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Feb. 10, 2011: Comp updates & penalties for non-compliance; Fannie & Freddie plan's impact on servicing values & street prices
Rob Chrisman
Sometimes,
all you have is your good name. http://www.upi.com/Odd_News/2011/02/09/Harry-Baals-Government-Center-unlikely/UPI-83251297281467/
Under “your tax
dollars at work,” here’s an interesting tool for anyone looking
for information on population trends. The U.S.
Census Bureau launched an interactive map that focuses on
2010 Census population counts. The Bureau is releasing the
information on a rolling basis through March, with the states
completed so far in bold print. (Click on "Select Another State"
in very small print to see another state.) http://2010.census.gov/2010census/data/
The latest comp news
comes from the National Association of Mortgage Brokers (NAMB),
which, through a call-in campaign, apparently has spurred on the
House Financial Service Committee to examine the impact the
Federal Reserve Board's recent regulation controlling employee
pay will have on loan originators in its Oversight Plan. “In the
House Financial Services Committee's Oversight Plan released
today, the Committee will examine the
implementation of proposed rules issued by the Federal Reserve
governing mortgage origination compensation, which are
scheduled to become effective April 1, 2011.”
If you're a loan
agent, or any non-hourly profession, are you owed over-time
if you work more than 40 hours a week? It depends who you ask,
but many HR folks are watching this one:
http://www.bloomberg.com/news/2011-02-09/quicken-says-it-doesn-t-owe-ot-as-trial-opens.html
One person not
sticking around to see the result is Freddie Mac’s
chief operating officer, Bruce Witherell, who quit yesterday.
This comes a day after Wells Fargo’s CFO resigned/retired, and
before tomorrow’s official release of the Treasury’s Freddie
& Fannie proposals.
What happens if a
loan originator doesn’t adhere to the compensation
regulations? The
regulations are spelled out as follows: Section 129B of the
Truth in Lending Act is amended by inserting after subsection
(c) (as added by section 1403) the following new subsection:
‘‘(d) LIABILITY FOR
VIOLATIONS.
‘‘(1) IN GENERAL.—For
purposes of providing a cause of action for any failure by a
mortgage originator, other than a creditor, to comply with any
requirement imposed under this section and any regulation
prescribed under this section, section 130 shall be applied with
respect to any such failure by substituting ‘mortgage
originator’ for ‘creditor’ each place such term appears in each
such subsection.
‘‘(2) MAXIMUM.—The
maximum amount of any liability of a mortgage originator under
paragraph (1) to a consumer for any violation of this section
shall not exceed the greater of actual damages or an amount
equal to 3 times the total amount of direct and indirect
compensation or gain accruing to the mortgage originator in
connection with the residential mortgage loan involved in the
violation, plus the costs to the consumer of the action,
including a reasonable attorney’s fee.”.
One investment banker
wrote to me on this and said, “I think it’s referring to the
sections regarding the new compensation rules. I’m not sure if
there are other fines though – there must be more guidelines –
the government must also be able to bring action to originators
– the above seems like penalties directed towards consumers who
have been wronged. I’m not sure if any consumer would ever find
out.” Of course, large investors will be approving
any plans that are put forth by brokers or any companies that
sell loans to them to make sure they adhere. This may
create a real problem for a company selling loans to multiple
investors, and therefore may have to go through multiple
compensation plan approval reviews!
The Fannie &
Freddie plans have been well leaked to the press at this point,
although anything that is decided upon will takes years to
implement. Of great interest to many investors, and especially
those servicing loans, is what will happen to the
value of servicing under the plan, and how this will impact
street pricing for originators. (And let’s not forget
Basel III simmering out there.) Minds much smarter than mine
suggest that existing servicing will be “grandfathered in to the
current process/values. Going forward, at some point, however,
the minimum servicing fee for newly securitized loans would be
reduced from 25bps to 5bps. Concurrent with this lower minimum
fee, servicers will only be required to process loans that are
less than 89 days delinquent. For the current loans, the
Servicer will be allowed to earn the float, late fees and
ancillary income; however, it will be obligated to make advances
as needed while the loans are less than 89 days delinquent.
Loans that are 90+ days delinquent will be transferred to a
“Special Servicer” who will be paid on a "cost plus" basis from
a pre-negotiated schedule. This Special
Servicer can be another party or a different department within
the original Servicer. So writes a trader at BofA/Merrill Lynch.
The suggested outcome
goes on. The GSE (or other "wrapping entity") may raise the
minimum guarantee fee to something in the 40 to 65 basis point
range. So perhaps for most servicers, a drop in the
servicing fee, combined with an increase in the g-fee, may be
somewhat close to a “wash” price-wise. Or perhaps not – it
may depend to some extent on how much of the delinquency burden
the GSE takes versus the servicer. The Merrill piece suggests
that “it make perfect sense to give the economic risk of the
entire delinquent mortgage function to the experts who can then
charge the correct price versus paying a known DM fee schedule.”
Also, since the large bulk servicers are banks that will fall
under the new Basel III rules, reducing the capitalized MBSR
from 25bps to 5bps will mostly solve the proposed capital
restriction issues.
Wells Fargo's
mortgage division, as the
#2 servicer and with its 25% market share in 2010 attracting
interest, has been busy lately. Yesterday Wells Fargo Home
Equity announced a 5% increase in CLTV when the subject
transaction meets certain criteria, although not to exceed the
WFHE maximum of 80% CLTV. The numbers are based on market
classifications, condominiums, or second homes, but with Wells
Fargo and other investors maximum CLTV’s vary by loan amount, so
check the guides.
On the wholesale
side, within the last week or two ago WF's wholesale group
addressed “Non-Referred Vendor Fees, issued a clarification for
FHA Streamline Refinance Payment Requirements, and a reverse
mortgage update focused on requirements to provide proof that
borrowers have received a list of HECM counseling agencies.
Wells’ wholesale
division also notified brokers of upcoming “benefit to borrower”
policy changes, as well as the TIL disclosure changes that took
effect on January 30th. Lastly, Wells sent out a
bulletin to brokers addressing, “Federally Regulated Brokers:
S.A.F.E. Registry Opening Date Announced, Freddie Mac No Longer
Allows Streamlined Refinance (FOSR) Transactions, Home Equity
Income Requirements Update, Reminder: Texas Attorney Fee
Disclosure Requirements, Enhancement: FHA “Property Flipping”
Policy Changes – Extended Until Dec. 31, 2011, Condominium
Project Approval Changes, FHA Elimination of the Master
Appraisal Report (MAR), Documentation Requirements of Rental
Income from the Subject Property, Rental Income Qualification
Requirements When a Departure Residence Becomes an Investment
Property, Rental Income Qualification Requirements from a
Property Other Than the Subject Property Owned Less Than 12
Months, WFHM/WFHE Market Classification List Update for Five
Counties in Florida, and New Compensation and Anti-Steering
Rules: Preparing for Lender-Paid State Levels and Compensation
Adjusters.” Phew!
At least we had a little rebound Wednesday in the bond markets,
which helped out rates. As one trader from Jefferies put it,
“While the performance of mortgages over the past few sessions
has been incredibly disappointing we continue to expect that
over time adding into these pockets of weakness will pay
dividends. Supply will remain nearly
non-existent at these rate levels and once the market
establishes a new trading range investors will be in search of
ways to enhance returns, particularly ones which offer the
liquidity of MBS.”
We saw some of that
yesterday, and it was paired with a decent $24 billion 10-yr
auction. And let’s not forget Ben Bernanke’s testimony, and that
fact that the bond markets were “oversold” and therefore one
would expect a bounce at some point. When the proverbial dust
had settled, mortgage security prices were about .375 better
than Tuesday's close. Hopefully you don’t mind (too much) rates
where they are, as many analysts feel that in the immediate
future rates may chop around at these levels for a while.
This morning we’ve
had our usual weekly Jobless Claims, which dropped by 36,000 to
383,000, and the 4-week moving average fell 15,000 to 431,500.
(Many prefer focusing on the 4-week moving average since it
irons out some of the weekly volatility.) Regardless, this puts
the jobless claims number at its lowest level since the summer
of 2008. After the news we find the 10-yr yielding
about 3.69% and MBS prices slightly worse. We still have a
$16 billion 30-yr auction to muddle through.
A man walks into a
loan officer’s office and sees an agent sitting behind the desk.
He walks up and introduces himself and they chat about a home
loan. After a while he tells the agent, "Look I know this is
forward, but I think you're the right person to give me a home
loan. If I gave you 10 points, would you do it?”
She looks at him for a minute and says, "Really? Ten points?"
"Yes," he says.
She tells him OK.
A minute or two go by
and he asks her, "If I give you a dollar, will you still give me
the loan at that rate?"
She looks at him with
disgust and asks, "What the heck do you think I am?"
He replies, "Well,
we've already established that. Now we're just working on the
price."
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