I keep hearing that rates are going up “we are at the top of the bubble” and “lenders are being regulated out of business” on one hand and on the other the big players in the industry are are undertaking unprecedented expansion.
The CFBP has garnered the most attention for its enforcement division and its heavy-handed tactics and seemingly endless authority. CFPB Director Richard Cordray decided to overrule an in-house judge’s decision that slapped New Jersey-based lender PHH Corp. with a $6 million fine for taking illicit “kickbacks” from mortgage insurers that led to a rise in cost for borrowers. Mr. Cordray demanded PHH Corp. to pay 18 times more, or $109 million, for ill-gotten gains and continually violating the law with monthly payments from its reinsurance contract. My problem with this type of action is not that I think that the partnership between the MI Companies and lenders is a good thing. It is that the partnership was not illegal and had been a standard in the industry for decades when a regulator said I don’t like this and retroactively punished the participants. We are seeing an awful lot of this. What do you think?
MGIC Investment Corp.had its earnings sliced and diced. MGIC’s earnings beat forecasts due to lower incurred losses. The company announced it was revising its rate card but noted that returns should remain in the mid-teens: it should generate comparable returns across the spectrum of loans, so this would result in lower premiums on higher FICO loans and higher premiums on lower FICO loans. Net premiums earned of $226.2 million came in below some estimates, and NIW of $9.8 billion was down from $12.4 billion in 3Q and up from $9.5 billion in 4Q14. Insurance in Force (IIF) increased Q/Q to $174.5 billion from $172.7 billion. As of December 31, 2015, the company is compliant with the financial requirements of PMIERs
While we’re talking about MI companies, rumors are swirling that AIG has decided to pursue a partial spin of its mortgage insurance business. United Guaranty (UG). AIG will soon be releasing it’s strategic plan. UG utilizes a “black box” model for pricing mortgage insurance policies, unlike many competitors who use published rate cards (see next paragraph). KBW reports that UG loss ratios “have been about 20% or slightly above over the last year, while the expense ratio has been about 25%. As of 3Q15, the equity allocated to AIG’s mortgage insurance segment was $3.4 billion.”
The Wall Street Journal reports that sales of private mortgage-backed securities reached $61.6 billion in 2015, a five-year high, according to Inside Mortgage Finance data. However, most were repackaged old loans, rather than new mortgages being securitized. Thursday we’ll see Initial Jobless Claims & Continuing Jobless Claims, December Durable Goods, December Pending Home Sales, and a $29 billion 7-year Treasury auction. Friday is the GDP numbers for the 4th quarter, the Employment Cost Index, January Chicago PMI, and January University of Michigan Sentiment figures. We closed the 10-year last week at 2.05% and this morning it is sitting around 2.03% and agency MBS prices are slightly better.
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