Underwriting, Accounting Products; Fannie and Freddie Continue to Shift Risk

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For me this week includes time in Indianapolis and Chicago. Once again, I am impressed by the talent in residential lending – the industry is filled with people helping clients and wanting to do it in a compliant, fair, and economical manner. But there seems to be one segment of the industry profitable, looking for new products, and trying to expand, and another segment hoping their cash holds out through the summer. “You can’t cut your way to growth.” Interesting times & opportunities. The big banks, which will certainly be around for the long haul, are steadily losing residential mortgage retail market share – which helps plenty of smaller lenders.

 

Capital Markets

Yes, the preparation for the fabled single security (both Freddie and Fannie loans in the same mortgage-backed security) continues. But the fact remains that 80-90% of current originations are, in effect, backed by the U.S. taxpayer, and both agencies continue to shift risk to parties willing to absorb it.

Fannie Mae announced separate deals to rid itself, and the taxpayer, of $1.84 billion and $1.71 billion in non-performing loans, a small portion of which are from its thirteenth Community Impact Pool. Community Impact Pools are smaller loan pools that are geographically-focused and marketed toward non-profits, minority and women-owned businesses, and smaller investors. These Community Impact Pool loans are in New Jersey, New York, Cook County Illinois, Baltimore and Miami. Fannie Mae is partnering with Bank of America Merrill Lynch and The Williams Capital Group to market the non-performing loans. Bids for the 10,300 loans from larger pools were due June 5, and bids on the Community Impact Pool are due on June 19.

Fannie priced its fifth Multifamily DUS REMIC in 2018 totaling $565.7 million under its Fannie Mae Guaranteed Multifamily Structures (GeMS) program. All classes of FNA 2018-M7 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal. The structure of the deal involves a $65 million A1 tranche at an offered price of 98.65, and a $500.7 million A2 tranche offered at 95.73.

At the start of May, Fannie announced that it had secured commitments for two new front-end Credit Insurance Risk Transfer transactions. These will be the fourth and fifth deals completed on a flow basis, meaning the risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans and the insurance coverage will be effective as soon as the loans are acquired. Coverage and pricing are committed for 12 months, beginning with March 2018 deliveries. In CIRT FE 2018-1, which became effective March 1, 2018, Fannie Mae will retain risk for the first 50 basis points of loss on an approximately $12 billion pool of loans. If this $60 million retention layer is exhausted, reinsurers will cover the next 325 basis points of loss on the pool, up to a maximum coverage of approximately $390 million. With CIRT FE 2018-2, which also became effective March 1, 2018, Fannie Mae will retain risk for the first 50 basis points of loss on an approximately $8 billion pool of loans. If this $40 million retention layer is exhausted, reinsurers will cover the next 325 basis points of loss on the pool, up to a maximum coverage of approximately $260 million.

Finally, at the start of May, Fannie priced its third credit risk sharing transaction of 2018 under its Connecticut Avenue Securities program. CAS Series 2018-C03, a $1.050 billion note offering, is scheduled to settle on May 9, 2018. CAS is Fannie Mae’s benchmark issuance program designed to share credit risk on its single-family conventional guaranty book of business. Fannie Mae expects to come to the market with its fourth deal of 2018 in June, subject to market conditions.

The reference pool for CAS Series 2018-C03 consists of more than 127,000 single-family mortgage loans with an aggregate outstanding unpaid principal balance of approximately $31.1 billion. The loans in this reference pool are fixed-rate, generally 30-year term, fully amortizing mortgages, and were underwritten using rigorous credit standards and enhanced risk controls. Fannie Mae will retain a portion of the 1M-1, 1M-2, and 1B-1 tranches to align its interests with investors throughout the life of the deal. Fannie Mae will retain the full 1B-2 and 1A-H tranches.

Freddie is no slouch. Its second Structured Agency Credit Risk (STACR®) – Securitized Participation Interests (STACR SPISM) deal of the year, $263.5 million of STACR 2018-SPI2 securities are backed by participation interests in 25- to 30-year fixed-rate mortgage loans with an aggregate principal balance of approximately $6.5 billion, including the retention of credit risk on those loans subsequently refinanced under Freddie Mac’s Enhanced Relief Refinance Program (ERR), is a big one!

Freddie Mac priced three new offerings of Structured Pass-Through Certificates (K Certificates) backed by floating-rate multifamily mortgages. One each on May 24 and May 25, for approximately $1.1 billion (K-F46) (K-076), and one May 16, for approximately $993 million (K-F45). 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 unguaranteed subordinate bonds. K Certificates typically feature a wide range of investor options with stable cash flows and structured credit enhancement.

Freddie Mac also closed their first SHRP deal of the year, as they introduced Structured Agency Credit Risk (STACR) Trust Notes to market. The May 22 settlement of an $880 million transaction of 2018-HRP-1 Notes, the first STACR transaction in which the notes are issued by a special purpose trust rather than as Freddie Mac debt, helped to reduce mortgage credit risk. These notes reduce the accounting volatility of earnings and move Freddie closer to the durable credit risk transfer (CRT) structure of the future. The offering is backed by Relief Refinance loans, which includes loans that meet the Home Affordable Refinance Program (HARP) eligibility criteria, with marketed-to-market LTVs between 60 and 200 percent or if the loan does not have an ELTV, OLTV greater than 80 percent and less than 200 percent.

This STACR transaction had a reference pool of single-family mortgages consisting of a subset of fixed-rate, single-family mortgages with an original term of 241 to 360 months funded by Freddie Mac between Jan. 1, 2012 and March 31, 2013. This included loans refinanced under Freddie Mac’s Relief Refinance Program with estimated loan to value (ELTV) ratios greater than 60 percent and less than 200 percent or, if the loan does not have an ELTV, an OLTV greater than 80 percent and less than 200 percent. As with STACR debt, a hypothetical structure of classes of reference tranches has been established which is backed by the mortgage loans in the reference pool.Freddie Mac retains the senior loss risk A-H reference tranche and the M-1H reference tranche. Freddie Mac also retains a portion of the credit risk in the M-2, B-1 and B-2 reference tranches. BofA Merrill Lynch and Barclays Capital Inc. are co-lead managers and joint bookrunners.

Finally, Freddie announced pricing of a $511 million multifamily small balance loan securitization, their fifth SB Certificate transaction in 2018. 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. In addition to the seven classes of securities guaranteed by Freddie Mac, the trust will issue multiple Class B and Class R Certificates, which will not be guaranteed by Freddie Mac and will be sold to private investors.

Not too much going on in the bond market, so I won’t waste your time. Rates dropped again yesterday, namely due to markets continuing to digest news from overseas (the Reserve Bank of India and the Bank Indonesia).

Don’t look for any excitement today as the U.S. calendar is light with just April wholesale inventories and sales at 10:00am ET. The press is focused on the two-day G7 summit kicking off today in Quebec, but Trump leaving it early. Friday begins with the 10-year at 2.91% and agency MBS prices nearly unchanged versus last night’s close.

 

Lender Products

Proprietary systems can help lenders address their organization-specific challenges, but what happens when you outgrow these custom-built platforms? Texas-based mortgage banking firm NTFN faced this very dilemma with its home-grown commission calculation tool and began the hunt for a more robust platform that could adapt to compensation plan changes as the company grew, provide excellent built-in reporting, and offer ample support. After viewing a demo of LBA Ware’s CompenSafe, NTFN quickly realized it was the answer to its concerns and decided to make the switch. Even more, NTFN was fully launched on CompenSafe in just two months. Don’t believe it? Download this case study to see how LBA Ware managed to replace NTFN’s proprietary compensation platform with CompenSafe in just 60 days.

Underwriting income is time consuming, especially for self-employed borrowers. It often requires significant work before the complexity of a file is understood. At a turnaround time of less than 4 hours on typical files, LoanCraft’s Income Analysis and reports provide early visibility into the income of your borrower. Loan officers love it because they know quickly whether a deal will work. Underwriters love it because they can focus on analysis, not compiling data and requesting returns. LoanCraft reports don’t just provide calculations but provide insight into the income situation. Reports are customized to your needs and allow for further judgement to be applied to your loan files. Contact LoanCraft at 248-897-0604 today for more information or to open an account.

Since implementing Loan Vision just over two years ago, Mortgage 1 has experienced phenomenal efficiencies in accounting processes reducing manual workloads by days. “Prior to Loan Vision we would have to process each appraisal manually by each branch. Now we only need one spreadsheet and each line item turns into an invoice line item with the correlating branch code, which easily saves us a few days right there,” explained Shaun Guyett, Accounting Manager at Mortgage 1. To learn more about how Loan Vision can help reduce cost and increase business insight, read the case study or contact Carl Wooloff.

Employment and Personnel Moves

“Allied Mortgage Group, a direct FNMA, FHLMC, GNMA lender based in in suburban Philadelphia, is expanding and we have recently been certified as a Great Place to Work. We are hiring Loan Officers and Branch Managers to manage strategic alliances with Real Estate offices in select markets on the east coast. Allied has a 25 year history of supporting Sales Managers and Loan Officers and an impeccable reputation with clients. This is a unique opportunity for experienced Loan Officers and Branch Managers to manage a business with a dedicated group of Agents.” Please contact Joe McGuckin for a confidential discussion.

Flagstar is seeking an Assistant Group Manager for its Warehouse Lending Team at Flagstar Corporate Headquarters in Troy, MI. Responsible for the management of a team who focuses on new business development, portfolio management, credit quality and overall relationship management of their assigned portfolio of customers – within the Warehouse Lending industry. Team may focus on designated geography. Ensures the generation of revenue by cultivating Warehouse account relationships and ensuring strong credit quality thresholds are met. The assistant group manager will be the point of escalation for complex or challenging relationships/transactions. Please use this link to learn more about this excellent opportunity.

Building toward a record Q2, Angel Oak Mortgage Solutions, the leader in non-QM lending, announced the addition of 4 more AEs in May to help brokers and correspondents grow their business. Adding additional coverage across the country, Craig Murphy came on-board in San Antonio, Alina Derzhay in Ft. Lauderdale, Jeremiah Carlson in Salt Lake City, and Denise Maccone in Northern New Jersey. “To support this record volume growth, the AOMS Operations team is also hiring underwriters and other positions in both Atlanta and our newest center in Dallas. As more companies realize the benefits of offering responsible non-QM products, it only makes sense to work with the market leader.” If you are interested in learning more, please visit JoinAngelOak.com

Congratulations to 33-year mortgage banking vet Bob Broeksmit whom the MBA Board of Directors selected, given its committee’s recommendation, to be MBA’s next President and CEO. Bob will join MBA on August 20 from Treliant Risk Advisors, where he is President & COO. His resume includes senior leadership positions at some names from the past, including President of B.F. Saul Mortgage Company, EVP of Chevy Chase Bank, and VP Prudential Home Mortgage.

 



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