Pipeline Hedging Costs; Servicer Single Point of Contact; High Concentration of Foreclosures; Looking for Jumbo Lender?


I saw a poor old lady fall over today on the
ice!!   At least I presume she was poor – she only had $1.20 in her

That is probably not
enough to invest in the hundreds of billions, or trillions, that might be up
for sale if Fannie Freddie begin liquidating their portfolios. Not
only that, but there are 15 FF-related bills in the House, little interest
in the Senate about doing anything soon, and the NAR and mortgage-related
groups arrayed against House Republicans, who are now looking to peddle
FF’s assets. Let me check my wallet to see if I can help them out. AgencyPortfolios

“Daddy, when I grow up, I want to be a
special servicer.” I’d be willing to wager that statement has never been
heard, but it is probably a lucrative business. Nationstar is making a
name for itself in that sector, and IBM (yes, that IBM) is heading that way.
Last year it purchased Wilshire Credit Corp. from BofA, and beginning July 9
the servicing group will stop using the name IBM Lender Business Process
Services (which doesn’t exactly roll off your tongue) and start using a new
name: Seterus.

Hey, if you don’t like the delinquency rate
of the pool that you’re trying to sell some investor (who is probably not going
to read the 300 page prospectus anyway), you can always make up your own
delinquency rates, right? Wrong. You may just be sued, like ML CSFBWhatDelinquencies?

Which reminds me – the public, or a
Congressman, can barely look at a newspaper without seeing yet another story
concerning mortgage fraud
. No wonder they’re all scared out there – when
will these stories be replaced by antique book dealer fraud, or babies being
switched in the hospital fraud? Here is the latest – how Miami leads the
nation in modification fraud
: MiamiFraud. And if
one doesn’t want to read about modification fraud, there’s always someone being
sent to the slammer for origination fraud in the past, the latest being up in
Massachusetts: MassFraud.

(Not only does Miami lead the nation in
mortgage fraud, but Florida leads in foreclosures. According to the MBA,
24% of all mortgages in the country that are in foreclosure are in Florida
– more than 22 other states combined. In fact, more than half the mortgages in
foreclosure in the US are concentrated in 5 states! MBAAStats)

Earlier this week I mentioned the decline in
perceived productivity in mortgage banking. I received this note from Lenders
: “If they are a member of Lenders One we can certainly poll our
members for them. We are a good source to ask a question like this to our
membership. (If you’re interested in learning more, write to Laura Hopkins at LHopkins@lendersone.com.)

“Rob – a gal I have worked with for over 20 years quit a few weeks
ago.  This was the most competent, honest loan officer ever.  She was
a student of the business.  Knew everything about all first time programs,
bond programs, you name it she knew it. She had great production, always a
6 figure income – a true pro.  She said, ‘I would rather do nothing than
this anymore.’  Damn shame.” Unintended consequences?

Although some loan agents often feel the same way, many others carry on, and
need to know the latest in licensing. “The SAFE Act requires that
state-licensed mortgage loan originators (MLOs) complete 8 hours of NMLS
approved continuing education (CE) annually.  The SAFE Act also stipulates
that a state-licensed MLO ‘may not take the same approved course in the same or
successive years to meet the annual requirements for continuing
education.’  NMLS has interpreted the term “successive years
to mean two years in a row.” (Given that the word means “one
following another”, I am glad NMLS cleared that up, although I guess it
could have meant more than 2…) For more: Licensing.

If you’re ever looking for jumbo investors
(probably more on the retail or wholesale side) or lenders, this is a good place
to start: JumboProfits.

A while back I discussed hedging cost, and received this from a grizzled
industry vet: “Well you mention a lot of pipeline management items in your
hedge cost and unfortunately that falls under the secondary guy. It is up to
him or her to track their pull through by broker, LO, and retail office,
establish the lock and renegotiation policies and monitor these activities, and
operational efficiencies of the loan flow through the pipeline and upon
delivery of the final product. This part of the job is not glamorous, but
extremely important to remain profitable. Since it is under the secondary
marketing’s PL, they have to make sure all the gears are in sync to ensure
profitability. Nice ‘pin cushion’ position!”

Frank Fiore with Matchbox LLC wrote,
“We see so few secondary managers who really do this. We just did a
project where we interviewed 20 secondary people and I can tell that their
process is extremely manual, has huge gaps for data integrity, does not use
technology in an efficient manner, and creates exposure. And in most cases, the
people we spoke with were instrumental in creating the process, so they see
nothing wrong with it. Firms have to continually monitor the lock desk to
hedging process.

“Very few secondary people react to
market volatility and their pull through as it relates to hedging like you
wrote about. So many companies say their pull through is at 80% and if the
report is within a few ticks of that, they think they (and the secondary
marketing department or hedging firm) is doing a great job. There is so much
more to it in regard to pipeline management, roll costs, platform allocation.
There are times when you want to make your pull through much higher than what
you are scheduling and others when you would prefer if it fell lower.”

That being said, one important element in
successful pipeline hedging is having multiple delivery channels for loans. Bob
Gundel from Compass Analytics writes, “Lenders with several options
will typically deliver to the investor with the best price in order to squeeze
every last basis point out of the loan and maximize profits. This means that
investors are competing with one another for the lender’s business and product. The
need to keep pricing competitive means that lenders with multiple delivery
options tend to see better investor pricing than lenders that have a single
delivery option. More competitive mandatory pricing means an increase to
the spread over best efforts, which should result in increased profitability
all other things equal. Multiple delivery options then create another level of
best execution for SMM’s (Secondary Marketing Managers) to model and analyze
when selling loans. SMM’s should consider investor, coupon and delivery month
best execution when calculating MTM on locks and inventory as well as when
preparing to sell funded loans to Investors.  With the proper technology,
deriving accurate MTM pricing that factor in all applicable note rate, occupancy
and credit adjustments, delivery cutoffs, early bonuses and price spiffs across
multiple investors can be achieved in a timely and accurate manner. 
Lenders failing to capture best execution at the time of sale create opportunity
cost which result in higher hedge cost, since the full best efforts to
mandatory spread value isn’t realized.”

Recently the U.S. Department of the Treasury released Supplemental Directive
11-04 requiring certain servicers of mortgage loans that are not owned or
guaranteed by Fannie or Freddie to provide a “relationship manager”
to serve as a single point of contact for defaulting borrowers
who are
potentially eligible for the HAMP, the Home Affordable Unemployment Program
(UP), or the HAFA programs. Put another way, the Treasury will require
servicers of non-GSE mortgages to have a single point of contact for defaulting
borrowers starting 9/1.  For details you should go to SinglePoint.

Everyone is talking about these rates… if
our economy is expanding, why are rates falling?
That’s just it – recently
economic news has indicated things are not so rosy. Agency MBS prices are good:
30-yr conventional 4% securities (containing 4.25-4.625% loans) are well above
par. Traders are eyeing 3.5% 30-yr securities, which now are in the 96/97 price
area – will a rally bring them anywhere near 100? And given the higher LLPA’s,
continued underwriting documentation environment, and lack of property
value appreciation, most experts wonder how much more “refi oomph”
outstanding mortgages have.

Can you believe it is nearly Memorial Day
Weekend already?

If you don’t recall why we have a Memorial Day, read about it here: MemorialDayHistory. If
you do recall why we have Memorial Day, I hope you take a few moments over the
weekend to contemplate the reason yourself and maybe even educate or remind
someone else that may not understand or appreciate it.  Explaining the
significance to a child or young adult comes to mind. Given our own busy and
challenging lives, it may be easy for many folks to forget or take for granted
what the Servicemen and Servicewomen have done and are doing to support or even
maintain our daily opportunities.  The “service” portion of the
name is not a coincidence, and it is appropriate to acknowledge the sacrifices
endured by the immediate and extended families impacted by the service of their
own family members.

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