Apr. 1: FDIC regulations; CFPB meeting transcript; BofA underdraft program; expense cuts continue; WFH adjustments

Lenders and vendors involved in residential lending usually do a fine job of doing some road mapping and setting out a vision. Although the other day when visiting a lender I overheard, “Let’s offline this conversation and come up with a work-around… Sometimes you’re just moving the chains. You don’t always get a touchdown. Time to wrap this up… I appreciate you guys!” Along those lines, a rare CFPB meeting transcript it provided below, allowing some insight into CFPB’s communication and opening the proverbial kimono with factual information, On the other side of the spectrum, rumors are rampant that call center employees across the nation have begun the move toward unionization. That Citi is contemplating reducing its lending scope to its bank branch footprint. That Fannie Mae will be rolling out a “My Trailer Park Program. But this commentary doesn’t traffic in rumors, so let’s dive into the meat and potatoes for what is facing our industry!


Little-known FDIC regulations



It has been discovered that a little-known provision in the Dodd-Frank Act requires all FDIC insured institutions to honor mortgages and liens “written on any living animal.” Legislators aren’t certain how the provision made it into the final bill, but believe it was an intentional slight by an analyst, in response for having to put the Durbin Amendment in. Whatever the explanation, MERS and servicers aren’t laughing. “This has become a real headache,” said MERS spokesperson Christopher Riley. “At first, it was just a few cows, but when folks here got wind of it, they started bringing in whole barnyards. Right now we’ve got four cows, twenty-one chickens, seventeen hogs, three mules, and a goat.”


The problem isn’t limited to rural institutions. “We’re seeing more and more of it,” said Scott Short, President of San Francisco Federal Thrift & Loan. “Dogs, cats, hamsters, snakes…you name it. Sometimes these animals shed their skins and some eat each other. Then what do you do?” Fraud has also been a problem. “We had to sell a mortgage written on a bird,” said Mr. Short. “The first chance the pigeon had, it then flew right out the window.” This still small but growing practice has also impacted shipping departments around the nation, clogging already-backlogged operations departments by having to ship live animals to the aggregators. Bob Broeksmit, President of the MBA, recently testified before Congress, “Our members’ back offices were not designed with animal husbandry in mind. If you thought robo-signing was a nightmare, try having the CFPB audit a room full of monkeys.”


CFPB releases minutes



In an effort toward more transparency, the CFPB, like the Federal Reserve Open Market Committee, has decided to release the minutes from its senior management meetings, informally known as “cuddle huddles.” Here is an excerpt from a recently held cuddle huddle:

“I’d like to thank everyone for getting together to touch base and closing the loop. The next item on the agenda is the off-siting paradigm, and if we are ready to push it across the finish line. Compliance?”

“Our team was going to re-purpose this task, engage in some team building exercises, and then circle back with the other pods after solutioning. Legal?”

“Yes, and we need to line up our ducks and take it to the next level once we brainstorm the strategic fit. Are the other assistant associate directors in agreement?”

“Roger that. My group is prepared to kick it up a notch and see if it holds water, and then push the envelope. Government affairs?”

“Last week we held an enclave, putting our heads together and synergizing, and discussed dialing it back or near-shoring operations. Accounting?”

“Our group has been working under the radar with the end goal to be to operationalize this function and get to win-win. IT?”

“We wanted to see how this was going to bubble up, right-size it, streamline the flow, and then run it up the flagpole. We’re working on coding and trying to work a pivot table into the flow. Communications?”

“Can someone remind me what we are talking about?”

“We may need to outsource this if we want to stay lean and mean. Meeting adjourned. Group hug.”


Expense cutting not restricted to lenders and vendors



Although travel and entertainment budgets have been reduced for many lenders, travel is still a fact of life. For example, ahead of next month’s MBA conference in New York, plenty of capital markets employees are booking flights. In a related story out of Ft. Worth, explaining that the costs of the service have grown too high in recent years, American Airlines announced yesterday that it will no longer offer free cabin pressurization to passengers starting April 15, but offer free Wi-Fi. “Unfortunately, to stay competitive as a legacy carrier in today’s air travel market, it no longer makes economic sense for us to provide breathable air at altitude,” said American Airlines CEO Doug Parker, noting that despite the cutbacks, air pressurization would still be available to first- and business-class travelers as well as those willing to pay an additional fee. “While we regret any altitude sickness, blood problems, dimmed vision, or hyperventilation that may result from air pressure less than a third normal levels, we remind our customers that such effects will diminish as soon as the aircraft descends below 10,000 feet.” Parker added that the company is also planning to discontinue complimentary landing gear on flights less than four hours, or for any flights carrying known mortgage bankers.


2023 forecasting



The MBA came out with a revised production forecast for the remainder of 2023. Interestingly, it mimicked, nearly word for word, its 2022 forecast. “The good news is that many lenders will reach their goal of 70% purchases making up their volume! The bad news is that overall volume will be down by 90%.” This once again has spooked the LO herd and I received this note from a new LO in Wisconsin: “Rob, my mentor told me that I could make a living originating loans, especially refi’s. And now we hear this forecast. I’ve spent most of my time focusing on hobby farms. I’m really starting to gain traction, but do you think that I need to reevaluate my future in lending?” Yes.


Lenders collaborating



In an unheralded move, the top 5-15 lenders for 2011 have formed a club celebrating life 12 years ago. “We have 8-year memories in 10-year business cycles! We haven’t had this much fun since Indymac and WAMU were competing for our stated-stated loans at a price of 105” said one CEO. Representatives and retirees from U.S. Bank, Ally/GMAC, PHH Mortgage, Quicken Loans, Flagstar Bank, Provident Funding, BB&T, MetLife, Fifth Third Mortgage, SunTrust Mortgage, and Franklin American are all as giddy as schoolgirls at the prospect. When organizers were reminded that MetLife is no longer in the mortgage business, they replied, “That’s cool – we’re all one big happy family.” Apparently, this group of mid-sized lenders has grown weary of larger players coming and going, buybacks, and being lumped in with anyone worried about Basel III.

The club plans to do its own servicing, issue its own securities, map out its own underwriting guidelines, and even have its own secret conferences. One source, requesting anonymity, stated, “We’re going to have our conferences in Kansas, which is both in the middle of everything and in the middle of nowhere. And Kansas is supposed to get the internet in 2024, which ties in nicely with our plans. We’re tired of those MBA shindigs in expensive places with lousy airports. And those fancy restaurants don’t hold a candle to Arthur Bryant’s BBQ. We’re going to create ‘Lender Town’ as a permanent conference center. We’ll really be able to let our hair down. It’ll be modeled after Disneyland, with a submarine ride to see the underwater mortgage-backed securities. And instead of Abe Lincoln giving the Gettysburg Address, we’re going to have a statue of Andrew Cuomo giving a speech from 2001 about how the government needs to increase home ownership. And there’s the Richard Cordray dart board.”


Banking industry reeling from potential crisis



From Charlotte, North Carolina, comes word that with the drop in residential lending revenue Bank of America’s blue-ribbon commission has found a new source of revenue. Saying that the penalty will cover the costs incurred by the financial institution whenever a customer makes a withdrawal that results in a positive account balance, Bank of America introduced a new $50 under draft fee on all checking and savings accounts. “Beginning today, we will assess a fee on customers who withdraw less money than they have available,” bank spokesperson Steve Lam told reporters, noting that the $50 surcharge will automatically be deducted any time a patron uses a Bank of America debit card or check to make a purchase that is less than the dollar amount of his or her account balance. “We’re confident this new fee shouldn’t be an issue for most of our customers. As long as account holders remain vigilant about their finances, and make sure not to withdraw too little money, they should be able to conduct their banking business as usual without ever receiving a ‘sufficient funds’ notice.”


To further incentivize customers against repeating such a financial mistake, Lam added that the fee will increase with each additional underdraft, with the penalty rising to $75 for a second offense, $150 for a third offense, and a value equal to the remaining balance of one’s account for any additional underdraft committed thereafter.


Work from home adjustments continue



Lenders continue to grapple with decisions of life in the lending world since the pandemic ended, and Wyoming’s Gaptooth Mortgage has instituted an office-wide policy permitting employees to work from home any time after 6PM. “If it helps them be efficient and get more done, I have no problem with people working remotely once they’ve left the office for the day,” said the CEO, who noted that as long as they’re doing their jobs, the location where his staff members choose to work between 6PM and 9AM is “completely up to them.” That’s the kind of relaxed culture we strive to create here, one where you can even be working from your living room couch at two in the morning if you’d like.” The bulletin reminded employees that since they don’t have to be in the office for any meetings, employees are free to work from home on weekends and holidays as well.


Capital markets


Turning to the markets, the only news from around the world (which had virtually no impact on rates) was the release by the Japanese Institute of Supply Management of its weekly tally. J.I.S.M. numbers are notoriously suspect, and of poor predictive ability. Given the recent low volatility of mortgage rates, and the slow realization that 30-yr fixed rates are not heading back into the 3% range any time soon, there is mounting concern that LOs have been forced to find other things to “discuss” with their Capital Markets departments. As the world turns…


But it has been quiet this week in the bond market since we saw the banking-related volatility a few weeks ago. In fact, the bond market and interest rates have been downright boring, which is never a bad thing for capital markets teams. So, let’s discuss the stock market, since that seems to attract the attention of the press all the time anyway.


For today’s stock market report, helium was up, feathers were down, paper was stationary, and fluorescent tubing was dimmed in light trading.


Knives were up sharply. Cows steered into a bull market. Pencils lost a few points. Hiking equipment was trailing. Elevators rose while escalators continued their slow decline. Weights were up in heavy trading. Light switches were off. Mining equipment hit rock bottom. Diapers remain unchanged Shipping lines stayed at an even keel. The market for raisins dried up. Coca Cola fizzled. Caterpillar stock inched up a bit. Sun peaked at midday. Balloon prices were inflated. And Scott Tissue touched a new bottom.



April 1st is named April Fools Day, after Charles April. He did 56 businesses in his lifetime. He lost all of his father’s properties and was tricked easily, so people started calling him “Father of Fools.” He married a 22-year old woman who divorced him after a year because of his foolishness. He used to read all kinds of fake stories like you’re reading now.



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Rob Chrisman