Wednesday, August 20, 2014

CFPB issues Servicing Rules&Annual CARD,HOEPA & QM Adjustments; Market Report

Here is something a little unusual. With an eye on possible Christmas presents, for something non-mortgage related here is a gun that shoots a small amount of table salt to kill house flies - and with a five foot range! Returning to something more usual, this morning we learned that mortgage applications rose 1.4 percent in the week ended August 15. The MBA reported that refis were up 3 percent (and account for 55% of all apps) and purchase apps fell 0.4 percent.


On the servicing side of things (most lenders want to service their loans, but not all can actually afford to do so) the CFPB released a bulletin outlining expectations for mortgage servicers that transfer loans; bulletin includes information on how mortgage servicers should pay attention to new rules protecting consumers applying for loss mitigation help or trial modifications. The updated bulletin, which can be accessed here, replaces the CFPB's February 2013 guidance. The CFPB explains that its "concern in this area remains heightened due to the continuing high volume of servicing transfers."

Most view this updated bulletin as a more detailed supervisory tool rather than a departure from the CFPB's previous stance (in place since January) on mortgage servicing transfers. For example, the original bulletin included seven general information requests for certain servicers planning transfers and this bulletin includes the same list except it added the following request: "A detailed description of how the servicer will ensure that it is complying with the applicable new servicing rule provisions on transfers." The CFPB's approval is not necessary for a mortgage servicing transfer unless there is an overriding agreement (e.g. consent order) governing the company. Given the wave of transfers and the corresponding increase in headline pressure, it is not surprising to see continued regulatory headwinds impacting specialty servicers which are likely to further increase the costs associated with growth via acquisitions. 

(Speaking of transferring servicing, MSR tapes? I've seen a few. MountainView Servicing Group has had two offerings, the first; a $1.6B FNMA/GNMA servicing portfolio. The package was 94% fixed rate, 94% retail, WaFICO 740, WaLTV 80%, WAC of 3.92%, $225k average loan size, with New York (30.9%), California (12.1 %), New Jersey (11.5%), and Virginia (5.6%); the second a $348M FHLMC/FNMA portfolio with 99% fixed rate/first lien, WaFICO 755, WaLTV 75%, WAC of 4.18%, $234k average loan size, with Colorado (61%), California (15%), Arizona (6.5%), and Illinois (6%); Interactive Mortgage Advisors' offerings included a $3.17B GNMA package with  3.67% Wtd Avg Note Rate, a 12 month Average Escrow Balances of 1.07% of UPB, sub-serviced by nationally known company, with DLQs (not including FC/BK) of 5.37%.) 

But the CFPB impacts all areas of residential lending, not merely servicing, and recently released its annual CARD Act, HOEPA, and QM adjustments, as shown in this Ballard Spahr release. "The CFPB has published a final rule regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank.  The adjustments made by the final rule are effective January 1, 2015. The CARD Act requires the CFPB to calculate annual adjustments of (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the fee thresholds for the penalty fees safe harbor.  The calculation did not result in a change to the current $1.00 minimum interest charge threshold.  However, in the final rule, the CFPB increased the current penalty fee safe harbor of $26 for a first late payment and $37 for a subsequent violation within the following six months to, respectively, $27 and $38. 

"HOEPA requires the CFPB to annually adjust the total loan amount threshold that determines whether a transaction is a high cost mortgage when the points and fees are either 5 percent or 8 percent of such amount.  In the final rule, the CFPB increased the current dollar thresholds from, respectively, $20,000 to $20,391, and $1,000 to $1,020. Pursuant to its ability to repay/QM rule, the CFPB must annually adjust the points and fees limits that a loan must not exceed to satisfy the requirements for a QM.  The CFPB must also annually adjust the related loan amount limits.  In the final rule, the CFPB increased these limits to the following: For a loan amount greater than or equal to $101,953 (currently $100,000), points and fees may not exceed 3 percent of the total loan amount. For a loan amount greater than or equal to $61,172 (currently $60,000) but less than $101,953 (currently $100,000), points and fees may not exceed $3,059 (currently $3,000). For a loan amount greater than or equal to $20,391 (currently $20,000) but less than $61,172 (currently $60,000), points and fees may not exceed 5 percent of the total loan amount. For a loan amount greater than or equal to $12,744 (currently $12,500) but less than $20,391 (currently $20,000), points and fees may not exceed $1,020 (currently $1,000). For a loan amount less than $12,744 (currently $12,500), points and fees may not exceed 8 percent of the total loan amount." But hey, don't take Ballard Spahr's word for it - read all about it in the Federal Register.


The volatility that we saw last week is dissipating from the market. (Let's see what happens in October when the Fed isn't engaged in QE3!) Yesterday we saw a combination of lack of market-moving news from overseas (Ukraine and Israel) and good news here stateside. Housing Starts rose almost 16% in July to their highest level in eight months, and Building Permits increased by 8.1% to a 1.05 million pace, the fastest rate of building applications for single-family dwellings since November.  No wonder builders are optimistic! From a year ago, home construction was up 21.7%.  Starts on single-family homes, which reflect the bulk of the market, climbed 8.3% in July from June.  Construction of multifamily units-mostly condominiums and apartments--rose 33% to a pace of 423,000 units, the highest level since January 2006. We also were reminded about the lack of inflation, in spite of the best forecasts by "experts". The Consumer Price Index was +.1% in July, the smallest gain since February. QE has not caused the widespread inflation many thought - yet.


Originators keep producing, and the Fed keeps buying. The New York Fed's daily MBS operations amounted to $1.591 billion total, or 92.2% of the scheduled $1.725 billion slated for purchase. But rates edged higher, basically because they wanted to, and 30-yr agency MBS prices closed lower/worse about .125.  

The economic calendar at midweek features the Fed minutes from the July 29-30th meeting. These come out at 2PM EST, 8AM HST, as the market will no doubt be scrounging for any information and tidbits beforehand. In the early going this morning the 10-yr yield is slightly higher at 2.41% and agency MBS prices are worse a tad.


Executive Rate Market Report:


Generally quiet start early this morning but no improvement in the MBS or treasury markets even with US stock indexes aiming at a lower opening at 9:30. At 9:00 the 10 yr -2/32 2.41%, 30 yr MBS prices -5 bps frm yesterday’s closes. At 9:30 the DJIA opened -15, NASDAQ -7, S&P -3; 10 yr unchanged at 2.41% while 30 yr MBS prices -6 bps in price.


Mortgage applications increased 1.4% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 15, 2014. The Refinance Index increased 3% from the previous week. The seasonally adjusted Purchase Index decreased 0.4% from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 11 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 55% of total applications from 54% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.8% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.29% from 4.35%, with points increasing to 0.26 from 0.22 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.18% from 4.24%, with points increasing to 0.23 from 0.19 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.99% from 4.04%, while points remained unchanged at 0.03 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.44% from 3.48%, while points remained unchanged at 0.30 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs decreased to 3.10% from 3.24%, with points decreasing to 0.44 from 0.45 (including the origination fee) for 80% loans.

Yesterday and Monday we got better housing data with the NAHB index gaining 2 points and July housing starts and permits twice as strong as forecasts. Starts up 15.7%, permits +8.1%. The better data set off a run of experts declaring the housing market getting back on track with the outlook much better. The MBA data this morning didn’t co-operate with those more positive reports on purchase apps, down 0.4%. The re-finance sector was widely declared as dead by a few housing experts, saying all re-finances have now been achieved; this morning MBA data showed re-finances increased 3.0% frm the previous week.

This afternoon (2:00 pm) the minutes of the 7/30 FOMC meeting will be released. Always something to chew on with more specifics than we get when the meeting concludes with the policy statement. Likely the minutes will get a little ink, but with Yellen speaking Friday at Jackson Hole, the minutes are somewhat dated given the title of her speech is “The Labor Market”, following her remarks Mario Draghi will also speak on the EU economy.

Not likely MBS prices will improve today with treasuries still unwinding huge long positions. No geo-political reasons for short term traders to buy now, the issues are still out there but this week there has been no fearful news from Ukraine, and Putin is scheduled to meet next week with Ukraine leaders and EU countries. Some relaxation occurring now in Ukraine, Israel and Iraq; nothing really has changed, just not worsening. The fear factor into treasuries has ebbed this week. The economy is back in the headlights. As we noted last Friday, the bond market had become overbought basis the near term; since then prices have slipped and interest rates have Increased a little; the 10 yield up 7 bps frm Friday’s close while MBS prices -36 bps since Friday’s close. Trading volume though is the lowest we have seen this year in both stocks and bonds ahead of Jackson Hole on Friday. The wider outlook is still bullish, a close over 2.48% will change the pattern and turn the 10 bearish frm a technical perspective.


PRICES @ 10:00 AM

10 yr note:-5/32 (15 bp) 2.42% +1 bp

5 yr note: -2/32 (6 bp) 1.59% +1 bp

2 Yr note: -1/32 (3 bp) 0.44% +1 bp

30 yr bond: -12/32 (37 bp) 3.23% +2 bp

Libor Rates: 1 mo 0.155%; 3 mo 0.234%; 6 mo 0.328%; 1 yr 0.552%

30 yr FNMA 3.5 Sept: @9:30 102.42 -6 bp (-30 bp frm 9:30 yesterday) 4.0 coupon 105.58 -3 bp (-27 bp frm 9:30 yesterday)

15 yr FNMA 3.0: @9:30 103.47 +1 bp (-16 bp frm 9:30 yesterday)

30 yr GNMA 3.5 Sept: @9:30 103.52 -11 bp (-24 bp frm 9:30 yesterday) 4.0 coupon 106.27 -3 bp (-23 bp frm 9:30 yesterday)

Dollar/Yen: 103.33 +0.41 yen

Dollar/Euro: $1.3287 -$0.0033

Gold: $1297.30 +$0.60

Crude Oil: $95.76 +$1.28

DJIA: 16,916.93 -2.66

NASDAQ: 4520.33 -7.18

S&P 500: 1980.58 -1.02

Tuesday, August 19, 2014

MBA networking groups; MISMO update; Recent Agency news


Given the amount of change facing our industry, open dialogue amongst industry peers is more important than ever before. The MBA is focused on giving its community lender members the ability to discuss their unique opportunities and challenges. To that end, the MBA now has two members-only networking groups - the brand-new Community Bank and Credit Union (CBCU) Network, which is open to all MBA member banks and credit unions with 10 billion or less in assets, and its popular network for Independent Mortgage Banks. Both groups meet regularly via phone and in person, and serve as forums to share information, as well as pool knowledge and resources. MBA hosted the first of many member-led CBCU Network calls on August 12, receiving rave reviews and a high level of participation. Contact MBA's Tricia Migliazzo or Tamara King to learn about either of these groups, and about special first-year member benefits.

Speaking of the MBA, I learned a new term (for me) yesterday: "backwardly compatible." My guess is that many failed personal relationships could use that term, but in this case it applies to the latest update on MISMO (Mortgage Industry Standards Maintenance Organization). Most IT and Ops folks already follow developments on its website.  

There is a lot going on with the Agencies! Yes, the FHFA has requested input on its proposal for a single security structure for agency MBS (and you should comment!). Fannie Mae and Freddie Mac also recently reported 2Q14 earnings. Earnings declined at both companies driven primarily by lower litigation and other one-time gains. Fannie Mae reported $3.7 billion of operating profit before the payment of preferred stock dividends, while Freddie Mac reported $1.4 billion of operating profit before preferred dividends. Fannie was helped by the release of some reserves, and Freddie earned some coin on derivative gains. Fannie's serious delinquency rate decreased to 2.05% from 2.19% in 1Q. Fannie's loss reserve of $42.1 billion (from $45.3 billion) declined to 1.32% of the guaranty portfolio vs. 1.41% in the prior quarter, and its single-family loss severity rate was 18.89% (although this excludes REO disposition costs), down from 20.31% for the full-year 2013. The company took a reserve release of $1.6 billion vs a release of $774 million last quarter. Charge-offs were up to $1.9 billion from $1.6 billion in 1Q. 

Freddie Mac's credit also continued to improve. The serious delinquency rate fell to 2.07% from 2.20%. Freddie Mac's loss reserve fell to $22.8 billion from $24.1 billion, or 1.3% of loans, down from 1.4%. Total non-performing assets fell to $122.6 billion from $124.8 billion in 1Q. The reserve equated to 18.6% of non-performing loans. The company's single-family loss severity rate for 2Q was 33.4%, down from 35.6% (unlike for Fannie Mae, this includes most REO disposition costs). The company took a release of $618 million, down from a provision of $85 million in the prior quarter. Charge-offs were down to $1.22 billion from $1.46 billion. 

If you'd like some input on the direction of Freddie and Fannie, their conservator (the Federal Housing Finance Agency) is requesting input by Sept. 15 on the plan for fiscal years 2015-2019. As it stands, the Plan lists three strategic goals: ensure safe and sound regulated entities; ensure liquidity, stability and access in housing finance; manage the enterprises' ongoing conservatorships. 

There continues to be a lot of talk among LOs about the short sale that came out in June. Just to remind folks, this information is from a FNMA bulletin dated June 17, 2014. Background info, right now if a borrower had a short sale 2 years ago and has 20% to put down, FNMA will let them back in the game. If the borrower has less than 20% to put down they have to stay on the bench for four years.  Effective August 16th FNMA is changing their policy; "A new policy will apply to mortgage accounts that have been subject to a charge-off that will require a four-year waiting period after the charge-off occurred before the borrower is eligible for a new loan that would be salable to Fannie Mae." Furthermore, if the charge off is due to extenuating circumstances, then FNMA would be OK with a two year wait. We hope that FNMA publishes a precise definition of "Extenuating Circumstances " we don't think that any lender is going to risk having an un-saleable loan on their hands, therefore we do not think that anyone that has a short sale is going to be OK with less than a four year wait. 

Quick note to remind people that on July 29th Fannie Mae issued SEL-2014-10, "Selling Guide" updates. The update included changes to the following: Significant Derogatory Credit Events, Property Insurance Requirements, Lender Quality Control Policy Updates and Clarifications, Notification Requirements for Misrepresentation or Breach of Selling Warranty and Fraud, MBS Buyup and Buydown Ratio Grids, Incorporation of Announcement SEL-2014-08, Fannie Mae Announces Approved Mortgage Insurance Forms, Incorporation of Announcement SEL-2014-09, Anti-Money Laundering Requirements, Special Feature Codes, and Miscellaneous Selling Guide Update. 

Fannie Mae posted Initial Results from the Mortgage Lender Sentiment Survey. Inaugural results of the survey show significant improvement from Q1 to Q2 2014 in lenders' near-term profit margin expectations, with fewer lenders in Q2 reporting that they expect their profit margin over the next three months to decrease More Results

Fannie Mae recently published updated lender resources for mortgage products to finance home construction, renovation, and energy-efficient improvements. The materials construction-renovation-energy of updated resources include: a HomeStyle Renovation (HSR) on-demand recorded training tutorial that provides detailed loan origination, delivery, and servicing information; a HomeStyle Renovation Fact Sheet; a HomeStyle Renovation Product Matrix; a Construction-to-Permanent Product Matrix; and an Energy Improvement Feature Fact Sheet. Additionally, Fannie's announcement covers information pertinent to Adverse Action Notices, Allowable Foreclosure Attorney Fees, Evaluation Model Clauses, and the Master Custodial Agreement reminding servicers of the requirements. 

Lastly, this last weekend Fannie rolled out DU 9.1. Included are changes to foreclosure message updates, deed-in-lieu of foreclosure and pre-foreclosure sale message updates, charge-off policy message addition, 2014 Area Median Income limits, Special Feature Code retirement, and updates to align with the Selling Guide. 

Freddie Mac Reps and Warrants Updates reminds lenders that have mortgages that obtained selling representation and warranty relief between February and July 2014, your organization will receive a Selling Representation and Warranty Relief Date Report by mid-September. Also, Freddie Mac has terminated its relationships with the following law firms providing default-related legal services (DRLS) for Freddie Mac Default Legal Matters. Connolly, Geaney, Ablitt & Willard, P.C., in the following states: Massachusetts, New Hampshire, Rhode Island, Florida and Puerto Rico. The Castle Law Group, LLC, in the following states: Utah, New Mexico, Nevada, Arizona and Wyoming. Visit default legal services for detailed information for Servicers, law firms, and Legacy Matters. Bulletin 2014-15 covers a great deal of information including: Mortgages insured by Arch Mortgage Insurance Company, Suspicious Activity and anti-money laundering (AML) noncompliance reporting, Updates to counterparty eligibility, Updates to flood insurance requirements, Updates related to ULDD, Certificate of incumbency forms, and Requirement updates for manufactured homes. 

Four draft appraiser-specific policy documents that will be part of the Federal Housing Administration's (FHA) Single Family Housing Policy Handbook (SF Handbook) were posted today for stakeholder review and feedback. An extension from July 29 to August 15, 2014 has been granted to allow stakeholders additional time to provide voluntary feedback on the draft Doing Business with FHA-FHA Lenders and Mortgagees and Quality Control Posted for Feedback. HECM New Principal Limit Factors Use and Other HECM Reminders 2014-12, regarding Principal Limit Factors (PLFs) and Mortgagee Letter 2014-07, regarding Due and Payable policies for an eligible Non-Borrowing Spouse are effective for FHA Case Numbers assigned on or after August 4, 2014 Mortgagee Letters

On August 19, 2014, FHA will host a webinar FHA QC Update: Loan Review Findings and Trends. Topics will include: FHA trending resources, a one-year look back at FHA's quarterly loan review findings report, trends over time, lessons learned, and future mitigation. August 27th in New York, FHA is offering Underwriting Training that covers the underwriting of loans proposed for Federal Housing Administration (FHA) mortgage insurance. The training is for underwriters that are currently employed, or wish to be employed, by FHA-approved lenders. 

Sometimes government agencies get it right....and no, I'm not nipping at the schnapps at 5am. The National Association of Realtors commended Congress for their timely implementation of the Homeowners Flood Insurance Affordability Act which relieved property owners of costly premium hikes and stabilized housing markets where flood insurance is required for a mortgage.   Within a month of the legislation's implementation, FEMA issued rate-relief guidelines to insurers so that homebuyers would not have to pay more than current owners would at the time of their next flood insurance policy renewal. The relief also applies to current homeowners who bought a new policy or let one lapse, not just to owners who bought property after the Biggert-Waters Flood Insurance Reform Act went into effect last year. Testifying in front of Congress last week, NAR Flood Insurance Task Force Chair Donna Smith said, "The progress so far has been encouraging, but there is still more work to be done. FEMA still needs to set up an Office of the Advocate called for by the Biggert-Waters Act to provide property buyers with the timely help they need to address problems with flood insurance and other rate issues that they face. It is also critical that FEMA and the NFIP ensure the long-term accuracy of flood rates and maps. Homeowners need an independent government advocate who has experience and access to the necessary information to fully investigate and resolve suspect rate quotes."

The bond market sold off a little bit Monday - but no big deal, right? Rates are still great. Besides - folks rooting for lower rates should ask themselves: why? If rates go much lower, it is because our economy is doing pretty poorly - and who wants that? Certainly not a borrower with a rate lock, or a secondary marketing department with a locked pipeline. So we had a break yesterday, and agency MBS prices worsened about .125-.250 and the 10-yr closed at 2.39%.

Friday, August 15, 2014

Another Corrsp. Lender bails out;FHLB Atlanta joins MPF;REITs join non-QM fray;Rise of the Vendor


Guess what opened up on this date 100 years ago? No, it wasn't the first Starbucks. The Panama Canal opened. Do you think the mortgage industry will settle all the lawsuits and complaints by the time the 200 year anniversary rolls around? I hope so. The latest settlement involved Freedom Mortgage and discrimination. And we had the recent SunTrust Mortgage Force-Placed Insurance Class Action Settlement. But those regulating and monitoring lenders aren't immune to making mistakes, and this story explains how the CFPB admits it made false allegations about credit unions. 

I am sure that it was more recent than 100 years ago, but it is a rare phenomenon when a lender's existing branches see a pick-up in purchase business in the autumn and winter months - and companies are gearing their overhead accordingly. Granted, many companies are seeing decent volumes - but it is still summer and much of that is from the addition of LOs and branches. Meanwhile, lenders everywhere are doing what they can to keep decent producers in their stables: free skittles in the lunch room, trips to places with lots of vowels in the name, that kind of thing. (And for some, "decent" might be as few as 2-3 loans a month!) Companies attempting to keep staff include Wells Fargo, as this Bloomberg article points out.

The Federal Home Loan Bank of Atlanta has joined the MPF program that allows its banks, credit unions and other members to sell fixed-rate, conforming mortgages on the secondary market. The FHLB Atlanta became the 10th regional bank in the Federal Home Loan Bank System, a federal housing finance agency, to participate in the Mortgage Partnership Finance (MPF) program, which was created in 1997 by the FHLB of Chicago. Reuters reports that "Through the MPF's 'Xtra' product, home loans made by members of a participating FHLB are bundled and sold to Fannie Mae FNMA.OB, a sibling housing finance agency, at competitive rates, FHLB Atlanta said. At the end of 2013, FHLB Atlanta had nearly 1,000 members and $122.3 billion in assets. All of the district FHLBs provide 'advances' or loans to their members to lend to homeowners or potential home buyers. 'With MPF Xtra, our shareholders, regardless of their size, can offer their customers the same competitively-priced loans and keep the option to sell or retain the servicing of those loans,' FHLB Atlanta Executive Vice President and Chief Business Officer Robert Dozier said in a statement. The other FHLBs in the MPF program are Boston, Chicago, Dallas, Des Moines, New York, Pittsburgh, San Francisco, Seattle and Topeka."


Affiliated's correspondent announcement, not impacting its wholesale or retail channels, was short and sweet. "Dear Correspondent Partner, as you are aware, there have been significant changes within the mortgage industry that have impacted our business over the past several years. Based on the current environment, and after careful consideration, Affiliated Mortgage Company has made the difficult decision to exit the correspondent business effective on Friday, August 15, 2014. Per our contract, we will continue to accept locks through August 30, 2014. Effective Monday, August 18, 2014, extensions or re-locks on any locked loan will not be allowed. Rest assured that loans in our current pipeline, as well as those loans locked by the 30th, will be processed and purchased according to our usual guidelines.  We ask that you fulfill your contractual obligations with regard to your active locks with AMC. We will be available to answer any questions or conditions that arise concerning your loans until all pipelines are cleared. Please consider this official termination under the terms of our purchase and sales agreement." To repeat, its wholesale and retail channels are carrying on - business as usual.


At the other end of the spectrum, Baton Rouge-based GMFS was purchased last week by Zais Financial out of New Jersey for $61 million, and now Bloomberg reports that REIT Zais will soon start locking and funding non-agency loans within qualified-mortgage rules that will "expand credit slightly beyond what's available in the prime-jumbo market today. Zais CEO Michael Szymanski said, "We expect to see some expansion in our offering versus where the market is today on items such as LTV, transaction type, occupancy status...Could be >85% LTVs, though "certainly not 97%," and "there would be obviously mitigating factors that we felt were a good offset."


Bloomberg also reports that rival REIT Western Asset Mortgage plans to start buying new whole loans this quarter, with focus on high credit quality, non-QM mortgages "where we believe that we can earn higher net interest spreads without taking on much incremental credit risk," CIO Anup Agarwal said.

 Secure Settlements, Inc. (SSI), a data intelligence and risk analytics company for the mortgage industry, today announced that it has concluded a strategic joint venture agreement with CIS Information Services (CIS), a credit reporting and business risk assessment firm to streamline and enhance the SSI's suite of vendor management and risk monitoring products and services. CIS will provide technology integration and access to critical public data to improve the SSI risk reports and will also offer the SSI suite of mortgage industry data intelligence products to its existing client base of more than 2,000 businesses nationwide. (Secure Settlements recently partnered E.R. Munro & Company to offer SSI vetted low risk title agents access to competitively priced surety and fidelity bonds.)


Hey - here's something you can print out for a little weekend reading at the beach: FHFA's proposal for a single security. FHFA released a white paper requesting input on a proposed structure for a Single Security that would be issued by Fannie Mae and Freddie Mac. The MBA has called for a common agency, TBA-eligible security for more than two years, and development of the Single Security was a significant part of FHFA's 2014 Strategic Plan for the GSEs. "The MBA is analyzing the white paper and will be forming a working group to study its impact and craft a response to FHFA." And if you are interested in being part of this effort contact the MBA's Dan McPheeters

Let's see what vendors have been up to recently. After all, plenty of companies are using them to lower fixed costs and rely on their expertise. The residential lending business has become so complicated that it has become like the medical profession. One just doesn't just go to the "eye doctor" anymore. One goes to the retina specialist, or the "cataract surgeon". And lenders just can't rely on a good underwriter to take over servicing or compliance, or a lock desk person to hedge a $100 million pipeline. When one walks around the conference exhibition halls, they are filled with vendors and counterparties peddling their wares. The Rise of the Vendor!

The CFPB is calling out banks for not publicly disclosing campus financial product marketing agreements Full Story. The Office of the Comptroller of the Currency (OCC) has issued Bulletin 2014-37 on Consumer Debt Sales (the "Bulletin"). The Bulletin addresses the application of consumer protection requirements and safe and sound banking practices to debt sales by OCC-supervised institutions (national banks and federal thrifts) of all sizes, including community banks OCC Bulletin.


National MI announced that National MI's mortgage insurance products have been directly integrated with D+H's MortgagebotLOS, an all-in-one loan origination system (LOS) that supports retail, wholesale and correspondent mortgage lending. As a result of this integration, lenders who use MortgagebotLOS can now order National MI policies from within the loan origination system, saving time and streamlining the process for lenders," said Pete Pannes, chief sales officer of National MI. has launched an online community welcome designed to provide novice and experienced real estate buyers and sellers with a place to learn more about and the real estate auction process in general. The new resource is intended to enhance customer support and create a collaborative environment where consumers can learn from the company and each other.  


Lender Direct Inc. website turned some heads with its offer to compensate Realtors 0.75% on Every Loan While Being RESPA Compliant. FHA and VA Programs with minimum FICO of 580, FHA manual underwrite ok with max DTI 43%. DU Refi Plus and LP Open Access Refi with 125% LTV max and 620 minimum FICO, just to name a few details Lender Direct is offering. 

Equifax's availability of its verification of hazard insurance (VOHI) for mortgage and home equity lenders is said to improve processing time. Its turnkey process verifies the status of homeowners' insurance on purchases, refinances and home equity loans and lines, reducing delays and processing costs while streamlining the loan origination process.

Rates continue to be very low - there doesn't seem to be much reason for them to go much higher. And the demand for longer-dated maturity instruments continues to be strong - and those are a long way away from overnight Fed Funds in the yield curve. Yesterday we had a decent amount of news. Jobless Claims rose 21k, and the previous week's level was revised up by 1k from 289k to 290k. The 4-week moving average was 295,750, an increase of 2k from the previous week's revised average. U.S. Import Prices fell .2%, and import prices for automotive vehicles fell 0.8% last month - the largest drop since 1992. All is quiet overseas, but there continue to be articles which include both "Europe" and "recession" in the same sentence

We come to the end of yet another week here in the business world, with a day including a decent amount of economic news. Despite all the experts thinking inflation would be out of control by now due to Quantitative Easing, it hasn't happened. Today we had the Producer Price Index out: it was expected to be flat with the core rate +.2%, and came out at +.1% & +.2%. The Empire State Manufacturing number of August came out (expected to drop to 19 from 25.60, it came in at 14!) as well as the Industrial Production and Capacity Utilization couplet, expected +.1% and 79%, respectively, and the Thomson Reuters / University of Michigan Survey of Consumers. As a benchmark, the 10-year T-Note saw a 2.40% close Thursday and this morning we're at 2.39% and agency MBS prices are better by about .125.


Monday, August 11, 2014

Catching up with the MBA and CFPB on Privacy,RESPA-TILA, Reg. C, and Servicing Rules

Most professional baseball teams still have 30+ games left in their season (out of 162), and there is plenty of jockeying in the media regarding the playoffs. Baseball is filled with trivia, but there is one tidbit that sticks out in my mind. See if you can stump your friends with this one: "What are the only two days during the year when there are no professional sports games (MLB, NBA, NHL, or NFL) played?" Please don't write me with the answer, but given the overlap and lengthy seasons of basketball and hockey, my only hint will be that those two days are during the baseball season. Baseball, and other sports, is filled with numbers. So is lending, and Wall Street's reliance on credit scores is legendary. And hey, if you don't like the credit scores coming across your desk, change the credit scores! Seriously, Fair Isaac put in new scoring with several adjustments - most notably to medical bills. Many consumers will see their FICO credit scores increase - not due to their debt payment habits, but instead due to changes of the credit-scoring model.

Overdraft charges did not cause the credit crisis in the United States of America. But the CFPB is hot on the topic anyway. The CFPB reports the largest percentage of consumer complaints in 2013 for all products were for mortgages (47%), credit reporting (13%), bank accounts or services (12%), credit cards (12%) and debt collection (9%). 

Those interested in TILA-RESPA reform should tune in to the CFPB's webinar on Tuesday the 26th to answer some frequently asked questions about the TILA-RESPA Integrated Disclosure rule. The webinar will be hosted by the Federal Reserve. This will be the second in a series of webinars to address the new rule as creditors, mortgage brokers, settlement agents, software developers, and other stakeholders work to implement it over the next year. 

While we're on the CFPB, the MBA submitted a letter to the CFPB composed of thoughts on the proposed changes to the Annual Privacy Notice Requirement. (There is still privacy?) The MBA submitted a comment letter to the CFPB regarding its proposed amendments to the annual privacy notice requirement under the Gramm-Leach-Bliley Act. In the letter, MBA strongly supported the CFPB's efforts to reduce the burden and costs to the industry associated with providing annual privacy notices, while recognizing the importance of clearly disclosing to consumers a financial institution's policies for the treatment and sharing of nonpublic information. While supportive, the letter also expressed concern that the ability to post a privacy policy online in certain circumstances - rather than send annual notices - will not be as widely available as it should be. MBA then went on to suggest that any notice that complies with Regulation P should be qualified to use the proposed amendment's alternate delivery method if the financial institution is otherwise eligible. 

I continue to be asked about the CFPB and HMDA. As another reminder, the CFPB proposed changes to Regulation C, which implements the Home Mortgage Disclosure Act. Comments are due on October 22. 

What to do with potential borrowers who have minimal trade lines on their credit report, the so-called "thin file" borrowers? It's been suggested in the past that remittance histories could be a possible source of evaluation in establishing risk perimeters, and the CFPB has been tasked with its research. The Bureau recently published a report on its study of the use of remittance histories in credit scoring. I'll spare you from reading the 36 page report (although the link above directs you to the site); ultimately it found that remittance histories have little predictive value for credit scoring purposes, and that remittance histories are unlikely to improve the credit scores of consumers who send remittance transfers. Buckley Sandler have a terrific write-up on this report, they write, "The report follows a 2011 CFPB report on remittance transfers, which was required by the Dodd-Frank Act and assessed, among other things, the feasibility of and impediments to using remittance data in credit scoring. At that time, the CFPB identified a number of potential impediments to incorporating remittance history into credit scoring, and noted the need for further research to better address the potential impact of remittance information on consumer credit scoring." The CFPB determined that for remitter sample members without credit records, remittance histories likely would not allow those individuals to develop a credit profile. 

My daily work plan is pretty straight forward most of the time: a little writing, a little speaking, feed a pack of hungry cats every now and then; if required to, my P&Ps would be a page and a half at best. It's nothing compared to the Office of Inspector General's work plan for ongoing and planned audit and evaluation projects, which is updated bi-monthly and is over thirteen pages long. Recently, the OIG updated its work plan to include audits of the CFPB's information security program, pay and compensation program, and distribution of civil penalty funds. For the CFPB's Information Security, the OIG will implement the statutory requirements by auditing: the Bureau's compliance with FISMA and related information security policies, procedures, standards, and guidelines; and the effectiveness of security controls and techniques for a subset of the Bureau's information systems. OIG will also evaluate the controls around setting employee pay, which is mandated under Dodd-Frank as it requires the Bureau to "provide employee compensation and benefits that are, at a minimum, comparable to those of the Board of Governors of the Federal Reserve System (must be nice, uh?)." 

Ballard Spahr writes, "The CFPB issued a proposed rule amending Regulation C to expand data reporting requirements for mortgage industry participants. The proposed rule is 573 pages and our Mortgage Banking Group will analyze the proposal and work with clients on its impact. Comments are due on or before October 22...Dodd-Frank sought to address the issue (of the absence of important loan and borrower data elements) by directing the CFPB to expand the HMDA reporting categories. Proposed new data elements include the credit score and age of the applicant, the property's value (which provides for the determination of the loan to value ratio), the total points and fees, the term to maturity, and the duration of any loan. The expansion of HMDA data to include more and sensitive borrower and transaction information presents serious privacy concerns. By combining HMDA data along with other publicly available data, it is possible that the identity of specific consumers can be determined from the Loan Application Registers of mortgage lenders that must be made available under HMDA. With the expansion of HMDA data to include credit score, age and other elements, the privacy concern will be magnified. Addressing this concern in the press release announcing the proposal, the CFPB states that it is "looking at ways to improve how the public can securely use HMDA data to protect applicant and borrower privacy." The industry and interested parties should insist on the CFPB making consumer privacy a paramount concern in the consideration of the proposed rule. In announcing the proposal, the CFPB also states that it "views implementation of the Dodd-Frank Act changes to HMDA as an opportunity to assess other ways to improve upon the data collected, reduce unnecessary burden on financial institutions, and streamline and modernize the manner in which financial institutions collect and report HMDA data." The CFPB claims the proposed rule aims to: (1) improve market information, data access, and the electronic reporting process; (2) monitor access to credit; (3) standardize the reporting threshold; (4) ease reporting requirements for some small banks; and (5) align reporting requirements with industry data standards. Our Mortgage Banking Group will assess these aspects of the proposal." 

There are many areas in banking which require further clarification by the CFPB, and mortgage servicing rules are one such area. The American Bankers Association recently sent a letter to the CFPB requesting several clarifications. Ballard Spahr write, "The ABA asks the CFPB to make the clarifications part of "regulatory guidance (or regulatory amendment where necessary) that is readily accessible to all servicers, their vendors and advisors, as well as examiners from other regulatory agencies that will examine banks for compliance with the CFPB rules." In the letter, the ABA states that its members need regulatory certainty regarding how to apply the "120-day rule;" Rather than leave it to the courts to determine if a bank has correctly applied the 120-day rule, the ABA wants the CFPB to specify how the rule applies to rolling delinquencies. The ABA also restated its view that servicers should not be required to provide periodic statements for charged-off mortgage loans. If the CFPB continues to require periodic statements for charge-offs, the ABA suggests there may be value in the CFPB adopting a provision that parallels the periodic statement exemption for open-end credit. The ABA urges the CFPB to finalize as published its interim final rule providing limited exemptions from the servicing rules in situations where the borrower has filed for bankruptcy. The ABA also recommends that if the CFPB elects to issue a final rule that does not include the current exemptions, it engage in a notice and comment process that will allow servicers to provide input on the rule before it is finalized. 

It is pretty interesting when you put an investor's (like a pension fund) representative in a room, and ask them, "Did you rely solely on rating agency ratings to buy your security?" If the answer is "no", then how can they sue the rating agency? If the answer is "yes", well, then why weren't they doing their job? I bring this up because Bloomberg has a story about how banks are arranging a $1 billion commercial-mortgage bond deal tied to the Atlantis resort in the Bahamas but are poised to skip Standard & Poor's grades for most of the securities. "The ratings firm, which is facing a potential enforcement action by the U.S. Securities and Exchange Commission on commercial mortgage securities it rated in 2011, isn't offering preliminary grades on $617 million of senior portions of the transaction, according to a presale report from New York-based S&P. DBRS Ltd. and Kroll Bond Rating Agency Inc. are offering rankings as high as AAA. Bankers have been rethinking whether to hire S&P to rate commercial-mortgage bond deals after its parent, McGraw Hill Financial Inc., disclosed the potential SEC action on July 23. The regulator is probing six bond deals that S&P rated in 2011, including a $1.5 billion transaction that Citigroup Inc. and Goldman Sachs Group Inc. were forced to abandon when the firm yanked its grades after the notes were placed with investors." 

This week is another snoozer for scheduled economic news here in the U.S. But hey, who knows what might happen in Iraq, Israel, Russia, Korea... There isn't much until Wednesday the 13th with Retail Sales (the total receipts at stores that sell merchandise and related services to final consumers - reportedly accounting for 2/3 of economic activity). Thursday we'll have Jobless Claims and some import price statistics. On Friday things pick up with the Producer Price Index, Empire Manufacturing, and the Industrial Production and Capacity Utilization duo. For the quantitatively inclined, the 10-yr closed Friday at 2.42% and this morning we're sitting around 2.43 with agency MBS prices roughly unchanged.


 Executive Rate Market Report:

Unchanged in the treasury market early this morning with US and Europe’s stock markets looking better. No economic reports today. The Iraq/Islamic State; still a concern but the Kurds did re-take some of the ground the militants took last week with the help of US bombs. Iraq politics getting messy; the president of Iraq appointed a different prime minister from the one presently holding the job, setting up a major confrontation between the two politicians. The president acknowledged Saturday that U.S. spies and policy makers had underestimated the group, also known as ISIS and ISIL. "There is no doubt that their advance, their movement over the last several months has been more rapid than the intelligence estimates, and I think the expectations of policy makers both in and outside of Iraq," he said. Ukraine/Russia, not much new over the weekend. A little less tension than last week, but the undertone is still alive and well as it is in Iraq and the mid-east in general. The focus currently is in the Islamic State attacking key Kurdish and Sunni positions but the situation in Syria is beginning to re-boil. Geo-political conditions are likely to continue to drive investors into the arms of US treasuries and help to keep mortgage rates frm increasing. These global issues have a life of hours at times; one day a lot of concern, the next not so much. As the various issues rise and fall in the troubled spots, the bond markets here and globally, ride the waves.

At 9:30 the DJIA opened +45 after increasing 186 on Friday, the NASDAQ opened +19 after jumping 36 on Friday, the S&P +7 after increasing 22 on Friday. The 10 yr note rate unchanged frm Friday at 2.42%; 30 yr MBS prices +6 bps frm Friday’s close. There are no economic reports out today. Last Friday the strong rally in the stock markets was on optimism the tensions in Ukraine and Iraq are likely to ease. That view is following through this morning but those positive views are built on soft foundations and can, (will) change on a dime.

All the technicals we track remain bullish for the bond and mortgage markets, the stock market rallied Friday and so far this morning; good news for 401Ks but the volume on Friday and likely today was very thin, low volume does take a little away from the improvements; the last two weeks of August usually are slow in financial markets so movements can be exaggerated somewhat. This week is Treasury re-funding, it occurs every quarter with issuance of a new 10 yr note and 30 yr bond, other than that there is little significant difference between the monthly 10s and 30s other than re-opening the current on the run note and bond. Demand will drive attention in this present geo-political bouncing ball. Market volatility is possible this week on developing news out of the mid-east and Ukraine.

This Week’s Calendar:


10:00 am June JOLTS (job openings) (4.588 mil frm 4.635 mil in May)

1:00 pm $27B 3 yr note auction

2:00 pm July Treasury budget (-$96.0B)


7:00 am weekly MBA mortgage applications

8:30 am July retail sales (+0.3%; ex auto sales +0.4%)

10:00 am June business inventories (+0.4%)

1:00pm $24B 10 yr note auction


8:30 am weekly jobless claims (+6K to 295K)

·  July export prices (-1.0%) July import prices (-0.2%)

1:00 am $16B 30 yr bond auction


8:30 am July PPI (+0.1%; ex food and energy +0.2%)

·  August NY Empire State manufacturing index (20.0 frm 25.6 in July)

9:15 am July industrial production and capacity utilization (production +0.3%, capacity utilization 79.2% frm 79.1% in June)

9:55 an U. of Michigan mid-month consumer sentiment index (82.3 frm 81.8)