April 1st edition: Private Capital returning to market; minutes from recent CFPB meeting; new Wells lawsuit

The MBA came out with a revised production forecast for 2014. Interestingly, it mimicked, nearly word for word, its 2013 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.


Obviously a big part of residential lending these days is following the events of the CFPB. The CFPB has announced a public comment period on grammar rules as they pertain to capitalizing certain words for no reason whatsoever. In addition, the CFPB has released an additional set of HMDA information that lenders may be required to collect. These new data fields include, “What color tie did the client wear at signing?”, “Did the client sign with his right or left hand? Or neither?”, “How long did the client take to sign his loan documents: under 20 minutes or over 20 minutes?”, “Did their hand shake during the signing?”, “Does the client own a pet?”, “How many lenders did the client call before selecting your company?”, and “Can the client compute the APR without a calculator?” The agencies and aggregators are adding IT staff in order to accommodate these additional fields before May 1, 2014, when they take effect.


In mortgage-related news, the CFPB, which is running out of financial transactions to regulate, has lashed out against layaway plans – unfortunately it might be 80 years too late. The agency reminds us that a layaway plan is an agreement in which the seller reserves an item for a consumer until the consumer completes all the payments necessary to pay for that item. Rather than taking the item home and then repaying the debt on a regular schedule, as in most installment plans or hire purchases, the layaway customer does not receive the item until it is completely paid for. There is sometimes a fee associated, since the seller must “lay” the item “away” in storage until the payments are completed. Because there is little risk involved for the seller, layaway can be readily offered to those with bad credit who also use pay day lenders, pawn shops, and some residential lenders. If the transaction is not completed, the item is returned to stock and the customer’s money is returned minus a fee. The main advantage of layaway is that no interest is charged – which is a disadvantage to everyone who is charged interest. In addition, the price is fixed, availability is guaranteed by reserving the item in stock, and an item being purchased as a gift can be kept secret. Layaway plans became common during the Great Depression of the 1930s but then ended with the increase in credit cards during the 1980s.


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. 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.”


While we’re on the CFPB, I received this note from a new compliance person in Illinois. “I was going through the CFPB’s examination manual. (Fortunately it is not as bad as the 900+ pages sounds – a lot of it is fluff and addendums.) I have a question for you. The information noted on page 612, section 4, paragraph 3, line 7, seems to directly conflict with the information included in the HUD ‘Housing Choice Voucher’ worksheet that is distributed to the public, chapter 4, and also the RESPA document titled, ‘Exemptions from Coverage Under Sections 4 and 5 of RESPA for Certain Subordinate Loans Provided by Assistance Programs for Low and Moderate Income People,’ which refers to Section 19(a) of RESPA. What are your thoughts?” First off, I don’t have any. Second, please let me know if you ever become unhappy with your current employer – I can think of hundreds of other companies that would be happy to hire you.


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. So 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. “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.” The Onion notes that Parker added that the company is also planning to discontinue complimentary landing gear on flights less than four hours.


One may expect lawsuits to follow the American Airlines story. Speaking of which, watching all of the lawsuits in the industry but not wanting to be left out of the fray, Wells Fargo is suing Norwest Mortgage. “We have all these lawyers on our payroll that need something to do” on executive noted. “Legal has grown weary of battling Fannie & Freddie, the OCC, the Department of Justice, the attorneys general in all fifty states, the CFPB, the CFTC, HUD, and every investor that purchased a security back by mortgages in the last 20 years. So we figured that this would be a slam-dunk, no-brainer case. Especially since Norwest Mortgage no longer exists.”


An alarming study released last week by the U.S. Department of Justice reportedly reveals absolutely nothing the financial services giant Goldman Sachs high-powered lawyers can’t effortlessly take care of, no sweat, with no lasting damage whatsoever to the company or its reputation. “While Goldman has for years benefited from record sales of its stable of flagship financial services, our research shows [not a damned thing the best and most handsomely compensated legal team in the country won’t make go away in a millisecond, don’t you worry],” read the study in part, which includes a series of troubling conclusions that are all being given a thorough read-through by Doug and the rest of the junkyard dogs in legal who will make sure any resulting litigation is either dismissed in a court of law outright or will result in a minor cash settlement that, c’mon, will be a mere drop in the bucket for a company the size of Goldman. “Specifically, and most disturbingly, our data show [lots of stuff, probably, but who gives a darn what they show; there’s not a single thing any study can do to topple one of the world’s premier investment banks, and there ain’t no way this study reveals anything Goldman lawyers haven’t cakewalked through a thousand times before, easy peasy.]” According to sources, the new study also reveals its authors actually thought they had a chance of bringing down Goldman.


Ocwen has come under a lot of pressure lately. But Ocwen’s Executive Chairman and Chairman of the Executive Committee William C. Erbey confirmed today that he had received “strong, unqualified words of support” last night in a ninety-minute conversation with himself. The policies and procedures of Ocwen’s servicing group was the main topic of the conversation, which Mr. Erbey described as “extremely collegial and enthusiastic.” “We discussed a wide range of issues, including how everyone in the industry wants to sell us their servicing, and also how Ocwen does other servicers a favor by taking on their delinquent loans,” he said. “There was strong agreement on all of these matters.” Mr. Erbey pronounced the ninety-minute conversation “exceedingly helpful.” He added: “It was exhilarating to be able to talk at length here in the Bahamas with someone for whom I have such boundless love and respect.” Buoyed by last night’s positive dialogue, Mr. Erbey said that he planned to have many such conversations in the days and weeks ahead. “It was good to hear how splendidly everything was going,” he said.


FinCEN will require FNMA, FHLMC and the FHLBs to develop AML programs and file SARs reports with the FHA. According to SIFMA, RMBS and CMBS probably will not be impacted, nor will DU or LP, but the MBA, NAR, HUD are reviewing the program to see its impact on MLOs. The CFPB is expected to issue a rulemaking on it.


I am happy to announce that Private Capital is returning to the mortgage market! (No, this isn’t some play on a private in the Army named “Tony Capital” who is financing his house.) I received an odd e-mail last week saying “Meet me at Pier 12 at 10:30PM tonight.” I was intrigued, especially having seen all “The Sopranos” episodes, and had nothing better to do than to visit a loading dock rather than sleep. I showed up, and Private Capital immediately commented that based on my e-mails I should have been taller, younger, better looking, and more educated. The meeting went downhill from there. I asked why Private Capital hadn’t been around in any kind of noticeable fashion in several years, and PC replied that the returns just weren’t there. And in fact they were getting worse. PC then shot off several demands. “First, I want returns in the teens. No one wants a 30-yr fixed rate asset at 4.25%. Give me intermediate ARM loans, like 3-1s or 5-1s or 7-1s, at 14%. I either want no delinquencies, so servicing is a breeze, or give me pools with lots of delinquencies so that I can either foreclose and sell the house at a profit or collect a lot of fee income. And lastly, I need you to take care of Fannie Mae and Freddie Mac. The two of them are really muddying the waters. Make it quick, because the last thing the mortgage industry needs is continued droning on by politicians and regulators about the ‘final solution’ during an election year. Don’t remind your readers that in the past they served a critical role in housing – this is a new era!” Before slipping into the darkness Private Capital finished with, “If you do all that, we’ll let you invest in our funds and pay our management fees.”


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…


  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.)

Rob Chrisman