Why investors care about comp plans – it can get ugly; Comp discussions around the country; QRM, MERS updates

 

 

There’s a saying, “We are born naked, wet, and hungry. And then things get worse.” But perhaps, just perhaps, smaller mortgage brokers and bankers won’t see things get worse with the Qualified Residential Mortgage (“QRM”) plans. Dodd-Frank requires lenders to retain 5% of the credit risk of any mortgages closed outside of the guidelines – but what are the guidelines? Will it be based on agency – effectively killing the jumbo/non-agency market? What if the agency guidelines go away? Will it be based on LTV, cutting into FHA or the MI company business share? Anyway, the issue has been somewhat quiet, but recently the Senate Banking Committee heard from FDIC Chairman Sheila Bair, and she told members that regulators will soon release its QRM that will determine how much risk loan originators retain after securitization. Apparently it is targeted at larger institutions. Per Ms. Bair the direction of the rule will be focused on issuers and securitizations, not small originators – which include community banks. Mortgage brokers and bankers are hoping they’re also included.

Yesterday I regurgitated the latest public information on comp from Wells (wholesale) and GMAC. A well informed reader wrote, “I have a good perspective on how the various lenders were viewing LO comp.  Unfortunately for anyone looking for uniformity, their perspectives vary significantly.  SunTrust, for example, is clearly ahead of the curve in policy implementation.  Wells wants to micromanage everything a broker does, and MetLife seems to be more like Wells than SunTrust.  It appears that Stearns will offer an anti-steering document that is going to be required in every file.  Whether it is to be signed by the broker or borrower or both is yet to be determined. Regarding oversight, most wholesale companies, at this point, aside from a ‘reps and warranties’ addendum to the broker agreement that the FRB regs were being followed, are taking the approach that there would be no oversight.  The exceptions are Wells and MetLife, with Wells expected to produce an 18-question form that would be going out to broker principles very shortly that deals with broker compensation plans.”

I receive a fair number of questions along the lines of, “What if I don’t have a comp plan by 4/1?” or “Why are Wells and MetLife going to require our comp plans – aren’t reps and warrants like other investors are doing enough?” It is not hard to see why, given the possible financial liabilities of a foreclosure or lawsuit, there is pressure to sign off on a comp plan. Will anyone be watching? You bet: Whistleblower Site

As I noted last week, “The maximum amount of any liability of a mortgage originator to a consumer for any violation of this section shall not exceed the greater of actual damages or an amount equal to 3 times the total amount of direct and indirect compensation or gain accruing to the mortgage originator in connection with the residential mortgage loan involved in the violation, plus the costs to the consumer of the action, including a reasonable attorney’s fee.” Although I could not find it, it is purported that penalty highlights also include an increase in the rescission period, so “Penalty highlights” (costs/fees/penalties) include the rescission period increasing from 1 to 3 years, in addition to 3 times the MLO comp received, penalties include all finance charges, interest, fees, and legal fees, and unlimited rescission period for loans in foreclosure. Much of this is paid for by the servicer out of foreclosure proceeds.

In the event of a foreclosure, scenarios show that the penalty reduces the servicer recovery during the foreclosure/REO process, and for a performing loan the penalty reduces the funds owed by borrower if the loan is in rescission period, or the borrower’s UPB is reduced if it is outside of the rescission period. So in terms of numbers, loan size = $450,000; interest rate = 5.25%, pre-paid finance charge = $5,670; total interest paid for 3 years = $70,875, originator comp broker = 2.50% (estimate) x 3 = $33,750, estimated attorneys’ fees = $65,000, total penalty= $175,295.

One can pick apart these numbers all one wants, but the fact remains that large investors with capital on the line are concerned about anything close to them. I will throw in my opinion here, and say that I doubt that attorneys will be turning a blind eye to any indiscretions, given the current environment. And it would not take many “deals gone bad” to cause severe financial damage to a thinly-capitalized lender which is why large investors and servicers are extremely cautious – whether this involves reviewing comp plans or stringent reps & warrants. And lenders are spending a lot of resources setting up plans. “Don’t do the crime if you can’t do the time.”

Compensation discussions are happening around the country. In Northern California,Comstock Mortgage announced two panel discussions “examining the impact the Federal Reserve Loan Originator compensation rules will have on our industry and on loan originators.” Using a set of solid panelists, the purpose of the panel is to give loan originators and their management a chance to ask questions of mortgage industry professionals who are actively engaged in studying the issues and implementing the rules for their specific companies. The discussions are slated for 2/23 in Dublin, CA and 2/25 in Sacramento, CA. For information contact Casey Fleming at cfleming@comstockmortgage.com or to register for the seminar, contact Kathleen Chothia at (925) 484-1466.

Three thousand miles away, in Parsippany, New Jersey, NYLX is putting on a seminar on the same topic on the 24th. “Join us at the Hilton Parsippany on February 24th from 9am-12:15pm as we host an informative session with noted experts that can help you achieve your 2011 compliance goals without compromising your competitive edge. Find clarity and direction amidst the confusion!” To start the registration process, go to NYLX

The compensation issues, as well as others, have certainly caused those remaining in the mortgage industry to band together. One such organization that has sprung up is the Mortgage Action Alliance which is a “grass roots, voluntary, non-partisan, and free lobbying effort to help make sure our voices are heard.” Per one of the organizers, “Mortgage Action Alliance allows you to be kept updated with the key legislative issues that affect our business. One signs up online for MAA, and when there is a key issue up for debate, a “call to action” may take place, in which you will receive an email from MAA and be asked to “take action” by simply completing a few steps online – the result is that automatic letters will be sent to your Congressmen immediately.”

Merscorp Inc., owner of MERS (and the electronic-registration system that contains about half of all U.S. home mortgages), will propose a rule change to stop members from foreclosing in its name. MERS (which is easier to say) has certainly been in the press, and it hasn’t helped the industry that courts have issued different verdicts on whether MERS, as an agent for the mortgage owner, has the right to bring a foreclosure action.

Looking at the markets, interest rates are behaving themselves – whatever that means. Yesterday the Conference Board’s Leading Indicators increased 0.1% in January after rising 0.8% in December.   Six of the 10 indicators in the leading index contributed to the increase, led by the interest-rate spread and the stock market.  The Philadelphia Federal Reserve general economic index rose to 35.9, the highest level since January 2004, having risen from 19.3 in January.  But Treasuries preferred, wisely, more on the rising tensions in the Middle East, and an increase in U.S. Jobless Claims. The yield on the 10-yr hit 3.56%, the lowest level since Feb. 4^th (and much lower than the 3.77% Feb. 9 level). Today we have no scheduled economic news. China stole the headlines by raising reserve requirements in that country by 50 basis points to further combat inflation. So far this morning we find the 10-yr at 3.61% and MBS prices worse by about .250.

(When I was a kid, we had both Lincoln’s and Washington’s birthdays off. Now we only have one holiday, and it is Monday, and I will be taking it – so there will be no commentary. Have a nice 3-day weekend.)

Here is one proposal to stop the abuses in automobile sales: “Auto Sales Staff Honest Operation of Local Emporiums.”
This is an act to eliminate abuse in automobile sales.
1. Anti-steering.  When a customer enters an automobile showroom, they must be asked which model car they wish to consider. This must be recorded (within 3 minutes) and signed by the customer before they can be shown any vehicles.  No sales representative may show, demonstrate, or offer a higher-priced vehicle unless such vehicle is offered at the same price as the vehicle originally requested.

2. Salesperson Compensation.  Sales persons may no longer be compensated based on the cost of the vehicle or based on the options or add-ons which are sold with the vehicle.  No salesperson may be compensated based on the price of the vehicle or the terms of the sale.  Permissible methods of compensation include per-car fixed payments or payments based on the number of sales per month.  Under no circumstances may any sales person be paid based on up-selling or by selling additional options.
3. When a customer agrees to purchase a vehicle, he/she must first be given a comparison sheet showing the monthly payment for two other vehicles.  The purchase may not be completed until at least 3 days after such disclosure is provided.
4. Safe Harbor.  There will be no restrictions on method of compensation if all vehicles in the dealership are offered at the same price.
As soon as this new law is adopted and the auto sales business collapses, a proposal for regulation of the electronics industry will be published.

 

Rob

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http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.

Comp updates from Wells, GMAC worth reading; News from Chase, Quicken, GMAC, Guild, CW’s VIP Program under fire

 

 

They’ve barely cleaned up the confetti from the Super Bowl parade, and already baseball’s spring training is upon us. Here is something non-mortgage related, but a must-see for any baseball fan wanting to see how a baseball is manufactured.

And now, turning to sports-related mortgage news, who is Daniel Carbo? Quicken Loans (#1 online lender) paid off Mr. Carbo’s mortgage as part of its “Thanks a Million” contest during halftime at a Cleveland Cavaliers basketball game at Quicken Loans Arena. Apparently Quicken closed its one millionth mortgage in late 2010. Every client who closed a mortgage last year between August – December was automatically entered into a drawing to pay off one client’s loan, up to $250,000.

Recently Bank of America and Citi have announced a series of branch closures. At the other end of the “trend,” JPMorgan Chase announced it will open 225 branches this year and more than 2,000 over the next 5 years. The bank is seeking to increase its presence in FL, CA, NY and IL. Out on the West Coast, First California Mortgage announced the opening of two new fulfillment centers, in Irvine, CA and Seattle, WA, bringing the total of Regional Fulfillment Centers to 5 including; Northern California, Arizona and Colorado.
In a story that falls under the “it just won’t go away” title, the House Committee on Oversight and Government Reform issued a “wide-ranging subpoena” to Bank of America for all documents and records related to Countrywide’s VIP program, the so-called “Friends of Angelo” circle. The Committee has been investigating Countrywide for over two years. A statement read, “Countrywide orchestrated a deliberate and calculated effort to use relationships with people in high places in order to manipulate public policy and further their bottom line to the detriment of the American taxpayers even at the expense of its own lending standards.” Anyone servicing Freddie loans should be aware that in preparation for the phased migration of all servicers to the Service Loans application this year, Freddie’s Single-Family Seller/Servicer Guide has been updated.

Chase notified correspondents that it will be implementing the changes detailed in Freddie Mac’sannouncement 2011-2 (Refinance Mortgage Eligibility and Verification of Funds), and also told clients that Chase improved its 10-yr pricing adjustment by .250.

GMAC updated its HomePath product summary guidelines, specifically to include a more detailed description on the different types of financing for the HomePath program.  

(GMAC Bank does not participate in the HomePath Renovation Mortgage Financing Product or the HomePath manufactured housing mortgage product.) The investor also let clients know that the FHA Comprehensive Risk Assessment Worksheet has been updated to apply to FHA refinance as well as purchase transactions, and is required for all manually underwritten loans, including automated underwriting Refer decisions and Approve decisions that have been downgraded to a Refer decision.

Guild Mortgage let brokers know that starting 4/18 it would be adopting the new FHA MIP fees. And also on that date “FHA systems will require mortgagees to: certify at the time of requesting a case number that they have an active application for the borrower and property, and provide the borrower’s name and social security number for all new construction (proposed, and existing less than one year old). (FHA systems will automatically cancel any uninsured case number where there has been no activity for 6 months since the last action except for loans where an appraisal update has been entered and/or loans where the UFMIP has been received.)

What is the latest exciting news on compensation developments? Lenders are continuing to research historical production data for their producers, as well as paying attorneys to analyze the rules and regulations. And smaller lenders are waiting for the Top 5 investors to continue to announce their policies, which in turn will be used to formulate their own, especially when required to submit comp plans to their investors.

With that in mind, Wells Fargo’s wholesale group sent the word out to “Broker owners”(company owners) saying that the owners should submit their broker owner compensation policies and procedures to Wells Fargo by March 15, 2011. “Broker owners will need to submit your Broker Owner Compensation Policies and Procedures, which should give an overview of your compensation policies and how you implement them. Wells Fargo will not require individual Loan Officer compensation agreements or contracts. Every single broker company must outline their rules and governance and submit their broker owner compensation policies – even if you are a one-person company or a partnership company that compensates in a salary plus distribution structure.” Wells will send out an e-mail with a questionnaire, a “request for information letter,” which provides a high-level overview of Wells Fargo’s compensation policy screening.

Wells stated that, at a minimum, broker owner policies must include all of the following: how the broker owner compensates its individual loan officers who act as loan originators, how the broker owner compensates its producing branch managers, whether the broker owner compensates its individual loan officers differently based on whether the consumer or the lender is paying broker compensation, and record retention guidelines. “Broker owners should outline in their policies how they compensate their loan officers under both the consumer- and lender-paid models. Under current interpretation of the rules, loan officers who originate loans under the consumer-paid model can’t receive compensation based on commission – their compensation must be based on a salary or salary plus bonus structure. Therefore, if a loan officer originates loans under both the consumer and lender-paid models, then their compensation can only be based on salary or salary plus bonus structure.”

GMAC Bank Correspondent Funding sent out compensation word that it will provide its clients with two compensation options:  lender paid compensation or consumer paid compensation. The compensation option must be selected before the loan application is submitted to GMACB. Under its Lender Paid Compensation arrangement, “Compensation is based on established upfront terms negotiated between the broker client and GMACB that will remain in effect for a quarterly period. The compensation will be based on a set percentage of the loan amount and cannot vary from one transaction to another. GMACB will pay compensation directly to the broker client. The quarterly compensation amount will be used for all loans sent to GMACB where lender paid compensation is selected and will be set-up prior to registering loans. The consumer may pay discount points to reduce the interest rate. The consumer may pay bona fide third party costs and GMACB fees by paying cash at closing, or by financing them through the loan principal or interest rate. The consumer cannot pay any compensation to the broker client or any loan originator. The broker client/loan originator cannot reduce the lender paid compensation amount by offering concessions or paying for tolerance violations. The broker client must establish compensation agreements with its loan officers that comply with the Final Rule.”

For GMAC’s Consumer Paid Compensation, “The broker will negotiate compensation directly with the consumer. The consumer may pay bona fide third party costs and GMACB fees by paying cash at closing, or by financing them through the loan principal or interest rate. Premium pricing cannot be used to compensate the broker client/loan originator. The consumer may pay discount points to reduce the interest rate. The consumer must pay compensation to the broker client from their own funds or from the principal proceeds of the new loan. No other person (other than the borrower) may provide any compensation to a loan originator, directly or indirectly, in connection with the loan transaction. The broker client must establish compensation agreements with its loan officers that comply with the Final Rule. Compensation to the broker client can vary from one transaction to another.  However, compensation from the broker client to its loan officers for any particular transaction may be comprised only of a salary or hourly wage.  Other aggregate bonus related compensation from the broker client to its loan officers cannot be based on prohibited terms and conditions.”

Lastly, GMAC reminded us that “Loan originators must provide the consumer with loan options from a significant number of the creditors with which the loan originator regularly does business. For each type of transaction (i.e., fixed rate, ARM), in which the consumer expressed an interest, the loan options presented must include: The loan with the lowest interest rate, the loan with lowest origination points or fees and discount points, and the loan with the lowest interest rate without certain features (prepayment penalty, IO payments, etc.). “Loan originators must obtain options from at least three creditors, unless the loan originator regularly does business with fewer than three creditors.”

Pricing and underwriting engines such as LoanSifter are also in full preparation mode for these comp plans. For example, LoanSifter’s eOriginations tool “has been enhanced to be compliant with these new rules” specifically to give quotes and show specific options to the borrower meeting “safe harbor” requirements.

MBS prices finished Wednesday about where they began – worse about .125 – on slightly above normal volumes. 10-yr yields hit a low yield during the day of 3.58% on some “Iranian warships were going through the Suez Canal to Syria” news caused a flight to quality. But here in the US, continued signs of economic strength (Housing Starts, higher than expected Core PPI, and upwardly revised FOMC outlook) nudged rates higher, and the 10-yr closed at 3.62%. The release of the FOMC Minutes was not a huge event, and basically showed no changes to the employment or inflation picture. And a dissection of the Housing Starts number showed that starts rose in the Northeast, Midwest and South, but declined in the West, and the NAHB Housing Market Index held steady.

Today closes out this week’s economic news. The CPI (Consumer Price Index) was +.4%, with the core rate (for no one who eats or travels) up .2%. Jobless Claims were up 25,000 from 385k to 410k. Later this morning we’ll have Leading Economic Indicators (expected +.2%) and a Philly Fed number, as well as next week’s government auction totals. So far the 10-yr.’s yield is down nicely to 3.58% and MBS prices are better by .125-.250.

Last night I was sitting on the sofa watching TV when I heard my wife’s voice from the kitchen.
“What would you like for dinner my Love – chicken, beef, or fish?”
I said, “Thank you, I’ll have chicken.”
She replied “You’re having soup. I was talking to the cat.”

 

Rob

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http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.

Redwood Trust Deal, A primer on the future of, and changes in, the servicing biz; News from HUD, PMI, Stearns, Chase, Kinecta

 

 

If you take one thing from today’s commentary, it should be don’t pull this stunt on your underwriting manager.  It’s worth 30 seconds.

Something else to take away is that the jumbo market is making baby steps, but at least they’re steps. Redwood Trust Inc. is marketing a $280 million residential mortgage-backed security, the first private deal of this year, backed by a mix of fixed-rate and adjustable-rate mortgages. According to news on the issue, the average loan size is $978,000 and the average FICO score is 775 – pretty similar to last year’s Redwood deal made up of Citi loans. Redwoods is in its “quiet period,” and probably not adding originating customers, but if you are originating similar type loans, consider getting in touch with Redwood Trust later in the quarter. And please, don’t e-mail me asking for contacts. For complete details on the deal go here to SEC site.

Let’s hope that they have some loans to fill those securities! Last week mortgage applications dropped 9.5% to a level last seen in November 2008. Refinancing activity was down 11.4%, and now accounts for 64% of new apps, and purchases were down about 6%. Braver Stern Securities wrote that, “with conforming mortgage rates at (these levels), almost 60% of the FH/FN mortgage universe does not have an economic incentive to refinance at the current time. For FHA borrowers this number is just over 85%.”

I have never seen a Federal Budget in person, and something tells me that I am not missing much. Analysts have happily plunged into dissecting the 2012 budget, however, which begins in October (for some reason) and details are coming out on its housing & mortgage numbers. The cost of rescuing mortgage giants Fannie Mae and Freddie Mac is likely to sink to nearly half of the current cost over the next decade, for example. The budget estimates keeping Fannie and Freddie afloat will cost $73 billion by 2021, reflecting dividends paid back to the Treasury Department and is 45% lower than the $131 billion cost to date and much lower than outside estimates. Fannie and Freddie must pay 10% dividends on the quarterly cash infusions they receive from the Treasury, which some argue should just be forgiven, thus saving them a tremendous amount of ducats. In fact, the White House estimates that the companies will be paying back more in dividends by 2013 than they receive in cash infusions and from 2014 on, the companies are expected to need no more funding. Turning to HUD, the budget proposal outlines a $48 billion spending program for fiscal year 2012, an increase of more than $900 million from 2010.

A fellow in secondary marketing wrote to me and said, “When is technology going to be socially curbed? I love to see people who spend hours at Starbucks using their iPhones and laptops suddenly complain about the traffic camera on the busy intersection. The people in business offices who complain about having to have a Blackberry with them at all times, are always the ones who send out emails on Saturday mornings. And cell phones? Just because you CAN get ahold of me, doesn’t mean you SHOULD.”

But technology is critical to many facets of the mortgage process, not the least of which is servicing. Recently the Federal Housing Finance Agency (FHFA), who oversees Freddie & Fannie, has become very involved in reforming mortgage servicing rights and due compensation, which in affect sets up a new payment structure for mortgage servicers in the future. A panel at the American Securitization Forum conference last week in Orlando agreed now is a good time to change the fee structure, because simply put, it seems unfair. Some want to increase it, others decrease it, and industry vets remember Countrywide wanting to eliminate it entirely (due to capital issues). As is known by many servicers & investors, securitizing mortgages, which helps not only agency but also jumbo and other loan types, is dependent on a good servicing model – and inefficient servicing operations are part of what’s holding back new securitization.

It is not a simple topic. The industry must make sure that MSR (mortgage servicing rights) reform doesn’t kill the mortgage servicing business in the revamp, but also that the fees are more relevant to the actual tasks and suited to the responsibility of the servicer. Does servicing a current Fannie loan really warrant .25%? Does servicing a delinquent loan warrant the same .25%? Should the originator be the only one responsible for the servicing – like the subprime days of the past? Basel III is scheduled for implementation in 2014, and at this point MSRs will not count as common equity for Tier 1 capital – what will that do to BofA, Wells, and others? The president of Ginnie Mae (Theodore Tozer) suggested a sliding scale based on constant versus variable costs.

The servicing rights for an MBS (MBSR) or most mortgages include receiving both principal and interest. Currently for agency loans the GSE bonds have a minimum 25 basis point servicing “piece” retained by the servicer and used to fund the processing of the principal, interest, and any delinquencies. The servicer also receives float on the money received by the homeowner, since there is a lag between the payment is received and when the money is due to the investor. It is pennies on individual loans, but adds up if you have billions in servicing. And of course servicers receive late fees (some borrowers are surprisingly regularly late), ancillary income from other marketing efforts such as credit cards, insurance, etc., and a good shot at refinancing the borrower should it come to that. It is truly an interesting business model, and more & more companies are looking at it closely.

“I’ve been charged with murder for killing a man with sandpaper. To be honest I only intended to rough him up a bit.” According to a recent research piece by Barclays, servicers may get roughed up a bit pretty soon. In fact, Barclays suggests that the FHFA, HUD and the GSEs are much farther along in this process than many people may realize. The goals include “improving the servicing of non-performing loans and reducing GSE credit losses, relieving banks of their capital requirement issues under Basel 3, and reducing the risk of servicer concentration in the market.” Barclays’ report states, “Although banks should face less onerous capital requirements and experience less earnings volatility under such a structure, the servicing side of the business is likely to become much less profitable in future.”

We have three brand-spankin’ new Mortgagee Letters from HUD. The first introduces a 25 basis point increase to the Annual Mortgage Insurance Premiums for forward mortgage amortization terms. It also provides guidance on the validity period of case numbers and new requirements for requesting them. The second clarifies and updates existing guidance to mortgagees concerning refinance transactions for FHA insurance. And the third announces the FHA servicing lenders’ tier rankings for Round 42. They were calculated using established criteria for HUD’s Tier Ranking System (TRS) based on activity during the performance period from October 1, 2009 through September 30, 2010. (I guess I wasn’t paying attention to Rounds 1-41.) The letters can all be found at HUD

The PMI Group “only” lost $184 million in the 4^th quarter, although it had a 128% increase in new loan insurance for the period and a slight decline in the number of PMI-insured U.S. primary loans classified as in default. The loss is less that than 2009’s 4^th quarter loss of $228 million, but still worse than expected.

Stearns Lending let its brokers know that its Declining Market Policy has been removed for loans under $417k in CA, AZ, FL, and NV for loans requiring MI. There are other restrictions, so check the bulletin.

J.P. Morgan Chase rolled out some new programs to help military and veteran customers stay in their homes as it seeks to repair its image after wrongly foreclosing on military families and overcharging thousands for mortgages. Chase also recently updated its Reps & Warrants section of its Guide to “specifically reference the Appraisal Independence Requirements” under Dodd-Frank and the Appraiser Independence Requirements issued by Fannie Mae and Freddie Mac to replace HVCC. Chase, as have others, temporarily suspended temporary buydown loans until regulators address paperwork issues. And Chase decreased the price adjustment for Agency Fixed Rate High Balance loans, improving pricing by .375.

Kinecta Federal Credit Union announced the rollout of FHA 15- and 30-year fixed rate products. “Business Partners must obtain separate approval to originate FHA loans. Products are eligible in the following states: CO, IL, IN, KS, MI, MN, MO, ND, NE, OH, OK, SD and WI.”

For economic news today we’ve had Housing Starts were up 14.6%. But Building Permits were down 10.4%. The Producer Price for January was +.8%, as expected, although ex-food & energy it was +.5% – the biggest jump since 2008. The Consumer Price Index comes out tomorrow, and we’ll be able to see if these price pressures have come down the consumer level. We find the 10-yr at 3.63%, and MBS prices very similar to where they closed Tuesday.

Dear Abby,
I have never written to you before, but I really need your advice. I have suspected for some time now that my wife has been cheating on me. The usual signs; phone rings but if I answer, the caller hangs up. My wife has been going out with ‘the girls’ a lot recently although when I ask their names she always says, just some friends from work, you don’t know them.
I try to stay awake and watch for her when she comes home, but I usually fall asleep.
Anyway, I have never broached the subject with my wife. I think deep down I just did not want to know the truth, but last night she went out again and I decided to finally check on her around midnight, I hid in the garage behind my golf clubs so I could get a good view of the whole street when she arrived home from a night out with “the girls.”
When she got out of the car she was buttoning up her blouse, which was open, and she took her panties out of her purse and slipped them on. It was at that moment, crouching behind my golf clubs, that I noticed a hairline crack where the grip meets the graphite shaft on my TaylorMade 460 driver. Is this something I can fix myself or should I take it back to the PGA Superstore?
Signed – Concerned Golfer

Rob

Check out

http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman

FHA jacks MIP; another MERS ruling; Impact of oil & food prices on mortgage biz; Not-so-good employment news

 

 

Ops folks everywhere know that next Monday is a Federal holiday, and are calculating rescission days accordingly. 

There is an old joke about, “Why is a man like a zero coupon bond? (They pay little interest, and have no maturity.) Roughly 85% of bank deposits have a maturity of 3 months or less. Given that, banks should take care to monitor the amount of fixed rate loans and fixed rate securities going onto the books to limit the risk to rising interest rates. When I speak to various groups, I often mention that this spread income (e.g., the difference between what a bank pays its depositors – about 0% – and what it earns its money, let’s say a 5% mortgage) is a huge part of a bank’s income. But it was not enough to overcome difficulties for four more banks last week, as the FDIC shut them down. In Florida Sunshine State Community Bank was sold to Premier American Bank. Peoples State Bank was sold to First Michigan Bank up in Michigan, in Wisconsin Badger State Bank is now part of Royal Bank, and out in California Canyon National Bank was sold to Pacific Premier Bank.

Around financial circles, some companies are expanding while others are not. Wells Fargo has been laying off temporary employees. Bank of America announced that will close an undisclosed number of branches and seek to boost revenue on the remaining locations by offering investment advice by videoconference. At the end of 2010 BofA had over 5,800 branches, which is down about 5% from its peak 4 years ago. Kondaur Capital laid off 39% of its employees (155 out of 398). Kondaur is a nonperforming loan investor. The layoffs don’t happen until mid-April, so things may change, but at this point Kondaur is having trouble finding banks to free up nonperforming loans at the right price.

Huh? MERS is not allowed to transfer mortgages, and cannot act as an agent of the banks that own mortgages? So ruled a judge in New York, who added that, “it is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices.” The decision does not jive with a Kansas ruling last year

“As part of ongoing efforts to strengthen the FHA capital reserves,” and to help push private money back into mortgages, the FHA came out with a new premium structure for FHA-insured mortgage loans increasing its annual mortgage insurance premium (MIP) by a quarter of a percentage point (.25) on all 30- and 15-year loans starting in mid-April. (The upfront MIP will remain unchanged at 1.0 percent.) The increase adds $30 to the average borrower’s payment and in total is estimated to add $3 billion annually to the FHA’s Mutual Mortgage Insurance Fund. It is the second increase since October.

From an investor’s viewpoint, any investor holding Ginnie Mae securities just became much more comfortable with their holdings and with the odds of FHA-to-FHA refinancing going down. Those familiar with FHA loans realize that before October a 95% LTV 30-yr loan paid a 225 basis points up-front MIP with a 50 bps annual MIP.  Now, that loan pays 100 bps up-front — but 110 bps annually. Investors believe that this change, given current rates, effectively removes any 5% and 5.5% FHA loans from being refinanced into new FHA loans.

Higher rates combined with more investor changes are not always a good thing. Bank of America updated its Conforming, Government, and Non-conforming product lines. Affiliated Mortgage tweaked its Conforming Fixed/ARMS product lines, and Wells Fargo updated its Non-Conforming product lines.

Wells Fargo’s wholesale group got the word out to its brokers about some FHA transactions that are impacted by agency changes. (HECM’s and reverse mortgages were not impacted.)

Fifth Third announced a pricing adjustment – a bump for its “FX20 HASP/DU Refi Plus” program starting today. The hit is now 1.5 points for the Freddie Mac HASP/Open Access and Fannie Mae DU Refi Plus programs when the LTV is greater than 105%.

PHH announced that starting Friday the recommended minimum credit score will be increased to 740 for purchase and rate and term refinance transactions with LTV between 95.01 and 97.00% (applicable when either PHH or the correspondent is ordering the MI commitment). It also reminded its clients of the amount of interest that can be used in the “Maximum Mortgage Calculation for Conventional and FHA No Cash Out and Streamline Refinance transactions” (it cannot include more than 30 days’ worth of interest, etc.). PHH’s recent updates also addressed the validity of credit scores (“must be established based on a sufficient amount of trade lines”), MI requirements for loans receiving an AUS Score of Approve or Accept from DU or LP (“the borrower’s credit reputation is deemed to be acceptable for credit that is evaluated on the credit report. However if verification by any other means, such as directly from a creditor or a credit supplement is needed…and so forth.) PHH also stated that it has begun ordering non-refundable mortgage insurance premiums from its MI providers, and changed its policy on USDA Idaho loans regarding non-qualifying spouses. As always, clients are advised to read the bulletins thoroughly.

In the appraisal arena, Got Appraisals created an “Emergency Inspection Team (E.I.T,)” to better service lenders and investors within 24 hours when a natural or domestic disaster occurs. The release noted that the team is comprised of “experienced appraisers and inspectors who are available to be immediately dispatched to any area affected by a disaster. They will be able to assist you with assessing the impact the disaster may have had on any homes in the lending process, or currently in your portfolio.” Got Appraisals is looking for appraisers or firms “interested in being on our Ready List of local appraisers we can count on in the event of a local emergency” – e-maileit@gotappraisals.com.

Oil prices are in the mid-$80 per barrel range, and gasoline in many parts of the nation is sitting at or above $3 per gallon for regular unleaded. This is bad news for anyone who uses transportation, or buys goods that are transported. (Did I leave anyone out?) What do higher oil prices mean for folks in the loan biz? At this time higher oil prices appear to be indicative of higher demand caused by a recovering economy, which in theory will also eventually help the real estate market. In this sense, a strong market for oil is good news for the fortunes of real estate. Many will argue, however, that a) we still have the foreclosure and inventory overhand keeping a lid on values, and b) the higher oil prices will have a negative impact on consumer spending on other goods & services. So higher energy prices may be a result a stronger economy, but they can also slow an economy down, and in fact can contribute to higher inflation which can then cause higher rates, causing another drag upon economic growth.

This past weekend I heard Alan Greenspan speak in Southern California. One of his big fears, in the current economic climate, is the price of food around the world. As nations develop, they move from grain-based foods toward eating more meat, and meat uses more grain per calorie and therefore is more expensive. Food prices have risen markedly lately and, in some cases, are near 2008 highs. This worldwide increase in food prices will likely not have major inflationary implications in most advanced economies where food has a relatively low weight in CPI baskets and where slack in labor markets makes a wage-price spiral unlikely. In contrast, however, food price inflation poses a significant downside risk to economic growth in many developing economies where food accounts for more of the consumption basket. Central banks in some important developing economies could end up tightening monetary policy too aggressively.

The recent move up in interest rates wasn’t unexpected, as the rate markets have been technically bearish since Halloween. But what was not expected was the magnitude of the run-up. So, interestingly, many analysts believe that we have already seen the big move for rates (unless the world stops buying our debt, of course), so although rates are gradually expected to increase for much of 2011, don’t look for any big moves higher. Yesterday, on no real news, 10-year note prices drifted higher on the day and closed up 9/32s to yield 3.61%. It was a quiet session in mortgages as well, with supply around half the recent normal and MBS prices finishing the day about .125-.250 better.

But, after a data-less session yesterday and a light week just past, we have had several reports today. Import Prices were +1.5% month-over-month, Export Prices +1.2%, Retail Sales were +.3%, ex-auto & gas it was +.2%, light but positive, and the Empire State Index came in at “15.43” – jump from the previous month’s. We have some minor news still to go, but after this early news we find the 10-yr at 3.63% and MBS prices worse by about .125.

(True story.)
A middle age guy was walking to his car in a Target parking lot. A young lady in her early 20s is banging on her car key clicker. As he gets closer she is getting more and more frantic. The man walks to his car and looks over his shoulder. Now the girl is in a full panic. The man walks over and asks, “What’s wrong?”
The young lady explains her key will not let her into her car and she’s late for a job interview.
Dumbfounded he asks why she doesn’t just use the key to open the car.
The young lady looks insulted and says, “I’m using the key but it will not work.”
The man takes the key an inserts it into the key slot on the door and opens the car.
The young lady says, “Is that what that’s for?”

 

Rob

Check out

http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman

Jobs, job changes, and lawsuits in mortgage banking; Will Oregon pass this law? Lots of vendor, lender, and agency updates

 

Valentine’s Day…Opinions differ as to who was the original Valentine but the most popular theory is that he was a clergyman who was executed for secretly marrying couples in ancient Rome.

In A.D. 496, Pope Gelasius I declared Feb. 14 as Valentine Day. Through the centuries, the Christian holiday became a time to exchange love messages, and St. Valentine became the patron saint of lovers. Esther Howland, a native of Massachusetts, is given credit for selling the first mass-produced valentine cards in the 1840s, and often candy and flowers are given. According to the census bureau, 24 pounds was the per capita consumption of candy by Americans in 2009. And for flowers, USDA stats show that $359 million was the combined wholesale value of domestically produced cut flowers in 2009 for all flower-producing operations with $100,000 or more in sales. Among states, California was the leading producer, alone accounting for about three-quarters of this amount ($269 million).

And while we’re talking about sweet things, AmeriSave Institutional Lending is recruiting account executives for its West and Midwest Regions. The company, given its focus on technology, is well known for providing both wholesale and correspondent lending to community banks and credit unions – exclusively FDIC and NCUA insured institutions.  AmeriSave has a full range of secondary market mortgage products and a national Full Eagle Direct Endorsement with FHA. Experienced folks with a sales background in wholesale/correspondent lending, mortgage Insurance or agency work should check out this application.

Maybe some of the folks that Wells Fargo just laid off can apply. 142 temporary employees in Des Moines, who were hired to handle mortgage refinancing, were laid off. It is a sign of the times that other mortgage companies are doing the same thing. The number is small relative to the 13,000 employed there. Indicative of other mortgage originators, Wells reported that during the fourth quarter of 2010, mortgage applications in the pipeline were down 27% from the third quarter, and that refinancing represented about 70% of Wells Fargo’s mortgage business in the fourth quarter of 2010. And the St. Louis Post-Dispatch reports that another 200 WFHM employees were laid off in St. Louis. Once again, the workers were temporary employees, specializing in the bank’s Home Affordable Refinance Program.

“A former chief executive of IndyMac Bancorp and two former chief financial officers were accused of securities fraud for concealing the bank’s financial condition.” So the SEC stated in one lawsuit versus IndyMac.

On the other side of the country, Chase has tapped someone new to run its mortgage operation.

Any company, or originator, doing business in Oregon has probably seen this proposed law. It seems that the state legislators are considering a bill that would prevent the sale or transfer of the loan or the servicing by anyone but a bank – it “states mortgage banker, broker, originator,” etc. but leaves out banks.

Here is an article that a few folks have sent to me which presents one opinion about the originator compensation issue. Whether or not the large investors subscribe to this opinion remains to be seen, but it is worth a look.

The much anticipated 31-page “White Paper” on the GSEs was released and held few surprises after being leaked earlier in the week. The three basic options are 1) A privatized system with very limited government backing and a focus on low to moderate income households; 2) A privatized system with a “springing guarantee” that increases government support in times of crisis; and 3) A reduced structure whereby the government only participates in catastrophic reinsurance. The FHA may return to its role as a lender for affordable mortgages, rather than a subprime alternative as many believe has happened.

There is plenty of fodder filling the internet with analysis, opinions, predictions, forecasts, etc. The goals of the government’s plan are to ensure minimal housing & mortgage market disruption, have Congress actually determine the plan, and minimize the impact to the taxpayer while minimizing government subsidization. One of the main concepts will be to replace much of the money from government programs with money from private investors. At this point it is unclear whether or not this will increase rates, relative to where they are now, but most analysts believe that rates will probably be slightly higher, but that down payments may also go up. The effect of increasing the down payment would actually make pools of mortgages safer for investors, and therefore actually serve to push rates down. The proposal also recommends increasing guarantee/guarantor fees, and lowering the maximum loan amount. Decreasing the maximum convention loan from $729k to $625k in high cost areas will impact a certain portion of borrowers. Overall, from an investor’s point of view, the prospects of a decreasing loan size, increasing some fees, and possibly reducing the supply somewhat may actually help rates.

For example, the Community Mortgage Bankers Project believes that the proposal fails to address the current, and growing, market share concentration among a handful of too‐big‐to‐fail, FDIC-insured banks. But the report was useful in providing a road map for how the GSEs will be steered over the next few years – and it will indeed take years although many of the provisions will not require Congressional approval, and so are highly likely to be implemented in the near future. Importantly for investors, the Treasury reiterates several times that it is committed to keeping GSE debt and MBS obligations performing. One report said, “The prospects of a decreasing loan size, increasing guarantee fees, and reduced net supply should all be positive developments for (MBS pricing).

more news on extending HARP?, MIAC strategic partnership, buydown suspension?, Ben-Ezra & Katz, Affiliated Mortgage, Flagstar correspondent, Mortgage SAervices III, NYCB Mortgage Company, Rates, Economy, Economic calendar, and Joke of the Day – click here.

F&F’s future proposals released; More compensation chatter; Wireless tower securitizations; News from MetLife, Chase, BB&T

 

Many guys only know that Valentine’s Day is nearing because their radio stations are playing jewelry store ads. (Here’s your warning: it’s Monday!) And here’s your number for the day: 1,317. That is the number of U.S. manufacturing establishments that produced chocolate and cocoa products in 2008, employing 38,369 people. California led the nation in the number of these facilities, with 146, followed by Pennsylvania, with 115. For this, and other exciting business patterns, go to the Census site.

Word had certainly leaked out about the proposals for Freddie and Fannie that have come out this morning. Reuters broke out the options yesterday for the plans that were presented today. No one is expecting Congress to have something in the near future. One includes an option to create an insurance fund for mortgage-backed securities that is similar to the FDIC. But in general the paper lays out three legislative options for making long-term changes to the U.S. housing finance system, while also taking near-term steps to gradually lessen the government’s role in the mortgage market by making agency loans more expensive. Specific details were released today, and after that Congress, who also produced the Dodd Frank legislation, will be tasked with determining the final plan. Watch out for the battle of special interest groups for many months to come.

The buzzwords on Freddie & Fannie reform seems to be “gradual,” “private sector,” and “no one wants to spook the fragile housing market.” Something tells me that we’ll all be sick of those terms by the time Congress ends up with a plan perhaps this year. Here is the latest synopsis on the issue:WhitePaper

And who can forget RegZComp which is the TILA Reg. Z compensation regulations? This week’s focus has been centered on Section 226.36(d)(2) regarding compensation received directly from the consumer. There appears to be some question about the difference between commissions that might be paid on a transaction versus a base salary or hourly wage for a loan officer. Stay tuned – it certainly is a work in progress!

Kincecta Federal Credit Union weighed in with its compensation guidelines, which are a work in progress. “At this time, Kinecta is drafting guidelines around the following: Kinecta will permit Broker compensation to be either Borrower paid or Lender paid. Not both. For Lender-paid Broker compensation, Brokers will be permitted to determine their own levels of compensation. If a Broker’s Lender-paid compensation will vary by loan type (e.g. FHA vs. Conventional), Kinecta will require the Broker to confirm that the varying compensation levels comply with the Final Rule (i.e. the different levels of compensation are not based on terms and conditions of the loan or constitute a proxy for terms and conditions of the loan). In order to receive Lender-paid Broker compensation, Brokers will be required to provide Kinecta with a schedule of the Brokers’ fees. We will provide a sample schedule of fees for Brokers’ use. The Brokers’ scheduled of fees may not be changed more frequently than quarterly.”
Kinecta goes on. For “Borrower-Paid Broker Compensation,” the “Amount of compensation is negotiated between you and your borrowers. Borrowers may use credits from the interest rate chosen to pay for third party fees, but such credits may not be used to cover any amount of the Borrower-paid Broker compensation. Brokers can lower compensation, pay for tolerance violations or offer credits towards third party costs. Borrower may pay discount points to reduce their interest rate.” For “Lender Paid Compensation,” 100% of the Broker’s compensation must be paid by Kinecta. For purposes of the Final Rule, Yield Spread Premiums will always be considered Lender paid. Compensation must match exactly to Broker’s schedule of fees on file with Kinecta. Borrowers may also use credits from the interest rate chosen to pay for third party fees. Borrowers may pay discount points to reduce the interest rate. Broker may not reduce commission to pay for tolerance violations, credit third party fees or offer other concessions.”

Kevin Warsh, the youngest-ever governor of the US Federal Reserve and one of chairman Ben Bernanke’s “buds,” is to leave the Fed at the end of March. His leaving will remove a “hawkish” voice from the FOMC although he always supported Bernanke. Apparently he is anxious to return to the private sector. Mr. Warsh’s departure may change the balance of the FOMC in favor of keeping monetary policy looser for longer.

MetLife Inc., the parent company of MetLife Bank, reported its 4^th quarter numbers. Profits fell 82%, in part due to derivative losses totaling $1.54 billion. MetLife Bank, which is the mortgage arm, saw its 4^th quarter total operating revenue fall 6% to $355 million as it experienced a decline in mortgage servicing revenue. For all of 2010, however, MetLife pulled in a profit of $2.7 billion versus 2009’s loss of $2.4 billion.

And while we’re talking billions, the California Housing Finance Agency (CalHFA) is now up and going with its “Keep Your Home California” initiative using roughly $2 billion from the U.S. Treasury’s Hardest Hit Fund. Under “Keep Your Home California” are three programs that offer several forms of mortgage assistance and one program that provides transition assistance to borrowers in the process of a short sale of deed-in-lieu transaction: the Unemployment Mortgage Assistance Program, the Mortgage Reinstatement Assistance Program (for homeowners who have defaulted on their mortgage payment due to a temporary change in household circumstance), and the Principal Reduction Program (for houses that have seen a large drop in value). There is also the Transition Assistance Program. I am glad that the money is coming from the Fed, as California is not exactly plush with cash.

“Dolphins are so smart that within a few weeks of captivity, they can train people to stand at the edge of a pool and throw fish.” Remember Bowie Bonds? Bowie Bonds were asset-backed securities of current and future revenues of the 25 albums (287 songs) that David Bowie recorded before 1990. Issued in 1997, the bonds were bought for US$55 million by the Prudential Insurance Company with a yield of 7.9% and an average life of ten years. Royalties from the 25 albums generated the cash flow that secured the bonds’ interest payments. By forfeiting ten years’ worth of royalties, David Bowie was able to receive a payment of US$55 million up front and use the money to buy songs owned by his former manager.

Along those lines, we now have Wireless tower securitizations which are backed by a wireless tower operator’s interest in tower sites and the improvements thereon, tenant leases, and associated rents and revenues, through either a mortgage lien or an ownership interest in a special purpose entity. There are currently six issuers. As one might expect the risks center around decreasing tenant lease renewals, industry consolidation, and the inability to fund the “soft bullet” maturity at the anticipated repayment date (i.e., refinancing risk).

Investor changes continue on. BB&T updated its FHA, VA & non-conforming product lines.Chase Correspondent tweaked its conventional high balance product lines, and also followed BofA, Wells, and others by suspending temporary buydowns.

Looking at the MBS markets, “mortgages opened up unchanged vs. the swaps curve but have failed to keep pace with the rallying treasury market as the flight to quality trade picked up momentum thanks to increased tensions in the Middle East” according to one trader yesterday. Once the 30-year Treasury auction results came out, however, everything pretty much sank. The sale of the $16 billion did not go as well as Wednesday’s 10-yr auction, although it was still mo’ better than the 3-yr auction Tuesday. The bid-to-cover ratio, a measure of demand, was 2.51-to-1 versus 2.67 at the prior auction and an average of 2.55 at the prior four. By the end of the trading day the new 10-year notes closed off/down about .375 with a yield of 3.71%. Mortgage-backed securities, made up of mortgages on current rate sheets, were worse by between .250-.375.

This morning, however, we’re starting off with a bit of a bounce. 10-yr T-notes are down to 3.65%, and agency MBS prices are better by roughly .250. Over in Egypt, Mubarak supposedly relinquished some power, but still not stepping down, although there are rumors that he has left Egypt. But the big focus in the US today will be the Treasury’s release on GSE reform followed by comments from Geithner. It will take years!!

I went to the doctor for my yearly physical. The nurse started with certain basics.
“How much do you weigh?” she asked.
“135,” I said.
The nurse put me on the scale. It turns out my weight is 180.
The nurse asked, “Your height?”
“5 foot 4,” I said.
The nurse checked and saw that I only measure 5′ 2″
She then took my blood pressure and told me that it is very high.
“Of course it’s high!” I screamed, “When I came in here I was tall and slender! Now I’m short and fat!”
She put me on Prozac.
What a b&^%$.

 

Rob

Check out

http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.

Comp updates & penalties for non-compliance; Fannie & Freddie plan’s impact on servicing values & street prices

Sometimes, all you have is your good name.  ‘Harry Baals Government Center’ unlikely

Under “your tax dollars at work,” here’s an interesting tool for anyone looking for information on population trends. The U.S. Census Bureau launched an interactive map that focuses on 2010 Census population counts. The Bureau is releasing the information on a rolling basis through March, with the states completed so far in bold print. Click on “Select Another State” in very small print to see another state. CHECK IT OUT

The latest comp news comes from the National Association of Mortgage Brokers (NAMB), which, through a call-in campaign, apparently has spurred on the House Financial Service Committee to examine the impact the Federal Reserve Board’s recent regulation controlling employee pay will have on loan originators in its Oversight Plan. “In the House Financial Services Committee’s Oversight Plan released today, the Committee will examine the implementation of proposed rules issued by the Federal Reserve governing mortgage origination compensation, which are scheduled to become effective April 1, 2011.”

The MBA already urged delayed implementation

If you’re a loan agent, or any non-hourly profession, are you owed over-time if you work more than 40 hours a week? It depends who you ask, but many HR folks are watching this one:  Quicken  Story

One person not sticking around to see the result is Freddie Mac’s chief operating officer, Bruce Witherell, who quit yesterday. This comes a day after Wells Fargo’s CFO resigned/retired, and before tomorrow’s official release of the Treasury’s Freddie & Fannie proposals.

What happens if a loan originator doesn’t adhere to the compensation regulations? The regulations are spelled out as follows: Section 129B of the Truth in Lending Act is amended by inserting after subsection (c) (as added by section 1403) the following new subsection:

”(d) LIABILITY FOR VIOLATIONS.

”(1) IN GENERAL.-For purposes of providing a cause of action for any failure by a mortgage originator, other than a creditor, to comply with any requirement imposed under this section and any regulation prescribed under this section, section 130 shall be applied with respect to any such failure by substituting ‘mortgage originator’ for ‘creditor’ each place such term appears in each such subsection.

”(2) MAXIMUM.-The maximum amount of any liability of a mortgage originator under paragraph (1) to a consumer for any violation of this section shall not exceed the greater of actual damages or an amount equal to 3 times the total amount of direct and indirect compensation or gain accruing to the mortgage originator in connection with the residential mortgage loan involved in the violation, plus the costs to the consumer of the action, including a reasonable attorney’s fee.”.

One investment banker wrote to me on this and said, “I think it’s referring to the sections regarding the new compensation rules.  I’m not sure if there are other fines though – there must be more guidelines – the government must also be able to bring action to originators – the above seems like penalties directed towards consumers who have been wronged.  I’m not sure if any consumer would ever find out.” Of course, large investors will be approving any plans that are put forth by brokers or any companies that sell loans to them to make sure they adhere. This may create a real problem for a company selling loans to multiple investors, and therefore may have to go through multiple compensation plan approval reviews!

The Fannie & Freddie plans have been well leaked to the press at this point, although anything that is decided upon will takes years to implement. Of great interest to many investors, and especially those servicing loans, iswhat will happen to the value of servicing under the plan, and how this will impact street pricing for originators. (And let’s not forget Basel III simmering out there.) Minds much smarter than mine suggest that existing servicing will be “grandfathered in to the current process/values. Going forward, at some point, however, the minimum servicing fee for newly securitized loans would be reduced from 25bps to 5bps. Concurrent with this lower minimum fee, servicers will only be required to process loans that are less than 89 days delinquent. For the current loans, the Servicer will be allowed to earn the float, late fees and ancillary income; however, it will be obligated to make advances as needed while the loans are less than 89 days delinquent. Loans that are 90+ days delinquent will be transferred to a “Special Servicer” who will be paid on a “cost plus” basis from a pre-negotiated schedule.  This Special Servicer can be another party or a different department within the original Servicer. So writes a trader at BofA/Merrill Lynch.

The suggested outcome goes on. The GSEs (or other “wrapping entity”) may raise the minimum guarantee fee to something in the 40 to 65 basis point range. So perhaps for most servicers, a drop in the servicing fee, combined with an increase in the g-fee, may be somewhat close to a “wash” price-wise. Or perhaps not – it may depend to some extent on how much of the delinquency burden the GSE takes versus the servicer. The Merrill piece suggests that “it make perfect sense to give the economic risk of the entire delinquent mortgage function to the experts who can then charge the correct price versus paying a known DM fee schedule.” Also, since the large bulk servicers are banks that will fall under the new Basel III rules, reducing the capitalized MBSR from 25bps to 5bps will mostly solve the proposed capital restriction issues.

more news on Wells Fargo mortgage division, bond markets, economic news, and Joke of the Day – click here.

Fannie & Freddie & Friday; Mortgage jobs; Heading for an ARM world?; Investor’s views of reps & warrants; Blackrock firing up non-agency biz

 

 

If you think that you’re confused with the mortgage application process, you’re not alone.

Some confusion and conjecturing may end on Friday, when the plan for Freddie and Fannie are presented. “U.S. Treasury Secretary Timothy F. Geithner will present Congress with three options for reducing the government’s role in the nation’s decades-old housing finance system.” One can only imagine how much chatter, lobbying, rumoring, posturing, etc., there will be after the three plans are given to Congress, and it will certainly take years to do anything.

Pundits suggest that the US will have an 8-10 year period to reduce GSE portfolio. Look for a reduction in the maximum loan amount in many areas to about $625,000, a gradual increase in the guarantee/guarantor fees to reduce the total mortgage volume insured by the agencies from 95% currently to something closer to 50%, plans to bring in private money, and for the FHA program to be used for low income borrowers only.

Some companies are contracting, but there continue to be jobs out there. Envoy Mortgage is hiring Branch Managers and MLO’s throughout Colorado, Minnesota, Missouri, Kansas, Iowa and Illinois.  Envoy offers both retail A and B models and has a reputation for state of the art technology and execution, backed by a highly service oriented operations staff.  They are a 2 billion/year, completely digital mortgage banking platform with plans and staff in place to double in the next two years.  Interested applicants should contact Kent Montavon at kmontavon@envoymortgage.com or visit the website at Envoy. 
One job that was not open for very long was Wells Fargo CFO’s. Wells Fargo unexpectedly replaced Howard Atkins, its chief financial officer and who retired for “personal reasons” after 10 years with Wells, with Timothy Sloan, the chief administrative officer.

Don’t resist the urge. From San Diego to Bangor, lenders are dusting off the ARM manuals. The latest application figures from the MBA show that ARM share increased to 5.9% from 5.5% of total applications from the previous week. It doesn’t seem like much, but the number will only increase. Overall, apps last week dropped 5.5%, with refi’s down almost 8% and purchases down about 1%. As a sign of the times, Optimal Blue released Flagstar’s Correspondent Jumbo 5/1 LIBOR ARM, and Jumbo 10/1 LIBOR ARM product lines.

Gee, is it “late breaking news” that the value of any company that has large portion of its revenue from mortgage production would suffer?  Wells story

At some price someone will buy something, and at some yield it makes sense to invest in mortgages. Perhaps giving Redwood Trust a run for its money, a “Blackrock fund is set to approve 10 lenders in its effort to expand into the home loan market.” The fund, set at $1 billion, will provide money for non-agency mortgage originations, with the goal being to package those loans into residential mortgage-backed securities.

The California Public Employee’s Retirement System (CALPERS), which is the nation’s largest, has sued a group of former Lehman Brothers executives and underwriters, accusing them of misleading investors about the investment bank’s condition as the financial system descended into crisis. In a story from The Financial Times, it is “seeking to recover losses it racked up on Lehman shares and bonds that it had bought between June 2007 and September 2008, when the securities firm filed for bankruptcy protection.”  CALPERS has also claimed that Bank of America failed to disclose Merrill Lynch’s financial condition before shareholders had voted on the companies’ merger, and has also sued Moody’s Investors Service for inaccurately assessing the risks of three structured products in which the fund had invested.

more news on reps and warrants, fixed income markets, rates rising, treasury supply, and Joke of the Day – click here

Structural & product line changes at BofA; Fannie & Freddie update; prepayment speeds; critical documents reminder from Citi

 

Rob will return to MortgageNewsClips Thursday.  Here  is a link to today’ post.

Buying a home cheaper than renting? More Q&A on comp; News from 5/3 & Radian; Update on BofA’s potential lawsuit

 

 

Occasionally I am asked by someone to show them “the life of a loan”. Here ya go: (Gotta See)

Let’s see… the US government helps out BofA, and is now asking them to buyback loans? And if BofA settles with them, which they did in part with Freddie, over certain Countrywide loans, what is the resulting impact on the smaller originators who originally did the loans – will BofA come back to them for full amounts? So many questions…but an investor group including  PIMCO, BlackRock, and the Federal Reserve Bank of New York is weighing whether to sue Bank of America Corp. over about $47 billion in mortgage bonds agreed to extend talks with the lender for the second time. Bloomberg reports that the bond owners agreed to renew “their extension of any time periods” laid out in an Oct. 18 letter, set to expire 1/31. Many investors, and groups of investors, are demanding that BofA repurchase loans packaged into bonds. Article here

Fifth Third Bancorp fully repaid its $3.4 billion in TARP funding yesterday, bringing total bank repayments to $243 billion, very close to the total disbursement figure of $245 billion. Treasury officials now estimate bank programs within TARP will eventually deliver a profit of $20 billion. Throw that onto the profit and spreads it’s made on buying $1.25 trillion of MBS’s, and now you’re talking real money.

For some not so good news, Radian Group, the second-largest U.S. mortgage insurer, watched as its stock fell yesterday (over 3% in one day) after reporting a $1.1 billion loss in the 4th quarter. The firm said “uncertainty” over an eventual return to profit forced a write-down of tax assets, fueling a fourth-quarter loss, and included a write-down of $841.5 million on tax assets, based on the possibility of further losses. For the year Radian’s loss widened to $1.8 billion $148 million in 2009.

If you are wondering what to do on February 16^th, why not listen in on HUD’s webinar “HUD-approved Housing Counseling Operation and Funding Overview.”  This webinar will provide information on operational requirements, record keeping & reporting, use of HUD electronic systems, overview of the new HUD Counseling Handbook, etc. It’s free, although registration is required as are computer & internet access.

Recently Trulia compared the median list price with the median rent on two-bedroom apartments, condominiums, townhouses, lofts and co-ops listed on its website, and compared that to ownership costs including mortgage payments, property taxes and insurance. It determined that buying a home is cheaper than renting in 72% of the largest U.S. cities, led by Miami and Las Vegas. People have to live somewhere, right? And if your credit is shot… Trulia’s CEO stated, “Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets.” RealtyTrac has reported that 2.87 million homes received notices of default, auction or repossession in 2010, while apartment vacancies are at a 2-year low. It is no surprise that the top 10 cities where buying is cheaper are all in Florida, Nevada, Texas, Arizona and California, as, except for Texas, those states were among the five with the highest foreclosure rates in 2010.

MND has already warned to watch out for RENT INFLATION

California is cash-strapped. Investment banks billed California an estimated $1.5 million for dues to trade groups, including a municipal-bond lobbying association, since 2005 and will be required to return the money, per state Treasurer Bill Lockyer. “Lockyer ordered 86 firms in the state’s underwriter pool to stop including the dues in their calculation of fees paid out of bond proceeds.”

On to Part IX, and last part, of compensation Q&A – remember that company’s individual policies may differ from these answers some extent. The questions were posed by the MBA to Federal regulators, and there is still a lot of interpretation that will be left up to companies, regulators, and the courts. Many company’s policies will vary as long as there is no ability or an originator to steer the consumer into a less favorable product.

Q30. A broker makes one or more mistakes in a Good Faith Estimate by improperly excluding certain fees and/or including fees at amounts that are below the correct amounts, and because of the tolerances under RESPA, the Good Faith Estimate cannot be revised to add the excluded fees or increase the fees that were disclosed at amounts lower than the correct amounts. Can the broker provide a credit to the consumer at closing to cover the excluded fees or improperly disclosed fees, which is a permissible method under RESPA to cure what otherwise would be a tolerance violation? (In short, under the RESPA rules a creditor may not be able to charge the borrower either third party fees omitted from the Good Faith Estimate or an amount for third party fees that is higher than the amount disclosed in the Good Faith Estimate. Therefore, under RESPA, at closing the lender and/or broker must pay the fees to avoid a tolerance violation.)
A. Fed Response – No. A broker may not adjust its compensation in this manner. The Board regards this as similar to a pricing concession which may not vary per loan. However, the creditor can consider the error in resetting compensation to the originator for future loans.

 

Q31. Under RESPA, any credit provided by the lender is first applied to the creditor’s and broker’s origination charges, and then any remainder is applied to third party charges. If a consumer agrees to pay the mortgage broker and lender directly, and asks the lender to pay some or all third party charges, the RESPA documents will reflect the credit from the lender as paying the lender’s and broker’s origination charges. Is the RESPA treatment of charges and
credits disregarded in all respects for purposes of the loan originator compensation rule?
A. Possible Fed Response – Yes. The treatment of charges and credits for RESPA purposes has no bearing on the loan originator compensation rule. In this situation, for purposes of the loan originator compensation rule, the lender would be considered to have paid the third party charges and the consumer would be considered to have paid the broker’s and creditor’s charges..

Q32. Would the Board consider delaying the effective date of this rule until the Dodd-Frank originator compensation provisions are implemented?
A. Fed Response – No. As the Board stated in the preamble to this rule, the Board believes that the Congress was aware of the Board’s proposal and that in enacting TILA Section 129B(c), the Congress sought to codify the Board’s proposed prohibitions while expanding them in some respects and making other adjustments. The Board further believes that it can best effectuate the legislative purpose of Dodd-Frank by finalizing its proposal relating to loan origination compensation and steering at this time. Allowing enactment of TILA Section 129B(c) to delay final action on the Board’s prior regulatory proposal would have the opposite effect intended by the legislation of allowing the continuation of practices that the Congress sought to prohibit. Through its rule and in follow-up guidance the Board will work to assist compliance with the
provisions of the rule which are to become effective April 1, 2011.
 

Q33. Does the Board plan to implement the Dodd-Frank loan originator compensation provisions on an interim or final basis so that they would also be effective April 1, 2011?
A. Fed Response – The Board will not consider implementation issues.

Economic news pointing to a recovery continued yesterday. (Don’t ask me when we move from “recovery” to “expansion” – I guess when jobs and housing grow, and I don’t know if the housing market is going to grow with the REO and delinquency issues.) Yesterday, after the daily commentary went out, we learned that Factory Orders rose 0.2% in December, and that the ISM Nonmanufacturing Index rose 2.3 points to 59.4 in January, hitting a new recent high. Federal Reserve Board Chairman Bernanke himself said yesterday that the low inflation rate combined with high unemployment would normally push the Federal Open Market Committee to cut rates, if they weren’t already near zero. “Although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain persistently below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate…”

Yesterday a trader reported that he saw, “much better selling early from domestic accounts: money managers selling the basis, hedge funds selling outright and selling the basis via CMM, and a couple smaller blocks of supply from the originators.” Treasuries sold off for the fourth straight session. 10-year notes lost .375 in price and closed at 3.54%. MBS prices fell (worsened) between .250-.375 and, overall, MBS volume was above normal according to Tradeweb. But unlike the December selloffs, when higher coupons did better on a relative basis than lower coupons, traders are seeing the opposite, and now lower coupons are doing a little better. Go figure…

The employment numbers arrived this morning. Nonfarm Payrolls for January were projected to increase about 140k with the Unemployment Rate increasing to 9.5% from 9.4%. Nonfarm Payrolls were only up 36,000, with some back month revisions higher, although the Unemployment Rate dropped to 9.0%. (The discrepancy is due to the BLS household survey population versus the government’s industry survey. But it still points to the fact that these numbers are viewed as “screwy” – is it at 9% due to people giving up looking for work?) Hourly earnings were up .4%, although the average workweek dropped slightly. Say what you will about the numbers, after them the 10-yr shot up to 3.60% and MBS prices are worse by about .375.

A man had 50 yard line tickets for the Super Bowl.

As he sat down, he noticed that the seat next to him was empty.

He asked the man on the other side of the empty seat whether anyone was sitting there.

“No,” the man replied, “The seat is empty.”

“This is incredible,” said the first man.

“Who in their right mind would have a seat like this for the Super Bowl, the biggest sporting event in the world and not use it?”

The second man replied, “Well, actually, the seat belongs to me. I was supposed to come with my wife, but she passed away.

This will be the first Super bowl we haven’t been together since we got married in 1967.”

“Oh, I’m sorry to hear that. That’s terrible. But couldn’t you find someone else — a friend or relative, or even a neighbor to take the seat?”

The man shook his head. “No, they’re all at the funeral.”

Rob

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http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2011 Rob Chrisman.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman