Mortgage – HousingWire |
- CFPB to review QM rule
- Mortgage stocks are getting battered – what happens next?
- New Residential to internalize management, change name to Rithm Capital
- Opinion: The risk of ICE, Black Knight deal is in the data
| Posted: 21 Jun 2022 01:28 PM PDT  The Consumer Financial Protection Bureau (CFPB) said Friday it would take a "fresh look" at a rule that decides what mortgages are protected from some litigation during foreclosures. The agency, in a blog post, said it would conduct a review of its Qualified Mortgage (QM) rule. The rule, under the federal Truth In Lending Act, sets standards mortgages must meet in order to have a safe harbor from improper underwriting counterclaims during a foreclosure. The move by the CFPB is part of a larger review of rules the agency says warrant scrutiny because they were inherited from other agencies, published in the first decade of the agency, or have been tested in the market for several years. The QM rule, which finished a lengthy rulemaking process in 2020 and has yet to be fully implemented, does not fit into those categories, said Bryan Schneider, a partner at Manatt who previously led the CFPB's supervision, enforcement and fair lending division. "It's fair to say we're going to be reviewing rules inherited from other agencies, or rules where there is in fact a lot of marketplace experience," said Schneider. "But this particular rule doesn't fit into that rubric very well, and instead leads to greater confusion." The revised rule removed the old rule's 43% debt to income ratio limit, replacing it with price-based thresholds. The revised standard stated that a mortgage meets the "ability to repay" standard if the annual percentage rate does not greatly exceed the average prime offer rate for a similar loan. It also made higher pricing thresholds for loans with smaller amounts, and established more "flexible options" for lenders to verify the income or assets beyond the value of the property and the customer's debts. The revised rule also allowed some loans that met certain performance requirements over a three-year seasoning period to gain QM status as seasoned loans. The conclusion of an arduous rulemaking process, and the mortgage industry's strong opposition to revisiting it, has not deterred the CFPB. It's not clear if the CFPB will solicit feedback from the public during its review, or if it will initiate a new rulemaking, a process that could take a year to 18 months. A CFPB spokesperson declined to comment. In its bulletin, the CFPB said that it is undertaking the review to "explore ways to spur streamlined modification and refinancing in the mortgage market." But it's the "seasoning" provisions that the CFPB said it will be paying particular attention to. The new seasoning provision has yet to kick in for a single mortgage loan, since less than 36 months have passed since the CFPB issued its final rule, in December 2021. But at least one current CFPB official publicly expressed misgivings about the seasoning provision from the start. Diane Thompson, senior advisor for markets and regulations at the CFPB, has previously raised concerns about the QM rule's "seasoning" provision. Thompson, in a series of tweets just months before the Biden administration appointed her to the consumer watchdog, railed against the CFPB's new QM rule. "@cfpb's pricing proposal would say loans like theirs were absolutely, unquestionably safe, affordable, responsible loans," wrote Thompson. "News flash: They're not." For a time, mortgages could achieve qualified mortgage status — even if they exceeded the 43% debt to income threshold — as long as the GSEs' underwriting platforms accepted them. But in July 2021, Fannie Mae and Freddie Mac stopped extending QM status to loans that didn't meet the new QM rule standards. Officially, however, lenders don't have to comply with the CFPB's revised rule until October. Kris Kully, a partner at law firm Mayer Brown who specializes in federal and state regulatory compliance, said that the mortgage industry "might wish for more transparency" from the CFPB. "We haven't seen a lot of that," said Kully. "Instead we're left to wonder what [CFPB Director Rohit Chopra] is thinking." Maria Volkova contributed reporting. The post CFPB to review QM rule appeared first on HousingWire. | |||
| Mortgage stocks are getting battered – what happens next? Posted: 21 Jun 2022 12:42 PM PDT  In a one-week period between June 10 and June 17, 11 publicly traded mortgage companies lost a collective $6.14 billion in market capitalization. As investors fled the space, their valuations declined 17.4% to $29 billion in aggregate, according to a HousingWire analysis of stock data. And it's unclear when – or if – they'll recover from the sell-off. The companies include Finance of America Companies, Flagstar Bancorp, Guild Holdings Company, Home Point Capital, loanDepot, Mr. Cooper Group, New Residential Investment Corp., Ocwen Financial Corporation, Pennymac Financial Services, Rocket Companies, and UWM Holdings Corporation. “People are reluctant to invest in the mortgage space at the moment because it’s unclear how long the downturn is going to last,” Bose George, mortgage finance analyst at Keefe, Bruyette & Woods (KBW), said. “You don’t know how much money these companies will lose and what their book values will look like once this is done.” The bear stock market began on Friday, June 10 when the U.S. Consumer Price Index showed an 8.6% increase year-over-year in May, 30 basis points above the consensus estimates and the highest mark in four decades. Consequently, the Federal Reserve raised the federal funds rate by 75 basis points on Wednesday, a hike not seen since 1994. Chairman Jerome Powell also signaled the possibility of raising an additional 75 bps at the Fed's next meeting in July. Investors last week scrambled to sell riskier assets amid growing fears that the Fed will send the U.S. economy into a recession this year. In a note published Monday, a team of Goldman Sachs economists increased their outlook for a U.S. recession, citing concerns that the Fed will act aggressively to control inflation, even if economic activity weakens. The Goldman Sachs economists now see a 30% probability of entering a recession over the next year, versus 15% previously, and a 25% probability of entering a recession in the second year if it is avoided in 2022. All the turbulence in the markets pushed purchase mortgage rates up 55 bps over the last week, the largest one-week increase since 1987, to 5.78%, according to the Freddie Mac PMMS. Other indexes showed rates north of 6% last week. Well-qualified buyers in the non-qualified mortgage space were locking rates in double-digits, several LOs told HousingWire. “In terms of the mortgage originators, refis are already largely gone, so the question is whether this rate move is enough to slow purchase more meaningfully. It’s a little early to tell,” George said. “We are pretty negative on the industry, and we have not recommended taking any of these names.” Who was hit harder?Investors are fleeing from mortgage companies that are struggling to generate cash – meaning those not delivering profits. They are also punishing the classes of 2020 and 2021, a group of lenders that went public at high valuations, often on the strength of lower mortgage rates and refi euphoria. Nonbank heavyweight loanDepot suffered the biggest decline in valuation during the one-week period. The company lost 37.7% in market capitalization to $538 million on Friday, HousingWire’s analysis found. The stock debuted in 2021 at $14 a share and closed on Friday at just $1.52 a share. The Orange County-based lender, founded by Anthony Hsieh, reported a net loss of $91.3 million in the first quarter due to a steep decline in origination volume and expense reductions that did not keep up with the rapidly changing environment. Company executives said they don’t expect to have a profitable fiscal year, citing pressures on margins and lower market volume. Among the six mortgage companies that went public during the Good Times The remaining companies also had declines in their valuations due to the havoc in the financial markets: New Residential (-20.4%), Ocwen (-14.4%), Pennymac (-11.3%), Mr. Cooper (-9.85%), and Flagstar (-6.3%). The turmoil in the markets caused the Wedbush Securities's team of analysts to cut estimates for several mortgage companies. "Mortgage rates have spiked to near 6% levels, after hovering ~3% for the last couple of years, at an unprecedented pace, rapidly evaporating the rate & term refinance market," Jay McCanless, Brian Violino, and Henry Coffey said in the report. "While purchase volumes remain fairly strong from a historical perspective, purchase rate locks are starting to see some pressure and total volume projections from the big three (Fannie, Freddie, and the MBA) for 2022 and 2023 have continuously moved lower throughout the year." Wedbush reduced Flagstar's price target from $50 to $48, maintaining its neutral rating. For UWM, which also has a neutral recommendation, the analysts reduced the price target from $5 to $4. Pennymac's price target dropped from $65 to $55, with an outperform rating; the Wedbush analysts expect the total return to outperform relative to the median projected by analysts over the next 6-12 months. Wedbush has an outperform rating for Guild (price target $12), Home Point ($5.50), and Mr. Cooper Group ($60). The analysts also have a neutral target for Rocket, with the price target at $7. The worst since 2008?A number of industry observers said the mortgage market is facing its worst downturn since the financial crisis in 2008. On June 10, the day the inflation data came out, the mortgage-backed securities (MBS) market went “no-bid,” according to longtime mortgage broker Louis Barnes. Investors asked for higher premiums to invest in these assets amid a flight to quality caused by the expectation of higher U.S. Treasury rates. “It’s a tough time in the market right now because you don’t know what rates to offer borrowers,” Kevin Heal, senior analyst and fixed income strategist at Argus Research, said. He added: “From the mortgage side, there are still securitizations happening – the worry is if you’re issuing a security at 5.5%, but it could be the next day, you walk in, and then you’re underwater.” Heal expects that the gain-on-sale margin will decrease dramatically for mortgage originators over the coming quarters just because of the volatility and the fact that lenders will have to sell loans in the secondary market with lower gains. He estimates margins in the retail channel could go down to 2% on average, compared to 3% in the previous quarters. However, there is no reason for panic: analysts agree originators are in a better position than in the past because they cashed in during the refi boom of 2020 and 2021. Only three in the group of 11 companies had a reduction in the cash position in the first quarter of 2022, compared to the Q4 2021, among them Home Point, Mr. Cooper and Flagstar. Some socked away tremendous gains from the boom – Rocket has more than $2.3 billion in cash, and New Residential has more than $1.6 billion. Finance of America had a 60.6% increase in the cash position quarter-over-quarter, and Pennymac's cash position rose 44% during the same period. Many of those companies also bought back stock that investors were shedding. Lenders have already started to reduce costs, protecting what's left of their diminishing margins. The Wedbush analysts said in their report that, although most mortgage companies have begun to trim back their workforces to account for an excess capacity issue, "it will likely take a quarter or two before excess capacity is flushed out of the system." In addition, with originations going down, some lenders can also boost their earnings by taking advantage of the strong demand for their servicing portfolios. Mortgage servicing rights (MSRs) values tend to increase as mortgage rates rise, and borrowers are less likely to refinance or prepay their loans. “There’s a long-term trend reflected on many days, including Friday, in the mortgage industry towards higher rates, less refinance, and seemingly downward pressure on the purchase money market,” said Henry Coffey, a mortgage and housing analyst at Wedbush. “In this context, we expect the servicing portfolio to be bringing more profits to mortgage companies in the coming quarters.” The post Mortgage stocks are getting battered – what happens next? appeared first on HousingWire. | |||
| New Residential to internalize management, change name to Rithm Capital Posted: 21 Jun 2022 11:32 AM PDT New Residential Investment Corp. announced on Friday that it has decided to internalize the company’s management, a step that the real estate investment trust estimates will reduce its costs and potentially attract more institutional investors to its stock. The company is also changing its name to Rithm Capital, reflecting the diversification of its businesses as more than just a mortgage real estate investment trust. Last year, the company closed the acquisition of Caliber Home Loans and Genesis Capital LLC. New Residential will start trading on the NYSE as “RITM” on or about August 1, 2022. Despite the changes in the management agreement, Michael Nierenberg will continue to be the chairman of the board, chief executive officer, and president. In addition, the company will retain key personnel across functions such as investments, finance and accounting, legal, tax, and treasury. New Residential entered into a management agreement with an affiliate of Fortress Investment Group in 2015, resulting in annual net operating expenses of $101 million for the company to be externally managed, subject to oversight by the board of directors. The company, however, decided to be managed internally, agreeing to pay a termination fee of $400 million by December 15, 2022, of which $200 million has already been funded. The internalization will replace the management fee with compensation, benefits, and general and administrative expenses. The company claims that this change is expected to leverage infrastructure across businesses and reduce costs. “We view this transaction as a way to drive value for shareholders with expected cost savings, incremental synergies and ability to leverage employees across the NRZ ecosystem,” Nierenberg said in a statement. NRZ estimates the internalization will result in approximately $60 million to $65 million in cost savings. Another benefit is it potentially expands institutional ownership by attracting investors who avoid externally managed structures. “Our strategy has not changed – we will continue to focus on opportunities across the financial services landscape,” Nierenberg said. “We have changed dramatically since our inception, from an owner of MSR assets to a company with complementary operating companies and a unique portfolio of investments.” The company’s first-quarter earnings repeat the logic of rising interest rates lowering origination profits but increasing servicing gains, as reported by its peers. The real estate investment trust reported a $690 million net income, a 267% increase from the previous quarter. The main contribution came from the servicing portfolio. The post New Residential to internalize management, change name to Rithm Capital appeared first on HousingWire. | |||
| Opinion: The risk of ICE, Black Knight deal is in the data Posted: 21 Jun 2022 10:36 AM PDT Recently, Intercontinental Exchange (ICE) announced a plan to acquire Black Knight in a reported $13 billion deal that, if approved by federal regulators, would certainly be one of the largest acquisitions ever in the mortgage technology space. The importance of this particular acquisition is one that could have implications for consumers, lenders, vendors and settlement service providers. More importantly, the acquisition should be a wake-up call about the importance of data in a future world. Mortgage competition is critical The mortgage industry to date has not been "Amazoned," as has the retail sales market, or "Ubered," as has the transportation market, and still operates in a very decentralized state consisting of a few thousand lenders (banks, community banks, and independent mortgage companies). These all compete for loans in a nation of borrowers who benefit from the resulting competition. In fact, despite changes in interest rates, it is this competition that drives overall mortgage rates and credit availability to the most advantageous levels for consumers. Thanks to this highly competitive market, it is impossible for any single lender to be a price-maker, as market dominance is, at best, fleeting until the next lender or technology provider comes along and out-competes the last. Unlike the comparison to Amazon and Uber, this competition in the mortgage market exists across all sectors. The perceived benefit of competition to consumers is important. The barrier to entry for new platforms and technologies is relatively low, meaning all participants must remain on their toes to ensure they don't fall behind new companies and new ideas. Just look at the variability of the top lenders in America: The majority of the top 20 lenders from 2005 were no longer in the top 20 in 2020 — a true testament to the industry’s thriving competition. There have been periods of time where market dominance became a challenge to competitors, negatively impacting consumer options. However, the market has always adjusted as market conditions change and new technologies and platforms find a better way to reach consumers. Data monopoly risk The ICE acquisition of Black Knight is different because of one very important component: data. Historically, no single lender has ever had control of so much consumer information. This is key because if one company exercises majority control of mortgage data and its platforms, there is a future opportunity for a market shift to result in the cutting out of the vast competition. For example, today's mortgage servicers have an advantage with their own customers. They already have all the loan information of their customers, and when refinance opportunities arise, they can pinpoint who is "in the money" faster than all others and, if ready, have an advantage of reaching their customers before all the other lenders to offer the refinance, often with a far more streamlined process than a new lender. This, however, is where the advantage generally stops. Think about it. ICE today already owns Encompass, the Loan Origination System (LOS) platform owned by Ellie Mae and clearly the largest platform used by IMBs (independent mortgage bankers). They own MERS and thus have access to knowing who the servicer of record is for all mortgages and where they are recorded. This is already a significant amount of data to own. With the acquisition of Black Knight, they would take on MSP's servicing platform, which is used today for an estimated 65% of all mortgage servicing in the market. This purchase would also include the acquisition of the other mega loan origination platform, Empower, which together, with Encompass, covers nearly 75% of all mortgage loans originated. The sheer market power coming out of this will be significant. In fact, Black Knight was already defending an antitrust lawsuit prior to this announced sale to ICE. In that 2019 suit, the plaintiff claims that Black Knight "uses its market-dominating LoanSphere MSP mortgage loan servicing system to engage in unfair business tactics that both entrap its licensees and create barriers to entry that stifle competition." One must ask: If the sheer power of Black Knight alone, before this transaction, was enough to draw antitrust concerns, what will the collective impact of an acquisition like this do? If approved, ICE will own or have access to the vast majority of data in the overall mortgage market. Ellie Mae's Encompass, and Black Knight's MSP, Empower, not to mention Optimal Blue, would make ICE a formidable price-maker, the likes of which new entrants and even existing players might not have any hope of competing with. To put this clearly, the GSEs respectively would have less access to their own intellectual property from a performance standpoint than would this new conglomerate. Don't get me wrong: ICE is very good at what they do. They own some of the world's largest technology data platforms, including the New York Stock Exchange (NYSE). But it is that exceptionalism that could risk a monopoly for the mortgage market. Just think about one hypothetical scenario: In the next rate rally when refinances come back, ICE would have access to most of the loan origination data, the servicing performance, the servicer of record and more … more data than any other individual company in the market. And while they are not in the "origination" space today, it would seem like a simple push of a button to take that data and, within minutes, make loan offers to millions of homeowners across the country. On the other hand, even if they have no intention of competing in the origination space, what happens when the competitive bid on the LOS or servicing platform front goes away, and lenders are stuck with a "take it or leave it" bid? Pricing power, service levels, competitive upgrades and more could succumb to the market power of this one single massive entity. The most important questions to revisit We have a few monopolies in our industry. For example, FICO is still the only credit score used in lending and is often accused of being antiquated and not keeping up with minority access and the needs of scoring tens of thousands of Americans. And while new entrants have been trying to break in for years, the sheer market dominance of this scoring model, along with the change-management costs and unknown certainty on new scoring models, has kept that dominance alive. ICE will argue that they will bring better efficiencies to a fractured mortgage market. But it is precisely this fractured market that results in the most aggressive pricing and service competition, which benefits consumers and permits lenders large and small to compete on a more equal level. What would stop this new mega conglomerate from giving their largest customers preferred pricing and more attention from a service and support level while eliminating whatever competition exists today just between these two LOSs? This proposed acquisition should raise, at minimum, these questions among a variety of regulators in D.C. who would directly approve this purchase and among those who oversee consumer access. Beyond that, lenders must think back to when companies with pricing power made them either more or less competitive than their peers. Revisiting that is an important consideration prior to finalizing this acquisition. ICE is very good at what they do and just like Amazon, which changed how retail lending is done, and Uber, which has revolutionized transportation in the country, resulting in the elimination of thousands of small businesses across the nation — they could become the monopoly you get, whether you wanted it or not. My advocacy is to simply take a closer look, as this could really matter in the years ahead. The critical question is what will be the long-term impact of such a concentration of market power, and how will that market concentration affect the consumers’ experience over the years to come. David Stevens has held various positions in real estate finance, including serving as senior vice president of single family at Freddie Mac, executive vice president at Wells Fargo Home Mortgage, assistant secretary of Housing and FHA Commissioner, and CEO of the Mortgage Bankers Association. This column does not necessarily reflect the opinion of HousingWire's editorial department and its owners. To contact the author of this story: To contact the editor responsible for this story: The post Opinion: The risk of ICE, Black Knight deal is in the data appeared first on HousingWire. |
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