Mar. 18, 2011: OT for mortgage folks? AG/Servicer talks update; comp updates; Chase weighs in on QRM's impact
Rob Chrisman

What promises to be almost as impressive as all the underwater borrowers making their payments, watch out for that moon tomorrow night:
http://science.nasa.gov/science-news/science-at-nasa/2011/16mar_supermoon/.
 
What does Chase think about a U.S. proposal to exempt certain mortgages from rules governing securitized loans? That it may unintentionally help the biggest banks.
http://www.bloomberg.com/news/2011-03-16/jpmorgan-s-dimon-says-risk-retention-exemption-may-benefit-biggest-lenders.html.

When speaking to various groups lately I have been asked, "When will Alt-A come back?" It is a legitimate question. Many originators fondly remember the days of companies like Thornburg or Headlands. There is little doubt that the market will come back, it is “merely” a question of squaring away the A-paper market and then finding out demand at what yield relative to A-paper/agency product? For the product originated in previous years, within the prime and Alt-A sector, traders continue to prefer super-senior bonds backed by clean Alt-A and “dirty” prime collateral. Analysts feel that the risk of cash flow disruptions owing to modifications is highest for dirty Alt-A bonds, and therefore tend to favor bonds backed by higher credit quality paper and with lower delinquencies. Over the past year, hybrid bonds have traded at 50-100bp wider spreads versus comparable fixed-rate bonds, and are now trading at the wider end of that range – is that something that an LO can sell to a borrower? Note that many Alt-A intermediate ARM’s, like 5/1’s done 5 years ago, are seeing their rates drop, which helps.
 
One of the key components of any mortgage rate sheet is pricing, and a key component of that is the mortgage-backed securities' price, off of which agency loans are priced. Take those security prices away and you have... the Alt-A and jumbo markets! Say what you will about how mortgage-backed securities are priced, given the current state of the securitization market, and the lack of objective rating for these securities, the Alt-A market will probably come back once brighter-minds-than-mine figure this out.
 
Anyone putting together a library of documents regarding the banking and credit crisis of the last few years will want to include this piece, produced by the FDIC on AmTrust Bank and NYCB: http://www.fdicig.gov/reports11/11-005AUD.pdf.
 
The latest on the Attorney General servicer settlement news can be found here: http://www.washingtonpost.com/business/economy/state-attorneys-general-tackle-mortgage-servicing/2011/03/17/ABGmNCn_story.html. Kate Berry, of American Banker, has been following the mortgage servicer foreclosure settlement negotiations. In a recent article she mentioned that “mortgage servicers are fuming” as it appears that the draft of the agreement is unfair and impracticable. But servicers are facing an uphill battle given the negative press on foreclosures and robo-signing scandals. “Servicers are chafing at the idea of paying out billions in a settlement with regulators because they claim very few borrowers have been wrongly foreclosed upon or were harmed by last year’s robo-signing scandal. Servicers delayed tens of thousands of foreclosures in the 23 states where the process is handled in court. They argue that the vast majority of borrowers in these cases had stopped paying their mortgages, were in default on their loan and had been living in the home for free during the foreclosure process. While servicers have admitted there was procedural misconduct in the shoddy paperwork submitted to courts, they claim the proposed penalty of upwards of $20 billion is disproportionate to the alleged crime.”

Berry’s article continues. “Lawyers for the servicers maintain that the proposal does not distinguish between loans a bank services for itself and a loan it services for others. And servicers insist they don't have the authority under the pooling and servicing agreements governing securitizations to do a great deal of what the proposal calls for them to do. The servicers say they are not authorized by PSAs to make principal reductions on loans held in private-label securities, as the draft settlement calls for them to do, so the companies argue it is unclear if a proposed government settlement would override such contracts.” Obviously banks, servicers and investors do not want to take the losses, and did not set up reserves to handle the principal reductions.

SIFMA (a securities industry trade organization) expressed “strong reservations” about the 27 page AG proposed settlement. “The draft proposal could lead to unintended consequences for the housing market and potentially harm investors in mortgage backed securities. The figure being bantered about is north of $20 billion. http://www.reuters.com/article/2011/03/16/financial-regulation-mortgages-sifma-idUSN1611728320110316.
 
Deutsche Bank released a study showing that renting a home costs U.S. households more than paying a mortgage for the first time in at least two decades. The rent-buy ratio, or rent as a percentage of after-tax mortgage payments, is based on figures that Deutsche Bank compiled from NAR and the REIS information service. Rent amounted to 100.2% of home-loan costs in last year’s fourth quarter, the highest level since calculations began in 1991.
 
Should mortgage bankers be paid over time? There are many factors, but in the most recent suit, Quicken Loans proved victorious.
http://www.freep.com/article/20110317/BUSINESS06/110317011/0/COL01/Quicken-victor-lawsuit-overtime?odysseynav%7Chead.

"Having the comp plan be delayed is about as likely has having Paris Hilton win a spelling bee." So I was told by someone who knows someone who knows someone... related to Congress. Companies are certainly moving ahead, as they should, with plans for full implementation. Some retailers are setting base salaries, with underages and overages. For example…
 
Provident Funding sent its clients “TILA Compensation Rule FAQ’s”, and brokers should go to www.pfloans.provident.com. “Click on the Things You Need to Know link. Click on the FAQ’s tab on the left-side menu. Select the TILA Compensation Rule category.” (Remember that the Provident Funding FAQ’s should not be considered legal advice - consult your attorney.) Provident also supplied its clients with the Broker Fee Agreement (with the borrower) sample form has been updated, although brokers are able to still use their own Broker Fee Agreement forms – make sure that the terms must be consistent.
 
Kinecta Federal Credit Union is also offering up compensation information for its Midwest Central States Region. A WebEx presentation takes place next Wednesday, 10:30AM to 12:00 noon CST. Meeting Number: 926 578 929, password regzeasy. Go to: https://kinectamortgage.webex.com/kinectamortgage/j.php?J'9578929&PWNNWM0YzJlMmI4.
 
Kinecta has recently released a slew of changes, refinements, and updates to its broker clients. Included are updates on the DU Refi Plus program extension to June 2012 (original mortgages being refinanced must have been purchased by Fannie Mae prior to June 1, 2009). Note that under this program original loans not currently serviced Kinecta: “For loans where MI is required (>90% max 105% LTV 720+ FICO), MI from the original loan is transferable to the new loan at the original loans’ MI required level, except for properties located in NV, FL, and AZ. For properties located in NV, FL, and AZ MI is required at the new loan MI required levels.” Kinecta has also made some other changes recently. Its 10/1 ARM maximum LTV has been revised to 95%. For its Agency Fixed and ARM Products, cash-out is expanded to 85% if the loan meets certain restrictions on loan amount, DTI, etc. Kinecta updated its agency and super-conforming ARM and IO ARM products, cash out requirements, reserve calculations on IO ARMs, condo guidelines, the ability to count retirement accounts as assets, etc., etc.
 
Home Savings of America tweaked its compensation policy, set for 4/1. “In addition to a set percentage of the loan amount and a minimum/maximum, you may also select a flat dollar amount.  This will allow you to select: A set percentage, a flat dollar amount per loan or, a combination of both, as well as a min/max.”
 
Out west, Comstock Mortgage is setting up a forum where several wholesale lenders will announce their Loan Originator Rule Compliance Plans. The two programs are open to loan originators and branch managers of all companies, and might be useful for brokers to compare plans. There is a fee of $15 by today and $25 after today. The seminars are Wednesday in Sunnyvale and Friday in Sacramento, lunch included. For more information about the seminar contact Casey Fleming at (408) 348-3442 or Kathleen Chothia at (925) 484-1466.
 
Mountain West Financial told its brokers, "Due to the minimal production of Non-Conforming CalSTRS loans, the CalSTRS Home Loan Program is suspending all of their Non-Conforming Products.  CalSTRS intends to concentrate its efforts on the more popular conforming product.  The last day to lock a CalSTRS Non-Conforming loan will be Monday, March 21, 2011."
 
The “market” had decided that stocks and bonds had gone far enough in one direction, and Thursday was time to bounce back. So even though the same concerns remain, bond prices dropped with the 10-year note closing down about .250 (3.25%). Agency MBS prices were worse by about .125.
 
There is no scheduled news today, so watch for headlines and rumors to move rates. Overnight the yen tumbled the most in more than two years against the dollar as the Group of Seven nations said they will jointly intervene in foreign-exchange markets for the first time in more than a decade. Stocks are pointing to a higher open, the 10-yr. yield is around 3.25% and MBS prices are about unchanged.
 
 
"Top ten ways to tell if you might be a member of a public-sector union" By David Letterman.
10.) You take a week off to protest in Wisconsin and your office runs better.
9.) On a snow day, when they say “non-essential” people should stay home you know who they mean.
8.) You get paid twice as much as a private sector person doing the same job but make up the difference by doing half as much work.
7.) It takes longer to fire you than the average killer spends on death row.
6.) The worse you do your job, the more your boss avoids you.
5.) You think the French are working themselves to death.
4.) You know by having a copy of the Holy Koran on your desk your job is 100% safe.
3.) You spend more time at protest marches than at church.
2.) You have a Democratic congressman’s lips permanently attached to your butt.
And the #1 way to tell if you might be a member of a public sector union:
1.) You pay more in union dues than you do for your health care insurance.