State of the Mortgage Market Phoenix CAPITAL CMLA Luncheon January 7 th , 2016 Seth Sprague, CMB, Senior Vice President ssprague@phnxcap.com Private & Confidential Phoenix Capital, Inc. | 999 Eighteenth St Suite 1400 | Denver, CO 80202 | 303.892.7070 | www.phnxcap.com
The he Pho hoeni nix famil ily of of compan panies has as nearl rly 200 200 clie lients an and is is led ed by by Pho hoeni nix Capi apital al, In Inc. (“P “PCI”) ”) Since its founding in 1996, PCI has grown into a market leading mortgage banking advisor that specializes in mortgage servicing rights (MSRs). PCI helps its clients succeed by forming tailored origination, best execution, asset management and buy- & sell-side strategies with an emphasis on superior market performance. PCI's seasoned management team offers an unmatched understanding of the mortgage servicing asset and market . Since inception, PCI has managed over a trillion dollars in UPB (in inclu ludin ing appr approximat ately $700 700 bill illio ion si since 2013 2013) representing several hundred successfully completed MSR transactions, consisting of bulk, flow, co-issue, and other forward commitment transaction structures. PCI CI is Gin is innie ie Mae’s ’s exclu lusiv ive MSR SR adv advisor an and par partners clo losely ly wit ith Fanni nnie Mae, e, Freddi ddie Mac, c, the he MBA, A, the he FDIC IC an and other er key ey ind ndus ustry lea eader ers . PCI is complemented by Phoenix Analytic Services (“PAS”), which specializes in the MSR valuation and accounting management; acquisition analysis of MSR portfolios and mortgage banks; and other services such as Capitalization analysis, Hold/Sell analysis, and consulting on the overall management of the MSR asset. In In 20 2014 14 alo lone, PA PAS perf rform rmed more re than an 700 00 in indiv ivid idual MSR SR valu luatio ions on portfolios ranging in size from hundreds of billions in unpaid principal balance to portfolios of under $100 million. The Phoenix family is completed by Phoenix Asset Management, an REO outsource company, Phoenix Collateral Advisors, a servicing oversight and compliance firm, and Phoenix Whole Loan Solutions (fka Steel Mountain Capital). Phoenix Capital, Inc. | 999 Eighteenth St Suite 1400 | Denver, CO 80202 | 303.892.7070 | www.phnxcap.com Private & Confidential
The Phoenix Family of Companies continues to be the industry leading MSR advisory firm as it offers comprehensive solutions for its client base: Phoenix Capital, Inc . Phoenix Capital has exclusively managed over $700 billion in successful MSR transactions since 2013 alone, spanning Fannie Mae, Freddie Mac, Ginnie Mae and Private Investor MSRs across bulk, flow and other transaction structures Phoenix Analytic Services, Inc. Provides MSR valuations and analytics including customized economic valuations and SRP grids in addition to full MSR Accounting outsourcing Phoenix Collateral Advisors, LLC With the hiring of John Burnett as President of PCA in the Fall of 2013, provides servicer surveillance and advisory services for both large and small servicers and monitoring sub-servicers Phoenix Asset Management, LLC Provides REO, Short Sales and component outsourcing for its clients Phoenix Whole Loan Solutions, LLC (fka Steel Mountain Loan Trading, LLC) Provides whole loan trading solutions for its clients and expert testimony services Phoenix Capital, Inc. | 999 Eighteenth St Suite 1400 | Denver, CO 80202 | 303.892.7070 | www.phnxcap.com Private & Confidential
What the Experts Thought Would Happen in 2015 “If you can lock in a 30 year rate below 4.5% in 2015, do it…” “The current interest rate party is over, it could be gone for good” “85% of all industry experts predicted mortgage rates would rise to 5.0 range in 2014…… mortgage rates climbing modestly in 2015 to put rates in the 4.5% to 4.75% range (by year end)” “Trying to predict the exact change in the 30 year fixed mortgage rate is not always accurate….feels like rates will likely climb to 5% and possibly 5.5%” Source: Tim Lucas Article 11/24/2014 “2015 Mortgage Rate Predictions from 3 Industry Experts” MBA 12/15/14 Forecast Q1 2015 Q2 2015 Q3 2015 Q4 2015 30 Year Fixed Rate Mortgage 4.4 4.6 5.0 5.1 Total Origination Volume (Billions) $271 $328 $318 $272 Source: MBA Mortgage Finance Forecast December 15, 2014 4 Private & Confidential
2014 and 2015 Actual Mortgage Rates (from Bank Rate) Bank Rate (Two Year History) 30 Year Mortgage Rates 4.70 4.60 4.50 4.40 4.30 4.20 4.10 4.00 3.90 3.80 3.70 5 Private & Confidential
2015 Actual Mortgage Rates (from Bank Rate) Bank Rate 30 Year Fixed Mortgage Rate 4.30 4.15 4.00 3.85 3.70 12/31/2014 1/31/2015 2/28/2015 3/31/2015 4/30/2015 5/31/2015 6/30/2015 7/31/2015 8/31/2015 9/30/2015 10/31/2015 11/30/2015 6 Private & Confidential
MBA Independent Mortgage Bankers Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q4 2013 Average Production Volume $614 million $657 million $473 million $417 million $367 million Average Production Profit 55 bps 67 bps 60 bps 32 bps 9 bps Purchase Share Estimate 70% 62% 51% 65% 47% Average Loan Size 241,942 244,350 $242,791 $233,655 Average Loan Production Expense $7,080 $6,984 $7,195 $7,000 $6,959 Net Cost to Originate $5,549 $5,372 $5,597 $5,238 $5,171 Personnel expenses (per loan) $4,674 $4,632 $4,675 $4,428 $4,385 All business lines Profitability 86% 92% 88% 74% 58% Source: Mortgage Bankers Association Independent Mortgage Bankers and mortgage subsidiaries of chartered banks Quarterly Performance Report Net cost to originate includes all production expenses and commissions, minus all fee income but excludes the secondary marketing gains, MSR or SRP value and warehouse interest margin Production profit remained higher than expected throughout the first three quarters of 2015 (versus the end of o 2014 predictions) Net cost to originate continues to increase along with personnel expense (per loan) o o Costs have remained in elevated in the mortgage system (origination and servicing) 7 Private & Confidential
2015 – Year of TRID 8 Private & Confidential
TRID 9 Private & Confidential
TRID 10 Private & Confidential
TRID Headlines (Source MBA Website) WASHINGTON, D.C. (October 7, 2015) - Mortgage applications increased 25.5 percent from one o week earlier , according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending October 2, 2015. "The number of applications for purchase and refinance mortgages soared last week due both to renewed rate volatility and as many applications were filed prior to the TILA-RESPA regulatory change . The average loan size of applications in the weekly survey increased by 6.9 percent, driven by a 12.1 percent increase in the average size of refinances," said Lynn Fisher, MBA's Vice President of Research and Economics. WASHINGTON, D.C. (October 14, 2015) - Mortgage applications decreased 27.6 percent from one o week earlier , according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending October 9, 2015. "Application volume plummeted last week in the wake of the implementation of the new TILA-RESPA integrated disclosures, which caused lenders to significantly revamp their business processes, and as a result dramatically slowed the pace of activity. The prior week's results evidently pulled forward much of the volume that would have more naturally taken place into this week. Purchase volume for the week was below last year's pace, the first year over year decrease since February 2015, while refinance volume dropped sharply even with little change in mortgage rates," said Mike Fratantoni, MBA's Chief Economist. 11 Private & Confidential
MBA Chart of the Week Source: MBA Website 12 Private & Confidential
Total Mortgage Originations MBA Mortgage One to Four Family Originations Source MBA (In Billions) 4,500 4,000 3,500 3,000 2,500 (Billions) 2,000 1,500 1,000 500 - 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (Est) 2016 (Est) 2017 (Est) 2018 (Est) 13 Private & Confidential
Large Originators Annualized 2015 o volume is up 2015 30.3 % from (In Billions) 2012 Total 2013 Total 2014 Total Q1 2015 Q2 2015 Q3 2015 Annualized Wells Fargo 524.0 351.0 175.0 49.0 62.0 55.0 2014 levels Chase 180.8 165.5 78.0 24.7 29.3 29.9 US Bank 84.5 63.2 35.1 10.9 13.4 14.0 BB&T 33.1 31.6 17.4 4.0 5.5 5.0 Fifth Third 25.1 22.3 7.5 1.8 2.5 2.3 Overall volume o Flagstar 53.6 37.5 24.6 7.3 8.4 7.9 PHH 55.6 52.4 36.0 9.4 12.1 10.3 is down from Bank of America 75.1 82.9 43.3 13.7 16.0 13.7 2012 and 2013 CITI 58.5 58.0 25.2 7.0 8.8 7.5 PNC 15.2 15.1 9.5 2.6 2.9 2.7 (on a percentage SunTrust 32.0 29.9 16.4 5.1 6.5 6.2 of total SubTotal 1,003.1 797.2 399.9 117.1 144.3 134.0 527.1 originations) SubTotal 1,137.4 909.3 468.0 135.5 167.4 154.5 609.8 30.3% Year over Year Change -20.1% -48.5% MBA Total Originations 2,044.0 1,844.9 1,261.0 330.0 395.0 Percentage 55.6% 49.3% 37.1% 41.1% 42.4% 14 Private & Confidential
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