MortgageRegulatory

Monday Morning Cup of Coffee: CFPB targets high-risk home lending groups

Plus the problem with Money Monster

Monday Morning Cup of Coffee is a look at the news across the HousingWire weekend news desk, with more coverage to come on bigger issues.

First, a big shout out to the "boots on the ground" at the Mortgage Bankers Association Secondary Market Conference in New York City this week!

HousingWire's digital reporter, Brena Swanson, is there and will be doing her thing for the length of the conference.

Check HousingWire.com for her coverage throughout the week, we guarantee it to be news found nowhere else (probably).

Did anyone go and see Money Monster at the cinema this weekend before heading to MBA?

Here’s what NPR’s Mark Jenkins says about the movie:

The film's villains are not real investment banks but the fictional Ibis Clear Capital and its CEO, Walt Camby (Dominic West). The protagonist stands somewhere between documentary and fantasy: Lee Gates (George Clooney), host of FNN's Money Monster, is a slightly camouflaged version of Jim Cramer, host of CNBC's Mad Money.

The movie is directed by big bank mega-hater Jodie Foster and stars George Clooney and Julia Roberts. That said, did you notice the evil financial corporation at the center of the plot is called, “Ibis Clear Capital?”

Well, the hard-working men and women at the real Clear Capital did and they don’t like the comparison. Not one bit.

Expect the Reno-based Clear Capital to clarify more later today on HousingWire.com, but as one employee put it, the real Clear Capital is “the complete antithesis of a company like what is depicted in the movie.”

No word yet from separate, San Diego-based Ibis Capital, though we can’t imagine they’re any happier.

Mortgage real estate investment trusts are enjoying a three-month run for an obscure, under-followed corner of finance, according to this article by Amey Stone.

In her article in Barrons, she notes the stocks are up 22% since mid-February, “buoyed by stronger credit markets, a Federal Reserve that seems likely to keep rates lower for longer, and a nod from bond king Jeffrey Gundlach of DoubleLine Capital at a recent hedge fund conference.”

But, despite REITS getting their own call out on the S&P 500, the stocks remain 17% below their price level of two years ago and trade near a 15% discount to book value per share; and these REITs boast dividend yields of 12%, on average, writes Stone.

So while some remain a good investment, Stone adds there are risks:

Mortgage REITs make money by borrowing short-term to buy longer-term mortgage-backed securities and, increasingly, other kinds of credit instruments. They are highly levered and get hurt when rates rise (because the value of their holdings falls, while funding costs increase) and also when rates fall (because more mortgages get prepaid, and hedging can backfire). “There are different risks on the asset side, the funding side, and the hedging side,” says Merrill Ross, who covers the sector for Wunderlich Securities.

According to the New York Times Dealbook, the Consumer Financial Protection Bureau recently began an informal inquiry into seller-financing arrangements, which are commonly referred to as contracts for deeds. These loans are for inexpensive homes to people with bad credit.

The bureau assigned two enforcement lawyers to research the seller-financing market and determine whether the terms of some deals violate federal truth-in-lending laws, say Matthew Goldstein and Alexandra Stevenson.

One such company, Battery Point, defends lending high interest loans to higher risk borrowers.
 
Company founder, Jeremy Healey, has sought to differentiate his firm from other big players in the market, saying that unlike them, Battery Point has structured its 20-year contracts to comply with new federal guidelines for high-interest mortgages.

“We support improving awareness of how non-mortgage financing products can create opportunities for consumers who are shut out of the mortgage market,” said Healey.

The Dealbook coverage adds that the New York State Department of Financial Services on Friday subpoenaed four investment firms that either are involved with seller-financed deals or provide financing for such deals, according to a person with direct knowledge of the matter who spoke on the condition of anonymity because the investigation is preliminary.

The Federal Deposit Insurance Corp. closed no banks this weekend.

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