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Feb. 23, 2011: Wells' comp questions; comp discussions around the country; rent v. own; TBW and Toll Bros. news
Rob Chrisman
Originators
and borrowers are often faced with the “rent versus
own” question, with varying results. Here: http://www.nytimes.com/interactive/business/buy-rent-calculator.html?
Homeowner and rental
vacancy statistics, from the Current Population Survey via the
Census Bureau, provide an interesting set of numbers indicative
of the rent versus buy question. There are roughly 131 million
housing units in the United States, with about 86% of them being
occupied. Of those units, 57% are occupied by owners, 29% by
renters, and 14% (about 18 million units!) are vacant.
Will they be filled
with buyers? It is highly unlikely that 30-yr fixed rates for
conventional loans will drop back to 4%, in spite of short-term
improvements like yesterday. But as one top retail branch owner
mentioned to me, "We still have agents waiting for
the great pumpkin." Other managers had written to me last
autumn saying, "If my agents can't produce loans when rates are
at 4%, I don't know what makes them think they're going to be
doing any more when rates go back to 5 or 5.5%." Well, here we
are. We did see a jump in mortgage applications last week, up
about 13% on an adjusted basis, with refinancing activity
accounting for about 66% of total apps.
This leads to a discussion about overall trends in the mortgage
biz. Last quarter Freddie Mac reported that 46% of
refinance volume was “cash-in” where the principal
mortgage balance is lowered as a result of homeowners paying-in
additional money. Many households, like companies, are
relatively liquid, and are deciding what to do with the money –
and buying down debt during periods of low rates is a good
option. (Companies face a slightly different set of options,
including paying a dividend, buying another company, expanding
existing facilities, etc.)
Compensation has been, and will be, a hot topic out there. Comp discussions are happening around the country.
In Northern California, Comstock Mortgage announced two panel
discussions “examining the impact the Federal Reserve Loan
Originator compensation rules will have on our industry and on
loan originators.” The discussions are today in Dublin, CA and
Friday in Sacramento. For information contact Casey Fleming at cfleming@comstockmortgage.com
or to register for the seminar, contact Kathleen Chothia at
(925) 484-1466.
Three thousand miles away, in Parsippany, New Jersey, NYLX is
putting on a seminar on the same topic tomorrow. To start the
registration process, go to http://marketing.nylx.com/LO_comp/seminar/registration.pdf.
And the Maryland Association of Mortgage
Professionals is conducting a 2 hour session on March 3 in
Columbia on "Structuring Loan Originator Compensation Plans” –
for more information go to www.marylandmortgageprofessionals.com.
Wells Fargo's
wholesale channel
released a video to its clients focused on rate sheet changes
effective with the compensation and anti-steering rules. Access,
however, is only for Wells’ broker clients through its Broker's
First website (by clicking the Broker News Video link under Hot
Links in the upper right hand corner).
On Wells’
correspondent side, its clients have received some relatively
detailed information, not the least of which is a discussion of
the possible penalties for non-compliance. (I didn’t see any
talk of giving up first-born male children, but they can be
financially severe.) Well’s communication details
counterparty policy and procedure review, attestation of
compliance, annual recertification, etc. Currently unlike
other investors, Wells is requiring a review of comp plans:
“Sellers who have not provided the information by March 15,
2011, and successfully passed our screening on or before April
1, 2011, may be ineligible to deliver new business to Wells
Fargo Funding.” My guess is that other investors will institute
similar plans, rather than Wells give up on its review process –
just my opinion. The “Attestation of Compliance” will need to be
filled out by an authorized officer annually – for specific
requirements see the bulletin. Sellers will also be asked to
provide a copy of their company’s loan originator compensation
policies and procedures for retail originations (if applicable),
although “Wells Fargo does not wish to receive any documentation
indicating specific compensation levels for any of your loan
originators, mortgage brokers, or correspondents.”
Wells’
correspondents will be asked to complete a Seller Compensation
Questionnaire online which will include eighteen questions about “Sellers’
policies and procedures that support compliance with the new
loan originator and mortgage broker compensation regulations.” I
believe that it is useful for originators to know what investors
are focused on, so in a somewhat condensed version, here
are the questions sent to clients, with the last several
requiring explanations:
“1. Have you created
and/or updated your company’s policies and procedures regarding
loan originator compensation to comply with the loan originator
compensation rules set forth in the Truth in Lending Act,
Regulation Z and the Official Staff Commentary (referred to
collectively as the “TILA Compensation Rules”, effective April
1, 2011? 2. Do your compensation policies and procedures address
how your company will pay its retail loan originators and
producing branch managers (PBM’s)? 3. Are retail loan
originators or PBM’s paid based on the loan’s interest rate or
APR? 4. Are retail loan originators or PBM’s paid based on the
loan’s LTV? 5. Are retail loan originators or PBM’s paid based
on the existence of a prepayment penalty or other loan-specific
term? 6. Are retail loan originators or PBM’s paid based on the
consumer’s credit score? 7. Are retail loan originators or PBM’s
paid based on the amount of fees collected? 8. Are retail loan
originators or PBM’s paid based on the loan’s Community
Reinvestment Act eligibility? 9. Are retail loan originators or
PBM’s paid based on the existence of mortgage insurance in
connection with a loan? 10. Are retail loan originators or PBM’s
paid based on an individual loan’s profitability? 11. Are retail
loan originators or PBM’s paid based on loan type (such as
different compensation for first lien loans, second lien loans,
FHA/VA/USDA loans, purchase money loans, refinance loans, etc.)?
12. Can a retail loan originator or PBM receive compensation
from multiple sources (such as both the borrower and the
lender)? 13. Are retail loan originators or PBM’s paid based on
a percent of the amount of credit extended? (If ‘Yes,’ please
answer the following questions: 13 a) Is that percent fixed
(constant)? 13 b) Is that percent subject to a minimum and
maximum dollar amount? Yes No (if No, please proceed to number
14) 13 c) If yes for 13b, are those minimum and maximum dollar
amounts fixed (constant) among all credit transactions?) 14.
What steps have you taken or will you take to ensure that your
retail loan originators, and mortgage brokers and correspondents
with whom you conduct business, will originate loans in
compliance with the loan originator compensation rules set forth
in the TILA Compensation Rules? 15. How will you ensure that for
all originations, regardless of source, compensation is paid to
loan originators by either the lender or the consumer, but not
by both parties? 16. How will you ensure that on mortgage broker
transactions, where the consumer pays the broker compensation,
individual loan officers who are employed by the broker owners
are only compensated by the broker owners based on wages,
salaries and allowable distributions? 17. How will you ensure
that your retail loan originators, and mortgage brokers and
correspondents with whom you conduct business, are not steering
consumers to products on the basis of increased compensation to
the loan originator? 18. How long does your company maintain
records of the loan-level compensation?”
While we’re talking
about the consequences of Dodd-Frank, last Thursday House
Republicans cemented plans to slash the budget for the new
Consumer Financial Protection Bureau. But many special interest
groups noted that longstanding consumer advocate Raj Date was
appointed the head of rule-writing and research of the CFPB. His
background is in banking (Deutsche Bank, Capital One) and
consulting (McKinsey & Co.), and was a big proponent for a
major overhaul of the financial system during the congressional
debate, and a proponent for stronger regulation.
The former treasurer of Taylor, Bean & Whitaker
won’t have to worry about the comp issue, but she has other
concerns. Desiree Brown is set to enter a plea agreement to
federal criminal charges tomorrow. http://www.reuters.com/article/2011/02/22/us-mortgage-fraud-plea-idUSTRE71L6IZ20110222
Toll Brothers had a profit in its first quarter,
citing the dollar volume of deliveries and average prices rise.
In December, S&P increased the likelihood it would downgrade
Toll to junk, so the latest profit figures are welcome: for the
quarter ended Jan. 31, Toll Brothers reported a profit of $3.4
million compared with a year-earlier loss of $41 million. Home
deliveries were up 2% on a dollar basis but slid 4% on a units
basis, and net signed contracts rose 5% on a dollars basis and
7% on a units basis. Cancellations were down, and the average
delivery price increased 7% to $586,000.
In more company-level
news, PSM Holdings, out of New Mexico, signed a
letter of intent to acquire United Community
Mortgage, located in New Jersey. UCMC will be merged into
PrimeSource Mortgage Inc., the mortgage banking subsidiary of
PSMH. And in the unsubstantiated rumor mill, Stern Financial,
American National Bank is rumored to have shut down its mortgage
division Premier Bank in Kansas City.
Yesterday we learned
that the S&P/Case Shiller Home Price Indices, which track
home prices throughout the U.S. on a two-month lag, declined
3.9% during the fourth quarter of 2010 on top of a 1.9 percent
decline in Q3. Prices were 4.1% lower than one year earlier.
"Despite improvements in the overall economy, housing continues
to drift lower and weaker,” was the quote I saw.
But the focus was on
other items, namely a decent 2-yr Treasury auction and the
violence and protests in Libya. MBS prices finished the day
better by .375-.5 on roughly average volume, and 10-yr T-notes
improved by about 1 point and moved down to a yield of 3.46%.
This morning we
already had the usual MBA weekly Mortgage Application Survey
(mentioned above) and later we’ll have Existing Home Sales for
January along with the second leg of the Treasury's latest
auctions with $35 billion 5-year notes going off at 1PM EST. We find the 10-yr up to about 3.49% and MBS prices
worse by about .125.
(A “joke” to think about…)
Five guys are
stranded on an island.
One guy gets the daily firewood, one guy bakes the daily bread,
one guy climbs to the top of the mountain to get fresh water,
one guy fishes all day to bring home dinner, and one guy does
nothing but consume the firewood, the bread, the water, and the
fish.
One day the workers ask the fifth guy why he doesn't get the
items himself, and he replies, "Without me, none of you would be
employed."
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