active long
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https://t.co/HLQ1NJFnYb pic.twitter.com/Wtgk1dRNen
— Cmdr Ron Luhmann (@usnavycmdr) June 1, 2024
On second thought, it turns out there is a reason why $FNMA $FMCC and preferreds are surging higher. Its because of a new product proposed by $FMCC - securitizing home equity loans.
— 🇺🇸Paul Mampilly (@MampillyGuru) May 30, 2024
Currently $FNMA $FMCC securitize regular mortages but not home equity loans. With the pandemic… pic.twitter.com/d6e2A7Lydq
same reason I switched to all Freddie
commercial real estate taking a major
hit as work from home continues and
large office buildings are empty along
with being sold for pennies on the dollar
Freddie is smaller in size & is mainly
focused on residential & multi-family
real estate - Fannie much larger and
does more Commercial real estate 🤔
Freddie Mac says total mortgage portfolio up 3.5% in April
— Cmdr Ron Luhmann (@usnavycmdr) May 30, 2024
May 30, 2024 https://t.co/KwvNeyEU3b
the Fannie / Freddie unanimous jury
verdict 8-0 "in DC" AGAINST the Govt is
even MORE AMAZING considering the
news today ...
the Fannie / Freddie unanimous jury
verdict 8-0 "in DC" AGAINST the Govt is
even MORE AMAZING considering the
news today ...
we're gettin' some kicks on the GSEs route _ .06 .06 _
GSEs Offer More Relief for Troubled Borrowers
dhollier@imfpubs.com
Fannie Mae and Freddie Mac, at the direction of the Federal Housing Finance Agency,
on Wednesday announced enhancements to their flex modification policies. The updates,
which go into effect no later than Dec. 1, target a 20% reduction in principal and interest
payments for borrowers.
According to FHFA Director Sandra Thompson, the goal is to help borrowers suffering
from the current climate of high interest rates and home prices remain in their homes.
To achieve this, the modification process involves a waterfall of steps that servicers
must follow until the mortgage payment is sufficiently reduced or all possible steps
have been exhausted.
Those steps include the capitalization of all arrearages, the conversion of adjustable-rate
mortgages to fixed-rate mortgages, a schedule of interest rate reductions and loan
extensions up to 480 months.
In cases where the post-modification mark-to-market loan-to-value ratio exceeds 50%,
principal forbearance may be applied until either P&I payments have been reduced by
20%, the mark-to-market loan-to-value ratio drops to 50% or the total principal forbearance
reaches 30% of the loan’s unpaid principal balance.
No interest may accrue to the forborne principal.
CFPB Releases RFI on Mortgage Closing Costs
sclark@imfpubs.com
The Consumer Financial Protection Bureau issued a request for information Thursday on mortgage closing costs.
“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”
The CFPB raised concerns about costs for credit reports and title insurance, among other items. Comments on the RFI are due by Aug. 2.
Industry trade groups issued a swift response to the RFI, cautioning the CFPB that any changes to mortgage disclosures should go through a formal rulemaking process with a robust cost-benefit analysis.
that will lower the Fannie Cap requirement
Fannie Mae guaranty book of business drops 0.6% in April
May 29, 2024 - By: Liz Kiesche
--- Fannie Mae's (OTCQB:FNMA) guaranty book of business contracted at a compound annualized rate of 0.6% in April to $4.122T, the government-sponsored enterprise said on Wednesday.
--- The company that guarantees mortgages recorded new business acquisitions of $25.9B during the month, up from $23.4B in March but down from $31.6B in April 2023.
--- Retained mortgage portfolio balance was $74.2B at the end of April, compared with $75.6B at the end of March.
--- The conventional single-family serious delinquency rate declined 2 basis points to 0.49% in April, while the multifamily serious delinquency rate also fell 2 bps to 0.42% during the month.
Boooom ! - David Fiderer posted this ....
1. Why have Fannie & Freddie been kept in conservatorship for 15 yrs? Because of demand for GSE "reform" based on an anti-GSE narrative used to distract away from the fatal flaws & institutionalized fraud of private label residential mortgage securitizations. An explainer 🧵
— David Fiderer (@Ny1david) May 29, 2024
The Story of Fannie Mae and Freddie Mac ...
Mark is a dear friend of many, many years. But he has never accepted or acknowledged the plain fact that Fannie and Freddie are P&C insurers and their capital should reflect that fact. Calculating regulatory capital in any other way is useless, wrongheaded and improper.…
— joshua rosner (@JoshRosner) May 28, 2024
Outlook for Ending GSE Conservatorship Uncertain
Tuesday May 28, 2024 - dhollier@imfpubs.com
If former President Donald Trump is re-elected, there’s a possibility that the
conservatorship of the government-sponsored enterprises will come to an
end, according to Isaac Boltansky, a managing director at BTIG.
Speaking last week at the Mortgage Bankers Association’s secondary market
conference in New York City, Boltansky noted that the Trump administration
made substantial progress toward ending the conservatorship of Fannie Mae
and Freddie Mac. He added that Mark Calabria, the head of the Federal
Housing Finance Agency during the Trump administration, is looking for a
different role in the potential next administration, but Trump could appoint
someone else who believes that the conservatorship should end.
Jaret Seiberg, a housing policy analyst at Cowen, was more skeptical that a
second Trump administration would be any more successful at ending the
conservatorship than the first. “You had the perfect combination in the last
Trump administration, with a [favorable] Treasury secretary in Steven Mnuchin
and FHFA Director Calabria, and they couldn’t get it to the finish line.”
That was at least in part because of White House resistance, Seiberg said.
“Because nobody is going to vote for you if you release Fannie and Freddie.
You are, however, going to lose an election if somebody messes up the
housing-finance system by freeing Fannie and Freddie.”
News Release - FOR IMMEDIATE RELEASE - 5/28/2024
U.S. House Prices Rise 6.6 Percent over the Last Year; Up 1.1 Percent from the Fourth Quarter of 2023
Washington, D.C. – U.S. house prices rose 6.6 percent between the first quarter of 2023 and the first quarter of 2024, according to the Federal Housing Finance Agency (FHFA) House Price Index (FHFA HPI®). House prices were up 1.1 percent compared to the fourth quarter of 2023. FHFA’s seasonally adjusted monthly index for March was up 0.1 percent from February.
“U.S. house prices continued to grow at a steady pace in the first quarter,” said Dr. Anju Vajja, Deputy Director for FHFA’s Division of Research and Statistics. “Over the last six consecutive quarters, the low inventory of homes for sale continued to contribute to house price appreciation despite mortgage rates that hovered around 7 percent.”
View a highlights video at https://youtu.be/8C4Hf3dGAwA
Significant Findings
--- Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.
--- House prices rose in 50 states between the first quarter of 2023 and the first quarter of 2024. The five states with the highest annual appreciation were 1) Vermont, 12.8 percent; 2) New Jersey, 11.6 percent; 3) New York, 10.9 percent; 4) Delaware, 10.7 percent; and 5) Wisconsin, 9.9 percent. District of Columbia had a decline of -1.5 percent.
--- House prices rose in 97 of the top 100 largest metropolitan areas over the last four quarters. The annual price increase was the greatest in Allentown-Bethlehem-Easton, PA-NJ at 16.0 percent. The metropolitan area that experienced the most significant price decline was Urban Honolulu, HI at -3.2 percent.
--- All nine census divisions had positive house price changes year-over-year. The Middle Atlantic division recorded the strongest appreciation, posting a 9.9 percent increase from the first quarter of 2023 to the first quarter of 2024. The West South Central division recorded the smallest four-quarter appreciation, at 3.7 percent.
--- Trends in the Top 100 Metropolitan Statistical Areas are available in our interactive dashboard: https://www.fhfa.gov/DataTools/Tools/Pages/FHFA-HPI-Top-100-Metro-Area-Rankings.aspx. The first tab displays rankings, and the second tab offers charts.
The FHFA HPI is a comprehensive collection of publicly available house price indexes that measure changes in single-family home values based on data that extend back to the mid-1970s from all 50 states and over 400 American cities. It incorporates tens of millions of home sales and offers insights about house price fluctuations at the national, census division, state, metro area, county, ZIP code, and census tract levels. FHFA uses a fully transparent methodology based upon a weighted, repeat-sales statistical technique to analyze house price transaction data.
FHFA releases HPI data and reports quarterly and monthly. The flagship FHFA HPI uses seasonally adjusted, purchase-only data from Fannie Mae and Freddie Mac. Additional indexes use other data including refinances, Federal Housing Administration mortgages, and real property records. All the indexes, including their historic values, and information about future HPI release dates, are available on FHFA’s website: https://www.fhfa.gov/HPI.
Tables and graphs showing home price statistics for metropolitan areas, states, census divisions, and the United States are included on the following pages.
Fed’s MBS Moves Boost GSE Supers Volume
jbancroft@imfpubs.com
Restructuring in the Federal Reserve’s portfolio of agency mortgage-backed securities
yielded a new surge in second-level securitization by the two government-sponsored
enterprises, according to a new analysis by Inside MBS & ABS.
Fannie Mae and Freddie Mac issued $428.04 billion of Supers deals backed by first-level
uniform MBS during the first quarter of 2024. That was up 13.5% from the prior period
at a time when new UMBS issuance declined by 7.9%.
Since the second half of 2023, the central bank has been consolidating its UMBS
holdings through “CUSIP aggregation.” The process lowers operational risk, simplifies
portfolio administration and reduces custodial costs, officials say.
According to a recently released summary of 2023 System Open Market Account activity,
the New York Fed reduced the number of individual agency MBS it holds from 29,632 to
20,217. For the GSEs, much of that work involves repackaging smaller UMBS into
new Supers.
Fannie Mae today announced the winning bidder for its twenty-fourth
Community Impact Pool (CIP) of non-performing loans
WASHINGTON , May 23, 2024 /PRNewswire/ -- Fannie Mae (OTCQB: FNMA ) today announced the winning bidder
for its twenty-fourth Community Impact Pool (CIP) of non-performing loans. The transaction is expected to close on
July 24, 2024 , and includes 51 deeply delinquent loans totaling $14.3 million in unpaid principal balance (UPB).
The loans are geographically focused in the New York area, and the winning bidder was GITSIT Solutions, LLC (Tourmalet).
The pool was marketed with BofA Securities, Inc. and First Financial Network, Inc. as advisors.
The CIP awarded in this most recent transaction includes 51 loans with an aggregate UPB of $14,270,414 ; average
loan size of $279,812 ; and weighted average note rate of 4.35%.
The cover bid, which was the second highest bid, for the CIP was 86.20% of UPB (30.69% of BPO).
All purchasers are required to honor any approved or in-process loss mitigation efforts at the time of sale, including
forbearance arrangements and loan modifications. In addition, purchasers must offer delinquent borrowers a waterfall
of loss mitigation options, including loan modifications, which may include principal forgiveness, prior to initiating
foreclosure on any loan.
Interested bidders can register for ongoing announcements, training, and other information here. Fannie Mae
will also post information about specific pools available for purchase on that page.
Judge Lamberth in July of 2023 talking at pretrial hearing about his mental faculties before proceeding with a trial with people he was tired of seeing. Lmfao, you cant make this stuff up. This guy completely fucked our damage model. pic.twitter.com/XkvGizWkk4
— Fanniegate Hero (@DoNotLose) May 22, 2024
$Are $Second $Mortgages about to make a comeback?
$Freddie $Mac has a new proposal
Chris Clark - Wed, May 22, 2024
In a landscape of fluctuating interest rates and economic uncertainty, homeowners are
often on the hunt for financial flexibility. Their options include a second mortgage, which
may get new fuel thanks to a proposal from Freddie Mac that could revive interest in the
long-dormant borrowing strategy.
Second mortgages, which allow homeowners to tap their home equity for loans, have
fallen in popularity. Scars from the 2008 financial crisis left both lenders and borrowers
cautious. Stricter lending standards and regulations have made it more difficult to qualify
for second mortgages.
Meanwhile, rising home prices have increased home equity levels for homeowners. U.S.
homeowners with mortgages saw their equity increase by a total of $1.3 trillion from Q4
2022 to Q4 2023, a gain of 8.6% year over year, according to CoreLogic analysis.
Now, Freddie Mac – the government-sponsored enterprise that buys and sells mortgage-backed securities
– wants to make it easier for homeowners to tap this home equity. It has proposed the purchase of
single-family closed-end second mortgages from lenders. It says it will only purchase a second mortgage
if it currently owns the first mortgage in order to assist with servicing and risk oversight.
The primary goal here is to provide borrowers more financing options and "a lower cost alternative to a
cash-out refinance in higher interest rate environments." The notice said, "A significant portion of
borrowers have low interest rate first mortgages, and the proposal would allow those homeowners to
retain this beneficial interest rate on the first mortgage and avoid resetting to a higher rate through a
cash-out refinance."
By purchasing these second mortgages, Freddie Mac would encourage lenders to offer more of these
products, potentially leading to better rates and terms for borrowers – part of a broader effort to adapt
to changing market conditions and offer more robust support to the housing market.
How Do Second Mortgages Work?
A second mortgage is a loan taken out on a property that already has an existing mortgage. It allows
homeowners to tap into the equity they’ve built up in their homes. There are two primary types of
second mortgages:
**Home Equity Loan: **This is a lump sum loan that homeowners receive upfront, which they repay
over a fixed term with a fixed interest rate. It’s often referred to as a second mortgage because it is
secured by the home, just like the primary mortgage.
**Home Equity Line of Credit (HELOC): **HELOCs operate more like a credit card. Homeowners are
given a revolving line of credit based on the equity in their home, which they can draw from as needed.
The interest rates on HELOCs are usually variable, and the repayment terms can vary.
Second mortgages are subordinate to the primary mortgage, meaning that in the event of foreclosure,
the primary mortgage lender is paid first. This higher risk for lenders typically results in higher interest
rates for second mortgages compared to first mortgages.
Read more: ‘They are awful’: Dave Ramsey is fed up with millennials and Gen Z who he claims don't
work but want to own homes — here’s what he says you need to be a ‘successful' investor
Pros and cons for US Consumers
Second mortgages allow homeowners to receive an immediate cash infusion, which can be used for
home improvements, debt consolidation, education expenses, or other financial needs. And since
second mortgages are secured by the property, they usually come with lower interest rates than
unsecured personal loans or credit cards.
There may also be tax benefits. In some cases, interest paid on a second mortgage can be
tax-deductible if the funds are used for home improvements. It’s important to consult with a tax
advisor to understand the specifics of your situation.
Perhaps best of all, the money from a second mortgage can be used for a wide variety of purposes,
offering homeowners considerable flexibility in managing their finances.
But remember: Taking out a second mortgage increases your overall debt burden and requires
careful financial management to ensure timely repayments. Second mortgages also generally
come with higher interest rates and additional fees compared to primary mortgages due to the
increased risk for lenders. If you default on a second mortgage, you risk losing your home – adding
pressure to ensure that payments are made on time.
HELOCs come with a unique risk: Because they often have variable interest rates, loan owners
can face higher payments if interest rates rise.
Call it a comeback?
The potential comeback of second mortgages, spurred by Freddie Mac’s proposal, could offer
homeowners increased access to their home equity and greater financial flexibility.
But like any financial product, second mortgages come with their own set of risks. Homeowners
considering this option should carefully weigh the pros and cons, consider their financial situation,
and possibly consult with a financial advisor to make an informed decision.
Director Thompson is listed as #1: https://t.co/ODdMvEQsN1 https://t.co/hdxVnox4gy
— Vern McKinley (@VernMcKinley) May 21, 2024
Senate Bill $70 Bil in public Housing funds
Senators introduce bill to provide $70B in public housing funds: The coalition of senators seeks significant funding for public housing, with a goal of creating more positive public health outcomes https://t.co/T9odgvsau8
— HousingWire (@HousingWire) May 20, 2024
$Boooooom ! - $Mortgage $Bankers $Association
Mortgage Bankers Association - " of a renewed effort to release the GSEs from (hostage) Conservatorship" ... https://t.co/tkoJHozvXF
— Cmdr Ron Luhmann (@usnavycmdr) May 21, 2024
Freddie Mac - National Real Estate Post latest video ...
Everything Bradford touches... pic.twitter.com/aguFV9Jnev
— WDC (@dawg1pound) May 18, 2024
Great News !
OTC Markets Group Introduces Overnight Trading - New offering will be the first of its kind for the OTC markets - May 15, 2024 Source: OTC Marketshttps://t.co/jlZbdQBzOB
— Cmdr Ron Luhmann (@usnavycmdr) May 16, 2024
https://x.com/rcwhalen/status/1790715551485939835
Freddie Mac Buying HELOCs? Really Meredith? | UWMC & Disappearing MSRs
May 10, 2024 | Earlier this week in the Financial Times, famed analyst Meredith Whitney
penned a strange comment supporting an equally peculiar proposal by the Biden
Administration for Freddie Mac to buy home equity loans. This is a really bad idea
that is typical of the work coming from the Biden Administration and their surrogates
who occasionally dabble in mortgage finance.
Readers of The Institutional Risk Analyst will recall Ms. Whitney boldly predicting the collapse of the municipal loan market in 2012. We personally witnessed Cumberland Advisors CIO David Kotok tell Business Insider in August of that year from Leen’s Lodge:
“We entirely disagree with Meredith Whitney, who persists in predicting that this world of state and local government finance will end in disaster. We say it won’t. In Maine, we can point to a concrete example.”
As with the earlier call on municipal defaults, we think Whitney’s comments about a surge in new financing from home equity loans are poorly considered and not well grounded in market realities. Anybody in the residential mortgage market will tell you that spending time chasing second liens that must ultimately be sold to a bank means you are nearing a significant inflection point in your career. The chart below from FRED shows all outstanding second lien home equity lines of credit.
Whitney writes:
"Last month, the government-sponsored mortgage finance agency Freddie Mac filed a proposal with its regulator, the Federal Housing Finance Agency, to enter into the secondary mortgage market, otherwise known as home equity loans… A Freddie Mac second mortgage/home equity proposal could unleash a tidal wave of new liquidity - if it's approved.”
And later Whitney writes:
“In 2007, just before the financial crisis, there was more than $700bn in home equity loans outstanding. Today, there is roughly $350bn. Home prices have risen more than 70 per cent since then, so why have home equity loans halved?”
Short answer: Because there is little actual demand. But today's politicians never worry when private markets are telling them that a given policy won't work. The Biden Administration's approach to housing over the past four years has been a complete disaster for consumers and lenders. Andrew O'Hagan, writing about the disgraced Republican congressman George Santos in the New York Review of Books, describes the rules of engagement in the New Gilded Age:
"The most moving thing about Santos’s lies is how many of them could be disproved in seconds. He doesn’t care about the truth, and it may be that his lack of prep is consonant with the radical style in populist politics today, which runs on the idea that everything can be brazened out, everything can be believed, as long as one subscribes to the use of a magical verbal currency in which statements are beyond proof and somehow truer than truth."
Whitney talks about the GSEs unlocking trillions of dollars in new financing for home ownership by having the GSEs purchase second liens. No, sorry Meredith, this is completely wrong. Second liens are mostly originated by banks and mostly retained in bank portfolio. Having the GSEs waste time and money buying and securitizing closed-end second lien loans is a bad idea. Let’s count the reasons why.
First, the demand for all home equity products including HELOCS has been weak since the peak of the market in 2008. The unpaid principal balance of HELOCS in the US has been declining for 15 years, but has risen slightly since 2021. The key factor here is demographics. As the population of homeowners has aged, the need for tapping home equity has waned. Low interest rates over the past 40 years have also detracted from interest in second liens.
Most banks that offer first lien mortgages will originate and retain a second lien, yet there is scant demand even as the equity in homes has soared. That green line in the chart below shows closed-end second liens owned by banks, basically the entire market. There is a little bit of growth, but rates would need to go back to early 2000s levels and loiter for a period of years to really move the needle.
Source: FDIC
Second factor is the rise of the nonbanks. Independent mortgage banks control 3/4s of the US residential mortgage market. Nonbank mortgage firms certainly can sell closed-end second lien mortgages, but they cannot originate and service HELOCs because they are not depositories. A HELOC is essentially a credit card loan secured by the house with a fixed tenor and serviced by a bank. You can go to the bank ATM and take a cash advance on a HELOC.
The second lien mortgages that nonbanks might originate and sell to Freddie are closed end loans. These products usually allow the borrower to draw cash for a period, then convert into an amortizing mortgage. Letting a nonbank sell a second lien loan to Freddie Mac will change nothing other than shifting income from banks to the US government. And it will seriously piss off JPMorgan CEO Jamie Dimon. Big banks love HELOCs, but there is little money in originating them for nonbanks.
The market reality that seems to escape Whitney and the Biden White House is that banks originate and retain second liens because they have the funding. There is vast unused capacity in HELOCs at banks, more than current outstanding loans. But banks will not sell HELOCs to Freddie Mac. They are content to keep these relatively small mortgage loans because the servicing fee of 25-50bp per year more than covers the cost. Like first liens, default rates on HELOCS are near zero.
Source: FDIC/WGA LLC
There is little financial incentive for nonbanks to originate and sell second liens to Freddie because the note’s value is minimal and the servicing strip is likewise an inferior asset vs a first lien loan. When you sell a loan in the secondary mortgage market, dear Meredith, you are really selling the cash flow from the mortgage servicing right (MSR). The MSRs of HELOCs or closed end seconds have little value because of the small note size and short maturity. Indeed, it will be interesting to see Freddie Mac profitably sell pools comprised exclusively of closed-end seconds into the MBS market.
If banks cannot originate and retain HELOCs given today’s higher interest rates and the vast amount of equity locked away in residential homes, then there is something powerful working in the market that refutes Whitney’s thesis. Again, having the GSEs purchase loans that nobody but banks want is not a particularly impressive policy proposal from President Biden.
A final point that Whitney and other proponents of the GSEs buying second liens do not address is credit. By law, the GSEs cannot loan more than 80% against a home unless the borrower gets private mortgage insurance. If Freddie Mac or Fannie Mae buy a second lien of any description that pushes the total encumbrance on the asset over 80%, does the borrower need private mortgage insurance? The law says yes. Federal bank regulators put limits on HELOC exposures for precisely this reason. A second lien is junior to the first and in a home price correction quickly becomes worthless.
It is easy to understand the confusion about HELOCs and seconds. Traditionally home equity loans were products for a rising interest rate environment, yet there is little demand in 2024. There are dozens of banks and nonbanks in the US that offer HELOCs or closed-end seconds, yet the demand from consumers is barely keeping up with the natural runoff of these loans. Part of the issue is that older consumers that predominate among homeowners would be more likely to get a reverse mortgage than a second lien. And many are just happy to let the equity sit given the investment alternatives.
Those pushing for the Biden Administration to allow the GSEs to buy HELOCs should consider whether this election year stunt deserves their public support. The Freddie Mac proposal is part of a shameless election year push by the Biden Administration to appear to be supporting home affordability, this after four years of disarray and scandals at HUD. And four years of home price inflation ? the Biden budget deficits is not doing much to help Americans buy a home.
In fact, the actions taken by the Biden Administration in housing finance over the past four years have been a disaster. The risk-based capital (RBC) proposal from Ginnie Mae for government issuers tops the list of progressive fiascos, but increasing the cost of credit reports for consumers is another great achievement by the White House. Lenders argue that dramatic price hikes by FICO have inflated their credit score costs by as much as 500% since 2022, Inside Mortgage Finance reports.
The litigation between Ginnie Mae and Texas Capital Bank (TCBI) is another wonderful achievement by the Biden White House that threatens the market for government loans. If TCBI is forced to take a loss after receiving the direct verbal assurances of the Biden Administration with respect to a bankrupt government issuer of reverse mortgages, then the market for financing government insured loans may be permanently impaired. Thanks so much President Joe Biden, but the housing industry does not really need any more help from Washington.
UWMC’s Shrinking MSR
United Wholesale Mortgage (UWMC) reported earnings yesterday. Suffice to say, we think everyone in mortgage finance and the various mortgage and bank regulatory agencies in Washington should spend a few minutes on the UWMC 10-K. Eric Hagen at BTIG:
“The company sold $70 billion of UPB in the MSR portfolio as earlier reported, taking it down to $230 billion, and the average WAC of the portfolio to 4.58%. Leverage came up this quarter to 3.5x, driven by a slight increase in warehouse lines of credit, but excluding warehouse debt it remained comfortably below 1x. We think the stock valuation can support higher leverage, although we like how the funding risk is being regulated to a degree by sales of MSRs into a market well-bid with demand right now from originator/servicers looking to boost recapture when rates fall.”
We are not so generous as BTIG. The big headline from UWMC IR was the increase in gain-on-sale and volumes, but to us the story is the sale of 25% of the firm’s MSR to fund Matt Ishbia’s price war in the wholesale channel.
In the UWMC cash flow statement on Page 5 of the Form 10-K, it shows the firm’s holdings of loans up $1.8 billion, in line with a better than expected Q1 for most mortgage banks in the first quarter. But down the page, we see an entry for “Net proceeds from sale of mortgage servicing rights” of $1.3 billion. Really?
UWMC 03/31/2024
Note that in Q1 2024 UWMC capitalized $535 million in new MSRs, but then sold more than 2x that amount to raise cash. Why are we raising cash? To fund operating losses caused by the firm’s attempt to corner the wholesale channel for mortgage loans. But as everyone who works in the mortgage ghetto knows, seeing around corners is a special talent. And visibility is at a premium when the FOMC and various others are trying to make your life difficult.
The old fashioned bankers think not about loans but MSRs. What is the yield on the MSR? If you buy loans on a 7x multiple, as we wrote in our last comment, but sell on a 5x, in the long run you are dead. During the UWMC conference call, Bose George of KBW asked Ishbia about the pricing on MSR sales and the fact that some of the disposals were below carrying cost. Ishbia:
"Depending on the time of the month and where rates are at that moment, the prices are right in line with what our carrying value is. And so sometimes you pick up a little, sometimes you lose a little bit. In general, it's been not a material negative or positive, to be honest with you."
We have always thought that the “sell the loan, sell the MSR” is a bad strategy because it leaves nothing for the future. Issuers like UWMC that sell the MSR are essentially following the logic of Silicon Valley Bank that a future Fed interest rate cut will make it all better with higher loan volumes. But maybe not.
Selling the MSR as a strategy, especially to fund an ill-considered price war in wholesale, a channel nobody owns, we think is a LT loser. But worry not, somehow UWMC managed to pay $194 million to SFS Corp, the holding company controlled by Ishbia and other UWMC insiders. The $2.3 billion non-controlling interest in UWMC represents the true equity of UWMC. And no, our dear friends at Bloomberg, UWMC is not trading at 104x book value at $7.50 per share. Do the math.
If a Fed rate cut is going to wait until December and UWMC continues to pay up for loans in the wholesale channel, then we expect to see more bulk MSR sales from UWMC and other mortgage firms that are burning cash. There are mortgage firms that have refused to cut expenses in line with volumes such as loanDepot (LDI) and then there are firms like UWMC that are selling valuable servicing assets to fund operating losses. When UWMC sells the rest of the MSR portfolio this year, will CEO Matt Ishbia end the price war in wholesale?
In the next issue of The IRA Premium Service, we'll be looking at
the bottom 25 banks in the WGA Bank Top 100 Index.
The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.
Republicans as a party want Fannie and Freddie out of conservatorship. This cannot be stopped. It is time to press further and go beyond plus ultra. The Biden administration has defaulted on its responsibility. $fnma #fanniegate pic.twitter.com/EqnUOaTAsR
— Fanniegate Hero (@DoNotLose) May 15, 2024
ok cl**n. Great you now know dumb sandra and admin is useless. Watch and Learn kid.
— Freddie bagholder (@Release_Fannie) May 15, 2024
notice the title on LINKs: - Naked Short Interest on FNMA & FMCC
https://otcshortreport.com/company/FNMA
https://otcshortreport.com/company/FMCC