Reader Input on LO Comp, MI Changes, Servicing for the Agencies, HARP 2.0, and FHA Streamlines


Here we
are at 11/11/11: Veterans Day. Veterans Day originated as “Armistice Day” on
Nov. 11, 1919, the first anniversary of the end of World War I. Congress passed
a resolution in 1926 for an annual observance, and Nov. 11 became a national
holiday beginning in 1938. President Dwight D. Eisenhower signed legislation in
1954 to change the name to Veterans Day as a way to honor those who served in
all American wars. Per the Census Bureau
there are roughly 22 million veterans in the United States
, 1.6 million of
which are female. 2.4 million are black, 1.2 million are Hispanic. Age-wise, 9
million veterans are 65 years old or older, while 1.7 million are younger than
35. War-wise, 7.6 million are Vietnam-era, 4.8 served during the Gulf War (1990
to the present), 2.1 million from WW II (including my father), 2.6 million from
the Korean War, and 5.5 million from peacetime only. And for more “fun
with numbers,” three states have 1
million or more vets: California, Florida, and Texas

Michigan has seen its share of economic ups and downs, and the resulting swings
in mortgage lending. Michigan Governor Rick Snyder signed legislation providing
harsher penalties to those who knowingly engage in mortgage fraud. The new Michigan laws make mortgage fraud a
specific felony
, which will enable courts to sentence offenders to both
jail time and fines depending on the value of the fraud. Michigan sentencing
guidelines were also revised to provide for new penalties, including penalties
for notaries that knowingly participate in mortgage fraud. Don’t do the time if
you can’t do the time.

tend to focus on new deals, and those in process, rather than cancelling out
loans that went elsewhere. And especially with so many deals in the works, and
pipelines swollen, Secondary Marketing
departments are trying to keep “stale” loans out of their hedged
pipelines, and brokers certainly don’t want their quality/pull-through rankings
to be incorrectly dinged
. I even saw one wholesale rep send this to
brokers: “If you have any loans in pipeline that will not be moving
forward due to a low appraised value, please e-mail me the name and loan
number.  I need to make sure these are denied correctly, to assure they
don’t count against your Tier Score.”

Goldman Sachs has plenty of smart people working
there, but it may not be enough to smooth over $15.8 billion in mortgage
lawsuits (up from $485 million three months earlier). But Reuters reported that
Goldman management slightly increased the estimate of what it may lose on the
litigation to $2.6 billion from $2 billion. “The bigger dollar figures come as
investors in mortgage-backed bond deals have raced to take legal action or
enter settlement negotiations before statutes of limitations expire, and as
investors continue to worry about banks’ exposure to big lawsuits. Goldman also
added three European financial firms to a list of parties that have threatened
to sue it, a more fulsome disclosure than some of its peers: HSH Nordbank,
Norges Bank Investment Management and IKB Deutsche Industriebank AG. For the
whole story:

How ’bout we dip into the mail bag for
some recent reader input?

the commentary mentioned Fannie Freddie taking a tough stance on servicer
issues, and I received, “We are a very small Fannie Mae servicer and we
have already had two cases of ‘compensatory fees’ for not foreclosing fast
enough and missing the proscribed timelines in Fannie Mae’s servicing
requirements. In the one case that we
have paid so far, our fee was several thousand dollars!
The other case is
pending our appeal (wish us luck).  So, it’s not just the big guys who are
getting hit. I can’t imagine what their ‘compensatory fees’ must be! Community
banks are simply getting killed by the government onslaught.”

Mortgage insurance: can’t live with it, can’t live
without it? One MI industry vet wrote, “I felt compelled to comment on:
‘Apparently the higher MI prices and tighter underwriting standards of the
current environment are enticing.’  Actually the MI prices today are lower
than when I started decades ago and are lower than at any point in those years.
Regarding the tighter underwriting standards – it depends on one’s point of
reference. Tighter than the bubble era, yes. But tighter than any point from
1957 leading up to the bubble era, no.” Both very good points.

And more on MI: “As much fun as it would be to get
into a “never ending he said/she said debate”, your industry vet has selective
memory. With FICO-driven MI pricing there are some current MI price
improvements for high FICO borrowers. These were not available decades ago. I
know I was head of pricing for GEMIC decades ago. What’s also missing from this
vet’s comments are the current high FICO floors that were a lot lower before
the bust and nonexistent ‘decades’ ago, as in before FICO was even an accepted
standard. As far as underwriting standards are concerned, today the MI’s are
(rightfully) underwriting with 1980s guidelines (because they were the right
guidelines). Now, however, the MI’s are also using 21st century AUS systems fed
by state-of-the-art real time credit income information and supported by
fraud detection and property valuation systems that were only dreamed of as
little as a decade ago. As they say if you say you remember the old days you
probably weren’t there!

“You had it right, at today’s MI rates and at today’s MI guidelines the
insurance the MI’s are writing should be solid gold! The problem is simply: 1) the privately insured market has shrunk
exponentially – maybe 20% of its peak, 2) their old books are killing them, 3)
they can’t raise additional capital like they did in the 80s to our run the
problem because their long-term viability is totally dependent upon the
GSE’s existence – which is anything but certain

And on LO comp: “I’ve been in the mortgage
business for 25 years, and it perplexes me every time I hear a broker talk about
their compensation in terms of they ‘had to do so much more work on a file due
to , credit scores, gifts, multiple buyers or whatever!’ Do they really think
that mortgage bankers or bankers don’t do the same amount of work? We all know
this is not brain surgery to complete 1003’s and collect complete
documentation.  So why do they pretend it is and the brokers job is so
much more deserving of higher compensation? It is clear to me, after recruiting
for many years that the broker’s work ethic is to fund a couple of loans each
month and make the highest compensation, therefore charging the client higher
fees, whereas a mortgage banker/bank consultants thrives on volume, controlled
compensation, and doing the right thing for the client and the realtor. If anyone
is duped on these false premises it is the uninformed realtors who refer their
clients to brokers who have ‘conned’ them into believing that they are the only
ones who can ‘shop for the best price’ and do all the work on the file for
their client.”

More on LO comp the payment of bonuses: “How can so many of our direct competitors seemingly ignore the clear
intent Dodd/Frank by paying production bonuses through so-called point banks or
overage accounts?
  Loan Originators seem to be willing to take
significant risk and take flight to those opportunities, irrespective of the
fact that they may be subject to individual accountability by the regulators,
not to mention the brutal and potential door-shutting penalties that could be
imposed upon their organization.  What am I missing???”

And this
comment about the FHA Streamline program.
“If they really want people to be able to refinance, they should keep the 5%
rule in place for streamlines but if someone purchased or last refinanced at
.50% on their monthly mortgage insurance then they should be able to do a
streamline at that .50%.  And so on with the .90% or 1.15%. We want to
help the people but we don’t want it to hurt our pocketbooks so what do we do.”

Darryl R. from Illinois writes, on HARP
, “Do we know if there is even any thought of the date being moved
that Fannie and Freddie purchased the loan?  Not sure why they believe
prolonging the program would be better than moving the date.  And if you
can think of prolonging the program why wouldn’t you think of moving the date
as well.  Aren’t we talking about giving as many people as possible the opportunity
to refinance?  Just doesn’t make any sense. If not who can someone try to
write to get this point recognized.”

It is the VETERAN, not the preacher, who has given us freedom of religion.
It is the VETERAN, not the reporter, who has given us freedom of the press.
It is the VETERAN, not the poet, who has given us freedom of speech.
It is the VETERAN, not the campus organizer, who has given us freedom to assemble.
It is the VETERAN, not the lawyer, who has given us the right to a fair trial.
It is the VETERAN, not the politician, who has given us the right to vote.
It is the VETERAN who salutes the Flag.
It is the VETERAN who serves under the Flag.

Bless them

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
impact of HARP 2.0 and the differences in the agency’s programs. 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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