Design Perfectionists at Home

The design perfectionist is a breed that outfits its habitat not according to style or fashion, but to a set of fastidious inner rules.



CFPB Unfurls Mortgage Company Audit Procedure; Recent and Upcoming Housing Forecasts

The
Federal Budget and National Debt numbers are so large that it’s often difficult
to get a grasp of just exactly how much money is being discussed. Hopefully
this short film helps.

Speaking
of unsustainable business models, in 2011, 92 banks failed, compared to 157 in
2010 and 140 in 2009. Meanwhile, the number of banks on the FDIC troubled list
fell slightly to 844 at the end of 3Q. While that news is good, some analysts
believe that there are still over 200 banks that are in dire need of capital
and will likely have difficulty raising it, and expect to see more closures
this year. But you may have noticed we haven’t seen any Friday bank closures
for several weeks.

At the
other end of the spectrum, there are companies that continue to expand. In
Northern California Sierra Pacific
Mortgage is seeking an Operations Manager for its Bay Area Regional
Wholesale/Retail Lending Center, a senior Compliance Specialist, and a
Corporate Operations Specialist II that reports directly to the VP of
Corporate Operations. SPM has been in business for 25 years, providing both the
retail and the wholesale platforms – 11 around the country to facilitate
operations. Sierra Pacific ranked #27 in
the nation for total originations during the third quarter of 2011
. If you,
or someone you know, are interested, please contact Janet Lewis at janetl@spm1.com.

Now that
you’re back, refreshed after another 3-day weekend, here is the link to the
CFPB’s mortgage company examination procedures. It is definitely worth a read
for compliance folks.
I am waiting for my kids to come to me and say, “Dad, I really want to be
an auditor when I grow up.” This (the release of this procedure, not my
kids’ statement) is viewed as its first action to implement its nonbank
supervision program, and the CFPB will
use these in examining all bank and nonbank mortgage originators
. The
Mortgage Origination Examination Procedures describe the types of information
examiners will collect to (i) evaluate policies and procedures, (ii) assess
compliance with applicable consumer financial services law, and (iii) identify
risks to consumers throughout the mortgage origination process. CFPB mortgage
origination exams will focus on specific products and will cover one or more of
the following modules: (i) company business model; (ii) advertising and
marketing; (iii) loan disclosures and terms; (iv) underwriting, appraisals, and
originator compensation; (v) closing; (vi) fair lending; and (vii) privacy.

If you like forecasts, here is one for you: U.S. home mortgage refinancings will decline 40% this year, according
to Fannie Mae’s chief economist Doug Duncan. He believes that households
will refinance about $540 billion of home loans, down from nearly $900 billion in
2011 and $1 trillion in 2010, and that the current rates won’t change
dramatically this year. As we all know, the economy won’t recover without a move
in housing and jobs, and Mr. Duncan noted that about a third of the US
workforce is worried about job prospects – a factor that will keep refinancing
activity muted due to the significant upfront cash outlay required to refinance
a home loan. And as we all know, low rates can only help so much compared to
the influence that underwriting standards and values have on the business. Mr. Duncan has said that the US housing
market is just halfway through a 10-year recovery.

And for
another forecast, Moody’s believes that
with home prices likely to slip further in 2012 the risk of jumbo mortgages,
yet to refinance out of security pools, will be at a growing risk of strategic
default. Put another way, stronger prime jumbo borrowers refinanced last
year, leaving weaker ones still in residential mortgage-backed securities. More
than 80% of these loans are still current, Moody’s said, but more than half of
them are underwater. “The high level of negative equity and limited opportunities
to refinance will continue to amplify the rate of strategic default, primarily
in prime jumbo pools,” Moody’s said, and it doesn’t expect lending requirements
to loosen at least at the largest lenders.

Lastly,
the MBA’s chief economist Jay Brinkmann and VP of Research & Economics Mike
Fratantoni will be discussing the MBA’s
economic forecast for 2012 this Thursday from 12-1PM EST
. (While this
worthwhile webinar event is complimentary for members, there is a cost for
non-members.) “This webinar will provide participants with MBA’s forecasts of
economic conditions, mortgage rates, and mortgage originations for 2012. 
MBA’s economists will review current economic, housing market, and mortgage
market conditions, discuss current monetary and fiscal policy issues, and
highlight risks and opportunities regarding the forecast for 2012 and beyond.” It
sounds good so if you’re interested call (800) 793-6222 (select option 3), or
email campusmbaeducation@mortgagebankers.org.

But
critics of forecasts say that despite having large staffs, huge budgets and the
data of the largest banks on earth, major economists came in with more than an
80% variance and were directionally right on forecasts only about 50% of the
time. The economists are not bad, but the economic prediction business, like
earthquake prediction, is currently beyond human abilities. (We know exactly
why earthquakes occur, yet no one has successfully predicted a major earthquake
in the history of mankind.) In similar fashion, we know why markets move after the fact, but there are too many
variables that interact in a complex fashion to currently be predictive with
any accuracy
. To date, there don’t seem to be any standard economic
forecasting models that display any useful predictive capacity.

Commentator
Caroline Baum noted that, “Some forecasts are more important than others, which
is not to say they’re more accurate, just that they matter more. The Federal
Reserve’s forecasts belong in this category. Unlike the average Wall Street
prognosticator, the Fed has the unique
ability to make its forecast become reality
through its manipulation of the
federal funds rate (the overnight rate at which banks lend to one another) and
control of the monetary base. That’s why the central bank’s forecasts, and
what’s required to achieve them, matter.” And starting with next week’s Fed meeting,
we will learn for the first time what funds rate is associated with the Fed’s
projections for inflation, unemployment and real gross-domestic-product growth
in the current year, the next few calendar years and “over the longer run,”
according to minutes of the Dec. 13 meeting released this week. Ms. Baum notes
that the argument in favor of greater transparency on the expected
interest-rate path is that it provides greater clarity and certainty for
business investment. “It could have the opposite effect. If the Fed projects
slow growth, elevated unemployment, benign inflation and a funds rate of zero
to 0.25 percent through 2014, businesses might be lulled into inaction. Why
invest now? What’s the rush? My widgets aren’t flying off the shelf, and
everything I read says consumers don’t have the wherewithal to spend.”

And the
Fed, well…Ben S. Bernanke is signaling his willingness to “double down” on a
three-year bet that’s failed to revive housing, showing the extent of the
Federal Reserve chairman’s effort to wrest a recovery from the deepest
recession. Since the Fed started buying $1.25 trillion of mortgage bonds in
January 2009, the value of U.S. housing has fallen over 4%, and is down 32
percent from its 2006 peak, according to an S&P/Case-Shiller index. And don’t
forget that the central bank is poised to buy about $200 billion this year, or
more than 20% of new loans, as it reinvests debt that’s being paid off. It would appear that the Fed can’t do it
alone, and will need the help of the rest of the government (if one believes
that government intervention is the way to go, which is certainly arguable) in
order to turn around the housing market.
While the Fed has helped push
mortgage rates to record lows of less than 4%, home-loan borrowing in 2012 is
forecast to decline to the least in 15 years. Americans who might refinance and
buy properties are getting shut out by stricter lending standards or avoiding
transactions as values tumble amid mounting foreclosures, according to the recent
Fed study.

Over the
weekend the news out of Europe was discouraging after S & P downgraded nine
of the seventeen Eurozone countries after talks between private bond holders
and the Greek government broke down. Following the downgrades, European leaders
vowed to move faster on proposed spending rules and agree on a permanent
bailout fund as soon as possible. But the failure to come up with comprehensive
agreements on fiscal tightening and how to come up with funds to shore up
European banks does not come as a surprise to traders and investors – let’s
face it that it will take years. “The rating actions are primarily driven
by our assessment that the policy initiatives that have been taken by European
policymakers in recent weeks may be insufficient to fully address ongoing
systemic stresses in the euro zone,” S&P said.

For
excitement in this country, we’ve already had the Empire Manufacturing number,
which shot unexpectedly higher (does it matter given what is happening to
entire countries?). We’ve also had earnings announcements from CitiGroup and
Wells Fargo – two mortgage industry “bellweathers.” Citi missed estimates, but
Wells’ results beat them, citing mortgage lending. – more on these tomorrow.

Tomorrow
is the Producer Price Index (remember when we cared about inflation?), the
Industrial Production and Capacity Utilization twins, and a NAHB housing index.
Thursday is Jobless Claims, the Consumer Price Index, the Housing Starts and
Building Permits twins, along a with a Philly Fed number. And on Friday is
Existing Home Sales. In the early going the 10-yr T-note, which closed Friday
at 1.86%, is at 1.88%, and MBS prices are a shade better.

I urgently
needed a few days off work, but, I knew the boss would not allow me to take
leave.
I thought that maybe if I acted “crazy” then he would tell me to take a few
days off.
So I hung upside-down on the ceiling and made funny noises.
My co-worker (who’s blonde) asked me what I was doing.
I told her that I was pretending to be a light bulb so that the boss might
think I was crazy and give me a few days off.
A few minutes later the boss came into the office and asked, “What in the name
of goodness are you doing?”
I told him I was a light bulb.
He said, “You are clearly stressed out. Go home and recuperate for a couple of
days.”
I jumped down and walked out of the office.
When my co-worker (the blonde) followed me, the boss asked her, “And where do
you think you’re going?!”
She said, “I’m going home, too. I can’t work in the dark.”

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web
site located at www.stratmorgroup.com. The current blog discusses the time
frames for borrowers returning to A-paper status after a short sale or
foreclosure. 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)

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