Speaking of high-pitched noises (and no, this is not a lead in to a Taylor Swift joke), the constructive clamoring about the CFPB’s flat fee continues. “The CFPB for consumer finance, in my opinion, is the same thing as the CFTC for commodity trading overseeing Future Commission Merchants and the SEC for stock broker/dealers.  Both the futures and stock brokerage industries have formed self-regulating entities. The National Futures Association for commodities and the Financial Industry Regulatory Authority (FINRA) for stocks. The mortgage industry would be well served if the industry itself through the MBA or other entity to set up their own SRO. Have the industry clean up its own act, rather than the CFPB.” So observed John Ohman with Flatirons Capital Management.

"Rob, in regards to the Flat Fee Pricing the Government is considering, perhaps they could lead by example and make sales tax, income tax and real estate tax a flat fee per person or transaction amount. I see no difference with the logic."

And another from John Jacobs with Patriot Bank Mortgage: "Rob, I certainly understand the ruminations around a flat fee for loan originations.  It is emotional more than economic.  I have maintained for many years that our costs in mortgage-banking, except for commissions, are in dollars, but we receive our revenues in basis points.  It has always been difficult to justify aggressive pricing for small loans, and everyone, including your contributor, uses the average loan size as a benchmark.  What is really happening is that the larger loans are currently subsidizing the smaller loans, by using averages. My biggest fear is not the flat fee per se, but rather the competition to see how low one can make the flat fee, which will create a race to the bottom.  As an industry, we have never been very disciplined in how we approach pricing.  Just call us farmers growing corn.  The lowest cost producer makes the most money, because we will all receive the same or similar income stream."

Don from Colorado wrote, "Flat Fee Pricing turns us all into bus drivers. Nothing against bus drivers and I am sure you get my point. The competition factor would die and again the lower income borrower will continue to suffer. I expect a real true answer to this sometime in the next century. With the lack of true leadership at all levels of government and finger pointing at our industry, we will never get this resolved. If there is a resolve, it will surely push for more government control and intervention. I believe this is called Socialism."

K&L Gates’ Kris Kully reported that “the CFPB is considering putting strict limits on a creditor’s ability to price its mortgage loans, and on a consumer’s ability to choose among pricing options. By way of implementing the far-reaching provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is proposing to require that when a creditor pays a mortgage loan originator’s compensation (which includes most mortgage loan transactions), any up-front amounts the consumer pays for the loan must be in the form of bona fide discount points that reduce the interest rate or a flat origination fee that does not vary with the loan amount. This proposal, which the CFPB announced last week in presenting a cost-benefit analysis for regulating small entities, is actually an attempt to pull back on the Dodd-Frank Act’s absolute ban on any ‘up-front payment of discount points, origination points, or fees, however denominated (other than bona fide third party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or originator).’  The Dodd-Frank Act would apply that ban on consumer-paid up-front costs any time a mortgage loan originator receives any compensation from a person other than the consumer – so, any time a creditor or mortgage brokerage pays transaction-specific compensation to their loan officers, or a creditor pays that compensation to a mortgage brokerage.  As the CFPB notes, those ‘creditor-paid’ transactions comprise nearly every mortgage loan origination.”

Kris continues, “The CFPB has rightly indicated, in its cost-benefit analysis, that the Dodd-Frank Act’s widespread ban on consumer-paid points or fees would ‘significantly change the financing’ for most mortgage loan originations, could ‘negatively impact consumers’ access to credit,’ and could lead to ‘significant unanticipated consequences.’  However, as described below, the CFPB’s use of its exemption authority to rein in those consequences would likely create seismic shocks of its own. Specifically, the CFPB would allow the consumer the choice of paying discount points in creditor-paid transactions, but only if:  (1) the points actually result in a “minimum reduction” in the interest rate for each point paid; and (2) the creditor also offers the option of a no discount point loan.  The CFPB does not provide any details for how that ‘minimum reduction’ in the rate would be calibrated.

“Similarly, the CFPB would allow a consumer to pay up-front origination fees in creditor-paid transactions only if it is a flat amount that does not vary with the size of the loan (and if it is not compensation to the individual loan originator). The Dodd-Frank Act does allow consumers to pay bona fide third-party charges (even in a creditor-paid transaction).  The CFPB would clarify that third-party carve-out, so that consumers could pay up-front fees to affiliates of the loan originator or of the creditor, provided that those fees are flat (although title insurance fees could still vary with the loan amount, even if paid to an affiliate). While the CFPB appears willing to try to avoid a ‘significant restructuring’ of mortgage loan pricing, its proposed restrictions on discount points and origination fees in creditor-paid transactions as described above are still severe, and would if adopted create their own uncertainties – including whether consumers can choose how to pay for their mortgage loan.” [The CFPB will solicit the public’s input by issuing a proposed rule on these and other mortgage loan originator topics.  It plans to issue the proposed rule this summer.]

Law firm Ballard Spahr spread the word that, “Two recent notices published by the CFPB in the Federal Register shed some light on the CFPB’s plans for testing the mortgage servicing disclosures it’s developing and for collecting information about the potential compliance costs of its proposals. A notice published on May 11 seeks comments on the CFPB’s plans to qualitatively test mortgage servicing related model forms and disclosures. The research is to primarily be conducted by ‘an external contractor employing cognitive psychological testing methods,’ an approach that, according to the CFPB, has been shown to be ‘feasible and valuable’ in developing disclosures. Comments are due by July 10, 2012: http://www.gpo.gov/fdsys/pkg/FR-2012-05-11/pdf/2012-11369.pdf.”

And, “Another notice published on May 15 seeks comments on the CFPB’s request for ‘generic clearance’ from the Office of Management and Budget of the CFPB’s efforts to collect ‘qualitative information on the potential costs of complying with potential new regulations and other effects the rules may have for providers and consumers.’ The CFPB states that, through its collection of such information, it ‘seeks to ensure that it has considered the compliance burdens and costs before completing a rulemaking action.’ The CFPB notes that it’s ‘particularly interested’ in collecting information on the impact of its proposals on the unit costs of delivering specific consumer financial services and products because this will help it determine whether a proposal has ‘unnecessary costs for providers or consumers.’ The CFPB intends to obtain cost information through structured interviews, focus groups, conference calls, written questionnaires, and online surveys. The CFPB also states that because it recognizes that burdens are not the same for all institutions or all products and services offered, it will attempt to sample providers ‘that are representative of affected markets.’ Comments are due by June 19, 2012: http://www.gpo.gov/fdsys/pkg/FR-2012-05-15/pdf/2012-11668.pdf.

How do Ops and compliance folks keep up with things? Here are some somewhat recent lender/investor updates. As always, it is best to read the actual bulletin, but this will give one a flavor for what is happening out there. In no particular order…

US Bank Wholesale has issued a clarification on its Conventional Purchase transaction policy for newly constructed homes.  In these circumstances borrowers are not permitted to be affiliated or have a relationship with the property’s builder, developer, or seller.  Although, under Freddie Mac policy, this applies only to second homes and investment properties, USBHM has extended the requirements to all occupancy types.

Clients are reminded that, upon submission to USBHM for underwriting, any Loan Prospector and Desktop Underwriter eligible loan findings should be final assigned where appropriate.  If the feedback response in the loan file does not correspond to the last submission to the applicable automated underwriting system, the discrepancies will be corrected and the loan resubmitted.  Loans underwritten by USBHM or USBHM Delegate Correspondents may not be resubmitted to LP or DU after the final underwriting approval is issues.  Discrepancies between a loan’s feedback certificate number and final underwriting certificate number will render a loan ineligible for purchase.

Fifth Third reminds correspondents that it will not purchase loans without sufficient evidence of a loan’s status as “Final Assignment” in LP or “Final” in DU.  Correspondent sellers should be sure that the AUS reflects the terms of the loan as approved and closed as well.

Fifth Third loans from $250,000-$299,999 are subject a new adjuster of +0.125, while loans of $300,000 up to Conforming Jumbo are subject to a new adjuster of +0.25.

In light of Fannie’s enhancements to DU relating to escrow waivers and PIWs, Kinecta Federal Credit Union has issued a reminder that it does not permit escrows to be waived for DU Refi Plus loans for which Kinecta was not the original servicer and with LTVs over 80% (90% in California).

New Penn Financial has updated its HARP DU Refi Plus rate sheet, which now includes pricing for loans with MI or LTVs of over 105%.  It is no longer necessary to select “NPF Expanded Agency” to price these loans in the Client Portal.  Clients will also be able to convert LPMI HARP loans to monthly BPMI for UGIC and MGIC.  Monthly BPMI transfers to Genworth, MGIC, United Guaranty, RMIC, PMI, and Triad Mortgage Insurance are still permitted.

Platinum Home Mortgage has recently tripled its geographic territory and expanded its reach to 43 states.

Franklin American has removed the overlay for alimony, child support, or separate maintenance income documentation from its requirements except where it is required by DU or LP.  A clarification on HO-6 insurance has been issued for conventional, FHA, and USDA loans, which require 100% coverage of the insurable replacement cost of the unit’s interior improvements and betterments but do not need to state “Replacement Cost” or “100% coverage.”