First Horizon’s Buybacks; Buyback Legal Chatter; Basel III and Construction Loans; Congress Snubs Small Business?

I have been subtly warning groups during speeches, and writing in this commentary, about the implications of Basel III. Most of the focus is on servicing & the value of it. But did you know that under the new Basel III rules, construction lending would likely go into the “high risk commercial real estate” category and require a 150% risk weighting? “Lenders would seek deals where a developer would contribute a substantial amount of cash equity; while banks would be less likely to let developers rely just on the equity from appraisals” per American Banker. And the government and the Fed are asking why banks aren’t lending? This is just another reason.

Last month we sold the house where my kids grew up, and I had a handyman remove the doorframe where we marked heights on birthdays. I am not mentioning this to turn the daily into a Hallmark card, but because it reminded me of one thing that the press seems to forget: a house is a home and not a share of stock. And when it comes to that, the popular press seems to forget that people need a place to live, that people want a good school district for their kids, a place to get to know the neighbors, a place to create an emotional attachment. I could go on and on, but there are very concrete reasons why people who are underwater on a house still make the payments, why many who supposedly saw the real estate decline didn’t sell their home, and why so many people don’t care about minute fluctuations in the price of housing based on the latest metric.

I’ll get off my soapbox, and get on with business: I think that the last time the S&P/Case-Shiller Home Price Index went up was during the Eisenhower Administration – until now. Seriously, for the first time in eight months the S&P/Case-Shiller Home Price Indices rose over levels of the previous month.  Data through April 2012 showed that on average home prices increased 1.3% during the month for both the 10- and 20-City Composites. Prices are still down 2.2% for the 10-City and 1.9% for the 20-City over figures for one year earlier but this is an improvement over the year-over-year losses of 2.9% 2.6% recorded in March. This report followed Monday’s news that New Home Sales jumped 7.6% in May to 369k and was up 19.8% from a year ago, and last week’s Existing Home Sales, Housing Starts and NAHB HMI which all contained some positive signs.

How’s this to grab one’s attention: “Congressional Subcommittee REFUSES Small Business Brokers and Appraisers a Seat at the Table.” The notice from the NAIHP goes on, “For the second time in a week, the Subcommittee on Insurance, Housing and Community Opportunity, Chaired by Rep. Judy Biggert (R-Illinois), refused small business housing professionals the right to be represented during Congressional testimony.” Here you go:

Yes, there are plenty of rumors that the agencies are hotly pursuing buybacks to recoup taxpayer losses, and that the agencies are losing personnel except for QA & auditing. But that reasoning doesn’t help companies like First Horizon National Corp. It “cited new information it recently received from Fannie Mae as the basis for incurring the $272 million charge this second quarter. About $250 million will go to repurchase loans made with “inadequate or incorrect” documentation, and $22 million is being charged to address pending litigation.” I don’t make this stuff up.

Last week I received a legal question about buybacks. “I was asked by a former customer of a major investor’s correspondent lending group about how others are handling repurchase/make-whole requests on older vintage loans.  His experience has been that the investor will ask to be reimbursed for losses associated with loans that have been foreclosed and disposed of without being given an opportunity to refute the alleged rep and warrant deficiency.  He has had to hire a law firm to argue each of these requests and the major investor has backed off each time. Normally, when a correspondent is still active, there is obviously leverage against the correspondent under an implied or actual threat of being terminated as a customer if a make-whole is not made, and when an investor is no longer in the correspondent business, I’ve heard rumors of it being more inclined to back down but sometimes taking a former customer to court or ‘saber rattling’. Needless to say, it is expensive to have a lawyer prepare a rebuttal to a make-whole request, just to have the investor ultimately back-off – what to do?”

I turned this over to attorney Brian Levy, who wrote, “Your question about investor willingness to sue originators over repurchase claims is difficult to answer with specificity.  My clients have been able to settle and/or avoid litigation in every engagement that I have undertaken in this area. That does not mean, however, that the threat of investor repurchase litigation over individual loans is not real or that litigation is not occurring, but it has been my experience that these disputes can be resolved (or dismissed) through extensive and detailed settlement negotiations and information exchange.  Litigation over individual repurchase claims may be fairly unusual now, but so were repurchase claims entirely prior to 2007-2008. Due to the unique nature of each originator’s position and the facts around applicable repurchase claim(s), however, it would be reckless to assume one will not be sued on specific claims based on what is generally occurring in the industry or based on what may have been past investor appetite for litigation (although these are important elements to consider in one’s strategy).”

Brian goes on. “For example, much depends on the facts and circumstances of the loan(s) in question, whether there are any other relationships between the parties that can be leveraged (loans in the pipeline, warehouse lines etc.) the overall quality, stability and reputation of the originator and, significantly, the parties’ tolerance for risk, availability or need for reserves and the desire for finality.  Moreover, investor and originator appetite for lawsuits may change over time as strategies can change in organizations and as the few cases that have been filed begin to yield decisions that are more or less favorable to one side or another. Even the tenor of discussions or lack of attention to the matter can impact a party’s willingness to file a lawsuit. All of these issues should be explored with legal counsel as part of an originator’s comprehensive repurchase management strategy.” (If you’d like to reach Brian Levy with Katten & Temple, LLP, write to him at

Here are some somewhat recent conference & investor updates, providing a flavor for the environment. They just don’t stop. As always, it is best to read the actual bulletin.

Down in California, it is time again for the CMBA’s Western Secondary conference. (I’ve been wandering around that San Francisco conference since 1986 – if those halls could talk…) The CMBA has presentations on “QM, QRM, the CFPB, Agency Direct Delivery – Reviving the Lost Art of Servicing Retained Execution, Compliance issues Facing State Licensed Mortgage Banks Today and How Regulatory Change will Impact Your Business and the Secondary Market, Manufacturing Quality – Steps to Produce a Quality Loan (Operation Focus),” and several other topics. Check it out.

In light of the increasing number of non-conforming transactions where the departure residence is retained by the borrower and is in a negative equity position, Wells Fargo issued a reminder that underwriters must weigh any and all risk factors evident in the loan file.  Each case should be weighed individually, as there are only so many situations underwriting guidelines can predict.  The Wells Seller Guide now states that, in a case where the departure residence won’t be sold at the time of closing and is in a negative equity position, paying down the lien or using additional reserves to cover the negative equity may be required to reduce overall risk.

Wells has issued another reminder that a signed Borrower Appraisal Acknowledgement is required for all loans.  The Acknowledgment, whether it’s the Wells-issued form or a custom document, must include the property address, complete lender name, borrower name, borrower signature, and borrower signature date.  If the form has checkboxes where the borrower can make a choice, these boxes must be ticked.

Due to changes to FHA Single Family Annual Mortgage Insurance and Up-Front Mortgage Insurance Premiums announced by HUD back in March, one of which requires lenders to determine the endorsement/insured date of the FHA loan as part of a Streamline Refinance transaction, Refinance Authorization results will need to be submitted to Wells with the closed loan package.  These results are necessary to ensure that the accurate MIP was applied.  This applies to all FHA Streamline Refinances with case numbers assigned on or after June 11, 2012, while loans purchased through Pass-Thru Express are excepted.

Wells’ government pricing adjusters are set to change on July 2nd.  For VA loans with scores between 620 and 639, the adjuster will go from -0.750 to -1.500.  The adjuster for loans with scores between 640 and 679, currently at -0.250, will change to -0.500.  This affects Best Effort registrations, Best Effort locks, Mandatory Commitments, Assignments of Trade, and Loan Specified Bulk Commitments.

How sensitive are our markets to European news? Sure, instead of buying our 10-yr yielding 1.65% you could buy a Spanish 10-yr yielding 6.74%. But there is instability, evidenced by this note from an MBS trader yesterday: “News of Merkel stating Europe would not have shared liability for debt ‘as long as she lives’ caused Treasuries to immediately surge higher, only to be met by better real money selling of 7s.  While the selling did help to stall the rally, the true relief didn’t come until Reuters posted a correction to its initial release, re-quoting Merkel as having said Europe would not have ‘total shared’ liability for debt as long as she lives.  The amendment took Treasuries off the highs ahead of the 2yr auction…”

Say all you want about the market, bond prices and yields are not doing a whole heckuva lot. Tuesday the 10-yr closed at 1.63%, very close to where it’s been all week, although there was some intra-day volatility blamed on Europe. (European problems will be with us for years, and paying attention to intra-day swings can become wearisome after years…) For agency mortgage-backed securities, volume has been around “average” all week, with the usual buyers (the Fed, hedge funds, money managers, overseas parties) absorbing it. Up one day, down another – yesterday was down/worse by about .250, which was about the same as the 10-yr T-note. We could have been helped by the Conference Board’s Consumer Confidence index which dropped for a fourth straight month, to 62 from a revised 64.4 in the prior month, but nope.

No one is getting any younger… (Part 1 of 2)
I very quietly confided to my best friend that I was having an affair. She turned to me and asked, “Are you having it catered?” And that, my friend, is the definition of ‘OLD’!

Just before the funeral services, the undertaker came up to the very elderly widow and asked, “How old was your husband?”
“98,” she replied. “Two years older than me.”
“So you’re 96,” the undertaker commented.
She responded, “Hardly worth going home, is it?”

Reporters interviewing a 104-year-old woman:
“And what do you think is the best thing about being 104?” the reporter asked.
She simply replied, “No peer pressure.”

I feel like my body has gotten totally out of shape, so I got my doctor’s permission to join a fitness club and start exercising.  I decided to take an aerobics class for seniors. I bent, twisted, gyrated, jumped up and down, and perspired for an hour. But, by the time I got my leotards on, the class was over.

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ING Waves the White Flag; Why Relying on the Fed to Keep Rates Low is Not a Good Thing

morning presented a real quandary for me: lead off with yet another investor
baling and sailing, discuss the umpteenth rumor that Wells Fargo is exiting
correspondent lending (for an extra twist, this time attributed to some Wells’
retail LO in Florida!), or a reminder that mortgage rates are determined by
supply and demand (yesterday “the market slipped away faster than Bill
Clinton’s wedding vows”) – leading to a sell-off and a huge lock day. (Read: FOMC Minutes Show Waning Enthusiasm For QE3. Bonds Tank.)

One – “What’s in your wallet?” Obviously not mortgage companies, given its history with lenders such as Hibernia,
GreenPoint/Northfork, Chevy Chase, and now ING. Yes, the industry lost a jumbo
wholesale buyer yesterday
when clients were notified: “ING Mortgage will cease
the origination of home loans through mortgage brokers.
This email serves as
official notification of the termination of the existing Broker Origination
Agreement between your company and ING Mortgage. This termination is effective
at 6:00 PM Pacific Time on April 3. As part of the shut-down of the mortgage
broker channel and the termination of our Agreement, you have until 5:00 pm
Pacific Time on May 3 to submit loan applications currently in your possession
that were taken on or before April 3. Any approved home loan applications
submitted on or before 5:00 pm Pacific Time on May 3 must be closed and funded
by 5:00 pm Pacific Time on July 2, 2012.”

ING has
been on a move to reduce risks to its balance sheet, and in the highly regulated and lawsuit-filled mortgage industry, mortgage
production is apparently viewed as a risk it can do without. ING has other
issues, and is viewed to be in trouble since 2008 – especially with its holdings of debt from Southern Europe. Its CEO said
the company’s banking arm plans to return to a more traditional approach,
relying more on funding from retail depositors and less on financial markets,
and investing more in business loans rather than in financial products
developed by other banks. “Given the ongoing crisis in the Eurozone and
increasing regulatory capital requirements, we need to take a cautious approach
and pay special attention to liquidity,
funding and capital

the markets bounced back somewhat overnight (Read: With FOMC Minutes Out Of The Way, Employment Data In Focus), yesterday afternoon we were all
reminded that supply and demand
determine, to a large part, mortgage rates
. So when demand shrinks (the
Fed’s future reduction in buying agency mortgages, or at least its expected
appetite in the future for them), prices drop, and rates go up. Stocks also
took a tumble (they don’t always move in lock-step with bonds), and commodities
(like metals and oil) sold off as the dollar strengthened. The mid-March FOMC
meeting minutes signaled lower expectations for QE3 or other near term Fed
stimulus actions.

We are
reminded that the Federal Reserve has been propping up the entire U.S. economy
by buying about 60% of the government debt issued by the Treasury Department.
Many viewing it as moving money from one pocket to the other, and creates the
false appearance of limitless demand for U.S. debt. And we still have our
budget problems, right?

debt, and securities backed by mortgages, isn’t the only debt being issued.
Remember “junk” bonds? First of all, they never went away – someone, or some
company, always needs to borrow money at a higher rate since the lender wants
to be compensated for the higher risk. Secondly, just like garbage men became
sanitation engineers, junk bonds become part of the “high yield” market. I
bring this up because investors in debt are always looking at different
instruments with different yields, and these various bonds all compete with
each other for a limited amount of investor dollars.

During the 1st quarter the US high-yield market had its largest quarter ever
with nearly $92 billion being issued, while investment-grade volume of $294
billion was the largest first quarter on record and the fifth largest quarter
ever. On the supply side, record low rates have encouraged issuers to continue
to refinance debt, setting their sights on their 2014, 2015, 2016 or even
longer maturities, per Thomson Reuters Data. On the demand side, meanwhile,
record low yields on US Treasuries have left high-yield bonds as the only
sector where many investors believe they can find an adequate return on risk.
So not only are residential borrowers refinancing to take advantage of lower
rates, but companies are as well.

Wells Fargo’s mortgage operation, now
apparently with a market share at or above 30%, has been subject to rumors for
years. It seems that
every time a player exits, people wonder, “Is Wells next?” I have no insider
knowledge, other than to observe that the company has repeatedly denied
withdrawing from any origination channel, views mortgage originations as a way
to feed the bank new customers (and then cross-selling them on other services),
and seems to have been successful in “erring” on the conservative side of
things for the last decade. This also may
include, in the future, tightening restrictions and/or minimum requirements for
doing business with Wells
, such as net worth, volume, quality, or product

knows a thing or two about applications, but the MBA knows more, and it
released its figures for last week that includes 75% of retail originations. Applications were up almost 5%, the first
rise since early February
, and led by purchase apps (up over 7%). “Applications
to buy a home picked up last week
, and are running more than two percent above
the level reported at this time last year,” per Michael Fratantoni, MBA’s
vice president of research and economics, and “Home purchase applications
for conventional loans are now about 10 percent above last year’s level.”  Refi’s are down to 71.2% of applications –
they couldn’t last forever, right?

Is the U.S.
economy really picking up steam
? Plenty of smart folks think it is, and it is
hard to argue with them. An expanding economy can put upward pressure on
interest rates. And as we saw yesterday, the belief that the Fed may think
things are picking up, and therefore not feel the need to support the economy
as much as it has been, can move markets. But time has begun to take its toll
on the federal budget. After years of kicking the can down the road and
ignoring the long-run warnings from numerous Social Security commissions (as
well as others), we are running out of road. At this point in prior recoveries,
the federal deficit had clearly been lower and improving more rapidly than the
current recovery. Now, the aging of the baby boom generation and the weak pace
of the recovery have produced current deficits in cash flow for Social

On top of
that, our continued dependence on foreign capital inflows and the assistance of
the Federal Reserve produce the problem of “interest rate sensitivity in the
budget.” A return to “normal” interest rates would produce a rapid rise in
federal debt service that would increase the burden of the debt. The burden of
40 plus years of overpromising by political policymakers will not be solved by
the current modest pace of the recovery. And economists point to job gains
during the current recovery being dramatically inferior to the jobless
recoveries of the past. (This brings up a discussion of the globalization of
production and the growth of emerging market economies, competitiveness, productivity,
capital, labor, and skills beyond the scope of this simple mortgage commentary.)
Suffice it to say, the economy might be doing better, but there are plenty of reasons
it might falter.

A few
weeks back, in the Wall Street Journal Lawrence Goodman wrote that, “The
conventional wisdom that nearly infinite demand exists for U.S. Treasury debt
is flawed and especially dangerous at a time of record U.S. sovereign debt
issuance…in recent testimony before the Senate Budget Committee, former Federal
Reserve Board Vice Chairman Alan Blinder said, ‘If you look at the markets,
they’re practically falling over themselves to lend money to the federal government.’
Sadly, that’s no longer accurate. It is true that the U.S. government has never
been more dependent on financial markets to pay its bills. The net issuance of
Treasury securities is now a whopping 8.6% of GDP on average per annum-more
than double its pre-crisis historical peak. The Fed is in effect subsidizing
U.S. government spending and borrowing via expansion of its balance sheet and
massive purchases of Treasury bonds. This keeps Treasury interest rates
abnormally low, camouflaging the true size of the budget deficit.” Goodman
notes what every family budgeter knows: “the Fed must stabilize and
purposefully reduce the size of its balance sheet, weaning Treasury from
subsidized spending and borrowing. Second, the government should be prepared to
lure natural buyers of Treasury debt back into the market with realistic
interest rates. If this happens, the resulting higher deficit may at last force
the government to make deficit and entitlement reduction a priority.”

As noted
above, the mid-March FOMC (Federal Open Market Committee) meeting minutes were
released yesterday. As for the statement itself, clearly the market took it as
a surprise: 10-yr T-notes sold off over 1 point and mortgage lenders
issued numerous rate changes. It appears that there is a clear shift in stance
where in status-quo no longer requires easing. The minutes have now exposed
that the markets are going to need more than just talk in order to believe that
the Fed is willing to do more easing.

But if
anyone is looking for rates to go back down, they’ll have to hope for greater
European budget woes, an extremely weak jobs report, or continued housing
problems. Be careful what you wish for! But rates bounced a little overnight on
weak European data and poor Spanish auctions. Here in the States the ADP number
showed job growth of 209k, which really didn’t move the markets, but the 10-yr
is down to 2.24% and MBS prices are better by (FNMA 3.5 +11 ticks / +0.33)  than Tuesday’s closing

“Backwards and forwards” means I know everything about you.
You don’t have to wear a watch, because it doesn’t matter what time it is, you
work until you’re done or it’s too dark to see.
You don’t PUSH buttons, you MASH ’em.
You measure distance in minutes.
You switch from heat to A/C in the same day.
All the festivals across the state are named after a fruit, vegetable, grain,
insect, or animal.
You only own five spices: salt, pepper, mustard, Tabasco and ketchup.
The local papers cover national and international news on one page, but require
6 pages for local high school sports and motor sports, and gossip.
You think that the first day of deer season is a national holiday.
You find 100 degrees Fahrenheit a bit warm.
You know what a “hissy fit” is.
Fried catfish is the other white meat.
We don’t need no dang Driver’s Ed. If our mama says we can drive, we can

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Aurora Bales and Sails; Wells Fargo Expands Globally

n the interesting
side, per the FDIC, there were no new banks created in the US in 2011, making
it the first year since at least 1984 that the country has gone without the
establishment of a single start-up lender. The Financial Times reports that none
of the three new banking charters reported by the US FDIC for 2011 were de
novos. That is compared with three de novo banks reported in 2010. (A de novo
bank is a freshly chartered bank that has not been created through the takeover
of an existing institution.)

On the
minus side of things, “Valued Customers, Aurora Bank has made the decision to close its Residential Lending unit
which includes its Correspondent Lending business. Aurora Bank continues to
service its current mortgage customers. We are no longer accepting new loan
registrations or locks.  We are committed to processing locked
applications in the pipeline through to final disposition. Please note that
lock extensions will not be granted.  We will continue to be staffed to
support your needs and ensure a seamless experience for you and your
customers.” (“Seamless”? Words are interesting things…)

On the
plus side, there are expanding companies. Houston’s
First Continental Mortgage Company is looking to aggressively grow their retail
origination channel by adding seasoned retail originators, branches and
company acquisitions. The company has a strong builder presence across the
Southeast, Southwest and the state of Texas and is targeting retail expansion
across this lending footprint. Founded in 2002, it funded approximately $1
billion in 2011 and has Fannie Mae Seller/Servicer and Ginnie Mae issuer
approvals. FCM is financially strong, has significant liquidity and
consistently profitable. Visit for more information and contact Paul
Peters, CMB at to discuss opportunities.

On the
minus side, last week Grand Bank of NJ
was rumored to have been placed under some type of written order. Written
orders do not help mortgage subsidiaries of banks – in this case ICON Residential Mortgage, so we will
see how this plays out.

On the
plus side, last month O2 Funding became
part of New Penn Financial, which is, in turn, a wholly owned subsidiary of Shellpoint
Partners (PA). New Penn is licensed in 41 states and “Its affiliation with
Shellpoint Partners will allow New Penn to continue to originate Agency loans
while expanding its products to include Non-Agency loans” – so thanks
Shellpoint. (If you want more information contact Omar Cantillo at

On the
minus side, Friday the Georgia Department of Banking & the FDIC shut down Global
Commerce Bank – which starting today will be Metro City Bank.

On the
plus side, we’ve become accustomed to the FDIC shuttering banks on Friday
afternoons. I can’t say that every bank ever shut down was under a written
order of some type by regulators leading up to its demise, but it would
probably be a safe bet. There are, of course, varying degrees of written orders
issued by state and federal bank regulators, but one notable success story is
that of HomeStreet Bank’s recent
successful IPO
. Like many community banks, HomeStreet ran into the 2008
buzz saw as construction lending came to a grinding halt and builder defaults
overwhelmed the organization. Shortly thereafter, it was placed under a
regulatory order, which is fatal in the vast majority of such situations – but
in this case, under some new mortgage leadership, its mortgage division was so profitable (twice the average of its bank
peers, which are in turn twice as profitable as independent mortgage banks on
average) and well managed that the regulators gave the bank some time to work
out their troubled loan portfolio
. One industry vet believes that, “The
mortgage division kept the parent bank afloat until HomeStreet was able to pull
off an IPO two Fridays ago – I believe that it is the only community bank that
has been able to recapitalize via the IPO route.” (For more information and the
S-1, go to EDGAR, HomeStreet, Inc., symbol HMST, Washington State.  The
FWP is dated 2/8/12 and the entire S-1 under registration # 333-173980 and
333-179484 dated 02/14/12. The whole story is contained on the first 16

On the
interesting side, it seems Wells Fargo
has decided to expand globally.

Also on
the interesting side is that Banc Investment Daily reports that in California “Kinecta FCU and NuVision FCU announced
their Boards had mutually decided to terminate their merger agreement that
would have created a $4.4B credit union. The amount of time required to get
regulatory approval, integrate the companies and final review were simply too onerous
and too disruptive to their members.”

And lastly,
I received this note: “I found your recent posts regarding Provident’s decision
to no longer accept low-rise condos and limit hi-rise condos to a few specific
markets interesting. In particular, I’m referring to the statements that
Provident, because it offers such low rates, is looking to lower its costs and
improve their execution in the secondary market.  In contrast, InterBank Mortgage, a direct seller who
closed over $1 billion in wholesale last month alone, continues to offer condos
to its brokers/bankers. (For information on getting approved with InterBank contact
Phil Grossfield at

Last week
the commentary mentioned issues with UCDP,
and I received this note: “The problem with the UCDP, supposedly, is the vendor
that FNMA and Freddie contracted with to build the technology and converting
.pdf’s to MISMO was counting on a solid revenue stream. It appears,
however, that most lenders are working with vendors that are already providing
the appraisals in a data format that can easily be piped directly to the UCDP,
obviating the necessity to convert .pdfs. The rumor is that the original vendor
has lagged in the people and technology to have the UCDP functioning as
promised – even the registration process to the portal, which was supposed to
be a 2-3 day process, is dragging on for weeks.” (Editor’s note – I have not
verified this.)

the HUD suit against BofA over, among other things, requiring certain
information on disability income, Barbara Werth of Mortgage Training Today observes, “I just did a case study on that
for my class and the main thing that was in dispute was not that they had to
provide proof of the three years, but that B of A required the doctors to state
the nature of the disability.  They had to list the actual medical
condition and that is what caused the problem.  FNMA guidelines do require
that the 3 years be documented, but nowhere in the guidelines does it state
that the nature of the disability be disclosed or is required.  B of A had
a condition on the loan approval that the actual disability be documented.” For
thoughts write to her at

There is always plenty of blame to go around, and on the agency’s role, or lack
thereof, S.W. from Sovereign writes,
“As many of us who work or worked for the agencies know, another
interesting note on the GSE situation is that if one looks at the book of
business the GSE’s own that was originated to their own underwriting standards,
it is still performing within expectations (I haven’t seen the actual numbers
in about 10 months, but the difference was stark at that time).  In order
to meet the affordable housing goals that Mike mentioned in your commentary
Friday, both agencies began buying private-label subprime pools of loans and
MBS that were issued by entities whose underwriting standards and guidelines
the GSE’s didn’t know, didn’t understand and couldn’t control or influence. I’m
not suggesting that the GSE’s be let entirely off of the hook, but I am saying
that the full picture that illustrates Mike’s points isn’t revealed until one
looks at the performance of the GSE-originated books vs. the performance of the
GSE-purchased books. That’s when the damage of the government Affordable
Housing Initiative mandate really reveals itself.”

Here’s a
nice write up on agency guarantee fees. By the way, for a more in-depth look
at what the future role of the agencies might be like, given the druthers of
FHFA, go to

nothing quite like curling up with a good book on a cold winter night. With
this in mind, the MBA has rolled out the “2010 HMDA Originations Summary DataBook” at a new, lower price
of $475 for MBA members and $995 for nonmembers. “Home Mortgage Disclosure
Act (HMDA) data are the most comprehensive source of loan origination data and
a valuable market intelligence tool. Learn how MBA’s research team can provide
you with timely and targeted HMDA data reports to help you formulate your
business strategies through better understanding of your market, enabling you
to discern business strengths, identify market share and target areas for
improvement. The 2010 HMDA Mortgage Originations Summary DataBook includes a
collection of summary origination reports such as origination totals by state,
origination totals by state and purchaser type, origination totals by
state/loan purpose/loan type and the Top 100 lenders for each state ranked by
origination volume.” Operators standing by:

the biggest economic report this week will be the employment data on Friday, we
have some other thrill-packed numbers first. ISM Services and Factory Orders
will be released today, zip on Tuesday, Wednesday holds the usual
pre-employment-Friday ADP data (on private jobs) and some productivity &
unit labor cost information, and on Thursday is Jobless Claims. The Trade
Balance is also scheduled for Friday. In
the early going, and with things pretty quiet in Europe, we have our 10-yr. at
1.98% and MBS prices roughly unchanged. – View MBS Prices

(Part 1 of 3)
Two Irishmen walk into a pet shop in Dingle, they walk over to the bird section
and Gerry says to Paddy, “Dat’s dem.”
The owner comes over and asks if he can help them.
“Yeah, we’ll take four of dem dere little budgies in dat cage up
dere,” says Gerry.
The owner puts the budgies in a cardboard box.
Paddy and Gerry pay for the birds, leave the shop, and hop into Gerry’s truck
to drive to the top of the Connor Pass.
At the Connor Pass, Gerry looks down at the 1,000 foot drop and says, “Dis
looks like a grand place.”
He takes two birds out of the box, puts one on each shoulder and jumps off the
Paddy watches as the budgies fly off and Gerry falls all the way to the bottom,
killing himself stone dead.
Looking down at the remains of his best pal, Paddy shakes his head and says,
“Sod dat. Dis budgie jumping is too sod’n dangerous for me!”

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PHH Restructuring; MBA Classes; Servicing Comp Change Bearing Away; Harsher Fraud Penalties Coming?

The e-mail
wires here in Miami have been burning up with…e-mails.

PHH clients received a note from Norm
explaining the recent restructuring. “I am writing to let you know we
recently decided to reallocate resources from our Correspondent Lending channel
to our Private Label Solutions and Real Estate Field Sales distribution
channels. Although this action will reduce our Correspondent Lending volume, I
want to be clear that we are committed to Correspondent Lending and will
continue to participate in the business with a renewed focus on our high
quality and long term customers. We made this decision in response to ongoing
challenges posed by the volatility in the global economy, the capital markets
and the housing markets. We believe these market uncertainties require an
increased emphasis on liquidity and cash-generation. While our company focus
may shift and adapt with the current market environment, our priorities remain
the same, including an unwavering commitment to customer service.”

Lenders One clients also received a note
about PHH
, recently downgraded by S&P (join the club!), under
investigation by the CFPB, and which carried out significant layoffs earlier
this week. “Given the potentially serious nature of the situation, we have
endeavored to find out as much as possible so that we could share tangible
information with the Members.  However, we also want to avoid spreading
rumors or providing misinformation. To that end, we can think of no better way
to ensure the most accurate distribution of information than to invite each of
you to participate in the upcoming PHH
earnings call
which, fortuitously, is scheduled for next week…’PHH
announced plans to release its fourth quarter 2011 results on Monday, February 6,
2012, after the market closes. The Company will host a conference call at 10AM
EST on Tuesday, February 7, to discuss its fourth quarter 2011 results. You can
access the conference call by dialing (888) 510-1762 or (719) 457-2634 and
using the conference ID 4120134 approximately 10 minutes prior to the call. The
conference call will also be webcast, which can be accessed at under webcasts and

Not to be outdone in sending notes, Wells
Fargo’s wholesale management (Kevin Sexton, Bill Trees, and Jim Wyble) sent out
a note to brokers
. “As the competitive landscape for third party
lending continues to evolve, we wanted to take this opportunity to confirm our
commitment to Wholesale lending and our broker community. As other lenders exit
the Wholesale business, we believe 2012 promises to be a great year with ample
opportunity as we continue to work together and remain focused on quality.
Wells Fargo Wholesale Lending is committed to serving you and your customers.
For more than 15 years, Wells Fargo has been an industry leader in the
Wholesale channel. As we’ve demonstrated time and again, Wells Fargo is invested
in the long-term success of you, your borrowers and the wholesale business. You
can count on our dedicated team to partner with you to provide valuable
products and programs to American homebuyers in a fair and responsible

Back in September the FHFA, the overseer
of Fannie & Freddie, released a “white paper” suggesting a change
to the way servicers are compensated.
FHFA’s goal was to propose a new
servicing compensation structure to (i) improve service for borrowers; (ii)
reduce financial risk to servicers; and (iii) provide flexibility for
guarantors to better manager non-performing loans while promoting continued
liquidity in the TBA market. It asked for comments on reducing the Minimum
Servicing Fee (MSF) from 25bp to 12.5bp to 20bp. (The proposal established a
separate account within the trust structure of the MBS which is funded by
reallocating around 5bp from the borrowers payments, and would be available to
pay for non-performing loan servicing.) Under this proposal, servicers were to move
from receiving 25bp of servicing to receiving a fixed dollar amount based of
compensation if the loan is current ($10/loan). And in order to protect
investors from churning, the enterprises were to do the following: implement a
net tangible benefit test for streamline refi programs, enhance monitoring and
tracking of prepayment speeds for each servicer, and restrict the amount of
excess IO in a pool. But lacking was a plan for guidance on what a servicer
might earn should a loan go delinquent.

We’ve come
to learn that the FHFA is preparing to
back away from this plan to overhaul the minimum servicing fees
paid on
Fannie Mae and Freddie Mac loans, after intense, across-the-board industry
opposition to the idea. “Sources” say it’s pretty much over and done with, and
in a non-descript message FHFA spokeswoman Corinne Russell e-mailed,
“Considering changes to the structure of mortgage servicing compensation
is an important component of improving the operations of the future mortgage
market. We received useful input on the discussion paper, and will provide an
update on next steps in the near future.” Most servicing advisory firms came
out against any radical changes to compensation, as did the MBA. (Editor’s note: haven’t we had enough change
and uncertainty from outside the industry – why do we need more from within

Live and
learn. There are a lot of learning
opportunities from our MBA for mortgage folks out there.
(Probably even a
few where this might happen).
For example from Feb 13-15, “Collections and Early Intervention: Regulatory
Requirements and Implementation Strategies is for all the collections and
customer service managers, leads, and supervisors out there to help design
compliant strategies and processes for handling collections” – Link.
Continuing on, for asset managers, relationship managers, servicing managers,
and commercial real estate primary services who service CMBS loans, “CMBS
Restructures: How to Work with Customers on Non-Performing Loans” outlines the
specific details of the responsibilities, standards, and circumstances
associated with CMBS loans. More information for the Feb 16 course.
And anyone who works in REO and is interested in asset management protection
should look into “REO and Property Preservation,” which will help participants
with strategy, managing remediation costs and timetables, and calculating
return on the repair dollar and its influence on the markets.  This one
will take place from March 12-13.

The FDIC will host a national conference
on “The Future of Community Banking” on February 16 in Arlington,
. The conference will provide a forum for community bank
stakeholders to explore the unique role community banks play in the country’s
economy and the challenges and opportunities this segment of the banking
industry faces. Ben Bernanke and FDIC Director Tom Curry are scheduled to
deliver the keynote addresses at the conference. FDIC Acting Chairman Martin J.
Gruenberg will also make remarks –  additional information.
Before you book your flight, attendance at the conference is by invitation and
will be open to credentialed members of the media – so the conference will be
broadcast live and archived through a publicly available webcast on the FDIC’s
Web site here.

In keeping
with regulation trends, the US
Sentencing Commission has proposed harsher sentencing guidelines for securities
and mortgage fraud violations
. (Who knew our government had a
sentencing commission – but these days who is surprised?) It is seeking comment on whether or not the current guidelines
under Dodd-Frank account for potential and actual harm to the public and
financial markets from securities, mortgage and financial institution
fraud.  Regarding securities, the Commission is focusing on insider
trading, while for mortgage fraud, they’re looking to amend the way loan fraud
loss is calculated. The latter would be assessed by taking into account
the amount recovered from the foreclosure sale where the collateral is disposed
as well as reasonably predicted administrative costs incurred by the lending
institution associated with the foreclosure of the mortgaged property. The
Commission also wishes to amend the sentencing for specific financial harms
such as “jeopardizing the financial institution.”  To view the proposal in
full, see
Note as well that they are accepting public comments until March 19th!

The California Department of Real Estate
(DRE) is constantly asked, regarding short sale transactions, whether a buy can
be charged to compensate either the sale negotiator or the broker.
of July 2011, California state law prohibits the charging of additional fees in
exchange for the written consent of the sale.  Under the Real Estate Law,
short sale fees may still be charged, but, to maintain a certain level of
transparency, the negotiator must be properly licensed under California law,
and there must be full written disclosure to all parties involved, including
the short sale and originating lenders.  The compensation fees must be
disclosed in the purchase agreements, escrow instructions, and HUD 1
statement.  Any “special fees” charged must be authorized by the DRE via
an advance fee contract; Additionally, the Real Estate Settlement Procedures
Act (RESPA) requires these fees to correspond to an actual service performed-in
other words, the buyer must be getting work done for any money paid.  Any
“junk” or “special” fees and they’ll be on you like a ton of bricks.

Yup, rates are good, and should be for quite some time. Like Ground Hog Day,
yesterday was more of the same: good supply/selling from mortgage bankers (maybe locks are picking up with these
record low rates?
) met by more demand by the Fed, hedge funds, banks, and
money managers. Investors are piling into agency MBS in anticipation of a QE3
round from the Fed – officials have been hinting lately about plans to
potentially launch another round of QE (w/this one focused on mortgages instead of Treasuries). The
Fed’s appetite continues to be a constant $1-1.2 billion a day, so any selling
above or below that by originators tends to tilt the scale. (Bernanke, who
testified yesterday in Washington, said nothing new to move the markets.) Yesterday,
by the close, MBS prices were better by almost .250 and the 10-yr T-note closed
at 1.83%.

We’ve had
the 1st-Friday-of-every-month jobs numbers this morning. January’s Nonfarm
Payrolls, expected +150k, down from +203k in December, came out at +243k. The
Unemployment Rate dropped from 8.5% to 8.3% (the lowest in almost 3 years). With
no substantive news from Europe, this will probably determine trading for
today, and soon after the strong jobs number
the 10-yr worsened from 1.82% to 1.92%, and MBS prices appear worse by .375-.50

For more weekly insight into MBS / secondary markets, make sure to read and subscribe to: Calculating Current Coupon in a Record Low Rate Environment by Bill Berliner.

A guy took his blonde girlfriend to her first football game.
They had great seats right behind their team’s bench.
After the game, he asked her how she liked it.
“Oh, I really liked it,” she replied, “especially the tight
pants and all the big muscles, but I just couldn’t understand why they were
killing each other over 25 cents.”
Dumbfounded, her boyfriend asked, “What do you mean?”
“Well, they flipped a coin, one team got it and then for the rest of the
game, all they kept screaming was, ‘Get the quarterback! Get the quarterback!’ I’m
like…Helloooooo? It’s only 25 cents!!!!”


If you’re
interested, visit my twice-a-month blog at the STRATMOR Group web site located
at The current blog discusses
residential lending and mortgage programs around the world, part 2. If you have
both the time and inclination, make a comment on what I have written, or
on other comments so that folks can learn what’s going on out there from the
other readers.

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Forward this article via email:  Send a copy of this story to someone you know that may want to read it.

Saturday Lender Updates, Gossip and Interesting Letters from the Trenches

On the
heels of the State of the Union address, the
MBA has issued its annual State of the Mortgage Industry release, and the
assessment is generally positive. The consensus was that states hit
hardest by the housing crisis will continue to deal with the aftermath but that
2012 should see some degree of recovery. The MBA pointed to a number of recent
upticks. Upheavals in the single family market have actually helped the
multi-family market, for one. The rental market has seen some very
positive activity, as more lenders, many of them life insurance companies, have
moved into the sector. Of course, the residential market and refinancing remain
thorns in the industry’s side.  MBA President and CEO Dave Stevens attributes
the dearth of financing to market uncertainty, which has been aggravated by
both unrest in international markets and regulation in the US.  Much of
the proposed legislation needs to be more specific, especially when it comes to
underwriting and the definition of “ability to repay”-crucial to ensuring a
safe haven for lenders. The idea of a high degree of risk is still not
terribly attractive. Also criticized was the current structure of the mortgage
market – the MBA points out that the GSEs or FHA are involved in 90% of
lending, which was described as “simply unsustainable,” and that he private
sector should therefore be encouraged to re-enter the market. As for
unemployment, the MBA expects 150,000 jobs to be created per month, which would
have a positive effect on the mortgage market, though that number would of
course vary for different demographics.

A story in
American Banker by Kate Berry summed up the PHH news over the last few weeks.
Namely, “PHH will cut back on
correspondent lending
, sell non-core assets and reverse its drive for
market share in the mortgage business to alleviate investors’ liquidity
concerns,” per CEO Glen Messina. He said that PHH may cut correspondent lending
in half, directly related to PHH’s near-term focus on hoarding cash since
“loans originated with minor defects take up capacity on PHH’s balance sheet
because they typically are not eligible for warehouse financing.” The article
noted that, “Though PHH captured 4% of the mortgage market in the fourth quarter,
Messina said that going forward ‘setting a market share target’ was not
consistent with the company’s near-term focus on liquidity and cash. PHH will
no longer provide market share guidance.”

At the
other end of the spectrum, per Bloomberg, Bank
of America’s retail channel has been unable to keep up with demand
borrowers wanting to refinance, thanks in part to HARP Phase II, which is
beginning to roll out. Per the article, borrowers are being placed on a 90 day
waiting list. “Bank of America is telling some customers who call during high
volume periods of the day to make a reservation. And once they do that, it
could take anywhere from 60 to 90 days just to hear back. Even then, it’s
unclear how much longer it will take to apply for a refinance, get the loan
underwritten, and finally get it funded.” And don’t forget that it stopped
offering cash out refinances last month so if borrowers want to tap their home
equity, they’ll either have to try a HELOC or go elsewhere. Borrowers with
checking accounts or those who visit a branch stand a much better chance of an
earlier time frame.

A few
weeks ago received information that Freddie
has extended the Uniform Loan Delivery Dataset implementation date,
providing mortgage professionals with additional time to apply the first
phase.  Freddie has given substantial notice-new implementation
requirements apply to loans whose applications were received on or after 12/1/11
and are delivered to Freddie on or after 7/23/12.  The Freddie Mac selling
system, positioned to be updated on January 23rd, will now be changed on April
23rd. For details go to:

Given the
number of e-mails I have received, out in the Western U.S. it seems that Reunion Mortgage, with ties to Citi, has
ceased its wholesale business
. For example, “It seems it pulled out of
wholesale only (I didn’t realize they even had a retail presence) but it sure
seem to be doing it quietly.  It seemed that the only brokers that
received the email from them were the ones that were active with them. 
They didn’t issue a rate sheet yesterday.”

Fifth Third is expanding its policy
on borrowers taking a leave of absence from their jobs in the wake of revised
guidance from the GSEs now mandates that short-term income on the temporary
leave is eligible for all conforming and portfolio products.  Borrowers
must meet a number of requirements, which include written intent to return to
work in the same employment situation upon completion of the leave, verification
of employment and income prior to the leave, and completion of necessary
documentation. Also released by Fifth Third were its AMC turn times, which can
be viewed at

Mountain West is applying changes to
conventional price adjusters for cash out and investment properties to loans
locked on or after February 13, 2012 as well as loans that relock after that

For vendor news, Wednesday marked the launch of the free Zillow Mortgage Marketplace App for Android by real estate Web site
Zillow. Also available for the iPhone, the newly launched app offers home
shoppers on-the-go access to the loan shopping experience of Zillow Mortgage
Marketplace. The app includes features that enable shoppers to narrow their
home search to a specific price range, based on income, down payment, and
monthly debt information. Technology marches on…

On to a
few recent letters that I received. “A wise friend mentioned to me that before the government gives money to
mortgagors who are underwater there should be a test to determine if a cash-out
refi was done.
The amount the poor, unfortunate homeowners extracted from
the equity should be deducted from any principal reduction the government is
handing out. Of course, this reduction will be mitigated an amount equal to the
influence of the unscrupulous loan originator. I’m old enough that I will be
done soon, and I am very glad that I won’t have to participate in this farce
much longer.”

Emory wrote, “I would hope that members of the industry quit going along with
the mass media lies about the mortgage industry. No servicer tells a borrower to quit making their payments. This is
almost an urban legend it gets so much press. Most servicers record calls with
borrowers that call customer service lines. But assume somehow they avoided the
subpoenas to get the recording, certainly with the volume of borrowers claiming
this has happened to them there would be validated borrower recordings with
proof of this practice. I’ve heard none and you have to know NBC, ABC, CBS,
Huffington Post, etc. would plaster the airwaves with one if they had it. Sure
there may be a few off the reservation ones but I haven’t even heard a
recording of one of these. Not one document in writing either. The press should
know telling a borrower you can only process a modification for someone behind
on payments, is not the same as telling the borrower to get behind on payments.
A depressed homeowner may spin/twist that statement in that manner, but that is
personal responsibility associated with a human tragedy, not servicer liability
nor big banks/Wall Street’s fault. The press should quit writing these
allegations unless they have back-up proof. This lie, along with the lies of
“banks want to foreclose” and “just lower the principal on all underwater homes
to fix the housing crisis” are leading the uninformed distressed borrowers to
conclusions that are harming those very borrowers. It helps progressive
legislators pass laws that harm the financial services industry, which tighten
lending standards beyond reason. It is harming people that otherwise would make
their payments. It is demonizing lenders unfairly and tightens lending, which
lowers the number of borrowers that qualify, which lowers home values further.
It is a downward spiral that must stop before housing will recover.”

lastly, regarding the recent news about
Fannie & Freddie bonuses
, David Lewis, the managing consultant for Con-Serve
Capital Consulting, wrote, “I guess I am among the short sighted members of the
profession.  I made my living as Chairman, President and CEO of two
different mortgage banking companies.  My span in the day-to-day business
went from June of 1984 through June of 2010. From my perspective, employees at
FNMA /FHLMC are government employees.  As such, they are responsible to
the Federal authority, and not to some Board of Directors in a “for
profit” corporation.  What else could they be, other than Civil Service
employees, entitled to all the perks and benefits of such an employee? 
They certainly deserve to be graded, as are other government employees, by the
grades and salary ranges appropriate to the responsibilities of their
respective jobs.”

Mr. Lewis
continues, “For a number of reasons, these employees and the executives they
report to, are no different than any employee/executive at HUD.  To worry
of their exodus for jobs in the private sector is to fret about the migration
of any government employee.  Short sighted or not, I, for one, could care
less whether the new broom in Washington, D.C stays for a year or a day. FNMA/FHLMC/HUD
employees raise no capital.  All the capital is provided by the Federal
government.  If any of the entities loses money in a given fiscal period,
the bills and the salaries continue to be paid with tax payer monies. FNMA/FHLMC
premises are owned by the government, not the stock holders.  So too, the
furniture, fixtures and equipment are part of the public domain.  Sales of
securitized loans are sold into a market which is “made” by the
Federal Reserve Board.  What private enterprise is involved here? 
Lacking any private enterprise, in a not-for-profit corporation, how are any
employees or executives different from any other publicly held department or
division? The people who work at HUD, FNMA and FHLMC are public employees,
period.  As such, they deserve all the benefits and perquisites of public
employment, and no other.”

Last week I noted, “For all of you with any money left, be aware of the
next expected mergers so that you can get in on the ground floor and make some
“big bucks.” Watch for these consolidations in 2012.” I missed a
few, which some readers kindly noted.
“And 2 railroads, the Norfolk Virginia Southern and the California Reading Way
are merging, offering coast-to-coast overnight shipping. Coast-to-coast
overnight shipping via rail? Norfolk-n-Way!”
And, “An unconfirmed rumor is that Dolly Parton will buy controlling interest
in Piggly Wiggly, Big Lots and Harris Teeter.  All 3 brands will operate
under the name ‘Dolly’s Big Wiggly Teeters’.”

And yesterday’s
joke had “I love you” in various languages, including one phrase from the
southern states and a few in Canada, and received these notes:

Alabama, ‘Nice Rack, Get in the Truck’ is something you mutter under your
breath when you see a big deer walking across your field.

And, “You
know, in a lot of the states you mentioned in your Valentine’s Day message, ‘Nice
rack’ is actually something already in the truck. Just saying…”

If you’re
interested, visit my twice-a-month blog at the STRATMOR Group web site located
at The current blog discusses
residential lending and mortgage programs around the world, part 2. If you have
both the time and inclination, make a comment on what I have written, or
on other comments so that folks can learn what’s going on out there from the
other readers.

…(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.