toddbecker

[toddbecker]

Freddie Portfolio Grows, Delinquency Rates Down

Freddie Mac’s total mortgage portfolio grew 4.8 percent from March 2016 to March 2017, according to the GSE’s Monthly Volume Summary released on Wednesday. Freddie handled $30 billion in purchases and issuances for the month and $98 billion year-to-date.

Freddie’s single-family purchasing market was nearly split between refinance loans and purchase loans, with purchases accounting just edging out refinance loans at 51 percent. Total single-family refinance loan purchase volume hit $11.9 billion, nine percent of which was relief refinance loans.

In total, there were just under 6,000 single-family loan modifications for March, bringing the 2017 to-date total up to 11,999.

Serious delinquencies were down for the GSE’s single-family portfolio, with a drop from February’s 0.98 percent to 0.92 percent in March. Multi-family serious delinquencies were stable, remaining at 0.03 percent. Serious delinquencies on single-family loans include mortgages that are at least three monthly payments behind or are currently going through the foreclosure process. Seriously delinquent multi-family loans are at least two monthly payments behind.

As for Freddie’s mortgage-related investments portfolio, the GSE saw a $4.2 billion drop in aggregate unpaid principal balance over the month, bringing its total portfolio balance to $291 billion. Its mortgage-related securities, however, saw an annualized increase of 6.2 percent.

Total purchases of the GSE’s mortgage-related securities into its mortgage-related investments portfolio equaled $7.3 billion, though $0.8 billion in purchase sale agreements were unsettled as of March 31.

“The ending balance of our mortgage-related investments portfolio as of March 31, 2017, after giving effect to these unsettled agreements would have been $292 billion,” the report stated.”

The measure of Freddie’s exposure to changes in portfolio market values, or PMVS-L, came in at an average of $0 million for the month. The duration gap average was also at zero.

Freddie Mac releases its Volume Summary monthly. To view the full data set, visit FreddieMac.com.

Source: https://www.akamcapital.com/freddie-portfolio-grows-delinquency-rates-down/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/30/freddie-portfolio-grows-delinquency-rates-down/

[toddbecker]

Fed’s MBS Phaseout May Drive Up Rates

The full impact of the Federal Reserve’s eventual pullback from the mortgage-backed securities market will depend largely on how and at what pace the Fed decides to wind down, according to a blog published by the Urban Institute’s Housing Finance Policy Center on Thursday.

In their blog post, “What Will Happen When the Fed Starts Unwinding its $1.75 Trillion Mortgage Portfolio,” HFPC Co-director Laurie Goodman and Research Associate Karan Kaul analyzed several different options the Fed has for winding down its hold on the MBS market.

The Fed began buying MBS eight years ago when the housing market was in crisis. It currently owns about 30 percent of the market. Now that the economy and housing markets are seemingly on the up-and-up, it is widely thought that the Fed will start pulling out of the MBS scene in late 2017 or early 2018.

According to Goodman and Kaul, the Fed has a few options in doing so.

“The Fed has a range of options,” they wrote. “A minimally disruptive strategy would be to gradually phase out reinvestments of principal pay-downs (prepayments, for example). A more aggressive option would be to cease reinvestments entirely. Once the Fed has ceased reinvestments, it could let the securities run off over time (because of prepayments, the average life of these securities is far shorter than their maturity) or sell them in the open market—the most aggressive option and something the Fed has said it is not considering.”

If the Fed goes with option No. 1—phasing out reinvestments—Goodman and Kaul said it will also need to decide how much should be invested, at what pace that amount should be reduced, and how to allocate the reinvestment reductions across all the government agencies.

“If reductions focus on conventional MBS (those backed by Fannie and Freddie), any impact will be felt more by conventional borrowers,” Goodman and Kaul wrote. “In contrast, if reductions focus more on MBS backed by Ginnie Mae, any impact will be felt more by first-time homebuyers, low- and moderate-income borrowers, and veterans, who depend heavily on FHA and VA loans (which are exclusively pooled into Ginnie Mae securities).”

No matter which option the Fed chooses, their pullback from the MBS market will likely influence the mortgage rates of the future, Goodman and Kaul wrote.

“But even at a slow pace, unwinding will, over time, undoubtedly reduce a major source of demand for agency MBS,” they wrote. “Therefore the Fed’s withdrawal will surely put some upward pressure on mortgage rates, although it will hardly be the only factor.”

Source: https://www.akamcapital.com/feds-mbs-phaseout-may-drive-up-rates/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/30/feds-mbs-phaseout-may-drive-up-rates/

[toddbecker]

Distressed sales drop to lowest level in nearly 10 years

Cash sales held steady in January, but distressed sales dropped year-over-year, according to a new report from CoreLogic.

Cash sales accounted for 36.5% of total home sales in January, unchanged from the previous year. During the housing crisis, cash sales peaked at 46.6% of total home sales, however, historical norms rest at about 25%.

Real estate owned sales held the largest share of cash sales in January at 61.2%, followed by resales at 36.5% and newly constructed homes at 17.7%.

(Source: CoreLogic)

REOs make up 5.9% of distressed sales, while short sales make up 1.1%.

The distressed sales share fell to 7% in January, down 4.6 percentage points from January 2016. This marks the lowest distressed sales share for any month since September 2007.

The pre-crisis share of distressed sales hovered near 2%, which could be reached by early 2018 at the current rate of decrease.

(Source: CoreLogic)

Connecticut held the largest share of distressed sales in January at 17.3%, followed by Maryland at 16.3%, Michigan at 15.1%, New Jersey at 15.1% and Illinois at 12.8%.

(Source: CoreLogic)

Source: https://www.akamcapital.com/distressed-sales-drop-to-lowest-level-in-nearly-10-years/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/30/distressed-sales-drop-to-lowest-level-in-nearly-10-years/

[toddbecker]

Vendor Updates; Servicing: Who’s Brokering, Buying, Selling, and Why?

In a recent survey, 97% of millennials said that they were tired of being surveyed. Seriously, well that probably is seriously, according to a new TransUnion survey, 42% of millennials (born 1982-2000) are delaying buying a home because of the December 2016 interest rate hike. Really? How about because not a lot of 26-year-olds have saved up the money for a down payment, or don’t know where they’ll be living in two years? I’ll stop being flippant. Yesterday’s tax proposal won’t help either. Per NAR, by doubling the standard deduction and repealing the state and local tax deduction, the plan would effectively nullify the current tax benefits of owning a home for the majority of tax filers. Analysts thinks the odds of it passing are nil. Servicing Trends

The pace of servicing sales has certainly picked up in the first quarter of 2017 versus the 4th quarter of 2016. Are sellers tired of the regulatory exposure? In need of cash? Enlightened to the fact that servicing is more expensive than many think? Or all the above? Servicers are selling servicing to manage cash flows and because they’re seeing improved market execution.

Originating a loan and retaining servicing is cash flow negative since the price in the secondary market does not include the SRP unless the servicing is sold with the asset. Some banks are selling due to BASEL III (Tier I Capital) concerns.

What else is going on out there? Although there are exceptions, few small or mid-sized servicers hedge their portfolio despite services offered by companies such as UCM Inc., MIAC, and Compass. It is judged as expensive, true or not, and lenders prefer to fill in early payoffs with production. Rates are still great, and in fact are back down to November levels. Obviously, the theoretical value of servicing 30-year loans in the 3% range improves with higher rates – those loans should stay on the books for a long time. Servicing brokers will tell you that banks have sold mortgage servicing rights (MSRs) due to the capital treatment or regulatory requirements. And let’s not forget the tax effect of a sale when the loan is originated versus selling a block later.

Yet there are rumblings that there is less liquidity for premium coupon or “in-the-money” MSRs. Servicing buyers have reportedly raised new capital and need to invest it, and there are some new entrants on the buy side. And companies such as PennyMac are executing some new and more complex structured MSR trades, at least in Ginnie pools. The MBA and others have called for changes in Basel’s punitive treatment of MSRs.

Investors (public and private REITs, regional banks, hedge funds, and some independent mortgage banks that have MSR financing or have issued debt to finance servicing) are purchasing servicing to own a negative duration asset – one that goes up in value when rates move higher. (Remember that bond prices go down in a rising rate environment.) They also like the returns since 8 or 9% is better than synthetic IO yields, fixed income yields, and most other market available returns.

The usual question from a potential seller is, “What factors impact my MSR sale execution?” MountainView lists several factors: portfolio size, a seller’s net worth, potential for repeat trades, the interest rate of the loans versus current coupon, average loan size, origination channel, geography, state prepayment speeds, escrow payment frequency and average escrow payments, and the average escrow balances all pay a roll.

MIAC Capital Markets is offering an MSR package totaling $2.1 billion of government servicing rights. The seller has a nationwide footprint and is a well-capitalized non-bank originator. Key pool characteristics are: $123,290 average loan size, 23% GNI and 77% GN2. WA rate is 3.806%, WA loan age is 53 months. WA FICO is 672. The bid date is May 9. Please contact Dan Thomas, Steve Harris or your MIAC sales representative for more information.

Earlier this month Phoenix Capital offered up a $891M FHLB, and a $1.0B FNMA/FHLMC bulk mortgage servicing rights package, “from an experienced and well capitalized bank seller.” The sale was split into two portfolios, with bids due on each. “FHLB (of Indianapolis) is willing to provide expedited approval to counterparties not already approved.” Portfolio A was $891 million with 91% fixed 30-year product and 9% fixed 15-year. There were no delinquencies, foreclosures, or bankruptcies. 3.67% (F30) note rate; 3.21% (F15) note rate, 0.25% wAvg Net Service Fee, average balance of $306K, 30% CA, 17% MI, 9% VA (by loan count), wAvg orig. FICO 765; wAvg orig. LTV 71%, wAvg Age 8 months, 94% single family properties, 97% owner occupied properties, 50% rate and term originations, and 61% retail originations

Phoenix’s $1 billion Portfolio B was made up of conventional loans. 58% were FNMA A/A, 42% FHLMC ARC,             77% fixed 30, 23% fixed 15. There were no delinquencies, foreclosures, or bankruptcies. 3.98% (F30) note rate; 3.10% (F15) note rate, 0.25% wAvg Net Service Fee, with an average balance of $238k. 23% MI, 21% CA, 9% CO (by loan count), wAvg orig. FICO 745, wAvg orig. LTV 72%, wAvg Age 5 months, 85% single family properties, 85% owner occupied properties, 42% purchase money originations, and 55% correspondent originations.

Two MountainView Financial MSR packages recently. The first, a $78mm GNMA/FNMA/FHLMC portfolio which is 97% fixed rate and 100 percent 1st lien product, with a 716 WaFICO, 85% WaLTV, weighted average interest rate of 3.74 percent (3.79 percent on the 30yr fixed rate product), low delinquencies, $238k average loan size, with top states: Utah (65.0 percent), California (19.1 percent), and Florida (10.5 percent). The second is a $279mm GNMA/FNMA/FHLMC portfolio which is 100% fixed rate 1st lien product, with a 756 WaFICO, 73% WaLTV, weighted average interest rate of 3.64 percent (3.78 percent on the 30yr fixed rate product), low delinquencies, $250k average loan size, with top states: Colorado (48.8 percent), Florida (11.3 percent), Minnesota (9.0 percent) and Ohio (8.8 percent).

Four Incenter Mortgage Advisors Corp. packages came up lately. The first, an $898.6mm “Alt-A” FNMA/FHLMC. The 3,699 file seasoned package has a 4.449% WAC (NR range from <3% to 10%), 0.3139% servicing fee, 255 remaining months, 74.3% WaLTV, vintage range from 2005 to current year, top states California (40%), Georgia (10%), New York (5%), 79% O/O, 79% SFR…..the second, IMAC #104116 $14.9mm Hybrid ARMs, 23 loans, 4.00% WAC, 76.34 CLTV, 95% Full Doc, 759 WaFICO, top states of FL, GA, NC and SC…..number three package, is IMAC #104115 $4mm 2nd Lien HELOCs 49 loans, $3.9 UPB, $4.4 total loan amt, 5.045% WAC, 83.83 Original CLTV, 750 FICO, 90% O/O, 100% Full Doc, FL and GA originations….the fourth is a $326mm FNMA/FHLMC/GNMA package with 4 month’s seasoning. 4.033 WAC, 77% WaLTV, 736 WaFICO, low delinquencies and top states of Michigan (37%), California (7%), New Jersey (7%), Texas (7%).

Capital Markets

Here’s something a little different, but points to a trend capital markets folks are seeing. National Mortgage Insurance Corporation (aka, National MI) priced a $211.3 million mortgage insurance credit-risk transfer deal called OMIR 2017-1. The deal involves reinsurance to NMI for primary mortgage-insurance coverage having an effective date on or after Jan 1, 2013 but before Jan 1, 2017.

Rates didn’t do much Wednesday – there just wasn’t any news to drive them one way or another. There was a $15 2-year floating rate note auction, but those regular auctions, unless something unexpected happens, tend to not move the yield curve.

Overnight the Bank of Japan, despite a strengthening economy there, left rates alone. In this country we’ve had some potentially market-moving news this morning: March Durable Goods (low at +.7%), Initial Jobless Claims (+14k to 257k), and March Advance International Trade in Goods ($64.8 billion deficit); March Pending Home Sales is coming up. To start the day rates aren’t much different than Tuesday & Wednesday’s levels, with the 10-year at 2.32% and agency MBS prices roughly unchanged.

  Vendor products hitting the shelves

Mortgage Automation Software provider, Floify, announced the launch of the Floify App Store, “which allows other mortgage providers to build complementary apps, and offer branded data and functionality, visually within the Floify platform. Floify’s 150,000 registered users already have access to Floify-built integrations with loan origination systems, SMS providers, asset and income verification partners, e-signature providers, and file-sharing platforms. Like your smartphone, 3rd party providers (think mortgage CRMs, pricing engines, and loan origination systems) can build apps that LOs can download, see, and use right from their Floify account. The latest addition is their Salesforce app, built by Razor IT Solutions, that lets loan officers access their Salesforce summary reports right inside their Floify pipeline dashboard. LO’s and their teams can get more information and a demo of the Floify App Store here.”

Great publicity and effective marketing can be a game-changer.  “In the mortgage business, this requires extensive industry expertise. Rosalie Berg, the founder of Strategic Vantage, believes that a marketing and public relations agency should exemplify the way good marketing is done in the mortgage industry. Rosalie observes, ‘We’ve been focused exclusively on the mortgage industry for well over a decade, and have helped over 100 companies during that time. Our expertise is what makes the difference between trial and error, and getting it right the first time.’ Strategic Vantage helps companies increase their sales by generating positive publicity, improving their name recognition, creating sharp marketing materials and executing smart marketing campaigns. If you’re looking to up your game, give them a call or you can plan to meet Rosalie at the MBA Secondary Conference. Or visit the website!”

“Minimize risk and maximize profits with high-performing AVMs. Better real estate decisioning with exceptional Hit Rates, and Unsurpassed Accuracy with VeroVALUE AVM by Veros. VeroVALUE is fast, cost-efficient, and provides realistic valuation estimates, even in rapidly changing markets. VeroVALUE Portfolio draws upon the industry’s leading sources of automated valuation models, including VeroVALUE AVM, to deliver reliable and current property value information on a broad spectrum of properties. Veros’ alternative valuation solutions are ideal for banks, credit unions, servicers, mortgage bankers, and investors looking to minimize risk, improve productivity, reduce costs, and make confident decisions. Veros has been building compliant property valuation and collateral risk solutions for more than 15 years, and as an industry leader Veros implements rigorous and comprehensive AVM testing and validation monitoring to ensure the continued transparency and integrity of VeroVALUE AVM. To run a free market test contact Susan Anderson (860-402-8337).

LendingQB’s LOS platform has received high marks for its vendor satisfaction and customer support in STRATMOR Group’s most recent Technology Insights survey report. LendingQB earned an end user effectiveness rating of 93% and exceeded functionality expectations for 22% of its respondents – top marks that surpassed even proprietary systems. Overall, LendingQB achieved a vendor satisfaction score of 96% and the highest marks for user experience among the major LOS providers included in the report. The STRATMOR Group Technology Insights survey findings are based on 266 participants ranging from under $250 million to $10 billion in annual volume. Learn more here.

In lender product news, “194%. That’s how much Impac Mortgage Corp’s non-QM unit volume has increased over the past 2 months. And the dollar volume is up 183%. The secret? Our free crash course on using non-QM as sales tools: iQM LIVE! LOs in Southern California that have taken this course are doing massive business. To originate with confidence, and close more loans, RSVP to one of our upcoming events in Dallas, Los Angeles, and San Diego. Click to reserve your seat.” Personnel moves

In warehouse news, congrats to Kelly Jasper who has joined the team at Santander to “expand and deepen Santander’s traditional national warehouse lending footprint and to strengthen our program’s particular focus on working with lenders who seek to do eClosings and warehouse eNotes.” She’ll be in NYC for the MBA’s Secondary conference and is available for meetings.

And congrats to Cara Krause who Mortgage Capital Trading, Inc. (MCT) announced has joined the company as regional sales director. Ms. Krause will handle business development efforts and client management for new lender clients in the Northeast region of the country.

Perl Mortgage Inc., a Chicago-based mortgage lender licensed in 32 states including Minnesota, is pleased to announce the hiring of Jan Fitzer for the position of Regional VP. Fitzer has more than 25 years of mortgage banking experience, including 15 years as an originator.

Finance of America Mortgage welcomed Jerry Devlin as New England Regional VP. In this role, Devlin’s primarily responsibility will be recruiting branches and mortgage advisors throughout Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.

And private money lender CIVIC Financial Services announced that William J. Tessar is its new CEO & president.

Source: https://www.akamcapital.com/vendor-updates-servicing-whos-brokering-buying-selling-and-why/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/30/vendor-updates-servicing-whos-brokering-buying-selling-and-why/

[toddbecker]

Regulatory Compliance in Today’s Technology-Inundated Mortgage Industry

Alan Weinreb, Founder of the Margolin & Weinreb Law Group, is a New York-based attorney specializing in mortgage foreclosure, bankruptcy, and REO. Weinreb represented the plaintiff in a very significant case recently, which saw a federal court hand down a decision on a traditionally state-level issue: foreclosure actions. According to Weinreb, the outcome could impact future foreclosures across the state—and the nation—for years to come.

What was the gist of your recent case? What was each side arguing? 

We represented a plaintiff in a mortgage foreclosure. The borrowers, of course, had long since defaulted on their payments. It was argued by the borrowers’ attorneys that since New York has a comprehensive statutory framework to protect borrowers in residential cases, and that as a result, the federal court should say, “Even though we can hear a mortgage foreclosure case if it meets the legal requirements to be brought in federal court, we are not going to hear these cases. They should be in state court.” This is called “abstention.” To sum it up, the borrowers filed a motion to dismiss the complaint on abstention grounds.

You see, when homeowners can’t afford a lawyer, there are often law services set up for them at the city or county level to represent them when they get served with foreclosure complaints. A lot of these services are partially funded by the state of New York. In this particular case, these borrowers were represented by Queens County Legal Services. We’re finding that when we bring these cases—including this one—that these particular institutions that represent these defaulting borrowers have a lot of resources available to them. They tend to be very litigious and they immediately step in and say, “Hey, wait a minute. They’re only bringing this case in federal court to avoid having to go through the settlement conference part.” So this was a contested case. Queens County Legal Services represented the borrowers in the hopes of getting the case removed to state court and getting the homeowner a conference and potential loan modification, which would have and could have delayed the foreclosure process by years. 

Why did you decide to take your recent foreclosure case to federal court instead of state court?

We brought this action in federal court instead of New York State Court, as is typically done, because we feel that we can get our cases for our clients through the court system faster and without the delays often found in state courts.

In New York, when you bring a residential mortgage foreclosure case in the state courts, residential borrowers are entitled to settlement conferences and there are procedural safeguards during the foreclosure proceeding that make the case move very slowly. To many lenders and servicers, it seems as if everything is on hold in New York. Your case can’t proceed until you go through this separate settlement conference part they have. That could delay cases for up to a year or more. In reality, we’re looking at three plus years to get a residential foreclosure case through.

In federal court, we can get an unopposed case through around a year, even under a year sometimes, as opposed to two to three years in the state court, down state. 

Why is it so hard to get cases through at the state level?

The state courts are so bogged down with residential mortgage foreclosure cases because they’re the only ones that typically handle these type of foreclosures. The courts are overwhelmed and  understaffed. It takes forever to finish a case, especially when you have to go through these safeguards put in by the FPRLA.

Basically those safeguards are the settlement conference part, requiring the borrower and the lenders to come in and try to negotiate in good faith to get a modification or any other types of loss mitigation.

What were the requirements to get your case tried at the federal level instead?

To get into federal court, we need to have diversity, meaning the citizenship of the plaintiff is different than the citizenship of each and every defendant. Our plaintiff in this case was a Florida company with Florida ownership. They held the note. Because they held the note and they’re in Florida and it’s a New York property with a New York borrower, the citizenships are different. Because the citizenships are different, they’re diverse. Diversity is what you need to get into federal court. The case must also involve a dispute over $75,000.00, which was the case here. 

Can you tell us about the Supreme Court cases the defense used to support its case?

They cited these two Supreme Court cases—Burford v. Sun Oil Co. and Louisiana Power & Light Co. v. City of Thibodaux—both cases that outlined abstention principles. The defense said that because of these cases, the court shouldn’t hear foreclosure cases and the homeowner should have a right to a settlement conference, because of their New York State rights granted to them by state law. 

The court went through those cases and ultimately said that Burford and Sun Oil don’t apply to this case, because the state issues aren’t as clear cut. They said the federal court does not need to abstain and give it back to the state court  or simply refuse to hear the case at all when the state issues are unclear. 

In other words, if New York state’s settlement conferences were run by an administrative agency, then the federal court would abstain. But they’re not. They’re run by the court.

Ultimately, the court decided in your client’s favor. What does that mean for the future of foreclosures in New York? What about other states?

It’s a long overdue confirmation for lenders and servicers that the federal court can, should, and will allow cases that are heard in the state courts 99.9 percent of the time to also be heard in the federal courts. 

This decision will likely have ramifications in other states, too. If a state that has the same or similar procedural safeguards as New York, lawyers, clients, or lenders will look at this case and say, “You know what? We’re going to tell our lawyers to bring these cases in federal court if they have the diversity.”

**Background: New York passed the Foreclosure Prevention and Responsible Lending Act (FPRLA) to provide legal protection and foreclosure prevention opportunities to at-risk homeowners. All state-level foreclosure cases are pursuant to the FPRLA’s protections.

Alan Weinreb, Founder of the Margolin & Weinreb Law Group, is a New York-based attorney specializing in mortgage foreclosure, bankruptcy, and REO. Weinreb represented the plaintiff in a very significant case recently, which saw a federal court hand down a decision on a traditionally state-level issue: foreclosure actions. According to Weinreb, the outcome could impact future foreclosures across the state—and the nation—for years to come.

Source: https://www.akamcapital.com/regulatory-compliance-in-todays-technology-inundated-mortgage-industry/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/30/regulatory-compliance-in-todays-technology-inundated-mortgage-industry/

[toddbecker]

The Mortgage Market in the Potential Government Shutdown

With the federal funding running out on Friday and a potential government shutdown looming, expect to see an impact on the mortgage industry. Access to tax documents and other government paperwork may prove difficult in the event of a shutdown.

CNBC noted that “non-essential” employees, such as those that process paperwork through the Internal Revenue Service, would be furloughed during a shutdown, causing roadblocks for those applying for mortgages. Additionally, lenders would not be able to verify Social Security numbers during a shut down.

“There’s no ‘Wink-wink, keep your laptops and we’ll call you,’” said Mortgage Bankers Association CEO David Stevens. “They’re barred from the building and barred from using the network for access. So, you have a real shutdown.”

During the last government shutdown, in 2013, three in 10 homebuyers and sellers reported problems in the application process, most reporting a delay in closing. The National Association of Realtors (NAR) found that in 2013, 17 percent of closings were delayed during the shutdown. However, CNBC notes that the housing market is stronger now than it was in 2013, and application volume is greater. This could mean that more buyers may be affected this time.

During a shutdown, access to the FHA would be severely limited. NAR’s 2013 survey found that the closed FHA and USDA were the top negative impacts on the mortgage process during the shutdown. A few sellers even reported that they completely lost their bids during the shutdown and three percent said they got a weaker offer.

If Congress and the Trump administration do not reach a decision by Friday, just a day before President Trump’s 100th day in office, a shutdown may be imminent. Government institutions from the Smithsonian to the IRS would be impacted, as their employees are furloughed.

“Shutdown is not a desired end,” Mick Mulvaney, President Trump’s Budget Director, said on “Fox News Sunday.” “It’s not a tool. It’s not something that we want to have.”

Source: https://www.akamcapital.com/the-mortgage-market-in-the-potential-government-shutdown/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/26/the-mortgage-market-in-the-potential-government-shutdown/

[toddbecker]

Community bankers: GSE reform should keep what works and just fix the problems

As talks of reforming the government-sponsored enterprises start to resurface under the new Trump administration, the Independent Community Bankers of America penned their version of how GSE reform should take place, taking a different stance from other options floating around.

The ICBA, along with other organizations that represent smaller lenders, have already publicly denounced calls for reform in the past from trade associations, such as the Mortgage Bankers Association, which published its plans for GSE reform earlier this month.

 The new six-page white paper details the ICBA’s principles and recommendations for reforming Fannie Mae and Freddie Mac to support continued access to the secondary mortgage market for community bank lenders.

Under the current system, Fannie Mae’s and Freddie Mac’s capital reserves will be drawn down to $0 in 2018. Both GSEs sent their latest dividend payment to the Department of the Treasury back in March, following the release of their 2016 fourth-quarter earnings.

But if the ICBA has their way, that money will stay with the GSEs to help rebuild their dwindling capital base.

The ICBA isn’t alone is this call, banding with fellow community groups and lenders to urge elected officials to suspend the GSEs’ dividend payments to avoid the future need for another GSE bailout. As it stands now, under current conservatorship, the GSEs must reduce capital buffers to $0 next year. This means if they need money, they’ll need another bailout.

This new GSE reform white paper gives the ICBA’s general position on reform along with how to move forward with reform.

“Policymakers, industry stakeholders, think tank gurus, and politicians have weighed in on how to resolve this last remaining part of the Great Recession. There have been multiple papers and numerous legislative proposals, including some that have been attached to appropriations legislation, all seeking to end the conservatorship of the GSEs,” the paper stated.

“Yet, the GSEs remain in conservatorship and subject to the net-worth sweep that is slowly bleeding away what little capital they have. This will eventually bring a day of reckoning for FHFA, the Treasury, and the housing market.”

Instead, ICBA stated that its approach to GSE reform is simple: use what is in place today and is working, and address or change the parts that are not.

The ICBA’s approach has two parts:

Reforms that can be accomplished administratively by Federal Housing Finance Agency within Housing and Economic Recovery Act

Reforms that will require congressional action.

Here are only a few snippets from the ICBA’s principles for GSE reform. Check out the full white paper here.

1. The GSEs must be allowed to rebuild their capital buffers.

The first step in GSE reform requires the FHFA, the GSEs’ safety and soundness regulator, to follow the mandates prescribed in the 2008 Housing and Economic Recovery Act (HERA), namely, to restore the GSEs to a safe and sound condition. Regardless of which approach or structure reform takes, the existing system must be well capitalized to prevent market disruption or additional taxpayer support in the event of one or both GSEs requiring a draw from the U.S. Treasury during what’s likely to be a lengthy debate and transition period to any new structure or system.

2. Lenders should have competitive, equal, direct access on a single- loan basis.

The GSE secondary market must continue to be impartial and provide competitive, equitable, direct access for all lenders on a single- loan basis that does not require the lender to securitize its own loans. Pricing to all lenders should be equal regardless of size or lending volume.

3. An explicit government guarantee on GSE MBS is needed.

For
 the market to remain deep and liquid, government catastrophic-loss protection must be explicit and paid for through the GSE guaranty fees, at market rates. This guarantee is needed to provide credit assurances to investors, sustaining robust liquidity even during periods of market stress.

“Community banks depend on Fannie Mae and Freddie Mac for direct access to the secondary mortgage market, which promotes lending in local communities and offers an alternative to the largest and riskiest financial institutions,” ICBA President and CEO Camden Fine said.

“ICBA and the nation’s community bankers urge Congress and the Trump administration to end the destructive sweep of the GSEs’ earnings directly to government coffers, put the GSEs on sound financial footing, support equitable access to the housing-finance system, and protect taxpayers from another housing crisis,” Fine continued.

Source: https://www.akamcapital.com/community-bankers-gse-reform-should-keep-what-works-and-just-fix-the-problems/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/26/community-bankers-gse-reform-should-keep-what-works-and-just-fix-the-problems/

[toddbecker]

MBS RECAP: Bond Weakness Looking More and More Serious

With a 2nd day of fairly strong selling pressure in bond markets, the recent trend toward lower rates has been forcefully called into question.  You can see the potential breakout from that trend in the chart below (I’ll mark it up and discuss additional technical implications tomorrow morning).

For today, let’s recap what’s up with all this weakness.

First and foremost, the French election was a jumping-off point for the next phase of bond market momentum.  If Macron had been shut out of the run-off election, we’d still be rallying.  If Le Pen had won outright, we’d be rallying even more sharply.  Because neither of those things happened, investors got the proverbial green light to get back into a “risk-on” trade.

Last Friday’s breaking news on this Wednesday’s grand unveiling of Trump’s tax plan is only adding to the bad times for bonds.  It’s not that traders necessarily expect miracles from whatever sort of announcement is coming on Wednesday.  Rather, the looming announcement simply serves as a great excuse to juice a trade that’s already in motion.  Then if the announcement itself is anticlimactic, bond bulls will be able to get back into the market with lower prices.  Pretty simple, really.  The only risk is that the announcement somehow impresses traders.  In that case, we’ll likely be right back in the thick of the post-election trading range.

Source: https://www.akamcapital.com/mbs-recap-bond-weakness-looking-more-and-more-serious/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/26/mbs-recap-bond-weakness-looking-more-and-more-serious/

[toddbecker]

US RMBS Settlements Linger For A Few European Banks

Bank settlements with US authorities relating to fraud investigations around pre-crisis residential mortgage backed securities (RMBS) businesses have almost concluded. Following Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) settlements with five US GSIBs between November 2013 and April 2016, the Department of Justice (DoJ) settled with Deutsche Bank and Credit Suisse in December 2016, and a small amount with Société Générale in January 2017. Penalties arising from these cases totaled USD53 billion for the eight banks, of which USD31 billion were cash fines. Agreements have yet to be reached with Barclays, HSBC Royal Bank of Scotland and UBS. We does not believe it is possible to estimate the cost of FIRREA settlements by extrapolating from cases already settled or disclosed RMBS activity. In earlier US Federal Housing Agency (FHFA) cases banks settled for 6%-14% of the disputed amount. The FIRREA settlements to date do not readily correlate with FHFA settlement amounts.

Monetary fines have only constituted part of the FIRREA settlements; substantial amounts have been settled in the form of so-called “consumer relief”, which we understand are proving far less punitive in financial terms. Consumer relief can include loan forgiveness, origination of lower cost loans and financing for affordable housing, among other things. Banks are incentivised to target the most vulnerable customers, for instance by granting principal forgiveness to high loan-to-value loans or to certain geographic areas.

Source: https://www.akamcapital.com/us-rmbs-settlements-linger-for-a-few-european-banks/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/26/us-rmbs-settlements-linger-for-a-few-european-banks/

[toddbecker]

AIB may dispose of non-performing mortgage loans

AIB is considering the sale of some troubled mortgages, as banks look at ways to deal with their more problematic loans.

Sources said the bank, which holds its annual general meeting in Dublin on Tuesday, has not yet made any decision to dispose of a portfolio of non-performing loans. However, it is one thing the lender, led by chief executive Bernard Byrne, is assessing in order to maintain its recent momentum in resolving soured loans.

“We keep all options under consideration; however, we have no active project,” a spokeswoman for the bank said. “Our primary objective is to work with borrowers under stress to return their borrowings to a satisfactory position.”

Restructured

At the end of last year, AIB had cut its level of impaired loans by 55 per cent from their €29 billion peak in 2013, as the country’s largest mortgage lender restructured unsustainable loans and the economy improved. Banks are under pressure from regulators and financial markets to keep up the pace, even though they are now grappling with a greater proportion of trickier, long-term arrears cases.

A sale of non-performing mortgages would mark a new departure for a bailed-out Irish bank. Any such move could potentially put AIB in the crosshairs of politicians, even though borrowers whose loans are sold to unregulated companies, such as hedge funds or private equity firms, have additional protections under laws enacted last year.

While Irish banks have delivered among the most dramatic reductions in troubled loans on their balance sheets in recent years, they continue to hold among the highest level of bad loans across the euro area. Some 19 per cent of AIB’s gross loans were classified as impaired at the end of December. This may partly explain why the European Central Bank, which took over the regulation of the euro zone’s biggest banks in 2014, has ordered Irish lenders to hold more capital than the average across the region’s banks this year.

The ECB set a 9.9 per cent average minimum common equity Tier 1 capital ratio, a key gauge of banks’ ability to absorb shock losses, for 2016. Bank of Ireland revealed earlier this year it was given a 10.25 per cent minimum target under the Central Bank’s so-called supervisory review and evaluation process (SREP), while Permanent TSB disclosed its minimum target was set at 11.45 per cent. AIB has not yet published its SREP capital requirement.

Disposal of loans

AIB’s only sale of Irish non-performing mortgages since the start of the financial crisis was the disposal of some buy-to-let loans in 2012. These comprised about 15 per cent of a €675 million nominal value commercial property portfolio sold by its EBS unit. They were bought by private equity firm Lone Star.

Permanent TSB sold a portfolio of €465 million of subprime mortgages in 2014 to Mars Capital, a British business, at 4 per cent discount to their face value.

Bank of Ireland sold €220 million of performing loans in 2014 under direction from the European Commission that it sell its ICS Building Society brand.

However, the sale of non-performing mortgages has mainly been the focus of overseas banks retreating from the Irish market in recent years, such as Lloyds Banking Group and Danske Bank.

Source: https://www.akamcapital.com/aib-may-dispose-of-non-performing-mortgage-loans/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/23/aib-may-dispose-of-non-performing-mortgage-loans/

[toddbecker]

What a Drag: The Burden of Nonperforming Loans on Credit in the Euro Area

High and rising levels of nonperforming loans in the euro area have burdened bank balance sheets and acted as a drag on bank profits. Banks, striving to maintain provisions to cover bad loans, have had fewer earnings to build-up their capital buffers. This combination of weak profits and a decline in the quality of bank assets, resulting in tighter lending standards, has created challenging conditions when it comes to new lending.

We took a closer look at this relationship and the policies to help fix the problem in our latest Global Financial Stability Report because credit is the grease that helps the economy function.

The stock of nonperforming loans has doubled since the start of 2009 and now stands at more than €800 billion for the euro area as whole (see chart). Around 60 percent of these nonperforming loans stem from the corporate loan book.

  Resolution of nonperforming loans 

There is a need to resolve this large stock of nonperforming loans clogging bank balance sheets. But there has not been much progress to date. The stock of nonperforming loans continues to rise, albeit at a slower pace than before, and banks have sold less than 6 % of the stock of nonperforming loans. Resolution has been hampered by three key factors.

Bank financial capacity—capital and provision buffers—to dispose of nonperforming loan portfolios given the current gap between what the loans were originally worth and what financial markets think they’re worth now.

Bank operational capacity to handle the quantity of bad assets.

Legal system capacity to process nonperforming assets—though a number of countries have recently introduced reforms to speed-up debt workouts—and relative immaturity of out-of-court restructuring frameworks in some countries.

Cleanup of bank balance sheets 

Policymakers and banks have two other avenues they should pursue.

First, banks need to clean up their balance sheets. The ongoing assessment of banks, conducted by the European Central Bank and the European Banking Authority is a first step in this process. The assessment needs to be credible, reliable and transparent, and should be followed by remedial actions that are implemented on a timely basis and clearly communicated to the market.

In parallel, further actions are needed to fully address the constraints impeding the resolution of nonperforming assets:

Bank supervisors should continue to provide strong incentives for banks to maintain prudent provisioning levels, ensure that provisioning reflects forward-looking expected credit losses, and that a conservative approach is taken to collateral valuation, recovery rates and resolution time;

Banks that are overcapitalized for precautionary reasons need to use capital buffers to deal with losses;

Banks need a specialized capacity to deal with problem loans , either in-house or across different institutions;

Authorities should promote a liquid secondary market for nonperforming loans, for example through regulatory guidance on time limits for bad loan provisioning and retention or requirements to keep rigorous loan-servicing records and security documentation;

Legislators should reform legal frameworks—as has begun in a number of stressed euro area countries—and these should be resourced adequately to facilitate timely resolution of nonperforming assets;

Authorities should step-up efforts to increase debtor awareness of available restructuring tools;

Regulators should help to improve the transparency, timeliness, frequency and harmonization of bank and corporate balance sheets to aid the  assessments of bank and corporate creditworthiness.

New sources of credit 

Along with measures to facilitate an increase in corporate equity levels, including via targeted measures to encourage debt-for-equity swaps, authorities and markets could develop nonbank sources of credit, including bonds, further. However, officials need to ensure that effective regulation and supervision of nonbank entities should accompany these efforts to avoid building future problems.

Regulators should review existing constraints on nonbank long-term investors acting as lenders;

Officials should promote the listing of bonds by smaller firms;

Regulators should reconsider impediments to ‘safe’ securitization of loans

Official guarantees may be required, though governments should offer them in amounts consistent with the overall fiscal position of the economy, and structure them to prevent leaving guarantors with poor credits.

Euro area policymakers face a daunting task in addressing the legacy debt burden to help complete the transition to an integrated financial system. Without significant policy efforts to address the burden of nonperforming loans, some economies may find they remain stuck in the mire of low profitability, low credit and low growth.

Source: https://www.akamcapital.com/what-a-drag-the-burden-of-nonperforming-loans-on-credit-in-the-euro-area/

from AKAM Capital https://akamcapital.wordpress.com/2017/04/23/what-a-drag-the-burden-of-nonperforming-loans-on-credit-in-the-euro-area/