Mortgage Company Performance Survey Findings; LO’s Comment on Effect of New Comp Rules


went for my routine check-up today and everything seemed to be going fine
until he asked me to drop my shorts!  Do you think I should change
dentists?” Sometimes things aren’t what people are expecting. I received
this note. “I was wondering if you are receiving many comments from
LO’s regarding the new comp rules
. As the dust settles, here is the effect:
For the first 3 months under my commission plan, which was a fair number if in
a high volume market, I wound up earning $3,500 less than I would have in the
old plan, making my company obviously more income.  In the meantime I
agreed to a time sheet that says I only perform my duties for 37.5 hours a week
and am paid for these hours by money deducted from commissions. Are my clients
really better off? By the way, I have only been in the business 35 years, so maybe
I am missing something.”

I am
indeed hearing continued complaints about the LO compensation structure, the
internal pricing mechanisms that must be put in place, and the questionable
benefit on borrowers. But on the other hand, I have also heard from some loan
agents that they are making more money under the new plan. Either way, I have
heard nothing about any serious moves afoot to change or repeal the existing structure.  Please share your thoughts in the comments section below.

And are
companies really making more income? If you’re curious about how your company
is performing during 2011 YTD (July) relative to your peers, STRATMOR Group conducted a recent
survey of 40 mid-size independent and bank-owned mortgage originators to get a
handle on this question. The findings pretty much confirmed what just about
everybody suspected: across all survey participants: origination volume was down 28% but net income margins were down 34%
from 2010 levels.
  However, mortgage banks suffered the largest
decline in volume, but bank-owned lenders experienced the biggest drop in
profitability. Per STRATMOR total
revenues actually improved over 2010, but unfortunately expenses increased
faster than revenues rose
.  Other observations include: purchase
business has increased to 62% of total production, the number of LO’s employed
dropped by 10% (due to the impact of the Fed comp rule, licensing requirements,
etc.), LO turnover was down significantly, and LO productivity fell by another
15% after peaking in 2009.  If you would like to discuss this survey’s
findings, contact Jim Cameron at the STRATMOR Group

Word from
mortgage origination trenches continues. “I would like to comment on the
FOMC’s and the Administration’s perception of why the economy is so weak. 
All the talk is centered around Easing, Monetary policy, Interest Rates,
Stimulus etc. and while low interest rates are great it is not interest rates
that are keeping the economy down at this point.  Lack of jobs and lack of
confidence are the problem.  Nothing
is going to get better until we achieve real job growth
, and recent Jobless
Claims numbers are indicating that nothing is changing.  Job growth will
stimulate a housing recovery and both will boost the economy.  Now the wiz
bang geniuses in DC think that they can tinker with rates and numbers and fix
it enough to get re-elected but I submit they are wrong.  Businesses and
entrepreneurs (read new businesses and job creation) need to have
confidence that a fairly predictable business and regulatory environment
exists in which to operate.  That does not exist today hence businesses, large
and small, are not willing to risk and are sitting on whatever cash they
have.  The answer, I think, to
repairing the economy and promoting growth is not interest rates, a new
Stimulus, the Fed buying bonds, or whatever else they tried that hasn’t worked. 
The answer is rolling back the tsunami of new regulations the politicians have
placed in motion.
  Businesses literally do not know if what they are
doing today is going to become illegal next month or next year.  We are
experiencing “death by regulation” in almost every industry.  Hundreds of
new regs are still to be written and implemented.  Our Industry is only
one, among many, that are being pummeled with new rules and regs.  Bottom
line is: get the Government out of our way and American businesses will get
moving.” So opined mortgage marketing executive Derek Becker at

Citi, as do all major investors,
performs post-purchase due diligence on a sample of loans purchased from
Citi reminded clients that, “Among other check-points, this
process identifies defects or instances of non-compliance with investor
policies, procedures, and quality expectations and regulatory requirements. Our
post-purchase defect rate goal for each Correspondent is 5% or less. Through
in-depth trend analysis, we identified the top post-purchase defects for
conventional and government loans. Errors in documenting large deposits and the
source of gift funds continue to be cited as top post-purchase defects.”

Citi noted
that the, “Top Post Purchase Defects are Assets: Paper Trail for Large Deposit
Missing (source documentation for large deposits not included in the file, cumulative
smaller deposits not being documented as large deposit), and Source of
Gift Funds from Donor (missing withdrawal document or bank statement from donor,
missing documentation that verifies funds were from an acceptable source). The
findings should be shared with your staff, and clients can find the information
under the ‘Quality Tools’ header.”

This week Flagstar spread the word to its clients
that, “Effective September 15, 2011, Brokers and Correspondents, including VA
Automatic Correspondents are no longer
required to provide appraisals for IRRRL transactions that refinance an
existing Flagstar-serviced loan
. Flagstar to Flagstar IRRRLs submitted and
denied for no appraisal prior to September 15, 2011 may be resubmitted.” In
addition, “Effective for all FHA, VA and USDA Rural Housing loans locked on or after September 22, all borrowers must
have a minimum FICO score of 620
. Loans for borrowers having FICO scores
between 600 and 619 must be registered on or before September 21, and must
close on or before October 21. The requirements above apply to all Brokers and
Correspondents, including DE Delegated and VA Automatic Correspondents.”
Flagstar is also undergoing adjustments to its jumbo ARM and fixed-rate
products. Please see its full memo for details.

In somewhat
non-mortgage related market news yesterday, the European Central Bank announced
additional US dollar liquidity-providing operations over year-end. More
specifically, the ECB “has decided, in coordination with the Federal Reserve,
the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct
three US dollar liquidity-providing operations with a maturity of approximately
three months covering the end of the year. These operations will be conducted
in addition to the ongoing weekly seven-day operations…these will all take the
form of repurchase operations against eligible collateral and will be carried
out as fixed rate tender procedures with full allotment.” In English, Central
banks are trying to settle fears that European banks could be threatened by a
shortage of dollars, as they were at the height of the 2008 financial crisis,
and opened new lines of credit to institutions in the first such show of force
in more than a year.

This news
caused stock markets to rally – banks can borrow dollars for up to three
months, instead of just for one week as before. And it seemed to go beyond just
providing reassurance that European banks would not be cut off by American
lenders wary of their financial state. The central banks seemed determined to
demonstrate that they would not hesitate to deploy their combined weight to
keep the European sovereign debt crisis from becoming a bigger threat to the
global economy.

We had a “slew”
of economic news yesterday. The CPI was +.4% (higher than expected), but
Jobless Claims were +11k to 428k (higher than expected), and the Empire State
Manufacturing Survey General Business Conditions index inched down one point.
Nationwide, Industrial Production increased 0.2% in August, and Capacity
Utilization edged up to 77.4%, and the Philadelphia Fed Index of General
Business activity within the factory sector rose to -17.5 this month from -30.7
in August and 3.2 in July.

The impact
of all this on rates was not particularly good, since the ECB coordination with
our Fed will dampen the bid for safe assets (i.e., Treasury securities) and the
CPI rose faster than expected in August. The 10-year UST note yield increased
as much as 13 basis points to 2.12%, after having dropped to a record low of
1.8770% three days ago and closed at 2.09%. Volume in MBS was light today at
just 64% of the 30-day average, according to Tradeweb’s experience, and prices
were worse by about .250.

There is
very little news today (only a preliminary September read on Consumer Sentiment
– expected higher to 56.5 from 55.7). In the early going rates are nearly
unchanged with the 10-yr at 2.08% and MBS prices unmoved from Thursday’s close.

WHY MEN DIE FIRST (Part 2; Part 1 was yesterday)
This is a question that has gone unanswered for centuries…… but, now we
If you ask her to do something she doesn’t enjoy……. that’s domination.
If SHE asks you………it’s a favor.
If you appreciate the female form and frilly underwear…… you’re a pervert.
If you don’t…………’re gay.
If you like a woman to shave her legs and keep in shape…………’re
If you try to keep yourself in shape…………….you’re vain.
If you don’t…………….you’re a slob.
If you buy her flowers………….you’re after something.
If you don’t………………’re not thoughtful.
If you’re proud of your achievements…….. you’re full of yourself.
If you don’t………………’re not ambitious.
If she has a headache…………she’s tired.
If you have a headache………….you don’t love her anymore.
If you want it too often………you’re oversexed.
If you don’t……….there must be someone else.
Men die first because they want to.

If you’re interested, visit my
twice-a-month blog at the STRATMOR Group web site located at The current blog takes a look at the recent news concerning
REIT’s, and the possible tax implications. 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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