Friday, July 26, 2013

Honesty

http://globalhomefinance.com

What is a forint? Besides being a good scrabble or hangman word, it is the

currency of Hungary. I mention this because, in Hungary, borrowers can have

mortgages based on foreign currencies, and the government has embarked on a

plan to have all mortgages based on paying in forints. Stuff I never thought

of: HowAboutYapStoneMoney?

[http://r20.rs6.net/tn.jsp?e=001njSNrfn8RVMciWhoB7NQq3YOrGUIk3jK5vnDWs1Na3Yj

iXF95Bj8r8EM35nZpunci8MsKILGRth92nFzomv1VievSQ4JamRMo5Y3ovi0ZhmdDVuZwPt1SB5W

Q9kThj9ffbBLEt494-50azVa5_NjZ-8lJ5nCynz8tZiJhRArzLfqa17BPbp4fQIVblMVklSUQmIB

YG6wPpQcxU5729h5-ZhxF3Sr1imggb2fmuOwITE=]

I am fortunate enough to do a little speaking, and in fact next week am

heading to New York for a Sterling National Bank event. But I received this

note. "Rob, do you know anyone at the CFPB who can speak at our annual

meeting?" All requests for CFPB speakers can be directed to

Invitations2CFPB@cfpb.gov [mailto:Invitations2CFPB@cfpb.gov].

"Teamwork is essential because it allows you to blame someone else."

Sometimes banks and mortgage banks work together, sometimes not. "Rob,

someone told me that bankers want more regulations. What's up with that?" I

have spoken to a number of bank managers and top brass. Banks have been

regulated from Day 1, whereas it is hard to argue that mortgage banks

("those cowboys!") had had the same burden. But everyone knows that mortgage

banks, and their LOs, are quickly catching up - maybe, as they say, mortgage

banking is as heavily regulated as banking but it just doesn't know it yet.

But it is little surprise that mortgage banks view the increased regulatory

burden as anything but a cost to be passed on to borrowers, although when

pressed management will admit that many lenders and LOs who should not have

been in the business have left - a good thing. In the meantime, bankers have

pretty much been saying, "Welcome to our world. Our residential lending,

policies, and procedures have been policed for years, and if you'd don't

like it, we'll be glad to take your market share." That's it in a nutshell -

banks may not exactly want more regulation, but they are comfortable in the

environment, and have compliance and legal staffing to absorb it.

Banks, for their part are seen (at least on the commercial side) taking on

more risk by using a familiar funding tactic that works fine as long as

rates remain steady - but if rates increase more, watch out! It is not news

that the average maturity of loans has extended significantly (especially

true in community banks).

Banks are full of cash and have very low loan-to-deposit ratios, and are

trying to find decent commercial loans. The number of loans with maturities

over 5 years for banks under $1 billion in assets has increased from 14% in

2007 to 27% as of

Q1 2013, according to Pacific Coast Bankers Bank. "That near doubling has

regulators concerned and bankers are beginning to face questions about

contingency plans, stress testing and other factors during recent

exams...Some have begun to utilize FHLB advances once again to match-fund

longer maturity loans" which helps interest rate risk management. But when

loans prepay, the bank no longer has that income generating asset, yet it

cannot unwind the funding without significant cost. And with FHLB advances,

the bank is using wholesale deposits support loan growth - and regulators

take a hard look at that since it is not "core" funding and uses up

contingent liquidity and requires collateral. That adds pressure and takes

away flexibility.

Unlike mortgage banks, where warehouse costs tend to rise in a rising-rate

environment, banks tend to "enjoy" the environment as rates move higher. For

most banks, deposit costs lag the overall rise in interest rates, and

profitability soars (just look at how well bank stocks have done lately),

as retail deposit costs remain far below the cost of institutional deposits.

Some banks, instead of going after wholesale deposits, are considering

booking a floating rate asset right from the get-go.

And let's not forget Basel III's impact on many banks. Changes to regulatory

capital will likely drive larger banks to change the way they invest. To

address the capital impact of price movement in their investment portfolios,

look for larger banks to take actions that include shortening their

duration, moving more securities to HTM, holding more loans versus

securities, holding more capital, or buying more floating rate securities.

Larger banks are already doing this, as are community banks.

While I am yapping about banks, Wells Fargo announced that it is eliminating

its entire remaining joint venture mortgage banking affiliates. Is it a big

deal for Wells? Not really - it only has eight nonbank lenders in this

program which accounted for 3% of the 2nd quarter mortgage production. But

two years ago it had 100 mortgage JVs. And folks who think about these

things say the timing is interesting, with the announcement coming so soon

after the CFPB/Castle Cook news. Remember Wells'

decision to pull out of wholesale after the Department of Justice

settlement? Wells, and other investors, has been burned in the past on

behalf of their counterparties, and this channel is not viewed as scalable.

Winding down the eight joint ventures will take 12-18 months, and it is

believed that other large aggregators may step in and throw them a life

ring. Wells may actually make a couple traditional correspondents. (The

eight are Bankers Funding Company, Colorado Mortgage Alliance, DE Capital

Mortgage, Home Services Lending, Military Family Home Loans, Premia

Mortgage, Prosperity Mortgage, and Priva LLC.) But it is truly a sign of the

times, given the current regulatory and market environment, and changes in

state and federal oversight have increased the complexity and difficulty of

operating these joint ventures. It is rumored that HomeServices, at $4

billion a year, will move over to Berkshire Hathaway.

I received a few notes saying this reminded readers of the news that broke

in May regarding Paul Taylor Homes in Texas. "A Texas homebuilder will

surrender more than

$100,000 to the Consumer Finance Protection Agency under a consent order

filed on Friday. Paul Taylor, a principal of Paul Taylor Homes Unlimited and

Paul Taylor Corporation was accused of receiving kickbacks for referring

homebuyers to Benchmark Bank and to Willow Bend Mortgage Company for their

mortgages. Under the agreement Taylor is also prohibited from engaging in

future real estate settlement services including mortgage origination." As a

reminder: MND

[http://r20.rs6.net/tn.jsp?e=001njSNrfn8RVNm0MdVCev_TP9Wrp8iKiljHvVk8p9YhDUM

iLpLu_7owwsjhm3Coo2fkdWtq8tNoJkgzvNyCsvuzK_Q0IZvphaQ2D_V1KKy7VxHYr1dPjjGhh2l

6kSMn2HT5xTQqWHATiGSNkJpOUuXs-LtXFwdpkzJedbX7yYraEY=].

Three down, fifteen to go. Huh? UBS Americas will pay $885 million to settle

ongoing litigation with the Federal Housing Finance Agency (which oversees

Freddie Mac and Fannie Mae) over the bank's sale of toxic residential

mortgage-backed securities to F&F. The FHFA has alleged that the various

banks violated federal and state securities laws when selling private-label

RMBS to the housing agencies. Under the terms of the settlement, UBS will

pay approximately $415 million to Fannie and $470 to Freddie to resolve

certain claims related to securities sold to the entities between 2004 and

2007. You might remember some of these names, as the settlement agreement

covers claims between FHA and UBS in the following cases: FHFA v. UBS

Americas, Inc.; FHFA v. Ally Financial Inc.; FHFA v. Countrywide Financial

Corp.; and FHFA v. First Horizon National Corp. Of the 18 suits filed in

2011, FHFA has now settled three cases and remains committed to

satisfactorily resolving the remaining

suits: UBS

[http://r20.rs6.net/tn.jsp?e=001njSNrfn8RVNcX_ubH7wtz2Iky2YtRRJiSqTPsqjKMVJh

74XhzGvj-vaV1cX8k6yT9Onl2LUQRtvgUDoDDO2Yp0_zJAMMt6wkp5Earw_zHrQ5MpS7ELRoFT_J

vnkikSiiBMEJGvqn25H3WXnF6u56I50CxH7qkpANpouz6a52uvaobYhcgoxbwo-b3dcMP7th16ck

Y8GMEjgHPnbv8xfAGBWXq0KOg9MOm4EgNZjkS94=].

Under the "two steps forward, one step back" category, Lender Processing

Services

(LPD) will be reporting a huge spike in the U.S. loan delinquency rate when

it releases its Mortgage Monitor for June. Mortgage News Daily reports, "the

total delinquency rate for June was 6.68 percent, a 9.91 percent increase,

month over month, in the rate which includes loans 30 or more days past due

but not in foreclosure. This jump follows five straight months of decline.

The company offered no explanation for the surge beyond referring to it as

"seasonal". There were 3,328,000 mortgage loans in the 30+ delinquent

category at the end of June. Of these loans, 1.3 million are seriously

delinquent, that is 90 or more days past due."

Let's take a look at some recent vendor, investor, and agency news - it just

keeps flowing.

Money manager Hank Paulson sure likes Radian, given its recent stock

performance.

"When Radian Group Inc. sold shares in 2010 to bolster capital, the buyers

lost more than a third of their investment in just two months. The mortgage

insurer's offering in February, backed by money managers including John

Paulson, is proving second chances can work. Radian has rallied 73 percent

to $13.87 since selling shares for $8 apiece as well as debt in February.

Rival MGIC Investment Corp. has followed a similar pattern, slumping after a

2010 offering and surging 45 percent since this year's $1.15 billion capital

raise." Here you go: RiskReward

[http://r20.rs6.net/tn.jsp?e=001njSNrfn8RVPtp96WqvYpOoRZEcg4vKZDZJdT6_Kq1dqF

5JAAYcRReYaOr6VzpU0H8l6UwXulyTf195P6n9fDuQcZTogfbXF6zexysS4A7ZbkfOVNsWhHFqWy

Ju_nADzPJct_BQsRuZ8sycwi8T6VJlizx5Fgor1n05_Q0Zhm5_Jia5d0Ajmz1PARctIH_C6egoDQ

GseHsJ_xSCGBZ2QY1LDieu8t5Ig4].

Florida Capital Bank Mortgage (FCBM) will now offer financing to purchase

transactions in the State of Alabama with an unexpired Right of Redemption

after a Foreclosure.

Documentation to protect the lender from loss should the right of redemption

be exercised will be required. The required documentation will depend upon

the difference between the foreclosure sales price and the loan amount of

the new lien. The Guidelines are posted on the FCBM website www.flcbmtg.com

[http://r20.rs6.net/tn.jsp?e=001TWE4PRNArIxzxRlHVGvYkNWRNaD4KR2bszxrg-DyQSr2

mJu84IM_INz_4EZTMk8HpTsE8s5g02AvDF_ztxo90H9VCHI-PFIaKY7ZkDVJ3NSIFSno5rxJvw==

FNMA has published what appears to be a "just checking in" memo on the

CFPB's QM and Ability to Repay regulation, which is scheduled to go into

effect on January 10th of next year. Until the CFPB issues a final rule on

Refi Plus, DU Refi Plus, and loans sold under written variances to the

Selling Guide, Fannie will continue purchasing these loans but will be

monitoring market dynamics in the meantime to assess the possible need for

any underwriting, eligibility, and/or pricing changes.

The post-purchase file review, repurchase requirements, and/or updates to

the reps and warrants framework are also being assessed as they pertain to

the new regulations.

For those having difficulty resolving Fatal Edit 72 (the Appraisal Document

File Identifier field) when delivering loans to Fannie, a new job aid is

available via the Fannie website.

FNMA has made it a requirement that servicers accept modification assistance

from a Housing Finance Agency for mortgage loans in connection with any FNMA

modification, whether or not principal forbearance is required. In cases

where the borrower completes a Trial Period Plan but the servicer does not

receive the HFA funds before the due date of the first modified payment, the

servicer must re-evaluate the borrower's eligibility for a modification,

and loans for which borrowers are no longer eligible must be sent to Fannie

for a final decision. If the borrower does qualify for a modification per

the servicer's assessment, the servicer is not permitted to require the

borrower to complete a new Trial Period Plan, even if the modified monthly

payment is higher than it would be in a Trial Period Plan. This policy goes

into effect on October 1st.

Cornerstone reminds its correspondent lenders that it will allow a maximum

total of 28 days' worth of one-week extensions. After this, the loan will

be subject to re-locking at the worse of current market or original pricing

minus the extension fees. Jumbo loans are subject to a limit of two

extensions that may not exceed 30 day per investor guidelines; anything that

needs to be extended past this point will be re-locked at worst case

scenario.

Risk management firm Secure Settlements Incorporated has begun testing a new

closing table quality control tool that captures closing table loan date,

re-enforces quality control measures, and offers resources for educating

settlement agents about best practices and what to look for in terms of

fraud schemes and money laundering. The mobile app, which is slated to be

launched within SSI's vetted settlement network on September 1st, is

compatible with both Droid and Apple.

Well, rates continue to chop around these levels - maybe consumers will

become accustomed to them, and come back in. Yesterday, in economic news,

Weekly Initial Jobless Claims rose by 7K in the latest week to 343K, above

the 340K expected. Durable Orders had an upside surprise surging by 4.2% in

June, well above the 1.8% expected. And the Treasury auctioned off $29

billion of 7-year notes. The increase in jobless claims was attributed to

annual auto-plant shutdowns. Durable Goods, always volatile, was the main

culprit in the sell-off - perhaps an increase in demand will help boost

manufacturing and the economy in the second half of the year.

By the time the dust settled Thursday, 10-yr T-notes reached the highest

level in more than a week, and 30-yr T-bonds approached the highest level in

almost two years.

Prior to that, however, agency MBS prices had improved. As far as volume was

concerned, mortgage banker supply was near the 30-day moving average, per

Tradeweb. So if lenders are selling about $1.5 billion a day, and the Fed is

buying about $3 billion a day, the supply/demand picture is still pretty

good for mortgages. There is little news of consequence today. The current

yield on the 10-yr is 2.57%, basically unchanged from Thursday afternoon, so

don't look for a lot of change on rate sheets this morning.

Retired person's job interview:

Interviewer: "What would you consider to be your greatest weakness?"

Applicant: "Honesty."

Interviewer: "Honesty? I don't think honesty is a weakness."

Applicant: "I don't give a ---- what you think."

If you're interested, visit my twice-a-month blog at the STRATMOR Group web

site located at www.stratmorgroup.com

[http://r20.rs6.net/tn.jsp?t=4bt6vynab.0.slt5iqfab.zy6u9cdab.8721&ts=S0936&r

=3&p=http%3A%2F%2Fwww.stratmorgroup.com%2F].

The current blog is, "A Little Technical Knowledge About REITs." 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

What happened yesterday?

Mortgage backed securities (MBS) lost -53 basis points from Tuesday's close which caused 30 year fixed rates to move higher.

The benchmark FNMA coupon has now lost -88BPS from Monday's highs.

MBS were under pressure right from the first trade as they tanked -34BPS right out of the gate.Traders have been selling off of their positions as they no longer believe that the benchmark FNMA 3.5% August coupon can sustain their lofty levels of Monday's intra-day high.

New Home Sales hit a five year high as they rose 8.3% in June. The seasonally adjusted annualized rate of 497K units is still a very small piece of the housing picture and so this report doesn't have the impact on pricing that it once did. But still it was positive economic news and did provide a light amount of pressure on pricing.

The sell off of MBS was accelerated in response to the Flash Eurozone PMI rose to 50.4 (an 18th month high). A reading above 50 shows economic expansion. U.S. based bonds such as MBS have been a huge beneficiary of European weakness - so when European data surprises to the upside, U.S. bonds sell off. Which is what happened here.

We had a 5 year Treasury note auction and the results were released at 1:05EDT. Results: $35 billion at 1.41% with a bid-to-cover ratio of 2.46 which is weaker demand than the 2.57 ratio of the last 10 year note auction. This also pressured MBS and drove us to our worst pricing levels of the day at 1:46EDT which was -82BPS from yesterday's close.

But there was some good news - we did find a new temporary bottom and did get a nice bounce of that support level as MBS rallied from -82 BPS to -54BPS by 3:00EDT. That is a +28BPS improvement in pricing from our worst levels of the day.

Wednesday, July 24, 2013

Mortgage Banks Continue Expanding

http://globalhomefinance.com

It is hard to drive by a corner without seeing a gas station or a bank these

days.

That doesn't mean banks are all huge, especially here in Colorado, but a few

of them are. The FDIC tells us at the end of March that there were about

7,000 banks in the U.S., but that the 19 largest banks in the United States

held 61% of the

$14.42 trillion of assets controlled by all domestic commercial banks and

savings institutions. Each of the 19 banks has at least $100 billion of

assets. (It has been several years since a new bank was formed from

scratch.)

But mortgage banks are continuing to expand. Southern California's JMAC

Lending, around since 1997, is searching for wholesale AEs in California,

Nevada, Arizona, Oregon, Washington, Virginia, and California. JMAC funded

$3.2 billion in 2012, has a full product line-up, and stresses quality over

quantity for its growing servicing portfolio. JMAC is also searching for

correspondent partners to originate its jumbo products (contact Anne Nguyen

at anne@jmaclending.com [mailto:anne@jmaclending.com] for more information

on JMAC's jumbo program.) For more information on JMAC, visit JMAC

[http://r20.rs6.net/tn.jsp?e=0014oCYsUPFmVV6qjv9S9D2ORHl9vynsPhRkpFv4O6rAN3x

HIZhPt09_3Wo3EIpbEwdMrGF9ycmsqSesqqxdXbyB-M_lKxMqo87q3f_2jTt2SDVIQiukm29XCrG

PCV_zXgj]

and to submit a confidential resume, or for more information, contact

hr@jmaclending.com [mailto:hr@jmaclending.com].

And Fairway Independent Mortgage Corp. is searching for a VP/AVP of

Secondary Marketing.

This position, located in Illinois, is primarily responsible for managing

the risks associated with Secondary Marketing including pipeline and

interest rate risk management, pricing, hedging, trading, and loan sales to

maximize profitability. The candidate will evaluate current methods for

managing risk and Secondary Marketing operational processes and makes

recommendations, and will be responsible for loan sales including servicing

retained, servicing released, correspondent investor AOT/DTs, Agency whole

loan cash sales, co-issue transactions, and specified pools; including

issuing Fannie, Freddie, and Ginnie securities. The ideal candidate should

have 5-10 years secondary marketing experience, experience issuing Fannie,

Freddie, and Ginnie securities, and a solid knowledge of pricing structures

and interest rate risk management.

Fairway's production in 2012 totaled $6.0 billion. For questions, to see a

full job description, or to submit a resume, please contact Mike Blake at

mblake@fairwaymc.com [mailto:mblake@fairwaymc.com].

Here's a quick compensation tidbit. Often, the branch manager is the biggest

producer in the branch and according to the STRATMOR Compensation Survey,

about 40% of branch manager pay in 2012 was incentive on personal

production. Branch managers are most often paid on the same tiers as Loan

Officers for personal production and then an override on other branch

production. (For more information about branch manager compensation, contact

STRATMOR at nicole.yung@stratmorgroup.com

[mailto:nicole.yung@stratmorgroup.com].)

No one wants to be mentioned in a speech given by Richard Cordray, but

Castle & Cook's Matthew Pineda and Buck Hawkins were. The Consumer Financial

Protection Bureau filed suit in federal court against Utah's Castle & Cook

Mortgage, alleging it steered customers into higher interest rate loans,

based on resulting bonus incentives, violating rules put into place back in

2011. The CFPB is not pushing for C&C (22 states, $1.3 billion in 2012) to

exit the business, but has asked the court to end the firm's loan officer

compensation practices and to provide restitution along with civil

penalties. The CFPB claims Castle & Cooke, as well as Pineda Hawkins,

violated the Federal Reserve's loan originator compensation rule, which had

a compliance date of April 6, 2011. The rule prohibited compensation based

on loan terms, including those that adjust pay for higher interest rates.

Bureau investigators claim Castle & Cooke's quarterly bonus program violated

this rule by paying 150 loan officers higher levels of bonus compensation

for distributing more expensive loans. How much are we talking?

In a statement, the bureau wrote: "The average quarterly bonus ranged from

$6,100 to $8,700. By contrast, those loan officers who did not charge

consumers higher interest rates did not receive quarterly bonuses. The CFPB

estimates that more than

1,100 illegal quarterly bonuses were paid and that tens of thousands of

customers may have been upsold since April 2011."

The CFPB also alleged Castle & Cooke violated a rule forcing companies to

retain compliance records for a certain period of time. The bureau claims

Castle & Cooke failed to record what portion of each loan officer's

quarterly bonus was the result of a particular loan being issued. Here is

what the public sees: HomeTownNews

[http://r20.rs6.net/tn.jsp?e=0014oCYsUPFmVVk6S8wbAtMX6wpE07IMvFLX9HreH7WbjM0

ANVHlUcjaMPG6o3BSBCm-UDoDtoCntHz9fQ6crdcqobGhSU1Y5ekglH55r_56MWKqm1UW9Sc6vbD

BRwulX5ZESGKplvCmY_6roUoWgRuDNbWKqw1ptyqBFD_cn4w0FEHWlObgx-XVft6knjPZxzXLLtf

1Z0Fk4Ybm5lFZuavZw==],

and here is the CFPB release

[http://r20.rs6.net/tn.jsp?e=0014oCYsUPFmVVIaMe8MJvlkacIH9uZEDx8NUzlaLCsYlpw

uFJVwbljYjTGv5ViX2mSPadMx1qjKSG97Evznsj6ZtiCNs9zjGN1HUJJpoc7emV8sjuNrzZlTbSM

2xkslHqnL3qt421ClfCSqtRqai0f8vBJMyjRHK7PqXSGesProQjRIGYQTDYC5OTwbfPljUfWTFAg

0oVOadbQVX6hR-GzOArcoUVIEZnodOr28FbECYEU3ky846bzHMdu6R9MSjrF_lAtiDw-HkPlpfbR

WKo8WEGJzyaExJp1].

"Rob, is there anything wrong with me paying my LOs 70% of what they're owed

on a loan, and then spreading the remaining 30% out over their next few

closings?"

As always, I recommend speaking to an attorney that specializes in

compensation.

In my uneducated opinion, putting a portion of the LOs compensation into a

"bank"

and then spreading it out over the next few fundings is indeed something I

have heard of, and it is probably legit.

Here's an interesting development. "Rob, have you heard of a new position:

'Director of Marketing'? Supposedly companies, in avoiding the LO name, have

created a position whereby unlicensed loan officers, often high volume

originators, are moving from banks to the non-banking sector. They do not

discuss interest rates, but perform all other duties." First, no, I have not

heard of this position. And second, in my opinion, the long term prospects

are slim of companies "trying to get around"

some regulation or legal verbiage.

New residential applications continue to decline. The MBA reported that last

week apps were down 1.2% from a week earlier. The refinance index fell 1%

from a week earlier to reach its lowest level in two years, driven by a 12%

decline in the government refinance index while the conventional refinance

index rose 2%. (Purchases were down 2 %.) Refi apps were unchanged at 63% of

all apps, ARMs were 7%.

The headlines, besides a royal baby preparing to make an appearance, show

that BB&T and Fifth Third saw record residential mortgage production during

the 2nd quarter, in addition to great results from Wells Fargo, Chase, and

Bank of America. That is very good news, but the markets notoriously look to

the future, and analysts are concerned about the 3rd and 4th quarters. KBW,

a Stifel company, viewed JPM's mortgage results as better-than-expected,

while WFC's results were somewhat mixed.

"JPM's gain-on-sale margin was up quarter over quarter, increasing 31 bps to

2.62% from 2.31%, and the net mortgage banking margin (which includes

expenses) increased

38 bps to 1.19% from 0.81%. Wells Fargo's gain-on-sale margin declined 35

bps to 2.21% from 2.56%, which is more in line with what we are expecting

for the industry.

JPM's mortgage origination volume of $49 billion was down 7% QoQ and WFC

reported volume of $112 billion, up 2.8% QoQ. We are generally expecting

moderately lower volumes for the industry, while the Mortgage Bankers

Association (MBA) is forecasting that industry volumes will be up 2.5% QoQ.

WFC noted that its application pipeline of $63 billion at quarter end was

down from $74 billion at March 31. WFC reported that purchase applications

increased to 46% from 35% in 1Q, suggesting that purchase applications on a

dollar basis were up 37%."

But there is some good news out there. First, MGIC Investment Corp. posted

its first quarterly profit in three years. MGIC is the second-largest U.S.

private mortgage insurer, and it, and the other MI companies, has benefited

as fewer people defaulted on their home loans: the number of delinquent

loans fell 24 percent in the second quarter to their lowest level in five

years. (And, of course, all the MI companies are increasingly grabbing

market share from the Federal Housing Administration.) The last profit that

MGIC reported was from early 2010, and its recent cumulative loss is $5.3

billion.

Second, Radian announced that it has seen improved financial results in the

quarter and the first half of the year. Chief Executive Officer S.A. Ibrahim

reported, "Compared to the second quarter of last year, our new mortgage

insurance business written grew 60% and we reduced our inventory of primary

delinquent loans by 21%. The loss ratio for our mortgage insurance business

was approximately 70% for the second consecutive quarter, and the mortgage

insurance loss provision for the first half of 2013 reached its lowest level

since the first half of 2007." Radian, however, did report a net loss for

the 2nd quarter of $33.2 million. S.A. continued, "Also in the second

quarter, we achieved an important milestone with our high quality,

profitable new business written after 2008 now representing 53% of our

primary risk in force, outweighing our legacy mortgage insurance book. This

improved composition has helped our mortgage insurance business achieve

profitability, absent the impact of fair value gains and losses, for the

quarter and six months."

The third piece of good news, kind of, is a report from the Wall Street

Journal that regulators "are preparing to relax" the QRM ("skin in the

game") rules. The MBA and others want QRM, if it happens at all, to match

existing QM rules. "The watchdogs, which include the Federal Reserve and

Federal Deposit Insurance Corp., want to loosen a proposed requirement that

banks retain a portion of the mortgage securities they sell to

investors...Advocates of more stringent standards said that a broad

exemption to the risk-retention rules would undermine the initial goal of

imposing market discipline. 'My sense is that Washington has lost its

political will for serious reform of the securitization market,' said Sheila

Bair, who served as FDIC chairman until 2011." The industry has been

concerned, since Dodd-Frank stipulated that issuers should retain 5% of all

mortgage-backed securities issued without government backing. "The idea was

to ensure that the firms had 'skin in the game,' addressing problems that

arose when lenders didn't pay close attention to the quality of loans issued

as securities so long as the bonds could receive triple-A ratings. But

Congress also created an exception to the skin-in-the-game requirement.

Lawmakers directed six regulators to specify certain loans-such as

traditional 30-year, fixed-rate mortgages-that wouldn't be subject to the

new rules.

At issue now is how to define this so-called qualified residential

mortgage."

Asking any lender to set aside, or keep, 5% of whatever it securitizes would

freeze the industry - the intent is good, but for a small or midsize lender

to, for example, have $50k in cash for every $1 million in jumbo loans it

produces would be game-changing.

But there is talk that banks would have to retain 5% only of mortgages that

allow borrowers to make "interest-only" payments or that don't fully

document a borrower's ability to repay a mortgage-a much smaller portion of

the market that includes the riskiest loan products that caused much of the

crisis-time losses. Reporters Nick Tirimaos and Alan Zibel noted, "To be

exempted those loans would still have to meet other standards issued earlier

this year by the Consumer Financial Protection Bureau on Dodd-Frank's

requirements that banks ensure a borrower's capacity to repay a mortgage."

There has been plenty to criticize: the complexity of the new rules would

likely raise costs for lenders and consumers, costs and restrictions will

dampen any housing recovery, there is a good argument that down-payment

standards should be set by the market and not by regulators, and so on.

Opponents have argued that shoddy loan products and lenders' carelessness in

determining a borrower's ability to repay a loan-not down payments-were

bigger contributors to the mortgage crisis.

Any market chatters pales in comparison to all this news. The Fed is

continuing to buy agency MBS, originator volumes continue to be "below

normal" - but it is easy to argue that there is a new normal. (That being

said, traders reported that volume was just 68 percent of the 30-day moving

average, coming in at $1.2 billion consisting largely of 30-year 4%

securities.) At the end of the day MBS prices were worse about .250, and the

10-yr T-note was down about the same and closed at a yield of 2.52%.

Don't look for a big move today either: besides company earnings coming in,

the only news will be New Home Sales (expected to increase about 1%). That

being said, rates have crept up a little, and the 10-yr is sitting around

2.56%, and MBS prices are worse about .125, based on some decent earnings

news.

The mother-in-law arrives home from the shops to find her son-in-law boiling

with anger and hurriedly packing his suitcase.

"What happened?" she asks anxiously.

"What happened!! I'll tell you what happened. I sent an email to my wife

telling her I was coming home today from my fishing trip. I get home... and

guess what I found? Yes, your daughter, my Rachel, with a naked guy in our

marital bed! This is unforgiveable, the end of our marriage. I'm done. I'm

leaving forever!"

"Calm down, calm down!" says his mother-in-law. "There is something very

odd going on here. Rachel would NEVER do such a thing! There must be a

simple explanation.

I'll go speak to her immediately and find out what happened."

Moments later, the mother-in-law comes back with a big smile on her face.

"I told you there must be a simple explanation - she didn't receive your

e-mail!"