Saturday, July 23, 2022

Mortgage – HousingWire

Mortgage – HousingWire

Warehouse lenders stung by FGMC’s bankruptcy

Posted: 21 Jul 2022 12:09 PM PDT

Recent pleadings filed in the bankruptcy case of First Guaranty Mortgage Corp. (FGMC) show the lender left its warehouse lenders holding the bag for a mound of debt. 

FGMC and its affiliate, Maverick II Holdings LLC, on June 30 filed to reorganize under Chapter 11 bankruptcy protection. Pleadings filed in the case — now pending in U.S. Bankruptcy Court in Delaware — show the lender owes more than $400 million to four warehouse lenders, which include Customers Bank, Flagstar Bank, Texas Capital Bank and J.V.B. Financial Group LLC. 

"With respect to nonagency loans and non-QM loans, warehouse lenders will finance between 90% and 95% of the original principal amount of the loan, which requires [FGMC] to use working capital to fund the remaining portion of the principal balance of the mortgage loans," states a declaration filed with the court by FGMC CEO Aaron Samples. "As of the petition date [June 30], the debtors [FGMC and affiliates] estimate that they collectively owe the warehouse lenders approximately $418 million."

Samples reveals in his declaration that FGMC was hemorrhaging cash just prior to filing for bankruptcy protection — posting a $23.3 million after-tax loss over the four months ending April 30. He also contends in his court pleadings that the amounts advanced under the warehouse lines are secured by "mortgage loans, cash and related collateral."

"Obligations to Customers Bank are further secured by a cash reserve account and related collateral," Samples court pleadings add. "Further, a portion of [FGMC's] obligations to Customers Bank, not to exceed $25 million, is subject to a full recourse guarantee…."

FGMC also owes $18.4 million to a bridge lender that is described in court filings as “an indirect subsidiary of a private investment firm managed by Pacific Investment Management Co. (PIMCO)” — which is a large investment management firm that in 2015 purchased a stake in FMGC. That debt is listed as secured debt.

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In addition, FGMC in court pleadings indicates that it has about $37 million in unsecured debt, "including trade debt and payables, amounts owed to former and current employees, and a $25 million fully-drawn line of credit with Customers Bank."

Customers Bank, in a motion filed with the bankruptcy court, explains that it is party to "two financing arrangements" with FGMC. One is the warehouse line — set up to facilitate FGMC's funding of mortgage loans. The other is a separate "revolving credit facility" provided to FGMC for "working capital." 

Although Sample's declaration lists the fully-drawn $25 million line of credit as unsecured debt, Customers Bank's pleadings allege that both the warehouse and the working-capital lines of credit are secured by collateral.

Another warehouse lender, Flagstar Bank, also alleges in pleadings filed with the bankruptcy court that FGMC owes it a tidy sum on a secured warehouse line with the bank.

"As of the petition date, there were approximately 161 pledged mortgage loans originated, funded or acquired, in whole or in part, by FGMC through advances under the Flagstar loan agreement," a bankruptcy court filing by Flagstar states. “Approximately $50 million remains outstanding under the Flagstar loan agreement [the warehouse line of credit], exclusive of interest, fees and other costs, including curtailment charges that continue to accrue."

Both Flagstar and Customers Bank also have filed motions with the bankruptcy court objecting to parts of a recent FGMC motion. Those pleadings, among other requests, seek court approval for FGMC to obtain post-bankruptcy warehouse financing (called debtor-in-possession, or DIP, financing).

The rub, however, is that FMGC is asking the court to give the provider of that DIP financing "super-priority [status] ahead of all other creditors, including pre-petition secured creditors," such as Flagstar and Customers Bank, court pleadings filed by Customers Bank allege.

A hearing on the matter has been set for July 28 in U.S. Bankruptcy Court for the District of Delaware in Wilmington, according to the bankruptcy court docket for the case.

In a related matter, a lawsuit that seeks class-action status has been filed by former FGMC employees against the lender. The litigation seeks backpay and other relief on behalf of former FGMC employees who were laid off by the lender without notice in late June, in alleged violation of the federal WARN Act.

"Plaintiffs [employees] were terminated along with approximately 470 similarly situated employees as part of … mass layoffs or plant closings ordered by [FGMC leadership] on June 24, 2022," state pleading filed in late June in U.S. Bankruptcy Court for the District of Delaware. "[FGMC] failed to give [employees] … at least 60 days' advance notice of their terminations, as required by the WARN Act."

The post Warehouse lenders stung by FGMC's bankruptcy appeared first on HousingWire.

Purchase mortgage rates rise ahead of Federal Reserve meeting

Posted: 21 Jul 2022 07:00 AM PDT

Purchase mortgage rates increased for the second consecutive week but at a slower pace as the market chewed on the latest U.S. inflation data, the expectation of a tightening Federal Reserve's monetary policy, and its economic impacts.  

After jumping 20 basis points last week to 5.50%, purchase mortgage rates increased this week to 5.54%, according to the latest PMMS survey from Freddie Mac. The index compile rates reported by lenders during the past three days.   

"The housing market remains sluggish as mortgage rates inch up for a second consecutive week," said Sam Khater, Freddie Mac's chief economist. "Consumer concerns about rising rates, inflation and a potential recession are manifesting in softening demand. As a result of these factors, we expect house price appreciation to moderate noticeably." 

Mortgage rates tend to align with the 10-year U.S Treasury yield, which increased 13 basis points in one week to 3.15% Wednesday. The federal funds rate doesn't directly dictate mortgage rates, but it does steer market activity to create higher rates and reduce demand.

The 10-year benchmark reflects that, in June, the consumer price index rose 9.1% on a year-over-year basis, far above Wall Street's estimate of 8.8% and the fastest pace since November 1981. 

Wall Street observers believe the Federal Reserve will increase rates by 75 or 100 basis points later this month to reduce inflation, generating concerns that a recession is just around the bend. 

How auction buyer data foreshadows housing market shifts

The retail housing market data, released by Redfin at the end of June, shows the median asking price for newly listed homes for sale in the four weeks ending June 26 dropped 1.5% from an all-time high in the previous month even while a record share of all homes for sale saw price drops.  

Presented by: Auction.com

Weakening economic outlook, high inflation and affordability challenges have taken a toll on buyer demand. 

According to the Mortgage Bankers Association (MBA), the market composite index, a measure of mortgage loan application volume, declined 6.3% for the week ending July 15. The refinance index dipped 4% from the previous week, and the purchase index decreased 7%.

On HousingWire's Mortgage Rates Center, Black Knight’s pricing engine Optimal Blue had 30-year conforming rates at 5.789% on Wednesday, slightly up to 5.782% the previous week. 

Meanwhile, the 30-year fixed-rate jumbo was at 5.245% Wednesday, down from 5.322% the previous week. The Optimal Blue index includes some refinancing data — but excludes cash-out refis to avoid skewing averages.

According to Freddie Mac, the 15-year fixed-rate purchase mortgage averaged 4.75% with an average of 0.8 point, up from last week's 4.67%. The 15-year fixed-rate mortgage averaged 2.12% a year ago. 

The 5-year ARM averaged 4.31% this week, down from 4.35% the previous week. The product averaged 2.49% a year ago. 

The post Purchase mortgage rates rise ahead of Federal Reserve meeting appeared first on HousingWire.

In a bad mortgage market, these are areas of opportunity for lenders

Posted: 21 Jul 2022 06:41 AM PDT

Home listings grew, credit scores improved and tappable home equity increased in the second quarter of 2022 from the first quarter. Those the three areas represent an opportunity for lenders grappling with a deeply challenging mortgage market, Sales Boomerang said in its second quarter mortgage opportunities report.

Sales Boomerang reviewed data from more than 170 residential mortgage lenders that use its platform to monitor millions of customer and prospect records. The mortgage tech firm then calculated and compared the aggregate frequency with which those contact records triggered loan-opportunity, prescriptive-scenario and risk-and-retention alerts during the first and second quarters of 2022.

“New home listings and cash-out alerts both trended upward in the second quarter, making purchase and home-equity products smart areas of investment for lenders as they prioritize assignment of limited resources," said Mike Spotten, executive vice president of product at Sales Boomerang. 

Of the total monitored contacts, about 1.44% of contacts were new listing alerts, up 69% from the first quarter. More than 4% of monitored contacts were credit improvement alerts, an increase of more than 130% from the previous quarter. 

The significant quarter-over-quarter increase illustrates that Americans' overall financial status was improved by pandemic-related fiscal measures, including government stimulus payments, tax credits and student loan moratoriums, the report said. 

Meanwhile, the second quarter saw a decline in mortgage inquiry alerts, rate alerts, and rate-and-term alerts, a predictable result at a time when interest rates are discouraging rate shopping and refinances.

Prioritizing home equity solutions in a rising rate environment

The 2022 housing market has been underscored by interest rate spikes and refi decline and lenders are working hard to adjust to new borrower trends. HousingWire recently spoke with Barry Coffin about the ways lenders can capitalize on these trends by revving up their home equity solutions.

Presented by: ServiceLink

The mortgage inquiry alert was down 28.6% from the first quarter and rate alert dipped 40%. Rate-and-term alerts also fell 49% in the second quarter from the previous quarter. 

As a result of rising interest rates, the value of mortgage servicing rights continues to grow. The report added: lenders must carefully weigh the pros and cons and potential balance sheet impacts of retaining versus selling mortgage servicing rights. 

Last week, mortgage application volume reached the lowest level since 2000 due to a weakening economic outlook, high inflation and affordability challenges, the Mortgage Bankers Association (MBA) said. 

According to MBA, the overall mortgage production in the U.S. is expected to drop more than 40% this year from 2021. Of the $2.4 trillion origination volume expected in 2022, only $730 billion, about 30% of the total origination, are projected to account for refis.

The post In a bad mortgage market, these are areas of opportunity for lenders appeared first on HousingWire.

Sandra Thompson tight-lipped on credit score changes, ending GSE conservatorships

Posted: 20 Jul 2022 02:09 PM PDT

Federal Housing Finance Agency Director Sandra Thompson is keeping her views on whether Fannie Mae and Freddie Mac should exit conservatorship and a decision on credit scoring models close to the vest.

"Ending conservatorships is not a quick action to undertake," Thompson said in testimony Wednesday before the House Financial Services Committee. "There are capital targets that have to be met, other policy issues that have to be decided by other stakeholders — the U.S. Treasury, some with the Federal Reserve, and others.

"It's not an easy or immediate process. We will do our best to make sure that when they do exit, they are in a good position financially and operationally."

Thompson has previously said that Congress should figure out whether to end the now nearly 14-year conservatorship. But some argue the Housing and Economic Recovery Act of 2008 allows the FHFA to take action without Congress, and manage the GSEs under a utility model.

And although it has not stretched as far as GSE conservatorship, the FHFA's review of alternative credit scoring models is now in its seventh year. Lawmakers asked Thompson when they could expect a final decision on whether the GSEs will update the credit scoring models they use.

Thompson did not budge on that topic, either, although she emphasized how costly it would be to make any changes to the credit scoring model the GSEs use.

What opportunities do lenders miss out on by not focusing on credit

HousingWire recently spoke to Mike Darne, Vice President of Marketing for CreditXpert, who said focusing first on the borrower’s credit holds the key to winning business that other lenders won't even see.

Presented by: CreditXpert

"We have not made a decision on the credit score model. Most mortgage participants have used the FICO classic model for the last 20 years," said Thompson. "Updating the credit score model is a decision we take very seriously, because it will have significant operational and cost impacts even if we move from one credit score [model] to a new credit score [model], so we want to be very thoughtful."

Democratic Rep. David Scott, of Georgia, asked Thompson what the FHFA was doing to address "inaccurate" and "distorted" appraisals of some manufactured homes.

Thompson said the issue with appraisals was brought to her attention while touring manufactured homes at a recent festival on the National Mall. Thompson said she would work with the GSEs to "see what flexibilities there might be in that particular situation."

During the nearly five-hour hearing, Thompson also took the opportunity to again request that lawmakers give the FHFA the same oversight of enterprise third-parties that bank regulators have of bank service providers. Doing so would give it "parity with other financial regulators," Thompson said.

"We believe persons and entities that provide services to our regulated entities, if there's an issue that could impact safety and soundness of Fannie and Freddie, we want to have the authority to go in and take a look at the problem," Thompson said.

FHFA has repeatedly asked Congress to give it the authority to examine third-party service providers. Thompson said that when she arrived at FHFA from the Federal Deposit Insurance Corporation, she was "surprised" that the FHFA didn't have the same authority that agency has under the Bank Service Company Act.

That law subjects bank service providers to regulation and examination "to the same extent as if such services were being performed by the depository institution itself on its own premises." It also mandates that banks promptly notify their regulator of new service provider agreements.

Among other updates for lawmakers, Thompson said that the holistic pricing review she promised in October 2021 would be "a priority for the enterprises for this year."

"We have asked Fannie Mae and Freddie Mac to undertake a holistic pricing review, which would include loan level price adjustments, delivery fees and guarantee fees," said Thompson. "We're going to look at the submissions and take into consideration the impact pricing has on all different segments, including communities of color."

The post Sandra Thompson tight-lipped on credit score changes, ending GSE conservatorships appeared first on HousingWire.

Ex-Sprout employees: no paychecks, no severance and now, no health insurance  

Posted: 20 Jul 2022 08:32 AM PDT

When non-QM lender Sprout Mortgage abruptly shut down on July 6, more than 300 workers expected their last paychecks to be delivered the following day as scheduled. They also expected Sprout to offer severance packages to cushion the blow. 

Instead, paychecks weren’t delivered to employees, and severance wasn’t offered, former employees said. There’s more grim news, too. 

A week after shutting down, Sprout cut off health insurance retroactive to May 1, despite collecting insurance premiums from employees’ paychecks, according to multiple former employees and documents reviewed by HousingWire.

Some former employees, without a job and at risk of having to pay tens of thousands of dollars in medical bills, filed complaints with the New York State Attorney General’s office. 

The Long Island-based lender, headed by industry veteran Michael Strauss, shut down suddenly after a deal for funding fell through, sources told HousingWire. Sprout, like many lenders, had been hemorrhaging money after a sharp rise in mortgage rates saddled it with tens of millions of dollars in loans it couldn't sell to investors in the secondary market at par.

“Sprout collected money from our paychecks to pay the health insurance premiums in May and June, but we were told we don’t have the coverage for this period,” said a former employee who requested anonymity. 

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He added: “When you have a family of four and the insurance company tells you might have to pay back everything because you didn’t have coverage at the time of services, it’s a huge deal.”

HousingWire reviewed multiple former employees’ paychecks – for May 6, May 23, June 7 and June 22 – to confirm they paid health insurance premiums.  

Health insurance provider Empire Blue Cross Blue Shield spokesperson Alessandra Simkin confirmed that the contract terminated on May 1, 2022. Simkin declined to say when Sprout asked to terminate the contract or provide any additional details.  

“I called Empire Blue Cross Blue Shield and they said they received an email from Sprout on July 12 saying that the benefits would be discontinued retroactively to May 1,” another former employee told HousingWire. 

She added: “That’s when I felt it went above business practices and more of a Ponzi scheme. The decision to close the business is one thing, but going ahead and actively ending their medical benefits for two months is horrible. It’s a blatant disregard for people.”

A spokesperson for Sprout did not immediately respond to a request for comment. Strauss, who sources said has holed up with about a dozen workers since the closure, couldn't be reached for comment.  

A longtime fixture in the mortgage industry, Strauss has been accused of improper shutdowns before. In 2009, he paid $2.5 million to the Securities and Exchange Commission to settle charges of accounting fraud and concealing deteriorating finances at American Home Mortgage Investment Corp. as the subprime crisis struck in 2007.

Strauss and other senior executives "did not just occupy a front row seat to the mortgage meltdown — they were part of the show,” Robert Khuzami, the then-director of the SEC’s Division of Enforcement, said in 2009. “As the housing market imploded, these executives kept secret that the company’s holdings were collapsing like a house of cards.”

Strauss was banned from serving as an officer or director of a public company for five years. He founded Sprout in 2015.

Two weeks after the shutdown, former workers at Sprout are still seeking answers. To date, they say they haven't received specific, actionable information on how to get paid or cover health care costs.

“We understand that you may have concerns regarding pay and insurance coverage. Sprout is committed to working on a solution to address these issues and, hopefully, alleviate the concerns,” Rebecca Yoselowitz, who leads human resources for Sprout, wrote in a July 13 email to select former employees. 

Some former employees said they now are stuck with as much as $50,000 in bills for medical exams, doctors’ appointments, prescriptions and surgeries.

“I called Empire Blue Cross Blue Shield and they said there will be an audit done, and the claims will be overturned: it means I will be responsible for the entire amount because the insurance is no longer effective for the period,” a third former employee said. 

Multiple former employees told HousingWire they filed complaints with the New York Attorney General's Office. A spokesperson for the office told HousingWire that the AG's office is "looking into" the claims.

The closure of Sprout was swift and unexpected, even though it came on the heels of another non-QM lender – First Guaranty Mortgage Corporation – also closing. On the afternoon of July 6, Sprout president Shea Pallante told more than 300 workers in a conference call that the company was closing that day. Employees were quickly locked out of their systems, several sources said. 

Two days after it abruptly shut down its operations, the company became the target of a class-action-seeking lawsuit. Two former employees are suing Sprout, its affiliated company Recovco Mortgage Management LLC, and Strauss, alleging they laid off around 100 employees at the New York office without giving legally required written notice and failed to pay their paychecks due the following day.

The post Ex-Sprout employees: no paychecks, no severance and now, no health insurance   appeared first on HousingWire.
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Mortgage – HousingWire

Mortgage – HousingWi...