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Jan. 26, 2011: Part 2 of comp FAQ & answers; NAMB asks for 4/1 extension; releases show apps & home prices falling
Rob Chrisman
For some folks, including an ex-wife of a billionaire,
$1 million a week is simply not enough.
http://www.luxist.com/2011/01/21/what-happened-to-patricia-kluges-fortune/?icidmain%7Chtmlws-sb-n%7Cdl3%7Csec1_lnk2%7C197212.
Something else that isn’t enough is mortgage applications
in the U.S., which fell to their lowest level since November
2008. The weekly MBA figures showed that apps decreased 13% in
the week ended Jan. 21, with refi’s down 15% to the lowest in a
year while purchase applications fell almost 9% to the lowest
level since October. Obviously some of this may be due to the
MLK holiday. On the “good news” side of this, less supply and
decent investor demand should lead to good MBS prices on a
relative basis.
(Of
course, what tends to happen, with “normal” business and
revenue dropping, companies will often take another look at
“off the run” products. Management and secondary staffs
will tend to listen to producers asking about products like
203(k), or Home Path, etc., especially if it means a potential
increase in revenue. But they will often run up against a
government agency offering a program but investors not doing so
due to ‘risk versus return’ issues, and as you know, volumes
have to justify the effort. A trout will only expend energy if
the food drifting by will gain more calories than it uses up. So
most companies don't feel the need to gear up and jump through
hurdles for programs where volume is limited.)
NAMB, which
is either the National Association of Mortgage Brokers or
National Association of Mortgage Professionals, depending,
spread the word that it learned that “the Federal Reserve Board
is working on a compliance guide for small entities on the LO
compensation rule, pursuant to Section 212 of the Small Business
Regulatory Enforcement Fairness Act (SBREFA), and it will be
published in the immediate future. NAMB will ask for a
significant delay on the April 1st deadline in order for Office
of Advocacy Small Business Administration to interpret and
implement any guidelines coming from the Federal Reserve board
at such a late date.”
In the
meantime, Optimal Blue, mostly known for its decision
making technology, announced it has “released the first phase of
its Loan Officer Compensation functionality...which includes
configuring mark ups, fees, and compensation for the loan
officer to ensure lenders are compliant with the forthcoming
Federal Reserve Bank regulations.” “Being ahead of the curve and
releasing this functionality gives our customers the confidence
they will be in full compliance when the regulation takes
effect,” said Larry Huff, co-CEO of Optimal Blue.
Yesterday
I passed along Part 1 of a Q&A dialog between the MBA and
Federal regulators (although SunTrust distributed it to its
broker clients). Here is Part 2 in a series of several:
Q4:
Assuming a creditor establishes a fixed percentage of loan
amount compensation for a particular type of loan, how
frequently may the creditor adjust the compensation to the
originator?
A. Fed Response - Over any reasonable period of time that would
support a finding that compensation requires adjustment,
provided such adjustment does not lead to loan-by-loan
adjustment; not more frequently than every two weeks.
Q5. Compensation variations for purchase and refinance
loans. Can the compensation to a loan originator vary based on
whether a loan is a purchase or a refinance?
A. Fed Response - No, not if purchase and refinance loans are
priced differently. In such cases, purchases or refinances
become proxies for different rates and originators cannot be
compensated differently for them There is danger if there is
differential compensation that consumers will be steered to
whichever transaction results in greater compensation to the
loan originator. If purchase and refinance transactions are
priced the same, these dangers are not present.
Q6. Can the compensation to a loan originator vary based
on whether a loan is a FHA, VA or Conventional loan?
A. Fed Response - No. If FHA, VA and Conventional loans are
priced differently, the loans become proxies for different rates
and originators cannot be compensated differently for them. If
there is differential compensation that some consumers will be
steered to whichever transaction results in greater compensation
to the loan originator.
Q7. Can the compensation to a loan originator vary based
on whether a loan is to be held in
portfolio or a loan that will be sold?
A. Fed Response - No, if portfolio and non-portfolio loans are
priced differently, they become proxies for different rates and
originators cannot be compensated differently for them. There is
danger if there is differential compensation that some consumers
will be steered to whichever transaction results in greater
compensation to the loan originator.
Q8. A
creditor has an incentive compensation plan for originators that
is based on the originator’s loan volume over a particular
period. It is not tied to loan terms. It is based on a fixed
percentage of the aggregate principal balance of loans
originated by the loan originator during the period.
Q8a. Can
payment of the incentive compensation to the originator be
conditioned on the company, region or branch achieving a certain
level of profit during the period?
A. Fed Response - No. Permitting lenders to base compensation
decisions on profits may lead to basing compensation on terms or
conditions. The rule does not permit this at this time.
Q8b. What if the profit is calculated in whole or part
based on the aggregate value of loans originated during a
particular period?
A. Fed Response - Yes. It would be permissible. Calculating
compensation based in whole or part on the aggregate value of
loans would not result in a loan originator being compensated
impermissibly based on the terms of any loan.
(Part 3
will be tomorrow, when I will be coming to you from Dallas!)
Fraud...in Illinois? No way! Six people were indicted
recently on federal charges alleging they participated in a $15
million mortgage fraud scheme that involved more than 40
residential properties in Chicago and the south suburbs. Their
actions allegedly caused several financial institutions to lose
approximately $4.5 million on mortgage loans that were not
repaid by the borrowers or fully recovered through foreclosure
sales, a release from the U.S. Attorney's office said. http://abclocal.go.com/wls/story?sectionnews/local&idx95243.
Yesterday
both the S&P and the FHFA released their home price
indexes for November with both reporting year-over-year
declines. Standard & Poor’s S&P Case-Shiller HPI
dropped 1.6% year over year in November, and its 4th
straight month of dropping, for the 20-City Composite with eight
MSAs – Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland
(OR), Seattle and Tampa recording new price lows. The 10-City
Composite was down 0.4% YOY. (Please note the difference between
the 20-cit and 10-city numbers, which is leading some to point
out how large cities are outperforming smaller ones.
Best performers: Coastal California, parts of the Northeast.
Worst performers: the Southeast, the Midwest, the Pacific
Northwest, Florida, Arizona and Nevada.)
For the
FHFA index, it was unchanged in November, but down 4.3% for the
year. For the month five regions recorded declines – Mountain
(-1.9%), West North Central (-0.1%), East North Central (-0.5%),
Middle Atlantic (-0.2%) and South Atlantic (-0.7%), while the
Pacific (+1.2%), West South Central (+1.3%), East South Central
(+0.8%) and New England states (+0.3%) recorded gains. From an investor’s point of view, weak home prices
will keep voluntary prepayments low as many borrowers are
unable to refinance their mortgages due to high LTVs. But it
also keeps foreclosure risk elevated and suggests involuntary
prepayments will continue to make up a larger portion of early
pay-offs in the higher coupons.
At
least rates are relatively quiet, and seem to be
“range-bound.” MBS volumes picked up a little bit on Monday, which was
good to see during a nice rally (improvement). On the Treasury
side, the 10-yr improved by about .75 in price. (It closed at
3.32%, and has been between 3.28-3.53% for almost two months.)
Consumer Confidence came in stronger-than expected, which might
cause a nudge toward higher rates. But this was balanced against
chatter about a potential spending & budget freeze mentioned
in the State of the Union Address, along with solid results from
the 2-yr auction.
Tradeweb
recorded above-normal MBS volume for the first day since January
5, and traders reported buying interest from hedge fund and
money managers. MBS prices, which began the day worse by about
.250, ended the day better by .250, resulting in numerous
investor price improvements.
For
today, we’ve already had the mortgage applications number, will
have Home Sales at 10AM EST, and the $35 billion 5-yr note
auction at 1PM EST. But today’s supposed highlight will be the
release of the FOMC Statement at 12:15PM MST. Aside from a few
new voters, don’t look for much excitement. No substantive
changes are expected, and it is likely to produce the same
result as the December meeting. Fed officials will likely repeat
their expectation of a "slow" and "gradual return" to their dual
mandate. Ahead of all this, and a little “buy the rumor, sell
the news” on last night’s speech, rates have crept up, with
the 10-yr at 3.37% and MBS prices off between .125-.250 from
Monday’s close.
I never
thought about this until an elderly acquaintance exclaimed, “I'm
rich!
Gold in the Teeth
Silver in the Hair
Crystals in the Kidneys
Sugar in the Blood
Lead in the "rump"
Iron in the Arteries, and...
An inexhaustible supply of Natural Gas.
I never thought I'd accumulate such wealth.”
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