Disaster Forbearance Primer; more on MSAs, referrals; Market Report is Here!

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"Please understand that we are acutely aware of the challenges created for homebuyers, lenders and realtors when we are unable to meet desired timelines but we are doing the best we can with the limited human resources we have. We are not uncaring, unconcerned or being bureaucratic. Our GRH Team is a group of dedicated and knowledgeable professionals who work tirelessly to provide homeownership opportunities to families living in rural areas, while diligently protecting the quality and risk of our portfolio.  It would be helpful to plan for longer application review times and to share that with your borrowers to minimize their issues with delays that simply cannot be avoided because of lack of human resources." What a way to lead off the commentary... this is the sign-off on file status e-mails generated by the USDA.

For a good lesson in compliance, Donna Beinfeld sent in a thoughtful reminder saying, "Whenever a borrower's property is located in a natural disaster area (as declared on the federal or state level) the borrower may be eligible for a suspended mortgage payment plan known as forbearance. Origination (not yet closed): Agencies and investors often issue a requirement for a property to be inspected prior to close if it is located in a disaster area. Loan Servicing: Loans that are currently being serviced may qualify for a forbearance agreement depending on an agency's guidelines, and type of natural disaster that has occurred.  Typical term for a forbearance agreement (suspended payments) is six month, which may vary. A forbearance is considered a loan modification since the deferred payments impact the maturity date on the recorded security instrument." Donna was kind enough to send along links to agency links on the topic: Fannie Mae, Freddie Mac, HUD, VA, and the CFPB.

Saturday's commentary had information on MSAs, RESPA and referrals. Attorney Brian Levy writes, "RESPA doesn't expressly say you can pay for advertising. The exception actually says you can pay for the reasonable value of 'goods and services rendered'. This is the same exception that Marketing Services Agreements rely upon for their legal premise. RESPA, however, does not expressly say you can pay for "leads" and one should be careful to obtain particularized legal advice in engaging in receipt or payment for settlement service leads. While payment for leads seems to be a common practice, it's easy to see how there is a slippery slope from paying for a lead to paying for a referral. Similarly, it can be easy to label an MSA as an illegal referral fee if the payments exceed the reasonable value of services actually provided. The CFPB has made it clear that it is skeptical of MSA's that are disguised referral fees (see my further comments on Lighthouse below).  Likewise, I would not assume any lead generation agreement is legal and would seek legal counsel to be sure that any proposed lead arrangement meets the "goods and services rendered" exception.

"And..., even 'the editor' can get dragged into the 'attorney wars'. Your inclusion of the definition of MSA from the Lighthouse Consent Order requires some context.  That particular definition of MSA was offered by the CFPB in the Consent Order solely for the purpose of defining what Lighthouse Title could not do in the future as part of their punishment. It was not used by the CFPB as a definition of illegal marketing agreements generally, or even to describe what Lighthouse had previously done wrong. The distinction is important because in defining an MSA as they have in this particular section, CFPB would be re-writing RESPA by making a distinction between fees paid to settlement service providers vs. others. As noted by many of your commenters in recent posts, RESPA says you can't pay referral fees to anyone: settlement service provider or not. In other words, to apply the Lighthouse MSA definition broadly, the CFPB would have to say that the 'goods and services rendered' exception doesn't apply to payments to other settlement service providers; something which the statute clearly doesn't permit them to say. In designing a punishment specific for Lighthouse in a Consent Order, on the other hand, they could prohibit any activity Lighthouse would agree to. While the CFPB can write regulations (following notice and comment procedures) to interpret a statute, the CFPB's application of a penalty to a wrongdoer does not permit them to change the statute for everyone. That said, it is probably a very important insight into what CFPB would like to do.

Freddie Mac has updated third party verifications and general requirements for verifying documents. Documents obtained from a foreign country must be filled out in English or the loan originator must provide a translated copy. All foreign currency must be converted to U.S. dollars and have proof that the borrower owned the funds prior to the transfer.  Employment, income and asset verifications gathered from third-party verification providers must be received by the originator directly from the third-party servicer. Third-party employment verifications must include the same information as required for verbal verifications of employment and third-party income verifications must contain enough information to determine stable monthly income. Verifications of employment, income and source of funds and payment history must be dated no more than 120 days before, where applicable, the Note Date, the modification date for Seller-Owned Modified Mortgages, the Conversion Date for Seller-Owned Converted Mortgage, the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages or the applicable assumption agreement date.

Sigh. Another week, another set of U.S. data, including the employment data on Friday. We have plenty of scheduled news ahead of that, all of which might be trumped by events overseas. One interesting thing is that Fed Chairperson Janet Yellen will meet with President Obama at the White House Mon to discuss the outlook for the US economy. And most polls are showing Republican gains in Congress, which means that the White House is strategizing on possibly changing tactics since two more years of bickering and gridlock is probably not in the nation's best interest.

Rate Market Report is Here:

This is a big week for economic measurements. It is employment week but between now and Friday when employment hits a number of key data points and a plethora of Fed officials to muddy the waters. In the meantime, some reports from the global markets; China’s Purchasing Managers’ Index was at 50.8 for October, government data showed on Nov. 1, trailing the median estimate of 51.2 in a Bloomberg News survey and below September’s reading of 51.1. China is slowing, the second largest global economy. UK manufacturing grew more than thought; Market Economics said its Purchasing Managers’ Index climbed to 53.2 from 51.5 in September. A final reading of the EU region’s manufacturing PMI stood at 50.6. While that’s up from a 14-month low of 50.3 in September, it’s below a 50.7 estimate released on Oct. 23. The ECB, still stumbling along, trying to boost the EU economy will announce its latest monetary initiatives on Thursday. Speculation is that the ECB will disappoint by not adding to its meager stimulus announced a month ago.

Recent data out implies there is still a very strong demand for US treasuries even with the end of the Fed’s QE3. Bloomberg data shows the demand for US debt is about 3 times the amount of debt sold so far this year. One reason; our rates are the highest and best in the world when safety of investments is the prime influence. Yields on the 10-year note, the benchmark for trillions of dollars of debt securities, have fallen about 0.7 percentage point to 2.33 percent since the Fed started tapering in January. Demand at U.S. Treasury auctions, where $1.85 trillion of interest-bearing government bonds have been sold, is on pace to be the third highest since 1992. Strong demand is keeping US rates low compared to what most thought at the beginning of this year.

At 9:30 the DJIA opened unchanged as did the other two major indexes, the 10 yr note earlier this morning was down 3 bps to 2.32% but at 9:30 back to unchanged at 2.34% and MBS prices also quietly unchanged. The employment report on Friday and the two ISM reports are keeping markets still so far.

Is doom and gloom around the corner for US and global economies? Stop reading now if you think I have any idea. Over the weekend I spent a few hours reading a lot of forecasts that are not what anyone wants to see or hear. The most interesting, the “Warren Buffett Indicator,” also known as the “Total Market Cap to GDP Ratio,” is breaching sell-alert status and a collapse may happen at any moment. According to one article Warren Buffett is rumored to be preparing for a crash. I see at least 20 various pundits a week with their newsletters, commentaries and forecasts; over the last six weeks there has been an increase in dire predictions. Admittedly those I am referring to have been preaching doom and gloom for the last two years and all that has occurred is stocks have climbed, the economic data has improved, so we have to take it with a winked eye. Nevertheless now that according to what I read, Buffett is leaning to the bearish side, adding more interest for me. Not wanting to cry wolf, but there is doubt that there are more analysts and pundits coming out with predictions that are not pleasing. Maybe one reason the bond markets are not going higher in rate like the bullish outlook would suggest.

Two economic reports at 10:00; the October ISM manufacturing index, expected at 56.0, the index jumped to 59.0, the same read we saw in August before the Sept. decline. New orders index increased to 65 from 60 and the employment component at 55.5 from 51 last month. A solid report against forecasts. Sept construction spending was a big disappointment though; spending was expected to have increased 0.6% from August’s decline of -0.8%, as reported spending declined again, -0.4%. Construction spending accounts for good paying jobs, not good to see a two month decline.

This Week’s Calendar:

Monday,
10:00 am Oct ISM manufacturing index (56.0) as reported
Sept construction spending (+0.6%) as reported
No Time Oct auto and truck sales

Tuesday,
8:30 am Sept international trade deficit (-$40.1B, unch from Aug)
10:00 am Sept factory orders (-0.7%, August -10.1%)

Wednesday,
7:00 am weekly MBA mortgage applications
8:15 am Oct ADP private jobs report (+230K)

Thursday,
8:30 am weekly jobless claims (283K from 287K last week)
Q3 productivity (+1.5%, +2.3% in Q2)
Q3 unit labor costs (+0.8%, -0.1% in Q2)

Friday,
8:30 am October employment data (unemploy. 5.9% unch from Sept; non-farm payrolls +240K, private jobs +235K; average hourly earnings +0.2%)
3:00 pm Sept consumer credit (+$16.0B, Aug. +$13.5B)

Technically the bond and mortgage markets continue to hold slightly bullish measurements; not much but holding. Last week the DJIA ran up 585 points yet the yield on the 10 yr note increased just 7 bps and MBS prices were down only 16 bps all week. Over the past 7 sessions there has been little change in MBSs and treasuries; this week may also be quiet until Friday when October employment hits. News flash just hitting; first time home buying is the lowest in 30 years.

PRICES @ 10:15 AM

• 10 yr note: -5/32 (15 bp) 2.35% +1 bp
• 5 yr note: -4/32 (12 bp) 1.64% +3 bp

• 2 Yr note: -2/32 (6 bp) 0.52% +2 bp
• 30 yr bond: -3/32 (9 bp) 3.07% +0.5%
• Libor Rates: 1 mo 0.156%; 3 mo 0.232%; 6 mo 0.328%; 1 yr 0.555%
• 30 yr FNMA 3.5 Nov: @9:30 103.34 -3 bp (-7 bp from 9:30 Friday)
• 15 yr FNMA 3.0 Nov: @9:30 103.65 -5 bp (-5 bp from 9:30 Friday)
• 30 yr GNMA 3.5 Nov: @9:30 104.37 +6 bp (-6 bp from 9:30 Friday)
• Dollar/Yen: 113.94 +1.62 yen ( the lowest since 2007 as Japan is increasing monetary stimulus)
• Dollar/Euro: $1.2483 -$0.0042
• Gold: $1169.30 -$2.30
• Crude Oil: $79.90 -$0.64
• DJIA: 17,368.20 -22.12
• NASDAQ: 4640.85 +10.11
• S&P 500: 2017.07 +0.98

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