"Why do chicken coops have two doors? Because if they had four doors they'd
be sedans."
And thus starts Friday, with very good rates but a lot of news for folks in
the
mortgage banking and real estate business to be watching. First, of course,
the
debt crisis continues on in Washington - more on that below. Second, Monday
is August
1st, which is the end of the public comment period for the nearly
universally dreaded
QRM provisions. Those "in the know" believe that, as proposed, the
restrictions
are unlikely to fly. (There is more at QRMDoubts
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106833872767&s=8721&e=001rw9YRg
zyzPvlZ6kmivYyxGldJIsLgn8WVj5qnIAphK8d00CzyaB3BT5vSRmcgArlIw7xMiQq5P2Krj9eAA
3sogzZEsqPlkC2vA1HhNdskInQ5ijsxNlYe3yoca6kUiSK_nRTI9yKNUx5xp8WOk49fA==].)
Third, regulators say they've identified conflicts between Basel III and
parts of
the Dodd Frank Act relating to credit rating agencies. (Yes, those rating
agencies
that mistakenly rated billions of mortgage debt several years ago, and which
are
providing information about downgrading government debt now.)
Representatives from
the SEC, the Federal Reserve Bank, and the OCC gave evidence to the House
Financial
Services Subcommittee on credit rating agencies in Washington on Wednesday.
Federal
Reserve Board associate director of banking supervision Mark Van Der Weide
told
the panel the Reserve Board plans to remove mentions of credit rating
agencies from
its rules "in the near future" but he said the process was being complicated
by
Basel III, which does mention credit ratings agencies. Section 939 A of the
Dodd
Frank Act requires all federal authorities to review and replace references
to
credit ratings agencies in their regulations, with "alternative measures of
credit
worthiness". Van Der Weide said the Fed had received feedback from the
public and
commentators saying the act "could lead to distortion in the market". Great.
Fourth, Bank of America is facing a new securities-fraud lawsuit filed by
former
Countrywide investors (including BlackRock and the California Public
Employee's
Retirement System) that opted out of a $624 million settlement last year.
According
to the suit Countrywide misled shareholders about its finances and lending
practices.
For more go to: BankofAmerica
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106833872767&s=8721&e=001rw9YRg
zyzPvPJHpiBvwYG_clAQ8kHTC6KR8Vg7yAYyspfzR5a3jhaVEhIeYx_drjBSU-8tsGPYzTlzbdpr
OnSRbf95aHZ2suoLV8F1RapaYtjd11YByTGr8MVIlDzGmJo99wBT3iWjn-nHj5OCiFVy1RkK8xZt
ca0-REYZukVFBy4BWTkUCcNZ9QXc3Dj0DFYqJ4QoeADGFaZI9xltbRfLOrD6S1S4foCHcZp3hZ-z
EQ9Oo-HB7q7w==].
Returning to the debt crisis, and the apparent inability for our elected
officials
to send a budget to the president, the bond market seems focused on three
developments:
"(1) A downgrade of Treasuries by at least one ratings agency. (2) A more
prolonged
downdraft in economic activity, caused in no small part by the uncertainty
raised
by the debt issues. (3) Clinging to the notion that a full-scale Treasury
default
will be avoided, mostly because it's too painful to think otherwise." Paul
Jacob,
with Banc of Manhattan, points out that although these issues would normally
cause
the yield curve to steepen (leading to higher mortgage rates), but there are
a few
reasons why rates have not done much of anything. "For one thing, markets
are supposed
to look past labels and truly assess risks - has the U.S. long-term deficit
outlook
really changed over the past 6 or 12 months? Then there's the state of the
economy
- things are slow, which would keep rates low. And lastly, China, a major
world
economic influence, continues to hold US dollars and securities, helping
prices.
Very good points.
Corporate earnings for mortgage-related companies took a turn for the worse
in the
last day or two. Old Republic International (RMIC) swung to a $66 million
loss in
the second quarter on worsening claims costs in its troubled mortgage
guaranty business.
The insurer said Thursday it would likely place the mortgage guaranty unit
into
run-off mode if it does not manage to transfer the unit to a separately
capitalized
subsidiary before the end of August. CEO Aldo Zucaro in January predicted
the mortgage
guaranty industry won't be profitable until 2013.
PHH lost $41 million, in part due "fair value charges on mortgage servicing
rights
(MSR)" of $117 million. During the 2nd quarter the investor saw interest
rate lock
commitments (IRLCs) of $7.5 billion, compared to $8.4 billion in the second
quarter
of 2010. Its mortgage loan servicing portfolio increased to $174 billion as
of June
30, 2011, up from $156 billion at June 30, 2010. "While our servicing
portfolio
delinquencies rose slightly to 3.22% at quarter-end from 3.15% at the end of
the
first quarter, they are still approximately half those of most other large
servicers.
Foreclosure costs remain elevated at $24 million, compared to $20 million in
the
second quarter of 2010, driven by increased repurchase requests. As we
expected,
our mortgage origination market share declined from 4.3% in the first
quarter of
2011 to 3.7% in the second quarter."
Genworth Financial lost $96 million in the 2nd quarter. The company said its
U.S.
mortgage insurance unit's operating loss worsened to $253 million in the
quarter,
compared with a loss of $40 million in the same period last year. The wider
loss
came after the company set aside $300 million in reserves to cover bad
loans. Genworth
noted that the total flow of delinquencies declined 2 percent from the
previous
quarter, however.
One bright spot, if there is one, is that D.R. Horton, the largest U.S.
homebuilder,
reported a bigger-than-expected quarterly profit, helped by cost cuts. The
company
managed to cut its selling, general and administrative expenses to less than
12%
of revenue.
One issue that seems to have quieted down is LO compensation. But it is in
no way
a dead issue as companies continue to adjust and fine tune the rules and
regulations.
National Mortgage News came out with a list of "Ongoing Reminders About
Compensation
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act" worth
noting.
Lenders are encouraged to remember that payments made by creditors to loan
originators
are not payments made directly by the consumer, regardless of how they might
be
disclosed under HUD's Regulation X, which implements the Real Estate
Settlement
Procedures Act. Because the long-term performance of the loans is not a term
or
condition of a loan it is permissible to go back and "ding," or take back
part or
all of the commission on a particular loan from a loan originator, if the
loan has
an early default because that's not a term or condition. "However, you
should be
certain you are not violating wage and hour laws of the Fair Labor
Standards Act
and not violating state wage and hour laws as set forth by the Division of
Labor
Standards Enforcement in California or for that matter, any other state."
The third item on this list is a reminder that compensation to originators
can vary
based on how the loan application was produced, for example, commissions may
be
higher for leads generated by the originator versus the company. Federal
Reserve
Board staff states that as long as compensation is not based on loan terms
or conditions,
or a proxy, it is acceptable. If pricing of two loans differs, there may be
a concern
that channel is being used as a proxy for loan terms or conditions but other
factors
may justify differences. Be certain you can prove it in the event of an
audit. Fourth,
a mortgage loan originator is a person who arranges, negotiates or obtains a
loan
for a consumer and whose compensation is based on whether any particular
loan is
originated. Thus there are two sets of requirements to be a loan
originator: (1)
arranging, negotiating or obtaining a loan for a consumer and also (2)
having compensation
based on any particular loan. Both sets of requirements must be met for a
person
to be a loan originator, and this person may not pay some or all of the
third party
fees of a consumer or otherwise credit the consumer out of his own pocket.
Lastly,
it appears that for purposes of the Dodd-Frank rule affiliates are treated
as a
single person, so that when a lender acts as a mortgage broker and is thus,
a loan
originator for purposes of the rule where there is a party that is an
affiliated
settlement service provider, such as a title company, the bona fide and
reasonable
charges received by the affiliated settlement service provider are also
considered
part of the loan originator compensation.
At least rates are behaving. Thursday rate-sheet MBS prices (Fannie 4's,
which contain
4.25-4.625% mortgages) rallied nicely, resulting in some intra-day price
improvements.
Treasuries opened higher following a mixed session overnight on poor
earnings and
weak economic news, as well as, on the uncertainty regarding the U.S. debt
ceiling.
The 10-year note closed with a yield of 2.95%.
We opened this morning with the 10-yr at 2.92%: Spain's credit rating
(remember
Europe? It isn't going away.) was put on downgrade watch by Moody's, and the
PM
announced they would dissolve the parliament and hold early elections in
November.
(Maybe the US should try that.) China may lend money to Greece. Over here,
the Tea
Party resistance sunk Boehner's bill before it ever made it to a vote.
Republican
officials will try to push something through again this morning, but all I
see in
the press is more jawboning.
GDP for the 2nd quarter came out at +1.3%, worse than expected, and the
Employment
Cost Index also came out, but as one would expect, stocks are selling off
again,
and the 10-yr yield is down to 2.88%, and MBS prices are better by at least
.250
depending on coupon. Later we have the Chicago PMI and the final July
Michigan Sentiment,
seen slightly higher to 64 from 63.8.
WIFE'S DIARY:
Tonight, I thought my husband was acting weird. We had made plans to meet at
a nice
restaurant for dinner. I was shopping with my friends all day long, so I
thought
he was upset at the fact that I was a bit late, but he made no comment on
it. Conversation
wasn't flowing, so I suggested that we go somewhere quiet so we could talk.
He agreed,
but he didn't say much. I asked him what was wrong; He said, 'Nothing.' I
asked
him if it was my fault that he was upset. He said he wasn't upset, that it
had nothing
to do with me, and not to worry about it. On the way home, I told him that I
loved
him. He smiled slightly, and kept driving. I can't explain his behavior I
don't
know why he didn't say, 'I love you, too.' When we got home, I felt as if I
had
lost him completely, as if he wanted nothing to do with me anymore. He just
sat
there quietly, and watched TV. He continued to seem distant and absent.
Finally,
with silence all around us, I decided to go to bed. About 15 minutes later,
he
came to bed. But I still felt that he was distracted, and his thoughts were
somewhere
else. He fell asleep - I cried. I don't know what to do. I'm almost sure
that his
thoughts are with someone else. My life is a disaster.
HUSBAND'S DIARY:
Boat wouldn't start, can't figure it out.
If you're interested, visit my twice-a-month blog at the STRATMOR Group web
site
located at www.stratmorgroup.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1106435366068&s=4179&e=001SVt-lj
bp53436QjxD9vbwURtIPPjV05jEcEKyBN3SjS2forXe0C_foO8RjEV-Uye0N7Z_Sh1il0SRXPx6P
jQauayNXQjni-Hc9Sseu-hhZcR1ujeZyAEpw==]
. The current blog takes a look at QRM and doubts about its passage. 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
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=48fbh9gab.0.epg7qedab.zy6u9cdab.8
721&ts=S0660&p=http%3A%2F%2Fwww.mortgagenewsdaily.com%2Fchannels%2Fpipelinep
ress%2Fdefault.aspx]
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=48fbh9gab.0.v7uif6dab.zy6u9cdab.8
721&ts=S0660&p=http%3A%2F%2Fwww.thebasispoint.com%2Fcategory%2Fdaily-basis].
For archived commentaries, go to www.robchrisman.com
[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&t=48fbh9gab.0.fpg7qedab.zy6u9cdab.8
721&ts=S0660&p=http%3A%2F%2Fwww.robchrisman.com%2F].
Copyright 2011 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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