“Rob, do you know of any banks looking to buy pools of home equity lines of credit?” Ah, the Holy Grail for plenty of non-bank lenders. You can check out www.mortgageelements.com. Among many other programs it does track equity line lenders investors. The symbol for equity lines and second mortgage lenders is “2nd” and it’s located on the bottom of the table toward the right and is in pink. Click the pink symbol 2nd, choose a state and click GO. There are a few from which to choose. And heck, investors who want their name out there can sign up.
Looking ahead to next year, politically the House included language in the 2017 budget to bring Congressional oversight to the CFPB and subject it to the appropriations process. (Currently, it is funded by the Fed who really has no choice but to give them what Richard Cordray asks for.) Good luck with that one, since we haven’t had an approved budget since early in Obama’s presidency, but included in the language is a provision would replace the single director with a five-member board appointed by the President. Stay tuned.
But the big news this week was the CFPB’s attention on payday lenders. And although residential lenders don’t fall into that category, mortgage bankers are paying attention to how their cousin is being treated. Isaac Boltansky with Compass Point Research and Trading writes, “Our initial read of the CFPB’s small dollar rule proposal leaves us with the sense that it is substantively unchanged from the bureau’s March 2015 SBREFA outline and that if finalized without significant structural changes – which is our expectation – it will ultimately drive compliance costs higher, loan volumes lower, and force a wave of consolidation in the payday lending space.
“The only meaningful positive the payday lending industry can point to from this proposal is that the CFPB has proposed a 15-month implementation timeline following finalization which suggests that the rule will not be effective until late 2018…The only clear softening from the SBREFA outline is the reduction of the mandatory cooling-off period following a third loan in a sequence from 60 days to 30 days. We view this change as a slight positive as it is less restrictive on originations than the 30-day threshold but over 80% of payday loans are rolled over or renewed within two weeks so this modification is far from seismic…The CFPB proposes that the credit reporting component of the proposal become effective 60 days after the rule is finalized but for the broader rule to take effect 15 months after finalization. If we assume that it will take the CFPB 9 months to turn the comments, we estimate that the final rule will be released in June 2017 and that it would be in effect by September 2018.
“There are negatives for the payday industry. The “Ability to Repay” framework remains intact. The CFPB proposal introduces an ability-to-repay (ATR) assessment mandate for both payday/single payment auto title loans and high-cost installment loans…the lender would have to determine that the borrower ‘has sufficient income to pay the loans and to meet major financial obligations and basic living expenses during the term of the loan and for 30 days after paying off the loan or paying the loan’s highest payment.’ And…the lender would be required to ‘ensure a borrower can pay all of the payments when due, including the balloon payment [if applicable], as well as major financial obligations and basic living expenses during the term of the loan and for 30 days after paying the loan’s highest payment.’
“These ATR standards appear generally consistent with the SBREFA outline from March 2015 and our view is that these underwriting requirements will result in a significant decline in payday loan volumes. As a reminder, the CFPB’s SBREFA outline estimated that covered loan fees would decline by as much as 75% if the rules were finalized.
“Reporting Requirements: lenders would be required to ‘use credit reporting systems to report and obtain information’ about these loans. The systems used for this purpose would be considered consumer reporting companies and therefore subject to applicable federal laws such as the Fair Credit Reporting Act. This provision could significantly increase the compliance burden for covered payday lenders while also provide additional volume for credit reporting bureaus.
“The proposal would require lenders to send written notice to borrowers three days in advance of an attempt to debit their account. Furthermore, following two unsuccessful attempts, the lender would be prohibited from attempting to debit the account again without first obtaining a ‘new and specific authorization from the borrower to again debit the account.’ Our sense is that these requirements would increase compliance costs and lower recoveries, respectively.”
The impact of all of this on banks? Ace reporter Kate Berry writes, “The Consumer Financial Protection Bureau issued its long-awaited proposal Thursday to regulate payday, auto title and certain high-cost installment loans without a key provision that would have allowed banks to compete by offering their own small-dollar loans. The move was a blow for some larger banks, which had been planning to return to the space after being shut out of it by other federal regulators. But the proposal did not include a provision the CFPB floated last year that would have provided an exemption from certain underwriting requirements if the monthly payment did not exceed 5% of the borrower’s gross monthly income.
“At least three of the ten biggest banks had been contemplating launching new products based on the 5% provision. ‘As proposed, this CFPB regulation would freeze banks out of the market,’ said Alex Horowitz, a senior research officer on the small dollar loan project at the Pew Charitable Trusts. ‘There is nothing in here that is viable for banks. The CFPB missed the mark, they went heavy on process and light on clear standards.’ Banking industry representatives said the CFPB missed a big opportunity to let banks offer consumers affordable small-dollar loans.”
But where there’s a will there’s a way, and the more regulated some lending sectors become the more alternatives spring up. Either that, or lending is driven underground – which is already happening. But for mainstream alternatives, one fintech player doing something interesting is Ascend. Management has an alternative proposal for high interest payday loans to non-prime borrowers. Its program offers loans at a high 30% annual interest rate, but as borrowers demonstrate good habits (such as savings skills, reduce credit card spending and other things), the rate can decline to 15%. There are rumors that some community banks offer something similar to existing customers that have exhibited good behaviors (such as paying their loans on a timely basis, etc.) and reduce their rate in exchange for an extended loan term or other such opportunity.
Another fintech company called Oportun is targeting specific groups of customers as well. It is competing with payday lenders and pawn shops by using data analytics to score customers and then offers a fixed payment schedule over a period of 7 to 35 months. Payments are made 2x per month by borrowers in order to coincide with paycheck deposits, which may reduce risk. Maybe depository banks can do the same thing: structuring certain loans to borrowers where the borrower makes twice monthly payments (or more) in return for a lower rate. This could improve cash flows to the bank, reduce credit exposures, and perhaps even result in a higher credit quality loan that requires less loan loss reserves.
How much are delinquent loans being sold for these days? Freddie Mac found out: it sold (via auction) 487 very delinquent non-performing loans with a UPB of $130 million to winning bidder MTGLQ Investors. Given the deep delinquency status of the loans (over three years), the borrowers have likely been evaluated previously for or are already in various stages of loss mitigation, including modification or other alternatives to foreclosure, or are in foreclosure. The second best bid was in the low $70s. Of course there was fee income: JP Morgan Securities, Credit Suisse (USA), and First Financial Network Inc advised Freddie on the transaction.
Keeping on with capital markets, Thursday fixed-income security prices improved as the U.S. economic data came out largely in line with expectations.
But that was then. Today we’ve had the usual first-Friday-of-the-month jobs report. (There’s always some reason why people say a particular set of numbers is important, and in this case it will be a key piece of data for the June FOMC decision and Fed Chair Yellen will speak publicly on Monday, shedding further light on the FOMC’s thinking in the run-up to the June 15 FOMC meeting.)
The Unemployment Rate came in at 4.7%, Non-farm Payrolls at +38k (with an April revision lower), and Hourly Earnings at +.2%. The Non-farm Payroll number is viewed as incredibly weak, and a weak economy tends to push rates lower. This should certainly push any Fed move into July. But wait… there’s more! We’ve also had the April Trade Balance ($37.4 billion), and later are April Factory Orders and May ISM Services (both at 10AM EDT). If you’d like a general sense of where rates will be, we closed Thursday with the 10-year at 1.81% and this morning it is down to 1.74% around with agency MBS prices better by .250-.375.
Jobs and Announcements
In job news eOriginal, “a leading SaaS growth company with over 20 years of experience in enabling our customers to Digitally Transform their business, is looking for a General Manager, Digital Mortgage Services in their Baltimore, Maryland HQ’s. The company is a recognized best practice leader in a variety of asset classes including Auto Finance, Equipment Leasing, Consumer Lending and Vacation Ownership. We are one of only a handful of Fannie Mae certified eMortgage vendors and have recently launched our expanded Digital Mortgage Platform with leading ecosystem partners. The GM, will build and lead a dedicated team to capitalize on this huge market opportunity and growing customer demand. If you are interested at being at the forefront of the Digital Transformation of the mortgage industry and joining a fun and entrepreneurial company, please visit eOriginal’s career page or contact the HR Manager Caryn Hild. Come grow with us!”
A well-known and rapidly growing retail lender is in need of several operations positions. The company has a culture of fully supporting its loan officers in assisting their clients, and due to increasing loan officer ranks is hiring closers, underwriters, post-closing specialists, operations mid-level and senior management. “Most are able to work remotely so if you are interested please reach out directly to the president and we will be happy to respond immediately to your inquiry! It’s a great company that you will really enjoy!”
Mason-McDuffie Mortgage announced that Katie Lance will joining its family as an Executive Advisor for Social Media Strategy Digital Experience. “Katie is the top social media mind in our industry. We couldn’t be happier to have her expertise help shape our social strategy digital experience,” said Jason Frazier, CIO of Mason-McDuffie. “We believe that Social isn’t just the present, but is also the future for branding and customer experience. There is no one better than Katie to help us build the best social experience in the industry.” “I am thrilled to be joining the Mason-McDuffie Mortgage family as a strategic social media advisor,” said Katie Lance, CEO of Katie Lance Consulting. “Mason-McDuffie is leading the way with their forward-thinking mindset and I can’t wait to help them build the best social and digital experience in the industry. I have been so impressed with their family atmosphere and their commitment to being a thought-leader to educate their customers. It’s an honor to be partnering with such an awesome organization.”
PRMG proudly announces the “passing of the torch” from a long standing relationship with its current Chief Financial Officer of more than 17 years to the hiring of their new CFO, Bill Johnson. As the new CFO, Bill will be responsible for overseeing several departments, including accounting, payroll, human resources, post-closing, warehouse lines and loan servicing. Part of his primary focus will be to advance the integration of automation as it relates to accounting software, the initial groundwork being laid by the previous CFO. Bill will report directly to the PRMG CEO, Paul Rozo. PRMG is a national leading lender, voted No. 1 of the 50 Best Companies to Work for in America. To learn more about PRMG and/or questions, please email Paul Lucido, National Marketing Director.
United Wholesale Mortgage announced the hire of Jason Bressler as its Chief Technology Officer.