MBA Class on Fair Lending; Redwood’s New Jumbo Deal; Chase’s Mortgage Earnings Sag


There are
folks out there that believe doing Sudoku puzzles will stave off senility and Alzheimer’s.
I don’t do the puzzles, and don’t believe the claim. I…uh… what was my
point? Oh yes…there are some very bright folks out there who apparently
the minimum number of numbers (17) required to give a unique answer
to a puzzle. (And you wondered what math majors did after college).

of bright folks, fair lending enforcement has taken a dramatic new turn. Things
are heating up in the courts, with the traditional “price
discrimination” and “red-lining” suits being replaced by the “disparate
impact” theory: the idea that even if lenders don’t actively discriminate,
they can still be sued if the cumulative effect of their actions implies
discrimination. The MBA is holding an
all-day, in-depth workshop covering this, titled, “Prepare Now for Fair Lending Reviews and Enforcement” in Washington,
D.C. on January 24th. There will be reps from the DOJ, CFPB and HUD,
as well as attorneys and consultants.

Some mortgage
companies are scaling back (MetLife comes to mind) while others continue to
expand. Kinecta Federal Credit Union is
continuing to grow its business and is hiring
Retail Mortgage Loan
Consultants and Sales Associates throughout Southern California, and is also
growing its Wholesale/Correspondent lending with AE positions open in California,
and in territories covering the Northwest, Southwest, Central, Northeast and
Southeast. “Kinecta FCU is one of the nation’s leading credit unions, with more
than $3.5 billion in assets and serving over 220,000 member-owners across the
country.” If you are interested, please send a resume to Sue Ann Smith at

One of the big trends in the industry is the increased documentation, especially
with regard to appraisals and collateral, and occasionally I am asked about
companies who can help. Mortgage technology company FNC Inc., given what I am hearing, seems to be gaining market share
in that space: its clients include the largest mortgage industry lenders and
industry leading appraisal management companies. The website notes that, “FNC delivers
deep expertise in appraisal compliance, workflow best practices, and process
efficiency to: mortgage lenders, servicers, appraisal management companies,
secondary capital markets, property casualty insurance companies.”
Check it out at:

Here’s a Friday puzzle: What is about $400 million, filled with loans whose
balances average $932,000, have CLTV’s of 65% and borrower credit scores
average 770? How about Redwood Trust’s
next jumbo residential mortgage-backed security? Fitch Ratings and Kroll Bond
Ratings are grading the deal, reportedly, backed by Credit Suisse.

The recent
Fed Paper, and Fed speeches, on suggestions on curing the housing woes, elicited
this note from a reader: “We were struck by how
little effort the Fed put into identifying areas where regulatory action by the
Fed and others could contribute significantly to alleviating the problem

In the policy recommendations portion of the 28 page paper, the Fed offers just
two paragraphs which I quote. ‘Credit Access and Pricing: as noted earlier,
mortgage credit conditions have tightened dramatically from their pre-recession
levels. Lax mortgage lending standards in the years before the house price peak
contributed to problems in the housing market, so some tightening relative to pre-crisis
practices was necessary and appropriate. The important question is whether the
degree of tightness evident today accurately reflects sustainable lending and
appropriate consumer protection.’ And, ‘Financial regulators have been in
consultation with the GSEs and originators about the sources of the apparent
tightness in lending standards. Continued efforts are needed to find an
appropriate balance between prudent lending and appropriate consumer
protection, on the one hand, and not unduly restricting mortgage credit, on the
other hand. In particular, policymakers should recognize that steps that
promote healthier housing and mortgage markets are good for safety and
soundness as well.’ That’s it???  No mention of the QM and the need for a
true compliance safe harbor, rather than a rebuttable presumption of
compliance?  What about the QRM?  Does the Fed really think that a
20% or 10% minimum down payment requirement for the QRM will help re-center the
credit pendulum?  These are rules that the Fed drafted (in the case of the
QM proposed rule) or participates in the drafting (in the case of QRM).  The Community Mortgage Banking Project
urges everyone to stay involved to keep the pressure on the regulators for
balanced and reasonable QRM and QM rules.
” So wrote Pete Mills with Mortgage Banking Initiatives, Inc.

Also regarding
last week’s Fed white paper on housing, The Shirmeyer Report noted, “This
is the first time since our current economic crisis began that the Fed has
reported so comprehensively on how to help the housing and credit markets
although they have made recommendations to policymakers before. As we have
repeatedly said for the past few years, as the smartest people we know have
said for the past few years, you must
fix housing and credit or our own economic recovery will be limited and long.

The Fed recommended boosting the role of Fannie and Freddie as opposed to
reducing their role in the housing recovery as Congress and the Administration
has been insisting. Now is the time to address housing; after all we have
already addressed corporations and banks. What
better way to do so than with the existing entities, Fannie, Freddie and

On a
slightly different topic Michael Frotten wrote, “There were two recent stories
in the news that have interested some people in the industry. One story
regarding the new head of the CFPB, Richard Cordrey reported that one of his
first initiatives involving consumer protection is called, ‘Know Before You
Owe!’ The second story was that the Federal Government is mandating that top
servicers figure out how to improve communications with borrowers. For many of
us in the mortgage industry I’m sure the first reaction after reading those
stories in the news was to reach for the closest bottle of Tums! However, there
is an underlying issue that can be improved upon since both of these issues are
connected. ‘Know Before You Owe’ is designed to improve the experience for
consumers before they take out a mortgage loan, and the Fed’s mandate is
designed to improve communications with consumers after they have closed on the
same mortgage. The real issue and challenge
isn’t just improved communication – its enhanced consumer comprehension through
the entire process!
(Anyone with teenage children like me knows the
difference between the two.) We created a company to help the mortgage industry
improve the consumer experience through the use of video and achieve a higher
level of consumer education and comprehension. Vidverify will help mortgage bankers enhance the level of
compliance, consumer education and comprehension, grow relationships, reduce
errors, and deliver communication that is consistent and easy to understand.”
If you’d like to hear more contact Mike at

Maybe Chase will offer it to help their
bottom line mortgage profits. The company reported its 4th quarter
earnings and revenue (close to expectations): net income was $3.7 billion, or
$19 billion for the year, while revenue was $22.2 billion, or nearly $100
billion for 2011. For Basel fans out there, Basel I Tier 1 came in at 10.0%,
and estimated Basel III Tier 1 at 7.9%. Chase’s credit reserves stood at $28.3
billion, with loan loss coverage ratio at 3.35%. Turning to mortgages, the
picture is not so rosy. “Mortgage production
and servicing reported a net loss of $258 million, compared with net income of
$330 million in the prior year.
Mortgage production pretax income was $161
million, a decrease of $392 million, or 71%, from the prior year.
Production-related revenue, excluding repurchase losses, was $1.1 billion, a
decrease of $269 million, or 20%, from the prior year, reflecting narrower
margins and lower volumes. Production expense was $518 million, an increase of
$82 million, or 19%, reflecting a shift to higher-cost originations within the
retail channel as well as enhanced underwriting processes. Repurchase losses
were $390 million, compared with repurchase losses of $349 million in the prior
year. The higher losses were primarily
driven by an acceleration of Agency demands

servicing numbers showed a pretax loss of $586 million, compared with pretax
income of $14 million in the prior year, largely due to mortgage servicing
rights (“MSR”) risk management loss. The prior-year servicing expense
included $374 million related to foreclosure-related matters. MSR risk
management was a loss of $377 million, down $667 million compared with the
prior year. The current-quarter MSR risk
management loss included an $832 million decrease in the fair value of the MSR
asset, partially offset by $460 million of net gains on the associated
derivative hedges
.” What a great business…

On the
trading side, JPMorgan Chase alerted its broker-dealer clients of a change in
respect to its trading in several securities types including mortgage-backed
securities. Specifically, “the Treasury Market Practices Group (the “TMPG”) and
the Securities Industry and Financial Markets Association (“SIFMA”) have
published the “U.S. Treasury Securities Fails Charge Trading Practice” and the
“Agency Debt and Agency Mortgage-Backed Securities Fails Charge Trading
Practice” at
J.P. Morgan Securities LLC and its affiliates have decided to adopt these Fails
Charge Trading Practices for purposes of our transactions starting February 1.”
For those not involved in the securities trading, (very) basically these
practices standardize what happens when a client fails to deliver a security after
they agreed to deliver it. Just don’t let it happen…

volatility in the interest rate markets
continues to be minimal
. Thursday the markets were nudged by successful
bond auctions in Spain and Italy, and here in the U.S. by weak Initial Jobless
Claims and Retail Sales reports. When the day finished the 10-yr settled at
1.94% and MBS prices were a smidge better. Things don’t appear to be changing
much today: the only news out so far were some trade balance figures (which
rarely move markets) that showed import prices dropped .1% and that the trade
balance’s deficit increased slightly to $47.8 billion. Later on we have a preliminary
January Michigan Sentiment Index at 9:55AM EST. After the trade numbers the 10-yr is at 1.85% and MBS prices are moving up in morning trading.

Most of
the time a joke is posted here. But sometimes there are some short (about a
minute and a half), clever ads out there worth passing along:

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web
site located at . 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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