make you whole on the trade….or not.” The buyer of a CDS
says, “hey, I’m an investor and don’t have time to worry about some guy
not sending in his mortgage payment.” Although I joke, this is exactly
what happened in 2008 to AIG, who as most of us know by now, managed to
sell enormous amounts of credit risk insurance without the financial
resources necessary to cover potential payments. By end-June 2008, AIG
had taken on $446 billion in notional credit risk exposure as a seller
of credit risk protection via credit default swaps. Much of the half-a-trillion dollar exposure in CDS sales was unknown, mainly due to the lack of market transparency.

The
vast majority of swaps are traded over-the-counter (OTC), with the
transaction, clearing, and settlement being done bilaterally between the
respective parties without the use of an established exchange. It
should be noted that exchanges mandate that trades be settled centrally,
through a third party known as a clearing house, which assumes
counterparty risk. If the transaction takes place in the OTC market,
there is no clearing house. It is this OTC trading of swaps, the lack of
transparency, and the implied risks associated with the transactions
that Dodd-Frank is attempting to address. Title VII of the DFA
established a comprehensive new regulatory framework for derivatives, in
this instance the Act generally characterizes as swaps, which include:
interest rate swaps, commodity swaps, equity swaps, and credit default
swaps – that’s a lot of swaps. Sections
731 and 764 of Dodd-Frank require the governing Bureaus to adopt rules
imposing capital and margin requirements
to their applicable swap
entities. While the
recent adoption of rules governing capital and margin requirements, and
matriculation of central counterparties to the OTC markets may not
impact mortgage bankers directly today, by way of extension, the markets
it helps synthesize have a direct correlation to Secondary Marketing
trade craft.

The Fed’s QE: Help or Hindrance to Lending?

Fannie Mae’s trading desk continues to spread the word that eCommitting and eCommitONE access is being retired on December 5. Over the past year, all Fannie Mae sellers were migrated from eCommitting (eC) and eCommitONE(eC1) to the new Pricing Execution – Whole Loan (PE – Whole Loan) application.

Nationstar Mortgage priced its first rated securitization
of inactive reverse mortgages on Thursday, a $217 million deal that
attracted institutional accounts new to the niche asset class. In theory
this is an “agency” deal since reverse mortgages are guaranteed by the
Federal Housing Administration (FHA) and allow homeowners over the age
of 62 to monetize equity in their homes without having to sell outright.
ThomsonReuters reports that it is Nationstar’s third since debuting in
2014 but the first to carry ratings. What does inactive mean? The
borrowers are deceased, in default, or being foreclosed upon. If
borrowers fail to pay, the amount owed is recovered by selling the
property. The FHA insurance helps cover shortfalls.

The
bond market’s volatility has really died down this week, much to the
enjoyment of capital markets staff. A few basis points one way or the
other is fine. Remember that the Fed continues to buy agency MBS, the
residual of QE where the Fed is not using “new” money to buy securities
but is using early payoffs and other payments to buy MBS: yesterday the
NY Fed bought $1.802 billion of 30-year conventional 3.5% and 4% for
example. Today it is slated to buy up to $1.025 billion of GNII 3%
through 4%.

There
are no scheduled economic releases of consequence this morning as the
world watches the hotel hostage drama from Mali. We wrapped up Thursday
with the 10-year sitting at 2.25% and this morning in the very early going we’re unchanged on both the 10-year and agency MBS prices.

Jobs and Announcements

Peoples National Bank in Colorado is in search of a Chief Credit Officer for its core commercial banking segment. Peoples
is a $325 million commercial community bank that also originates $1
billion in annual mortgage production. The Bank has experienced strong
growth (20+%/yr.) over the past 3 years in its commercial banking
division with a continued strong trajectory. Qualified candidates will
be responsible for the overall management of the Bank’s credit policy,
loan program development, credit administration, underwriting, and loan
review analysis functions. Interested parties should contact HR Director
Angela Gramlich; employee will be required to be in Colorado Springs a minimum of 3 days/wk.

Due to continued growth Network Capital, a direct retail lender, is interviewing candidates for an Underwriter Manager and underwriters. Underwriters can work remotely
and should have experience with government programs; the underwriting
manager should either live near, or prepare to relocate to, Irvine CA or
Miami, FL. Network Capital
has been in business since 2002, licensed in 25 states and on pace to
do $1.5billion in loan volume for 2015. “We are a highly
technologically-advanced automated company with everything being
top of the line. We use Encompass but our team of in-house developers
has made it like it is on steroids. If you google Network Capital and
‘see inside’ our Irvine offices, I think you’ll be impressed. Located in
Irvine, CA, we’ve been rated as one of the Best Companies to work for
by the Orange County Business Journal for the past 3 years and the INC
500/5000 Magazine Honor Roll award for fastest growing companies for the
past 5 consecutive years. We also produce ‘The Mortgage Radio Show‘ with 4 million listeners a week.” Contact Underwriting Director Rick Asrani. 

Essent Guaranty,
a leader in the mortgage insurance industry and a great place to work,
is looking for a results-driven Regional Director in the Midwest. Strong
candidates will be able to use their professional sales skills and
knowledge to promote Essent MI, ensure customer loyalty and develop
relationships with regional lenders, small to mid-sized mortgage
bankers, banks, and credit unions. This dynamic individual will
represent Essent as the senior field sales leader in a multi- state
region and will directly manage a team of 6 to 8 sales people.   If you
have 5 to 10 years of sales management experience in Financial Services,
Mortgage Lending, or Mortgage Insurance and a history of leadership
with the ability inspire a sales team to exceed corporate targets send us your resume.

Indecomm Global Services, a leading provider of mortgage technology, training, and outsourcing services is seeking experienced loan processors.
Clients include prominent top tier, mid-tier lenders, and regional
lenders as well as title and settlement companies. The successful
candidate will provide a high level of customer service, communicating
well with loan officers, brokers, and processors with the primary
function being to ensure the timely and accurate packaging of loans. The
candidate may also be assigned additional duties as required. This
position can be located in St. Paul, MN, or Charlotte, NC. The ideal
candidate should have 3 years minimum, 5 years preferred, of continuous
loan processing experience. An active NMLS license is preferred.
Interested candidates should send their resume to HR Manager Candy Mechels.

The announced depository bank mergers and acquisitions continue unabated.
Two bank holding company United BankShares ($12.7B, WV) will acquire
Bank of Georgetown ($1.2B, DC) for about $269mm in stock. Bank of the
Ozarks ($8.7B, AR) will acquire C1 Bank ($1.7B, FL) for $402.5mm in
stock. In Indiana First Farmers Bank and Trust Co ($1.4B) will acquire
The Citizens Exchange Bank ($60mm). Out in California Royal Business
Bank ($1.0B) will acquire TomatoBank
($452mm) for $15 per share or about $83mm. In Illinois First Midwest
Bank ($9.7B) will acquire The National Bank Trust Co of Sycamore
($640mm) for $71mm in cash (20%) and stock (80%) or about 1.27x tangible
book. And in the great states that looks like a mitten Eastern Michigan
Bank ($278mm) will acquire Ruth State Bank ($35mm).

On the mortgage side of things First Bancshares, Inc. (NASDAQ: FBMS) announced the signing a definitive agreement to acquire The Mortgage Connection, LLC
located in Jackson, MS. The transaction is expected to close in early
December. “The Mortgage Connection was founded in 1997 by Margaret and
Tony Byrd and has grown to become one of the premier independent
mortgage companies in the Jackson area. The company employs 14 mortgage
loan originators serving the metropolitan Jackson area with offices
located in Brandon and Madison, MS.”

At the other end of the spectrum, remember Privlo? Things
aren’t so good there, and folks report that they are having trouble
reaching anyone at the company. Rumor has it that management has sold
themselves to one of their capital providers (the company was backed by
Spark Capital and QED Investors). And along those lines Loren Picard,
suggesting that here will be more casualties, posted this on LinkedIn Monday.

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