Feb. 1, 2011: Comp Q&A Part VI; Ally Financial results; ARM volume picking up; major investor updates
Rob Chrisman

There have been eleven bank closures so far in 2011, with four on Friday. The First State Bank (OK) was sold to Bank 7 (OK), Evergreen State Bank (WI) was sold to McFarland State Bank (also of WI), FirstTier Bank (CO) was placed into the FDIC-created Deposit Insurance National bank of Louisville, which will remain open until Feb 28 to give depositors time to open accounts at other banks, and lastly First Community Bank (NM) was sold to US Bank (MN). To continue on, Wells Fargo said it will cut temporary 145 employees from its wholesale mortgage lending division. http://www.ocbj.com/news/2011/jan/31/wells-fargo-cutting-145-mortgage-jobs-irvine/

But hiring continues. Weichert Financial Services/Mortgage Access (www.weichertfinancial.com), a privately held, top real estate affiliated mortgage company, licensed in 43 states with a significant Northeast presence, is actively hiring licensed loan officers in New Jersey, New York, Connecticut, Pennsylvania, Virginia and Maryland. The company has been around over 30 years. Contact Recruiting Manager Sean O’Flynn at soflynn@weichertfinancial.com.

April Fool’s Day is two months from today, and the compensation issue is heating. NAMB issued an “action alert” for members to contact their Senators' or Representative and urge them to stop the Fed's Rule on Loan Originators Compensation. Delay or issue a complete compliance guide! “Dial the U.S. Capitol Switchboard at (202) 224-3121…Ask to be connected to your Member of Congress' office…Urge them to Delay the Fed Rule on LO Compensation Regulation Z: 12 CFR 226. Ask for their e-mail or fax number to send your letter…Write your letter to the Federal Reserve Board and email or fax to your members of Congress.”
 
Here is Part VI of the compensation Q&A from the MBA and Fed.
 
Q19. In situations in which a lender acts as a mortgage broker and, thus, is a loan originator for purposes of the rule, if the party has an affiliated settlement service provider, such as a title company, are the bona fide and reasonable charges received by the affiliated settlement service provider considered part of the loan originator compensation?
A. Fed Response - No. The reason for treating affiliates as a single person is to avoid attempts to circumvent the rule by allowing a company to set up two separate companies with different commission structures and permitting its loan officers to deliver loans to either company. This is addressed in Commentary Section 226.36(d) (3)-1. This concern is not presented when a loan originator has an affiliated settlement service provider, because to be excluded from compensation under the rule the fees of the provider for the settlement service must (a) not be retained by the loan originator and (b) be bona fide and reasonable. The bona fide and reasonable requirement is sufficient to address any concern that the loan originator may seek to receive compensation by having its affiliate charge higher fees for its settlement services.
Q20. May a creditor permit certain loan originators to establish rate and point combinations for loans below the creditor’s standard rate and point combinations without first seeking approval of a supervisor, subject to a limits on the amount per loan and the total amount per loans
within given period (such as no more than Y basis points per any individual loan and no more than an aggregate of Z basis points per all loans during a quarter)? This is done to meet competition. The compensation of the loan originators would not vary based on whether or not the rate and points established for a loan was below the creditor’s standard rate and point combinations.
Fed Response - Yes. As long as a loan originator’s compensation does not vary based on whether or not the rate and points established for a loan is below the creditor’s standard rate and point combinations, certain loan originators may be permitted to establish rate and point combinations for loans that are below the creditor’s standard rate and point combinations.
Q21. May a loan originator pay some or all of the third party fees of a consumer or otherwise credit the consumer from a premium rate or out of his own pocket?
A. Fed Response - No. The rule prohibits overages and underages tied to terms including rate. The Board has concluded that if it did not prohibit lowering of loan originator compensation, the industry may establish high prices/compensation amounts, and then lower prices and compensation amounts for borrowers who negotiated. The Board views an originator’s agreement to reduce compensation to pay fees as essentially the same as an underage where loan originator compensation is lowered.
 
Well, not that the market has turned, but the amount of chatter out there in the ranks about ARM loans is increasing by the day. Maybe folks are bored with talk about compensation, buybacks, RESPA, refi's disappearing, etc. A survey done by FHLMC (uh, Freddie) of over 100 lenders showed that conventional conforming ARMs are starting to attract applicants again, and that their market share may go from 3% in 2009 to almost 10% in 2011. Gone, for the most part, are two-year adjustables, option ARM’s, “pick-a-pay” ARMs, etc., and they've been replaced with the 3-1, 5-1, and 7-1. These hybrids have better rates than the 30-yr product, in some cases 1-1.5% better. Better dust off those manuals that define terms like margin, index, and so forth!
 
Ally Financial reported net income of $79 million for the fourth quarter of 2010, compared to a net loss of $5.0 billion for the fourth quarter of 2009, and a net income of $1.1 billion for the entire year compared to a net loss of $10.3 billion in 2009. The company's Mortgage Operations business is now reported as two distinct segments: “Origination and Servicing” and “Legacy Portfolio and Other.” Total mortgage loan production in the fourth quarter of 2010 was $23.8 billion, compared to $20.5 billion in the third quarter of 2010 and $18.1 billion in the fourth quarter of 2009.  The vast majority of fourth quarter 2010 production was driven by the origination of prime conforming loans. Approximately, 84% of the company's global mortgage loan production during the quarter was due to refinancings.
 
Over the weekend Bank of America was forced to suspend temporary buydowns on all products due to TILA and disclosure uncertainty. "The Correspondent Lending website locking screens will not enforce this restriction, but loans in violation of this policy will be declined upon delivery. Correspondent Lending will re-introduce this loan feature after the disclosure requirements on temporary buydowns have been clarified and implemented throughout the industry."
 
Bank of America (#2 in ’10) sent an announcement to its correspondent clients focused on the elimination of Master Appraisal Report for FHA Loans (announced on January 12th in a Mortgagee Letter), the Subordination Agreement Requirement (BofA requires a Subordination Agreement as part of the loan file to document the subordination of existing secondary financing to a new first mortgage lien), and reminds clients of the requirement that clients comply with all requirements of the SAFE Act, and design and implement policies and procedures to ensure loans sold to Bank of America are originated by mortgage loan officers who are correctly licensed or registered. BofA, of course, is following the SAFE Act, which requires all MLOs to register with the NMLS within 180 days of the Registry opening. "Based on the anticipated NMLS opening date, Clients must complete registration by July 30, 2011 (subject to the actual Registry opening date)." And be sure to use those NMLS numbers when submitting loans! Lastly, in compliance with Freddie Mac, starting today all conventional loans utilizing LP decisions must have credit reports that include a 120-day credit inquiry history.

Wells Fargo (#1 in ’10), as a result of the 4/1 changes, told correspondents that it (WF Funding) will be implementing certain risk mitigation controls. "Counterparty Policy and Procedure Review: Wells Fargo will require information and/or supporting documentation which demonstrates compliance with the compensation and anti-steering rules as they relate to retail and Third Party Originations (TPOs). Annual Attestation: On an annual basis, to provide evidence of their compliance, and the compliance of the TPOs with whom they do business, Sellers will be asked by Wells Fargo to complete an attestation. Anti-Steering Loan Option Disclosure: Sellers will be required to provide an anti-steering loan option disclosure to consumers in a manner that meets the safe harbor specifications in Regulation Z, and to include that options disclosure in the Loan file. Loans that fail to comply with these new rules, or that fail to contain evidence of the anti-steering options disclosure, will not be eligible for purchase by Wells Fargo. Wells Fargo Funding will issue a follow up communication in about two weeks that outlines submission guidelines and timelines for the required materials noted above, with a due date in the second half of March."

Late last week Flagstar Bank increased the conforming loan limits for loans secured by two-unit properties, now permitting two-unit loan amounts up to the applicable county loan limit. “Flag” also increased the loan limits allowed for FHA transactions secured by two-unit properties – it will now permit two-unit loan amounts up to the applicable FHA county limits.

Union Bank reminded brokers of the TIL form changes due to Regulation Z. The payment schedule will now show an “Interest Rate and Payment Summary” (Summary) based on the maximum interest rate for the specific loan program and interest rate the customer is applying for. There are new headings on the form, and not all headings will be used in all transactions.  Additional categories will include: an escrow/impound payment, and a total estimated monthly payment. UB also reminded brokers that the IRS 4506-T forms posted have been updated to allow Union Bank to validate up to 3 years of tax returns.

Turning to the markets, the WSJ reported that Q4 tax revenues grew at the fastest rate in nearly 5 years, which should help ease some of the fiscal/muni/state-default concerns. Monday saw a little pick up in MBS volumes with the price fade. Relative to Treasury securities, MBS prices did well, however, worsening by .125 while the 10-yr’s price fell .375 and closed with a yield of 3.38% on somewhat less risk aversion, profit taking and stronger than expected economic data. Today is a pretty light news day, with only Construction Spending and an ISM number out at 9AM CST, 7AM PST. With little news the 10-yr is sitting around 3.42%, and MBS prices are worse .125-.250.
 

Biting the bullet on expenses:
The President ordered the cabinet to cut a whopping $100 million from the $3.5 trillion federal budget!
I'm so impressed by this sacrifice that I have decided to do the same thing with my personal budget. I spend about $2,000 a month on buffets, groceries, medicine, bills, etc., but it's time to get out the budget cutting ax, go line by line through my expenses, and go to work.
I'm going to cut my spending at exactly the same ratio -1/35,000 of my total budget. After doing the math, it looks like instead of spending $2,000 a month; I'm going to have to cut that number by six cents!
Yes, I'm going to have to get by with $1999.94, but that's what sacrifice is all about. I'll just have to do without some things, that are, frankly, luxury items.