People in different positions in residential lending, like capital markets, IT, and owners, have different concerns. For example, MLOs (mortgage loan originators) are watching the MBA’s moves to correct LO comp, with an eye on either being able to give LOs the benefit of, or holding LOs accountable for, pricing mistakes, or LOs being able to adjust comp to match competitor’s pricing, all the while with an eye on avoiding steering and disparate impact.
Owners and senior management with a stake in the business are focused on keeping their business viable. There’s a lot of optimism out there, founded or unfounded, given the recent move in rates. Most business owners spend their entire professional lives starting, nurturing and growing their business. Then why do so many not put in the appropriate amount of care and effort when it comes time to sell the business? Read the article, “Give that pig a bath before you take it to market” written by CSH’s Scott McRill. Scott discusses 5 key steps business owners should take to get a better understanding of the true value of the business before taking it to market.
And on the IT side…
Although she hasn’t stated it outright, I know that my cat Myrtle is intrigued with the use of blockchain for tracking seafood procurement and sales. In the meantime, let’s look at some recent blockchain developments and news related to financial institutions.
Figure Technologies, a leading fintech company founded by former SoFi CEO Mike Cagney, is making big inroads with Provenance.io, the blockchain platform it built last year. Provenance is a permissioned, proof-of-stake protocol that acts as a global ledger, registry and exchange across assets and markets. Members include global financial institutions that act as stakeholders, originators, lenders, and buyers on blockchain. Figure has been an early adopter of Provenance.io, originating, financing and selling its HELOC loans entirely on the blockchain since July 2018 with over $100 million in volume to date. Figure, its warehouse lenders and loan buyers are reducing costs and improving liquidity through Provenance.io. Cagney’s speaking at LendIt on Monday so stay tuned for more news. (“Every day assets are originated, traded and financed on Provenance.” For more information for correspondents or brokers, contact Wendy Harrington.)
Big banks are implementing blockchain technology more quickly than small banks, a survey by UBS shows. The survey finds 73% of respondents from banks with more than $250 billion in assets are implementing blockchain, while 6% of respondents from banks with less than $100 billion in assets are doing so.
Blockchain technology is on track to upend the mortgage industry by giving underwriters and financial institutions the ability to access information they’ve never had access to before.
Recently, more than a dozen well-known online lenders like SoFi and Better Mortgage signed on to participate in testing a platform created by Spring Labs, a company looking to improve the security and efficiency of the credit reporting industry with blockchain. The platform aims to help consumers and mortgage lenders (among others) by facilitating the secure and efficient exchange of information directly with each other while maintaining the privacy of the underlying data. Spring Labs Co-Founder and CEO Adam Jiwan, who was a founding board member of Avant, a $5+ billion online lending company, thinks blockchain is going to completely change the competitive landscape of the mortgage industry and make lenders rely less on credit bureaus for information on borrowers.
Fannie action in the capital markets
This week the Senate confirmed Mark Calabria as the next FHFA Director. We can expect, among other things, some form of GSE capital retention but also continued support for GSE (government sponsored enterprises) Credit Risk Transfers (CRTs), which should be a tailwind for industry participants like PennyMac).
Freddie & Fannie continue to move forward with initiatives that aren’t directly reliant on political decisions. Good for us, right! Dan Fichtler, Director of Housing Finance Policy, for the Mortgage Bankers Association writes, “We continue to be encouraged by the progress the GSEs are making with respect to their CRT programs. For the STACR and CAS offerings in particular, it’s clear that they’ve turned the corner to become better-understood, more-liquid securities, which is increasing investor demand and contributing to tighter spreads. Another very positive development is the decision by both GSEs to issue their STACR and CAS securities as REMICs, which should allow greater investment by REITs. These programs have certainly benefited from the fact that they developed and grew in a period of strong economic growth and rising home prices. It will be interesting to watch how the programs evolve, the securities perform, and the investor base changes during a downturn. Moving forward, our hope is that CRT remains a permanent part of the GSEs’ business models, that the GSEs continue to pursue diverse structures (front-end and back-end; capital markets and institutional), and that offerings are designed in a way that maintains a level playing field.
Loan originators should know that transferring credit risk away from taxpayers to willing buyers help rates for their borrowers. What has Fannie Mae been up to lately in CRT, multi-family, and other issuances?
In late January Fannie announced that it has completed its eighth and final Credit Insurance Risk Transfer (CIRT) transaction of 2018, covering $12.8 billion in unpaid principal balance of 15-year and 20-year loans in Fannie’s existing portfolio. To date, Fannie Mae has acquired about $7.6 billion of insurance coverage on $307 billion of loans through the CIRT program. In CIRT 2018-8, Fannie Mae will retain risk for the first 35 basis points of loss on a $12.8 billion pool of loans, with reinsurers covering the next 150 basis points of loss on the pool, up to a maximum coverage of approximately $192 million if the $44.7 million retention layer is exhausted. A summary of key deal terms, including pricing, for this new and past CIRT transactions can be found at http://www.fanniemae.com/resources/file/credit-risk/pdf/cirt-deal-pricing-information.pdf.
On March 27, Fannie Mae announced the completion of a multi-tranche Credit Insurance Risk Transfer (CIRT) transaction covering a pool of approximately $11.7 billion of existing multifamily loans in the company’s portfolio. This new transaction, MCIRT 2019-01, is the first of 2019 and fifth CIRT transaction overall as part of Fannie Mae’s ongoing effort to increase the role of private capital in the multifamily mortgage market and mitigate risk for U.S. taxpayers. This is the company’s first three-tranche offering, and transfers $332 million of risk to reinsurers and insurers, making it the largest single transfer of risk in multifamily CIRT program history. Depending on market conditions, Fannie plans to return later this year with additional multifamily CIRT transactions. The CIRT program shares risk with diversified reinsurer and insurer counterparties and supplements the Delegated Underwriting and Servicing (DUS) program where originating lenders routinely share approximately one-third of the credit risk on multifamily loans. The covered loan pool for the transaction consists of 1,155 loans, secured by 1,155 multifamily properties, acquired by Fannie Mae from July 2018 through October 2018. Each loan has an unpaid principal balance of $30 million or less. Fannie Mae will retain risk on the first 75 basis points of losses on the reference pool. The C tranche will transfer risk to reinsurers covering losses between 75 basis points and 150 basis points. The B tranche will transfer risk to reinsurers covering losses between 150 and 275 basis points. The A tranche will transfer risk to reinsurers covering losses between 275 and 400 basis points. Finally, once the pool has experienced 400 basis points of losses, the credit protection will be exhausted and Fannie Mae will be responsible for any further losses. Since 2016, in addition to the risk retained by its DUS lender partners, Fannie Mae has transferred a portion of the credit risk on multifamily mortgages with an aggregate unpaid principal balance of more than $51 billion through its CIRT program.
On March 22, Fannie Mae priced its third Multifamily DUS REMIC in 2019 totaling $718.5 million under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program. Fannie noted many GeMS investors were able to participate in this month’s transaction despite a week marked by heavy new issuance, a rate rally, and end-of-quarter portfolio constraints. A spokesman for Fannie noted the company’s ability to successfully resecuritize this production would continue to ensure access to capital for an important subset of borrowers. The three offered classes are as follows. Class FA has an original face of $200.5 million, a weighted average life of 6.29 years, a floater/AFC coupon of 3.014%, a spread of L+56 and an offered price of 99.79. Class A1 has an original face of $63.0 million, a weighted average life of 7.60 years, a FIXED coupon of 2.942%, a spread of S+48 and an offered price of even par. Class A2 has an original face of $455.0 million, a weighted average life of 11.76 years, a FIXED coupon of 3.610%, a spread of S+72 and an offered price of 102.99.
On February 5, Fannie priced a $960 million Connecticut Avenue Securities (CAS) REMIC transaction, its first credit risk transaction of the year for the benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. Fannie Mae’s CAS program is the most actively traded credit risk transfer product in the market, and the new CAS REMIC structure marks the continued evolution of the CAS program, now allowing CAS notes to be issued as REMICs, making the product more attractive to market participants, including real estate investment trust (REIT) investors and international investors. Going forward, all CAS offerings will be issued as CAS REMICs. The reference pool for CAS Series 2019-R01 consists of more than 115,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $28 billion. The reference pool will include one group of loans comprised of collateral with loan-to-value ratios of 80.01 percent to 97.00 percent acquired from May through August 2018. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls. With the completion of this transaction, Fannie Mae will have brought 31 CAS deals to market since the program began, issued $37 billion in notes, and transferred a portion of the credit risk to private investors on over $1.2 trillion in single-family mortgage loans as part of the CAS program. Since 2013, Fannie Mae has transferred a portion of the credit risk on approximately $1.6 trillion in single-family mortgages through all of its risk transfer programs.
Going back to the end of the year, Fannie priced its tenth Multifamily DUS REMIC in 2018 totaling $803 million under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program. All classes of FNA 2018-M14 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal. The multi-tranche offering has an offered price of 100.2 on $37 million and an offered price of 97.8 on $766 million.
On February 19, Fannie Mae priced its second Multifamily DUS REMIC in 2019 totaling $912.7 million under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program. The creation of a new GeMS structure with an A3 tranche demonstrates the flexibility of the GeMS program to respond to reverse inquiry, while also keeping the program’s workhorse product – the A2 – available to investors. The structure details are as follows: Class A1 has an original face of $55.2 million, a weighted average life of 6.00 years, a coupon of 3.024%, and an even par offered price. Class A2 has an original face of $657.5 million, a weighted average life of 9.60 years, a coupon of 3.631%, and an offered price of 103.21. Class A3 has an original face of $200.00 million, a weighted average life of 9.74, a coupon of 3.48%, and an offered price of 101.94. All classes of FNA 2019-M2 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal.
On March 20, Fannie Mae announced the results of its tenth reperforming loan sale transaction, which was announced on February 14, 2019 and included the sale of approximately 15,000 loans totaling $3.0 billion in unpaid principal balance (UPB), divided into four pools. The winning bidders of the four pools for the transaction, which is expected to close on April 25, 2019, were Towd Point Master Funding LLC (Cerberus) for Pools 1, 2 and 3 and NRZ Mortgage Holdings LLC (Fortress) for Pool 4. The four pools awarded are as follows. Group 1 Pool: 5,640 loans with an aggregate unpaid principal balance of $1,197,458,011; average loan size $212,315; weighted average note rate 4.31%; weighted average broker’s price opinion loan-to-value ratio of 87%. Group 2 Pool: 2,821 loans with an aggregate unpaid principal balance of $598,068,850; average loan size $212,006; weighted average note rate 4.29 %; weighted average BPO loan-to-value ratio of 86%. Group 3 Pool: 2,555 loans with an aggregate unpaid principal balance of $568,807,032; average loan size $222,625; weighted average note rate 4.15%; weighted average BPO loan-to-value ratio of 73%. Group 4 Pool: 4,028 loans with an aggregate unpaid principal balance of $638,767,104; average loan size $158,582; weighted average note rate 4.61%; weighted average BPO loan-to-value ratio of 75%. The cover bids, which are the second highest bids per pool, were 88.81% of UPB (65.05% of BPO) for pool 1, 88.81% of UPB (64.69% of BPO) for pool 2, 86.08% of UPB (56.56% of BPO) for pool 3 and 90.85% of UPB (54.10% of BPO) for pool 4.
A certain tax lawyer was quite wealthy and had a summer house in the country, to which he retreated for several weeks of the year. Each summer, the lawyer would invite a different friend of his to spend a week or two up at this place, which happened to be in a backwoods section of Maine.
On one particular occasion, he invited a Czech friend to stay with him. The friend, eager to get a freebie off a lawyer, agreed. Well, they had a splendid time in the country, rising early and living in the great outdoors.
Early one morning, the lawyer and his Czech companion went out to pick berries for their morning breakfast. As they went around the berry patch, gathering blueberries and raspberries in tremendous quantities, along came two huge bears, a male and a female. The lawyer, seeing the two bears, immediately dashed for cover. His friend, though, wasn’t so lucky, and the male bear reached him and swallowed him whole.
The lawyer ran back to his Mercedes, tore into town as fast has he could, and got the local backwoods sheriff. The sheriff grabbed his shotgun and dashed back to the berry patch with the lawyer. Sure enough, the two bears were still there.
“He’s in ‘that one!” cried the lawyer, pointing to the male, while visions of lawsuits from his friend’s family danced in his head.
He just had to save his friend. The sheriff looked at the bears, and without batting an eye, leveled his gun, took careful aim, and shot the female.
“Whatdya do that for!” exclaimed the lawyer, “I said he was in the other!”
“Exactly,” replied the sheriff, “and would you believe a lawyer who told you that the Czech was in the male?”
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