Friday, January 13, 2012

January 13: Mortgage production jobs; MBA class on fair lending; Redwood's new jumbo deal; Chase's mortgage earnings sag

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There are folks out there that believe doing Sudoku puzzles will stave off

senility and Alzheimer's. I don't do the puzzles, and don't believe the

claim. I...uh...

what was my point? Oh yes...there are some very bright folks out there who

apparently determined the minimum number of numbers (17) required to give a

unique answer to a puzzle. (And you wondered what math majors did after

college): RevengeoftheNerds

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-jMEYkGK8ZOM23050UgEw6K1YToKOhWa2GVYbYuVQ03Lka4JeZ76P31nTN-53ZeN1YIjTIUhU6H9

KyvHCyhaGR3Se9jSBL42LBDIBwqEMeLPBDF1LVeUr0eejwmFUuS44L5A==].



Speaking of bright folks, fair lending enforcement has taken a dramatic new

turn.

Things are heating up in the courts, with the traditional "price

discrimination"

 and "red-lining" suits being replaced by the "disparate impact" theory: the

idea that even if lenders don't actively discriminate, they can still be

sued if the cumulative effect of their actions implies discrimination. The

MBA is holding an  all-day, in-depth workshop covering this, titled,

"Prepare Now for Fair Lending  Reviews and Enforcement" in Washington, D.C.

on January 24th. There will be reps from the DOJ, CFPB and HUD, as well as

attorneys and consultants: PreparePreparePrepare

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7Gfom5oxYnSGLF8-7X9dk5tzo2UFJ0axPkcfEPxJiV6vRs-lz1Bi4oagG1vm6_9fgswGqT9NPldT

ZKGt5VnKsLBH4Q1-9Y2nBZmOeLPRKSQZv9].



Some mortgage companies are scaling back (MetLife comes to mind) while

others continue to expand. Kinecta Federal Credit Union is continuing to

grow its business and is hiring Retail Mortgage Loan Consultants and Sales

Associates throughout Southern  California, and is also growing its

Wholesale/Correspondent lending with AE positions open in California, and in

territories covering the Northwest, Southwest, Central, Northeast and

Southeast. "Kinecta FCU is one of the nation's leading credit unions, with

more than $3.5 billion in assets and serving over 220,000 member-owners

across the country." If you are interested, please send a resume to Sue Ann


One of the big trends in the industry is the increased documentation,

especially  with regard to appraisals and collateral, and occasionally I am

asked about companies who can help. Mortgage technology company FNC Inc.,

given what I am hearing, seems to be gaining market share in that space: its

clients include the largest mortgage industry lenders and industry leading

appraisal management companies. The website notes that, "FNC delivers deep

expertise in appraisal compliance, workflow best practices, and process

efficiency to: mortgage lenders, servicers, appraisal management companies,

secondary & capital markets, property & casualty insurance companies."

Check it out at FNC

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t-oAEXABSpAwmY19qEAuksJ0eXQ_rKr8Eo2Q==].

Here's a Friday puzzle: What is about $400 million, filled with loans whose

balances average $932,000, have CLTV's of 65% and borrower credit scores

average 770? How  about Redwood Trust's next jumbo residential

mortgage-backed security

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1109080592732&s=8721&e=0014-S_Yj

MCCMtjzdHv5QmYKlB0BloZbHN05XcfVlG9Pw8biHp6Ut61BvzWjYLg2EB-UWRfahHd3zcPFhcmcs

Cyy5po24fx14yElmGjcq1Th5BrsrcfMvhtmSN9AmA06BtJj_KPO0qxq3oshL-XCiEMdmneSKKZyY

anfRmHlXUyGRJNtzd2vGJ5_cbmk_-4T7UUSoVjv84AHVWL3py7Z9GOa9b-HBw-FDlB20zuJQ51yV

5Ycdd_JmYhNg==]?

Fitch Ratings and Kroll Bond Ratings are grading the deal, reportedly,

backed by  Credit Suisse.



The recent Fed Paper, and Fed speeches, on suggestions on curing the housing

woes, elicited this note from a reader: "We were struck by how little effort

the Fed put into identifying areas where regulatory action by the Fed and

others could contribute significantly to alleviating the problem.  In the

policy recommendations portion  of the 28 page paper, the Fed offers just

two paragraphs which I quote. 'Credit  Access and Pricing: as noted earlier,

mortgage credit conditions have tightened  dramatically from their

pre-recession levels. Lax mortgage lending standards in  the years before

the house price peak contributed to problems in the housing market, so some

tightening relative to pre-crisis practices was necessary and appropriate.

The important question is whether the degree of tightness evident today

accurately reflects sustainable lending and appropriate consumer

protection.' And, 'Financial regulators have been in consultation with the

GSEs and originators about the sources of the apparent tightness in lending

standards. Continued efforts are needed to find an appropriate balance

between prudent lending and appropriate consumer protection, on the one

hand, and not unduly restricting mortgage credit, on the other hand.

In particular, policymakers should recognize that steps that promote

healthier housing and mortgage markets are good for safety and soundness as

well.' That's it???  No mention of the QM and the need for a true compliance

safe harbor, rather than a rebuttable presumption of compliance?  What about

the QRM?  Does the Fed really think that a 20% or 10% minimum down payment

requirement for the QRM will help re-center the credit pendulum?  These are

rules that the Fed drafted (in the case of the QM proposed rule) or

participates in the drafting (in the case of QRM). The Community Mortgage

Banking Project urges everyone to stay involved to keep the pressure on  the

regulators for balanced and reasonable QRM and QM rules." So wrote Pete

Mills with Mortgage Banking Initiatives, Inc.



Also regarding last week's Fed white paper on housing, The Shirmeyer Report

noted, "This is the first time since our current economic crisis began that

the Fed has  reported so comprehensively on how to help the housing and

credit markets although they have made recommendations to policymakers

before. As we have repeatedly said for the past few years, as the smartest

people we know have said for the past few years, you must fix housing and

credit or our own economic recovery will be limited and long. The Fed

recommended boosting the role of Fannie and Freddie as opposed  to reducing

their role in the housing recovery as Congress and the Administration has

been insisting. Now is the time to address housing; after all we have

already addressed corporations and banks. What better way to do so than with

the existing entities, Fannie, Freddie and Ginnie?"



On a slightly different topic Michael Frotten wrote, "There were two recent

stories in the news that have interested some people in the industry. One

story regarding the new head of the CFPB, Richard Cordrey reported that one

of his first initiatives involving consumer protection is called, 'Know

Before You Owe!' The second story  was that the Federal Government is

mandating that top servicers figure out how to improve communications with

borrowers. For many of us in the mortgage industry I'm sure the first

reaction after reading those stories in the news was to reach  for the

closest bottle of Tums! However, there is an underlying issue that can be

improved upon since both of these issues are connected. 'Know Before You

Owe'

 is designed to improve the experience for consumers before they take out a

mortgage loan, and the Fed's mandate is designed to improve communications

with consumers  after they have closed on the same mortgage. The real issue

and challenge isn't  just improved communication - its enhanced consumer

comprehension through the entire process! (Anyone with teenage children like

me knows the difference between the

two.) We created a company to help the mortgage industry improve the

consumer experience through the use of video and achieve a higher level of

consumer education and comprehension.

Vidverify will help mortgage bankers enhance the level of compliance,

consumer education and comprehension, grow relationships, reduce errors, and

deliver communication that is consistent and easy to understand." If you'd

like to hear more contact Mike at mfrotten@vidverify.com




Maybe Chase will offer it to help their bottom line mortgage profits. The

company reported its 4th quarter earnings and revenue (close to

expectations): net income was $3.7 billion, or $19 billion for the year,

while revenue was $22.2 billion, or nearly $100 billion for 2011. For Basel

fans out there, Basel I Tier 1 came in at 10.0%, and estimated Basel III

Tier 1 at 7.9%. Chase's credit reserves stood at $28.3 billion, with loan

loss coverage ratio at 3.35%. Turning to mortgages, the picture is not so

rosy. "Mortgage production and servicing reported a net loss of $258

million, compared with net income of $330 million in the prior year.

Mortgage production pretax income was $161 million, a decrease of $392

million, or 71%, from the prior year. Production-related revenue, excluding

repurchase losses, was $1.1 billion, a decrease of $269 million, or 20%,

from the prior year, reflecting narrower margins and lower volumes.

Production expense was $518 million, an increase of $82 million, or 19%,

reflecting a shift to higher-cost originations within the retail channel as

well as enhanced underwriting processes. Repurchase losses were $390

million, compared with repurchase losses of $349 million in the prior year.

The higher losses were primarily driven by an acceleration of Agency

demands."



Chase's servicing numbers showed a pretax loss of $586 million, compared

with pretax income of $14 million in the prior year, largely due to mortgage

servicing rights

("MSR") risk management loss. The prior-year servicing expense included $374

million related to foreclosure-related matters. MSR risk management was a

loss of $377 million, down $667 million compared with the prior year. The

current-quarter MSR risk management loss included an $832 million decrease

in the fair value of the MSR asset, partially offset by $460 million of net

gains on the associated derivative hedges." What a  great business...



On the trading side, JPMorgan Chase alerted its broker-dealer clients of a

change in respect to its trading in several securities types including

mortgage-backed securities. Specifically, "the Treasury Market Practices

Group (the "TMPG") and the Securities Industry and Financial Markets

Association ("SIFMA") have published the "U.S. Treasury Securities Fails

Charge Trading Practice" and the "Agency Debt and Agency Mortgage-Backed

Securities Fails Charge Trading Practice" at SIFMA

[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1109080592732&s=8721&e=0014-S_Yj

MCCMsKSYSBqysvjZ5sBJWgHj8CYxbVFzwA-68L6VkDMswHHW6vMRQhivh4w0nEW6LqnjMbHnMJCz

QmSSYH7I2D0Ll_n7J46j3PdJM6SPqwr3zD3QIYMRw5VGUftohiTKFnNwjKyP04ihbQklk01kidac

9lWe0u2aB_thh58TuLMFGOCzG0YfpUl0jmsrawW-1vpLb8KMMdL701h2dVxK2PVZ-p7lOEQAEBIi

3scB4WJj-nuI-NiC4dkFuYFN-gyXPL6WkE9xUgO4hKRg==].

J.P. Morgan Securities LLC and its affiliates have decided to adopt these

Fails Charge Trading Practices for purposes of our transactions starting

February 1."

For those not involved in the securities trading, (very) basically these

practices standardize what happens when a client fails to deliver a security

after they agreed to deliver it. Just don't let it happen...



Fortunately volatility in the interest rate markets continues to be minimal.

Thursday the markets were nudged by successful bond auctions in Spain and

Italy, and here  in the U.S. by weak Initial Jobless Claims and Retail Sales

reports. When the day finished the 10-yr settled at 1.94% and MBS prices

were a smidge better. Things don't appear to be changing much today: the

only news out so far were some trade  balance figures (which rarely move

markets) that showed import prices dropped .1% and that the trade balance's

deficit increased slightly to $47.8 billion. Later on we have a preliminary

January Michigan Sentiment Index at 9:55AM EST. After the trade numbers the

10-yr is at 1.90% and MBS prices are, once again, a smidge better.



Most of the time a joke is posted here. But sometimes there are some short

(about a minute and a half), clever ads out there worth passing along:

IfYouAreReadingThis

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If you're interested, visit my twice-a-month blog at the STRATMOR Group web

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. The current blog discusses the time frames for borrowers returning to

A-paper status after a short sale or foreclosure. 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.



Rob



(Check out


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For archived commentaries, go to www.robchrisman.com

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Copyright 2012 Rob Chrisman.  All rights reserved. Occasional paid notices

do appear.

This report or any portion hereof may not be reprinted, sold or

redistributed without the written consent of Rob Chrisman.)

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