Transcript The Changing Landscape of Mortgage Servicing Moderator: Panelists: Sheryl Krocek, U.S. Bank Scott Schmitt, U.S.

The Changing Landscape of Mortgage
Servicing
Moderator:
Panelists:
Sheryl Krocek, U.S. Bank
Scott Schmitt, U.S. Bank
Ansel Caine, Caine Mitter
Friday, April 5th 2013
The New MLS Landscape
How did we get here?
National HFA-MRB Servicers
2006
2011
Today / 2013
2
The New MLS Landscape
How did we get here?
Scary: Declining Servicing Values
Scarier: Increasing Foreclosue and
Repurchase Volume
Scariest: QM, QRM, Dodd-Frank and
Basel III
3
The Decision Makers!
OCC Regulations!
HUD
Regulations!
GSE Guidelines and Repurchase
Requests!
4
Regulations
 MDIA > Confirm early TIL disclosed to borrower 3 days
from application, verify APR not increased greater than
.125
 RESPA > Confirm Initial and Final GFE
 High Priced – FFIEC
Verify lock date, apr, and term which calculates rate
spread of loan.
 High Cost > Run multiple tests to ensure borrower fees
not excessive
 Regulations / Form Changes
Programs Changes
Credit Score / DTI Changes
TBA Programs
5
sk
The fun never stops!
Re-Purchase & MI Rescissions
Requirements of Dodd-Frank & Basil III
Changing Value of Servicing
6
Changing Servicing Values
Cost of Servicing
Loss Mitigation, Basel III, Dodd-Frank, etc…
Fixed vs. Market Adjusted
Ability to Adapt to Market
7
THE CHANGING LANDSCAPE
FOR MORTGAGE SERVICING
SERVICING ADJUSTMENTS NEEDED FOR BEST EXECUTION AND TBA
Ansel Caine
Friday, April 5, 2013 8
Topics
 MBS Secondary Market / TBA Overview
 Adjusting Servicing for Secondary Market Execution
 Working with a Master Servicer for Best Execution
9
Traditional Mortgage Revenue Bond Model is Broken
Traditional
Relationship
7
Inverted
Relationship
30yr Traditional
MRB (Non-AMT)
6
5
%
30yr Traditional
MRB (AMT)
4
GNMA MBS
3
NIBP Bond
2
1
6/22/07
Date of Lehman
Bankruptcy
8/16/08
10/11/09
12/6/10
1/31/12
3/27/13
10
MBS Secondary Market is Highly Liquid
U.S Fixed Income Securities
Securities Outstanding (12/31/12)
Billions
Other
($8,757)
23%
Average Daily Trading Volume
(2013)
Municipal
Billions
Corporat
e Debt
($20)
2%
U.S.
Treasury
($10,921)
28%
($11)
1%
Other
($15)
2%
Agency
MBS
($272)
31%
Municipal
($3,715)
10%
Agency
MBS
($5,657)
15%
Corporate
Debt
($9,088)
24%
U.S.
Treasury
($554)
64%
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MBS Secondary Market Sale Economics
 Liquidity and transparency of MBS market allows for daily rate setting
 MBS sale example – Assumes government loan with 3.75% mortgage, no points
and 3.0% down payment assistance
GNMA sale price (1)
107.0
Less cost of GNMA (2)
- 105.0
Value of Servicing (3)
+
Net income
0.9
2.9
(1) As of April 2, 2013
(2) Purchase price of mortgage loan, down payment assistance, origination fees and
service release premiums, if appropriate
(3) Present value of 0.19% servicing cash flows at 250% PSA and 5% discount rate
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Origination Period Creates Interest Rate Risk
105
GNMA PRICE
103
101
Market
Risk
99
97
DAY 1:
RATE IS
LOCKED
DAY 45:
LOAN
CLOSES
ORIGINATION
DAY 60:
LOAN IS
PURCHASED
DAY 75:
LOAN IS
POOLED
DAY 90:
MBS IS
DELIVERED
WAREHOUSE
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Selling TBA Forward Hedges Market Risk
105
GNMA PRICE
103
HFA sells
TBA and
locks in price
101
Market Risk
Eliminated
99
97
DAY 1:
RATE IS
LOCKED
DAY 45:
LOAN
CLOSES
ORIGINATION
DAY 60:
LOAN IS
PURCHASED
DAY 75:
LOAN IS
POOLED
DAY 90:
MBS IS
DELIVERED
WAREHOUSE
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TBA Allows HFA to Sell MBS Forward
What is TBA?

TBA is an agreement to deliver an Agency MBS on an agreed upon future date for an agreed
upon price
Why is it called TBA?

In a TBA trade, only price, settlement date, type, amount and interest rate are specified; all
other characteristics are “To Be Announced”
How does TBA trade?


Most major broker/dealer firms have a mortgage desk that will bid on standard TBA
Most trades are done on a competitive basis
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Adjusting Servicing for Secondary Market Sales
 MBSs trade best when the pass-through rate is a multiple of 0.50%
 Flexible servicing fees allows for the creation of MBS on the half coupon, even if
mortgage rates are not
0.315%
Servicing
3.875%
3.500%
FHA Mortgage
GNMA
0.060%
Guarantee Fee
 Sample servicing fees for various government loan rates
Mortgage rate
4.000
3.875
3.750
3.625
3.500
Servicing fee
0.440
0.315
0.190
0.565
0.440
Guarantee fee
0.060
0.060
0.060
0.060
0.060
Pass through rate
3.500
3.500
3.500
3.000
3.000
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Servicing Fee Affects Overall MBS Value
Gross Value of GNMA MBS to HFA at Various Mortgage Rates
12.00
10.00
8.00
Value
of MBS
Over
Par
6.00
4.00
2.00
0.00
Mortgage Rate
3.250
3.375
3.500
3.625
3.750
3.875
4.000
4.125
4.250
4.375
4.500
Servicing Fee
0.190
0.315
0.440
0.565
0.190
0.315
0.440
0.565
0.190
0.315
0.440
Pass-Through
3.000
3.000
3.000
3.000
3.500
3.500
3.500
3.500
4.000
4.000
4.000
Servicing Value*
MBS Premium
*Servicing Value calculated at
250% PSA and 5% discount rate
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Composition of MBS Affects Value and Financing Options



TBA eligibility
Mortgage Revenue Bond eligibility
Investors “pay up” for certain MBS characteristics, including:
–
Maximum loan balance
–
CRA credit
–
–
–

LTV
FICO
Issuance date
Example of pay-ups for low loan balance pools:
Maximum
Loan Balance
Winning Bid
Pool Type
Pool Amount
GNMA I 4.00%
1,645,279
83,460
110.94
GNMA I 4.00%
2,081,961
103,981
110.75
GNMA I 4.00%
1,728,763
137,071
110.59
GNMA I 4.00%
1,077,594
173,764
110.41
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Sample Monthly Cycle for Creating Pools for TBA
S
7
14
21
28
M
1
8
15
22
29
T
2
9
16
23
30
April
W
3
10
17
24
T
4
11
18
25
F
5
12
19
26
S
6
13
20
27
 Sample April calendar:
– April 3: Cut off for loan purchases
– April 4: Pool optimization determined
– April 10: Notification of delivery published
– April 15: HFA purchases MBSs
– April 16: HFA notifies TBA counterparty of delivery
– April 18: TBA trade is settled
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Ansel Caine
Caine Mitter & Associates Incorporated
(212) 686 - 8820
[email protected]
279 Fifth Avenue Fourth Floor
New York, NY 10016
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TBA Issues for Servicers
 Multiple Pricing Options
 Frequent Price Adjustments
 Delivery timelines
 Loan Lock Extensions
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TBA – Multiple SRP’s
Sample Ginnie Mae
Note Rate
3.500%
3.625%
3.750%
3.875%
G-Fee
0.060%
0.060%
0.060%
0.060%
Servicing Fee
0.440%
0.565%
0.190%
0.315%
Pass-Thru
3.000%
3.000%
3.500%
3.500%
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Challenges
Current
&
Future
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