Below is a collection of articles, news, and announcements associated with our industry.
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We have received a few questions today about why mortgage-backed securities (MBS) prices do not show the same drop in prices as seen from the Fannie Mae window. The reason is that Fannie Mae, this morning, built into their whole loan prices an increase in their required guarantee fee (G-fee). Since G-fees are paid from the borrower’s loan rate and not by the owner of an MBS, MBS prices are unaffected by a change in G-fees. Most lender rate sheets began reflecting the increase in G-fees over the last few weeks, depending on lock term and delivery method.
FHFA has answered a couple of the questions we raised on Tuesday regarding the Congressionally mandated increase in Fannie Mae and Freddie Mac guarantee fees (G-fees). Effective April 1st all G-fees charged by Fannie and Freddie will be increased by 10 basis points. In addition, FHFA said that during the first part of 2012 they will determine whether the new law will require additional increases in the G-fees.
Since G-fees are paid from the interest on a loan, this increase will cause mortgage rates on loans going into Fannie and Freddie mortgage-backed securities after April 1st to rise by a similar amount.
You are an investor and you have money to invest. Do you invest it in the mortgage industry? Those of us who have been here and who have been beat up over the last few years would probably think twice about doing so. We might think about all the rule changes and all the regulations and all the buy backs. We might convince ourselves this is not the right place to invest our money. But there is a lot of money out there that thinks the mortgage industry is a good place to be invested. Let’s consider some of the positives that they see. Margins are high, competition is shrinking, good service is rewarded, loan quality has never been better, and collateral values will unlikely fall further. Increasing net worth requirements over the coming months will drive even more competitors from the industry. Those who are left in the industry will be worthy competitors, but they will be honest competitors. As many independent mortgage bankers realize the need to raise new capital they will begin to talk to the investment and will consider giving away substantial percentages of their company to raise the capital. Before they do so, they might want to look at the people sitting around them, their loan originators, as a source of new capital. With the new LO comp rules about to take effect, LOs might find a little ownership interest in their employer as just the thing to take the sting out of the new LO compensation rules.
Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline‘s Joe Farr:
MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.
Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending
Michael Lau, EVP of Phoenix Capital, a specialist in evaluating and brokering mortgage servicing rights, joined the LykkenonLending blog-talk-radio show this week to provide his opinions on the status of the mortgage servicing market. According to Michael, the market for servicer-to-servicer bulk transfers is just about non-existent. The only portfolios changing hands are done to move servicing of delinquent or distressed loans to special servicers. Fortunately, the market for servicing on newly originated loans is still active. There are a number of servicers buying this servicing, but they are paying very little for it. Michael sees the price paid for flow serving as being between two and four times the service fee. I remember being paid six to seven times the servicing fee on 2003 and 2004 originations. How can servicing on loans that may never pay off (4% note rates) be worth only two to four times? Servicing on today’s loans is worth more. Now is a good time to consider keeping servicing on new production, if you can. Hold on to it for three or four years and then sell it. You need to have cash reserves, experienced people, and quality systems to be a servicer. If you don’t have all these, you need to find a good sub-servicer. In either case, there are profits to be made by keeping today’s servicing rights.
Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr:
MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.
Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending
Mortgage rates have moved higher (mortgage security prices have moved lower) and strangely enough QE2 deserves much of the blame. The Fed intended for the opposite to happen. As they purchase their $600 billion in long-term Treasury securities, the Fed expected the added demand would drive prices higher and rates lower, not only for Treasury securities, but for mortgage backed securities as well. Things have not happened as planned. The Fed began their Treasury purchases on Friday and MBS prices fell 27/32nds. The Fed continued their Treasury purchases today and MBS prices are down another 16/32nds. So what has gone wrong?
Some of the issue is that MBS prices rose considerably in the weeks preceding the Fed’s announcement that they were going to buy $600 billion of Treasury securities. The much anticipated announcement had already accomplished much of the expected end result before it even started. After the announcement, sentiment toward the benefits from the plan shifted. Investors worldwide began to doubt the Fed’s ability to control rising inflation when it begins. Foreign investors recalculated their required returns after seeing the value of the dollar fall to recent lows. Political power in the US shifted from the Democrats to the conservative Republicans and Tea Party members. And several economic measures announced right around the time of the Fed’s announcement were stronger than expected. All of this combined to suggest to investors that inflation may heat up and any further quantitative easing plans were unlikely, forcing a sell off in Treasury and mortgage backed securities, resulting in higher long-term interest rates.
Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr:
MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.
Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending
Have you noticed an extra bit of volatility in MBS prices lately? Do you know the cause? Last week we saw mid-day price changes four out of the five days. Three were favorable, fortunately, and one was unfavorable. We saw unfavorable price changes Monday afternoon, this week. There are always several factors weighing in on investors as they decide what they will pay for mortgage-backed securities. The primary factor right now seems to be the Fed’s plan for more quantitative easing (QE II). QE II will have the Fed buying Treasury securities, adding liquidity to the market to stimulate lending, to promote economic growth, to reduce the value of the dollar, to make exported goods cheaper to foreign buyers and to make imported goods cost more, to create higher inflation. New demand for Treasury securities should improve demand for MBS as well, driving up prices. Too much QE II could add too much liquidity and reduce the value of the dollar too far, increasing inflation too much and driving up the yield required on MBS, reducing prices.
No longer is there a question of whether the Fed will buy more Treasury securities, but the question is how much and over what period of time. There seems to be a wide range of answers to this question. Even within the Fed, there are differing opinions. One Fed member does not think any additional quantitative easing is needed. Another thinks they need to shock and awe the market. A plan promoted by several Fed members would have the Fed announce small amounts of purchases, like $100 billion at a time, with a plan to reconsider and recalibrate at each next Fed meeting. Investors have stated they expect anywhere from $500 billion to $1 trillion in Fed purchases. Each new piece of economic news can cause investors to reconsider their expectations and therefore the price they are willing to pay for MBS. Whatever the answer, some investors are going to be surprised. The answer is expected to come at the conclusion of the Fed’s next meeting on November 3rd at 2:15 ET.
Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr:
MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.
Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending
The new rules which beginning April 1, 2011 will govern how loan originators (LO or LOs) are to be paid have been the topic of much discussion lately. There seems to be as many opinions as there are people and there are as many unanswered questions as there are answers. To try to help bring clarity to the situation and to try to address what is known, Tony Musgrave, mortgage industry veteran and practicing lawyer, joined the show today. Tony’s general advice on this issue is to accept that change is coming and to begin to prepare for it. He said that when considering the new rules, first consider where they came from. The new rules are a result of political and public perception that the old compensation rules incented LOs to take advantage of borrowers and to put them in loan products and at loan rates which were advantageous for the originator, but not necessarily for the borrower. Tony’s advice is to interpret the new rules with this perception as the basis for your new policies.
What is known is that a loan originator cannot be paid an amount that differs based on the terms of the loans he originates. He can be paid a percentage of the loan amount, and the percentage can vary by LO and can even be changed periodically on a prospective basis for each LO. There should be no incentive for a LO to encourage a borrower to accept loan terms that are not the most favorable loan terms available to that borrower. This will preclude things like priced in overage and profit splits for producing branch managers.
One of the many things not known is whether LOs can participate in market movement which occurs subsequent to quoting the best possible rate and points to a borrower off his rate sheet. The Fed rule specifically exempts secondary marketing gains for the effects of this rule. It is my opinion that unfavorable market movement subsequent to quoting the best possible rate and points to a borrower would not be absorbed by the borrower. It should be absorbed by the LO for not getting the loan locked timely. It is also my opinion that the opposite should be true. If there is favorable market movement subsequent to quoting the best possible rate and points off the rate sheet, the borrower is not due the improved pricing and the LO would not be precluded by this rule from participating in that improvement.
Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr:
MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.
Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending
Having a strategy and a plan to implement that strategy is always important. For the mortgage industry, it is even more important now as the consequences from regulatory changes are likely to change the origination landscape significantly. Implementing the regulatory changes will take considerable effort in retooling systems, training staff, and monitoring for compliance. All this will come with a price tag. Some companies will choose to get out before the changes are to be implemented. Others will choose to join firms that have the resources to implement the changes. Some firms will implement policies and controls based on the strictest, most conservative interpretation of the new regulations, and others will take a more common sense approach. All this is said to support the argument that over the next year or so we will see considerable movement within the industry. Firms with capital, systems and support in place will be well-positioned to benefit from the movement.
So if your strategy is to profitably grow your origination business in a compliant manner, you should have a tremendous opportunity in the coming months. Your plan should include building capital to pay for the cost of change and to support larger volumes, employing systems and system vendors with the resources to implement required changes. Building an origination philosophy that puts the customer first and embraces the benefits of the changes that are coming will enhance the plan.
Click PLAY to listen to the podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr:
MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.
Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending
This week’s guest on Lykken on Lending was John Tuccillo, noted economist and former Chief Economist for the National Association of Realtors. John provided his opinions on the state of the economy and housing. According to John, the chance of not having a double dip recession is greater than the chance of having one, but the difference in the likelihood has diminished over the last couple of months. John expects economic growth to remain slow though 2011, growing at an annual rate of 1.5% to 2.5%. Regarding housing, John looks to job creation as the driver to improve the housing market. Without it, nothing the government or the Fed does will create sustained improvement. This year’s home buyers tax credit was certainly helpful to stimulate activity at a time when we needed the activity, but we are seeing that it merely brought forward activity which most likely would have occurred naturally. The housing market will come back, but will come back on a regional basis. John said the real estate market should be viewed on a regional basis, not a national basis. Some markets like San Francisco, which rose to unaffordable levels, will likely take a good bit longer to recover when compared to markets like St. Louis, which never rose to unaffordable levels. John did not say how low he thought mortgage rates could go, but he implied they had room to go lower.
Click PLAY to listen to the podcast of this week’s with Dave Lykken and MBSQuoteline’s Joe Farr:
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MBSQuoteline supplies the essential market information necessary for effective decision making by Originators when assisting borrowers during the loan origination process, and for secondary marketing departments while managing pipelines. For additional information or to sign up for a free 2-week trial subscription, visit www.MBSQuoteline.com or call (800) 627-1107.
Tune in every Monday at 1:00pm(et) for up-to-the-minute information on interest rates, loan programs and “hot” industry news related to the mortgage industry. Dial: (646) 716-4972 or log in at: www.blogtalkradio.com/lykken-on-lending
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