Friday, October 31, 2014

Halloween: Will the Election Really Matter? CFPB's servicing report; Freddie & manufactured housing




Ahead of most states changing their clocks Sunday morning, we have Halloween. Halloween has been celebrated for thousands of years, or at least since anyone reading this was a kid, as part of Celtic rituals, where initially it was associated with images of witches, ghosts and vampires. Of course Halloween has turned into a holiday where people young and old dress up, trick or treat, carve pumpkins and explore haunted houses. Halloween is also an excuse for college girls to dress in "risqué" costumes although the estimated number of potential trick-or-treaters (children aged 5-13) is about 41 million. When I was that age, Halloween was an innocent time when parents were far more relaxed and clueless about what their kids were up to. "You kids have fun, and be home by Thanksgiving!'' our parents yelled as I took off with eggs and shaving cream. For those of you that haven't finalized plans for Halloween yet, here are few suggestions of places you may want to visit tonight: Tombstone, AZ, Sleepy Hollow, NY, Kill Devil Hill, NC, Slaughter Beach, DE, Casper, WY and Truth or Consequences, NM.

Now, however, notices like this (and I took this verbatim from someone with a child in school) go out regarding the costume policy. "Costumes are allowed but remember the dress code and discipline code remain fully in effect. Costumes may not cover your face, show too much of your bare body or have a sexual, alcohol, drug, or violent theme. No simulated weapons of any type are allowed. Also the costume may not reflect badly on any ethnic, racial, gender, or sexual orientation or religious group. Students who are not dressed appropriately will be required to change their clothing."

Gaps of all kinds are widening out, and they are impacting business. In a story about "New Homes' Problem: Price"  the gap between the more expensive median price of newly built homes and that of resales has exceeded $70,000 for most of the economic recovery, the widest spread since the Commerce Department and the National Association of Realtors started tracking the figures in 1968.

Let's not forget that Tuesday is an election. While a Republican Congress may make more noise about reforming/dismantling Fannie/Freddie, this is more of an economic issue than a political one. "Housing" is a bipartisan issue and neither party wants to disrupt it - given that the GSEs are playing such an enormous role at present there won't be much appetite to rush through legislation passing the companies fully back into private hands. Yes, we may see a potential Senate change. Congress has been gone since mid-September trying to protect their jobs. And gosh... there is no need for them to be in session and drag down their approval ratings further, right? Right now the Senate is split 55-45 Democrat-Republican but the odds are considered high that the GOP captures 6 net seats to get them to 51 and control of the Senate. How much would Washington change under a Republican-controlled Congress? Probably not that much. If the majority is slim (only 1-2 seats) the gridlock won't go away (the Senate may pass more bills but that may just mean Obama is forced to wield his veto powers more frequently). Keep in mind that once these elections are over the focus will immediately shift to 2016. But in reality Congress in 2015 may not function much different from how it does now.

Anyone owning Ellie Mae stock is laughing all the way to the bank. This year its stock is up 44% "as home lenders embrace e-signatures. "As stiffer regulations make mortgage compliance more complicated, lenders who still depend on fax machines are turning to technology firms."

Can your firm afford a team of people to audit and monitor counterparties? If it can't, you may want to reconsider any decisions to service loans. The CFPB issued a report that highlights issues that surfaced during exams around mortgage servicing. The report indicates examiners have found insufficiencies or weaknesses in policies, problems with procedures and information sharing with vendors that service loans. Experts recommend community bankers and lenders active in mortgage lending activities double-check this area and consider ramping up internal audit resources to avoid issues in the future. 

Apparently many in the industry wondered why Freddie Mac entered the manufactured housing market. Multifamily VP Kelly Brady put an end to the queries by publishing a piece titled "Behind the Scenes: The Making of The Godfather". Uh, sorry, looking at my Netflix queue. It is titled, "Behind the Scenes: Manufactured Housing Communities." "We needed to prove to the MHC industry that we could be a reliable capital source in this particular market segment. We needed to prove that lenders and borrowers would experience the same high quality level of service and certainty of execution that they currently receive from us on conventional multifamily loans...Next, we needed to build expertise. So we hand-picked a core team for MHCs, with the time and desire to develop relationships and with a deep knowledge of the intricacies of this business. Then, we were tenacious in pursuing business. We reached out to community owners. This was the key to our success in purchasing our first MHC loan...With our announcement to enter this space, lenders and borrowers have told us that they have seen the availability of funding go up and the cost of capital go down. And, while it's still early, we are bringing mortgage funds to locations we have not been active in before, bringing much needed capital to rural areas where traditional multifamily apartments are scarce..."

While we're talking about Freddie Mac, "The Community Mortgage Lenders of America (CMLA) continued its push for expanding mortgage credit for moderate income, minority, single parent and first time buyers in separate meetings with White House and Interagency staff and with Freddie Mac executives. A CMLA delegation, led by new Chair, Paulina McGrath, President of Republic State Mortgage Co., called for changes in the GSE loan review process to reduce rote repurchase demands for non-serious loan flaws. In an October 15, 2014 White House/Interagency meeting, McGrath stressed, 'the impact of current GSE policy is, unfortunately, less credit to worthy borrowers. Lenders should be given an opportunity to correct minor flaws in performing loans. If these flaws cannot be corrected, indemnification should be the preferred option, rather than repurchase.' Specifically, the CMLA is seeking a number of changes in how the GSEs review loan quality that include: Eliminating rote demands that lenders buy back or repurchase performing loans with minor defects, creating specific standards of materiality for errors in loans that clearly distinguish between fatal and minor flaws, working with the lending industry to boost lender guarantees against loan defaults or indemnifications, with a goal of significantly reducing repurchase demands within the next 3 years In a similar discussion with Freddie Mac Executives on October 24, CMLA lenders cited examples of slight loan defects that have prompted repurchase demands. This practice, they said, results in lenders extending credit only to the safest credit quality borrowers. 

And the mortgage insurance business has been in the news. Isaac Boltansky with Compass Point writes, "On October 28, Bloomberg ran an article focusing on HUD's push to evaluate the merits of private mortgage insurers (PMIs) providing supplemental insurance on VA loans. As a reminder, only 25% of a VA loan is federally guaranteed which reportedly limits some lender participation. To that point, at the MBA conference last week HUD Secretary Castro stated that the 25% limitation 'leaves a lot of small lenders awfully exposed and reluctant to offer veterans credit under this initiative.' While it is far too early to assess the potential impact of supplementary coverage on VA loans, this policy conversation reinforces our longer-term belief that the forthcoming finalization of the PMIERs will soften the ground for the PMI industry's efforts to increase and diversify the risks it insures." Mr. Boltansky notes it is too early to estimate the potential impact on the PMI industry but that, "The conversation surrounding supplementary insurance on VA loans reinforces our longer-term belief that governmental entities will become increasingly willing to allow PMIs to take additional and varying forms of risk given their improved capital position in the wake of the Private Mortgage Insurance Eligibility Requirements (PMIERs). We believe that the PMIERs will place the PMIs on sound financial footing which should soften the ground for industry efforts to increase and diversify the forms of risk they insure. These efforts could take the form of supplementary insurance on VA loans or deeper up-front risk sharing for PMIs (see MBA proposal). We continue to expect the FHFA to finalize the PMIERs by the end of 2015 or early Q1 2015 which should remove a meaningful policy overhang for the group and allow for the PMI conversation in D.C. to evolve. 

The MBA reminded us that "...last week regulators issued the final Risk Retention rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rule aligns QRM with QM and removes onerous provisions such as down payment and maximum debt-to-income ratios that would have restricted access to credit. Please click here for a summary of these and other provisions that will impact the single-family market." 

Yesterday the Treasury market finished about where it ended Wednesday afternoon. The 10yr closed at 2.30%. But agency MBS finished the day "in line to 5's & 3+ ticks tighter to 10's with under $1BB in origination." What does that mean to the shoeshine guy down the street? It means that MBS prices did better than Treasury prices due to supply dropping relative to the demand for mortgages. 

The economic calendar closes out the week beginning at 2:30AM Hawaii time with September Personal Income, seen unchanged to lower (expenditures). Also out at that timeslot is Q314 Employment Costs, also seen unchanged to lower. About an hour later we'll have the October Chicago Purchasing Manager's Index and then the October (final) University of Michigan survey which printed 84.6 previously. In the early going we're at 2.34% on the 10-yr and agency MBS prices are worse about .125.

Rate Market Report:

TRICK or TREAT! The trick; how to drive global stock markets higher. The treat; the Bank of Japan treated markets with an unexpected increase in monetary stimulus overnight. The reaction; sent stock bourses substantially higher in early trading this morning. At 9:00 the US markets trading in the futures markets were pointing to an all-time intraday high for the DJIA and the other indexes on fire. The bond and mortgage markets taking a hit so far with stock markets roaring. Not a large increase in rates however. At 9:30 DJIA opened +90, NASDAQ +75, a 14 yr high, S&P +15. Interest rates holding well so far; the 10 2.34% +3 bp and 30 yr MBS price down just 2 bps.

The BOJ surprised global markets overnight increasing the monetary base by 80 trillion yen a year from 60 trillion a yr. The bank said it will purchase exchange-traded funds so their amounts outstanding increase by about 3 trillion yen a year. Japanese real-estate investment trusts will be purchased with a view to raising their amounts outstanding by about 90 billion yen annually, according to the central bank. Japan’s government also said the $1.2 trillion Government Pension Investment Fund would announce a boost in its holdings of foreign assets. In a press conference held later, the GPIF said it would increase its target holdings for both local and overseas shares to 25 percent each from 12 percent, confirming the Nikkei report. When a central bank is out buying ETFs and foreign stocks it logically sends investors into a frenzy of buying.

It is interesting to listen to the CNBC commentators this morning; one would think Helicopter Ben was dropping $1000.00 bills across the country. The Bank of Japan set the world on its heels with the stimulus announcement. It wasn’t expected, and the massive amount is shocking; between what the bank is saying it will do and the GPIF saying it would buy anything around the world equity markets are on fire, The bond market still OK given the circumstances. Maybe the bond market isn’t quite as excited yet about the news from Japan as equity traders are now.

Turning to domestic news; this morning’s Sept personal income and spending data was weak at 8:30. Ignored initially as Japan news is dominating. If it were not for the Japanese news it is likely the US stock market would be trading lower now. Personal income was expected up 0.3% as reported +0.2%, the slowest pace this year. Spending expected +0.1% declined 0.2%. The PCE core up 0.1% as expected. Q3 employment cost index expected +0.5% increased 0.7%; yr/yr +2.2% from +2.0% in Q2.

More data at 9:45 and 9:55; the Chicago purchasing mgrs. index was thought to be unchanged at 60.5, as reported it jumped to 66.2. The U. of Michigan final consumer sentiment index for October was better than thought at 86.9 against forecasts of 86.4; the index is the highest now since July 2007.

The bond and mortgage markets a little weaker but given the news from Japan and the reaction to it in the equity markets, treasuries are not suffering too much so far. Technically the 10 yesterday tested and held its 40 day average, so far today it tested it again and has held. Stocks rallying because Japan’s pension funds are going to buy global investments, and where better than in the US. Volatility remains high for equity markets but at the moment the bond market is rather stable given the backdrops. All that said, we are not as bullish as we had been; if the 10 closes above 2.35% we will have to accept the bullish bias turning more bearish.

PRICES @ 10:15 AM

  • 10 yr note: -5/32 (15 bp) 2.33% +2 bp
  • 5 yr note: -7/32 (22 bp) 1.62% +4 bp
  • 2 Yr note: -2/32 (6 bp) 0.51% +3 bp
  • 30 yr bond: -17/32 (53 bp) 3.08% +4 bp
  • Libor Rates: 1 mo 0.154%; 3 mo 0.232%; 6 mo 0.324%; 1 yr 0.541%
  • 30 yr FNMA 3.5 Nov: @9:30 103.42 -4 bp (+2 bp from 9:30 yesterday)
  • 15 yr FNMA 3.0 Nov: @9:30 103.70 -2 bp (+4 bp from 9:30 yesterday)
  • 30 yr GNMA 3.5 Nov: @9:30 104.43 -4 bp (-3 bp from 9:30 yesterday)
  • Dollar/Yen: 111.99 +2.78 (huge move)
  • Dollar/Euro: $1.2511 -$0.0102 (big move)
  • Gold: $1164.40 -34.20 (big decline on strong dollar) Crude Oil: $79.86 -$1.26 (psychological level under $80.00)
  • DJIA: 17,338.07 +142.65
  • NASDAQ: 4625.03 +58.89
  • S&P 500: 2012.52 +17.87
http://globalhomefinance.blogspot.com

Thursday, October 30, 2014

Executive Rate Market Report; Lawsuit update on PHH, Lawsky, Castle & Cooke



As mortgage bankers gear up to see what the Shipping Department dresses up as tomorrow, let's take a quick look at some demographics. There is now a larger cohort of unmarried young adults who are driving the overall homeownership rate down as they are less likely to own a home. The creation of household formations plays an important role in homeownership rates among young adults and is one of the main reasons the average age of first time home buyers is now 31 years old.

And just because you settled with the CFPB, or Fannie, or HUD, or whoever, doesn't mean that you're not going to be on the receiving end of a lawsuit (or a complaint) from a borrower. Just ask Castle & Cooke. The "fun" never ends! As a reminder even though the CFPB got its pound of flesh out of Castle and Cooke the issue has now gone to the consumers who have filed a class action lawsuit in July.  C&C is in the "response" period, but the clock is ticking. There is speculation that this case, if successful, could actually establish a legal precedent for repayment of three times MLO commissions from the MLOS, along with fees, interest, and resetting the interest rate to what the borrower could have received. 

Along those lines, congrats to PHH and the industry in general. You remember PHH, right? The PHH that was facing a $16.2 million legal battle over a mortgage modification? The lower court's ruling on damages was mostly tossed out. Reminiscent of the case where the woman sued McDonalds because of hot coffee, if the damages had stuck this PHH case would have made anyone question why any of us write and service loans. Or want hot beverages. 

And many in the industry are waiting for the rating agencies to bear some of the brunt for their mistakes in rating mortgage-related securities. Their wait may be ending as this story describes moves that S&P is making toward a settlement. 

Lastly, "The defendants in the lawsuit brought by Benjamin Lawsky, the Superintendent of the New York Department of Financial Services, using his Dodd-Frank enforcement authority have filed an appeal with the U.S. Court of Appeals for the Second Circuit.  Under Dodd-Frank Section 1042, a state AG or regulator is authorized to bring a civil action for a violation of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices. The defendants, a large subprime auto lender and its individual owner, are seeking to overturn the district court's order denying their motion to modify a preliminary injunction entered by the court freezing the defendants' assets and enjoining them from engaging in new loan business.  In their motion, the defendants also sought to reduce the fees of the receiver appointed by the district court.  The defendants must file their brief by December 8. In addition to Mr. Lawsky's lawsuit, we have also been following lawsuits filed by the AGs of Illinois and Mississippi using their Dodd-Frank enforcement authority." 

I don't foresee any argument when I claim that most folks have set foot in a bank during their lifetime. Analysis of the 10 largest US banks at the end of the 2nd quarter finds that there were 94,725 bank branches in the country and this group controlled 33% of them (30,858). Of note, the top 5 banks have 24% of all branches nationwide or about 300% more on average than the next 5 largest. Drumroll please... Wells Fargo (6,314), JPMorgan (5,682), Bank of America (5,096), U.S. Bank (3,238), PNC (2,821), BB&T (1,843), Regions (1,673), SunTrust (1,514), Fifth Third (1,348), and Toronto Dominion (1,329). That is a lot of overhead! 

Bank M&A, and one closure, continued to be announced in the last week. Last Friday the National Republic Bank of Chicago, Chicago, Illinois, was closed by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver who in turn entered into a purchase and assumption agreement with State Bank of Texas, Dallas, Texas, to assume all of the deposits. San Diego Private Bank ($340mm, CA) will acquire First Security Business Bank's loans and deposits ($74mm, CA). And Heartland Financial USA ($6B, IA) will acquire Community Bank & Trust ($520mm, WI) for about $52mm in stock or roughly 1.55x tangible equity. 

Plenty of independent mortgage banks would like to see a more level playing field when it comes to bank & mortgage bank originators. So let's talk about the NMLS. "The Greater Midwest Lenders Association 'GMLA' has submitted our comments letter about the proposed changes to the Mortgage Call Report. The GMLA represents 12 Midwestern states that comprise over 5000 state registered company licensees and over 55,000 MLOs. GMLA is calling on the State Regulatory Registry/Conference of State Bank Supervisors "SRR/CSBS" that run the NMLS to establish clear bright lines regarding the definition for mortgage loan applications. The SRR/CSBS proposal also asks for comments regarding multiple new data fields to be included in the proposed Mortgage Call Report. Some of the new fields to be included are tracking of loan amount changes during the application process and the creation of new QM and Non-QM loan data fields on the MCR Standard Report that mortgage brokers typically use for MCR reporting. We urge everyone to submit comments by October 30, 2014.  Click here to download our letter to SRR/CSBS.  For more information on how to comment visit the NMLS web site: NMLS Resource Center." 

For thrills today we had Jobless Claims (283k prior, it came out +4k at 287k), and advanced Q314 Real GDP (+4.6% previously, it was 3.5% annual growth). The Treasury auctions its final fixed rate note of the week with $29 billion 7-yr notes going off later today. The 10-yr is at 2.31% and agency MBS prices are better by a few "ticks" (32nds).

Q3 advance GDP at 8:30 was headline better than expected; the estimate was for 3.0%, as reported 3.5%. The report is the first of three and will likely be revised next month when the preliminary report is released, the advance report misses some of the latest Q3 data that isn’t included in this report; the direction of the revision is not in our wheel house yet. The increase added to 4.6% in Q2 is the largest back to back GDP readings since Q3 and Q4 in 2003. Household purchases fell but increased government spending and a lower trade deficit offset. Government spending climbed at a 4.6% pace, the most since the second quarter of 2009. The pickup reflected a rebound in defense outlays. Consumer spending in Q3 at 1.8% was down from 2.5% in Q2, 70% of the economy is consumer spending and accounted for 1.2% of the 3.5% growth reported. Inventories grew at a slower pace, subtracting almost 0.6% points from growth. Excluding stockpiles, so-called final sales, climbed at a 4.2% pace last quarter, the most since 2010. The trade gap and inventories are two of the most volatile components in GDP calculations, and can show significant revisions in subsequent reports.

Weekly jobless claims increased 3K to 287K, estimated were for a decline of 3K; close enough to call the claims in line with estimates. The 4 wk average fell to 281K from 281,259, the lowest 4 wk average since May 2000. Job growth continues but there remains a huge gap between good decent paying jobs and most of the new jobs coming on line. The Fed is outwardly worried about the underutilization in the labor force; recent employment statistics confirm most of new jobs are at the low end of the pay scale.

At 9:00 the 10 yr note traded at 2.29% -3 bps, 30 yr MBS price +13 bps from yesterday’s close but just 2 bps from 9:30 yesterday. Yesterday prices fell off in the afternoon after the FOMC policy statement. At 9:30 the DJIA opened +47, NASDAQ -16, S&P -5; 109 yr 2.30% -2 bps, 30 yr MBS price +9 bps from yesterday’s close and -2 bps from 9:30 yesterday.

Not so good news out of Europe; six countries in the EU reported consumer prices declined. Deflation in the EU is getting worse according the data. Benchmark German 10-year yields fell four basis points, or 0.04 percentage point, to 0.86% today. Overall German inflation, calculated using a harmonized European Union method, declined 0.1% on the month, according to the median forecast in a Bloomberg News survey of economists.

The Fed ended QE3 yesterday; it was widely expected and with only $15B a month left on the monthly purchases from $85B a month when the QE began it isn’t a huge deal but is getting ink is secular media. In case you missed it yesterday, here is a synopsis of the policy statement:

  • Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate
  • Indicators suggests that underutilization of labor resources is gradually diminishing.
  • Household spending is rising moderately and business fixed investment is advancing
  • Recovery in the housing sector remains slow
  • With appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate
  • The Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year
  • A substantial improvement in the outlook for the labor market since the inception of its current asset purchase program
  • Continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment
  • The Committee decided to conclude its asset purchase program this month
  • The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program

A slightly better start this morning but not much and the stock market is likely to improve through the day n the better GDP. The fly in the pudding in the GDP data, the decline in consumer spending from Q2. Technically we are stepping on eggshells now; the 10 is barely holding its support at 2.30%, yesterday on the reaction to the FOMC the 10 jumped to 2.36% (40 day average) but closed at 2.32%. The 14 day RSI at neutral 50 still holding. The rate markets hanging on but after the beatdown in rates two weeks ago is having a lasting effect that there was no follow-through in the ensuing sessions, since the capitulation the 10 yield immediately climbed from the intraday low at 1.85% to the intraday high yesterday at 2.36%. The way rates easily bounced higher is somewhat of a concern now. Volatility!

PRICES @ 10:00 AM

10 yr note: +10/32 (31 bp) 2.28% -4 bp

5 yr note: +5/32 (15 bp) 1.57% -3 bp

2 Yr note: unch 0.48% unch

30 yr bond: +25/32 (78 bp) 3.01% -5 bp

Libor Rates: 1 mo 0.153%; 3 mo 0.232%; 6 mo 0.323%; 1 yr 0.541%

30 yr FNMA 3.5 Nov: @9:30 103.41 +9 bp (-2 bp from 9:30 yesterday)

15 yr FNMA 3.0 Nov: @9:30 103.68 unch (-17 bp from 9:30 yesterday)

30 yr GNMA 3.5 Nov: @9:30 104.46 +8 bp (+4 bp from 9:30 yesterday)

Dollar/Yen: 109.02 +0.13 yen

Dollar/Euro: $1.2604 -$0.0028

Gold: $1205.80 -$19.10

Crude Oil: $81.60 -$0.60

DJIA: 17,022.63 +48.32

NASDAQ: 4524.96 -24.27

S&P 500: 1975.73 -6.57

Wednesday, October 29, 2014

LOS survey; RESPA-TILA toolkit; LO comp violations still out there



You don't think things are changing? Apple announced it has signed up 500 more banks in addition to the 6 largest US banks it announced during the launch of its Apple Pay service, which is now available today. In the UK, Lloyds Bank is cutting 9,000 jobs. "Lloyds...wants a new type of branch, complete with iPads and facilitated internet discussion screens, enabling chats with staff who may not be physically in the same branch as the customer." And Walmart has recently announced a new banking initiative called GoBank through which it will offer mobile checking accounts with debit cards in its 4,300 US locations by the end of October. Bank analysts will counter with the line of thought that the most profitable bank customers may not shop at Walmart, but still...

USDA step aside: The CFPB has posted its 2015 final lists of Rural and Rural or Underserved Counties on its website. The CFPB has previously posted lists of such counties for calendar years 2011-2014. The lists are relevant to exemptions in several CFPB mortgage rules, including the CFPB's rule requiring creditors to establish escrow accounts for certain first-lien higher-priced mortgage loans.  The CFPB's blog post announcing the posting of the 2015 lists includes links to the various CFPB rules that refer to the lists. 

While we're on the CFPB, "Rob, here is a link to a TILA/RESPA toolkit that Wolters Kluwer put together for its clients. The materials and it seems to be pretty thorough and a great resource for those that don't have a large staff to help guide implementing the rule. There is a Resource center and tool kits - click on tool kits." Hey, compliance is going to cost you money anyway, and this might be a cost effective way to do so. 

Turning to vendors, what is the true market share of Loan Origination System (LOS) providers? "Have you recently replaced this crucial technology for your company? Was the implementation successful? How does your LOS functional experience compare to that of your peers, from a functional suitability and vendor service perspective? Take our 15 minute LOS Technology Insight survey to learn the answers. STRATMOR Group is actively conducting a repeatable, statistically reliable survey to provide lenders with up-to-date, industry-wide objective data for future trend analysis and much needed decision support for internal LOS self-evaluation and/or LOS replacement. Participation is FREE and respondents will receive a high-level summary of overall market share by product/vendor and of implementation success metrics. Note that you must participate in this survey to receive these summary results. Detailed survey results and STRATMOR's proprietary analysis of our findings will also be made available for purchase that will break out the full range of survey questions by respondent organization (independent, bank owned, etc.), origination channels, and by company size (origination volumes). As is STRATMOR's practice, to assure confidentiality, we will conduct this as a "blind" survey. All survey results will be aggregated; individual company results will not be disclosed, nor will we publish the results in a way that would enable individual respondent identities to be derived. To participate in the 2014 LOS Technology Insight, register at STRATMOR LOS Technology Survey Website.

“I haven't read much about LO COMP lately. Is the issue all taken care of, and the CFPB has moved on?" No, unfortunately it is still a source of confusion. And there are still reports of lenders offering programs that are not compliant with the CFPB's regulations, or the intent of the regulations. Examples are too numerous to list, but reports certainly include the following: one independent mortgage bank offers its LOs a deal where the first 100 basis points goes to the house on conventional loans and then the LO keeps everything above that. (Oh, and for FHA loans the house keeps 200 basis points and the LO keeps the rest.) There is chatter of paying LOs different amounts based on conventional and government loans. (Certainly an issue when a borrower is looking at a 95% LTV deal!) I've heard of single originators being offered a branch manager position paid out of profitability on the loans he or she closes personally. And I hear about independent mortgage banks, and even banks, having convicted felons employed in mortgage operations. And no, I don't know what these companies are thinking - but the question is whether or not the consumer could be negatively impacted by policies.

Let's play some catch up with lender, agency, and vendor news. As always it is best to read the full bulletin for complete details!



Hilco Real Estate LLC announced that it has sold its private real estate mortgage lending company - Hilco Real Estate Finance LLC (CEO Mark Filler) - to the Garrison Investment Group. "Neil Aaronson, CEO of Hilco Real Estate LLC, a unit of Hilco Global, indicated that the growth of Hilco's private real estate mortgage lending business had exceeded all expectations and financial projections.  Aaronson said that "following such a successful first year and a half of lending, originating loans in approximately 20 states and rapid expansion of the operations, we decided that the time was right to carefully transition the company to a new capital partner that wanted to aggressively scale the business."



Hey, don't forget that last week Ginnie Mae changed its net worth requirements.



On Q announced that it has opened a new branch office in Gig Harbor, WA which underscores the rapid expansion of the company into the home financing market in the Pacific Northwest. In 2014, On Q opened four branch offices in the Pacific Northwest (Bellevue, Lynnwood - Seattle, Vancouver and now Gig Harbor. The On Q Gig Harbor branch is managed by local residents, and husband and wife team, Peter and Dawn James.  The branch supports the entire Puget Sound area and plans to open a satellite office in the Olympia/Thurston County area as well.



Flagstar Wholesale streamlined the approval process for both the Construction and Renovation loan programs. By attending the full duration of one session, attendees will satisfy both construction and renovation requirements. To register for the Construction & Renovation Programs class, go to wholesale.flagstar.com under the Help & Training link and then select Wholesale Live WebEx Training. Click the Upcoming Sessions tab to view and register for the date and time that works best.



Arch MI updated its rates for the Non-Refundable Single Premium Lender Paid Mortgage Insurance (LPMI) program. The changes include a new credit score tier for borrowers with credit scores 760 and greater, lower pricing for higher-quality borrowers with credit scores 720 and greater, and further rate refinement for credit score tiers below 680. The new rates also reflect some increases in the rates for credit scores below 660.



Video use is on the rise. Here is "Mortgage News Network Videos" presentation of "Master the Markets" for this week: "The Real Story on Housing and a Fed Preview".



Looking briefly at the markets, we did have some news yesterday. Durable Goods Orders decreased 1.3% in September after declining 18.3% in August. The S&P Case Shiller Home Price Indices told us that the deceleration in home prices continued in August. But despite the weaker year-over-year numbers, home prices are still showing an overall increase, as the National Index increased for its eighth consecutive month.  The large extent of slower increases is seen in the annual figures with all 20 cities; the two composites and the national index all revealing lower numbers than last month. Lastly, the Conference Board's consumer confidence index rose to 94.5 in October from 89 the prior month. By the time the dust settled the 10-year was at 2.28% and 30-yr agency MBS prices were worse about .125.



For today the Treasury sells $15 billion 2yr floating rates at 11:30am and $35 billion 5yr notes at 1PM Eastern time, and then an hour later all eyes turn to the FOMC meeting at its conclusion with the statement out around this time. Most foresee a cessation to MBS agency purchases and a continuation of prepay reinvestments (approximately $20B/month). The agency MBS market is roughly unchanged from Tuesday's close with the 10-year at 2.28%.

Market Report:

The bond and mortgage markets opened slightly better this morning but not much difference from yesterday’s selling that dropped MBS prices 20 bps and GNMA price down 27 bps. Equity markets still driving rates, yesterday the three key indexes had another strong day with earnings continuing to impress investors and a very strong consumer confidence index, the best since Oct 2007.

Today at 2:00 the FOMC policy statement; between now and then the media and analysts will spend all day making projections about what the FOMC will do. Our view; the Fed will end the QE at the end of the month, and the Fed will state it will keep interest rates low for a considerable period. Fedspeak interpreters will focus on each verb and adjective in the statements---what does each word mean and what is the message the Fed is projecting. We go through this process every six weeks. It usually takes a day or so for everyone to get on the same page about what the statement really means going forward.

At the beginning of the year the overwhelming consensus was the Fed would begin increasing the FF rate no later than next April; since then the consensus has been extended more than a few times. The current forecasts complied by Bloomberg is that there is only a 50% chance the Fed will increase the FF rate to 0.5% by next October. Janet Yellen hasn’t retracted any of her comments that she is concerned about the quality of new jobs being created; as long as that is her concern she isn’t likely to move anytime soon to begin increasing short term interest rates. This afternoon will be all about how the FOMC frames the statement; the way markets interpret the phrasing. The Fed has made a huge point in the last few years to be more transparent without being specific, letting markets define the meanings.

Prior to the FOMC this afternoon, Treasury will auction $35B of 5 yr notes at 1:00. Yesterday’s $29B 2 yr auction was in line with previous 2 yr auctions. Conducting an auction one hour before the FOMC is kind of dicey.

At 9:30 the DJIA opened +28, NASDAQ -14, S&P unchanged, the 10 at 2.30% testing its 20 day moving average. MBS prices at 9:30 +2 bps from yesterday’s decline of 20 bps points and down 15 bps from 9:30 yesterday.

The weekly MBA mortgage applications declined last week. The composite index -6.6%, the purchase index -5.0% while the re-finance index dropped 7.0%. The week before was strong, +11.6% composite while the refinance index was up 23.0%. Purchases the prior week were down 5.5%. Based on this, purchases are still slow.

Expect the bond and mortgage markets to stay still until this afternoon’s FOMC statement at 2:00 pm. The bellwether 10 yr note yield at 2.30% is the yield the 10 printed the day before the huge decline in rates; two weeks and back to where rates were before the capitulation of most bond market bears. Not really necessary to point out the volatility. Technicals now are neutral, not bullish or bearish, however that won’t last long. The fixed income markets are at a crucial pivot point now.

PRICES @ 10:00 AM

10 yr note: -4/32 (12 bp) 2.31% +2 bp

5 yr note: -2/32 (6 bp) 1.53% +2 bp

2 Yr note: 0.44% +2 bp from yesterday’s auction

30 yr bond: -11/32 (34 bp) 3.08% +2 bp

Libor Rates: 1 mo 0.152%; 3 mo 0.232%; 6 mo 0.322%; 1 yr .541%

30 yr FNMA 3.5 Nov: @9:30 103.42 +2 bp (-15 bp from 9:30 yesterday)

15 yr FNMA 3.0 Nov: @9:30 103.85 -4 bp (-10 bp from 9:30 yesterday)

30 yr GNMA 3.5 Nov: @9:30 104.42 +3 bp (-21 bp from 9:30 yesterday)

Dollar/Yen: 108.15 -0.01 yen

Dollar/Euro: $1.2741 +$0.0007

Gold: $1,222.20 -$7.20

Crude Oil: $82.24 +$0.82

DJIA: 17,058.66 +52.91

NASDAQ: 4561.17 -3.12

S&P 500: 1990.43 +5.38