FHA Mortgage Insurance Fee Hike: Last Day to Order Case Numbers; Credit Check Double Standard; BoA Job Cuts; Comp Confusion


Two soap operas created more than
40 years ago, who taught us not to bother getting married since it’s only going
to last until next season anyway, were canceled: “All My Children”
and “One Life to Live” are history. My soap opera knowledge extends
to seeing the doc drawers sobbing while watching Luke Laura in the lunch
room so I am not an expert on those or “General Hospital,” but
supposedly this leaves only four English-speaking soaps on network TV.

25 basis point increase…FHA…Annual MIPMonday. ‘Nuff said – FHA lenders
everywhere are scrambling to take down those FHA case numbers ahead of Monday’s
MI change. Operators standing by! MORTGAGEE LETTER11-10

originators are required, under the SAFE Act, to authorize a credit report be
pulled. (“All licensees will be required to authorize a credit report
through NMLS”: NMLS  But it seems
that state governments don’t like employers “discriminating”
potential hires based on credit history, and in fact state governments
consumer groups are very concerned about the trend of employers to use credit
check in the hiring process and might start offering legislation against it.
Here is the latest on this potential double standard: CreditReportsforHiring?

One area of confusion is
compensation based on product type, which has increased to the point of Wells
correspondent group notifying clients, “…loans from originators
or aggregators where compensation policies allow for varied compensation based
on product type are not eligible for purchase…the rule states that LO
compensation cannot be based upon a transaction’s terms or conditions. The
rules also prohibit ‘steering’ a consumer to a product offering less favorable
terms in order to increase LO compensation. According to the Federal Reserve
Board, while product type is not a “term or condition”, it is likely
a ‘proxy’ for a term or condition. Under the regulation, compensation that
varies based on a characteristic that is a proxy for a term or condition is
also prohibited…Wells Fargo remains concerned about the viability of proving
compliance, even in instances where a variation of time and effort of the loan
originator can be established.”

(Editor’s note: I have not seen other aggregators come out with scrutiny on
their correspondent clients’ compliance to LO Comp, in spite of the servicer
who is first in line to refund fees and pay penalties on a non-compliant
foreclosure. And it’s also the large aggregators who are also the prime targets
for class action suits, which is always a risk with new and untested
regulations.  If the correspondent’s client shuts down, or can’t pay the
penalty, then it’s the servicer who will have to take the hit. Maybe I’m
missing something…)

Another is occupancy. Yesterday I
mentioned that, “EverBank spread the word to brokers that,
“Since N/O/O loans do not follow the new Dodd Frank Rule, ‘We can continue
business as usual with them when registering and submitting. Please note you
will not have to price them under Lender Paid, brokers can use the previous
procedures, and when registering the loan (EverBank’s system) will not give you
that option.” This is a great example of the subjective interpretative
nature that still exists in the industry around many of these rules
, and
the discrepancy between Dodd Frank and TILA.

Any companies sending folks to
the Secondary Conference in New York in a few weeks, and dealing with repurchase
requests, may want to spend some time with The Prieston Group and the
American Mortgage Law Group
. They’ll be there for “consultations,
information and solutions related to repurchase defense and management.”
You may want to shoot an e-mail to sales@priestongroup.com if you have questions
about services and strategies that reduce the incidence of
repurchases (This is not a paid announcement, by the way.)

Regarding the proposed Qualified
Residential Mortgage provisions, Brian B. from Two River Mortgage wrote,
“One of the errors that Congress fails to note about the 20% down payment
requirement is that it is basically wrong! The focus of QRM should not be on
LTV, and instead be on reserves credit history and use the historical
numbers, pre-2005
. One of the reasons Thornburg’s portfolio actually
performed so well was the required reserves. Yes, some of the PI payments
were $5-$10,000, but if the borrower had $800,000 that’s a much better ‘burn
rate’ than a borrower who has a $1,200 PITI payment and only $3,600 in
reserves. Both could lose their job, but whose in a better position to survive?
I’m willing to bet that the foreclosure rate has a direct correlation to the
savings rate of the borrowers, and that those with a 401(k) but unemployed are
more likely to be current on their mortgage. Stressed, but current.” Here
is the latest: BloombergQRM

of America announced it is eliminating 1,500 jobs in its mortgage origination
(by closing 100 regional fulfillment
centers) and shifting another 350 jobs from creating new home loans to handling
troubled existing loans. Per the WSJ article, “This is just the latest move
by (BofA) to get away from creating new home loans and instead turn its focus
on the massive pile of bad home loans it has, many of which it got from the
purchase of Countrywide Financial…Through a series of announcements the bank
has now moved about 4,000 employees from the creating side to the troubled
mortgage side. Executives have also been rotated.”

of America released its results this morning. Revenue came in close to
expectations, but per the CEO mortgage operations and compensation issues
impacted earnings. The bank reported net income of $2.0 billion, less than expected,
compared with $3.2 billion in the same quarter a year ago, and lost $2.39
billion in its residential mortgage unit, compared with a $2.07 billion loss in
the same quarter a year earlier. On the mortgage side, revenue dropped and
expenses increased – according to the earnings release, Bank of America’s
“representations and warranties provision” was $1 billion in the
first quarter, compared to $526 million in the first quarter of 2010. The bank
said more than half of the provision is attributable to mortgage repurchases
funneled through Fannie May and Freddie Mac

Freddie are often lumped together, especially since they are both under
FHFA. But Wall Street traders and mortgage investors have noticed a trend
recently: the Freddie Mac MBS market share has declined over the last few
, attributed to a combination of best execution strategies on the
part of originators, acquisitions or closures of originators that were
traditionally only Freddie Mac MBS issuers (like TBW WAMU) and a more
aggressive tightening/pricing of credit by Freddie Mac. Between 7/10 and 3/11,
the outstanding balance of Fannie MBS’s increased by $17 billion whereas it has
decreased by $75 billion for Freddie Mac MBS during this period. Freddie Mac’s
share of new issuance declined from more than 40% in 2005-07 to around 36% in
2011, much due to BofA Wells reducing the amount they securitize through
Freddie, as well as WAMU and TBW’s demise. Sellers are reporting that the
historical Gold-Fannie spread has suffered in the last 6 months, and
originators are seeing better execution by putting loans into Fannie

RealtyTrac’s March housing study
reports a 15% decrease in foreclosure activity between the fourth
quarter of 2010 and the first quarter of 2011, as well as a 27% decline
compared to the same period a year ago. But before you break out the champagne,
the decline is being attributed to extended processing timelines, not an
improving market
. Per the CEO, “Weak demand, declining home prices and
the lack of credit availability are weighing heavily on the market, which is
still facing the dual threat of a looming shadow inventory of distressed
properties and the probability that foreclosure activity will begin to increase
again as lenders and servicers gradually work their way through the backlog of
thousands of foreclosures that have been delayed due to improperly processed

Their report noted that judicial
foreclosure states, such as Florida and Massachusetts, “accounted for some
of the biggest quarterly and annual decreases in the first quarter.” For
the month of March, foreclosure filings were up 7% from February and were
reported on 239,795 U.S. properties. Nevada has the highest rate of foreclosure
filings with a total 32,000 properties, or one in every 35, receiving one, and
Las Vegas posted the highest number of filings on the metropolitan level, at
26,275, or one in every 31 homes. Nevada was followed closely by Arizona and
California at the top of the foreclosure activity lists. California
foreclosures currently account for 25% of the entire market. FULL STORY

In spite of a decent amount of
news yesterday (CPI, a strong $13 billion 30-yr auction), there wasn’t much
volatility yesterday, and by the end of the day the 10-yr closed at 3.49%, the
Dow was up about 20 points, MBS selling volume was light, and MBS prices closed
the day nearly unchanged from Wednesday’s levels.

How much does $10 buy you
now compared to 10 years ago? Check out this handy-dandy CPI calculator

Last month the Consumer Price Index was +.5%, the largest monthly gain since
June 2009. It would seem that producers have been grappling with higher raw
material costs for some time and due to sluggish demand have been unable to
pass on much of the increased costs to us. It was expected to be +.5 for March
also, and came in at that with the core rate +.1%. The Empire State
Manufacturing Index shot up to “21.7”, a strong number. Later we have
Industrial Production and Capacity Utilization, and a preliminary Michigan
Sentiment reading, which are generally not as “market moving” as the
CPI number, or for that matter the debt problems with which the US and Europe
are grappling. After the numbers the 10-yr is at 3.43%, and agency MBS
prices are better by .250 or more depending on coupon

An Old Italian man is dying. He calls his grandson to his bedside.

“Guido, I wan’ you lissina me. I wan’ you
to take-a my chrome plated .38 revolver so you will always remember me.”

“But grandpa, I really don’t like guns. How about you leave me your Rolex
watch instead?”

“You lissina me, boy. Somma day you gonna be runna da business, you gonna
have a beautiful wife, lotsa money, a big-a home and maybe a couple of
bambinos. Somma day you gonna come-a home and maybe finda you wife inna bed
with another man… Whatta you gonna do then?  Pointa to you watch and
say, ‘Time’s Up’?”   

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