Nov. 26: Correspondents ramping up; Fed TILA-RESPA webinar site; FHA 4bp fee fight heats up; total mortgage volume figures

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...

With Thanksgiving around the corner, here’s some conversation fodder. Thanksgiving became a national holiday 151 years ago when President Lincoln declared the last Thursday of November as national day of thanksgiving. Then, President Roosevelt said Thanksgiving should be celebrated on the fourth Thursday of the month to encourage earlier holiday shopping. In Q2 of 2014, there were 115 million occupied housing units, plenty of potential destinations for Thanksgiving dinner. There are 4.4 million multigenerational households, consisting of 3 or more generations; these households will undoubtedly have to purchase a lot of food to feed their family. A little over 98% of households own a gas or electric stove which matches the percentage owning a TV – there will be plenty of games to watch.

 

Silvergate Bank, one of the pioneers of NonQM, is “thankful” for their client’s business and loyalty. Silvergate has purchased over $20 million on a closed loan, correspondent basis for the month of November.  Alan Peviani states, “We are continuing to build our client base and are accepting both retail and wholesale originations for our NonQM programs”.  If your company is considering moving into NonQM and looking for ways to increase production and profitability, please contact Alan.

 

Endeavor America Loan Services is also adding correspondent clients. “When choosing a correspondent partner, lenders often focus on the two P’s: Product and Price. But what about the third ‘P’- Philosophy? Philosophy is probably the most intangible of the three P’s but it can have the most dramatic effect on a lender’s profitability. For example, some lenders purchasing correspondent loans truly follow the 4155, while others proclaim they have no overlays but leave you and your team guessing with their inconsistent approach. Endeavor is making a name for itself in the no-overlay correspondent arena. EA’s credit philosophy is to truly follow FHA, VA, USDA, and Fannie guides without adding any overlays. EA is seeing dramatic growth in their correspondent channel using this philosophy, coupled with their focus on speed and service, as they position themselves to become the Zappos of the Mortgage Industry.” Learn more on how to become approved with Endeavor America by visiting its correspondent or wholesale website.

 

Correspondent lenders everywhere are wondering if they are going to buy loans from a credit union dedicated to the marijuana business in Colorado.

 

At the other end of the spectrum from start-up credit unions, “The Dodd-Frank Act requires that certain banking organizations with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve periodically submit resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation. The plan, commonly known as a living will, must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company.” Under the guidance given to Wells Fargo for preparation of the 2014 plan submission, the firm’s 2014 plan provides a “basis for a resolution strategy that could facilitate an orderly resolution under bankruptcy. If fully developed in the future, Wells Fargo’s plan could reduce the risk that the company’s failure would pose to the stability of the U.S. financial system.”

 

The Ohio MBA reports that State regulators announced that some proposed changes to the Mortgage Call Report will be postponed due to the feedback they received from industry representatives. The new definition of “application”, which triggers additional reporting, will not be implemented until 2016, as such; the additional reporting requirements will be optional in 2015. The field to capture Change in Application Amount will be implemented at the beginning of 2015, but providing the information will be optional until 2016 and reporting on the number and dollar volume of QM and Non-QM loans by state will be required in 2015.

 

Earlier this week the commentary mentioned the possible 4 basis point fee that HUD and FHA are asking Congress to approve as an “administrative support fee”. Some banks and lenders want it others do not, thus pitting companies and sectors against each other. For example, the CMLA had come out firmly against it. And then we had the MBA…

 

The MBA’s Action Alliance (MAA) group spread the words that, “When Congress returns next week, its top priority will be to wrap up the appropriations bill for the current fiscal year. Tucked into the Senate version of the Transportation-HUD Appropriations Act (S. 2438) is a provision that would allow the Federal Housing Administration (FHA) to assess an administrative support fee to fund an enhanced quality assurance program for single-family loans. While MBA supports creating a new quality assurance program within FHA, the provision contained in S. 2438 is overly broad and could negatively impact consumers and lenders alike. A key concern is that the fee will be retroactive – calculated using the previous year’s mortgage originations instead of new originations. This will retroactively raise costs on mortgages that have already been originated and insured. We are also concerned about the overall size of the fee. While HUD only sought $30 million for this new program, the appropriations bill does not limit HUD to collecting only this amount. In fact, the legislation allows FHA to charge as much as 4 basis points on aggregate lender originations – far in excess of what it needs. And because the fee is not limited only to FY 2015, HUD would be permitted to levy this charge in future years. We are asking you to once again make your voices heard and contact your Senators and Representatives to urge that if the final HUD appropriations bill contains language authorizing FHA to impose a fee on lenders, that it be limited in size, scope and duration to cover the specific technology improvements needed to implement the program. Please click HERE below to go to the MAA homepage and click on the ‘Take Action’ button to get started. If you don’t have, or have forgotten your username and password, click on “forgot password” to retrieve it. Please contact Annie Gawkowski at 202-557-2816 if you need assistance.”

 

Hey, this is almost as good as giving that “someone special” the entire West Wing series in a boxed set! The Federal Reserve System has hosted four “Outlook Live” webinars on the TILA-RESPA Integrated Disclosures rule. These sessions, presented by the Consumer Financial Protection Bureau (CFPB), are part of an on-going series of webinars to address the new rule as creditors, mortgage brokers, settlement agents, software developers, and other stakeholders work to implement the rule before its August 1 effective date.  Consistent with all of our Outlook Live sessions, the CFPB’s discussions on the TILA-RESPA Integrated Disclosures rule are archived and are available for playback on our website. The TILA-RESPA related webinars are available at the links below (to access the recordings, enter the email address you originally used to register for the event or complete the registration form if you have previously not registered): June 17 – TILA-RESPA Integrated Disclosures Rule, Part 1 – Overview of the Rule, August 26 – FAQ’s on the TILA-RESPA Integrated Disclosures Rule, Part 2 (application, scope, record retention, timing for delivery and re-disclosure, tolerance, basic form contents, October 1 – FAQs on the TILA-RESPA Integrated Disclosures Rule, Part 3 – Completing the Loan Estimate, and November 18 – TILA-RESPA Integrated Disclosures Rule, Part 4 – Completing the Closing Disclosure.

 

Liquidity is a chief concern among potential investors, even in the $100 trillion global bond market. During the past seven years, demand has outstripped issuance five times, according to JPMorgan Chase. The financial institution expects global demand to exceed supply by an estimated $400 billion next year. Bloomberg So how much mortgage debt is out there? About $13 trillion – but remember that all of that is not in securities. How do I know that? Once again, the Federal Reserve is there for us. And a report released yesterday (Household Debt Balances Increase as Deleveraging Period Concludes) shows that borrowing is picking up.

 

Speaking of volume, the MBA’s weekly survey (covering 75% of retail lenders) showed that mortgage applications fell for the second straight week, down over 4% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased by 4 percent from the previous week. The refinance share of mortgage activity increased to 63 percent of total applications from 61 percent the previous week. And the seasonally adjusted Purchase Index decreased by 5 percent from one week earlier. The FHA share of total applications is a little over 9% while the VA share of total applications is over 10%. (The USDA share of total applications remained unchanged at 0.8 percent this week.) Lastly, the ARM share of activity increased to 7.0 percent of total applications.

 

Moving over to the markets, some LOs wonder why mortgages prices don’t behave exactly like Treasury prices. Rate movements a while back remind us of the added risks of lower interest rates. Bond yields were decreasing as traders dropped wagers that the Federal Reserve would raise interest rates next year, which increases refinancing risk for investors in mortgage bonds. Fannie Mae’s 30 year mortgage had an average rate of 4.2%, which is the lowest since June 2013, whereas Fannie Mae’s securities have an interest rate of about 5%. The bond market pushed interest rates on government debt lower, but as the duration of homes loans decreased (i.e., more likely to pay off through refinancing) some investors and servicers must buy securities to counterbalance lost income. What investors need to remember, however, is that it has never been more expensive to close a loan – and that the risk of refinancing is lower now because of it.

 

Given the news yesterday it is becoming harder that the economy is not doing pretty well. (If it were doing really well rates would be much higher, so be careful what you wish for.) Gross Domestic Product (GDP) was revised up to 3.9% growth in 3Q, and in fact the gains in the past two quarters are the best six-month period since 2003. The S&P/Case-Shiller index of property values increased 4.9% from September 2013 with all 20 cities in the index showed a year-over-year gain, led by a 10.3% rise in Miami and a 9.1% increase in Las Vegas. The FHFA House Price Index rose for the 13th consecutive quarter (it uses home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac). There was one fly in the ointment yesterday: the Conference Board Consumer Confidence Index dropped to “88.7” in November down from 94.1 in October. “Consumer confidence retreated in November, primarily due to reduced optimism in the short-term outlook.”

 

On Tuesday, once again, demand for MBS outstripped supply and agency MBS prices did pretty well resulting in a few intra-day price changes.

 

That was then – today is a new day (there is no early close in the bond markets). We’ve had Durable Goods Orders for October (expected improved on headline and core, it was up .4%), as well as Personal Income & Consumption for October (improvements expected there as well, they were +.2% and +.2%) while expectations for weekly jobless claims were lower overall (291k last, but it shot up to 313k). Later this morning we’ll have the November Final release concerning University of Michigan survey (seen higher), October New Home Sales (467k prior), Pending Home Sales (+0.3% last), and the 1PM EST $29 billion 7-yr note sale.

 

After the first spate of numbers the 10-yr is down to 2.24% and agency MBS prices are better between .125-.250.

 

 

(An oldie but a goodie.)

A young man named John received a parrot as a gift. The parrot had a bad attitude and an even worse vocabulary. Every word out of the bird’s mouth was rude, obnoxious and laced with profanity. John tried and tried to change the bird’s attitude by consistently saying only polite words, playing soft music and anything else he could think of to clean up the bird’s vocabulary. Finally, John was fed up and he yelled at the parrot. The parrot yelled back. John shook the parrot. The parrot got angrier and even ruder. In desperation, John threw up his hands, grabbed the bird and put him in the freezer. For a few minutes the parrot squawked and kicked and screamed.

Then there was total quiet. Not a peep was heard for over a minute. Fearing that he’d hurt the parrot, John opened the door to the freezer. The parrot stepped out onto John’s outstretched arms and said, “I believe I may have offended you with my rude language and actions. I’m sincerely remorseful for my inappropriate transgressions and I fully intend to do everything I can to correct my rude and unforgivable behavior.”

John was stunned.

As he was about to ask the parrot what had made such a dramatic change in his behavior, the bird spoke up, very softly, “May I ask what the turkey did?”

 

 

Rob

 

(Copyright 2014 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.)