Jan. 15: Lender expansion; Supreme Court mortgage ruling; MBA TILA-RESPA training; will Ocwen’s NY and California woes impact our rate sheets?

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...

Have some spare doubloons sitting in your bank account, and want to put them to work? You could buy a Japanese 10-yr note and earn about .25% per year, a German 10-year and earn .5% a year, or a US 10-year risk free T-note and earn about 1.84%. But what about equities? Coincidentally both Wells and Chase pay a dividend of 2.70%, Proctor & Gamble 2.90%; Exxon pays 3.00%, AT&T 5.60%, and British Petroleum (BP) 6.60%. It is an interesting (albeit narrow) perspective on risk versus return.

 

In expansion news, Prospect Mortgage asks, “Are you the owner of a mortgage origination firm?” “Prospect Mortgage, a national Purchase focused lender, is looking to add more top origination units to the fold in 2015. Prospect President Doug Long notes, ‘Our Ops performance is the number one reason LOs come to Prospect and stay and it’s a great reason to consider making your company part of the Prospect family. We’ve seen great interest from business owners who want to get more focused on production and less concerned with compliance and regulatory worries.’ Prospect operates in 47 states nationally and has maintained a majority of its originations in purchase money loans since month one. The company has a particularly strong offering in FHA, VA and renovation loan products.” Contact John Manglardi confidentially to learn more.

 

There are other things happening in California besides the drought. (After rain in December, the state has had virtually no rain in January – typically its wettest month!) The LA Times reported that California is seeking to suspend Ocwen’s mortgage license in the state for up to one year, which, according to a state spokesman, would require the sale of all of its $95 billion of CA servicing. All is not lost, however: settlement conferences are scheduled for next month and if those don’t bear fruit the state could suspend OCN’s license in July. The news spooked the market for servicing, which in turn directly impacts rate sheet pricing to borrowers, and spooked the investor herd for both non-bank servicers and for Ocwen stockholders (the stock is down nearly 90%).

 

The state has accused Ocwen of not providing enough information in connection with an investigation into compliance of OCN’s mortgage and servicing practices with the CA Homeowners Bill of Rights. Ocwen will argue that it is already taking the necessary actions and is fully cooperating with the state. In fact Ocwen Financial Corporation released a statement noting that it is fully cooperating with the California Department of Business Oversight (DBO) to resolve an administrative action dated October 3, 2014. “Ron Faris, President and CEO of Ocwen commented, ‘We are cooperating fully with the Department of Business Oversight. Since this notification, we have dedicated substantial resources towards satisfying the DBO’s requests. We believe we have provided the requested information in the format requested. We expect that we will receive follow up requests or clarifications and that further document and information exchanges may take place. We expect our ongoing cooperation will result in a satisfactory outcome for all parties.’”

 

Mortgage servicers are licensed by the California Department of Business Oversight, and its commissioner, Jan Lynn Owen, has accused Ocwen of providing insufficient documentation for the agency to determine whether the servicer had fully complied with the provisions under the California Homeowner Bill of Rights, a statute that was implemented at the start of 2013. Among many requirements, the statute mandates that the servicer provide notice of foreclosure alternatives to seriously delinquent borrowers and requires that servicers give homeowners at least 30 days to appeal a denial of a loan modification request. California claims Ocwen didn’t do this.

 

Taking the pessimistic view, if Ocwen’s license were to be suspended, it would no longer be able to service any residential loans in California. Easier said than done. Buying loans out of Ginnie pools and selling them to others is not fun and in fact not allowed. Ocwen currently services about $42 billion of Ginnie pools. If it settles (like Ocwen did by paying $150 million to NY last year) that would be good for the market. But if California suspends Ocwen’s servicing license we can expect to see a forced transfer of all GNMA servicing from Ocwen to another entity. As GNMA mentioned in its white paper, servicing transfers of specific loans within a pool is currently not possible. Ocwen would be unlikely to buy out any loans in this scenario, as it would seek to preserve liquidity for other purposes (non-agency clean-up calls, for example). Additionally, it might be unable to service the bought out loans, anyway.

 

But what if Ocwen decided to sell its GNMA servicing in advance of any settlement, to peddle its MSRs (mortgage servicing rights)? Supply and demand kicks in: if supply and increases and demand is constant, or drops, the price drops, impacting the value of servicing, possibly impacting borrower rate sheet pricing. There will be a buyer – but at what price?

 

Speaking of California, as a reminder in September 2014, the California State Legislators passed and signed into law, bill AB-1700, amending California Civil Code Section 123.2, as it relates to the HECM program’s counseling requirement. The new law will go into effect for all California loans with applications taken on or after January 1, 2015, with counseling dates on or after January 1, 2015. The changes include a new a required cooling off period of seven calendar days from the date of counseling as shown on the HECM Certificate of Counseling. New disclosures are also mandated and must be received by the borrower prior to counseling, the Important Notice to Reverse Mortgage Loan Applicant and the Reverse Mortgage Worksheet Guide. These forms are available in Reverse Vision as part of the Proposal Package for California loans, along with the current list of CA HUD-approved counseling agencies. The new disclosures must meet the following requirements: forms must be received by the borrower before counseling and the printed date will be on all disclosures as the date will serve as proof of issuance prior to counseling. If the borrower was working with a lender/broker prior to working with you, the Notice and Worksheet will be required from the previous lender. If the borrower receives counseling prior to contacting the lender, the counselor must provide to the borrower a copy of the form, and the borrower must certify at application that they received the form prior to counseling. As these changes are only for Reverse Mortgages in California, other states may quickly follow suit.

 

Speaking of legal issues, the Supreme Court has told us that home loan borrowers need only send a letter to their bank to rescind a contract when disclosure violations are at issue.

 

This week an article was posted by Marx Sterbcow titled, “TILA-RESPA implementation deadline triggering warning signs for industry”. You should definitely check it out.

 

With the TILA RESPA compliance deadline only months away, companies are going into execution mode. Last year MBA hit the road to prep businesses for what lies ahead. As we enter the final months before implementation, MBA is taking an even deeper dive with the MBA Compliance Essentials TILA RESPA Integrated Disclosure (TRID) Forum. “In partnership with the American Land Title Association (ALTA), this five-city tour boasts compliance, title, realtor, settlement providers and technology experts – all discussing the industry’s best practices and ways to avoid the CFPB’s noncompliance penalties. After attending this forum you’ll be able to identify where changes need to be made in your business to comply, determine new workflow processes and procedures, and educate and train your staff. Sign up for a one day forum in a major city near you, including Los Angeles, Miami, Chicago, Dallas and Washington D.C.

 

While we’re on rules & regulations, last month the CFPB, as a reminder, released proposed changes to the Mortgage Servicing Rules and if adopted, the new regulations would take effect 280 days after publication in the Federal Register, and provisions applicable to bankruptcy would take effect 365 days after publication. The first proposal would require Mortgage Servicing Rules to apply to successors in interest, once a servicer confirms the beneficiary of the property. The new definition of successors in interest would encompass homeowners who receive a property through inheritance from a family member or upon death of joint tenant, after a divorce or legal separation, through a family trust or through a transfer from a spouse or from a parent to a child. The proposed rule would also create a definition of delinquency to apply consistently throughout Regulation X, clarifying that a loan obligation is delinquent starting on the date the periodic payment, interest and if applicable, escrow became due and unpaid until the payment is made.  Servicers would be required to send periodic statements to borrowers in bankruptcy as well as apply the procedural loss mitigation requirements more than once in the life of the loan. Servicers must also dismiss a foreclosure sale if the servicer or its foreclosure counsel doesn’t comply with the dual tracking requirements. Comments on the Proposed Rule are due March 16th, 2015. To read more about the possible changes, click here.

 

Moving to interest rates, Wells Fargo Securities, LLC January interest rate report raises the question, are higher rates a liability for households? The low interest rates over the past few years have led to large gains in households’ financial assets, strengthening net worth (growing more than 6% year over year in each of the past 9 quarters). In the past, the rise in wealth has led to higher spending and borrowing but this trend is waning. Recently consumers have not been as eager to spend and take on addition liabilities since the past recession, despite the gain in household net worth. The slow borrowing growth is unprejudiced as it can be seen across all loan types, with the demand for mortgages particularly slow. The mortgage debt service ratio rose to 7% before the past recession, but has remained at 4.7%. On the other hand, student loan and auto loan debt have seen a stronger recovery. Historically, household spending and borrowing has been uplifted by declining interest rates, yet the low rate environment has not swayed consumers to return to the borrowing market in a meaningful way, partly due to tight credit conditions. The lack of demand is of concern if interest rates rise and may restrain credit demand further, despite income growth.

 

No one is complaining about rates, and lock desks everywhere are swamped. This portends a good February and March for lenders. But with 10-yr yields approaching the lows of 2013 investors don’t want to own higher coupon mortgages and thus the only appetite for MBS is in the lowest and longest duration coupons. That is what the Fed is buying with the money from its early payoffs.

 

For news, overnight the Swiss bank made a surprising rate move. The Swiss National Bank shocked markets overnight by abandoning the floor for the euro and Swiss Franc exchange rates. It seems the SNB is stepping aside as expectations around a massive QE program out of the European Central Bank continue to build. And of course pension funds and other institutional investors are closely watching the effects of plummeting world oil prices on their portfolios. Among their biggest concerns is the likelihood that steadily falling oil prices will drag down inflation and lead to even lower yields on fixed-income securities.

 

Here in this country we’ve had Jobless Claims (+294k last, it was +19k from a revised 297k to 316k), and the Producer Price Index which was -.3% and ex-energy was +.3%. We also had the January NY Fed Empire Manufacturing Survey (-3.6% prior was revised higher, came at +9.95) and the Philly Fed index for January, rarely dull at +24.3 previous. The 10-yr, which ended Wednesday at 1.84%, is at 1.82% this morning with agency MBS prices better by about .125.

 

 

“I’m not going to cite you,” said the officer. “I just wanted to warn you that the reflector on the back of your horse & buggy is broken and it could be dangerous.”

“I thank thee,” replied the Amish lady. “I shall have my husband repair it as soon as I return home.”

“Also,” said the officer, “I noticed one of your reins to your horse is wrapped around his testicles. Some people might consider this cruelty to animals so you should have your husband check that too.”

“Again I thank thee. I shall have my husband check this when I get home.”

True to her word, when the Amish lady got home, she told her husband about the broken reflector. He said he would put a new one on immediately.

“Also,” said the Amish woman, “the policeman said there was something wrong with the emergency brake.”

 

 

Rob

 

(Copyright 2015 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.)