For folks who like numbers, here’s some mortgage trivia. The average mortgage as of Q2 2018 according to Experian was $132,029. Households are paying 9.8% of their disposable personal income to stay current on all of their loans, including mortgages, according to the Fed, which is significantly below levels over the past 30 years – a good thing. What isn’t so great is that, according to The Wall Street Journal, the Federal Housing Administration (FHA) reports 26% of mortgage borrowers who obtained loans through the agency did so with the help of a relative in making the down payment. This compares to 22% who did so back in 2011. A rebound in home prices and higher mortgage rates were contributing factors.
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Top 50 Mortgage Lender, On Q Financial, is expanding across the East Coast with the addition of its newest Regional Vice President, Mid-Atlantic Region, Brian Logie. Logie has over 18 years of experience in the industry and will lead On Q’s growth into Maryland, New Jersey, Virginia, Delaware, Washington D.C., and Pennsylvania. “His energy, diligence, and dedication are critical for our plans to grow our brand and bring the dream of home ownership to countless families,” Shane Miller, Senior Vice President, added. If you’re a passionate and driven individual that thrives in a fast-paced environment and you’re interested in joining the team at On Q, please contact Nick Suwanvichit or visit On Q Financial Careers.
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The data in your LOS can do powerful things, from automating manual processes to delivering insights that inform better decision-making. But it’s not always easy to tap into system data, as Cyprus Credit Union experienced. The Cyprus team was happy with Finastra’s Fusion MortgagebotLOS, but they knew they weren’t using the LOS’ data management feature to its fullest potential. Processes like boarding loans to the credit union’s subservicer were too costly and labor-intensive. Cyprus needed a partner experienced in working with Fusion Mortgagebot, so they turned to LBA Ware™. With LBA Ware’s help, Cyprus slashed loan boarding fees by more than two-thirds and deployed LBA Ware’s automated incentive compensation and performance management platform, CompenSafe™, to inform and motivate its originations team with actionable pipeline insights. Download the free case study to see how LBA Ware helped Cyprus unlock the potential of its LOS data.
In the secondary markets the Agencies are doing deals, laying groundwork for a single security, and transferring credit risk away from taxpayers to willing buyers. MLOs should know that all these help rates for their borrowers. And this year the secondary markets, and with them the primary markets as beneficiaries, can look forward to the single security!
How about some market color on recent agency credit risk transfer (CRT) performance? CRT prices were down 2%-6% in Q4 for most lower and un-rated securities, which contributed to lower book values across the industry. The offset is stronger yields on new CRT investments, which improved by roughly 50-100 bps. Levered returns in CRT appear fairly attractive, as it provides a hedge against more duration-sensitive assets.
The CRT’s sensitivity to spreads, however, is likely somewhat higher compared to other mortgage assets. Seasoned, more subordinate securities, which are typically favored by mortgage REITs, were down as on the-run collateral was especially weak. For example, Fannie Mae priced $918 million of new bonds in early October, with the most subordinate, unrated tranche issued for 375bps over 1M Libor. The bond ended the year with a dollar price of roughly $93, down 7%, including the yield on the security widening by around 100 bps. Since year-end, CRT has actually rebounded modestly. Unlevered yields on most B tranches currently sit between 6%-7% and yields on M2 slices are around 4%-5%.
Keefe, Bruyette & Woods believes that expectations are now for spreads on legacy non-Agency MBS to not correct as sharply for security prices as for CRT’s, as these spreads widened modestly during 4Q. Legacy non-Agency collateral remains far more seasoned than CRT, which likely helps insulate it in a choppy market. Also, while the legacy MBS market continues to steadily pay down, it’s still a larger and more liquid asset class than Agency risk transfer. CRT’s, normally a potential offset against safe-haven asset classes like Agency MBS, may underperform other mortgage assets in periods of strong market turbulence given its spread sensitivity. It’s important to note, however, that the strong appreciation in CRT over the last year has contributed to especially solid total return on those assets. Towards the end of 2018, more subordinate securities underperformed bonds with more credit protection, and heading into 2019, bonds with less seasoning will likely underperform those with a longer pay history. A sharp and unexpected widening of credit spreads relative to benchmark yields like swaps or Treasuries is the most meaningful risk for economic return performance. Also, while it’s a lower likelihood scenario, a significant tightening in either Agency or credit spreads may weaken earnings power, especially if short term borrowing costs are simultaneously rising due to additional Fed rate hikes.
On January 3, Freddie Mac announced its first Multifamily Credit Risk Transfer offering using (Re)Insurance on $915 Million of Affordable Multifamily Loans. The expanded risk offering coincides with the creation of a Multifamily Credit Insurance Pool (MCIP) offering and the closing of the first transaction under that offering. In MCIP transactions, Freddie Mac enters into long-term credit insurance contracts covering credit losses from existing multifamily loans in the company’s portfolio or bonds that Freddie Mac fully guarantees. The structure transfers a percentage of credit risk to reinsurers, helping reduce Freddie Mac’s need to hold capital for the underlying loans in the pool. Freddie hopes the long-term insurance contracts help alleviate pricing volatility and reduce execution uncertainties, thus broadening their production capabilities on various types of loans that may be structurally more complicated or need longer time to aggregate.
Freddie Mac also announced its first transaction through the offering, MCIP 2018-1. Freddie Mac has purchased credit risk insurance for the first 5 percent of credit losses on a reference pool of $915 million, which consists of 55 loans in Freddie Mac’s Bond Credit Enhancement and Multifamily Participation Certificate program portfolios. The average loan balance in the pool is $16.6 million, and most of the 55 properties in the pool include rent-restricted units that are affordable to low- and very low-income families.
On January 17, Freddie Mac priced a new offering of $632 million in Structured Pass-Through K-Certificates (K-L04) which are multifamily mortgage-backed securities backed by two groups of loans. One group (Connor Loan Group) consists of 10 floating-rate mortgages backed by 10 properties and the other group (Ares Loan Group) consists of 12 fixed-rate mortgages backed by 12 properties. The K-L04 Certificates are expected to settle on or about January 29, 2019. K-Deals are part of the company’s business strategy to transfer a portion of the risk of losses away from taxpayers and to private investors who purchase the non-guaranteed subordinate bonds, typically featuring a wide range of investor options with stable cash flows and structured credit enhancement. There will be three offered classes in the transaction. Class A-CR has principal of $344 million, a weighted average life of 6.65 years, a coupon of 3.00%, and a dollar price of $100. Class A1-AS has principal of $22 million, a weighted average life of 4.83 years, a coupon of 3.33%, and a dollar price of $101. The third offered class, class A2-AS has principal of $266 million, a weighted average life of 6.74 years, a coupon of 3.68%, and a dollar price of $102.
On January 10, Freddie Mac announced pricing of a $560 Million Multifamily Small Balance Loan Securitization, a multifamily mortgage-backed securitization backed by small balance loans underwritten by Freddie Mac and issued by a third-party trust. The SB58 certificates are anticipated to settle on or about January 22, 2019. Freddie Mac Small Balance Loans generally range from $1 million to $6 million and are backed by properties with five or more units. This is the first SB Certificate transaction in 2019. There are four offered classes in the securitization, ranging from $65 million to $224 million with weighted average life’s from 4.08 to 7.31 years, coupons of 3.17% to 3.73% and dollar prices of all roughly $100.47. There will also be one interest only class of securities issued by the FRESB 2019-SB58 Mortgage Trust, as Freddie Mac acts as mortgage loan seller and master servicer to the trust. In addition to the five classes of securities guaranteed by Freddie Mac, the trust will issue certificates consisting of Class B and Class R Certificates, which will not be guaranteed by Freddie Mac and will be sold to private investors. The Small Balance Loan (SBL) origination initiative was first announced in October 2014 and expands the company’s continuing effort to better serve less populated markets and provide additional liquidity to smaller apartment properties. Freddie Mac has a specialty network of Seller/Servicers and SBL lenders with extensive experience in this market who source loans across the country.
On December 13, Ginnie Mae announced that issuance of its mortgage-backed securities totaled $33.7 billion in November, including $32.2 billion of Ginnie Mae II MBS and $1.5 billion of Ginnie Mae I MBS, which includes $1.3 billion of loans for multifamily housing. Ginnie Mae’s total outstanding principal balance of $2.033 trillion is an increase from $1.903 trillion in November 2017. Ginnie Mae I MBS are modified pass-through mortgage-backed securities on which registered holders receive separate principal and interest payments on each of their certificates. Ginnie Mae I securities can include single family, multifamily, manufactured home and project construction loans. Ginnie Mae II MBS are modified pass-through mortgage-backed securities for which registered holders receive an aggregate principal and interest payment from a central paying agent. An Issuer may participate in the Ginnie Mae II MBS either by issuing custom, single-Issuer pools or through participation in the issuance of multiple-Issuer pools, which combine loans with similar characteristics.
On December 13, Freddie Mac announced this year’s final STACR SPI deal, its largest ever at $275 million, further reducing its credit risk and enhancing the stability of the U.S. housing market. The transaction drew 17 unique investors, which bodes well as Freddie introduces STACR DNA and HQA in a REMIC structure deals in 2019. The $275 million STACR 2018-SPI4 securities are backed by participation interests in 30-year fixed-rate non-HARP mortgage loans with an aggregate principal balance of approximately $6.9 billion and will include retention of the credit risk on loans subsequently refinanced under Freddie Mac’s Enhanced Relief Refinance Program. Three classes of STACR SPI 2018-4 certificates were sold. The M-1 class had pricing of EDSF plus a spread of 160 bps; the M-2 class at swaps plus a spread of 350 bps; and B class at $47.50. Freddie Mac will retain a 5 percent interest in each of the three classes, maintaining alignment of interests with credit investors and complying with European Union Risk Retention rules. Since 2013, Freddie has transferred a portion of credit risk on more than $1 trillion in unpaid principal balance on single-family mortgages, growing its investor base to more than 230 unique investors, including insurers and reinsurers.
The bond markets are closed today, but on Friday the U.S. 10-year closed Friday +4 bps to 2.78%, Treasuries across the curve reaching their highest levels of the week as markets digested Thursday’s reports that tariffs on imports from China could be lifted to smooth negotiations, even though the Treasury Department was quick to refute that claim. More tomorrow!
Yes, MLK had a humorous side.
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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2019 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)
- Jan. 29: Sales jobs; cap mkts, sales products; bank competitive pressures from all over; good flood insurance news? - January 29, 2019
- Jan. 28: LO jobs; TPO, sales, underwriting products; conventional conforming lender & investor changes - January 28, 2019
- Jan. 26: Psychology, lotteries, and rate locks; letters on banks, credit unions, and non-banks in lending - January 26, 2019