Nov. 13: Mortgage jobs; CFPB & HUD turn their gaze to Green Tree & overdraft programs; investor updates; 39 biz days to go...

So aside from not having to wear ties on Fridays, or even collared shirts for that matter, the boys and girls over at Barclays have released their 3^rd Quarter Regional Housing Update. Their forecast: US housing prices will ultimately rise by 11.0% in 2013, with an additional +7.0% in 2014; prices are up 7.6% and 7.2% YTD through June (seasonally adjusted) on CoreLogic aggregate and distressed-excluded indices, housing prices are up 11.8% year-to-year, and the price-to-income ratio (or "affordability index") has rapidly returned to its long run average, standing just 0.4% below the 1976-2000 average. Must be those all-cash buyers...

Assurance Financial Group, a lender in Baton Rouge, LA, is searching for a Mortgage Servicing Manager. This person will be tasked with continuing build out of our servicing department. The person will need to have servicing experience (servicing loans sold into the secondary market, investor reporting, cash management, payment processing and custodial accounts) to apply for all agency approvals.  The ideal candidate should have at least five years of servicing experience with a managerial background. The lender is an independent, non-depository retail-only mortgage firm with several locations, headquartered in Louisiana and doing business throughout the Southeast.  It has been open for 12 years, has no legacy issues, is well capitalized, does mandatory sales execution in the secondary markets, and is a member of the MBA. Please visit the website at www.lendtheway.com, Careers, for more information regarding the position and to apply.

"Delivering Mortgage Risk Solutions Since 1946", Informative Research is seeking experienced Account Executives in the Northwest, North-Central, and Southeast regions of the United States. "You might think the demand for credit reporting services are reduced due to the recent decline in refinance volume. And while that is true for the traditional tri-merge credit report it does not take into account the lead generation, portfolio monitoring, and compliance related products that companies like Informative Research tell me is a quickly growing segment of its business. You might think the demand for credit reporting services are reduced due to the recent decline in refinance volume. And while that is true for the traditional tri-merge credit report it does not take into account the lead generation, portfolio monitoring, and compliance related products that companies like Informative Research tell me is a quickly growing segment of its business." AEs should be well-versed in consumer and property data products, including credit reports, income tax verifications (4506-T), fraud detection services, servicing/portfolio monitoring and lead generation tools. If you have 2+ years' experience selling credit related products and services and are interested, or would like more information, please send a confidential resume to Informative Research Human Resources at ContactHR@informativeresearch.com.

Whether it is in your checking account, leaving earnings in your company to bolster net worth and gain investor approval, or a big bank that is critical to the world, capital is critical. This week the Financial Stability Board (has it looked at our government?) released the list of banks that must hold extra capital.

When a small lender trade group AND a consumer group voice the same frustration with a Senate bill, something must be up: Community Mortgage Lenders of America (CMLA) and the Center for Responsible Lending (CRL) have independently come to the same conclusion: without major changes, the small lender co-op in the Corker-Warner GSE Reform bill will not prevent Too-Big-To-Fail banks from gobbling up more market share. Here's the CMLA letter. And the CRL quote in its recent white paper: "These disadvantages would prevent the FMIC Mutual Securitization Company from effectively competing in the marketplace. As a result, smaller lenders could end up still selling their loans to larger competitors who could aggregate these loans. This approach ends up back at square one with smaller lenders in jeopardy of losing access to a cash window, getting less favorable pricing, and not having the option of retaining servicing rights." 

Speaking of banks & capital, I'm pretty sure we've all received the occasional mailer from our banks offering overdraft protection on our checking accounts. I'm also pretty sure, in today's banking environment, that what worked in the past will work slightly differently in the future once the CFPB forces their input. So it is with some interest when I read the American Bankers Association recent letter to the CFPB responding to the agencies June 2013 white paper reporting its initial data findings on overdraft programs. In its letter, the ABA cautions the CFPB that "unnecessarily complicating the process will only result in increased confusion and add unnecessary regulatory costs which, in turn, will limit the availability of overdraft services for those who value them most and may ultimately push more consumers out of the banking system." The ABA's letter outlines the value and benefits that overdraft services provide, the ability of responsible consumers to avoid overdraft fees, and the protection provided by existing regulations. They also challenge the need for the CFPB to regulate payment order or require detailed disclosures about presentment and settlement. (It came out last month, but is still very relevant.)

But back to mortgages! The CFPB and HUD are probing Walter Investment Management Corp. (Read that however you'd like.) "The Tampa-based mortgage firm (NYSE: WAC) has set aside millions of dollars to deal with the issues...staff with the CFPB are considering recommending the agency take action against Walter subsidiary Green Tree for alleged violations of federal consumer laws, the company said." (More on Walter, Green Tree, and EverBank below!)

We have 39 business days until January 10^th's QM - as a reminder, the CFPB released a bulletin and interim final rule last week to provide greater clarity to the market concerning mortgage servicing rules that take effect in January 2014. In the letter, they provide clarifications, and respond to requests for further explanation on three servicing issues: home retention efforts after a borrower dies, early intervention requirement to contact delinquent borrowers, and interplay between the servicing rules, bankruptcy code and the Fair Debt Collection Practices Act (FDCPA). The interim final rule also clarifies regulations issued by the Bureau in January to implement a provision of the Dodd-Frank Act that requires consumers to receive housing counseling before taking out a high-cost mortgage. The rule specifies which federally required disclosure must be used as the basis for counseling for a small subset of closed-end loans that are not subject to the Real Estate Settlement Procedures Act. The official release from a couple weeks ago can be found here.

Let's continue playing catch up with investor & agency updates to gain a sense of the rhyme and reason out there...

Kinecta will accept new applications for the Interest Only Jumbo ARM product through Thursday 11/14/13. Beginning Friday 11/15/13, Kinecta will no longer accept new applications for the Interest Only Jumbo ARM product.

MSI is offering 15-year terms on FHA Streamlines and is accepting FHA and Agency Conforming loans on single-unit primary residence and second homes in Bronx County, NY.

Walter Investment Management Corp. announced that it has entered into a series of definitive agreements through its Green Tree subsidiary with EverBank Financial Corp. The definitive agreements cover the following key items: Purchase of approximately $10.2 billion unpaid principal balance ("UPB") of Fannie Mae and Freddie Mac backed residential servicing assets and related advance receivables, purchase of approximately $3.3 billion UPB of private label residential servicing assets and related advance receivables, rights to subservice an approximately $5.2 billion UPB Ginnie Mae forward portfolio and a $1.7 billion UPB whole loan portfolio, and assumption of their default servicing platform and offer of employment to a significant number of related employees.

Additionally, Walter expects to finalize in the near term the establishment of a delinquency flow outsourcing arrangement wherein the Company will provide outsourced default servicing on a flow basis to EverBank from its mortgage portfolio. The portfolio of assets acquired and subserviced consists of over 179,000 loans that are projected to be approximately 75% current at transfer. The transaction will have an economic closing as of October 30, and the bulk of the servicing transfers will take place during the first quarter of 2014. Mark J. O'Brien, Chairman and CEO of Walter Investment said, "We are pleased to announce this transaction with EverBank, which will add over $20 billion of UPB and 179,000 accounts to our serviced portfolio, and extends our complement of serviced product to Ginnie Mae forwards.

Provident Funding reminded clients that "beginning November 1, all licensees will be allowed to start their license renewal process through the Nationwide Mortgage Licensing System (NMLS). Provident Funding encourages that you renew your license early and submit proof of renewal to Provident Funding as soon as possible. If we do not receive notification that your license has been renewed prior to December 31st, 2013 loans in your pipeline will not be able to move forward."

EverBank has revised a number of its Non-Conforming guidelines, including raising the maximum loan amount to permit up to $2m on transactions with LTV/CLTVs of 80% and below, while the minimum loan amount for Fully Amortizing ARM products has been reduced to $250,000 (the Fixed Rate minimum loan amount remains at $417,001).  In addition, business assets may now be used for the entire amount required for the down payment and reserves.  For S Corporation partnership assets, the borrower and/or co-borrower must own 100% of the business entity (the percentages held by the borrower and co-borrower are irrelevant so long as they add up to 100%); for Schedule C assets, the borrower or co-borrower must own 100% of the entity.  All relevant loan files should contain a letter from an independent third party stating that withdrawal will not have a material impact on the viability of the business entity, that funds are not an advance on future earnings, that no repayment of the funds is required, and the dollar amount of the funds available.  A 12- or 6-month cash analysis may be used for S Corporation partnership assets and Schedule C assets, respectively.  All of the above updates take immediate effect.

Effective immediately, EverBank has updated the requirements for using asset amortization when generating a monthly income stream.  The retirement age requirement of 59 ½ has been removed, as has the 70% maximum for primary residences and second homes, for which there is no longer any LTV restriction.  The previous requirement to calculate the eligible asset amount as being amortized over 360 months has been clarified such that the amortization period is still 360 months for 30-year transactions but has been revised down to 180 months for 15-year transactions.  For ARMs, the rate of return is now calculated as the lesser of 3% or the note rate minus 2% instead of the 1-Year LIBOR index as published in the WSJ.  As a reminder, asset amortization must equal at least 50% of the qualifying total monthly income.

Carol Poupart who has servedas President of AmeriSave Mortgage Corporation for the past 7 year has announced her retirement effective November 1, 2013.  During Carol's tenure the company has grown exponentially and added a third party division to its very successful on-line lending program. The company is pleased to announce the promotion of Mark Lively to the President position.  Mark joined AmeriSave in December of 2009 after a lengthy career in the industry with several national mortgage entities.  He joined AmeriSave as Senior Vice President of Credit Risk and was later promoted to Executive Vice President.  He has been an integral part of the senior management team since joining AmeriSave.  He will continue to utilize his experience and knowledge to take the company to the next level. 

Turning to the markets...The traders can say all they want about spreads, swaps, supply and demand (yes, it is always important!), but by the time Tuesday's Happy Hour rolled around, the agency MBS market was basically unchanged from Friday's close, which means that rate sheets were also about unchanged. The U.S. 10-yr T-note, however, worsened by almost .250 in price. For tomorrow's exciting news we have the MBA's application index, confirming what lock desks & pipeline hedging companies around the nation already sense, along with a $24 billion 10-yr note auction. Speaking of which, its yield at the end of Tuesday was 2.77%, and in the early going this morning it is at 2.76% with little change in agency MBS prices.

KNOW YOUR OWN STATE MOTTO. (Part 2 of 4)

Illinois

Please, Don't Pronounce the "S"

Indiana

2 Billion Years Tidal Wave Free

Iowa

We Do Amazing Things With Corn

Kansas

First Of The Rectangle States

Kentucky

Five Million People; Fifteen Last Names

Louisiana

We're Not ALL Drunk Cajun Wackos, But That's Our Tourism Campaign.

Maine

We're Really Cold, But We Have Cheap Lobster

Maryland

If You Can Dream It, We Can Tax It

Massachusetts

Our Taxes Are Lower Than Sweden's And Our Senators Are More Corrupt

Michigan

First Line Of Defense From The Canadians

Minnesota

10,000 Lakes... And 10 Zillion Mosquitoes

Mississippi

Come visit And Feel Better About Your Own State

 

Nov. 8: Mortgage jobs; Flagstar and Castle & Cooke settlements; MBS margin requirements could hurt rate locks & pricing and thus borrowers

Yes, the mortgage industry has matinee idols - even in the large aggregators. In this video, Wells Fargo voices its stance on the upcoming regulatory changes: TheCoach&QM. (More than 50% of internet usage is videos, by the way.)

On the jobs front, Digital Risk, "the largest vendor to the mortgage banking industry (touching 40,000 files per month)," is seeking several key additions to their National Operations team to help lead their explosive growth. These professionals will help lead Digital Risk Mortgage Services, the entity that provides end to end and component fulfillment for top mortgage originators across the industry. These individuals must have a current track record of success in leading large mortgage operations and P&L's as well as possessing the unique ability to successfully operate in a fast-paced, results-driven organization where results are truly rewarded.  To learn more about these positions located in Orlando, FL or to confidentially submit your resume, please contact Randy Lightbody at rlightbody@digitalrisk.com or visit DigitalRisk.

And Impac Mortgage which is retail licensed in over 35 states and is a direct Fannie Mae, Freddie Mac and Ginnie Mae lender with niche products including 203(k) and Reverse is aggressively building a strong national sales team across retail, wholesale and correspondent lending channels. Impac Mortgage's Retail team has immediate openings for Branch Managers and Loan Officers across AZ, CA, GA, ID, NV, OR, WA while their Call Center is looking for Loan Officers who hold multiple state licenses and will be located physically in either Irvine, CA or Denver, CO. The Wholesale team is also growing its national sales force and openings exist for AEs for its Broker Direct unit based in Irvine, CA and for top Account Executives in CA, CO, FL, GA, ID, IL, MI, NC, OR, TX, VA, WA. The Correspondent team focused on mortgage bankers, community banks and credit unions across the country is currently recruiting AEs for coverage nationally. In addition, Impac is searching for a National Correspondent Sales Executive who specializes in credit union business. Interested and experienced candidates should submit their resumes to Careers@ImpacMail.com. To learn more about Impac Mortgage, check out a recent article published in Forbes which describes how this direct agency lender made its triumphant re-emergence into the marketplace.

If electricity always follows the path of least resistance, why doesn't lightning only strike in France? There are plenty of jokes about the likelihood of the French retreating, but the CFPB is certainly not retreating. In fact, given its latest press release, not only is it not taking any prisoners, but will give renewed reason for many lenders to contemplate taking their chips from 2012 and 2013 off the table and contemplate another occupation. (And if lender ranks drop dramatically, is the borrower better off?) "The Consumer Financial Protection Bureau (CFPB) announced a proposed consent order in its enforcement action against Castle & Cooke Mortgage, LLC, for allegedly steering consumers into costlier mortgages. The Bureau has asked a federal district court to approve a consent order that would provide more than $9 million in restitution for consumers and obtain $4 million in civil money penalties against Castle & Cooke and two of its officers for allegedly paying loan officers illegal bonuses." Here is what the public saw: C&C.

A $13 million fine against a company doing about $100 million a month is really a head-turner. The resolution of the lawsuit that the CFPB filed against Castle & Cooke Mortgage and its officers in August appears to be exactly that - a resolution. A consent order reflecting the settlement was filed in federal, and under the order the company and its officers admitted no wrongdoing. It is believed that senior management knew of the monetary figure two months ago and agreed to it rather than spend money fighting it, allocating the money at that time. And according to inside sources, "It is full speed ahead here at C&C, and we're going to continue with our track record over the last several years of greater than 80% purchase business. And in fact, if one takes the time to look at the proposed consent decree (found in a link near the bottom of CUInsight) it is indicative of a company that cooperated with the CFPB in this matter.

Five states over in Michigan, Flagstar Bancorp, the holding company for Flagstar Bank, FSB, announced that it has entered into an agreement with Fannie Mae to resolve repurchase requests and obligations associated with loans originated between January 1, 2000 and December 31, 2008, for a total resolution amount of $121.5 million. After paid claim credits and other adjustments, the Bank will pay $93.5 million to Fannie Mae. At September 30, 2013, Flagstar's total representation and warranty reserve was $174.0 million and the amount of the reserve specific to the loans covered by the agreement was sufficient to cover the payment amount. The agreement covers the bulk of the loans originated between January 1, 2000 and December 31, 2008 and sold to Fannie Mae, regardless of whether Fannie Mae has made a repurchase demand on any particular loan to date.

And Fifth Third Bank is not immune from legal action. "The U.S. Justice Department and Department of Housing and Urban Development's Office of Inspector General are investigating Fifth Third's practices related to loans that were insured by the Federal Housing Administration."

I often receive questions about the mortgage-backed securities market, especially the size of it. The recent prepayment speed numbers provide some indication into current production trends. The total agency MBS production for October was $52 billion, down $45 billion (47%) versus last month. Breaking that down, 30-yr production was $38 billion, down $37 billion (49%) versus September while 15-yr production was $10 billion, down $6 billion (37%). Remember, there's an 8-10 week lag between primary mortgage rates rising & homeowners closing on their purchase/refi and the loan being put into a security. But investors watch these numbers, as clearly the refi machine began to shut down starting in May when the 10-yr Treasury started its move toward 3.00% and the 30-yr conventional mortgage rate shot from a low of 3.25% to 4.75%.

The Fed, however, remains a strong technical demand force currently. It is buying nearly $3 billion a day compared to mortgage banker supply which is running between $1-1.5 billion per day (about half of where it was six months ago). The Fed's buying is heavily concentrated in 30-year 3.5s and to a lesser extent in 4s - pretty much mirroring current production. I have spoken to traders who deal with the Fed, and say that their purchase methods aren't particularly complex or sophisticated. Maybe they don't have to be...

I am also occasionally asked what a "swap" is, and why anyone should care. I say that it has nothing to do with your friend's marital practices, and is an important tool for banks that don't necessarily want 30-yr fixed-rate assets stacked up against very short term deposits. I penned "A Primer on Swaps, and the Implications of Change in the Secondary Markets" to give folks some elementary education on them, and why they should care. It can be found along the right-hand column at www.stratmorgroup.com.

"Rob, are you hearing anything regarding the change in margin requirements for TBA's? I have heard rumors. And my Capital Markets guy says that, if true, this is a significant change by Fannie and we will no longer be able to avoid margin calls on our trade lines like we've done in the past - the threshold amounts will determine the impact. What's up?"

Excuse the litany of acronyms, but yes, you are correct, there are some changes being made to the way agency TBAs (To Be Announced securities, the favorite MBS vehicle used to hedge pipelines and protect companies, and borrowers, from interest rate movement) will be margined. The TMPG (Treasury Market Practices Group) has required all primary dealers to incorporate bi-lateral margining in their MSFTA's (Master Securities Forward Transaction Agreement), and has recommended that all parties do the same.

Dan McPheeters, who is the MBA's Policy Advisor, Public Policy & Industry Relations Manager, wrote, "FINRA is embarking on a re-write of Rule 4210 and will tackle, among other things, positions in agency TBAs. I expect their revised rule proposal to come out for comment in early December. We have been actively engaged with FINRA for the past 3+ months on this issue, and they will be speaking on this topic on a panel during MBA's IMB conference in December. FINRA is in the middle of an extensive rewrite of their margin requirements and the early reviews were not good for mortgage bankers. The MBA has built a very good dialogue with FINRA, and they are aware of the problems of an 'all best efforts' world, and are much more familiar now with the business model. So I would say things are looking much better than they were a couple months ago. That said, it takes time and a LOT of money to build out scalable margin exchange and compliance systems, so my guess is much of the chatter is from those who have invested early in these systems. There is also a lot of misunderstanding concerning what rules are going into effect when, so never underestimate the fact that folks just may not know." (If you have questions on current developments, write to Dan at dmcpheeters@mba.org.)

And Fannie's Trading Desk mirrored this information in a note to its clients. "In November 2012, the Treasury Market Practices Group ("TMPG"), an industry group sponsored by the New York Federal Reserve, issued a recommendation that industry participants begin exchanging variation margin on forward-settling agency MBS transactions (see NYFed).  The TMPG-proposed implementation date for these changes is January 1, 2014. Fannie Mae intends to follow the TMPG's recommendation and implement the ability to exchange bilateral margin with lenders who transact with our Capital Markets Sales Desk. This change will be implemented by a Selling Guide Announcement that will update and amend section C3-7-01 of the Selling Guide.  This section of the Selling Guide, which sets forth various requirements and procedures around establishing an MBS trading account with Fannie Mae, will be updated to incorporate these new margin requirements, including pre-set threshold amounts and minimum transfer amounts relating to exchanging variation margin.  We intend to make the Selling Guide Announcement in December 2013 in order to have these changes go effective January 1, 2014."

What does all this mean to rate-sheet prices? If the various regulators and regulations further crimp, or make more costly, the hedging activities of residential lenders, this cost will be passed on to borrowers. What if an LO couldn't give a 30-day rate lock to a borrower? So it is indeed important - we wish Dan McPheeters and the MBA success.

"Rob, do you have a simple explanation about rates go down when bond prices go up, and vice versa, and what 'duration' means?" I'll give it a shot. If rates move higher, existing bond prices call since investors will be able to purchase new issues that pay better rates, making existing bonds less attractive and reducing their market value. Everything else being equal, why would anyone pay $100 for a 30-year bond yielding 2.00% if they could pay $100 for a 30-yr bond yielding 2.50%? But they might pay $97 for that same bond yielding 2.00%, thus making the yield 2.50%. (The opposite occurs when interest rates fall and new issues pay lower rates. When this happens, investors are willing to pay higher prices for existing fixed-income securities - like mortgage-backed securities - that pay better rates than new issues.)

Duration has a couple different meanings but try to avoid equating it with "maturity." (Remember the old joke - why are men like bonds? They don't pay much interest and they rarely mature.) To an analyst or investor, duration takes the relationship between interest rates and bond prices a step further by measuring the sensitivity of a bond's price to a change in interest rates. More specifically, duration can be used to estimate how a 1% shift in interest rates may affect a particular bond's market price. The longer (higher) the duration, the more a bond's price should fluctuate as interest rates rise or fall. For example, the price of a bond with a duration of five years would be expected to fall 5% for every 1% increase in market interest rates. Conversely, a bond with a duration of ten years should rise 10% for every 1% decrease in rates. Treasury 10-yr notes might have a duration of 8.80 at a yield of 2.50% versus 30-yr bonds having a duration of 18.50 at a yield of 3.50%. Traders and pipeline hedgers are very focused on duration - long term bonds tend to have longer durations and their prices can fall quickly when interest rates increase. But the impact on MBS prices is influenced not only by that, but also by the likelihood of a borrower to refinance, and/or the value of servicing for that mortgage or pool.

Yesterday we had the GDP news (Gross Domestic Product rose at a 2.8% annualized rate, much stronger than expected) which was balanced out by Consumer Spending (up 1.5%, the smallest increase since 2011). The numbers continued to indicate steady growth but there isn't much in the U.S. economy to get excited about. By the time the dust settled Thursday agency MBS prices were better by about .125 and the 10-yr closed at 2.61%.

But today we've had the October employment numbers. Nonfarm payrolls were expected +125k, but came out at +204k with a back-month revision of +60k. (The unemployment rate stands at 7.3%.) In addition, we had October Personal Income (expected +0.3 versus +0.4 last) and Consumption (expected +0.2 versus +0.3). The very strong employment numbers has the fixed-income market back on its heels. The 10-yr closed Thursday at 2.61% and today it is at 2.73% and agency MBS prices are worse by 1 point! And hey, don't forget that the bond market is closed Monday for Veteran's Day - so even for the investors that might be open, don't expect cutting-edge pricing.

Morris Schwartz is dying and is on his deathbed.  He is with his nurse, his wife, his daughter and 2 sons, and knows the end is near. So he says to them: "Bernie, I want you to take the Beverly Hills houses."

"Sybil, take the apartments over in Los Angeles Plaza."

"Hymie, I want you to take the offices over in City Center."

"Sarah, my dear wife, please take all the residential buildings downtown."

The nurse is just blown away by all this, and as Morris slips away, she says to the wife, "Mrs. Schwartz, your husband must have been such a hard-working man to have accumulated all this property."

Sarah replies, "Property shmoperty...the schmuck has a milk route."

Nov. 7: Mortgage jobs; thoughts on succesful retail lender traits; Nationstar & Stonegate sittin' in a tree...

Pitbull & Kesha sing:

"It's going down, I'm yelling timber,

You better move, you better dance.

Let's make a night, you won't remember,

I'll be the one, you won't forget..."

No, I am not talking about the Castle & Cooke/CFPB situation, expected to be positively resolved any day now. No, I am talking about that not only did Nationstar report its earnings this morning (just like everyone else, it is not immune to higher rates and lower margins - see below), but yesterday broke the news to a portion of its wholesale employees that they would be Stonegate employees. (As for the other portion of employees, well...timber!) See below for the details - hopefully the deal works for all involved.

Meanwhile one of Florida's most respected Mortgage Banking firms continues to expand across the Southeast region and is seeking a strong Controller/CFO to serve a network of branches and corporate accounting needs.  A qualified candidate will have experience in mortgage banking accounting and management.  The company has 30 branches in 10 states. If you have the desire to build an exceptional finance team while working closely with secondary and contribute to a unique growing franchise please send confidential resumes to rchrisman@robchrisman.com.

"Due to its continued expansion, The StoneHill Group is searching for a Director of Quality Control. The StoneHill Group, Inc. is a nationwide provider of QC outsource services (www.stonehillgroup.com) and is headquartered in Georgia. The ideal candidate should either live in, or be willing to relocate to, the Atlanta area. There is no full relocation. The role of Director of Quality Control will include leading and managing StoneHill Group's QC team and requires 5 years' experience in a QC Director or Manager role. To submit an application and resume, please visit the StoneHill Group, Inc. Careers Page at www.stonehillgroup.com.

First Nationstar's earnings. The company had GAAP EPS of $0.91 on net income of $82 million, pro forma EPS of $1.08, excluding BofA ramp and other one-time expenses totaling $25 million. At the end of the quarter Nationstar had a servicing portfolio UPB of $375 billion; pro forma UPB of $415 billion and had executed new agreements to acquire $25 billion in servicing. For fundings the company had $8.0 billion with a year-to-date recapture rate of 45%. "Within originations, we are focused on the profitable creation of servicing assets, hence our forward emphasis on the core consumer-direct origination channel. Our strategic initiatives target a lower cost operating model and the formation of capital vehicles that will generate greater cash flows. I am confident in our ability to execute as we remain focused on generating long-term shareholder value."

Far north of Lewisville, Texas, Stonegate announced that it has entered into a binding letter of intent to acquire the wholesale lending channel and certain distributed retail assets of Nationstar Mortgage Holdings Inc. For the first six months of this year, Nationstar's wholesale lending channel originated $3.26 billion in mortgages. Pursuant to the terms of the letter of intent, Stonegate agreed to purchase the assets and offer employment to certain employees associated with these businesses. "For Stonegate Mortgage, the acquisition complements the company's existing wholesale and retail channels and accelerates its geographic expansion."

One has to wonder exactly what one buys when buying a wholesale channel, besides eliminating a competitor. After all, rate sheets aren't patented, and employees are free to move, for example - is there anything worth value? Some will argue "no." But "Since our founding in 2005, Stonegate has focused on building a fully integrated and diversified mortgage banking platform. This acquisition enables us to further drive retail originations and serve an even larger group of mortgage brokers through our wholesale channel", said Jim Cutillo, Chief Executive Officer of Stonegate Mortgage. As part of the acquisition, Stonegate will gain a team of leaders from Nationstar. "We are excited to have such an outstanding group joining our team to strengthen what I believe is the best non-bank mortgage company in the industry today...(the deal) fits well within Stonegate's focus on branch geographic expansion," said Jay Bray, CEO of Nationstar Mortgage. "The transaction also fits well within Nationstar's strategic focus on servicing, Solutionstar, consumer direct originations and correspondent."

With all the turmoil in the wholesale channel, Flagstar Bank sent me a note out saying that it is committed to the TPO business. Flagstar continues to bring on new brokers and correspondents. As part of the on-boarding process there is a 25 bps price improvement for the first 120 days. For more information check out www.wholesale.flagstar.com. And by the way Flagstar expects to roll out its QM system training in mid-December.

A couple weeks ago SunTrust exited wholesale, and now this. These will not be the last big deals done, and there will be plenty of companies exiting lending over the next six months. Yes, we can all expect a lot of changes over the next 6-9 months. If rates stay the same, and the cost to produce a loan continues to go up, is there really enough business to go around? Is the great business in the first half of 2013 enough to carry forward into 2014? Jeff Babcock from the STRATMOR group opined, "The recent market developments have taught us, once again, that there is no soft landing in the mortgage business. It may have taken longer than expected for refinance to dry up, but as always it was abrupt and merciless when it happened. From a broad market perspective, production volume has fallen at least 25% on average during the 3^rd quarter from the 1^st half of 2013. Net Income margins are down, on average, twice to three times production volume declines. Lenders must spread fewer loan units over their fixed costs which are inherently difficult and slow to reduce. However, the operative phase here is 'on average.' STRATMOR had a very busy MBA Convention, meeting individually with some 50 lenders plus two group sessions which included another 50 lenders. This was a wonderful opportunity to gather live fresh market intelligence at the individual lender level. What struck me was just how variable the key performance metrics are running from lender to lender.  We are hearing from certain STRATMOR clients (albeit a few) who are anticipating up to 20% increases in 2013 volume over 2012 levels. At the other end of the spectrum are lenders suffering 40% to 50% declines which is quickly making them unprofitable. Averages tend to obscure how individualized this market has become."

Jeff's note continued. "In between these two extremes, we are observing lenders with a range of strategic responses. The more successful retail lenders have several common characteristics. One is they are approved with one or both of the agencies and as Ginnie Mae issuers; became proficient at selling directly to the agencies on a servicing retained basis, thereby reducing their secondary marketing dependence on the Aggregators. Another is that successful lenders mostly implemented purchase initiatives before mortgage rates started rising. Before the competition become so intense, the successful lenders were focused on recruiting efforts during the last half of 2012 and early 2013 which have generated enough incremental production volume to largely compensate for the market shrinkage. Successful lenders have a commitment to real sales management practices have sustained LO productivity despite the reduction in refinance opportunities. They have adopted a strategic approach to originator compensation plans and avoided "pick-a-pay" and other potentially non-compliance programs. Many did organizational right-sizing - aggressively implemented comparatively early in 2013. And lastly, these companies demonstrated anticipatory leadership to prepare their organization for more challenging market conditions. Each lender's circumstances and business model are unique. Above are some examples of solution which lenders have deployed in response to the challenges of today's market. (If you're interested in learning more, or are interested in M&A, contact Jeff Babcock at jeff.babcock@stratmorgroup.com.)

Every residential lender out there is impacted by what the agencies do or don't do. And the agencies are under the conservatorship of the FHFA, which has no permanent director. Ed DeMarco is acting as the director, and there has been a lot of press about the current nominee, Mel Watt. He has garnered his share of controversy, as everything does in Washington DC these days.

With this in mind, Dave Stevens from the MBA noted, "Rob, I read the comment in your commentary about the MBA statement of support for Mel Watt. As you know the Realtors, Homebuilders, and the MBA all made statements of support for the nominee. The decision was made after a lengthy discussion in the board of directors meeting in October, the same week of the Senate deliberation. The MBA Board, consisting of both residential and multifamily lenders, feel that a permanent director is needed to help provide continuity to the policy debate on GSE reform going forward. Ed Demarco has been a great acting director, but he is limited in his role as a conservator. Some members raised concerns about continued guarantee fee increases, loan limit changes, and further reductions in the multifamily business. The MBA has traditionally supported the Presidents Nominees though previous administrations for the key housing regulatory bodies and while some might have different preferences, the vote taken by the board recognized the fact the Congressman Watt had over two decades on the house financial services committee, was a Yale graduated attorney, and clearly understood the political process which could be helpful in the GSE debate that will consume housing over the next few years. The Board of Directors voted to support the nominee, consistent with past protocol, and joined the Realtors and Builders in the process."

Ray White with Equifax Mortgage Services writes, "Your commentary on the QM and having a DTI unknowingly go over 43% is something lenders need to be concerned with. We have done some research at Equifax for clients and when they use the traditional soft pull LQI or LLR solution a gap is created between when you pull the report and the actual closing. One study found 12.1% of new trades reported within 5 days of closing and 22.2% within 10 days of closing. Lenders need to be using a credit monitoring tool as it eliminates any gap. Monitoring also allows the lender to deal issues when they occur and not wait just before closing. Equifax has large percentage of their using our Undisclosed Debt Monitoring solution and not only is the gap eliminated, but their loan officers can be more proactive when new trades or inquires show up on their clients credit file." (Thank you Ray, and lenders wanting to see more go to www.equifax.com/mortgage/udm.)

Let's chip away at some upcoming training events, along with some investor & aggregator news - the flow of changes continues to amaze me.

SIFMA (Securities Industry and Financial Markets Association) is having its annual meeting next week (November 11 & 12) in New York. "Helping Americans Succeed, Helping Main Street Prosper" and brings the leaders of the financial-services industry together with prominent policymakers, thought leaders and financial media. "We are honored to have President Bill Clinton and Gov. Jeb Bush provide our keynote addresses. Featured speakers include Lloyd Blankfein, Chairman and Chief Executive Officer of Goldman Sachs; Larry Fink, Chairman and Chief Executive Officer of BlackRock; and Mary Jo White, Chairman of the U.S. Securities and Exchange Commission." Sounds like the MBA last week: https://www.sifma.org/events/.

Ari Karen will be speaking at the November 21^st Mortgage Bankers of Kansas City luncheon - an extended program. Anyone who is interested in attending can go to the MBAofKC site to register: http://www.mbakc.com/november-2013/.

The Mortgage Bankers Association of New Jersey and the New Jersey Mortgage Bankers Association will be hosting their annual Joint Mortgage Lending Conference in Edison, NJ on December 4^th.  Sponsorship opportunities are still available; visit http://www.mbanj.com/ for more information.

First Mortgage is seeing great interest in its new NHF First Down program, which FM recently rolled out to correspondents lending in AZ, NM, NV, TX & UT.  This DPA 2nd combined with an FHA 1st allows borrowers to come in with just .5% down payment. (Inquiries can be directed to Sharon Magnuson at smagnuson@firstmortgage.com.)

New Penn is pleased to announce that it has expanded HARP guidelines.  New Penn now offers DTI ratios up to 60%, no foreclosure or bankruptcy seasoning on DURP, and LTV up to 125% on non-owner occupied.  New Penn also offers unlimited LTV on owner occupied and accepts DU EAI, EAII and EAIII.  For more information on New Penn's HARP guidelines, visit www.gonewpenn.com.

Banc of Manhattan has released updated underwriting matrices for its correspondent platform product suite, including DU Exclusive (Conventional Conforming Fixed, High Balance Fixed, Conforming Conventional Hybrid ARMs, and High Balance ARMs), FHA (Streamline, Conforming, and High Balance), Open Access, and VA (Conforming and High Balance).

"Norcom Mortgage weighs in on the ever popular topic of rates." Their latest blog, created by Norcom's Christina Sanville, an aspiring economist, provides a weekly overview of what is going on in the market, how that will impact mortgage rates and the economics behind it all."   If you are interested in getting on the weekly rate distribution list please e-mail ryan@norcom-usa.com

Turning to rates, there isn't much going on in the early going. Overnight we had a surprise cut in rates "across the pond" in Europe. That has caused a bit of a buzz in markets here, although yesterday we did see a bit of bounce back in agency MBS prices from Tuesday's debacle - they improved about .125. Today we have Initial Jobless Claims (335k expected versus 340k last) and the first GDP reading for Q3 (+2.0 expected). The 10-yr closed Wednesday at 2.64%, and this morning it is down to 2.62% and agency MBS prices are better by about .125.

A father buys a lie detector robot that slaps people when they lie, and he decides to test it out at dinner one night. The father asks his son what he did that afternoon.

The son says, "I did some schoolwork."

The robot slaps the son.

The son says, "Ok, Ok. I was at a friend's house watching movies."

Dad asks, "What movie did you watch?"

Son says, "Toy Story."

The robot slaps the son.

Son says, "Ok, Ok, we were watching porn."

Dad says," What? At your age I didn't even know what porn was."

The robot slaps the father.

Mom laughs and says, "Well, he certainly is your son."

The robot slaps the mother.

Robot for sale.

Nov. 6: Mortgage jobs; Ally says adios; should we care about Mel Watt? Fannie's current QM guidance - worth knowing

As the industry waits for Nationstar's earnings call tomorrow, and hoping all the rumors of this venture-capital-owned lender shutting down a channel or two are false, it has turned some attention to Ellie Mae. Ellie reported a lower-than-expected third-quarter profit, hurt by lower mortgage volumes and higher R&D spending, pushing its shares down more than 20% last week. Its net income halved in the quarter ended Sept. 30, and Ellie warned of lower-than-expected earnings in the fourth quarter. R&D expenses rose more than 38 percent, and let us not forget its acquisition of MortgageCEO, a software company specializing in customer relationship management for the residential mortgage industry. Meanwhile, other parts of the industry are expanding. CMG Financial, a California based FNMA and FHLMC Direct Seller-Servicer and approved GNMA Issuer, continues to expand its footprint across the country. Wholesale Regional Managers and Account Executives are in demand in the Northeast, Pacific Southwest and upper Mid-Western U.S. Branch Managers and Mortgage Consultants supporting their Consumer Services (Retail) Division are in demand in most states as well. "CMG Financial is uniquely positioned in the marketplace today conducting business through 5 sales channels including Consumer Services, Wholesale, Correspondent, Affinity Partnerships and a National Builder Division and recently launched its 'Select Partner' program which provides lines of credit to qualified emerging bankers. CMG also allows its AEs to continue to support and be compensated on wholesale accounts that join its retail platform."  If you are interested, submit your resume to Amy Gallow at agallow@cmgfi.com. For inquiries other than employment interests, contact Dave Herbst, Director of Marketing, at dherbst@cmgfi.com. And Flat Branch Home Loans, one of the largest lenders in the State of Missouri, is expanding west. The company, based in Columbia, Missouri, is looking for a producing Origination Manager in the Kansas City market.  The right individual will possess a strong history in the area with the ability to recruit purchase oriented LO's. Flat Branch Home Loans is a full service mortgage banking firm and prides itself on hiring  the best LO's and supporting them with an impeccable operations staff. It has been recognized several times by Inc. Magazine as one of the fastest growing private companies in the United States. Please send inquiries directly to Jim Yankee, President at jim@flat-branch.com. We have a new set of collector's items: Ally Financial t-shirts and coffee mugs. Ally Financial has closed the book on the mortgage business. It no longer offers or services home loans and the pipeline of pending mortgages stands at zero, according to a presentation by the Detroit-based auto financer. The company has paid a settlement reached last month with U.S. regulators tied to its residential lending, and that's the last of any significant costs, Jeff Brown, senior executive vice president for finance, told investors on a conference call. "Rob, you're getting forgetful in your old age. We were told that there is a 7-year waiver on the QM stuff (unless FNMA and FREDDIE MAC privatize before the 7 years) like 43% DTI. You should remind folks." Not so fast. First of all, the QM comment period for FHA just ended - so the industry is waiting to hear its stance. And to the best of my knowledge, FHFA directed Fannie & Freddie to comply on 3 fronts: to only buy loans with terms up to 30 years, fully amortizing, and 3 points in fees. Although direction from the FHFA may change in the future, one way to think about the current situation is that there is a "Standard QM" (43 DTI, ARMs max interest rate, and so on) and a "Special QM" (exemption GSE for 7 years - a loan is QM if eligible for sale to an agency, but this expires in 7 years or if they come out from conservatorship). To the best of my knowledge there is no intent to reduce DTI at this point. But why take my word for it - the agencies have put forth guidance. For example, Fannie has its "Quarterly Compass" - two pages which list everything that has been announced, along with upcoming dates. And Fannie has consolidated everything it has published on QM in three publications: Lender Letter LL-2013-05 - Qualified Mortgages, Lender Letter LL-2013-06 - Additional information about ATR and QM requirements, and Announcement SEL-2013-06 - Updates related to Ability to Repay and Qualified Mortgage (QM). Links to each of these documents are available through the Fannie Mae Quarterly Compass, August 2013 edition located at this link. And folks in the industry shouldn't forget Fannie's interactive site, the Housing Industry Forum! Fannie posted an HFI article on ATR and QM yesterday. Last week the American Bankers Association expressed strong support (by way of a comment letter sent to U.S. regulators; talking points shown here) for the re-proposed Qualified Residential Mortgage standard. Their proposal aligns QRM with the CFPB's Qualified Mortgage rule, released earlier this year. "A QRM standard that mirrors the CFPB's QM rule is a big step forward in strengthening the housing market," said Frank Keating, ABA president and CEO. "QM loans will be well underwritten and cannot include risky features, so it makes little sense to define QRM more narrowly." Contained in the letter, the revised rule: reduces the risk of default and delinquency, provides clarity and consistency for mortgage professionals, and ensures creditworthy homebuyers have access to safe mortgage financing. The ABA warned that an alternative approach included in the proposal, known as QRM-plus, which requires borrowers to put 30 percent down, will constrain the availability credit and encouraged its abandonment. While we're talking about the agencies, I received this note. "Rob, we have heard that acting director Ed DeMarco is on his way out of the FHFA - but what are you hearing about Mel Watt, and, assuming our politicians stop and take a breath and he is confirmed, how will that impact my company?" If Rep. Watt were to win confirmation and take over the FHFA, then his next policy steps would likely be determined by at least one of two issues outside of the FHFA's direct control. The first is Congressional consideration of the Mortgage Debt Forgiveness Act extension, and the second is mortgage rates. If Rep. Watt is eventually confirmed, and other policy issues go his way, insiders expect the FHFA to work towards some form of principal reduction (likely through HAMP) and institute specific changes to the HARP. Republicans are not wild about Watt for a couple reasons. First, he has no current experience in the industry. But more importantly, he has been in Congress for a couple decades - is a politician the best person to run Fannie & Freddie when the government keeps talking about lessening its role? On the principal reduction front, the HAMP Principal Reduction Alternative (PRA) remains the likeliest vehicle for Rep. Watt to embrace. This probably would not impact servicers too much, and might be a slight positive for private mortgage insurers given its impact on mortgage credit. For specialty servicers, principal reduction through the HAMP PRA would decrease the fees collected but would also lessen the cost to service the loan. Most believe that even if Rep. Watt were to be confirmed, his ability to implement a broader principal reduction program through the HAMP could be limited as there appears to be little will in Congress to extend 2007's Mortgage Debt Forgiveness Act past its January 1, 2014 expiration. This Act was set to expire at the end of 2012 but was extended as part of the fiscal cliff deal, and is crucial to foreclosure mitigation efforts such as principal forgiveness and short sales. Normally, U.S. law decrees that when a lender forgives all or a portion of a borrower's debt, the forgiven amount is considered taxable income for the borrower. This is known as Cancellation of Debt (COD) Income and must be included in a taxpayer's gross income. This Act, however, created an exception to this rule under the U.S. Tax Code. The Mortgage Forgiveness Debt Relief Act allows homeowners who received principal reductions or other forms of debt forgiveness to not pay taxes on the amount forgiven. The amount extends up to $2 million of debt forgiven on the homeowner's principal residence. For homeowner's to qualify, their debt must have been used to "buy, build, or substantially improve" their principal residence and be secured by that residence. HARP is kind of off the front burner for many lenders, but it could become a discussion topic again if Watt is confirmed. The likeliest initiative for Rep. Watt to embrace if he were to be confirmed would be incentivizing cross-servicer refinancings through the HARP (i.e. implement the Boxer-Menendez bill). This would be an incremental negative for both mortgage servicers and Agency mortgage REITs as they would face increased prepayment rates. And he might try to change the HARP eligibility date - thereby allowing re-HARPing - although it is unlikely. The FHFA Director is not empowered to expand HARP to non-Agency mortgages. All of this chattering is generally overshadowed by the rate environment. For many lenders, volumes are down 50%, margins are down, and costs are up. (Let's not forget a purchase loan is more expensive to originate than a refi.) Given the expectation for rates to remain at current levels or potentially move higher, the refinance boom we experienced over the past 12 years has likely ended. But John Jacobs with Patriot Bank Mortgage writes, "I was shocked, as I imagine many other mortgage bankers were, to see that our mortgage-bankers association (MBA) has endorsed the nomination of Mel Watt to head the FHFA.  Mel Watt has made his position clear on principal forgiveness and other anti-lender positions, and is anti-security holder. Given we need more private capital involvement, if the GSE's are going to be relegated to a back-seat in the securitization food-chain, this seems counter-intuitive to endorse an FHFA nominee that apparently does not support a robust and stable securities market. Principle forgiveness is very egalitarian, but reduces the value of mortgage-backed securities to their investors dollar for dollar. The possibility of principle reductions being imposed by government fiat will weigh on security's pricing at a minimum and may sideline investors that may have participated in buying mortgage-backed securities altogether, thus making for a less liquid and higher priced securities market." Mr. Jacobs continues, "Just like the bailout of the auto industry, and the subsequent government failure to recognize the property rights of bondholders, so too is principle forgiveness. Mel Watt is an activist that advocates using housing policy for social engineering reasons, much like Maxine Waters, and Barney Frank. As you well know, that hasn't worked out well for the health and vitality of the mortgage-banking industry. This appointment is so typical of this administration that tries to impose its will on American business when their legislative initiatives fail. We need the rank-in-file members of MBA to state their disappointment with this nominee and ask our leadership to advocate for the mortgage-banking industry and not try to 'play nice' with big government ideologues." Rates took it on the chin Tuesday - mostly attributed to a "second tier" number that rarely moves the multi-trillion dollar bond market. But the October Institute of Supply Management number (ISM) came in stronger than expected, which is interesting given the number was tabulated during the shutdown. Did the shutdown really hurt the economy? Yesterday's ISM number followed last week's better-than-projected Chicago PMI and ISM-manufacturing reports, as favorable data could encourage the FOMC to announce tapering earlier than the odds favored March 2014. Suddenly the market shifted. Traders reported MBS investors were selling certain parts of their holdings, and mortgage banker supply rose to about $1.5 billion - more than the daily Fed buying of $2.5 billion. (Heck, what if the Fed weren't buying anything?) Agency MBS prices worsened about .625 and the 10-yr closed at 2.66%. It is a new day, and quiet so far. The MBA told us that apps last week were down 7% - ouch. We will have September Leading Indicators (+0.6 expected) at 10AM EST. Other events include the Treasury Quarterly Refunding announcement and details of next week's auctions of 3- and 10-year notes and 30-year bonds. Rates and the 10-yr are seeing a bounce from Tuesday's close, with the 10-yr down to 2.63% and agency MBS better by .125. "Woman stops gator attack with a small Beretta pistol."  This is a story of self-control and marksmanship by a brave, cool-headed woman with a small pistol against a fierce predator.  What is the smallest caliber that you would trust to protect yourself? A Beretta Jetfire testimonial. Here is her story:  "While out walking along the edge of a bayou just below Houma, Louisiana with my soon to be ex-husband discussing property settlement and other divorce issues, we were surprised by a huge 12-ft. alligator suddenly emerging from the murky water and charging us with its large jaws wide open. She must have been protecting her nest because she was extremely aggressive. If I had not had my little Beretta Jetfire .25 caliber pistol with me, I would not be here today! Just one shot to my estranged husband's knee cap was all it took. The gator got him easily and I was able to escape by just walking away at a brisk pace. It's one of the best pistols in my collection! Plus ... the amount I saved in lawyer's fees was more than worth the purchase price of the gun." If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, "A Primer on Swaps, and the Implications of Change in the Secondary Markets". 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://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries or to subscribe, go to www.robchrisman.com. Copyright 2013 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

RateAlert Free Subscriber Snapshot 10/29/2013

What happened yesterday?

Mortgage backed securities (MBS) lost -7 basis points from Friday's close. The benchmark FNMA 3.50 November MBS has once again moved in a very narrow range and as a result, mortgage rates did not change.

We had two mid-level reports and one major economic report that hit Monday morning and neither really moved the needle on MBS pricing.

Both Industrial Production and Capacity Utilization were stronger than expected and would have normally pressure MBS (worse pricing for you). But our floor of support located at the bottom of our trading channel held nicely and prevented MBS from selling off.

Existing Home Sales were much weaker than the consensus estimates (-5.6% vs est of -0.5%). "Normally" (notice the "air quotes" around Normally), this weaker than expected economic data would be positive for MBS and you would have seen an improvement in pricing. But we are far from "Normal" in this market. Our overhead ceiling of resistance located at the top our intra-day trading channel would put a stopper in any rally. But more importantly, is was the fact that the market wasn't trading on the consensus expectations. The market was trading on "whisper" numbers. What are "whisper" numbers? This is basically what traders are bantering around without regards to what the egg-head economists think. And in this case they were right. And it makes sense. September's interest rates had risen and many consumers were concerned about their job status with the looming government shutdown that was most likely going to hit on October 1st (and it did).

We had a 2 year Treasury note auction where we sold $32 billion of our nation's debt. There was actually very strong demand for the auction with a bid-to-cover ratio of 3.32. However, the 2 year note is too short term to impact longer bond prices like MBS.