Servicing Examination Manual; MetLife


How much
does a media room cost in Arizona? $2.5 million… when it’s attached to John
McCain’s listed house

MetLife Mortgage, suddenly the talk
of the mortgage world, sent a memo to its clients. “MetLife, Inc.
announced on October 12, 2011 that in addition to its previously announced
decision to explore the sale of MetLife Bank, N.A.’s depository business, the
company will also explore a sale of the Bank’s forward mortgage business. (Editor’s note: thus coining a term for
the opposite of the “reverse” mortgage business, which apparently is not for
sale.) It’s business as usual. MetLife Home Loans will continue to add new
clients, accept new registrations and locks, and fund and/or purchase forward
mortgages. The company also remains committed to continue servicing all of its
mortgage clients. There is no impact to your business with MetLife Home Loans.”

Cynics are
quick to point out that this is exactly the time when there is a huge impact to
the business, but I received this note from a MetLifer: “We are excited
after learning more of knowing who will be lucky enough to acquire us. We’re
hiring processors, underwriters, and funders, so we’re going to continue to
build the platform. There is talk about improving pricing, and retention
bonus’, all the good stuff! My team is sticking together and looking at all
options but first and foremost waiting until we know who our new parent

I received a few other notes. “Rob, is
there any truth to the rumor that MetLife is going to take the Snoopy logo and
replace it with Lucy yanking the football away from Charlie Brown?

(Not that I have heard, but that’s clever.) “What are folks saying about
the buyer?” (Early front-runners appear to be PNC, which, as a top-10 bank, is making a push into the California
market, and a few folks mentioned Fortress
– I am sure someone at BofA still has their phone number.)

Unfortunately for the commercial-mortgage-backed security business, the Fed is
not buying any of those. The Wall Street Journal reports that Credit Suisse Group is poised to shut down
its commercial-mortgage-backed securities division
just days after a new
warning of layoffs on Wall Street. “The cutback also is a sign of the soft
patch the commercial real-estate industry is enduring. Property values had been
recovering until this summer, when concerns began rising about weakness in the
economy and global capital markets. Albert Sohn, the Credit Suisse executive
who oversees all securitized products…told the team that Credit Suisse is
reviewing several businesses for possible downsizing and would reach a final
decision about the securitization group in the next 30 days…in the meantime they
weren’t to make any new loans, spend firm money, or travel to meet with
clients.” So much for the big Halloween
office party

Being a
large servicer has to, at this point, be an absolute nightmare. (Becoming a
small servicer, however, seems to be an attractive option for many.) The Consumer Financial Protection Bureau
said it will make oversight of the mortgage servicing industry a top priority
as it ramps up its oversight of banks
. Get in line: countless state and
government agencies, special interest groups, and servicing staffs are
examining bank foreclosure practices and whether the proper legal steps are
being taken by servicers, who collect and manage loan payments, when a borrower
becomes delinquent on a loan. “We are going to take a close and measured
view to ensure that servicers and financial institutions are in compliance with
the federal consumer financial laws,” Raj Date, the Treasury official
leading the bureau. Unfortunately for the CFPB, the nomination of its leader,
along with many of its proposed policies and procedures, are bogged down due to
politics in Congress. “The agency will initially focus its supervision efforts
on the 105 banks, thrifts and credit unions that have more than $10 billion in

Antonakes leads Financial Services Examinations at the CFPB, indicated that CFPB
examiners will focus on several areas of non-performing servicing: The fees
charged to borrowers who are in default; the process for referring a loan to
foreclosure; the servicer’s application process for loan modifications and
whether information to borrowers is accurate, prominent and clear. The
servicing examination procedures will be implemented immediately. 

The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the CFPB
supervision authority over a large number of mortgage servicers, allowing the
agency to assess whether the servicers are following the law. Read the Mortgage
Servicing Examination Procedures

Analysts have been “looking under the
hood” at the JPMorgan Chase better-than-expected earnings, with an eye on
mortgage operations.

(Net income was $1.2 billion, compared with $716 million in the prior year.) “Net
interest income was $4.1 billion, down by $218 million, or 5%, reflecting lower
loan balances due to portfolio runoff. Noninterest revenue was $3.5 billion, up
by $939 million, or 37%, driven by higher mortgage fees and related income,
debit card income, and deposit-related fees…The provision for credit losses was
$1.0 billion, a decrease of $370 million from the prior year and an increase of
$33 million from the prior quarter. While delinquency trends have modestly
improved compared with the prior year and are flat compared with the prior
quarter, the current-quarter provision continued to reflect elevated losses in
the mortgage and home equity portfolios…Noninterest expense was $4.6 billion,
an increase of $395 million, or 9%, from the prior year, driven by investments
in branch and mortgage production sales and support staff, as well as elevated
default-related costs. Mortgage Production and Servicing reported net income of
$205 million, compared with net income of $25 million in the prior year.”

It goes
on. “Mortgage production pretax income was $493 million, compared with a pretax
loss of $450 million in the prior year. Production-related revenue, excluding
repurchase losses, was $1.3 billion, a decrease of 10% from the prior year and
an increase of 35% from the prior quarter. Current-quarter
revenue reflected wider margins and higher volumes when compared with the prior
quarter, and lower volumes and flat margins when compared with the prior year
Production expense was $497 million, an increase of $63 million, or 15%,
reflecting a strategic shift to higher-cost retail originations both through
the branch network and direct to the consumer. Repurchase losses were $314
million, compared with prior-year repurchase losses of $1.5 billion, which
included a $1.0 billion increase in the repurchase reserve. Mortgage servicing,
including MSR risk management, resulted in a pretax loss of $153 million,
compared with pretax income of $494 million in the prior year; and compared
with a pretax loss of $1.1 billion in the prior quarter, which included $1.0
billion for estimated costs of foreclosure-related matters. Servicing-related
revenue was $1.2 billion, a decline of 10% from the prior year, as a result of
the decline in third-party loans serviced.”

in its role overseeing Freddie Fannie released a revised proposal on the
structure of mortgage servicing compensation which will also impact the
borrower. The FHFA discussion paper revealed two new compensation structures
for comment. The first represents only a small modification to the current
system, and includes a small reduction to the minimum servicing fee, and usage
of a reserve account to sequester some of the servicing fee stream for
non-performing loans. It is not a big change, would keep the MSR as an asset on
bank balance sheets, maintain the alignment between investors and servicers,
and on the margin help non-performing loan servicing. For those reasons (it is
not much change) odds makers don’t give this one much chance.

The second option represents a significant departure. It effectively switches
servicing comp to a pure fee-for-service model where the minimum servicing fee
is reduced to zero and the servicer receives a fixed fee for performing loan
servicing. $10 a loan per month, perhaps? One variant of this proposal allows
the servicer to fully segregate the excess IO asset from the MSR, leading to
even greater flexibility. This proposal would certainly represent a large shift
for banks, investors, and the GSE’s, since the fee-for-service approach
effectively makes all servicers sub-servicers to the GSE’s. It appears, before
any unintended consequences kick in, to address many of the concerns the FHFA
has regarding non-performing loan servicing, capitalization of the MSR asset,
and increasing competition. But servicers and investors would be spooked.

During the darkest days of the recession more than 650,000 people a week were
filing their first-time claims for unemployment insurance. That number trended
down for the next two years, but since the beginning of 2011, only rarely have
initial claims dipped below 400,000. This is not enough for a pick-up in the
economy. Yesterday we found that Jobless Claims decreased 1,000 in the week
ended Oct. 8 to 404,000, as expected. We also found out that the U.S.
trade deficit was $45.6 billion in August, little changed from the previous
month, as exports held near a record.

Yesterday traders reported that “real money began to emerge along with Fed
buying that has been averaging $1.3 billion per day” which helped mortgage
somewhat. Mortgage banker selling was limited at an estimated at $1.5
billion for the day. (Do the math on the supply and demand.) MBS prices were
higher by over .25 on 30-year 3.5’s and the 10-yr finished at 2.17%.

morning, however, gold is up, stocks are up, oil is up, grains are up, and…rates
are up. Retail Sales for September came out +1.1% – its strongest pace in seven
months. We’ll have Consumer Sentiment and a Business Inventory number. But the
decent Retail Sales number, showing a little strength, has nudged rates higher:
the 10-yr is up to 2.25%

Ole and
Lena went to the Olympics.
While sitting on a bench a lady turned to Ole and said, “Are you a pole
Ole said, “No, I’m Norvegian and my name isn’t Valter.”

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 Fannie Freddie the FHFA, and the changes they
have in the hopper. 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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