Oct. 21: Mortgage jobs; webinar on gov’t agency scrutiny; state-level updates; what is a Fannie “defect rate”?

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Some of the information out there is “about as reliable as a Realtor’s photograph.” But rumors continue to swirl about the health of companies. On the Nationstar front, for example, the company was downgraded by Wells Fargo last week: http://tickerreport.com/banking-finance/29956/wells-fargo-co-downgrades-nationstar-mortgage-holdings-to-market-perform-nsm/. A few high-profile lenders are being accused of deceptive practices and/or missed payrolls (attributed to failures to raise capital), or continued questionable LO comp plans. And overall, some periodicals are attempting to track the thousands that have lost their jobs in the lending industry – the lion’s share appearing to be low-producing originators: http://www.reviewjournal.com/business/job-layoffs-mortgage-refinance-boom-slows.

 

At the other end of the scale, reputable firms are expanding. For example, an 18-year old established Northern California retail operations looking to increase its production by 25% over 2013 levels. It is searching for a strong, experienced recruiter to grow its West Coast origination staff. The company offers most mortgage products, has a strong support staff, a generous benefits package, and a great work environment. The candidate should have a proven track record in recruiting loan officers. Confidential resumes should be sent to me at rchrisman@robchrisman.com. (Please excuse any delays in response; I am traveling in Southern California today; Kansas and North Carolina this week.)

 

And as more lenders have built mortgage servicing portfolios and retained servicing rights (“MSRs”), we’ve seen a growing trend in the lack of servicing oversight, and companies like SQC stepping in to help. In instances when a sub-servicer is utilized, the risk of non-compliance remains the responsibility of the servicer that owns the MSR as they represent and warrant that the sub-servicer is compliant. Failure to detect and correct the cause of errors will not be forgiven by the CFPB, the regulators, or the GSEs. Subsequent QC provides lenders with a cost effective solution to oversee their servicing controls. To learn more, check out www.subsequentqc.com or email Ben Madick (ben@subsequentqc.com) to schedule a meeting in DC at the upcoming MBA conference.  

 

Phil Stein (Bilzen Sumberg Baena Price & Axelrod LLP) is presenting a free webinar on some issues that are increasingly becoming the focus of extensive government agency scrutiny, investigations and litigation:  Fair Lending Laws and Unfair, Deceptive or Abusive Acts or Practices (UDAAP) in mortgage banking. The focus will be on compliance issues, recent enforcement actions, and important things that can be learned from recent lawsuits dealing with these issues. “With the CFPB apparently looking to make a big splash on these topics, and other agencies also getting more active, mortgage companies are more likely than ever to face rigorous and intrusive regulatory examinations on these subjects. Mortgage companies are, of course, also potential targets for consumer complaints of unfair treatment, as well as putative consumer class actions, or suits by government agencies.” Anyone interested, and who wouldn’t be with “free” involved, email Mr. Stein at PStein@bilzin.com for access information. Be quick about it, since the webinars will be at 4:30PM ED on October 22, 23, or 29. 

 

I can’t remember who coined the phrase “the new normal” with respect to this economy, but apparently they weren’t talking about the kids over at Barclays and their new dress code. It seems that in order to make the work place a “cooler place to work” to younger employees, executives have started ‘super-casual Fridays‘……much to the chagrin of many seasoned vets. My favorite quote, “I didn’t become an investment banker to dress like a perpetual teenager.” Here you go: http://www.cnbc.com/id/101081451.

 

Back to actual news! The Federal Reserve Board recently issued two interim final rules that clarify how companies should incorporate the Basel III regulatory capital reforms into their capital and business projections during the next cycle of capital plan submissions and stress tests. The first interim final rule clarifies that “in the next capital planning and stress testing cycle, bank holding companies with $50 billion or more in total consolidated assets must incorporate the revised capital framework into their capital planning projections and into the stress tests using the transition paths established in the Basel III final rule.” This rule also clarifies that for the upcoming cycle, capital adequacy at these companies will continue to be assessed against a minimum 5% tier 1 common ratio calculated in the same manner as under previous stress tests and capital plan submissions. For most banking organizations with between $10 billion and $50 billion in total consolidated assets, the second interim final rule provides a one-year transition period. Buckley Sandler wrote, “During their first stress test cycle (which began October 1st), these companies will be required to calculate their projections using the current regulatory capital rules in order to allow time to adjust their internal systems to the revised capital framework. Both rules clarify that covered companies will not be required to use the advanced approaches in the Basel III capital rules to calculate their projected risk-weighted assets in a given capital planning and stress testing cycle unless the companies have been notified by September 30 of that year.”

 

The New York Department of Financial Services notified their institutions that they have adopted emergency regulations to determine if a home loan qualifies as ‘subprime’ under Section 6-M of New York banking laws. The state department has determined that recent changes to the calculation of mortgage insurance premiums mandated by the Federal Housing Administration in, which increased the annual percentage rate on subject loans, effectively decreased the threshold on certain loans and limited the availability of mortgage credit in New York. In response, the emergency regulations adjust the subprime threshold up by 75 basis points for most FHA-insured loans. The change took effect immediately, and the official letter can be found here:http://www.infobytesblog.com/wp-content/uploads/2013/10/Institution-Letter-Part-42.pdf

 

Pennsylvania Supreme Court held that Pennsylvania state courts have jurisdiction over foreclosure actions where the foreclosing party may have failed to fully comply with the Pennsylvania Emergency Mortgage Act: http://www.phfa.org/consumers/homeowners/hemap.aspx in providing notice of foreclosure. In court case Beneficial Consumer Discount Co. v. Vukman, a state trial court and intermediate appellate court set aside a judgment in a foreclosure action and subsequent sheriff’s sale, holding that the foreclosing party’s failure to comply with the Act 91’s foreclosure notice requirement stripped the state courts’ of subject matter jurisdiction. Buckley Sandler write, “The Supreme Court disagreed and held that the pre-foreclosure requirements do not implicate the jurisdiction of the court—the borrower’s failure to pay the mortgage provided sufficient cause to pursue foreclosure. The court remanded the case to the trial court without addressing the foreclosing party’s arguments that its notice was sufficient because it was drafted by the state housing authority.” The courts official ruling can be found here: http://www.pacourts.us/assets/opinions/Supreme/out/J-24-2013mo.pdf?cb=1.

 

Nebraska has recently amended its Residential Mortgage Licensing Act, and has modified provisions to loan brokers. Legislative Bills 290 revised the Residential Mortgage Licensing Act primarily by changing provisions relating to notice requirements of a licensee, and Legislative Bill 279 redefined what constitutes a loan broker in Nebraska. Both bills went into effect on the 2nd of October.

 

Meanwhile down in Texas, one of the more obscure items I have read in a long time involves the authorization of advances under a reverse mortgage for the purpose of purchasing a homestead. Thanks to Black, Mann & Graham (http://www.bmandg.com/Articles/TabId/162/ArtMID/632/ArticleID/220/2013-Legislative-Update-from-83rd-Regular-Session-of-the-Texas-Legislature-%E2%80%93-Constitutional-Amendment-SJR-18-Section-17001-of-SB-1093.aspx) for covering this topic in a recent posting, and according to them Senate Joint Resolution 18, which amends Section 50(k), Article XVI of the Texas Constitution, does in fact authorize such advances. Knowing is half the battle…..now what to do with this knowledge??

 

As a reminder, in FHA news, the agency has started to move forward with its “QM” proposed rule. The proposed rule has a very short comment period, which will close at the end of this month. Under the proposal the FHA would adopt two categories of QM loans, (1) loans with an APR of less than the Prime Offer Rate, and, (2) 1.15 basis points & the annual FHA premium. The Ohio Mortgage Bankers Association writes, “That means less than an APR of the APOR & 250 basis points (1.15 & 1.35 MIP). Those loans would have a “Safe Harbor”. Loans above the threshold would be QM loans with a rebuttable presumption. The concern in the industry is that most investors will not purchase loans that do not have a safe harbor. To further complicate, the CFPB proposal for the integrated GFE and closing statement contains a requirement of an “all in APR”.” If the final rule adopts the all in APR, more closing costs will go into the APR, pushing most FHA loans out of the safe harbor and into the rebuttable presumption. This commentary has provided the link a couple weeks ago, but here it is again: http://www.bmandg.com/Articles/TabId/162/ArtMID/632/ArticleID/220/2013-Legislative-Update-from-83rd-Regular-Session-of-the-Texas-Legislature-%E2%80%93-Constitutional-Amendment-SJR-18-Section-17001-of-SB-1093.aspx.

 

“Rob, we are in the beginning stages of seeking approval to be a FNMA Seller/Servicer, and we have questions concerning Fannie Mae’s ‘defect rate’ requirement. What is a defect rate and how is it calculated?” Well, remember that you should always turn to your agency rep for answers about this type of thing. But Fannie defines a defect rate as “the number of loans expressed as a percentage, reflecting the total with defects discovered in the loan review process divided by the total loans reviewed”. Furthermore, a loan defect is defined as a “specific characteristic of a loan that does not meet the credit, documentation, eligibility or pricing requirements of those that purchase or invest in the loan; a loan may contain a defect(s) but still be considered to be investment quality”.

 

It is the lender’s responsibility to determine the definition of a defect (or defects) and the related target rate(s) or goal(s) that best fit within its overall culture of originating quality loans and acceptable risk tolerance. There are several approaches that can be adopted, but there are two that seem to be predominant. One approach is to define a defect as a quality control finding, determined by your Post-Closing Quality Control Audit Program, which should include auditing for types of findings or errors, including compliance issues. And the second would be to define a defect as the most severe quality control finding, determined by your Post-Closing Quality Control Audit Program. In this case, some companies, in their Quality Control Audit Program, segregate findings into categories based upon the severity of the findings. These categories range from minor to critical, with critical defined as the highest level, specifically including findings of a material nature relative to creditworthiness, collateral security, insurability, and marketability.

 

Either way, once the definition(s) of a defect is determined, the lender can then set the defect rate target(s) or goal(s) it wants to establish for the organization, by reviewing the historical trends of the defects. All lenders and brokers, and not just those seeking Fannie Mae Seller/Servicer approval, should utilize some strategy to ensure that their production operation is committed to originating quality loans and adherence to investor and regulatory requirements. An excellent resource for implementing this strategy is Fannie’s publication, “Beyond the Guide,” which can be found here: https://www.fanniemae.com/content/tool/beyond-qc-guide.pdf

 

Yes, rates came down last week for two basic reasons. First the uncertainty of the budget talks and debt ceiling issues were temporarily removed from the market. And second, the negative impact of the government’s machinations on GDP and growth, due to this shutdown and the possibility of it happening again in three months, should help to keep rates low for several months. It is highly unlikely that we are going back to where we were six months ago, however, so hoping for lower rates is not a strategy. Given that the shutdown did not extend to the whole federal government and that the positive effects from workers receiving back pay will be within the same quarter as the shutdown, many believe that the net effect on Q4 GDP growth will be rather small. We have, however, only a few months until the federal budget and debt ceiling are once again at the forefront of the news – again.

 

We are back to maintaining a schedule of economic releases. For example, today is Existing Home Sales, tomorrow is the delayed unemployment data (from October 4), Wednesday is the FHFA Housing Price Index, Thursday is Jobless Claims and New Home Sales, and Friday is Durable Goods and the University of Michigan Consumer Sentiment survey. (The other postponed reports, including CPI and Retail Sales, will be released in coming weeks.) In terms of numbers, the 10-yr closed Friday at a yield of 2.59%, and it is unchanged, as are agency MBS prices pretty much, in the early going.

 

 

Planning for the fall football season in the South is radically different from up north. For those who are planning a football trip south, here are some helpful hints, part 1 of 4:

Women’s Accessories:

NORTH: Chap Stick in back pocket and a $20 bill in the front pocket.

SOUTH: Louis Vuitton duffel with two lipsticks, waterproof mascara, and a fifth of bourbon. Money not necessary – that’s what dates are for.

Stadium Size:

NORTH: College football stadiums hold 20,000 people.

SOUTH: High school football stadiums hold 20,000 people.

Fathers:

NORTH: Expect their daughters to understand Sylvia Plath.

SOUTH: Expect their daughters to understand pass interference.

Campus Decor:

NORTH: Statues of founding fathers.

SOUTH: Statues of Heisman trophy winners.

Homecoming Queen:

NORTH: Also a physics major.

SOUTH: Also Miss America.

Heroes:

NORTH: Rudy Giuliani.

SOUTH: Archie & Peyton Manning.

 

 

Rob

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.)