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Waterstone Mortgage has best quarter in two years
Waterstone Mortgage reported a second consecutive quarter of profitability, although management at its parent company cautioned about the macro environment still affecting the industry.For the second quarter, Waterstone Financial's mortgage segment had net income of $1.3 million, building on first quarter profits of $298,000. Waterstone Mortgage lost $1.2 million during the second quarter of 2023, part of a streak of six consecutive periods of net losses.Gross gain on sale of 393 basis points was 17 basis points lower than the first quarter but a 20 basis point improvement over the year prior."The results this quarter reflect our continued efforts over the past year to improve efficiencies at the mortgage banking segment," said William Bruss, Waterstone Financial CEO, in a press release. "While our results have improved, we continue to face many challenges within the segment, as the mortgage banking industry continues to face unknown variables driven by consumer demand, affordable inventory and interest rates."The Wauwatosa, Wisconsin-based bank, unlike its big bank counterparts, reported increased volume year-over-year. But Waterstone also had lower quarter-to-quarter growth at approximately 31%.Origination volume during the period was the best for Waterstone Mortgage since the third quarter of 2022, when it produced just shy of $730 million.During the quarter, Waterstone sold mortgage servicing rights with unpaid principal balance of $233.1 million and a book value of $2 million for $2.1 million resulting in a gain on sale of $152,000. It did not sell any MSRs in the year ago quarter.Volume of $634.1 million topped the first quarter's $485.1 million and $623.3 million one year prior.While purchases made up 92.7% of volume, the share of refinancings doubled on a year-over-year basis, to 7.3% from 3.6%.The increase in refi activity is in line with recent reports from Optimal Blue that found the share of locks for both the cash-out and rate and term versions rose 11% and 39% respectively in June.The Mortgage Bankers Association attributed June's loosening of credit to the addition of cash-out products.Waterstone Financial is the parent company of WaterStone Bank SSB and the mortgage company is a subsidiary of the bank.In the second quarter Waterstone Financial had net income of $5.7 million, up from $4 million in the prior period but down from $6.2 million a year ago."The community banking segment continues to deal with margin pressure, as short-term funding rates remain elevated due to the restrictive monetary policy of the Federal Reserve," Bruss said. "Throughout this challenging period, we have maintained a robust share repurchase program that continues to return strong value to shareholders through repurchase activity that is accretive to book value."
Real estate-heavy bank lays out a strategy overhaul
First Foundation will work on building out its presence in Florida and Texas, where it moved its headquarters in 2021 from Irvine, California. First Foundation, a commercial real estate-heavy bank that got rocked in the market earlier this year, has started to regain some confidence from investors.The Dallas-based bank's management announced plans Thursday to go on offense as part of a strategy overhaul. The revised strategy involves reducing the bank's massive concentration in multifamily loans, increasing its allowance for credit losses, beefing up commercial and industrial lending, and expanding in parts of Texas and Florida.First Foundation's makeover follows an unexpected $228 million capital infusion led by Fortress Investment Group, which was announced earlier this month.While the investment will dilute shareholders' equity, First Foundation's stock price has rebounded since the raise was disclosed on July 3, after falling nearly 50% since January. Shares are now trading about 25% down year-to-date, at $7.11. CEO Scott Kavanaugh said on the bank's second-quarter earnings call Thursday that the new money was brought on to help boost growth. He emphasized that the capital raise wasn't prompted by regulatory concerns, even though First Foundation is well above a key regulatory threshold that gauges banks' concentration in commercial real estate lending."I am incredibly proud of what we built at First Foundation over the course of the last 17 years," Kavanaugh said. "Much like our clients, we have evolved and have grown into the next chapter of the company's life."First Foundation is turning the page after rapidly beefing up its exposure to multifamily housing in the early pandemic days to more than half of its loan book. It then watched the values of those fixed-rate loans dive after interest rates started rapidly climbing in 2022. Kavanaugh estimated that the Fortress-led investment will help lift First Foundation's profitability over the next few years to twice what it would've been organically. The bank is now shooting for a 10% to 12% return on tangible common equity and a 0.9% to 1% return on average assets by the end of 2026. Its return on tangible common equity and return on average assets were 1.3% and .09%, respectively, in the second quarter of 2024.As part of its near-term plans, the $13.7 billion-asset bank will designate about 20% of its existing multifamily loans as held for sale, which could lead to losses as buyers look to buy those assets at a discount.Chief Operating Officer Christopher Naghibi said First Foundation will "put in the time and work" to ensure the best possible price for those assets, which total more than $1 billion. He pointed to a relationship with Freddie Mac and also raised the possibility of private-party sales.First Foundation is the latest bank to announce plans to reduce its involvement in real estate lending as regulatory scrutiny has increased.By the end of 2025, the bank is aiming to bring its commercial real estate exposure down below 400% of its total capital.According to its latest call report, First Foundation's real estate loans were more than 600% of its total capital, as of March 31, 2024. Regulators give more scrutiny to banks with concentrations above 300%.As part of First Foundation's strategy to diversify, the bank will focus on increasing C&I loans, Naghibi said. Although the C&I book currently accounts for less than 30% of the bank's $10 billion loan portfolio, it's made up nearly 90% of First Foundation's loan fundings so far this year."While historically, multifamily originations outpaced C&I lending, First Foundation has been deeply steeped in C&I lending dating back to the bank's inception," Naghibi said. "A more robust C&I team was built out nearly 10 years ago in order to help balance out the concentration risk in the underlying loan portfolio.""First Foundation is not a real estate lender growing into the C&I business," he added. "C&I lending has been a long-standing and important part of the underlying franchise value."First Foundation also plans to push harder in current markets where it has limited business, such as North Texas and Southwest Florida. The bank moved its headquarters to Dallas in 2021 from Southern California, where it did most of its business, and it acquired a small bank in Naples, Florida, shortly thereafter. But those two markets, together, only make up 11% of First Foundation's loan portfolio."We really have not had much of a chance to really expand into the markets," Kavanaugh said. "We immediately found ourselves having to get into a defensive mode. … But we really believe that Texas and Florida [are] endless with [their] abilities to be able to grow."First Foundation will also initiate a detailed review of its allowance for credit losses methodology to align with those of peers. The bank doesn't believe it has credit losses on the horizon, but it must prepare for "unprecedented" interest rate risk in the market, Naghibi said.In the second quarter, First Foundation reported net income of $3.1 million, up from a $793,000 bottom line in the first quarter, as deposit cost pressures let up, and the bank reduced its provision for credit losses.
How a Kamala Harris presidency could impact housing
Following President Biden's announcement over the weekend that he will not be seeking reelection, all eyes have turned to Vice President Kamala Harris as she gathers support from the Democratic Party. The vice president has a long history in the public sphere, having served as the district attorney of San Francisco, the California state attorney general, and a senator before coming to the White House. Throughout her two-decade career in politics, Harris' name has been attached to efforts intended to increase the supply of affordable housing, address the racial wealth gap, and combat mortgage fraud. These initiatives, and how she has interacted with mortgage entities in the past as attorney general, can offer insight into her potential agenda if elected to higher office.The platform for her 2020 presidential campaign included the pursuit of racial equality, with a pledge to establish a $100 billion program to help Black families and individuals buy homes. While she lost the 2020 race, some of her ideas made their way into policies during the Biden administration.In May, Harris announced $5.5 billion in new funding to boost affordable housing supply and expand rental assistance through HUD.The White House also recently drew some criticism from the mortgage industry after the Biden-Harris Housing Plan proposed imposing an annual 5% cap on rent increases on landlords while also facilitating the construction of two million affordable homes on repurposed public land. If passed, it would be in place for the remainder of 2024 and the following two years. Prior to her stint at the White House, Harris' time in California was marked by long-term problems with housing affordability and low inventory. Californians were hit hardest by foreclosures during the 2008 financial crisis as many borrowers in the state had pay-option adjustable-rate mortgages that went underwater. In 2019, then a senator, Harris introduced a companion bill to House Financial Services Committee Chairwoman Maxine Waters' Housing is Infrastructure Act, which seeks to alleviate the public housing capital backlog and improve living conditions for low-income households. Waters said the legislation will ensure affordable housing is part of broader infrastructure investments. The House bill was referred to the Subcommittee on the Constitution, Civil Rights, and Civil Liberties in Nov. 2022 and no action has been taken since. "Too many Americans are fighting tooth and nail to keep a roof over their heads as our nation continues to face a housing affordability and homelessness crisis," Harris said in a 2019 joint press release. "It will take a comprehensive and serious investment to confront this issue head on, and the Housing is Infrastructure Act is our best chance to get it done." While Harris was not very active on banking policy issues as a senator, she did oppose the 2018 regulatory relief law that allows mid-sized banks to forgo certain ability-to-pay requirements in residential mortgage loans. The bill passed in the Senate despite her vote and was signed into law by former President Trump.During her term as attorney general, from 2011 to 2017, she supervised California's litigation over bank mortgage policies and held out in multistate settlement negotiations to force banks to raise their offers for homeowner relief. "Kamala comes from the school of thought that government must save Wall Street from itself," Eleni Kounalakis, the Democratic lieutenant governor of California and an early backer of Harris's presidential campaign, told National Mortgage News in 2020. "I know she values competition and entrepreneurship, and I know she will also hold big corporations accountable."In one case, Harris negotiated for California to receive a larger portion of the $25 billion National Mortgage Settlement with five servicers over their use of "robo-signing" on foreclosure documents. After talks with Bank of America Corp., Citigroup Inc. and other lenders, initial offers of less than $5 billion grew to $20 billion in relief for homeowners in addition to $410 million that went to the state on behalf of big pension funds for misrepresentation in the sale of mortgage-backed securities. Some argued that California should not have received that much benefit from the National Mortgage Settlement, as it left many homeowners with little relief in other affected states like Ohio, which received less than 1% of the fund. She also created a task force in California aimed at cracking down on industry scams, called the Mortgage Fraud Strike Force. The 25-person task force, made up of 17 lawyers and eight special investigators from the Department of Justice, pursues cases of alleged deceptive lending practices, foreclosure scams and corporate fraud. Harris faced much criticism, however, for deciding not to pursue a civil enforcement action against OneWest bank for illegal foreclosure practices during her office's investigation in 2012 and 2013. OneWest was run by Steven Mnuchin, who at the time was the CEO and founder of Dune Capital, before he sold the bank to CIT Group in 2015. Mnuchin later served as Secretary of Treasury during the Trump administration. Harris was then the only Democratic senate candidate in 2016 to receive a contribution from Mnuchin, a Keefe, Bruyette & Woods report on her candidacy noted. Regarding not pursuing OneWest, Harris reportedly told The Hill, "It was a decision my office made."After stepping aside, Biden firmly endorsed Harris. She's also received endorsements from over half of the pledged delegates she needs to secure the nomination, according to The Associated Press. The vice president said she seeks to "earn and win" the Democratic nomination. If the party selects her, Harris will still need to choose a running mate and boost a campaign for her candidacy with less than 100 days left in the race. The vice president received $81 million in donations in the first 24 hours since her announcement to run, setting a historic record, according to the Associated Press. Before announcing her run, Harris had agreed to a debate with the GOP vice presidential nominee JD Vance to take place on either July 23 or Aug. 13 on CBS News.
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