The Tortilla Industry’s Relation to LO and Realtor Comp; Thoughts on MBS Versus Rate Sheet Prices

I know
that some folks only read the first paragraph of this daily blather, and then
skip to the joke. That’s why I am putting this in now:
Don’t say that you never commented on the plethora of things the CFPB is
considering, especially QM – the borrower’s ability to repay proposals. The
CFPB delayed new rules to create standards for the mortgage-lending industry, and
extended the public comment period above. Not to be confused with QRM, “Qualified
Mortgage” rules will eventually outline what types of loans are available to
most borrowers and provide some lawsuit protection to banks. My opinion is that
certain loans were able to help certain borrowers, and shouldn’t be outlawed,
but the press believes that the Dodd-Frank law mandates the consumer bureau’s
mortgage rule exclude many types of loans that “helped fuel” the financial
crisis. Richard Cordray noted, “We want to ensure that consumers are not
set up to fail with mortgages they cannot afford and we want to protect access
to affordable credit.” A noble goal indeed.

while parts of our industry muddle along, others continue to expand and are
looking for staff to take advantage of rates. AmeriSave Mortgage has an immediate need for experienced underwriters
across the nation and processors in its Atlanta, Dallas, and Tampa markets.
“Founded in 2002, the company offers competitive salary, good benefits and
work-from-home opportunities, and combines expert technology with experienced
leadership & innovation. AmeriSave is one of the nation’s leading and
fastest-growing retail and third party mortgage lenders, closing over $5
billion in 2011 and servicing customers in all 50 states with over 500
employees nationwide.”  If you’re interested, or know someone who is, they
should contact resumes@amerisave .com.

And in
California, California mortgage broker
Back Bay Funding is seeking experienced and talented loan officers to join
a very established team of originators and processors, many of which have
worked together for many years.  Back Bay Funding is a mid-size firm
located in Irvine, CA with 40+ lenders including Union Bank, SunTrust,
Interbank, Wells Fargo, Flagstar, Plaza, Parkside and many others (www.backbayfunding .com). Originators
have the ability to generate conventional, jumbo, VA, FHA, construction,
commercial and private loans and take advantage of fast turn times, and very
competitive commissions. Loan officers will need to be DRE and NMLS
licensed to be compensated; satellite offices welcome. For inquiries contact
Darren McLellan or Amisha Hansji at Darren@backbayfunding .com
or Amisha@backbayfunding .com.

Until the mid-1990’s, the price of
tortillas in Mexico was fixed.
(Hey, I don’t make this stuff up.) But in
early 2007 the price of tortillas soared nearly 400% in the span of a few
months. “We will take all the measures within reach of the federal
government to avoid escalating prices,” Mexican President Felipe Calderon
said. But he added the government did not fix tortilla prices. As it turns out,
Mexico, the birthplace of corn, now imports much of the grain from the United
States, and back then the demand for corn-based ethanol fuel made grain prices
shoot up. One news story said, “The Federal Competition Commission
regulatory body will launch a probe into tortilla prices.’The objective of the
investigation is to determine whether there is any collusion to fix prices,
restrict amounts of the goods or divide markets between competitors,’ it

I mention that because price fixing,
whether it is a fixed origination fee, or a 6% Realtor fee, is on many
originators’ minds given the CFPB’s recent stance.
One LO wrote to me saying, “I think
the NAR and the state RE orgs need to really lobby on this one, they could be
next and this will harm their industry. Do you think banks will get exemption
as they did for current compensation rules?  As a correspondent we have
the best of both worlds, we can continue business as usual under correspondent
funding and use YSP to compensate ourselves, pay borrower costs or if need
to  broker we follow the broker comp rules on deals.  I am wondering
if a similar industry split may occur with flat fee loan pricing. Will our
national mortgage industry will be based on the Mexican Tortilla model?”

going through some recent agency &
investor updates
, there is one correction to a DTI number from Friday for MGIC. Namely, starting on 5/21, MGIC’s
DTI was increased from 41% to 45% (NOT 51%) for loans in certain improving
markets (FL, AZ, NV) for certain loans up to $625k.

training news, there will be an FHA Update webinar Wednesday that discusses
recent changes and developments in the FHA’s single family program.  The
webinar will feature speeches by senior HUD staff and will cover topics such as
pending policy clarifications, lender insurance, 203(k) loans, and MIP
changes. Register through the MBA here.

Chase is changing the price
adjustments for Agency Fixed and Agency ARM cash-out refinance transactions.

SunTrust announced new FHA mortgage
insurance premiums, as well as DU Refi Plus enhancements. It also declared
perpetual homeowners insurance policies as unacceptable. SunTrust announced
changes to FHA’s policy on treatment of escrows at FHA loan payoff.

Flagstar announced the Guaranteed
Rural Housing (GRH) Rural Refinance Pilot program, making it easier for
borrowers to refinance their existing Flagstar-serviced GRH loan at a lower
interest rate.

Don’t forget that FHA Streamline
Refinance loans with case numbers assigned on or after June 11th will be
subject to the new mortgage insurance premium structure
.  The Up-Front
premium will be 0.01%, regardless the base loan amount, while the Annual MIP
will be 55 bps.  Lenders may request FHA case numbers for Streamlines with
reduced MIPs from June 11th and will be permitted to cancel existing case
numbers provided that they’re for Streamline refinance mortgages that have not
yet closed and were endorsed on or before May 31, 2009.  Case number
assignments are predicted to take longer than normal due to a high volume of

Previously Fannie Mae had allowed
lenders a 90-day repurchase and make-whole requirement, effective until June
30th.  This extended repurchase accommodation, in which lenders can
complete a repurchase or submit any documentation necessary to back up a formal
appeal, will now be effective until December 31, 2012.  Fannie has also
postponed the effective date for implementing the new lender-placed property
insurance requirements, which had previously been set at June 1st. 
Communication on the new effective date is coming soon.

For those who tweet, Fannie is on Twitter and can be followed here:!/FannieMae.

foreclosure prevention job aids are available on the Fannie website. The “Know
Your Options Marketing Storefront
,” includes free marketing materials like brochures, letters, flyers, and pocket
folders that can be customized and printed directly.

The Fannie Correspondent Lending Manual has been updated to include
clarifications on flood insurance, liability insurance on attached condos and
PUDs, an update on the Conventional PUD Questionnaire, FHA netting
escrows, refi authorization, and DU update on government loans.

The Freddie Mac Standard
Modification interest rate will be lowered from 5% to 4.625% for new trial
period plan evaluations conducted on July 1st and after, and services are
encouraged to begin using the new rate as soon as possible.  The fixed
interest rate should be used when evaluating borrowers to determine eligibility,
the terms of a trial period plan payment, and final modification.

New Freddie guidelines are in effect for cash-out transactions, whose proceeds
may not be used as reserves.  Amended guidance on trade equity states that
the net proceeds of the trade-in of the borrower’s previously owned home are
now permitted for purchase transactions.  The proceeds, which should be documented
by an appraisal of the previously owned residence as well as a copy of the
trade-in contract, are determined by subtracting any outstanding liens and any
transfer costs from the lesser of the appraised value of the property or its
trade-in price as listed on the contract.

Freddie has also issued updated guidance on rent credits stating that any of
the borrower’s prior rental payments are allowed to be credited towards the
purchase price.  The payments may be used as Borrower Personal
Funds.  The amount of credit towards the down payment is calculated from
the difference between the market rent and the actual rent that was paid over
the previous 12 months, the former of which is determined by the property’s
appraiser.  In such circumstances the loan file should include a copy of
the rental/purchase agreement and copies of the borrower’s canceled checks or
money order receipts from the past 12 months to serve as proof of the rental

Friday the commentary discussed how the
high premiums in the MBS market (104, 105, 106) were not appearing on rate
sheets for a variety of reasons
, and Mark C. from LoanSifter wrote, “The only thought I’d add to your comment on
premiums and retaining servicing is:  In some cases, the MBS price
(especially after specified payups) may be higher than the capped price you’d
get from a correspondent lender.  So you may have faster speeds, but as
long as you don’t only retain those (and get in trouble with the agencies), if
the servicing is free, do you retain it?” (My answer would be “yes, if you
can afford to retain it.”)

John J. from Patriot Bank observed,
“We are seeing that the higher rate loans are driven by the LLPA’s of the
various investors, i.e. investor properties, FICO/LTV combinations, etc. 
For companies to cover their branch costs, commissions, a profit margin, and
the LLPA’s, a price of 104-107 is necessary.  As long as these LLPA’s are
being applied by the agencies and most investors, there should not be an
opportunity for the borrowers of these higher rate loans to refinance to lower
rates.  Shying away from note rates in the 4-5% range may be in line with
popular thinking and our former experiences, but in today’s risk-based pricing ‘world’
it may not be rational.”

Rates are
– where do they go from here? Friday’s poor U.S. employment report
momentarily shifted attention away from Euro concerns, which will be with us
for years but still have the same result on our markets: turmoil and slow
economic news create a flight to quality that is keeping our rates low. On
Friday our 10-yr hit 1.44%, but closed around 1.47% and rallied about 1 point.
As you’d expect in a rally, agency MBS prices lagged, and were “only” better by
about .5.

There is
not a whole lot of U.S. news to push things around this week. Factory Orders
today, ISM Services tomorrow, some Productivity and Labor Costs on Wednesday,
along with the Fed’s Beige Book. Thursday is Jobless Claims, and that wraps it
up. In the early going our 10-yr is at
1.50%, and MBS prices are about -.125 from Friday’s close.

A teenage
boy had just passed his driving test and inquired of his father as to when they
could discuss his use of the car.
His father said he’d make a deal with his son: “You bring your grades up
from a C to a B average, study your Bible, and get your hair cut. Then we’ll
talk about the car.”
The boy thought about that for a moment, decided he’d settle for the offer, and
they agreed on it.
After about six weeks his father said, “Son, you’ve brought your grades up
and I’ve observed that you have been studying your Bible, but I’m disappointed
you haven’t had your hair cut.”
The boy said, “You know, Dad, I’ve been thinking about that, and I’ve
noticed in my studies of the Bible that Samson had long hair, John the Baptist
had long hair, Moses had long hair and there’s even strong evidence that Jesus
had long hair.”
The Dad replied, “Did you also notice that they all walked everywhere they


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