March 2016 - RIP Dodd Frank

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TH E M R EP O RT | 45 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Th e M Rep o RT | 19 Rental Summit in Las Vegas. Moderated by OwnAmerica CEO Greg Rand, the panel also included Sepehr Bekam, Principal with Dyson Investment Properties, Chris Crippen, Managing Director, US Residential Asset Fund, and Eddie Speed, President/Founder of Note School. "Strategic alliances are been very huge for us," Reid said. "A lot of the leads we get actually stem from our management company, and we're able to source for our management company and make it a win-win there as well. The probate market is something we're really honing in on and it's been very good to us." Reid said he receives proper- ties from his attorneys who have suggested the services of Reid's company to the attorney's client. "They're sitting down hearing their clients problems or issues," Reid said. "Maybe they inherited a home in Florida but they live in Texas. Maybe they don't have the means or the management to take over that property. If someone inherits a home out of state, they don't have the funds for the property taxes or to rehab the property. It's just a headache and additional expenses they didn't expect, and now they have to take on. So we're offering an exit strategy for us to come in and close quick and pay cash. So either we can put that into a management program or we can offer cash for that asset to liquidate, buy it at a discount, and then sell it to our management partners for a buy and hold asset." "We're not the only players in the game anymore. So we're adapting and finding other ways of finding these people and getting to them first." As a prime example of looking outside the box to acquire properties, Reid said funeral homes have even become a source from which to gain new assets. Reid said he tells the funeral homes that when they hear clients are looking to liquidate to please let him know, and his company will offer the funeral home client that option. "I was actually very reluctant at first, because it is a funeral home," Reid said. "But actually what we find is they're very grateful that we're stopping by and offering our services, because they're the ones sitting down with their clients and seeing this on a day-to-day basis, and they don't have that option to give the client." The many changes in the market just in the last three years have required a shift in strategy. "In 2012 to 2015, you saw that huge spike in the SFR market," Reid said. "The general market's going up, but the yields are going down. It also offers another incentive for the investors. You're not buying on the yield, you're buying on the appreciation of the asset. I think like it comes down to changing your strategy and adapting to the markets themselves." Reid said for about a three- year period between 2010 and up to 2013, his company was able to target homes, watch them through auction, and then buy them at auction. But with the REO market getting thin, more people are finding out about the auctions and getting in on them. "We're not the only players in the game anymore," Reid said. "So we're adapting and finding other ways of finding these people and getting to them first. Whoever does the most market- ing wins, so we really focus on doing as much volume in marketing and reaching sellers as we possibly can." ExposurE P R O U D S U P P O R TE R S E P T E M B E R 1 7 T H , 2 0 1 5 A lthough interest rates have been at historical lows, they are significant- ly up from 2012 lows. Not only has this caused many eligible refinancers to shy away from the market, but originators' profits are also suffering. A report from Urban Institute found originator profitability, which is a calculation from the Federal Reserve Bank of New York of the price at which the originator actually sells the mortgage into the secondary market plus the value of retained servicing as well as points paid by the borrower, stood at 2.14 in December 2015. This number was in the narrow range of 2.04 to 2.70 since 2014. "As interest rates have risen from the lows in 2012, and fewer borrow- ers find it economical to refinance, originator profitability is lower," Urban Institute said. The report continued, "When origi- nator profitability is high, mortgage rates tend to be less responsive to the general level of interest rates, as origi- nators are capacity-constrained. When originator profitability is low, mortgage rates are far more responsive to the general level of interest rates." Urban Institute also reported first lien originations in the first three quar- ters of 2015 totaled approximately $1,350 billion. Portfolio originations made up 31 percent of this total, the data showed. Meanwhile, the GSE share fell 1 percentage point year-over-year to 46 percent, showing a decrease in FHA market share due to the FHA premium cut. FHA and VA and private label originations account for 23 per- cent and 0.8 percent, respectively. Of all new originations, adjustable- rate mortgages (ARMs) accounted for 5.1 percent of total originations in October 2015. AD popular refinance product, the 15-year fixed-rate mort- gages (FRMs), comprised 16.1 percent of new originations. Urban Institute said both the GSEs and the Mortgage Bankers Asso- ciation have predicted a decrease in mortgage originations for 2016, mostly because interest rates could increase. Mortgage originations are ex- pected to decrease by 30 percent in 2014, due to a decline in refinance activity, according to estimates from CoreLogic in September. CoreLogic predicted the number of mortgage originations fell by 30 percent from 2013 to 2014, while the mortgage origination dollar volume decreased by 27 percent. On average, the CoreLogic estimate of mortgage origination volume is 1 percent below the Home Mortgage Disclosure Act (HMDA) estimate. Thus, the $1.28 trillion in mortgage origination dollar volume that CoreLogic forecast for the HMDA report is a minimum level. Most ana- lysts estimate that lenders reporting under HMDA cover about 95 percent of the mortgage market, so CoreLogic estimates that total market origina- tions accounting for under coverage is closer to $1.36 trillion. Originator Profitability Declines in 2015 As mortgage rates rise and refinance activity declines, so too do originator profits.

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