May 27, 2011: More on hedge cost; jumbo buyers; single-point contact for servicers; mortgage fraud & lawsuits from top to bottom continues to dominate the press
Rob Chrisman

I saw a poor old lady fall over today on the ice!!   At least I presume she was poor - she only had $1.20 in her purse.
 
That is probably not enough to invest in the hundreds of billions, or trillions, that might be up for sale if Fannie & Freddie begin liquidating their portfolios. Not only that, but there are 15 F&F-related bills in the House, little interest in the Senate about doing anything soon, and the NAR and mortgage-related groups arrayed against House Republicans, who are now looking to peddle F&F's assets. Let me check my wallet to see if I can help them out. http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid 1105251631dowjonesdjonline000581&titleregulator-looks-to-sell-fannie-freddie-mortgage-assets.
 
“Daddy, when I grow up, I want to be a special servicer.” I’d be willing to wager that statement has never been heard, but it is probably a lucrative business. Nationstar is making a name for itself in that sector, and IBM (yes, that IBM) is heading that way. Last year it purchased Wilshire Credit Corp. from BofA, and beginning July 9 the servicing group will stop using the name IBM Lender Business Process Services (which doesn’t exactly roll off your tongue) and start using a new name: Seterus.
 
Hey, if you don't like the delinquency rate of the pool that you're trying to sell some investor (who is probably not going to read the 300 page prospectus anyway), you can always make up your own delinquency rates, right? Wrong. You may just be sued, like ML & CSFB... http://www.latimes.com/business/la-fi-delinquency-fines-20110526,0,3406813.story.
 
Which reminds me - the public, or a Congressman, can barely look at a newspaper without seeing yet another story concerning mortgage fraud. No wonder they're all scared out there - when will these stories be replaced by antique book dealer fraud, or babies being switched in the hospital fraud? Here is the latest - how Miami leads the nation in modification fraud: http://www.miamiherald.com/2011/05/26/2237013/miami-leads-cities-in-reports.html#ixzz1NW3kpoS6. And if one doesn't want to read about modification fraud, there's always someone being sent to the slammer for origination fraud in the past, the latest being up in Massachusetts: http://www.boston.com/business/articles/2011/05/26/sentence_of_12th_defendant_concludes_massive_mortgage_fraud_case/.
 
(Not only does Miami lead the nation in mortgage fraud, but Florida leads in foreclosures. According to the MBA, 24% of all mortgages in the country that are in foreclosure are in Florida - more than 22 other states combined. In fact, more than half the mortgages in foreclosure in the US are concentrated in 5 states! http://www.mbaa.org/NewsandMedia/PressCenter/76676.htm)
 
Earlier this week I mentioned the decline in perceived productivity in mortgage banking. I received this note from Lenders One: "If they are a member of Lenders One we can certainly poll our members for them. We are a good source to ask a question like this to our membership. (If you're interested in learning more, write to Laura Hopkins at LHopkins@lendersone.com.)

"Rob - a gal I have worked with for over 20 years quit a few weeks ago.  This was the most competent, honest loan officer ever.  She was a student of the business.  Knew everything about all first time programs, bond programs, you name it she knew it. She had great production, always a 6 figure income - a true pro.  She said, 'I would rather do nothing than this anymore.'  Damn shame." Unintended consequences?

Although some loan agents often feel the same way, many others carry on, and need to know the latest in licensing. "The SAFE Act requires that state-licensed mortgage loan originators (MLOs) complete 8 hours of NMLS approved continuing education (CE) annually.  The SAFE Act also stipulates that a state-licensed MLO ‘may not take the same approved course in the same or successive years to meet the annual requirements for continuing education.’  NMLS has interpreted the term “successive years” to mean two years in a row." (Given that the word means “one following another”, I am glad NMLS cleared that up, although I guess it could have meant more than 2…) Need more? http://mortgage.nationwidelicensingsystem.org/courseprovider/Pages/Resources.aspx.
 
If you’re ever looking for jumbo investors (probably more on the retail or wholesale side) or lenders, this is a good place to start: http://www.thestreet.com/story/11129216/1/banks-to-profit-off-jumbos-moodys.html?cm_venGOOGLEN.

A while back I discussed hedging cost, and received this from a grizzled industry vet: "Well you mention a lot of pipeline management items in your hedge cost and unfortunately that falls under the secondary guy. It is up to him or her to track their pull through by broker, LO, and retail office, establish the lock and renegotiation policies and monitor these activities, and operational efficiencies of the loan flow through the pipeline and upon delivery of the final product. This part of the job is not glamorous, but extremely important to remain profitable. Since it is under the secondary marketing's P&L, they have to make sure all the gears are in sync to ensure profitability. Nice 'pin cushion' position!"
 
Frank Fiore with Matchbox LLC wrote, “We see so few secondary managers who really do this. We just did a project where we interviewed 20 secondary people and I can tell that their process is extremely manual, has huge gaps for data integrity, does not use technology in an efficient manner, and creates exposure. And in most cases, the people we spoke with were instrumental in creating the process, so they see nothing wrong with it. Firms have to continually monitor the lock desk to hedging process.
 
“Very few secondary people react to market volatility and their pull through as it relates to hedging like you wrote about. So many companies say their pull through is at 80% and if the report is within a few ticks of that, they think they (and the secondary marketing department or hedging firm) is doing a great job. There is so much more to it in regard to pipeline management, roll costs, platform allocation. There are times when you want to make your pull through much higher than what you are scheduling and others when you would prefer if it fell lower.”
 
That being said, one important element in successful pipeline hedging is having multiple delivery channels for loans. Bob Gundel from Compass Analytics writes, “Lenders with several options will typically deliver to the investor with the best price in order to squeeze every last basis point out of the loan and maximize profits. This means that investors are competing with one another for the lender's business and product. The need to keep pricing competitive means that lenders with multiple delivery options tend to see better investor pricing than lenders that have a single delivery option. More competitive mandatory pricing means an increase to the spread over best efforts, which should result in increased profitability all other things equal. Multiple delivery options then create another level of best execution for SMM's (Secondary Marketing Managers) to model and analyze when selling loans. SMM's should consider investor, coupon and delivery month best execution when calculating MTM on locks and inventory as well as when preparing to sell funded loans to Investors.  With the proper technology, deriving accurate MTM pricing that factor in all applicable note rate, occupancy and credit adjustments, delivery cutoffs, early bonuses and price spiffs across multiple investors can be achieved in a timely and accurate manner.  Lenders failing capture best execution at the time of sale create opportunity cost which result in higher hedge cost, since the full best efforts to mandatory spread value isn't realized.”

Recently the U.S. Department of the Treasury released Supplemental Directive 11-04 requiring certain servicers of mortgage loans that are not owned or guaranteed by Fannie or Freddie to provide a "relationship manager" to serve as a single point of contact for defaulting borrowers who are potentially eligible for the HAMP, the Home Affordable Unemployment Program (UP), or the HAFA programs. Put another way, the Treasury will require servicers of non-GSE mortgages to have a single point of contact for defaulting borrowers starting 9/1.  For details you should go to https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1104.pdf.
 
Everyone is talking about these rates… if our economy is expanding, why are rates falling? That’s just it – recently economic news has indicated things are not so rosy. Agency MBS prices are good: 30-yr conventional 4% securities (containing 4.25-4.625% loans) are well above par. Traders are eyeing 3.5% 30-yr securities, which now are in the 96/97 price area – will a rally bring them anywhere near 100? And given the higher LLPA’s, continued underwriting & documentation environment, and lack of property value appreciation, most experts wonder how much more “refi oomph” outstanding mortgages have.
 
Today we have a bunch of news, and then a recommended early close to the bond market – so don’t look for anyone to improve rates after about 12 EST, 9 PST. We’ve already had Personal Income and Consumption, PI +.4%, PC +.4%, about as expected. Later we’ll have a University of Michigan survey and Pending Home Sales for April. Typically an expanding economy tends to strain resources, leading to higher prices and inflation, leading to higher rates. But the opposite can happen as well. This morning the 10-yr started down at 3.07% but we’re “up” to 3.10%. Yesterday MBS prices were better by .625 – we could see a little pull back today.
 
 
Can you believe it is nearly Memorial Day Weekend already? If you don’t recall why we have a Memorial Day, read about it here:  http://en.wikipedia.org/wiki/Memorial_Day. If you do recall why we have Memorial Day, I hope you take a few moments over the weekend to contemplate the reason yourself and maybe even educate or remind someone else that may not understand or appreciate it.  Explaining the significance to a child or young adult comes to mind. Given our own busy and challenging lives, it may be easy for many folks to forget or take for granted what the Servicemen and Servicewomen have done and are doing to support or even maintain our daily opportunities.  The “service” portion of the name is not a coincidence, and it is appropriate to acknowledge the sacrifices endured by the immediate and extended families impacted by the service of their own family members.


If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com . The current blog takes a look at the QRM proposal’s impact on our industry. If you have both the time and inclination make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.