CFPB on Loan Closings; Chase and Wells Mortgage Earnings Reflect the Industry; Lenders Selling Their Only Asset


What is the Economic Census?
According to U.S. Secretary of Commerce, Penny Pritzker, “the economic
census is one of the Commerce Department’s most valuable data
resources,” ya, but what does it show? “By providing a close-up look at
millions of U.S. companies in thousands of industries, the economic
census is an important tool that shows policy at the local, state and
national level, and helps businesses make critical decisions that drive
economic growth and job creation.” Oh, OK.

Before I forget, a job ad yesterday for TruHome had the incorrect website (it was within the company at least). For those interested in TruHome, visit, or contact Karen Steen at ksteen@cacu. com.
TruHome Solutions, LLC is seeking a highly motivated and proven leader
to join its leadership team as the Vice President of Mortgage

Hey, if you’re going to be around Washington DC on the 23rd, the CFPB has announced that it will be holding a forum on the mortgage closing process. The
announcement states that the event will feature remarks from Director
Cordray, and a discussion with consumer groups, industry
representatives, and members of the public. The CFPB has indicated that
the next phase of its “Know Before You Owe” initiative is to identify
ways to improve the closing process.  To kick off that phase, the CFPB
published a notice
in the Federal Register in January 2014 in which it asked 17 questions
intended to provide the CFPB with information about “what consumers find
most problematic about the current closing process.”  The forum appears
to be a continuation of those information gathering efforts.

April Fool’s Day has a way of sneaking up on people. So much in fact, on April 1st, the CFPB released its Small Entity Compliance Guide for the TILA-RESPA Integrated Disclosure Rule.
As far as I can tell, it was neither an attempt to trick, nor published
to deceive, in any way – maybe next year. As a reminder, the Bureau has
organized the guide in a very informative and very reader friendly FAQ
style, which includes a step-by-step guide for completion of both the
Loan Estimate and the Closing Disclosure forms. As most know,
applications received on or after August 15, 2015, the integrated
disclosures must be used; for applications received prior to August 1,
2015 the old disclosure forms must be used: Compliance Guide.

CFPB has certainly taken an interest in servicing. As this commentary
has detailed several times in recent months, the servicing market has
become quite interesting
as lenders needing cash are peeling off chunks
of servicing – one of the few assets a lender has – and selling them to
non-banks like Stearns (servicing about $26 billion). This, of course,
bypasses the aggregators, much to the concern of correspondent
departments at Wells, Citi, Chase, US Bank, and so on, who are paying
less for servicing. But this trend has regulators concerned, and by the
time it makes Business Week we know it is a full-fledged event.

So what’s recently been put out on the servicing sale block? Phoenix Capital is offering $411 million 100% Fannie Mae MSR’s, with bids due April 11th, and possessing a pool characteristics of: 86% Fixed30, 14% Fixed15, 1% ARM,  99%
Current Loans; 1% DQ; 1% BK, 4.181% WaC, 746 WaFICO; 79% WaLTV,
$176k WaLA, 54% Single Family; 82% Owner Occupied, 66% Purchase Money
Loans, 47% FL Originations, 100% retail.

Mountain View Servicing Group had two offerings the first week of April, the first was $923 million FHLMC non-recourse servicing, 100% FRM 1st
lien product, 3.66% Wac, 768 WaFICO,72% WaLTV, $255k WaLA, no DELs,
California (35.1%), Virginia (7%), Washington (5.4%), and Arizona (5.2
%). The second was
$205 million of FNMA non-recourse servicing with bifurcation of
origination and servicing reps and warrants on 98.5% of the servicing
portfolio; the pool was 96% fixed rate and 99.8 percent 1st
lien product, 71% WaLTV, 5.12% WaC, $213k WaLA, with state originations
of New York (81.4%), California (6.3%), New Jersey (4.7%), and Florida

And Interactive Mortgage Advisors
(IMA for the folks playing along at home) is brokering the servicing
rights to a $3.5 billion Ginnie Mae bulk residential pool. One doesn’t
want to make a mistake with 19,000 loans. “Quality characteristics of
this portfolio include: 3.758% Wtd Avg Note Rate, wide geographic
dispersion highlighted by CA, TX, TN and OH, total delinquencies
including foreclosures of only 3.85% on 20 months of seasoning, Wtd Avg
Fico 719, new appraisals on 100% of the 646 VA IRRL Loans, and currently
sub-serviced by Cenlar.

Returning to MountainView Servicing Group, it is also a
sale advisor for a homebuilder’s $200 million Fannie Mae MSR portfolio
and an additional $30-40 million of servicing per month from the builder.
“The bulk portfolio, with $200 million of unpaid principal balance, is
100 percent fixed-rate and first lien Fannie Mae product with a weighted
average original FICO of 755, a weighted average original loan-to-value
ratio of 82 percent, a weighted average interest rate of 3.91 percent,
and low delinquencies. All of the loans were originated by the mortgage
financing subsidiary of a homebuilding company, and the average loan
size is $235,563. Top states for the portfolio are North Carolina, Ohio,
and Florida.

American Banker
highlighted the current event in a recent article “Mortgage Lenders
Sell Cash-Cow Servicing Rights to Survive.” “Normally, mortgage
servicing rights would be a cherished asset in a market like this.
Servicing rights rise in value as interest rates climb, largely because
borrowers are not refinancing, so fewer loan are paying off. The
reliable income stream offsets lower origination income…Yet after
slogging through several quarters of high expenses and shrinking
profits, many lenders are now selling servicing rights to raise cash to
cover payroll and expenses, industry sources say. Some of these lenders
built expensive retail networks and are paying never-before-seen
commissions to loan officers. The steep drop in refinances and home
purchases is squeezing profits.” Roughly 75% of all sellers of mortgage
servicing rights in the past year were mortgage bankers.

wonders if lenders underestimated the cost incurred in servicing. It is
not cheap, and regulators like the CFPB are focused on making sure it
is done flawlessly – which will continue to add to the cost. Servicers
are required to advance mortgage payments to investors when a borrower
stops paying on some types of loans. The article in AB goes on to give a
little primer about servicing. “Mortgage servicing rights are an
esoteric and volatile niche asset that serves as a hedge when mortgage
rates rise and lending volumes fall. Servicers are paid a sliver of
interest, usually 25 basis points of the loan balance annually, to
collect principal and interest payments from borrowers and remit those
funds monthly to investors. Servicers also collect and remit taxes and
insurance for some borrowers, and deal with delinquencies and

Once again, we
are reminded that a non-depository mortgage lender mostly offers a good
income and lifestyle for its employees, but little in the way of
accumulated net worth besides cash in the bank (that is often used to
satisfy investor warehouse demands).
What is a lender really worth, besides the value of its retained
servicing, if its people can walk out the door? The value of its office
furniture? Its franchise value and goodwill? I’ll save that discussion
for another time. But lenders having to sell servicing to pay for
overhead, hoping for a huge increase in volume and fee income, may have
challenging times ahead.

As they say, “money talks and —- —- walks.” I don’t know who the “they” is in that sentence, but “regulators” are boosting the capital rule for the eight largest U.S. banks.
Regulators plan to subject the eight largest U.S. banks to a leverage
ratio of 5% equity to total assets, which means that the rule will force
the banks to increase capital by about $68 billion total. The rule has
prompted complaints
that U.S. banks will be at a competitive
disadvantage to foreign counterparts, which are subject to a
less-stringent ratio.

of banks, we did have earnings from Wells Fargo and Chase today.
JPMorgan Chase Co. (NYSE: JPM) today reported net income for the
first quarter of 2014 of $5.3 billion, compared with net income of $6.5
billion in the first quarter of 2013. Chase’s mortgage numbers reflect those of the industry:
net income was $114 million, a decrease of $559 million from the prior
year, driven by lower net revenue and lower benefit from the provision
for credit losses, partially offset by lower noninterest expense. Mortgage Production
reflected a pretax loss was $58 million, a decrease of $485 million
from the prior year, reflecting lower revenue partially offset by lower
expense and lower repurchase losses. Mortgage production-related revenue
sank due to reflecting lower volumes. Production expense dropped due to
lower headcount-related expense and a drop in non-MBS related legal
expense. Repurchase losses for the current quarter were down. Chase’s mortgage servicing
had a pretax loss due to a higher MSR risk management loss, largely
offset by lower expenses. Mortgage application volumes were $26.1
billion, down 57% from the prior year and 17% from the prior quarter.

Wells Fargo’s numbers
came in ahead of estimates, and analysts continue to talk about its
servicing income balancing the loss of mortgage originations. Wells
Fargo reported its home lending originations amounted to just $36
billion, compared with the $109 billion reported a year earlier and $50
billion in the prior quarter. Wells has a significant share in funding
home purchases, an area that held up better than refinancing businesses.
But mortgage banking noninterest income totaled $1.51 billion, down 46%
from a year earlier (versus Chase’s drop of 68%) and mortgage banking
profit of $114 million, down by $559 million from the prior year. Wells
Fargo has cut roughly 7,000 jobs since July.

market is continuing to ruminate on the Fed’s March meeting minutes
released Wednesday. Several Federal Reserve policy makers said a rise in
their median projection for the main interest rate exaggerated the
likely speed of tightening, according to minutes of their March meeting.
As we know, Treasury yields rose last month after policy makers
predicted that the benchmark interest rate would rise faster than
previously forecast. Janet Yellen, presiding over her first meeting as
chair, later downplayed the importance of the forecasts, even as she
said that rates might start to rise “around six months” after the Fed
ends its bond-purchase program. The FOMC next meets April 29-30 – so the
press and analysts can jabber about that in a couple weeks.

For substantive news, yesterday, before the stock markets sank like the Titanic, we learned that Jobless Claims decreased by 32,000 to 300,000 in the week ended April 5, the lowest since May 2007.
The four-week average of claims, a less-volatile measure than the
weekly figure, fell to 316,250, the lowest since the end of September.
Inflation watchers received some news to chew on: import prices
increased 0.6% in March, climbing for a fourth month led by higher costs
of food, fuels and industrial supplies.

was reminded why I will never be a day trader. If someone had told me
that on Thursday Jobless Claims would hit a 7-year low, and that import
prices would show an increase, I would have sold my bonds and bought
stocks. And I would have lost a heckuva lot of money since the markets
moved in the opposite direction. The
10-year Treasury was marked higher by .5 in price with yield down six
basis points to 2.63%, its lowest level since early March, and MBS
prices rallied between .250-.50. Meanwhile, our friend the Fed continues
to buy about $2 billion of agency paper per day. (The buying is
anticipated to decline to a daily pace of $1.8 billion over the first
half of May, assuming the FOMC announces another $5 billion in tapering
at its upcoming meeting.)

of this spring weekend we’ve had the Producer Price Index (PPI) for
March, showing a “hot” +.5% which was +.6% without volatile food
energy components. The PPI is +1.4% year over year, and removing food
energy it was also +1.4%. We’ll also have the preliminary April
Consumer Sentiment number around 7AM PST. In the early going the 10-yr is sitting around 2.62% and agency MBS are roughly unchanged.

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