CFPB Openings & Salaries; LO Comp Splits & Referral Fees; Why do people move?

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This week is a busy travel week for me (Minneapolis, Kansas City, and Atlanta), but people are also busy permanently moving; that's a good thing, and according to the U.S. Census Bureau, who tracks population movements (and probably phone conversations too..."who said that?"), there are a few common reasons people toss their good china in the box their microwave came in, and drive to another city to live. According the Bureau, of the 35.9 million people who moved between 2012 and 2013, 17.2 million, or 48%, gave a "housing-related" reason for moving - meaning they moved to a better dwelling. Males are more inclined to move for job-related reasons than females; the higher the level of education you have, the more likely you are to move (employment mobility, transferable skills, etc.). Married couples were the least likely to move for family-related reasons...unless there's a divorce. Intra-county moves were typically for housing-related reasons, while inter-county moves and moves from abroad were more for job-related reasons. I believe a more interesting study, however, would be on the excuses your friends give you when you ask them if they'd be able to help you move - Reasons for Moving: 2012 to 2013.

Finishing off the personnel topics, people are always amazed at the CFPB salaries and job postings. But hey, who wouldn't want to be an examination supervisor and make nearly a quarter million a year.

Here some questions:1.  “I know that non-QM loans are not the same as subprime loans from years ago. But with all this talk about non-QM lending, could you remind me about what the ATR (Ability to Repay) criteria are?" Sure - that's easy. At a minimum, creditors generally must consider eight underwriting factors: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. Creditors must generally use reasonably reliable third-party records to verify the information they use to evaluate the factors.

2. “what do you hear about loan officer partners splitting compensation?" Well, as always, it is best to consult with your in-house compliance department, in-house council, or attorney on retainer. I won't pry, but this sounds a question from an LO who doesn't like the answer you are hearing from your compliance department. It could be that the problem at your shop has more to do with administration and management than compliance. As best I can tell from hearing attorneys discuss this, the LO Comp Rule is skeptical of splitting arrangements because there is a concern that originators at different commission rates might pass loans back and forth to get around the Rule. That said, the Rule doesn't prohibit a situation where two loan officers form a team to originate loans and agree to split commissions on those loans in some fixed formula such as 50/50 or 80/20. For that to work, however, the company must ensure that the split formula applies to all loans originated by either member of the team and the team only has one commission rate for all loans. In essence, the team is treated as if it was one loan officer with two commission checks. Once again, the basic tests are fairness to the borrowers, transparency, and consistency. 

Along those lines, "one of the toughest hurdles in recruiting today is the fact that most LO's cannot begin building a new pipeline under the new employer's name due to the NMLS licensing system. However, I wondered if there is any flexibility if the new LO begins referring new deals to the new employer and receives a legitimate referral fee? I'd be interested in hearing how others might are dealing with this issue as it sure makes it hard to move knowing you have to start from scratch." As you know, referral fees are prohibited under RESPA to non-employees, and commission splitting is suspect and problematic under the LO Comp Rule.  State and federal NMLS licensing can pose another problem for timing.  Nevertheless, there are ideas to address the issues you raise, but any attorney (not me) would want to understand your unique situation and needs before offering anything. I don't think there is a "one-size-fits-all" solution. This issue may be timely in light of the recent CFPB consent order against Stonebridge title. 

As I mentioned, it is best to consult your attorney on referral issues, especially as there are exceptions. For example, are processors allowed to get a spiff for referrals? RESPA prohibits paid referrals, not all referrals. Some say that the exception is to allow LOs to refer loans to their employer and permits the employer to pay its LOs however it pleases. Through the exception, RESPA only prevents payments to third parties.  Differing commissions to an LO based on source does not provide a thing of value to a third party for a referral so there is no RESPA issue. If the MSA is compliant, RESPA is agnostic about how the LO is paid, right? Does the commission structure pass any LO comp proxy tests? Seek legal council and don't rely on your friendly neighborhood commentary writer!

Investor & vendor news and updates, in no particular order:

 

First off, in Friday's commentary I noted CMG Financial's offering an Asset Based Jumbo Program for self-employed borrowers. (Self-employed income is not verified, and is for primary & second Homes. This is a "No Income verified program" for self-employed borrowers, and liquid assets, including business, are verified for qualifying purposes, and it is not an asset depletion program. There are specific minimum asset requirements for each loan tier.) Lenders should know that CMG Financial offers this product through its wholesale and retail lending divisions currently and plans to make it available through its correspondent lending division in the future.

Wells Fargo Funding announced to its correspondent clients, loan qualification data will be available to Sellers on all loans approved using its Prior Approval Underwriting option. Sellers will receive a faxed copy of the Wells Fargo Funding Income and Ratio Calculation once all prior-to-close conditions are clear and the loan is cleared for funding. Updated mortgage credit certificate documentation requirements, effective May 5, if the borrower needed the monthly subsidy to qualify, loan must contain all available MCC documents: copy of MCC or Commitment Letter, copy of W4 and worksheet, MCC worksheet. If the MCC is not included in the loan package prior to purchase, it must follow as a trailing document. Updated Co-op blanket mortgage requirements for conforming and non-conforming loans have been updated for loans on or after June 2.

Equifax Inc., a global information solutions company, announced the availability of Prescreen Direct™ with Property, which "helps to improve the accuracy of targeted marketing campaigns for lenders, enabling them to better match and offer mortgage and home equity products to consumers who are most likely to make a purchase." 

Turning to the markets, rates are pretty steady. Chaos in Iraq is driving oil and gold prices up, and the "flight to quality" is supposedly helping our rates. But in terms of economic releases last week, U.S. data for the week were consistent with views of a moderate Q2 GDP rebound following a dismal Q1: business inventories were up, motor vehicle sales are doing well, and retail sales increased by 0.3 percent in May, but jobless claims rose. Some are wondering if the U.S economy has hit a speed bump. Consumer spending rose at a 3.1 percent annualized pace in the first quarter, but the gain was concentrated in health care spending and utilities, which are temporary.

This week we have a lot on the menu - all of which may be trumped by whatever happens in Iraq, Russia, China, and so on... Today is Empire Manufacturing and the Industrial Production and Capacity Utilization duo. Tomorrow will be the Consumer Price Index (every month people seem worried about inflation, when inflation hasn't been a problem in many year years), and the Housing Starts and Building Permits couplet. On Wednesday, June 18th, the Federal Open Market Committee (FOMC) will announce its policy decisions and brief comments on the economy. The FOMC announcement tends to be the most influential event for the markets so pay attention! Thursday is weekly Jobless Claims, and on Friday the 19^th is the Philadelphia Fed Survey and Leading Economic Indicators. For numbers, "thanks" to Iraq, rates are a little better today, with the 10-yr at 2.59% (versus Friday's close of 2.60%) and agency MBS prices better by "a hair". 

Earlier this morning at 8:30 the June NY Empire State manufacturing index was better than expected at 19.28 with forecast of 15.0 and better than May’s 19.0 read; the index is the highest in 4 yrs. At 9:15 May industrial production was expected at+0.5% as reported +0.6%, April production was revised from -0.6% to -0.3%, another good report. May capacity utilization, also at 9:15 was better than forecasts at 79.1% compared to 78.9% expected and 78.6% in April. At 10:00, another good report; the June NAHB housing market index was thought to be at 47 from 45 in May, as reported the index jumped to 49 but builders said they still faced headwinds; Like the ISM reports, any reading under 50 is considered contraction).

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FNMA 4.0% 105.22 now +2 bps

09:31 +2
Open 105.20

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This Week’s Calendar:
       Monday,
          8:30 June NY Empire Stat index as reported 19.28
          9:15 May industrial production as reported +0.6%; May capacity utilization as reported 79.1%
          10:00 am NAHB June housing market index as reported
      Tuesday,
          8:30 am May housing start (-3.4% at 1.036 mil)
                       May building permits (-2.7% at 1.062 mil)
                       May CPI (overall and core both +0.2%)
      Wednesday,
          7:00 am weekly MBA mortgage applications
          8:30 Q1 current account balance (-$99.8B)
          2:00 pm FOMC Policy statement
          2:30 pm Janet Yellen press conference
      Thursday,
          8:30 weekly jobless claims (-4K to 313K)
          10:00 am June Philly Fed business index (13.0 from 15.4 in May)
                         May leading economic indicators (+0.6%)

With the FOMC meeting and the Fed’s GDP forecast on Wednesday we don’t look for much overall change between now and then. Iraq will continue to trouble investors as it is likely the situation will get more tenuous before it might calm down. The US is considering use of military force but no troops on the ground according to the President. Obama has ordered an aircraft carrier into the gulf for likely air support of the Shiites. If you sit back and review the various situations in the mid-east and Eastern Europe it isn’t a nice picture; Syria, Israel, Ukraine, Iraq and to a lesser extent Thailand, China and Vietnam---all in various troubling situations; the world is presently facing a lot of global issues that do in one way or the other have a direct impact on investor thinking.

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Interesting Non-Agency/Jumbo News; CFPB Fines a Title Company

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Happy Father's Day!

We're racing toward the Summer Solstice, with the most daylight in the Northern Hemisphere, but Happy Friday the 13^th AND a full moon! This combination won't happen again in North America until 2049, another thirty five years. Maybe by then some of the current mortgage bankers and Realtors may have retired. But probably not.

The European Space Agency is developing a Doomsday Arc on the moon. This "ark" would be a database containing information on things like language, crop growing, and modern technology. Ideally, the base would allow remaining earthlings access to information ensuring the survival of the human race. The Consumer Financial Protection Bureau contributed its most recent Semi-Annual Report to the cache of items to be located on the moon. I can't even grow herbs in my kitchen window, and scientists believe we could colonize the moon? Back to mortgage....although there's nothing too earth shattering in the report, one statistic did catch my eye: of the type of complaints being logged by consumers, 73% of complaints are Incorrect Information on credit reports; more specifically: information is not that of consumer, account terms, account status, personal information, public record, reinserted previously deleted information. 

Of some interest to GNMA issuers is the recent mortgage letter HUD Issue ML 2014-09.  The purpose of the letter is to inform lenders about changes to FHA's systems that alter the way lenders execute post-approval updates and complete FHA's annual recertification process. The primary change detailed in HUD's letter (which became effective May 27^th), is with the deployment of the Lender Electronic Assessment Portal (LEAP). LEAP, which is accessible through FHA Connection, will affect the way originators go through post-approval updates & business changes, annual recertification, financial data templates, and agreed upon procedures. And while we're talking about GNMA issuance, more than $21.66 billion in Ginnie Mae II single-family pools were issued in April, while Ginnie Mae I single-family pools totaled nearly $449 million. In addition, Ginnie Mae issued nearly $1.66 billion in multifamily MBS in April. Issuance for the Ginnie Mae Home Equity Conversion Mortgage-Backed Securities (HMBS), included in Ginnie Mae II single-family pools, was $395 million. 

Residential mortgage-backed securities may make a comeback as demand increases for home equity lines of credit. Basel III requires high levels of capital to be held on balance sheets for these loans, so lenders are turning to securitization and exploring investor interest: Reuters/International Financing Review. 

And congrats to JMAC Lending, the #1 lender in WinWater Home Mortgage's $250 million residential jumbo deal. Yes - finally some news in non-agency issuance! Kroll Bond Rating Agency has issued its pre-sale report WinWater's first securitization offering (WIN 2014-1). WinWater is "a residential mortgage conduit aggregator focused on opportunities in the non-agency jumbo sector." The pool is 306 loans with an average balance is $815,247, average FICO score of 753, and an average LTV of 71%. 65% of the loans are on California properties (about 19% each from LA and SF areas), 8% from Washington, and 3% from Texas. Not surprisingly Kroll notes that the concentration of loans in California is a concern of the deal. But heck, it is hard to put together a jumbo deal without California loans, and most of the loans come from California-based lenders: JMAC Lending: 14%, RPM Mortgage: 13%, and Opes Advisors: 10%, followed by Guaranteed Rate, Paramount, and Texas' PrimeLending. Cenlar services nearly all of the loans, and the master servicer and custodian is Wells Fargo. 

Redwood Trust announced that it had entered into an agreement with the Federal Home Loan Bank of Chicago (FHLBC) to create MPF Direct, a new mortgage product offered by the Mortgage Partnership Finance (MPF) program. The program will allow FHLB members that participate in the MPF program to deliver eligible high-balance loans to Redwood. Under the agreement, Redwood will be the only investor in MPF Direct loans for three years. The MPF Direct program will allow FHLB members that participate in the MPF program to deliver eligible high-balance loans to Redwood Trust. The MPF program was set up by FHLBC in 2000 to provide an alternative for its members who did not want to fund mortgage loans on their own balance sheets and other FHLBs subsequently joined the program. These loans are retained on balance sheet by the FLHB so it manages interest rate risk and prepayment risk.  

The participating financial institution (PFI) that sells the loan enters into a risk sharing agreement which obliges it to cover losses after they reach a certain level. The FHLB also has a newer program called MPF Xtra through which the PFI can transfer all risk including credit risk. The new MPF Direct program will focus on high loan balance loans (the traditional MPF program is only for conforming or government loans). These high-balance loans will now be acquired by Redwood, therefore creating a new way for Redwood to very efficiently acquire jumbo loans. Analysts believe that one of the strongest selling points of this program is that Redwood, unlike most buyers of jumbo loans in the secondary market, is not a potential competitor for the customers of the member banks. 

The Consumer Financial Protection Bureau ordered a New Jersey company, Stonebridge Title Services Inc., to pay $30,000 for paying illegal kickbacks for referrals. CFPB Director Richard Cordray stated that, "Kickbacks drive up the costs of getting a mortgage and put law-abiding companies at a disadvantage. The Consumer Bureau will continue to take action against companies that seek to attract consumers through illegal schemes." The Bureau charged that Stonebridge paid commissions to more than twenty independent salespeople who referred title insurance business to Stonebridge. "Stonebridge solicited people to provide it with referrals of title insurance business, offering to pay commissions of up to 40% of the title insurance premiums Stonebridge itself received. These practices violated Section 8 of the Real Estate Settlement Procedures Act (RESPA), which prohibits kickbacks and payment of unearned fees in the context of residential real estate transactions. Paying commissions for referrals is allowed under RESPA if the recipient of the payment is an employee of the company that is paying the referral. In this case, although the individuals received W-2 tax forms, the Bureau's investigation determined that these individuals were independent contractors and not bona fide employees." 

 

Let's see what is happening with relatively recent lender and investor news - it just doesn't stop.

 

This summer, LoanSouth Mortgage will begin marketing as BankSouth Mortgage, a name it legally adopted in 2011 after forming a joint partnership with BankSouth to continue the growth of residential mortgage services in greater Atlanta and the southeast. When LoanSouth became a wholly owned subsidiary of BankSouth, it continued doing business as (DBA) LoanSouth Mortgage. "Nothing about LoanSouth Mortgage or what customers have come to expect is affected by this transition," said Kim Nelson, CEO of LoanSouth Mortgage. 

Franklin American Mortgage Correspondent Lending has lowered its minimum FICO on conventional conforming fixed rate products from 640 to 620 on one unit, owner occupied properties with LTV >80%, effective with locks on or after 5/30/14. Its Minimum borrower contribution on conventional high balance transactions has also been updated. Effective immediately, borrowers required contribution has been reduced to 5% of their own funds for purchase transactions, as opposed to the previously required 10% of borrowers own funds. Delayed financing, flood zone determination, appraisal requirements, and other expansions, reminders and changes have also been updated. Contact your representative for full details. 

CMG Financial is offering an Asset Based Jumbo Program for self-employed borrowers. Self-employed income is not verified, and is for primary & second Homes. This is a "No Income verified program" for self-employed borrowers. Liquid assets (including business), are verified for qualifying purposes, and is not an asset depletion program. There are specific minimum asset requirements for each loan tier. CMG's asset based jumbo product requires no income documentation for self-employed borrowers, and borrowers are underwritten by verifying the required liquid assets (business accounts as well). At least one of the borrowers must be self-employed. Salaried borrowers will have their income verified if part of the loan. For more information contact Joe Brockman jbrockman@cmgfi.com. 

Mountain West Financial Wholesale announced changes in reference to CHDAP and allowable broker compensation. CalHFA recently announced that for all new CHDAP reservations subordinate to any first mortgage made on or after June 2, 2014, the first mortgage maximum allowable fees charged by a lender may not exceed the greater of 2% of the first mortgage loan amount or $3,000. As a result, borrower paid maximum compensation will be limited to 1.5%; Lender Paid Compensation is unavailable for CHDAP at this time. 

And MWF wholesale has also released information regarding multiple underwriting additions and changes on its VA, FHA and Conventional products. Updates include LP maximum number of financed properties on conventional products, and refinance transactions with property listed for sale. FHA high balance VOR/VOM updated guidelines to indicate: mortgage history of no lates in 12 months to be applicable to Refer and Manual UW only.  

Say all you want about the US economy - sudden overseas events quickly remind us how our markets can be moved by non-U.S. news. We did have a disappointing May Retail Sales report, but concern about military and political events in Iraq drove a flight to quality and an increase in oil prices. And higher oil prices produce a drag on the economy, also leading to lower rates - but I am sure every lender would rather have an economy that is doing well. But hey, the 10-yr rallied nearly .5 in price and current coupon agency MBS rallied .375. Remember that prices are determined by supply and demand, and if demand for loans is strong, and the supply is down, that tends to push prices higher and rates lower on a relative basis.

 

AM Tracking Quote

FNMA 4.0% 105.00 now -21 bps:

09:34 -21
Open 105.21

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This morning the scheduled news wrapped up with the Producer Price Index. PPI, a measure of inflation, for May was expected at +.1% and came in at -.2% - there just isn't a lot of wholesale inflation out there. Later we'll have the preliminary June Consumer Sentiment number, generally regarded as "second tier". Currently the 10-yr is 2.61% after a 2.59% close Thursday, and agency MBS prices are worse about .125. 

 

Yesterday markets were rattled on news out of Iraq that militants were gaining control of northern cities and were moving toward Baghdad. It is an ethnic issue between Sunni extremists eclipsing the power of Iraq's Shiite-dominated rulers, Shiite Iran sprang into action to aid its besieged Arab ally. It deployed Revolutionary Guards units to Iraq. US stocks fell, but the indexes were already suspect; crude oil increased over $2.00 on knee jerk reaction that oil supplies may be impacted. From what we hear Iraq oil may be threatened but with increased oil production in the US since the Iraq war has increased enough that a shortage is unlikely. For the moment, similar reactions in financial markets similar to Ukraine/Russia is supporting the bond market, also like Ukraine/Russia the fear factor will abate unless the US sends ground troops, and that is extremely unlikely. The 10 yr yield fell 4 bps on the news yesterday, early this morning its yield is up 2 bps from yesterday, suggesting little concern at the moment. In the wider perspective though, the situation in the Mid-East is gaining increase concern in the political sphere.

….”A militant Islamist group that has carved out control of a swath of Syria has moved into Iraq, conquering cities and threatening the Iraqi government the U.S. helped create and support with billions of dollars in aid and thousands of American lives. The group—known as the Islamic State of Iraq and al Sham—isn't a threat only to Iraq and Syria. It seeks to impose its vision of a single radical Islamist state stretching from the Mediterranean coast of Syria through modern Iraq, the region of the Islamic Caliphates established in the seventh and eighth centuries….” WSJ

At 9:30 the DJIA opened +20, NASDAQ +15, S&P +3; 10 yr at 2.63% +3 bp and 30 yr MBS prices down 23 bps from yesterday’s close. Yesterday in the last hour of bond and MBS trading (4:00 to 5:00 pm) MBS prices declined about 10 basis points from the levels we reported at 4:00. Given the trading in stocks and treasuries so far this morning, the knee jerk reaction yesterday on the Iraq news has waned.

The last of the data at 9:55; the U. of Michigan consumer sentiment index was expected to have increased to 83.0 from 81.9 at the end of May. The index fell to 81.2, not what the bulls would like to have seen but t is a very volatile series. The initial reaction took the DJIA from unchanged down 10 points. So far this morning, and it is early, there has been no directional movement in the stock market. The 10 yr note yield and MBS prices have gained a little from 9:30 levels.

 

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MBA reports on lack of profits for mortgage banks; Homebuilder's Misleading Ads

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$650,000 is a lot of money for many companies. That was the amount of the latest fine levied by the FTC on a Pennsylvania home builder. Yep, one day you're riding high with the slogan "Zip, Zero, Nada," as Heritage Homes Group claimed in ads on websites, and in newspapers, flyers, and direct mail, that consumers could finance their homes without a down payment or closing costs, and the next day your name is splashed all over the press. But borrowers were actually required to pay a "good faith deposit," settlement costs, and an annual fee, according to the complaint. Yep - be careful with those ads, folks - the FTC is committed to holding mortgage advertisers accountable.

Companies are certainly looking to expand their correspondent divisions. "Looking for innovation? Colorado's Mortgage Solutions Financial just announced its Certified Loan Program - removing risk for fraud and manufacturing defects from correspondent customers for only 10 basis points. This means a correspondent customer can take advantage of their incredible product offering - with no fraud or manufacturing defect risk - at a pretty minimal investment.  Mortgage Solutions is a direct seller/servicer to Fannie, Freddie, FarmerMac, and a Ginnie issuer, and offers products with zero overlays lending as FHA and VA intended it to be.  Need an IRRRL or Streamline with no score, no appraisal or AVM? MSF offers these. What's the catch?  None we have found." Check it out at MSF Correspondent Lending. And MSF continues to look for wholesale/correspondent AE's and retail branches across the country - as well as a mortgage industry recruiting specialist, who can help it continue MSF's growth.  Contact industry vet Greg Grandchamp at greg.grandchamp@msfhome.com.  "MSF is obviously doing something right over there."

In an effort to reduce expenses given sluggish conditions, U.S. Bank announced they have frozen all new hiring, cut nonessential travel and told employees in a technology unit they will have to take 1 week off without pay. And the CFO of Fifth Third Bank reported at a conference that the rollout of high-tech kiosks at its branches over the past 15 months has allowed the bank to cut 1,000 jobs (about 19% of retail banking employees.

(While we're on employment, obtaining a job at Goldman Sachs is difficult...let me rephrase that. Landing a job at Goldman Sachs is statistically improbable. I've been told only the most qualified candidates are even considered for openings in their analytics groups; groups which analyze and evaluate everything from bonds to equities, from political climates to actual climates, Goldman and their people do important quantitative work. Oh, and in their spare time they run regression analysis to determine the upcoming World Cup winner too.) 

Bank management is certainly trying to stay ahead of the cost-cutting and efficiency curve, and mergers and acquisitions continue at an astounding rate. (Research firm Coalition reports large banks in Q1 saw revenue from many activities drop 37% from Q1 2010. Experts say securities firms are likely to lay off large amounts of staff in coming quarters as they cut costs to adjust to the new reality of higher capital requirements and lower profitability. UBS has already announced it will close its fixed income business and lay off 10,000 employees.) Every week there seem to be more and more. In Ohio Community Savings Bank ($43mm) will acquire The Home Building and Loan Company ($38mm). Eagle Bancorp, Inc., the parent company of EagleBank and Virginia Heritage Bank announced that they have entered into a definitive agreement where VHB will be merged into EagleBank, with EagleBank being the surviving institution. National Bank of Commerce ($751mm, AL) will acquire the four branches of United Legacy Bank ($229mm, FL). Bank of North Carolina ($3.2B, NC) will acquire Harbor National Bank ($306mm, SC). 

I am often accused of Premature Articulation: the act of speaking/bragging too soon before all the facts are in, the game is over, etc. ("Dude, I totally jinxed the Cardinals by talking about how well they were doing, and then they lost the game. For the first time since high school, I experienced premature articulation!") But for months I have been discussing the cost of compliance, and how overall margins have been sliding. By now everyone and their brother has seen the latest report from the MBA showing that independent mortgage bankers reported net production losses in the 1^st quarter of 2014. "The significant overall production volume decline in the first quarter hurt mortgage bankers," said Marina Walsh, MBA's Vice President of Industry Analysis. "Purchase volume did not pick-up, while refinancing volume dropped and costs continued to rise. Given these conditions, companies that managed to break even in the first quarter should consider that a reasonable outcome." Average production loss was 8.31 basis points (BP) in 1Q 2014, compared to an average net production profit of 8.72 BP in 4Q, the sixth consecutive quarterly decrease. The MBA's group had average production volume of $274 million per company in the 1Q, down from $367 million per company in the 4Q, with the volume by count per company averaged 1,238 loans in 1Q, down from 1,641 in the 4Q. Secondary marketing income increased to 277 BP in the 1Q, up from 248 BP in 4Q. Total loan production expenses - commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations - increased to $8,025 per loan, up from $6,959 in the 4Q. First quarter 2014 production expenses were the highest recorded in any quarter since the Performance Report was created in the third quarter of 2008. 

And as the commentary has discussed, housing is not going through the roof either. Fannie Mae's May 2014 National Housing Survey might be of interest to those looking at nationwide trends. The share of respondents who believe the economy is headed in the wrong direction remained at 57 percent last month. The percentage of respondents who expect their personal financial situation to get better over the next 12 months fell slightly to 42 percent. Fabled economist Doug Duncan observed, "Consumers' lukewarm income expectations and reticence about the economy seem to be holding back housing demand. This year's spring and summer home buying season has gotten off to a slow start, even as mortgage rates have trended lower over the past two months. Our National Housing Survey data show that economic conditions continue to be the top concern among consumers who think it's a bad time to buy or sell a home. While recent housing activity suggests that the worst of the housing slump may be behind us, this caution among consumers supports our expectation that the rebound in home sales will likely be too modest to pull sales for all of 2014 ahead of last year." 

Illinois has changed its provisions regarding consumer fraud and deceptive business practices act by modifying Section 2MM of the Consumer Fraud and Deceptive Business Practices Act with the passage of House Bill 3380. The amendment provides that a guardian of a disabled person appointed under the Guardians for Disabled Adults Article of the Probate Act of 1975 or a parent or guardian of a minor may request that a consumer reporting agency place a security freeze on the credit report of the disabled person or minor by sending a request to the consumer reporting agency. The new legislation took effect on June 1^st. 

Minnesota has modified its provisions regarding mortgage foreclosures. The "mosquito state" modified its provisions relating to mortgage foreclosure by amending the definition of a "small servicer" and clarifying the Foreclosure Curative Act in House Bill 2213. Under the amended law, "small servicer" means a servicer that is either: a small servicer, as defined in Code of Federal Regulations, title 12, section 1026.41, a Housing Finance Agency, as defined in Code of Federal Regulations, title 24, section 266.5; or a servicer that has conducted 125 or fewer foreclosure sales during the preceding 12 months. The legislation is effective the day following final enactment. 

Oklahoma's Department of Consumer Credit has informed NMLS that in accordance with the state's Secure and Fair Enforcement for Mortgage Licensing Act, and effective November 1, 2013, a licensed MLO in the State of Oklahoma is required to complete annual continuing education in a classroom setting at least every two years. The OK-DOCC on April 16, 2014 issued an Official Declaratory Ruling stating that "a MLO may satisfy the requirement for completing annual CE in a classroom setting at least every two (2) years by completing a classroom or classroom equivalent course as approved by NMLS." The requirement for an MLO to complete CE in a classroom or classroom equivalent setting may be met during calendar year 2014 or calendar year 2015. NMLS has posted an Education Notice explaining in detail the new education requirements.

Maryland's legislature has recently enacted provisions found in Senate Bill 1091 which creates an expedited licensing process for certain mortgage home loan originators. By adding 11-612.3 to its financial institutions article, Maryland has altered the way in which background checks may be required. As part of the application process, mortgage loan originators are required to undergo a state criminal history background check before being issued a license in Maryland. Under 11-612.3, the Commissioner of Financial Regulation must waive the state criminal history check for applicants who are employed as a registered mortgage loan originator within forty five days prior to the date on the application for a license. Additionally, the new section gives the Commissioner the power to adopt regulations in order to carry out the expedited licensing process. These provisions become effective on October 1, 2014, just in time for my Ocean City, MD trip. 

Louisiana has amended and reenacted provisions relating to mortgage servicers, requiring that mortgage servicers be licensed and regulated pursuant the Louisiana Secure and Fair Enforcement of Mortgage Licensing Act of 2009. These amendments bring Louisiana mortgage servicers under the same licensing and educational requirements as mortgage lenders, brokers and originators. In this chapter, mortgage servicing refers to collecting or remitting payment for another or the right to collect or remit payments for principal, interest, tax, insurance or any other payments made in connection with a mortgage loan. 

Turning to rates, it all seems pretty steady. The risk-free 10-yr T-note continues to sit in the low 2.60's (yesterday closing at 2.64% after starting off the day at 2.63%). But could rates go lower? You'd think so, especially after the World Bank lowered its global growth outlook for 2014 to +2.8% from an original projection of 3.2% at the start of the year. (2015, however, was unchanged at 3.4 %.) But is the news that the World Bank used to change its outlook already incorporated into the bond market? Apparently: on the day the 10-yr barely budged, and agency MBS prices didn't move either.

We have a little more for bond traders to chew on this morning. We've had the weekly Jobless Claims number (expected to drop by 2k, it was +4k from a revised 313k), May's Retail Sales (expected +.6%, it was only +.3% but there were some back-month revisions), and Import Prices for May (expected +.2%, they were +1.%). And just to give those traders something to talk about later today, we have a $13 billion 30-year bond auction at 10AM PST. Early on rates are down slightly with the 10-yr at 2.63% and agency MBS prices better by about .125.

Weekly jobless claims were slightly worse than expected; claims increased 4K to 317K, estimates were for a decline of 3K. Since the beginning of the year claims have averaged 324K. Employers are not firing but equally not hiring at a pace necessary to grow the economy to the levels most continue to expect. Claims are the best since 1999, a stat you may hear touted through the day, but it the level of wages in the new hires is very low and is still an impediment for the strong economic outlook investors continue to expect. The four-week average of claims, a less-volatile measure than the weekly figure, climbed to 315,250 from 310,500 in the prior week. The number of people continuing to receive jobless benefits increased by 11,000 to 2.61 million in the period ended May 31. The unemployment rate among people eligible for benefits held at 2% during that period, today’s report showed.

May import and export prices; expectations were for both to have increased 0.2%; both were up just 0.1%. Yr/yr import prices +0.4%, yr/yr export prices +0.5%. No signs of inflation in those numbers.

At 9:30 the DJIA opened -10, NASDAQ -8, S&P -6; 10 yr 2.63% -1 bp and 30 yr MBS prices +9 bps from yesterday’s close.

At 10:00, the final data for today, April business inventories; expected to be up 0.4%. As reported inventories increased 0.6% after increasing 0.4% in March. Higher inventories are a positive influence on GDP.

At 1:00 this afternoon Treasury will auction $13B of 30 yr bonds; yesterday’s 10 yr note auction didn’t experience the kind of demand that it has had recently.

The US has been caught flat-footed on the news Iraq is being over-run by what has been described as ‘ragtag’ Islamist militia. Talk of civil war is being bandied about. The Administration is shocked how easily Islamists have taken cities and are marching toward Bagdad. According to reports now, Iraq officials and US military trainers have been warning that the Iraq military was not ready to assume control after the US took ground troops out of the country. Difficult to anticipate what will develop but traders and investors now have another geo-political situation to monitor. So far there isn’t any noticeable move to safety in US treasuries; some chatter that yesterday’ sell-off in the DJIA may have been partly driven by the situation.  There is a big move in the price of crude oil, up $1.61 this morning at $106.01/barrel.

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Credit Availability Increasing; CFPB's Supervisory Highlights and student debt!

http://globalhomefinance.com

I don't know where this topic falls, somewhere between "That's mildly interesting", and, "So what?" Although I bike a lot, I might fall into the, "I can't believe someone got paid to compile this" camp, though. The Census Bureau's most recent report, "Modes Less Traveled - Bicycling and Walking to Work in the United States: 2008-2012," shows that walking to work has remained unchanged since 2000 after steadily decreasing since 1980. In 1980, 6% of workers walked to work, and that rate declined to 3% by 2000. However, from 2008-2012 the rate of walkers remained statistically unchanged from 2000. Among larger cities, Boston had the highest rate of walking to work at 15 percent.

"Adversity can cause some mortgage lenders to break, while others will break records.  In continuing to exceed its volume records month-over-month, ClearVision Funding, based in Orange County, CA, celebrates yet another record month. The company has the unique full offering of FHA, VA, (including FICO scores down to 560) JUMBO, FNMA and FHLMC loans and have direct relationship with the agencies, GNMA, FNMA, & FHLMC. CVF also offers a Non-Delegated Correspondent program with warehouse lines to help take their client's business to the next level."

The MBA announced that mortgage credit availability increased in May, according to the Mortgage Credit Availability Index, which analyzes data from the AllRegs Market Clarity product. A good chunk of this was due to the jumbo loan sector, and banks adding portfolio products to their line-ups.

The old saying "I don't know much about art, but I know what I like," can certainly apply to the CFPB and what they are looking for in compliance departments. One could certainly argue that the Bureau would never find fault with too many procedures or with too many employees...or could they? On May 22^nd, the CFPB published its 2014 Supervisory Highlights, the fourth such report for the Bureau. A large portion of the report summarizes supervisory findings at nonbanks, particularly with regard to consumer reporting, debt collection, and short-term, small-dollar lending. However, a small blurb on Compliance Management Systems (CMS) is worth a read, the CPFB write, "As CFPB has described in its Supervision and Examination Manual, CMS is how an entity: establishes its compliance responsibilities, by determining the regulatory requirements applicable to its business operations; communicates those responsibilities to employees; ensures that responsibilities for meeting legal requirements and internal policies are incorporated into business processes; reviews operations to ensure responsibilities are carried out and legal requirements are met; takes corrective action; and updates tools, systems, training, and materials, as necessary." So does the CFPB believe there are common attributes to successful management of responsibilities? You bet....(1) a Board of Directors and management oversight, (2) a compliance program, (3) a consumer complain management program, and (4) an independent compliance audit. 

Late last year I ran into a portfolio manager I know who told me about the growing number of funds out there betting against student debt. He summed up the situation like this, "kids financing 4, 6, 8 years of education...all to end up working as the over-night manager at Target? Something has to give." I don't know. All I know is student debt has reached mortgage-like proportions in terms of originations. Recently, CFPB Director Cordray addressed the Boulder Summer Conference on Consumer Financial Decision Making, commenting on this very issue, saying that student debt is "a pressing problem and a matter of grave importance to public policy in America." Student loan debt is the second largest debt category in the nation, which has reached $1.2 trillion. Ballard Spahr writes, "According to Director Cordray, the "overhang of high student loan debt" is affecting not just borrowers, but the housing market, small business development, retirement savings, household formation, and rural communities. For example, he referenced a recent survey by the National Association of Realtors, which stated that 49 percent of Americans cited student loan debt as a "huge obstacle" to homeownership." Betting against student repayment rates is the equivalent of walking up to a busy craps table on a Saturday night and starting to play the "Don't Pass" line...it may be the smart play, but it sure doesn't make you many friends at the table. 

Let's continue on with news from lenders, investors, agencies, and upcoming events:

 

The pricing is certainly heating up out there. The latest example comes from 360 Mortgage Group. "During the entire week of June 9^th, 360 Mortgage Group is running a Friday the 13^th pricing special for their wholesale/broker business channel. ANY conventional loan locked during the week of June 9^th receives an additional 50bps above the published rate sheet price. The price adjustment is built in to the locking system so brokers will immediately see the results. The special expires with the close of business on Friday, June 13^th. 360 offers the full suite of FHA, VA, USDA, Fannie Mae and Freddie Mac loan products including unlimited LTV HARP and no overlay standard conventional products.  Additionally they specialize in niche government ARM products which have no price adjustments and can be used on VA IRRRL and FHA Streamline transactions." 

AllRegs reminded clients of its loan guidance checklists and matrices covering topics such as state required disclosure matrices, permissible fee matrices, and state compliance checklists are part of this package. You can directly print these documents, or export them to MS Excel, print and insert them in front of every loan file and use them to be sure your file is compliant. 

Penny Mac Correspondent has posted a lending announcement 14-29 regarding Fannie Mae evaluation of large deposits. Effective immediately on DU conforming purchase transactions, large deposit is defined as a single deposit that exceed 50% of the total monthly qualifying income. Contact your sales representative to discuss or review the announcement in its entirety. 

Planet Home Lending, LLC announced the launch of its correspondent division. Planet will offer competitively priced FHA, VA, USDA and FHLMC fixed-rate loans, and will accept flow, mandatory, bulk and mortgage servicing rights from its clients. "Planet has streamlined the purchase process of closed loans to within 48 hours of receipt of electronic file by leveraging cutting edge technology." (Founded in 2007, Planet Home Lending is a privately held, national residential mortgage lender with multiple business channels.) 

TRI Pointe Homes announced it will be acquiring Weyerhaeuser Real Estate Company, bringing Pardee Homes, Maracay Homes, Quadrant Homes, Trendmaker Homes and Winchester Homes under TRI Pointe during the 3^rd quarter. Operating the six brands under one umbrella in California, Pacific Northwest, Nevada, Arizona, Texas, and Washington D.C. markets, the company expects that the merger will position TRI Pointe as one of the top 10 largest public homebuilders in the United States. 

New Penn Wholesale division rolled out E-Sign initial disclosures on June 2^nd; contact your Account Executive for the specifics. Guideline updates have been posted reducing overlays such as FHA and VA minimum FICO with foreclosures and/or bankruptcies removal and the addition of FHA compensating factors. Conventional guideline updates include removal of overlays on FL condos, revised overlays on eligible properties, and minimum FICO on escrow.  

Ellie Mae announced that it has integrated Encompass Flood Service™ into its Total Quality Loan™ (TQL) program to provide mortgage lenders with the accurate, efficient and consistent ordering of required flood certifications from one centralized tool in their Encompass® mortgage management solution. "Using Encompass Flood Service, Encompass users can now order basic and life-of-loan flood certifications directly from the TQL tool without leaving the loan file or logging into another provider's website."

 

Executive Rate Market Report:

AM Tracking Quote:
FNMA 4.0% 105.41 now -18 bps: Have a great day.
09:32 -18
Open 105.59
Should you Lock or Float? Contact me for Lock Advice!

Interest rate markets started weaker early this morning; US stock indexes in pre-open trading were about flat. Last Friday’s May employment report was about as markets were expecting, the initial reaction rallied treasuries and MBSs but by the end of the day MBS prices and the 10 yr note were unchanged from Thursday. Today there are no economic reports scheduled but there are three Fed officials on tap later, at 9:3 St. Louis Fed Pres. Bullard, at 12:45 Fed governor Tarullo and at 1:30 Boston Fed Pres. Rosengren. Not sure if any of them will have anything new but it is not likely.

This week the Data that is critical doesn't happen until later in the week (see calendar). Treasury takes the lead this week with $62B of auctions beginning tomorrow with $28B of 3 yr notes, Wednesday a more significant $21B 10 yr auction and Thursday $13B 30 yr auction. Both the 10 and 30 are reopens of issues in May.

Are US interest rates too low, or just right and may head lower? A very interesting multiple question; the debate continues within the fixed income markets. On the more obvious side, at least as most see it, with the economy improving interest rates are very likely to increase. History is on that side of the question, and with US Treasury rates so low the demand isn’t likely to continue. There is no longer a safety bid in treasuries over the Ukraine/Russia situation that pushed rates at one point to 2.40% (briefly). The global economic outlook is still mushy and has been a motivation into US treasuries; that view is a slippery one, with each report from the EU, China and emerging markets the outlook changes a little. There are though, some things to consider in the debate over the level of rates:

• China is buying US treasuries to accumulate dollars and weaken their currency. China bought $55.8B of treasuries in Q1, last year the country bought $81.1B in the entire year so the pace of buying has increased substantially.
• In Q1 US banks increased treasury holdings to $237B the highest level since 1995. Banks adding treasuries to meet capital and liquidity standards required by the Fed .
• Mutual funds and ETFs saw inflows of $21.7B in May, for all of this year $64.6B.
• US interest rates are higher than interest rates in most other key economic countries; Germany 1.31% on its 10 yr bund, Japan 10 yr 0.60%, Spain’s 10 yr, a not so strong economy, is at a very low 2.65%, Italy at 2.77%; the higher US rate remains attractive to global investors.
• The supply of new treasuries is shrinking; the total amount of new treasuries this year is going to be about $680B, last year new issues totaled $836B last year and hit $1.56trillion in 2010.
• The annual budget is shrinking as increased tax dollars cut into the debt as the economy has slowly improved; the CBO is forecasting the US budget deficit this year at $490B the lowest since the recession began.

These are a few of the issues that are holding rates down; how long they will continue to play into low rates is where traders are today.

At 9:30 the DJIA opened unchanged as did the other key indexes; the 10 yr at 9:30 2.62% +3 bps and MBS prices -14 bps.

Nothing yet from St. Louis Fed Pres., Bullard speaking on the US economic outlook.

This Week’s Calendar:
       Tuesday,
          10:00 am April wholesale inventories (+0.3% from +1.1% in March)
                        April JOLTS job openings (4.025 mil from 4.014 mil in March)
          1:00 pm $28B 3 yr note auction
      Wednesday,
          7:00 am weekly MBA mortgage applications
          1:00 pm $21B 10 yr note auction
          2:00 pm May Treasury budget balance (-$139B)
      Thursday,
         8:30 weekly jobless claims (309K -3K from previous week)
                May retail sales (+0.6%, ex auto and truck sales +0.4%)
                May import and export prices (imports +0.2%, exports +0.2%)
        10:00 am April business inventories (+0.4%)
         1:00 pm $13B 30 yr bond auction
      Friday,
         8:30 May PPI (+0.1%, ex food and energy +0.1%)
         9:55 am U. of Michigan mid-month sentiment index (83.0 from 81.9)

Last week the trade in treasuries and MBSs turned technicals from bullish to bearish as the tight trading continues. The 10 yr note that sets the direction for MBSs has not closed above 2.60% since May 12th, this morning the yield at 2.62% will keep traders awake. There is a valid down trend line on the 10 yield chart that has held any recent selling in check, that trend line is in play today.

http://globalhomefinance.blogspot.com