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The Changing Landscape of Mortgage Servicing
Moderator: Sheryl Krocek, U.S. BankPanelists: Scott Schmitt, U.S. Bank
Ansel Caine, Caine Mitter
Friday, April 5th 2013
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How did we get here?
National HFA-MRB Servicers
2006 2011 Today / 2013
The New MLS Landscape
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How did we get here?The New MLS Landscape
Scary: Declining Servicing Values
Scarier: Increasing Foreclosue and Repurchase Volume
Scariest: QM, QRM, Dodd-Frank and Basel III
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The Decision Makers!
GSE Guidelines and Repurchase Requests!
OCC Regulations!
HUD Regulations!
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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
Regulations
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Re-Purchase & MI Rescissions
Requirements of Dodd-Frank & Basil III
Changing Value of Servicing
sk
The fun never stops!
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Cost of ServicingLoss Mitigation, Basel III, Dodd-Frank, etc…
Fixed vs. Market Adjusted
Ability to Adapt to Market
Changing Servicing Values
8Ansel Caine
THE CHANGING LANDSCAPEFOR MORTGAGE SERVICING
SERVICING ADJUSTMENTS NEEDED FOR BEST EXECUTION AND TBA
Friday, April 5, 2013
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Topics
MBS Secondary Market / TBA Overview
Adjusting Servicing for Secondary Market
Execution
Working with a Master Servicer for Best
Execution
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Traditional Mortgage Revenue Bond Model is Broken
30yr Traditional
MRB (Non-AMT)
NIBP Bond
GNMA MBS
30yr Traditional MRB (AMT)
TraditionalRelationshipTraditional
Relationship
InvertedRelationship
InvertedRelationship
Date of Lehman Bankruptcy
Date of Lehman Bankruptcy
%
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MBS Secondary Market is Highly LiquidU.S Fixed Income
Securities
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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
(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
MBS Secondary Market Sale Economics
GNMA sale price (1) 107.0
Less cost of GNMA (2) - 105.0
Value of Servicing (3) + 0.9
Net income 2.9
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Origination Period Creates Interest Rate Risk
Market
Risk
GNMA PRICE
DAY 1: RATE
ISLOCKED
WAREHOUSEORIGINATION
DAY 45: LOAN
CLOSES
DAY 60: LOAN IS
PURCHASED
DAY 75: LOAN ISPOOLED
DAY 90: MBS IS
DELIVERED
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Selling TBA Forward Hedges Market Risk
GNMA PRICE
DAY 1: RATE
ISLOCKED
WAREHOUSEORIGINATION
DAY 45: LOAN
CLOSES
DAY 60: LOAN IS
PURCHASED
DAY 75: LOAN ISPOOLED
DAY 90: MBS IS
DELIVERED
Market Risk
Eliminated
HFA sells TBA and locks in
price
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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
TBA Allows HFA to Sell MBS Forward
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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
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
3.875%FHA
Mortgage
3.875%FHA
Mortgage
3.500%GNMA
3.500%GNMA
0.315%Servicing
0.060%Guarantee
Fee
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Servicing Fee Affects Overall MBS Value
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 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:
Pool Type Pool AmountMaximum
Loan Balance Winning Bid
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
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
AprilS M T W T F S
1 2 3 4 5 67 8 9 10 11 12 13
14 15 16 17 18 19 2021 22 23 24 25 26 2728 29 30
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Ansel CaineCaine Mitter & Associates Incorporated
(212) 686 - 8820acaine@cainemitter.com
279 Fifth Avenue Fourth FloorNew York, NY 10016
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TBA Issues for Servicers
Multiple Pricing OptionsFrequent Price AdjustmentsDelivery timelinesLoan 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
Recommended