While at the TMBA I was fortunate enough to hear Zixta Martinez, the Assistant Director for Community Affairs from the Consumer Financial Protection Bureau. Although she pretty much toed the agency line in her speech, one definitely has the impression that it is alive and beginning to have an impact, for better or worse. She reminded the group that its birthday is 7/21, and prior to that it had announced a list of consumer finance regulations it will take over from seven other federal agencies. CFPB’s focus is primarily on debt collectors, consumer lenders, money transmitters, and prepaid card issuers. The Dodd-Frank Act requires the Bureau to examine large banks, thrifts, credit unions, and their affiliates. The Act also allows the Bureau to conduct routine examinations of nonbank covered persons in the residential mortgage lending, private education lending, and payday lending markets, among others. Non-depository covered persons such as these will be subject to a risk-based supervision program that is designed to assess the covered person for compliance with Federal consumer financial law,  obtain information about its activities, and assess risks to consumers and to the consumer financial markets.

On Monday of this week the CFPB announced that it will give a 14-day early warning notice to institutions that are subject of an investigation in order to get their response before they take legal action. The agency will be sending out Early Warning Notices to individuals or firms that are being targeted for enforcement action, informing them that they have violated consumer financial protection laws. Recipients of the notice will then have two weeks to make a counter-argument to that claim. However, providing advance notice will be discretionary, and might not be forthcoming if "prompt action" is required.

Last week the CFPB began soliciting comments regarding its proposed collection of information for the development and testing of new and existing model forms, disclosures, tools, and similar related materials. The Dodd-Frank Act and federal consumer financial laws require the CFPB to create and prescribe standard model forms, disclosures, and other similar materials to explain and notify consumers about complex financial information in a way consumers can understand. To facilitate the development and implementation of the model forms and documents, the CFPB plans to collect qualitative data about existing forms through a variety of collection methods, including consumer interviews and research. The CFPB also plans to collect information from covered entities to ensure that the new model materials can be implemented as easily and cost-effectively as possible. Don’t be shy: comments on the proposed collection must be received on or before January 3, 2012 to be assured of consideration. For a copy of the Federal Register Notice, please see http://www.gpo.gov/fdsys/pkg/FR-2011-11-02/pdf/2011-28337.pdf.

The CFPB definitely has mortgage servicing in its sights. Law firm K&L Gates sent out an extensive Client Alert about the CFPB and its Mortgage Servicing Examination Procedure.
“With the October 13, 2011, release of its new Mortgage Servicing Examination Procedures (the “Procedures”), the CFPB appears to leave it up to scores of individual examiners to decide in their subjective judgment whether a company's loan servicing practices raise ‘unfair, deceptive, or abusive acts or practices’ (“UDAAP”) concerns. Even though these new Procedures remain a work in progress, the Bureau has indicated that it will begin examining servicers in accordance with the Procedures in the fourth quarter of 2011—that is, the quarter that started two weeks before the Procedures were released.  In fairness, however, devising an entirely new set of examination procedures is a substantial project for a new agency, and the Bureau’s willingness to fully disclose so much of its guidance to examiners shows laudable transparency.”

K&L continues, “The Bureau seems to be using its examination authority as a way to discourage practices that it views as potentially unfair, deceptive, or abusive, without providing concrete guidance to examiners or examinees.  If so, this poses heightened risks to servicers, because supervision is not subject to the transparency or judicial review inherent in the formal rulemaking process.  Fortunately, the Procedures suggest that servicers can mitigate some of this uncertainty by developing robust and effective systems of internal controls…mortgage servicers might want to clarify and formalize existing policies and procedures, consider their current practices in light of the Bureau’s UDAAP focus, and implement strong controls with an eye to the mitigation of compliance risk.”

Fannie Mae will request an additional $7.8 billion from you and me after “soured derivatives bets” caused the company to record a $5.1 billion quarterly loss. (In fact, Fannie has had a quarterly operating profit only once in the last four years!) Derivatives and securities trading resulted in a $4.5bn loss for the quarter, versus a $500m gain in the same period last year. For those keeping track, Fannie has now requested more than $111 billion from the US Treasury to stay afloat, while Freddie is #2 at $72 billion in taxpayer money.

But the good news doesn’t stop there. Ally Financial (that took $17 billion of U.S. aid) is considering a bankruptcy-protection filing for its mortgage-lending unit, “said people familiar with the situation.” (Things are always true when the press uses those words.) Per stories in Bloomberg and the WSJ, Ally is being advised by law firm Kirkland & Ellis and investment bank Evercore Partners Inc. on a possible restructuring of ResCap. “One option under consideration: a so-called strategic bankruptcy that would aim to limit Ally's exposure to ResCap and pave the way for an eventual initial public offering of Ally, 74% of whose shares are owned by the U.S. government. Walling off the parent from the financial and legal woes of its subsidiary could make Ally shares an easier sell for public investors.” Remember that Bank of America decided that a bankruptcy filing for its Countrywide Financial mortgage subsidiary carried too many risks. “Legal observers warn that the gambit is seen as a last resort for a good reason, in part because bankruptcy can be unpredictable.” "There's a reputational hazard," said Harvey Miller, a veteran bankruptcy lawyer at Weil, Gotshal & Manges. "Once you put a subsidiary into bankruptcy, people start to wonder: How safe is the parent? How safe are the other affiliates?" Go to: http://www.bloomberg.com/news/2011-11-08/ally-s-rescap-mortgage-unit-is-said-to-hire-centerview-for-restructuring.html.

At least some have a 3-day weekend coming up. Investors such as PHH are reminding clients that Veteran’s Day is a federal holiday and therefore it is not counted as a business day when determining the Right of Rescission 3 day waiting period.

And at least lock desks around the nation reported some good news last week. The MBA’s weekly survey, which covers 75% of retail production, showed apps were up over 10% with refi’s up 12% and purchases up almost 5%. Nationwide refi’s account for almost 79% of the biz.

Looking at the markets, yesterday news that Italy’s Berlusconi would supposedly resign encouraged some risk takers with Treasuries selling off and the Dow gaining modestly. With no news in the United States, our markets definitely trade on news from across the Atlantic, and by the end of the day 10-yr T-notes were worse about .625 and up to 2.06%. Mortgage volume was pretty light, MBS trading-wise, but MBS prices ended worse by about .250-.375.

The day's highlight is the second leg of the Treasury Refunding with $24 billion in 10-year notes going off at 13:00 EST. And with the Italian turmoil, money is moving into U.S. fixed-income securities so the 10-yr is down to 1.99% and MBS prices are better by roughly .250.

For the older folks out there:
1. She was in the bathroom, putting on her makeup, under the watchful eyes of her young granddaughter, as she'd done many times before. After she applied her lipstick and started to leave, the little one said, "But Grandma, you forgot to kiss the toilet paper good-bye!" I will probably never put lipstick on again without thinking about kissing the toilet paper good-bye....
2. My young grandson called the other day to wish me Happy Birthday. He asked me how old I was, and I told him, 62. My grandson was quiet for a moment, and then he asked, "Did you start at 1?"
3. After putting her grandchildren to bed, a grandmother changed into old slacks and a droopy blouse and proceeded to wash her hair. As she heard the children getting more and more rambunctious, her patience grew thin. Finally, she threw a towel around her head and stormed into their room, putting them back to bed with stern warnings. As she left the room, she heard the three-year-old say with a trembling voice, "Who was THAT?"