Tuesday, September 13, 2016

Implications Of Wells' Penalty



There was a Scottish painter named Smokey Macgregor who was very interested in making a penny where he could, so he often thinned down his paint to make it go a wee bit further.

As it happened, he got away with this for some time, but eventually the Baptist Church decided to do a big restoration job on the outside of one of their biggest buildings.

Smokey put in a bid, and, because his price was so low, he got the job. So he set about erecting the scaffolding and setting up the planks, and buying the paint and, yes, I am sorry to say, thinning it down with turpentine.

Well, Smokey was up on the scaffolding, painting away, the job nearly completed, when suddenly there was a horrendous clap of thunder, the sky opened, and the rain poured down washing the thinned paint from all over the church and knocking Smokey clear off the scaffold to land on the lawn among the gravestones, surrounded by telltale puddles of the thinned and useless paint.

Smokey was no fool. He knew this was a judgment from the Almighty, so he got down on his knees and cried, "Oh, God, oh God, forgive me; what should I do?"

And from the thunder, a mighty voice spoke:

"Repaint!  Repaint!

There is only one state that has 1 syllable, but there are 30 days in September. And this month is full of wacky "days" such as international Talk Like a Pirate Day (19th), and national Play-Doh day (16th). Along those lines, there are 7 days for "Unmarried and Single Americans Week" which takes place in the 3rd full week of September (18-24... coincidentally September 18 is National Wife Day). In terms of lending demographics, there are 109 million unmarried people in America 18 and older which makes up 45% of the total number of residents 18 and over. 47% of those people are women, the other 53% are men. The number of people who lived alone in 2015? 35 million, or 28 percent of all households, up from 17 percent in 1970.

This week the folks at National Mortgage Professional Magazine and Silver Hill Funding will show you how adding a profitable commercial mortgage division can be easy. Join them on Thursday, September 15th at 2PM EDT for a 60 minute complimentary webinar where commercial mortgage experts Ski Swiatkowski and Mike Boggiano show a simple paint by number approach on how to source leads, market, originate and close profitable commercial mortgages. In this webinar they'll reveal the top marketing channels and referral sources, how to optimize your presence on LinkedIn and other social networks and how create your multi-pronged marketing strategy. Reserve your complimentary space here.

 There certainly has been no shortage of new technology entrants into mortgage lending. Join the Maxwell CEO as he hosts an exciting panel discussion with the former EVP Mortgages of Wells Fargo and now Founder and CEO of Varo Money and the Founder and CEO of Morty. The fast-paced session will provide an overview of the new tech-driven mortgage lenders in Silicon Valley and New York and how originators and branch managers can build a business to compete with these well-funded, determined competitors. Register for the 30-minute webinar: Digital Mortgage Lenders & the Battle for Borrowers to be held on Monday, September 26 from 12:00PM to 12:30PM Pacific time (replays will be available for registered guests). You'll walk away informed about the new digital lenders and tangible steps you can take as a loan officer or branch manager to combat the threat. Register your spot at the webinar and get ready to win!

 The industry continues to digest the Wells Fargo penalty news, and wonder about its implications. After all, if Wells supposedly had the best compliance system going, and this was able to happen, what chance do other companies have in stopping what may be happening within their corporation? Wells stepped in this morning to eliminate, starting in January, of the retail product sales goals for its bankers.

 Jonathan Foxx penned, "Wells Fargo, a Predator's Tale" in Mortgage Compliance Forum.

 And this came from a national legal authority. "For me, this Wells thing is a watershed moment. My observation (based largely on the mortgage group) is that Wells probably has the most sophisticated compliance team and compliance/risk management structure in the business.  So, compliance and risk management pro's like me must all be looking at what happened with jaws on the floor. What happened to the risk management 'lines of defense?!!' There is just no way that Wells wasn't getting thousands of calls from consumers who were charged fees on accounts they never opened.  Customer service had to know about all the complaints.  Quality control in their account opening process had to know what was going on in the documentation. HR or whoever paid the bonuses had to know there was inflated reports and the terminations because of that. Compliance had to know. Risk management had to know. Upper management had to know.

 "If this was driven solely by lower level employees seeking compensation bonuses, I could see it happening for a couple months in an isolated branch or region or two, but then the feedback loop closes, controls are implemented and the faucet of problems gets shut down.  Apparently, however, this thing went on for 2 or 3 years involving almost 2 million accounts and 5,300 employees fired over the same period! I'm just totally baffled how that can happen without either: (1) incompetent management and failure of compliance systems (again, virtually impossible to my knowledge), (2) top level complicity of risk and executive managers (perhaps to bolster cross sell numbers) and Wall Street's stock valuations (the fear of SARBOX and whistleblowers ought to prevent that), or (3) the greatest confirmation example in history that some banks have become just too big to manage notwithstanding the most sophisticated compliance and risk management resources available today (and the scariest new regulators designed to prevent such problems).

 "None of the options above are good for Wells' top brass, but I think the problem is most likely #3 (#2 is possible, just hard to believe). If there is a better option, I'd like to hear it.  I doubt many policymakers (or shareholders of big banks) today have the stomach to deal with the consequences of my conclusion either (who wants to revisit TBTF and the efficacy of our new consumer regulator?).  For me, however, this was truly insightful and #3 may explain why CFPB seemed content to walk away just with the consumer redress and no scalps.  Like Javert in Les Miserables, the jailor's survival depends on the criminal."

 While were on banking and regulators, the Federal Deposit Insurance Corporation (FDIC) is extending the comment period for proposed guidance on third-party lending. Comments on the proposed guidance, which was published on July 29, now must be received on or before October 27. The 45-day extension was made in response to requests from interested parties who asked for additional time to consider the proposal. The proposed third-party lending guidance outlines the risks that may be associated with third-party lending as well as the expectations for a risk-management program, supervisory considerations, and examination procedures related to third-party lending. Comments should be sent to thirdpartylending@fdic.gov and will be posted on the FDIC's website here.

 Stocks and bonds both rallied Monday, and thus interest rates went back down slightly. The reason? Who knows?! Dovish remarks from Fed Governor Brainard? "To the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling." Atlanta Fed President Lockhart, who does not vote on the FOMC until 2018, said that the data seriously warrant discussion of raising rates. For something more concrete, all the Treasury supply that hit the market was soaked up without too much trouble.

 Today for thrills and chills we have...a $12 billion 30-year Treasury auction, along with some short-term maturity sales that generally don't impact mortgage rates. Yesterday agency mortgage-backed securities closed "higher and tighter" led by higher coupons, and GNIIs in particular.

 We closed Monday with the 10-year at 1.67% - the same as Friday - but 5-year T-Notes and MBS prices were better about .125. Here this morning in the early going, without much scheduled news overnight or ahead of us today, the 10-year is hovering around 1.66% with agency MBS prices a shade better.

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