Residential: What drives trade success for whole loans in the secondary market?

What drives trade success for whole loans in the secondary market?

There is a transparent market for newly originated residential mortgages conforming to the guidelines set by Fannie Mae, Freddie Mac, Ginnie Mae and loan aggregators. There is also a very active but much less transparent secondary market for loans that didn’t meet those guidelines and for seasoned loans that are performing, re-performing or non-performing.

Elements that drive successful trades in the secondary market are the focus of a session at the Whole Loan Trading Workshop of the Mortgage Bankers Association. The workshop takes place November 7-8 in Houston. Mike Kelleher, Vice President of Business Development at MountainView Financial Solutions, a Situs company, is a panelist in the session on November 8.

In his session, Kelleher will share market color on what MountainView has observed in the trading of scratch and dent loans (those that nearly missed or fell outside investor or GSE guidelines), re-performing loans and non-performing loans. He will also share insights on why certain pools of loans trade at levels above or below a seller’s price expectations and the key activities sellers can do before coming to market to help maximize their execution.

According to Kelleher, the universe of buyers is constantly evolving and encompasses small, large, new and experienced investors, including some large buyers with very detailed due diligence processes and very sophisticated pricing models. He adds that even in the midst of a very robust market, as we have now, buyers tend to be very selective about which opportunities to evaluate and bid.

“Distressed loan trading is very much a niche market, and the importance of knowing the relevant parties and understanding the dynamics of the trade itself cannot be understated,” said Kelleher.

On the session panel, Kelleher will also highlight three important points in the minds of buyers: having confidence that the loan data is complete and accurate; trusting that the seller understands the transaction and can fulfill its obligations; and believing that the seller has reasonable price expectations for the loans.

For loan sellers, this translates into many detailed areas of work across the life cycle of a trade: pool stratification, analysis and valuation; preparation of the pool data and materials; and sales, marketing and transaction execution. These elements have sub-component activities requiring professionals with very specific expertise, including individuals who know the buyer universe and can identify which buyers specialize in specific product types.

“Product type, pool size and collateral quality are just a few of the factors that will materially impact the pricing of the assets and ultimately the ideal investor for any given pool,” said Kelleher. “An ability to interpret the entire picture and strategize effectively will dramatically improve the odds of a smooth and successful transaction.”

‘We do not determine our destiny’: A sit-down with outgoing Freddie CEO

Donald Layton has just under a year before he retires as CEO of Freddie Mac after more than 40 years in the financial services industry, but the coming months are shaping up to be some of the most formative at the company since Layton joined in 2012.

In June, both Freddie and Fannie Mae are slated to roll out a uniform mortgage-backed security, which experts have highlighted as a key move in any housing finance reform plan.

And just next month, the comment period will close on a proposed capital framework for the two government-sponsored enterprises. These policies will be looming as both Freddie and Fannie search for new chief executives, and as the public awaits President Trump’s appointment of the next head of the GSEs’ regulator, the Federal Housing Finance Agency.

Read more: American Banker

U.S. existing-home sales fall for sixth straight month

US home sales fell in September by the most in over two years as the housing market continued to struggle despite strength across the broader economy.

The National Association of Realtors (NAR) said last Friday that existing home sales dropped 3.4 percent to a seasonally adjusted annual rate of 5.15 million units last month.

Home sales have now fallen for six straight months. A dearth of properties for sale has pushed up prices, sidelining many would-be homeowners. Sales dropped the most in the South, and the decline in the West left sales there down 12.2 percent from a year earlier.

NAR Chief Economist Lawrence Yun said the overall decline appeared related to a rise in interest rates.

Supply has also been constrained by rising building material costs as well as land and labor shortages, while rising mortgage rates are expected to slow demand.

Read more: Reuters

Why are homeowners choosing not to sell?

The average tenure of homeowners remaining in their current homes has increased from an average of four years in 2007 to 10 years in September 2018, according to First American’s report on Potential Home Sales released last week.

The report indicated that despite rising home equity, rising interest rates were creating a financial disincentive that prevented existing homeowners who had locked in their mortgage rates when they were low, from selling their homes. This, in turn, according to Mark Fleming, Chief Economist at First American, was “further limiting supply and restricting existing-home sales from reaching their potential.”

Citing data from DataTree by First American, Fleming pointed out that just prior to the financial crisis homeowners stayed in their homes for four years, but that tenure increased to around seven years between 2008 and 2016.

“Many people remained in their homes because their mortgage balances exceeded their property values during this time, so they would have lost money by selling their homes,” he said. “However, as home prices have recovered over the last 10 years, many homeowners have accumulated enough equity to sell their homes at a profit. Despite the increase in equity, median tenure length jumped to 10 years in September 2018, a 10 percent year-over-year increase.”

Read more: DS News

With ‘changing of the guard’ in D.C., new MBA chair eyes borrower of the future

It’s a critical time in Washington, with many key institutions in the mortgage and housing industries getting new leaders. At the Mortgage Bankers Association, which itself welcomes a new CEO and its annual board of directors’ rotation, there’s a renewed focus on maintaining effective influence with decision makers on initiatives like housing finance reform, innovation and diversity.

Along with the MBA, the Consumer Financial Protection Bureau, Federal Housing Finance Agency, Federal Housing Administration (FHFA), Fannie Mae and Freddie Mac are all going through leadership changes — plus, there’s the midterm Congressional elections in November.

“There’s a lot of changing of the guard happening in Washington, D.C. We’re likely going to have a change with the House in terms of the majority, which means we’ll have a new speaker, which will mean we’ll have a new head of Banking or Finance Congressional committees,” said Christopher George, the incoming chairman of the Mortgage Bankers Association.

With Mel Watt’s term as FHFA director ending in January, it is imperative for his replacement to ensure mortgage companies aren’t negatively affected by government-sponsored enterprise reform, George said.

“I don’t want to lose momentum on those key issues that are important to our membership — one being GSE reform or some form of protection of the important components of the mission of Fannie Mae and Freddie Mac. I think preservation on the 30-year fixed rate mortgage is critically important,” said George, the founder and CEO of CMG Financial in San Ramon, Calif., told National Mortgage News.

Read more: National Mortgage News

U.S. mortgage industry faces job losses as refinancing dries up

With mortgage applications falling to their lowest since late-2014, the US home lending industry is facing a major overhaul in how it works and manages staffing levels.

Call-center employees who handle customer refinance requests are the most vulnerable as rates have started to climb, analysts said.

Those applications have fallen to their lowest level since late 2000, according to a seasonally adjusted index by the Mortgage Bankers Association. Refinancing made up about 37 percent of mortgage originations in the first quarter of this year, down from 75 percent at its peak in 2012.

That decline has come as interest rates on most 30-year mortgages has climbed to 5.1 percent, the highest since February 2011.

Read more: Reuters

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