Agencies to Limit Counterparty Risk? HARP and MI; HARP 3.0 on the Way?

One never
knows what is going to happen next here at the MBA’s National Secondary. One
minute you’re meeting with a team of smart investment bankers about their jumbo
product, and five minutes later, on 50th Street, you come upon Ben Stiller in a
gray trench coat and a skateboard filming “The Secret Life of Walter
Mitty.” (Almost as entertaining as delegated underwriting!)

Speaking of
video, we now find more than 50% of
internet usage focused on video applications
. LO’s, lenders, and vendors
are providing video content, and book ads for LO’s (see paragraph near bottom).
As an example, FNC, a national
appraisal software company in Mississippi that standardizes, scores, and
distributes collateral information, produces a weekly video.
(My head spins at the amount of public collateral data information that they
control.) Even the agencies are using video to get the message across:

retail mortgage banker On Q Financial is
looking for an experienced servicing employee
to establish a servicing
function including but not limited to third party servicing oversight, internal
short term servicing, reporting, auditing, and verifying compliance agency guidelines.
Based in Scottsdale, On Q Financial, with 23 offices across the nation and
approved to lend in a couple dozen states, is a Fannie Mae approved
seller/servicer.  Previous experience in servicing and third party
oversight is required, and experience in reviewing ledgers, reports, completing
internal and external audits, and maintaining an active communication with management
is strongly recommended. Candidates should send their resume to Renea Aderhold

In the Washington DC metro area, 1st
Portfolio Lending is staffing up and hiring processors and underwriters
offices in Vienna, VA and Bethesda, MD.  Ideal candidates are those looking
for work in an innovative positive environment.  1st Portfolio Lending is
an independent, privately-owned direct mortgage lender focused on providing
exceptional service to its residential mortgage customers in Virginia,
Maryland, the District of Columbia, Delaware, North Carolina and Florida. For
more information on the firm, visit,
and those interested in submitting resumes should send them to Barbara Evans at

Does the industry, and the borrower, need a  HARP
? That is a loaded question, and to detailed to discuss here but you can
read some thoughts on it at near the top right.

Here at
the MBA’s National Secondary, one of the big topics is monitoring & limiting
counterparty risk
, the current version, with a few twists, of “Don’t put
all your eggs in one basket.” Pipeline hedging firms advise not doing all your
security trades with one broker-dealer, just like a wholesale lender doesn’t
want all its business coming from broker. The CFPB has pretty much said that
financial institutions need to concern themselves with, and in some cases be
responsible for, their counterparties following policies and procedures. One
piece of scuttlebutt from this conference in NY is the possible capping of agency counterparty risk in the form of limiting
sales to Freddie & Fannie based on net worth
. At this point it is a rumor, but if it plays out, it could
severely hamper small independent mortgage bankers in selling large sums to
Fannie & Freddie and help the depositories. Makes sense… if your net worth
is $3 million, and you’re selling $100 million a month to an agency, does the
agency want that potential liability? (Questions about agency approval can be
found on the agency websites such as

commentary mentioned a couple of weeks ago that much of the world’s GDP
strength has the potential of turning over this year through elections. Sure enough,
the Greek elections were the real market driver yesterday, not France’s. 
The two pro-bailout parties, New Democracy and PASOK, suffered material
setbacks at the polls, both doing worse than many anticipated.  It looks
like the two may be able to form a coalition government that would barely give
it a parliamentary majority (some estimates think a coalition of the two
parties would have 153 seats out of 300) although it isn’t clear if such a
dynamic could survive (a 3 seat majority would make for an extremely unstable

But I do
my best to avoid politics in a commentary about mortgage banking, but sometimes
one can’t help it. The political path between now and the November elections is
relatively clear: only minor new
legislation is expected to come out of Washington
, Mitt Romney will
challenge the Democratic incumbent Barack Obama for the White House, the
Republicans will look to defend their hold on the House of Representatives and
will attempt to wrest control of the Senate from the Democrats. At the end of
the year, only seven weeks after the election, we have the scheduled sunsetting
of the Bush tax cuts, worth hundreds of billions of dollars per year, the
expiration of the 2%-point payroll tax holiday and emergency unemployment
compensation, and the automatic budget cuts written into the Budget Control Act
as penance for the Supercommittee’s failure to reach agreement last fall. All
told, under current law, through a combination of tax hikes and spending cuts, fiscal policy is set to tighten by over
$500 billion at the beginning of next year. Not only is that an enormous
sum-almost 4% of GDP-but it is all set to occur at a single point in time.

Our GDP is only 2.2%, and you don’t need a 3rd grade number line to tell you it
would put GDP into the negative. What Superhero will keep these events
combining to put the U.S. into a recession or depression? It probably won’t be
a Superhero, but instead Congress kicking the proverbial can down the road by
changing the laws so that most of the tightening of fiscal policy will be
temporarily or indefinitely deferred to future years. Neither Republicans nor
Democrats have an incentive to throw the economy into recession, so the odds
are good they’ll just extend things. But, of course, the public doesn’t like
uncertainty, or the games Congress plays. And maybe, if the Mayans are right
about the end of the world, we won’t have to worry about it anyway.

I received a few notes regarding HARP
and MI cancellation
. “Because MI’s are simply modifying the existing
coverage, there are no changes to the coverage percentage and premium
rate.  Of course while the premium rate itself does not change, the
premium rate may be applied to a new loan amount. Any increase or decrease in
the loan amount may affect the premium amount accordingly. While it is true
that the clock for automatic cancellation is reset at the point that the new
loan is certified, the Homebuyers Protection of 1998 requires automatic
cancellation at either 78% of the new value OR at the midpoint of the new
loan’s amortization period, whichever comes sooner.  So, in a 30 year
mortgage example, the MI would drop off at 15 years (provided the borrower is
current) at worst regardless of the LTV.  The MI position on cancellation
is simple:  any borrower paid MI policy is cancellable by the insured
(lender) at any time.  For the insured, they very well might want to keep
MI on an underwater loan until they feel the risk is decreased enough to
warrant cancelling it. All of that written, your reader is absolutely correct
that a full cost/benefit analysis should be done for any borrower considering
the HARP 2.0 program.”

And another: “We are already getting calls asking us when does the MI drop
off a HARP loan.  On primary residence – HOEPA would go into play – and
after that – it is the servicer that decides when to cancel the MI.  The
MI companies do not dictate this.  And second and investment
properties do not follow under HOEPA and would be decided by the servicer.”

And lastly: “With reference to the MI and HARP…Does one really think the
MI companies are going to release MI on a HARP refinanced loan within the
original 7 years? Even without HARP, releasing MI is not automatic.”

commentary started off discussing the use of videos. I can’t publish every ad, of
course, but received this from an old acquaintance: “Whether you are a loan
officer or a big lending company, you need to market, and video is the most efficient
marketing tool out there today.  Online video helps SEO, lead conversion
and credibility issues, plus it’s cheaper than ever to produce.  But you
have to make it interesting to watch. Check out the new book “Video Marketing
For Dummies” created by Kevin Daum.  It tells you everything you need on
how to create, post, and promote great business videos.  It even tells you
how to stay out of copyright trouble.  (No you can’t use that song by the
Clash!)  Check out this hilarious video for the book: (Cat and Baby lovers
beware.)” Here is the Amazon link:

markets barely budged yesterday, and the 10-yr is right where it started at
1.88%, which is a good thing since we have enough other “stuff” to worry about.

12 Things I’ve Never Said Regarding Air Travel
1. Oh, thank goodness. I have the middle seat! I LOVE THE MIDDLE SEAT.
2. Man, this food is delicious.
3. These security measures are so darn efficient.
4. That TSA agent was as gentle as she was attractive. (Note: I can actually
see how this could be said, albeit not in a complimentary way).
5. The stranger who is seated next to me is being incredibly respectful of my
personal space.
6. He also smells wonderful.
7. Aww, did you see all the wonderful people who jumped up to help that woman
place her bag in the overhead compartment? Humanity is great.
8. I love flying. We should do MORE of it.
9. You know, they really give you TOO much legroom.
10. I can’t believe how little we paid for these tickets.
11. I think wearing just socks to the airplane lavatory is a great idea!
12. Yay! We landed early AND we have a gate!

…(read more)

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