CFPB Weighs in on 1003 and HMDA Data

By rchrisman@robchrisman.com

(Why does this sound like managers I know...)

The owner of a company tells his employees, "You worked very hard this year, therefore the company's profits increased dramatically. As a reward, I 'm giving everyone a check for $5,000!"
Thrilled, the employees gather round and high five one another.
"And if you work with the same zeal next year, I'll sign those checks!"

Are you sure that you want to keep originating FHA loans? There's a lot of profit per loan, but it is easy to see why some companies like Chase have really pulled back from originating them. Branch Banking & Trust Company, a unit of BB&T Corp, is the latest in a growing list of companies smacked by fines, and will pay $83 million to settle charges that it originated and underwrote federally insured mortgages that did not meet federal requirements. The U.S. Justice Department said that BB&T, as a "direct endorsement lender" in the FHA's mortgage insurance program, failed to comply with FHA origination, underwriting and quality control requirements.

CalyxSoftware will host its first national user conference, ASCEND16, next week, October 5 - 8, 2016 at the Hyatt Regency New Orleans. ASCEND16 will feature more than 20 specialized breakout sessions for Point, PointCentral, PathSoftware, and LoanScoreCard customers and prospects. Scheduled speakers include representatives from the CFPB, Fannie Mae, Freddie Mac and Mortgage Bankers Association (MBA), as well as Shark Tank's Barbara Corcoran and Yahoo! Tech columnist David Pogue.

 

On October 13^th, AMLG and TMC are hosting a Complimentary Webinar on "Fair Lending: What You Need to Know in 2016." Click here to register. 

 

California MBA is offering a free webinar on Mobil Marketing. This October 19^th training has limited availability; register now.

 

ACI's 22^nd National Residential Mortgage Forum San Diego Installment: The industry's leading litigators and in-house counsel are meeting in San Diego on January 11-12, 2017. Attend to benchmark your current strategies, learn the latest government enforcement and regulatory priorities, and get judicial insights from top State judges and Federal judges. Click here to view the Agenda for Jan. 11^th-12^th.

 

Yay! "The new HMDA data is out! The new HMDA data is out!" Well, the 2015 HMDA data is out. Have at it!

 

Yes, the 2015 raw origination data from the Home Mortgage Disclosure Act (HMDA) was just released yesterday, and Richey May has already organized it into a dynamic, interactive dashboard that is available free of charge on their website for the next year. As Q3 comes to a close and you look towards strategically planning for Q4 and 2017, lenders will find this dashboard valuable for identifying new markets for expansion, seeking out M&A opportunities, measuring the success of sales efforts and more. With a few clicks, you can focus in on the data most relevant to you, including specific markets, lenders and product types. And did I mention it's free? Visit this dashboard and others here.

 

In a notice published in the Federal Register, the CFPB announced that it has given its "official approval" to the collection of expanded Home Mortgage Disclosure Act information on ethnicity and race in 2017. The amendments to Regulation C (which implements HMDA) finalized in 2015 will require financial institutions covered by HMDA to permit applicants to self-identify using disaggregated ethnic and racial categories beginning January 1, 2018.  In the notice, the CFPB stated that before such date, such inquiries would not be allowed under Regulation B Section 1002.5(a)(2) which limits inquiries by creditors about race or other protected characteristics. 

 

Believing there will be significant benefits to permitting creditors to ask consumers to self-identify before January 1, 2018, the CFPB gave approval for a creditor "at any time from January 1, 2017, through December 31, 2017...at its option, [to] permit applicants to self-identify using disaggregated ethnic and racial categories as instructed in appendix B to Regulation C, as amended by the 2015 HMDA final rule." A creditor adopting that practice "shall not be deemed to violate" Section 1002.5(a)(2) and "shall also be deemed to be in compliance with Regulation B § 1002.5(a)(2) even though applicants are asked to self-identify using categories other than those explicitly provided in that section."

 

The notice also includes instructions for creditors to use to submit information concerning ethnicity and race collected under the approval in connection with applications received from January 1, 2017 through December 31, 2017.  The instructions distinguish between applications on which final action is taken during the 2017 calendar year and those on which final action is taken on or after January 1, 2018.

 

For applications on which final action is taken during the 2017 calendar year, a financial institution is directed to submit the information on ethnicity and race using only the aggregate categories and codes provided in the filing instructions guide for HMDA data collected in 2017, even if the financial institution has permitted applicants to self-identify using disaggregated categories pursuant to the approval. For applications on which final action is taken on or after January 1, 2018, a financial institution is given the option to submit the information on ethnicity and race using disaggregated categories if the applicant provided such information instead of using the transition rule adopted by the 2015 HMDA final rule or to submit the information using the transition rule.

 

In the notice published in the Federal Register, the CFPB also announced that it has given its "official approval" to a revised and redesigned Uniform Residential Loan Application (2016 URLA). The 2016 URLA approved by the CFPB was issued by Freddie and Fannie, and is included as an attachment to the CFPB's notice. The notice indicates that the CFPB's staff has determined that the relevant language in the 2016 URLA complies with the provisions in Regulation B (which implements the ECOA) that limit requests by creditors for certain information in applications, such as information about race and other protected characteristics, a spouse, marital status, or income from alimony and certain other sources. The CFPB stated that while a creditor's use of the 2016 URLA is not required under Regulation B, a creditor that uses the 2016 URLA without any modification that would violate these Regulation B provisions would be in compliance with such provisions.

 

The CFPB noted that a version of the URLA dated January 2004 is included in appendix B to Regulation B as a model form and describes the safe harbor provided in appendix B for creditors that use the model form.  The CFPB also noted that the Official Staff Commentary to Regulation B provides that creditors can use a previous version of the URLA dated October 1992 without violating Regulation B.  The CFPB stated that its official approval "is being issued separately from, and without amending" the Official Staff Commentary and that it will consider whether to address the treatment of outdated versions of the URLA in the Commentary at a later date.

 

Franklin American Mortgage Company's (FAMC) TILA policy requires delivery of two copies of the rescission notice (a/k/the right to cancel) to each individual who has an ownership interest in a subject property at the time of closing. In the scenario where an individual with ownership interest in a subject property is being voluntarily removed from the title, FAMC is updating its policy to accept the following documentation in lieu of the right to cancel disclosure: Executed Quit Claim Deed or other instrument removing ownership interest signed and recorded prior to the security instrument.  If the document is executed at closing, the lender must ensure that the instrument removing ownership is signed and recorded prior to the security instrument.

 

Over 40 percent of American homebuyers feel taken advantage of or are confused by the calculation of title insurance fees on the Consumer Financial Protection Bureau's (CFPB) new mortgage disclosures, according to a new study by the American Land Title Association (ALTA). The survey, which polled 2,000 current and prospective homeowners (planning to buy within the next year), revealed that that over 30 percent of homebuyers find the new Closing Disclosure confusing. More troubling, another 10 percent of homebuyers feel taken advantage of when reviewing the current calculation of an owner's title insurance policy on the Closing Disclosure. According to ALTA's survey, the most important factor homeowners want on their Closing Disclosure is a detailed breakdown of all the costs for a service. Secondly, consumers want the ability to easily compare cost estimates to final fees on the disclosure. Third, homeowners want to compare the disclosures to the actual costs they will pay and confirm that the seller is paying the accurate amount.

 

Yes, I have reviewed more than a few Procedures and Protocols over the past few years. To be honest, I believe most Secondary Marketing departments get it wrong; I'll explain. While P&P's are usually written by individuals who come at it from a "what do auditors want to see" position, this is really only half the reason this departmental document is an important part of risk and compliance mitigation. P&Ps should be used to eliminate confusion, create structure and to enforce standards established by executives or regulatory bodies. It's the departments chance to put down in writing, the how's and why's, and to address the inherent risks associated with pricing, hedging and selling loans.

 

Good departmental P&P's have many things in common: they illustrate daily tasks in an easy to follow manner (an excellent resource for new hires), note why a particular task is important to the department, and use a standardized format. Also, I know someone who reviews these manuals for mortgage bankers, and agree a third party review of P&Ps can be a good use of time and money, especially for small originators attempting to write them from scratch. For bigger companies, establishing an inter-department review process (example: Post Close reviews Secondary's, and vice versa) is a great use of time as well.

 

Interest rates aren't doing much, nor is there any impetus for them to move much. Fixed-income prices spent most of Thursday in negative territory until more bad news for Deutsche Bank caused a flight to quality to U.S. government bonds. The particular bad news today was that 10 hedge funds had reduced their collateral for clearing derivatives trades, thus reducing their exposure to Deutsche Bank, sparking renewed fears of a modern-day bank run and sending the American depository receipts down. Throw that in with continued Wells Fargo news, and, well...

So Thursday the good ol' 10-year improved about .125 to end the day at 1.56%; agency MBS prices finished about unchanged.

 

Today we have a fair amount of scheduled news. China released its Manufacturing PMI for September - if you care to trust those numbers. We've had Personal Income and Spending/Consumption for August (+.2%, unchanged, respectively). The Core PCE deflator was tame. Coming up are September's Chicago Purchasing Manager's Survey and the University of Michigan Sentiment Index. The 10-year yield is currently 1.55% with agency MBS prices a shade better.

New LO Comp Plan and All-Cash Deal Stats

By rchrisman@robchrisman.com

Did I read that sign or headline right? (Part 2 of 4)

Seen during a conference:

FOR ANYONE WHO HAS CHILDREN AND DOESN'T KNOW IT, THERE IS A DAY CARE ON THE 1ST FLOOR.

Notice in a farmer's field:

THE FARMER ALLOWS WALKERS TO CROSS THE FIELD FOR FREE, BUT THE BULL CHARGES.

Message on a leaflet:

IF YOU CANNOT READ, THIS LEAFLET WILL TELL YOU HOW TO GET LESSONS.

On a repair shop door:

WE CAN REPAIR ANYTHING. (PLEASE KNOCK HARD ON THE DOOR - THE BELL DOESN'T WORK.)

Proofreading is a dying art, wouldn't you say?

Man Kills Self Before Shooting Wife and Daughter

Something Went Wrong in Jet Crash, Expert Says

Really? Ya' think?

Police Begin Campaign to Run Down Jaywalkers

Now that's taking things a bit far!

The media, both social and unsocial, are filled with thoughts about the presidential debate last night. Housing was not an issue, since, overall, things are pretty good. But let's start with something non-mortgage with a favorite trivia question. Who is buried in Grant's tomb? Nobody is buried in Grant's tomb. President & Mrs. Grant are entombed there. A body is buried only when it is placed in the ground and covered with dirt.

There are only 7 days left to register for the longest running loan officer training event in the industry - Sales Mastery. Todd Duncan's Sales Mastery Event is set to begin next Tuesday October 4th in Palm Desert, California. I'm excited about this event as I will be sharing the stage with a roster of industry experts and world-class keynote speakers. Click here for more info and to register for the event: www.salesmasteryevent.com

 Mortgage Bankers of the Carolinas is also still accepting registrations for its 60^th Annual Convention next week. For more information, click the link for MBAC 60th Annual Convention.

 On October 12^th, just outside of Washington, DC, MBA's Stress Testing for Mid-Size Banks Workshop, is ready and designed to help banks between $10 billion and $50 billion in size get this done right. Learn how to build and improve your stress-testing framework directly from regulators, banking colleagues and other industry experts.

 Plaza Home Mortgage'sTraining Calendar is updated for the month of October. Available trainings include USDA, Bay Doc Basics, Split Premiums and much more.

 TMBA offers an impressive calendar of events. On November 7^th & 8^th its 66^th Annual Educational Seminar and Workplace will be taking place.

 NMLS approved course providers are advised that a new State-Specific Education Notice has been posted for Florida. Effective January 1, 2017, FL will require 2hrs of NMLS approved state-specific PE. Additionally, MLO's licensed in the state will also be required to complete 1 hour of FL-specific CE as a condition to renew their license for 2018. The new requirements are in response to Florida's adoption of the Uniform State Test (UST). The FL notice and all other Education Notices are available on the policy page of the course provider section of the NMLS Resource Center.

 ReverseVision, software and technology provider for the reverse mortgage industry, will host its second annual UserCon in San Diego February 8-10. Last years' inaugural conference saw strong attendance with 67 different companies, four of the top five reverse lenders in attendance and overwhelming positive feedback.

 Switching gears from events to compensation for LOs, as a reminder, the CFPB put out a 541 page memo on Loan Officer Compensation, officially called a Final Rule and Official Interpretation, CFPB Final Rules for LO Compensation.

 But there are still some interesting things going on with comp plans. Atlantic Bay Mortgage Group, which is both a lender and a servicer, recently launched a new payment plan that "eases mortgage bankers' financial concerns by providing additional earnings for the life of the loan, which creates a continuous income stream and implements a long-term planning solution...a way to reward their top producing loan officers with a Progressive Earnings Plan.

 "When a loan is closed, the company retains the servicing rights of the loan, meaning the company that collects the money from the borrower, and receives a yearly fee for servicing related activities. Most companies keep 100% of the servicing fees, whereas Atlantic Bay's Progressive Earnings Plan will give a portion of that money to the mortgage banker that originated the loan. Eligibility for the Progressive Earnings Plan includes employees of Atlantic Bay who originate more than $14 million in retail loan volume in a calendar year. The loans must also be closed in the name of, and funded by Atlantic Bay Mortgage Group."

 I am already fielding questions about whether or not the FHFA will increase its conforming conventional loan amount limits for Freddie and Fannie. Two things. First, historically it isn't announced until around Thanksgiving, so stand down. And second, in many parts of the nation jumbo rates are lower than conforming rates, and with more lenient underwriting in many situations, so will raising the conforming loan limit by $5 or $10k make or break a loan officer's career? Probably not. But any increase would be the first one in nearly ten years, and give the financial press something to talk about.

 That being said, the MBA's recent Chart of the Week shows that as of the second quarter of 2016, the FHFA's seasonally-adjusted, expanded-data house price index (HPI) was nearly identical to the level of the index observed in the third quarter of 2007. "This benchmark price level is important because GSE conforming loan limits are not allowed to rise again until house prices exceed their pre-crisis levels, designated by the FHFA as the price level from the expanded-data HPI in the third quarter of 2007.

 But nothing is simple, and as the MBA points out the FHFA, and the statistics majors that work there, produce three different HPIs: the all-transactions, the purchase-only and the expanded-data HPI. I won't dive into the weeds, but all three indexes are repeat sale indexes but with varying components. In particular, the "expanded-data" HPI goes beyond GSE data to also incorporate information on home sales financed with mortgages insured by FHA as well as other home sales transactions observed in deed records. "Since the crisis, the expanded-data HPI has lagged the other two indexes and this is the first time that it has returned to 2007 levels.

Extrapolating from price levels during the second quarter of this year, the FHFA could raise the conforming loan limit for the calendar year 2017, the first such increase since 2006."

 Periodically Freddie Mac releases its Cash-Out Refinance Report, and the 2^nd quarter it showed a pick up in the amount of refinance borrowers who increased their loan amount by at least 5% to 41% from 38% in Q1. Total equity cashed out was estimated at $13.3bn vs. $11.4bn previously.

 And what about good old-fashioned all cash deals, the kind real estate agents and sellers like? During 2/16, cash home sales were 35.7% of all transactions, their lowest February reading since 2008 and a 2.5 percentage points decline Y-o-Y. Cash sales were 59.2% of REO sales, 35.6% of resales, 32.6% of short sales and 15.2% of new home sales. Traditionally, cash transactions were 25% of sales and should be back there by late 2018. AL had the most cash sales at 51.7%, FL followed at 49.2%.

 Going back to the summer of 2015, all cash sales dropped to 31% in June, according to Corelogic. The historical, pre-bubble average is close to 25%. This speaks to the lack of first time homebuyers. It also speaks to an increase in gettable loans as that number reverts to the mean, even if home sales remain flat.

 While both the investor share of home sales and the share represented by distressed properties are setting post-crash lows, the share of cash sales remains elevated. CoreLogic reported that in May cash sales represented 30 percent of home sales, down 1.7 percentage points from April and was 2.5 points lower than a year earlier, it remains 5 points higher than the average before the housing crisis. CoreLogic estimates that, at the current rate of decline, it will return to a 25 percent share by mid-2018.

 Cash sales continued to account for a significant portion of all home sales in April with CoreLogic reporting that 32% of home sales that month were all cash, down 1.6 percentage points from March and 2.8 points from the previous April. For the first four months of this year cash sales made up fractionally more than a third of home sales, the lowest start for any year since 2008. 

 Cash sales peaked in January 2011 when they accounted for 47% of all home sales. At that point, 24% of home sales were from lender-owned inventories (REO) and a majority of those sales were cash.  Cash continues to dominate in the REO market, constituting 57% of those transactions in April 2016, but the REO share of sales has fallen to only 6% of the overall total.

 Switching to something near and dear to many (food), many economists monitor restaurant traffic as a sign of the health of the economy. Since the Great Recession eating out seemed like the thing to do with food service and drinking establishments sales climbing since 2Q 2010. At the end of last year that changed, however, with sales at food and drinking establishments dropping 0.2%. This along with the fact that food& beverage store sales have climbed 2.9% since the end of last year, points towards more Americans dining in instead of eating out. Special food services, which in part reflects food truck sales, is the only category of eating out that has improved since last year, rising 1.8 percent.

 The highest food & beverage store gain was in specialty food stores and beer which climbed 6.3%. Even though the food services and drinking establishment (eating out) growth has gone down, employment in this sector is stronger than ever, growing 2.9% from last year's level. But it seems the food & beverage stores employment is also growing bringing rise to an interesting shift in the way Americans eat their food. Wells Fargo says, "the substitution effect for sales and employment between dining out and food consumed at home appears to be a shifting. An underlying trend worth noting."

 Rates? They're doing just fine. Monday Treasuries, and other fixed-income securities, rallied - if for no other reason than stocks sold off. But that isn't a real reason, as we have seen time and time again. We did have New Home Sales which slightly beat forecasts, but the data series is volatile and has only a small impact on GDP growth. We wrapped up Monday with the 10-year yielding 1.59%, slightly better than the 1.60s that we saw last week.

 Today we'll have the July Case-Shiller 20-city Index at 9AM ET, September's Consumer Confidence at 10AM ET, and a $34 billion 5-year T-Note auction. In the early going the 10-year is down to 1.57% with agency MBS prices better by .125 versus Monday's close.

Freddie to Tweak Underwriting?

By rchrisman@robchrisman.com

Did I read that sign or headline correctly? (Part 1 of 4)

"TOILET OUT OF ORDER. PLEASE USE FLOOR BELOW."

In a Laundromat:

AUTOMATIC WASHING MACHINES: PLEASE REMOVE ALL YOUR CLOTHES WHEN THE LIGHT GOES OUT.

In a London department store:

BARGAIN BASEMENT UPSTAIRS...

In an office:

WOULD THE PERSON WHO TOOK THE STEP LADDER YESTERDAY PLEASE BRING IT BACK OR FURTHER STEPS WILL BE TAKEN.

In an office:

AFTER TEA BREAK, STAFF SHOULD EMPTY THE TEAPOT AND STAND UPSIDE DOWN ON THE DRAINING BOARD.

Outside a secondhand shop:

WE EXCHANGE ANYTHING - BICYCLES, WASHING MACHINES, ETC.

WHY NOT BRING YOUR WIFE ALONG AND GET A WONDERFUL BARGAIN?

Notice in health food shop window:

CLOSED DUE TO ILLNESS...

Spotted in a safari park:

(I sure hope so.)

ELEPHANTS, PLEASE STAY IN YOUR CAR.

Tonight we can all watch a big job interview on TV at 9PM ET. And whether it is money or other things, sometimes you if don't ask for it, you won't get it. When Andrew Carnegie, who said, "He who dies rich, dies disgraced," sold his steel company to J.P. Morgan for $480 million in 1901 he became the richest man in the world. He was even congratulated by J.P. Morgan when the two men ran into each other on an ocean liner. But Carnegie admitted that he couldn't help thinking that the financier might have given him another $100 million if he'd asked for it. "Very likely, Andrew," Morgan replied. Asking that question early on, and the answer to it, would have built a lot more libraries.

The name Thornburg Mortgage is long gone, but its memory, and legal affairs, live on. The U.S. Securities and Exchange Commission filed a motion Friday in a federal court saying it will drop three out of five remaining civil fraud claims against two former top executives of Santa Fe's Thornburg.

 The National Association of Mortgage Brokers (NAMB), The Association of Mortgage Professionals, announced today the launch of the KickStart program, an initiative designed to grow the mortgage broker channel by providing grants to loan originators aspiring to open their own mortgage shops. It received a $500,000 grant from United Wholesale Mortgage. "The initiative will grant interested and qualified individual loan originators an amount up to $10,000, with the aim of covering startup costs such as office space and software technology that makes it possible for them to accept loan applications. Applicants are not required to pay back the funds."

 "KickStart is targeting loan originators in banks or branch networks who have experience in the residential mortgage industry and demonstrate a potential aptitude to successfully own and operate an independent mortgage brokerage firm. These individuals should embody an entrepreneurial spirit and have experience as a mortgage loan officer." It is best to check requirements through the website above.

 Mat Ishbia, President and CEO of UWM, noted, "Wholesale currently makes up 12 percent of market share - the goal is to double that, at the least. KickStart will strengthen the market by getting more loan originators where they belong, at independent mortgage companies. We hope that our competitors will join us in this initiative to make the wholesale channel stronger."

 Speaking of raising funds, San Francisco's Sindeo raised almost $12 million and filed this with the SEC.

 You never want to hear your secretary say, "The New York Department of Financial Services is holding for you on line 3." In this case Caliber Home Loans actually received a letter, but Caliber heard from the regulator who asked for information on handling distressed borrowers. Let's hope that NY wants the information to provide a role model for the way other organizations should be handling these. But the article states that NY is in the early stages of an investigation.

 All lenders know a thing or two about credit and income, and there is a lot going on out there. Freddie Mac and two nonbank lenders (Alterra Home Loans and New American Funding) are loosening income and documentation requirements. Of course some are questioning it.

 Equifax Inc. announced that for the first time in 30 years the information that it provides lenders on traditional credit reports has been updated to include up to two years of debt repayment and balance history. The change, effective Sept. 24, is part of an effort to help mortgage lenders and other credit grantors better understand an individual's creditworthiness.

 "Now lenders can review up to two years of debt repayment and balance history. When assessing a potential homeowner's credit report, mortgage lenders historically had access to an individual's total outstanding balance of credit, utilization and overall credit availability. The information did not offer details on whether payments serviced all or part of an individual's debt nor if patterns existed in the consumer's balance utilization. The update coincides with research conducted by Fannie Mae which demonstrated that, all else being equal, borrowers who paid off their credit card debt every month are 60 percent less likely to become delinquent than borrowers who make only the monthly minimum payment. The inclusion of this trended credit data will provide mortgage lenders with a more comprehensive view of a borrower's debt management practices.

 "The information will help lenders more accurately identify and potentially reward responsible credit behaviour beyond just assessing an individual's credit score. In addition, the use of trended credit data can help to expand access to credit and to provide more borrowers an improved chance of qualifying for a mortgage."

 I haven't seen anything out of Freddie Mac, but Fannie Mae rolled out DU 10.0, the 31st version of its automated credit decision engine. LOs and brokers need to know that in the new version the "trended" credit data will be used by the DU risk assessment to evaluate how the borrower manages his/her revolving credit card accounts. A borrower who uses revolving accounts conservatively (low revolving credit utilization and/or regular payoff of revolving balance) will be considered a lower risk. A borrower whose revolving credit utilization is high and/or who makes only the minimum monthly payment each month will be considered higher risk. So this will help borrowers who pay their bills off every month.

 In reference to the DU 10.0 upgrade, Pacific Union Financial will continue to require that the borrower with a usable credit score contribute more than 50% of the total monthly qualifying income.

 JMAC spread the word about its aggressive Alternate Docs option? JMAC Lending's Venice Non-Agency program has an expanded and aggressive Alternate Docs opportunity. The product also features 6-month bank statements, which is very unique.  In addition, Foreign Nationals are permitted for the Venice program. Visit http://www.jmaclending.com/product-list/ to see the company's product line.

 HomeBridge Wholesale issued a reminder regarding Trended Credit Data.

 In regard to the DU 10.0 update, LHFS will continue to require that the borrower with a usable credit score contribute more than 50% of the total monthly qualifying income. At this time, LHFS does not allow non-traditional credit regardless of AUS messaging.

 Recent Citi general policy updates include Desktop Underwriter: Version 10.0, Condo Project Approval: Investment Property Occupancy Ratio, Verifying the Existence of Borrower's Business, plus additional updated and clarifications.

 Flagstar posted the following: During the weekend of September 24, Fannie Mae will implement Desktop Underwriter Version 10.0, which will include the changes described below. The changes included in this release will apply to new loan casefiles submitted to DU on or after the weekend of September 24. Loan casefiles created in DU Version 9.3 and resubmitted after the weekend of September 24, will continue to be underwritten through DU Version 9.3.

 Don't forget that tomorrow a House Financial Services subcommittee will hear testimony and discuss various bills including H.R. 4211 which would enable Fannie & Freddie to consider alternative measures of assessing a borrower's credit worthiness. Will it break up the credit score monopoly at the GSEs? Doubtful - the FICO model is pretty entrenched.

 What will the result of these changes be in the secondary markets? After all, if investors in agency MBS are spooked by these changes it will impact the demand side of the supply & demand equation in setting mortgage rates. Some critics believe that these changes, given that F&F are under government conservatorship, will further put the U.S. taxpayer on the hook if the changes result in higher losses. Investors rely on the reps and warrants provided by the Agencies, who in turn rely on the reps and warrants signed by lenders. Steady as she goes...

 Not much happened in the market Friday - it was uneventful - so I won't waste your time talking about it. The 10-year note price improved .125 to yield 1.62%; 5-year T-notes also improved nearly .125, as did current coupon agency MBS prices.

 It's a brand-spankin' new week - the last of September. Housing and jobs drive the economy, and this week we have updates. Today at 7AM PT we have August's New Home Sales. Tomorrow, after the debate tonight at 6PM PT, we'll have a series of Standard & Poor's CoreLogic Case-Shiller home price numbers from a few months ago, along with Consumer Confidence. Wednesday we'll see the MBA's application data and Durable Goods. Thursday is Initial Jobless Claims, 2^nd quarter's GDP, and Pending Home Sales. Friday the 30^th is Personal Income and Consumption, a series of PCE numbers, and the University of Michigan's set of figures.

 If you're trying to guess where rate sheets are going to be, well, rates are a shade better with the 10-year wallowing around a yield of 1.60% and agency MBS prices slightly better in the early going.

The Impact of Prepayments Increasing

by rchrisman@robchrisman.com

The flat earth society has members all around the globe.

While the industry is buzzing about how Wells Fargo has unfortunately killed any chance to reform the CFPB (i.e., cutting back its power or structure), and that whoever supposedly prepped Chairman Stumpf for this testimony should be terminated, recently I spent some time in Milwaukee visiting with the folks from Inlanta Mortgage. It was refreshing to hear them talk about "mortgage banking for grown-ups," and their mood reflected that of the industry: hopeful optimism that doing the right thing will prevail in the long run. Also going on in Wisconsin is evidence that the seasons are changing. Welcome to fall: yesterday, mid-day, was the autumnal equinox. In many parts of the nation leaves are starting to turn color and drop to the ground. And then what? The California Law Offices of Peter Brewer came out with a piece titled, "Real Estate Law Considerations for Fallen Leaves."

Another group of people have been prohibited from working in a segment of the industry. "The operators of an alleged mortgage relief scam that preyed upon distressed homeowners are banned from the mortgage loan modification and debt relief business under a court order obtained by the Federal Trade Commission. The order stems from a case called Operation Mis-Modification. According to the FTC, the defendants, operating under the fictitious names "2Apply" and "UW Solutions," falsely claimed they could lower consumers' mortgage payments and interest rates or prevent foreclosure, pretended to be affiliated with a government agency or consumers' lenders or servicers, and illegally charged advance fees - an initial $495, plus monthly fees that averaged about $399.

 There are a few things to note with "the big boys" out there. KB Home announced that the joint venture with Nationstar would be ending and Stearns Lending would be acquiring the JV. KB Home sold just over $1 billion in loans to the JV in 2015 which equated to around 9% of Nationstar's retail production for the year. Assuming a 1% net margin, the earnings hit for Nationstar is less than 5 cents a share. And this once again brings up the topic of joint ventures, MSAs, and the like.

 While we're on Nationstar, Moody's Investors Service has assigned provisional ratings to 35 classes of notes issued by New Residential Mortgage Loan Trust 2016-3 ("NRMLT 2016-3"). The NRMLT 2016-3 transaction is a securitization of $301.7 million of first lien, seasoned performing and re-performing mortgage loans with weighted average seasoning of approximately 158 months, weighted average updated LTV ratio of 55.5% and weighted average updated FICO score of 694. 80% of the loans have been always current in the past 24 months, and 23% of the loans in the pool were previously modified. Ocwen Loan Servicing, LLC, Nationstar Mortgage LLC, and Specialized Loan Servicing, LLC, will act as primary servicers and Nationstar Mortgage LLC will act as master and successor servicer.

 Remember that in August Ocwen, which is Newco spelled backward, had its servicer rating upgraded by S&P. Ocwen's servicer rating went to Average, from Below Average, giving it the minimum rating levels required under its subservicing agreements. S&P upgraded Ocwen's residential mortgage prime, subprime, special, and subordinate-lien servicer ratings to Average from Below Average, with a stable outlook. This follows S&P's downgrade in June 2015.

 And last week Ocwen Financial Corporation announced that, according to the recently released U.S. Department of the Treasury Making Home Affordable Performance Program (MHA Report), Ocwen is the leader in the Home Affordable Modification Program (HAMP). "In the second quarter of 2016, the Streamline HAMP program helped 7,811 families receive a loan modification. Ocwen was responsible for 4,112 or 53% of the total Streamline HAMP Modifications completed industrywide. Since the inception of the Streamlined HAMP modification program earlier this year, Ocwen has helped approximately 19,000 homeowners in need initiate a trail plan under the program."

 But there's more! Ocwen has granted a total of 324,939 loan modifications through the HAMP program - 20% of all completed HAMP modifications. It has completed 52% more HAMP modifications than the next best servicer. And it has granted 48% of all HAMP Principal Reduction Modifications completed industrywide.

 Ocwen (OCN) shares have rallied +88% quarter-to-date. Why? The positive resolution of several major risks. In June OCN settled a potentially damaging outstanding litigation against the company, and along with its 2Q16 earnings release OCN announced that it was in settlement talks with the California Department of Business Oversight (CADBO) and had reserved $15M toward a potential settlement. And has noted above in August, S&P upgraded OCN's servicer ratings to AVERAGE from BELOW AVERAGE, which substantially eliminated the risk that New Residential Investment Corp (NRZ) would be able to terminate OCN as subservicer on the $130 million of MSRs (mortgage servicing rights) on which the underlying "rights" belong to NRZ (as a result of its HLSS purchase). Importantly, the second leg of the regulatory risk reversal rally could come in the form of OCN achieving a settlement with CADBO and receiving permission from the NYDFS monitor to make a small MSR acquisition.

 If you like "dashboards," you may want to check out Moody's "Q2 2016 Originator and Servicer Dashboard." "The report features a spotlight article on how the Consumer Financial Protection Bureau's final amendments to its mortgage servicing regulations are credit positive for RMBS. It further looks at performance trends among both originators and servicers of US mortgage loans, and summarizes Moody's recently completed originator and servicer assessments."

 What does it say, or at least remind us of? Well, recent trends among RMBS loan originators include Five Oaks Aggregation Corp. and Two Harbors Investment Corp. announcing plans to discontinue their mortgage conduit aggregation operations, citing unfavorable market conditions. Lots of lenders out there are putting money into technology, improving their regulatory compliance, while more sophisticated data analysis is leading to better credit risk management and quality control. Additionally, some originators are replacing internal post-acquisition quality control loans reviews with feedback from whole loan investors and offering expanded credit products.

 "On the servicer front, despite negative financial news from Ocwen Loan Servicing, Ditch Financial and Nationstar Mortgage Holdings last quarter, each firm's overall ability to act as servicers remains unchanged, Moody's says. The 'servicer stability' component of the agency's assessments for all three is however 'below average.'"

 Should servicing for all conventional conforming loans be .250%? Perhaps not. The fee-for-service compensation structure, under which the status of a loan determines a servicer's base fee, continues to gain momentum. "The structure better aligns a servicer's costs with the performance of a deal, and facilitates the transfer of loans, should that become necessary. Moody's also notes that the expiration of the Home Affordable Modification Program at the end of this year will have a limited negative impact on RMBS issued in 2008 or earlier, with default rates following HAMP and proprietary modifications now similar after converging in recent years."

 While we're talking about residential mortgage-backed securities (RMBS), the industry keeps an eye on prepayments, and mortgage rates' impact on them. Refinancing activity tends to be the most sensitive to shifts in rates, but purchase volume may also increase as rates fall. Forecasting rates is notoriously difficult - no one has a crystal ball, and if LOs pay some service to predict the future for them, well, that's their business.

 But mortgage rates & costs may not fall much from here, or may drop below 3.5 percent only briefly. Many borrowers already refinanced when rates were low in prior years, including 2012 and 2013, which could damp the current wave. While refinancings are a positive for borrowers, they threaten to wallop investors managing mortgage bonds, which suffer when rates lurch unexpectedly.

 Few money managers have protected themselves for rates heading downward, especially since "experts" have been forecasting higher rates for years. Low rates certainly put owners of MBS at risk of faster prepayments. But the experts say that as long as mortgage rates remain above 3.5 percent, refinancing activity will probably stay muted.

 Mortgage prepayments, generally a good indicator of refinance activity, skyrocketed in August.  According to Black Knight Financial Services "first look" at its August mortgage data, the Single Month Mortality (SMM) or prepayment rate, fueled by post-Brexit interest rates, rose by 32 percent from July to hit a rate of 1.67 of all outstanding mortgages.  It was the highest SMM rate in more than three years. Keep in mind supply and demand determine mortgage rates!

 Although the agencies are well versed in "nudging" lenders to sell them whole loans instead of MBS, Fannie's trading desk sent out a note worth a skim. "To help assist you with the operational mechanics involved in trading, delivering and settling MBS securities with Fannie Mae's Capital Markets Pricing and Sales Desk we have created the reference document in the link below. The Capital Markets Operations Guidelines - MBS document provides descriptions of common processes, helpful hints and contact information useful in MBS transactions with the Desk.

 Who has time to watch rates these days? Plenty of people, and as hedging software continues to tell lenders to sell about 80% of their locks every day, the Fed continues to buy $1-2 billion a day using money from early pay-offs. U.S. Treasuries finished Thursday mostly higher and agency MBS "tightened" which means they did slightly better than Treasury securities: yesterday the 10-year improved nearly .375 in price, 5-year T-notes better by .125, and MBS better by .250. With the FOMC meeting over with, what's left for the financial press to discuss?

 Well, yesterday we learned that U.S. existing home sales slowed slightly. First-time buyers accounted for 31% of sales in August versus 32% in July and a year ago. To no one's surprise despite low mortgage rates, limited inventory & high prices continue to restrict existing home sales activity. We also learned that the Conference Board's index of leading indicators fell 0.2% m/m in August. And the FHFA Housing Price Index rose 0.5% m/m in July after climbing 0.2% in June - stronger than expected.

 Today for scheduled economic news there is nothing of consequence. Agency MBS prices are pretty much unchanged from Thursday's close, and the 10-year is at 1.62%.