Thoughts on Recent CFPB Consent Order; Changes in Credit Trends; RBS Exits U.S MBS Market


Regardless of if you’re a bank or not a bank, the decision to service loans is not one to be taken lightly. Regulators are drafting rules to
address non-bank servicers like Ocwen and Nationstar. The biggest
issues involve liquidity and solvency if we have another serious
downdraft in real estate prices and loans stop performing. Smart folks
think that the nonbank servicers will be required to hold more cash,
although it is an open question whether that would affect smaller
originators who retain servicing for their own origination.

Speaking of regulators, word broke yesterday of the CFPB’s latest action against a lender, this time Franklin Loan Corporation.

What’s a mortgage company to do? A survey a while back by Bank Director finds 40% of bank executives say their pay is not tied to financial performance. Many residential lenders will find this interesting, of course, given current LO comp rules. But
bank executives are not loan originators, and there is a fine line
between aligning employee’s goals with that of the bank or lender and
possibly negatively impacting the consumer.
The Consumer Finance Protection Bureau deals with this on a daily
basis, and has issued over 30 “consent orders”, many of them dealing
with how lenders contract with their staffs and compensate employees
especially with regard to bonuses. Rumors of another lender “being in
the crosshairs” were rampant earlier this week, and sure enough…

Is it another Castle Cooke
situation, where it was alleged that bonuses were tied to pushing
borrowers into loans that paid the LO more? “The CFPB did not seek a
civil penalty based on Franklin’s financial condition and the Bureau’s
desire to maximize relief directly from Franklin Loan to affected
consumers.” It certainly does no one any good to be happy about another
lender facing a penalty. I have spoken, off the record, with several
parties who have been through the Consent Order process, and there are
common themes. It is important to remember that the CFPB’s press release may or may not have much relationship to the facts perceived by the other parties.
Put another way, “history is written by the victors” and the consent
order may make it seem like the CFPB is all right and companies are all
wrong. That might not be the case: nasty impressions may not altogether
be true and it is important to remember that consent orders are a result
of compromises. The CFPB, or at least those carrying out enforcement,
is not in business to debate the law: management state their views and
make their own conclusions saying something like, “We disagree with your
argument…” although they change over time.

Sometimes the question comes up, “Why don’t the lenders release their own press release and refute the CFPB’s release?”
As noted above, the Consent Order is typically a result of
negotiations, and by definition the lender has had some level of input.
The general feeling, however, is that the CFPB is a fact of life for
lenders and any other entity that touches consumers. And since lenders
must work in an environment regulated by numerous entities, lenders must
be careful about what they say about any of them – especially since
they will help determine your business. Certainly the press can discuss
thoughts that the CFPB seems like the judge, jury, and hangman, or that
any system where those affected are afraid to speak out harkens back to
certain political regimes. But few disagree that the industry brought
this upon itself and must live with the consequences, trying to effect
change over the long run. And few disagree that the employees of the
CFPB take their mission of protecting the consumer, at practically any
cost, very seriously.

As a reminder, the CFPB recently amended its Title XIV mortgage rules. On October 22nd, the CFPB issued a final rule allowing lenders to cure loans
that do not meet the “points and fees” test under the CFPB’s ATR/QM
Rule. Under the Rule, lenders and investors will be able to “cure” loans
for which the “points and fees” exceed the 3% cap for Qualified
Mortgages. Lenders and investors will be able to cure a loan and ensure
its QM status by refunding the “points and fees” that exceed the 3% cap, with interest.
The Rule allows the cure payment to be provided within 210 days after
consummation. The cure will be available for loans consummated on or
after the effective date of the Rule, which will be upon publication in
the Federal Register, expected in the next week or two. Buckley Sandler, “the
points-and-fees cure mechanism will be available for transactions
consummated on or after the date the amendments are published in the
Federal Register (except for a minor provision that applies only with
respect to the forthcoming TILA-RESPA Integrated Disclosures (“TRID”)
regime, which will be effective when that regime becomes effective in
August of next year). The Bureau explicitly declined to permit the cure
mechanism to apply to previously consummated loans. Also, as discussed
below, the cure mechanism will sunset in 7 years. Last week’s other
amendments will be effective on the date of the Federal Register

Bank of America knows a thing or two about regulators and regulations, and it weighed in on its thoughts of loosening credit standards. To sum things up – don’t look for anything soon. It all comes down to risk versus return, right?

Plenty of other lenders have made somewhat recent changes to their guidelines, however. In no particular order…

U.S. Bank is currently offering agency fixed, cashout refinance to 85% LTV/TLTV. Review Bulletin 14-066 for complete details.‏

Blue Point Mortgage has jumbo loans 89% LTV up to $1,500,000 with NO MI.

GreenBox Loans has Stated Income Verified Asset loans. Click here for more information.

Kinecta Federal Credit Union
announced for all jumbo loan products, the borrower cannot have been
party to a short sale within last 36 months. No exceptions will be
allowed. Beginning Tuesday October 14, 2014, choose Radian or Essent and
the MI plan for all new submissions in the New Loan Submission form,
which will be updated to include MI company options. This enhancement
will make MI pricing much easier and more accurate.

On Q Financial
has Non-QM Loan products which include solutions for self-employed or
recently retired borrowers, individuals with a short credit history or
flawed credit from a past short sale or foreclosure. On Q
will also be offering debt-to-income ratios up to 50% on certain
products and introducing a 40 year amortization Jumbo loan with an
interest-only option in the weeks to come.

rolled out its new core jumbo program (30 year fixed jumbo) and changed
the name of its portfolio arm to Non Agency Hybrid ARM program. A few
points of interest for the portfolio programs include: 30 year fixed
jumbo with broad credit guidelines to fit more borrowers, Interest only
option for loan amounts from $250K to 3M for hybrid ARMs, 89.9% LTV with
no MI for jumbo hybrid ARMs, Credit guidelines for non-prime borrowers.

Citadel Servicing
reminded the industry that it is a Non Prime Wholesale Residential
Lender with programs including the use 100% Of Bank Statement Deposits
for proof of income.

Impac Mortgage Corp. Correspondent introduced reduced seasoning for borrowers with a short sale or foreclosure. Details on its Alt-QM products are available.

First Community Mortgage Wholesale has posted guideline changes effective October 31st. To view details, click here.

New Leaf Wholesale announced changes to its Jumbo Fixed products W501 and W502. The enhancements include:  $2,000,000
up to 80% LTV with 740 credit score, $2,000,000 up to 75% LTV with 720
credit score, $2,000,000 up to 65% LTV with 700 credit score, 70% LTV
for cash-out transactions, and increased cash-out limit to $750,000.

Automated Valuation Model (AVM) requirement on VA IRRRLs with
qualifying credit score equal to or greater than 580 has been eliminated
for locks / commitments made on or after September 16, 2014 at Sun West Mortgage. Contact client relations for information and details.

posted information regarding VA Omission of Debt Policy. It will follow
agency guidelines and allow lender credit to pay off debts on Purchases
and Cash-Out Refinances. Also, LDW will allow up to $500 in
non-allowable fees to be lender paid on VA transactions. Fees in excess
of this amount will need to be reduced and/or removed as a cure.

Finally, the Royal Bank of Scotland is exiting the U.S. mortgage-backed security market citing a “repositioning.” It won’t immediately lead to less liquidity, but still…

about this market, huh? Zzzzzzz. Actually, practically everyone, except
bond market traders and analysts, prefer a low-volatile market. We did
have the usual Jobless Claims out yesterday. (It was +12,000 to 290,000
in the week ended Nov. 8, the highest since late September. The four
week moving average, a less volatile measure than the weekly figures,
rose to 285,000 last week from 279,000.) Agency MBS prices didn’t do
enough to impact many rate sheets.

One question I seem to continue to field is, “Did the Fed stop buying MBS?” The answer is no
– the Fed is using money from early payoffs and reinvesting it. And
when one owns trillions of dollars of this stuff, well…we find that the
Fed is set up to reinvest $21 billion from November 14th to December 10th. See? They didn’t desert us! A billion a day keeps the doctor away.

it is Friday already, and this morning we had Retail Sales. September’s
was down .3%; October’s was +.3% – better than expected. We also had
Oct. Import Prices (-1.3%, roughly as expected) and we’ll have the
preliminary November reading of University of Michigan survey of
Consumer Sentiment, important to…the University of Michigan. Yesterday
the 10-year T-note closed at 2.35%; this morning after the numbers we’re at 2.36% and agency MBS are worse a shade.


Jobs and Announcements

In the job market, Fannie Mae is searching nationally for Senior Account Managers in their Customer Engagement Division.
The impressive job description includes, “Applies comprehensive
understanding of customer account management to optimize B2B
relationships with external customer accounts, facilitates the contract
process, and promotes and sells the firm’s products and services.  Leads
the development, implementation, and monitoring of customized business
solutions to meet both Fannie Mae and customer goals and
objectives. Advance your leadership career and learn about our
organization and opportunities. We are focused on advancing the housing
recovery, improving our company, and leading change that results in
sustainable homeownership.  Join our diverse, high-performing team and
make a difference.  Fannie Mae is an Equal Opportunity Employer.”  For
more information, see the job posting here.

on the new services front, “for banks and credit unions lending can be a
challenge, especially with today’s regulatory environment. AFR
has private label solutions to help banks and CUs retain customers and
members by offering in-house mortgage solutions from origination through
loan servicing.
“Its program is fully compliant with FDIC, NCUA, CFPB and NMLS. AFR
clients save significant overhead costs while continuing to provide
lending options for their customers.” For more info you can email Jay Patel.

matter how long I am in this biz there is always something I’d never
heard of. What is the NCRA? It is the National Consumer Reporting
Association, and I noticed a press release yesterday that said, “I think
this qualifies as an Industry Icon! Nancy Fedich, CIS CEO, was honored as the longest-serving board member in NCRA
history this week at the 2014 Annual NCRA conference in Palm Springs. 
Nancy served on the NCRA board of directors for over 13 years in various
roles including President, Vice President, Treasurer, Legal Committee
and Conference Chair.  Nancy’s contribution to NCRA will be missed, but
her desire to continue the CIS legacy of leadership with NCRA continues
as Mike Brown, CIS President, has been elected President, NCRA Board of
Directors.” Congratulations to Nancy Mike!

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