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HomeStreet layoffs, office closures not enough, activist investor says

During the past eight months, Blue Lion has called on the company to aggressively reduce its mortgage banking origination footprint and associated headcount. The investor continues to call on the company to close certain mortgage origination offices and to sell its single-family mortgage servicing rights.

According to Blue Lion, all mortgage origination offices that are unable to earn the company's cost of capital on a fully allocated basis should be closed. Also, it said that the company’s servicing operation is sub-scale and is located in the expensive Seattle market. Blue Lion said HomeStreet should use the proceeds of the MSR sale to repurchase up to 20% of the company's shares given that the company is one of the cheapest banks in the country. Blue Lion also called on HomeStreet to reduce its expenses in the commercial bank segment by $25 million.

“The current pace of change is much too slow given the poor performance of the company and stock over the past 5+ years,” Blue Lion said in a statement. “Rather than continuing to announce piecemeal and reactionary cost reductions, [HomeStreet]'s management needs to craft a comprehensive strategy that will enable the company to be a top performing bank in its markets. Absent a comprehensive operating plan that is easy to understand and execute, the board should hire an investment bank and put HomeStreet up for sale. Either way, shareholders would finally be rewarded.

Mortgage Rates Finally Make a (Small) Move

Mortgage rates   finally fell  today after remaining flat for the last 3 business days.  There are a few possible explanations for the friendly move, but the easiest to see and discuss is the weakness in the stock market. 

If you read my commentary somewhat regularly, you'll know that I'm no great fan of using the "stocks vs bonds" explanation for rate movement (bonds = rates), but in today's case, weakness in stocks was clearly correlated with strength in bonds (stronger bonds = lower rates).  Much of this weakness surrounded trade-related headlines, however, so it's just as fair to say that bonds were reacting to trade war news.

Either way, the lion's share of the reaction was reserved for mainstream bonds like US Treasuries.  MBS (the mortgage-backed-securities that underlie mortgage rates) didn't do as well by comparison.  As such, the improvements in mortgage rates are fairly minimal.  The average borrower will still be seeing the same NOTE rate as yesterday, just with slightly lower upfront costs (or a higher lender credit).