Acquisitions In the News; Reps and Warrants Matter; Mortgage Employment -3200 in January

Everyone
wants feedback these days: the CFPB, Burger King (I got a free $3 chicken
sandwich after spending 30 minutes filling out a survey!), servicers, even the
MBA. It has come up with a snazzy new report, and the MBA wants feedback from
users of the product to improve it. The MBA’s
new report has state-level on retail/consumer direct applications

“near real-time data on how your applications compare with the totals for
your area. Do you wonder whether you are getting your share of purchase
applications or how fast FHA apps are growing?  Do you wonder how
aggressive your competition is in pushing 15-year refi’s? (It) gives you the
ability to benchmark your applications volumes by purpose, loan size, term, FHA
share and other characteristics.  You will be able to quickly see how a
particular state is growing relative to nearby states and the rest of the
country.” If you’re not an originator, though, don’t bother: this report
is being made available only to MBA members who originate loans. The prices are
tiered based on time and region: contact the MBA to see a sample report and for
more info at MBAResearch@mortgagebankers.org.

On the job front, Mission Hills Mortgage
Bankers is seeking underwriters for its Orange County headquarters. MHMB
has been around 42 years (!) and is a retail mortgage originator and is currently
in the process of being acquired by Pacific
Trust Bank, and future plans call for aggressive expansion throughout the
western U.S. This position would be responsible for the regional underwriting
of loans from several production offices.  Experience requirements include
FHA Direct Endorsement and VA SAR certifications and a minimum of five
years underwriting history. Interested parties may forward resumes to hr@mhmb.com.

Speaking
of California acquisitions, Union Bank, a
wholly owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, which is a
subsidiary of Mitsubishi UFJ Financial Group, and California’s fourth biggest
bank by deposits, is buying the parent of the state’s 20th biggest deposit
holder, Pacific Capital Bancorp. Pacific Capital owns Santa Barbara B&T,
giving it some representation on California’s Central Coast. (Got that
straight?) Pacific Capital has $5.9 billion in assets and 47 branches, compared
with UnionBanCal’s $90 billion in assets and 414 branches. (For deposits in
California, BofA is #1 with 26%, Wells is #2 with 19%, Chase has about 7%, and
Union Bank has 6%.)

I don’t
know if this acquisition will result in layoffs, especially on the mortgage
side of things, but that seems to be the trend. A close examination of Friday’s
jobs numbers from the Bureau of Labor Statistics showed that mortgage companies cut 3,200 full-time
employees from their payrolls in January
. The total went from 265,300 in
December to 262,100 positions in January. Overall, the number of jobs in the
mortgage banking and broker sector fell nearly 4% from a year ago, with some
big chunks coming from MetLife and Bank of America.

GMAC’s Northeast Correspondent Team told everyone far and wide that GMAC is back lending in Massachusetts.
That is good news for the state’s borrowers, who all know that Fig Newtons were
named after one of their towns, and for GMAC, rumored to be very carefully
examining whether or not it wants to be in the warehouse business. And if Massachusetts’
Barney Frank has his way, the FHFA’s Edward DeMarco would be replaced since he
has been “too rigid” in his approach to foreclosure prevention and
should be replaced.

KB Home has announced that it has
entered into an agreement with Nationstar Mortgage, with Nationstar becoming KB’s “preferred
mortgage lender.” Under the agreement, Nationstar, headquartered in Texas and owned
by Fortress, will offer a wide array of financing options and mortgage loan
products to the KB’s homebuyers. Nationstar has attracted some notice lately
since it is one of the largest non-bank mortgage servicers in the country with
a portfolio of approximately $107 billion.

Yesterday
the commentary mentioned the RESPA-related
case of Freeman vs. Quicken Loans
, now under consideration by the Supreme
Court. Although I do not have a statement from Freeman, I do have one from
Quicken Loans: “Quicken Loans has never charged unearned fees and never
will.  The company won this case on summary judgment in Federal Court on
undisputed evidence that the fees Quicken Loans collected were, in fact,
earned. The ruling in favor of Quicken Loans was upheld on appeal by the U.S.
Court of Appeals for the Fifth Circuit. Quicken Loans, like all lenders, has
and continues to offer clients the option of ‘buying down’ their interest rate
by paying loan discount points.  This practice is a universal standard
across the lending industry and is in accordance with state and federal
laws.  It was proven the loan discount points collected were earned and
resulted in a lower interest rate for the borrowers.”

Mortgage
banking is mired in legal issues everywhere. Barclays Capital notes that with the Countrywide settlement case
now back in New York state court and with some clarity on its progress, “we
look at potential non-agency rep and
warranty related recoveries for other sponsors/originators.
We estimate
that the overall non-agency market could see $44 billion of rep and warranty
related payouts. Of that amount, $10 billion is already included in proposed or
completed settlements. We continue to think that larger originators/sponsors
provide the greatest opportunity for rep and warranty related payouts or
repurchases, even through collectively negotiated settlements.  On the
other hand, many smaller originators are already defunct or do not have the
resources to make significant settlement payments to investors… Bank of America
and JPMorgan have by far, the largest exposure to loan-level rep and warranty
related liabilities. While settlement recoveries or court awards are likely to
be lumpy, they can represent a considerable source of cash flow for non-agency
investors. In particular, deals that have historically exhibited weak
collateral performance are likely to benefit the most from rep and warranty
settlements that are similar to the Countrywide deal. Second-lien
securitizations, where many of the losses have already been realized, could be
significant beneficiaries as well.”

The Union Bank news points to the fact that banks, and central banks around the world, have more cash and liquidity
than they’ve ever had before
. Focusing on country’s central banks, because
of collective quantitative easing, the balance sheets of the Fed, ECB, BOE,
BOJ, Bundesbank, and others are all at record levels. The total size of the 8
largest balance sheets have almost tripled in the last 6 years from $5.4
trillion to more than $15 trillion (and still growing). The result of this
build up in central bank reserves is that it artificially lowers rates and
makes asset classes like fixed income securities, relatively overvalued. One would hope that the low rate
environment also provides incentives for banks to take on riskier assets in the
form of loans. And to some degree this is taking place, although not as much as
many would like
, but if one looks at the recent performance of different
bank asset classes (commercial and industrial loans, credit cards, mortgages,
and so on – even stocks) they’re all doing pretty well return-wise – even though
they’re not necessarily related! Economists believe that this unprecedented
correlation in returns is due to the availability of cheap money, and it is
overriding most microeconomic aspects of various industries.

For
bankers, this presents a huge future risk: “Will this unwind?” At some point central banks have to pull
trillions of dollars out of the economy, both in terms of physical money and in
terms of leverage.
Smaller banks’ management needs to understand that until
a global exit strategy is articulated, volatility will remain high because of
leverage, which also means that risk management becomes more important than
ever. To sum things up, some smart folks out there think that credit is being artificially
supported (look at the Fed buying agency MBS’s every day, helping to keep
prices high and mortgage rates low) thus if given the choice between quality
assets at low spreads and riskier assets at wider spreads, the former is
preferred but the latter is often chased to support margin. Many asset classes
and geographies are performing at above zero return levels only because of this
liquidity support. In addition, excess liquidity will keep commodities and
equities well supported – asset classes that will also act as bellwethers when this reverses.

Yesterday was
“much ado about nothing” as there was no real economic news in the U.S., the
3-yr T-note auction went off, Europe and Asia were pretty quiet, and the Fed
and the usual suspects were in buying agency mortgage-backed securities. On the
supply side, however, things seemed pretty quiet – perhaps locks are slowing as
the thrill of lower rates wears off and all the easy refi’s are done?

Today we’ve
had some news with Retail Sales +1.1%, with a January revision higher – perhaps
slightly better than expected (but a good chunk of the number was due to sales
at gasoline stations). This +1.1% was the highest jump since September, which
is of mild interest. Later we’ll have a $21 billion 10-yr T-note auction at 1PM
EST and the FOMC’s statement release at 2:15PM EST – don’t look for anything
from the Fed. In the early going the
10-yr is now up to 2.06% and MBS prices are worse about .125.

(Parental
discretion advised.)
Mick, from Dublin, appeared on ‘Who Wants to Be a Millionaire’ and towards the
end of the program had already won 500,000 euros.
“You’ve done very well so far,” said Chris Tarrant, the show’s
presenter, “but for a million euros you’ve only got one life-line left,
phone a friend. Everything is riding on this question.  Will you go for
it?”
“Sure,” said Mick. “I’ll have a go!”
“Which of the following birds does NOT build its own nest? A.
Sparrow  B. Thrush  C. Magpie  D. Cuckoo
“I haven’t got a  clue.” said Mick, ”So I’ll use last lifeline
and phone my friend Paddy back home in Dublin.”
Mick called up his mate, and told him the circumstances and repeated the
question to him.
“Fookin hell, Mick!” cried Paddy. “Dat’s simple – it’s a
cuckoo.”
“Are you sure?”
“I’m fookin sure.”
Mick hung up the phone and told Chris, “I’ll go with cuckoo as my
answer.”
“Is that your final answer?” asked Chris.
“Dat it is.”
There was a long, long pause and then the presenter screamed, “Cuckoo is
the correct answer!  Mick, you’ve won 1 million euros!”
The next night, Mick invited Paddy to their local pub to buy him a Guinness.
“Tell me, Paddy?  How in Heaven’s name did you know it was da Cuckoo
that doesn’t build its own nest?”
“Because he lives in a fookin clock!”

…(read more)

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