Mortgage News Daily 11/05/15 – CHLA Expresses Concerns on Credit Risk Sharing; Cites J P Morgan Chase

House to Vote on G-Fee Measure; What Impac, Stonegate, PennyMac, and PHH Earnings Tell Us
Nov 5 2015, 8:38AM
The MBA spread the word that in Congress the House is going to vote today on ending “using g fees to support the highway program” today. “We sent a Call to Action asking you to contact your representatives regarding an amendment to the highway reauthorization bill (H.R. 22) that would remove an extension of an increase in Fannie Mae and Freddie Mac guarantee fees as funding sources for the proposal. Please reach out to your representatives and urge them to support the amendment. It’s critical that you weigh-in before the vote to ensure that Congress doesn’t fund highway programs on the backs of homeowners. Please click HERE to go to the Mortgage Action Alliance (MAA) homepage and click on the “Take Action” button to get started. If you don’t have, or have forgotten your username and password, click on “forgot password” to retrieve it. If you are not a MAA member, you will need to join MAA to take action. If you are having issues with your account, please contact Member Services at loginhelp@mba. org.
There continues to be movement in banking, and valuations have slid over the last several years. Looking at banking deals over time, the data shows price-to-tangible book multiples have declined from around 3.0x from 2000-2006 to 1.0 to 1.5x since 2008. But the depository bank deals keep happening! In the last week it was announced that Fidelity Bank ($3.4B, GA) will acquire American Enterprise Bank of Florida ($200mm, FL) for $27mm in stock. In Indiana German American Bancorp ($2.3B) will acquire River Valley Financial Bank ($519mm) for $84mm in cash and stock. In NY New York Community Bank ($49B) will acquire Astoria Bank ($15.2B) for about $2B in cash and stock or about 1.49x tangible book. Berkshire Bank ($7.5B, MA) will acquire Parke Bank ($868mm, NJ). In nearby Massachusetts Southbridge Savings Bank ($479mm) and Spencer Savings Bank ($469mm) have announced a merger of equals transaction. MB Financial Bank ($15B, IL) will acquire asset management firm MSA Holdings, a provider of investment advisory and wealth management services. KeyBank ($93B, OH) will acquire First Niagara Bank ($39B, NY) for $4.1B in cash and stock. Bank of America is shedding some branches. In California it will sell 3 branches with $245mmin deposits and $400,000 in loans to Tri Counties Bank ($3.9B), will sell 12 Oregon & Washington branches with $707mm in deposits to Bank of the Cascades ($2.4B, OR), and will sell 5 CA branches with $258mm in deposits and $421mm in loans to Redding Bank of Commerce ($984mm, CA).
We’re pretty much done with hearing about 3rd quarter bank earnings, but the more mortgage-focused company earnings continue to flood in. Impac Mortgage Holdings’ (IMH) total originations soared approximately 150% from the third quarter of 2014, according to the lender’s third-quarter earnings. And while on a monthly basis originations decreased to $2.3 billion in the third quarter from $2.6 billion in the second quarter of 2015, the decline was consistent with the rest of the market. As a whole, Impac continued its upward trend and reported third-quarter net earnings of $19.3 million compared to a net loss of $1.2 million for the third quarter of 2014. Impac’s retail channel decreased 17% over the second quarter, while still representing approximately 56% or $1.3 billion of total originations. The wholesale channel remained consistent with the second quarter, representing approximately 18%, or $409.0 million, of total originations, while the correspondent division decreased slightly from the second quarter, representing $608.5 million or 26% of total originations. For the third quarter of 2015, purchase money transactions increased to 25% of total production, as compared to 18% of total production in the second quarter.
For the second quarter in a row, PHH Corp. posted a loss, driving the company deeper onto the negative side of the ledger for 2015. PHH reported a net loss attributable to PHH Corporation of $50 million which includes a $44 million pre-tax provision for legal and regulatory reserves. In the second quarter, PHH posted a net loss attributable to PHH Corporation of $62 million, driven primarily by PHH setting aside $34 million pre-tax provision for legal and regulatory reserves. PHH announced a $100 million stock buyback plan which caught everyone’s attention.
As in the industry knows, PHH is currently engaged in a court battle with the CFPB over a fine levied against PHH by the director of the CFPB, Richard Cordray. Five months ago Cordray issued a final order that requires PHH to pony up $109 million (all the reinsurance premiums it received on or before July 21, 2008) due to violations of the Real Estate Settlement Procedures Act every time it accepted a kickback payment on or before that date. Cordray’s demand is much greater than that determined by a court ruling that indicated kickbacks have a $6.4 million penalty.
In August, a D.C. Circuit Court issued a stay against a $109.2 million fine after PHH said the court should review the CFPB’s order because it is “arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act” and a violation of federal law, including the Real Estate Settlement Procedures Act and the Consumer Financial Protection Act of 2010. PHH had argued that complying with the agency’s order would violate its due process rights and harm business irreparably.
PHH said that its mortgage production segment posted a loss of $10 million in the third quarter, compared to a segment profit of $3 million in the second quarter of 2015 and a segment loss of $28 million in the third quarter of 2014. Additionally, PHH said that its mortgage servicing segment reported a loss in the third quarter of 2015 of $77 million, compared to a segment loss of $46 million and $71 million in the second quarter of 2015 and third quarter of 2014, respectively.
In addition, during the third quarter of 2015, PHH recorded $22 million of unfavorable market-related fair value adjustment to its MSRs, net of related derivatives compared to favorable adjustments of $20 million in the second quarter of 2015. The $22 million unfavorable market-related fair value adjustment for the third quarter of 2015 was primarily attributable a decrease in mortgage interest rates.
Stonegate Mortgage Corporation saw a $28.1 million MSR mark, $1.9 million of stock comp, and $3.0 million of other expenses. Origination volume for the 3rd quarter came in at $3.48 billion, up from $3.44 billion in 2Q and gain-on-sale margins decreased QoQ. Its earnings missed some estimates due to the lower gain-on-sale margin. The gain-on-sale margin came in at 116 bps, down from 149 bps last quarter. Interest rate locks per day averaged $54.4 million in 3Q versus $70.6 million in 2Q15. The servicing portfolio included $18.2 billion of UPB, up from $17.2 billion in 2Q, and servicing fee income of $14.1 million was up from $12.6 million in 2Q. Turning to monthly numbers SGM reported that October 2015 origination volume was $999.4 million, down 14% compared with average monthly volume during 3Q15. Average locks per day in October decreased 22% to $52.6 million, compared to the average locks per day in 3Q15.
PennyMac Mortgage Investment Trust reported net income of $38.8 million for the third quarter of 2015, on net investment income of $90.8 million. Mortgage servicing rights (MSR) and excess servicing spread investments, related to $94.1 billion in unpaid principal balance (UPB), grew to $842 million at September 30, 2015. “Penny” added $53 million in new MSR investments resulting from correspondent production activities.
Through its correspondent channel PMT acquired $14.4 billion in UPB of loans and issued IRLCs totaling $13.6 billion, compared to $11.9 billion and $14.4 billion, respectively, in the second quarter. Of the correspondent acquisitions, conventional conforming and jumbo volumes totaled $4.1 billion, and government insured or guaranteed volumes totaled $10.3 billion compared to $3.6 billion and $8.3 billion, respectively, in the second quarter.
Net gain on mortgage loans acquired for sale totaled $13.9 million in the third quarter compared to $11.2 million last quarter. Segment revenues in the third quarter also included $9.1 million of loan origination fees and net interest income of $7.4 million. “The third quarter results reflect a robust mortgage origination market primarily driven by continued low mortgage rates, in addition to increased market share for PMT’s correspondent production business resulting from successful execution of its growth initiatives.”
PennyMac completed a $40 million investment from initial credit risk transfer transaction with Fannie Mae on $1.2 billion of PMT’s production and launched a second transaction expected to total $4.0 billion of PMT’s production.
Speaking of credit risk transfers, Community Home Lender Association’s Scott Olson noted that CHLA’s concerns about risk sharing are exemplified by the fact that J P Morgan Chase has already done two GSE front end risk sharing deals – totaling $2 billion – and it appears that all the originated loans will be exclusively through Chase. “This goes to the heart of our concerns – that big banks will leverage their securities operations under a risk sharing regime to dominate the GSE mortgage origination market in the future.”
In other secondary marketing trends Greystone, a real estate lending, investment and advisory company, announced it has originated over $500,000,000 in volume under Freddie Mac’s Small Balance Loan offering. Greystone has provided over 180 Freddie Mac SBL mortgages, generally ranging from $1 million to $5 million, since the SBL program was launched one year ago. Current loan terms for Freddie Mac’s SBL offering include a hybrid ARM with initial 5-, 7-, or 10-year fixed-rate periods or 5-, 7-, or 10-year fixed-rate balloon loans, all with up to a 30-year amortization. Eligible properties for this loan product include conventional multifamily housing with five residential units or more, including conventional housing with tax abatements.
Rates slid higher again Wednesday as the ISM Services Index for October hit a three-month high although the $26 billion 2-year Note auction went poorly. The bigger story, however, was that Fed Chair Janet Yellen and New York Fed President William Dudley both said that December’s FOMC meeting is a “live” one for “liftoff” – an increase in short term rates. Fed Chair Janet Yellen said yesterday that there was a “live possibility” of December interest rate hikes.  She remarked that “at this point, the US economy is performing well”.  New York Fed President Dudley also remarked that the central bank could boost interest rates as soon as December.
Housing and jobs drive the economy, and this week the focus is on jobs. Yesterday was ADP. This morning we’ve had the October Challenger Job Cuts (-50k, -14%) and Initial Jobless Claims for the week ending 10/31 (+276k, +16k). We’ve also had the preliminary Q3 Productivity and Unit Labor Costs (+1.6%, higher than expected, and +1.4% respectively). In other news the Bank of England left its rates unchanged. Wednesday saw a 2.23% close on the 10-year and this morning we’re at 2.24% with agency MBS prices worse a smidge.