Yet Another Refinance Bill from Congress; Input on CFPB’s LO Comp; GSE Transfer Taxes


I remind folks that rates are low. They know that, but to remind them even
further, I tell them that if Mr. Mrs. Smith spend their working lives and
save up $1 million for retirement, and then, to be safe, want to invest it in a
“risk free” 10-yr Treasury note, they’ll earn about 1.8%, or only
$1,500 per month for the next ten years! To me, a million dollars is a pretty
good nest egg, but when put into this context… and as it turns out, even this
$1 million isn’t likely. According to the latest survey, about 49% of Americans say they aren’t contributing to any retirement
. “People ages 18 to 34 are the least likely to be saving, with
56% reporting that they are not currently contributing to a retirement plan
like an IRA or a 401(k).” I hope that everyone isn’t relying on Social

And while we’re not talking about mortgages, and under the, “Oops, my bad” category, JPMorgan Chase told everyone that its
corporate/private equity business expected to take an $800 million after-tax
loss for the second quarter due to a “paper loss” of some $2 billion
resulting from a hedge done by its London office of the company’s entire credit
position. The hedge was “flawed, complex, poorly reviewed, poorly executed
and poorly monitored,” CEO Jamie Dimon said on a conference call. Why the
heck should the whole stock market be down because Chase messed up a trade?
Jamie Dimon told the press that the losses could rise by an additional $1
billion, but he hoped the problem would be resolved by the end of the year. Fortunately for mortgage bankers, it doesn’t
seem to involve MBS’s
, but its synthetic credit portfolio.” Dimon said
the portfolio “has proven to be riskier, more volatile and less effective
as an economic hedge than the firm previously believed.”

As we all
learned while watching the non-agency MBS market crumble, much of it due to the
rating agencies mis-rating securities, synthetic credit products are
derivatives that generate gains and losses tied to credit performance without
the owner buying or selling actual debt. And while the losses “only” exist on
paper now, they will be realized when the trades are closed with profits and
losses allocated. But, he said, when the
company makes a mistake, “We admit it. We learn from it. We fix it. And we
move on.” I think if my kid ever told me that after crashing the car, or
receiving an “F” in math, I’d be a little miffed.

who knows a lot about Chase is the new
CEO of Freddie Mac
, since he spent 30 years there. Donald Layton got the
nod, becoming the third CEO in four years. He was also appointed to the board
of AIG, UG’s parent, and was the CEO of E*Trade, the company with the talking
baby commercial while at the same time helping folks remember where the * key
is on their keyboard.

Up in Delaware, the New Castle County law department issued a letter regarding transfer taxes on transactions
involving Fannie Mae Freddie Mac. Historically, purchases from these
entities have been treated as exempt from transfer tax as a conveyance from a
governmental agency. But the County announced that, in its opinion, Fannie Mae and Freddie Mac are not
governmental agencies
– they are federally chartered private
corporations.  New Castle County has decided to enforce that distinction
starting on June 14, and lenders’ compliance departments prepared to adjust
their GFE’s to disclose the full transfer tax on any loan they have pending
where either of these entities is the Seller.  Based on the language of
the letter, some believe that any deed recorded on or after June 14th will be
subject to full transfer tax (unless a first time home buyer or some other
exemption applies). Technically, this letter only applies to the New Castle
County transfer tax, not the State of Delaware, but one can expect that other
counties, and other states, may follow the interpretation offered by New Castle

It seems
that everyone is talking about the Wall
Street Journal article on refinances
, along with some numbers released by
Freddie Mac showing that on average, borrowers that refinanced during the first
quarter of 2012 reduced their first-year interest payments by $2,900. And
according to Moody’s, refinancing over the past three years has unlocked
savings worth $46 billion in their first year. That certainly has to help our
GDP, right?

But it isn’t
easy to refinance. We all know that fewer banks control a larger share of the
mortgage market than they did before the financial crisis. And on the retail
side it now takes the nation’s biggest mortgage lenders an average of more than
70 days to complete a refinance, according to Accenture Credit Services, up
from 45 days a year ago. Documentation and appraisal requirements have
increased. And the spread between the primary market and the secondary market
has widened out for a variety of reasons (to slow volume, to cover increased
overhead, and to increase buyback reserves quickly come to mind – Fannie asked
banks to buy back $24 billion last year) as many lenders have boosted their rates
to borrowers. In general, what this has tended to do, per the WSJ, is to help smaller,
more nimble mortgage lenders with faster turn times. On the retail side, with
Wells and Citi at about a 90 day processing time, and Chase at 45-60 days, it
is making smaller lenders and brokers look pretty darned good.

No matter
how hard they try, the government can’t
keep its nose out of the mortgage markets
. Whether it was encouraging
lending down the credit curve 10 years ago to borrowers who arguably should not
have received home loans, or HARP, it just won’t leave the private markets
alone. For today, we’ll have “The
Responsible Homeowner Refinancing Act of 2012”
in the news, sponsored by U.S.
Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA).  “This bill is a win-win-win — a win for
responsible homeowners who will be able to refinance at record-low rates, a win
for mortgage lenders who will enjoy an influx of new business, and a win for
communities and our economy, which will benefit from additional refinances that
will be made possible by this bill,” Boxer said.  Moody’s Analytics Chief Economist Mark Zandi
has projected that the bill will result in three million additional refinances.
“Unnecessary” red tape and high fees will be pushed aside, and removes the
barriers preventing these Fannie Mae and Freddie Mac borrowers from refinancing
their loans. The bill would: extend
streamlined refinancing for all Fannie and Freddie borrowers regardless of how
much they owe compared to the value of their home, eliminate up-front fees
completely on refinances, eliminate appraisal costs for all borrowers, remove
additional barriers to competition, require second lien holders and mortgage
insurers who unreasonably block a refinance to pay a fine
, and pay for
itself since reducing homeowners’ mortgage payments also reduces default rates
and foreclosures, reducing Fannie and Freddie’s reliance on taxpayer bailouts. The
bill has been endorsed by a wide array of groups including Americans for
Financial Reform, Amherst Securities (mortgage investor), Center for
Responsible Lending, National Council of La Raza, NAHB, NAMB, NAR, National
Consumer Law Center (on behalf of its low income clients), and Quicken Loans.

The CFPB’s
compensation plan for loan officers spells trouble – and my guess is that the
borrower will once again pay the price through unintended consequences. “I’ll
do a $100,000 loan. It’ll just be with the same $5000 origination fee I’d
charge on a $500,000 loan! As best I can tell, all thing being equal, an LO is
inclined to charge less (fewer points) for a $400k loan than for a $100k loan.
The dollar amount comes out to be the same. But if they tell everyone they
can only charge 1 point, and an LO has two loans on their desk, one for $4k
income and the other for $1k, which borrower is going to receive the attention?”

Another LO wrote, “Yes, larger loans will receive more attention. I guess I
almost always charge about the same % and it means that on larger deals I make
more and on smaller deals I make less.  On the smaller deals, it is hard
to charge more than 1% due to industry rules on total fees expenses. Of
course, I am talking about loans around $100K or less, that unfortunately are
becoming more and more prevalent!  My gut feeling is that all of this is a
non-issue because eventually Wells and the other big players are going to take
their ball and go home and stop doing any form of wholesale or broker business
and be retail only. Either that or regulation, low loan amounts and declining
real estate sales, will drive everyone but the absolute biggest hitters out of
the market.”

And, “Rob, how ironic that CFPB wants to cap LO compensation to a ‘fixed’
amount when everyone else in the industry (FED, HUD, etc.) continue to hang
their fees and regulatory guidelines on a percentage basis. And in low cost
areas, try to price a $50k loan in today’s market and see how beat up you get
on fees, etc. I do these loans for goodwill and hopefully a referral down the
line – it sure doesn’t pay at the time of the loan.”

And law firm Ballard Spahr did a nice, thorough write-up on the current

With all
of this going on, no one seems to care about rates anymore. Besides, they are
pretty stable on a relative basis, although yesterday higher coupon mortgages
and MBS’s worsened slightly. But originators are focused on rate sheet prices
for their borrowers. MBS prices were nearly unchanged on 30-year 3.5’s, and 10-year
T-notes fell about .125 in price to a yield of 1.89%.

The news
out this morning consisted of the Producer Price Index, which was -.2% (less
than expected), ex-food energy +.2% (as expected), and in a bit we’ll
have the preliminary May Consumer Sentiment reading, projected slightly lower
but it is not a market-moving number. In the early going, the 10-yr has
improved to 1.85% and MBS prices are slightly better.

(This isn’t a joke in the pure sense of the word, although the last couple
sentences suffice. It came from a weary loan officer, and given the CFPB’s word
on LO comp, figured it was fitting.)

“We have lender paid agreements that specify how much we charge are every
loan.  Our percent is 1.5.  That means I charge 1.5% on every single
loan – period.  I am only allowed to do lender paid loans.  My broker
can originate and do a borrower paid, then the origination fee can change, but
the borrower must pay the origination fee. With the jumbo lenders, we have
the lender paid agreement set at 1.0%, and borrowers must sign a form stating
which type of origination they want.  I just spent over 40 hours
processing an investment loan. The buyer is incredibly complicated. There
are over 12 pounds of paper in his file – no joke. The tax returns would choke
a horse but it is a small loan, $103k.  All we can collect is 1.5% on the
lender paid.  I am working for minimum wage, with no benefits. Then the
borrower decides to buy another property, next door.  He asked that I
lower my fee, because I had already done one for him.  I told him to take
the loan somewhere else. Two days later he called and asked that I please take
the loan.  The other lenders he called wanted 2.5% in origination. 
Like a fool, I accepted the request. What
is the difference between a street walker and a mortgage originator?  The
mortgage originator has an office


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