Federal Registers

FR-5609-N-01 Notice
of Proposed Information Collection for Public Comment: Choice Neighborhoods
Evaluation, Phase I
FR-5415-FA-35 Announcement
of Funding Awards for the Rural Innovation Fund Program for Fiscal Year

FDIC Invites Comments on Stress Test Rules

The Federal Deposit Insurance
Corporation (FDIC) has issued a notice of proposed rulemaking (NPR) for
comment.  The NPR would require the
larger of the banks it regulates to conduct annual capital-adequacy stress
tests.  The tests are one requirement of
the Dodd-Frank Wall Street Reform Act and will affect FDIC-insured banks and
savings institutions with assets of more than $10 billion.  The FDIC currently has 23 financial
institutions meeting that criterion

The proposed rule focuses on capital
adequacy and defines a stress test as a process to assess the potential impact
on the bank of economic and financial conditions (“scenarios”) on the
consolidated earnings, losses, and capital of the covered bank over a set
planning horizon.  FDIC said that these
stress tests would be one component of the broader stress testing activities
conducted by the banks which should address the impact of a broad range of
potentially negative outcomes across a broad set of risk types with impacts
beyond capital adequacy along.  These,
however, are beyond the scope of the proposed rule.

Under the NPR each covered bank
would be required to conduct the test annually using the bank’s financial data
as of September 30 of that year.  Where
the parent company structure of the covered bank includes one or more financial
companies, each with assets greater than the $10 billion threshold, the stress
test requirement applies to the parent and to each subsidiary meeting the threshold,
however the FDIC will coordinate with other regulatory agencies to minimize
complexity or duplication of effort.

As proposed, FDIC would provide each
covered bank with a minimum of three sets of scenarios representing baseline,
adverse, and severely adverse economic and financial conditions and each bank would
use these scenarios to calculate the impact on its potential losses,
pre-provision revenues, loan loss reserves and pro forma capital positions for each quarter end within the
planning horizon.

The NPR also describes the content
of the reports institutions are required to publish, and the timeline for
conducting the stress tests and producing the required reports.

FDIC Acting Chairman Martin J.
Gruenberg said, “Both the FDIC and the institutions being tested will
benefit from the forward-looking results that the stress tests will provide.
The results will assist in ensuring an institution’s financial stability by
helping determine whether it has sufficient capital levels to withstand a
period of economic stress.”

The FDIC’s proposal will be
published in the Federal Register with a 60-day public comment period.

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Federal Registers

FR-5603-N-03 Notice
of Submission of Proposed Information Collection to OMB; Construction
Complaint-Request for Financial Assistance
FR-5603-N-02 Notice
of Submission of Proposed Information Collection to OMB; Builder’s Certification/Guarantee
and New Construction Subterranean Termite Soil Treatment Record

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

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.

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.

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.

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.

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.

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.

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
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
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.

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SunTrust Jilted; California’s Law and Basel III will NOT Help Mortgage Pricing

Tomorrow, on your day off, here is 3 ½ minutes of a few very clever
creative bets that you can win.

Speaking of clever, a veteran male trader at Chase noted, “Michigan
deployed talking urinal cakes to fight Driving Under the Influence. If one of
them sounds like my Mother-In-Law I will start wearing Depends.” That’s
darned funny.

The Census Bureau tells us that thirty-one places have “liberty” in their
names. The most populous one is Liberty, Mo. (29,149). Iowa, with four, has
more of these places than any other state: Libertyville, New Liberty, North
Liberty and West Liberty. Thirty-five places have “eagle” in their names;
eleven places have “independence” in their names. The most populous one is
Independence, Mo., with a population of 116,830. Nine places have “freedom” in
their names, one place has “patriot” in its name (Patriot, Indiana), and five
places have “America” in their names. The most populous is American Fork, Utah,
with a population of 26,263. And you wonder what those folks at the Census do
all day…

Occasionally this commentary posts job searches. Today, SunTrust is looking
for a seasoned industry veteran after being left at the altar. Must be present
to win!
Seriously, the MBA announced that instead of assuming the presidency
of SunTrust Mortgage, Dave Stevens has agreed to stay on as President and
CEO.  “The past few weeks have been extremely difficult for me
personally and professionally. After serious thought and consideration, I simply
cannot leave the MBA at such a critical time for the industry and the
association.” Stevens said.  “Frankly, at the end of the day,
stepping away now when so much progress is being made and so much still left to
be done, did not feel right.”

A statement from SunTrust noted, “We have a strong leadership team in
place, and continue to execute our business plan and serve the needs of the
clients of SunTrust Mortgage.” American Banker observed, “SunTrust’s
mortgage operations are still struggling with credit quality issues and
repurchase requests, and the Atlanta bank has been trying to reshape the
. Last month, it appointed Peter E. Mahoney as executive vice
president of mortgage strategy and Jack Wixted as executive vice president and
chief risk officer.”

On the other side of the Atlantic, Barclays CEO Bob Diamond stepped
amid increasing pressures related to investigations of possible Libor
manipulation. “The external pressure placed on Barclays has reached a
level that risks damaging the franchise — I cannot let that happen,”
Diamond said. “I am deeply disappointed that the impression created by the
events announced last week about what Barclays and its people stand for could
not be further from the truth.” Marcus Agius, who resigned as chairman
Monday, will take Diamond’s spot until a permanent successor is found.

Well, out in “the land of fruits and nuts” they did it: California
would become the first state to write into law much of the national mortgage
negotiated this year with the nation’s top five banks, and
expand it to all lenders, under wide-ranging legislation state lawmakers
approved Monday. “Majority Democrats sent the homeowner protection package to
Gov. Jerry Brown despite opposition from business and lending organizations and
most Republican legislators.” Once again, we see an illustration of the public’s
perception, and that of the popular press’s, of an issue being different than
that of the lending industry’s. On the surface it sounds great. The legislation
would require large lenders to provide a single point of contact for homeowners
who want to discuss loan modifications. It would prohibit lenders from
foreclosing while the lenders consider homeowners’ request for alternatives to
foreclosure. And it would let California homeowners sue lenders to stop
foreclosures or seek monetary damages if the lender violates state law. “The
protections would benefit all California homeowners, not just those whose
mortgages are with the five banks that signed the national settlement in
February. And many of the restrictions would become permanent, while those in
the nationwide agreement will end after five years. It applies to all
owner-occupied residences, but not commercial or rental properties.”

The new
law could easily and directly impact the price of mortgages to California
borrowers as servicers say, “If these are the new rules, we don’t want the
servicing as much, and so let’s pay less for it.”
Is the
attorney general going to persecute investors who back their prices off due to
it? The law lets homeowners sue mortgage providers if they violate state law,
but only if there is a significant violation. (What is “significant”?) Homeowners
could ask judges to halt pending foreclosures but could collect monetary
damages only if the foreclosure took place. It requires lenders to provide a
single point of contact for borrowers who want to discuss foreclosures or
refinancing, with an exemption for lenders that process fewer than 175
foreclosures per year. It bans what are known as “dual-track foreclosures” by
barring lenders from filing notices of default, notices of sale, or conducting
trustees’ sales while they are also considering alternatives to foreclosures
like loan modifications or short sales. It increases penalties for banks that
sign off on foreclosures without properly reviewing the documentation, a
process known as robo-signing.

under the “things that may increase the price of residential mortgages to
borrowers,” banks that are concerned about potential fair lending claims if
they refuse to make residential mortgage loans that are not “qualified
mortgages” or “qualified residential mortgage loans” should be equally
concerned about the new proposed bank capital rules.
On June 7,
2012, the Federal Reserve approved for publication three sets of proposed
regulations to revise the risk based capital rules for banks to make them
consistent with the new international capital standard, generally known as
Basel III, and certain requirements of the Dodd-Frank Act. The Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation
followed suit on June 12, 2012. Conventional residential mortgage loans with
loan-to-value ratios in excess of 80%, regardless of the presence of private
mortgage insurance, could trigger material adverse capital requirements if the
loans are held for investment and do not comply with certain regulatory
underwriting criteria. Such loans could present the legal risk of loss under
the “ability to repay” rules, the credit risk of loss under the “risk
retention” rules and now increased capital charges under the implementation of
Basel III:

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

With the Colorado fires, and the hurricane season, it is a good idea for
underwriters and secondary marketing staffs to re-familiarize themselves with agency
rules for lending in disaster areas
. Rather than go into all the ins &
outs, Fannie’s is https://www.efanniemae.com/sf/guides/ssg/hurrelief/index.jsp
and Freddie’s is http://www.freddiemac.com/singlefamily/service/disastermgmt.html.

As part of its One Touch initiative, Wells Fargo Funding’s has set
a goal of minimum 50% funding for all first time clients, meaning that no more
than 50% of such borrowers’ loans could be suspended.

Wells Fargo Wholesale has issued a correction to an earlier announcement about
changes to FHA Streamline Refinance mortgage insurance premiums stating that,
for base loan amounts exceeding $625,000, the annual MIP paid monthly would
increase to 0.25%.  The annual MIP paid monthly for such loans will
increase 0.25% (25 bps), not to 0.25%. FHA Non-Credit Qualify Streamline and
Purchase Close calendars for the third quarter of 2012 are available via the
Broker’s First® website.  The calendars provide the dates by which credit
packages, conditions, and documents must be submitted.

The Wells inspection requirement for private sewage disposal systems may not
apply to some properties in Iowa as per state requirements.  In cases
where a customer states that a transaction is exempt from the inspection, Iowa
Senate File 261
should be consulted.

Under new rules that will come into effect on June 18th, Wells will be using
different credit scores to assess risk.  For loans not submitted via
Direct Express, the credit report generated by Wells and ordered from Equifax
and/or Credco will be used, while loans submitted via Direct Express will
continue to use the information from the credit report generated by Direct

As per agency requirements, construction-to-permanent transactions will not be
permitted as Purchase transactions as of June 18th.  Wells will continue
to allow construction-to-permanent transactions as Rate/Term or Cash-out
refinances.  The LTV/CLTV/TLTV calculation for construction-to-permanent
transactions has also been revised such that the value will be calculated using
the current appraised value of the property and must comply with the product’s
Rate/Term or Cash-out refinance guidelines.  Super Conforming Mortgage
Program loans, as they require construction to be complete, are not affected.

The Wells non-branded Consumer Handbook on Adjustable Rate Mortgages disclosure
has been updated and should be used for all loans registered after June
25th.  The old CHARM/ARM disclosure should be discarded.

Citibank has updated its Ineligible Originator List, which is posted on
the Citi Correspondent website in the elfno section.  The list, which
shows brokers, correspondents, and other originators and parties that are not
permitted to be involved in the origination of any loan submitted to Citi for
purchase, is revised regularly, as is the Appraiser Monitor/Ineligible List
(also in the elfno section of the site).

Loans on condos in Georgia that are registered after June 23rd will be subject
to Citi’s upcoming LTV/CLTV/HCLTV restrictions.  For borrowers with FICO
scores over 740, all of these values will be capped at 70%, while for those
with FICO scores less than 740, they will be capped at 60%.

Due to Freddie’s decision to retire the program in August, Citi will no longer
accept Freddie Mac Alt 97 Mortgage registrations on or after June 23rd.

All this continues to make the markets, and interest rates, be an afterthought –
there just isn’t much going on. Good news of stability, or hoped-for
stability, could nudge rates higher, while evidence that our economy is slow
tends to nudge rates lower.
Yesterday we learned that, for the first time
since July 2009, US manufacturing has decreased.  However, the economy has
grown for the 37th consecutive month according to the nations’ supply
executives in the latest Manufacturing ISM Report on Business. And Construction
Spending beat expectations, rising to its highest level in almost 2.5 years in
May as investment in residential and federal government projects surged.

By the end of the day, the third quarter started off with new record high
closing prices set on 30-year FNMA 3.5% through 4.5% coupons as 10-year notes
rallied nearly 3/4s of a point to 101-17+ (1.58%) per Thomson Reuters. “The
supply/demand dynamics were very strong today with the sell/buy ratio reported
at 1:3. Indeed, mortgage banker selling was light at around $1.5 billion, while
the weak data contributed to active buying from real money despite the price
levels with the Fed, of course, a steady player.” Agency MBS prices were marked
higher (better) by over 1/4 point on 30-year FNMA 4.0s to nearly 1/2 point on
3.0% coupons. But will the price improvements make it onto rate sheets?

Today we’ll have May’s Factory Orders (expected higher) and an early
close for the bond market – look for liquidity to dry up. Many companies are
closing early – do LO’s really expect to lock loans in, and lock desks to be
open, at 5PM on the day before a holiday? In the early going our 10-yr is at
1.60% and MBS prices are down.

Very punny, part 1 of 2:
52 cards = 1 decacards
1 kilogram of falling figs = 1 FigNewton
1000 milliliters of wet socks = 1 literhosen
1 millionth of a fish = 1 microfiche
1 trillion pins = 1 terrapin
10 rations = 1 decoration
100 rations = 1 C-ration
2 monograms = 1 diagram
4 nickels = 2 paradigms
2.4 statute miles of intravenous surgical tubing at Yale University Hospital =
1 IV League
100 Senators = Not 1 decision


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