Aug. 10, 2012: Basel III comment period extended; CFPB rolls out servicing guideline proposals for comment; LO Realtor thoughts
Rob Chrisman
"Wanna
tell you a story, about the house-man blues.
I come home one Friday, had to tell the landlady I'd-a lost my
job.
She said that don't confront me, long as I get my money next
Friday.
Now next Friday come I didn't get the rent, and out the door I
went!"
CitiGroup is hoping it never hears that refrain written
by Delaware's George Thorogood. The bank rolled out a program
where eligible delinquent homeowners can rent back their home
if they agree to keep rent current and sign over the deed in
lieu of foreclosure proceedings. "Citigroup’s program would
extend to as many as 500 families who owe more on their
mortgages than their home is worth, are more than 120 days
past due but can afford rent at current market rates."
(Critics say it sounds like a drop in the bucket – 10 in each
state - and more of a PR move, but what do they know?) Here
are a few more details: http://www.insidermonkey.com/blog/citigroup-inc-nysec-starts-program-to-help-distressed-homeowners-16280/.
I
see the Aussies aren't doing very well in the Olympics. But
then, if they could run, they wouldn't have been Australians
in the first place… The U.S. Post Office isn't doing very well
either, but I don't hear anyone calling for it to be
abolished. Maybe F&F should hire the USPS’s PR firm. The
U.S. Postal Service lost $5.2 billion in its third quarter
ended June 30, in large part, the agency said, because of a
2006 law requiring it to prefund future retirees’ health
benefits, amounting to a $5 billion payment each year for 10
years. The New York Times reports that the agency so far has
lost $11.6 billion in this fiscal year, which ends Sept. 30.
When
it comes to Basel III, which many in our industry view as
having a worse impact than QM or even QRM, nothing is
simple. Its regulations were approved by the Federal Reserve
in June, with a public comment period opened. This week the
FDIC extended the comment period until October 22 on three
notices of proposed rulemaking (NPRs) that would revise and
replace the agencies' current capital rules. The proposals
have been available on the Federal Deposit Insurance
Corporation's website since June 12 (http://www.fdic.gov/).
The
Basel accord, which is to be phased in from 2013 through 2019,
will require banks to maintain top-quality capital equivalent
to 7 percent of their risk-bearing assets, about three times
what they are required to hold under existing rules. And
mortgage servicing rights that can’t exceed 10% of Tier 1
capital, impacting every depository lender that owns, and
originates, servicing. On top of that, however, 28 global
"systemic" banks may have to hold up to an additional 2.5
percent buffer. It is up to each country to write rules to
implement the Basel agreement for its banks. U.S. banks
have pushed regulators to allow them to count more heavily
mortgage servicing rights and the unrealized gains and losses
of certain securities toward their capital requirements than
allowed by Basel III, but the Fed's draft rule closely follows
the international agreement.
Breaking
it down, one NPR, the Basel III regulatory capital reforms,
would strengthen minimum requirements for the level and
quality of financial institutions' capital. On the surface,
this is a fine goal – but the impact on banks would be to tie
up more capital when they want to hold mortgages in their
investment portfolios – and how does this jive with the
government wanting banks to loan out more money? The second
NPR proposes changes to the agencies' Advanced Approaches
capital regulation to reflect other aspects of Basel III and
would apply the agencies' Market Risk capital regulations to
thrift institutions and thrift holding companies. A third NPR,
the Standardized Approach, proposes changes to the calculation
of risk-weighted assets that address issues identified in the
financial crisis, and removes reliance on credit ratings
consistent with the Dodd-Frank Wall Street Reform and Consumer
Protection Act. And here is one person’s views on Basel III
which echo many in the industry’s: http://camfine.wordpress.com/2012/07/24/by-god-that-is-enough-it-is-time-to-stop-the-madness/.
This
extension of the comment period for Basel III is important.
Maybe reason will prevail? The proposals in Basel III, and
approved by the Federal Reserve, largely reject pleas by the
U.S. banking industry to soften parts of the new standards.
They would force banks to rely more on equity than debt to
fund themselves so that they are able to better withstand
significant losses. The announcement came a day after a group
of state banking organizations asked the Fed and the other
U.S. banking regulatory agencies for an extension. But a
bipartisan pair of senators has called on the Fed to impose
even tougher standards on the largest banks. "The surcharge on
the mega banks should be high enough that it will either
incent them to become smaller or help to ensure they can
weather the next crisis without another taxpayer bailout,"
Democrat Sherrod Brown and Republican David Vitter wrote in a
letter to Fed Chairman Ben Bernanke. And they have some public
support, given the news this year on Chase’s multibillion
dollar hedge loss, and the apparent manipulation of the London
Interbank Offered Rate (LIBOR).
While
we’re talking about banks, the OCC released an update to its
Bank Accounting Advisory series that includes clarification on
accounting for acquired loans, OREO, TDRs, nonaccruals, ALLL,
insurance claims and other hot topics. The Advisory, and
others, can be found here: http://www.occ.gov/news-issuances/index-news-issuances.html.
The
CFPB
announced another public comment period, this time for
proposals directed at servicers “…aimed at protecting homeowners
from unexpected costs and shoddy service by companies that
collect their monthly mortgage payments. Mortgage servicing
companies would be required to provide clear monthly billing
statements, warn borrowers before interest rate hikes and
actively help them avoid foreclosure under the proposal by the
Consumer Financial Protection Bureau. The rules also require
companies to credit people’s payments promptly, swiftly
correct errors and keep better internal records.”
Speaking
of
comments, earlier this week, the commentary noted the money
spent by NAR, leading to some comments by a Realtor noted
yesterday. I don’t relish being in the middle of a water
balloon fight, especially between two groups that need each
other like lenders and Realtors, but a few originators wrote
back.
“Realtors don’t take on any buy back risk from
Broker/Correspondent agreements where the risk lasts for
years, Early Pay Off fees that take more than you made on a
file (both that vary risk costs with the size of the loan
file), knowing you’ll work 3-5 times harder on some loans than
others due to structure and program, employee/staff payroll
costs that have increased dramatically the last five years to
stay in compliance with new regulations, hours of answering
emails and calls of scenarios while the borrowers second guess
everything you tell them these days after you first do hours
of research on minute technical guidelines at 2-3 levels of
overlays that could trip up the file at close if you miss it.
Solving problems for hours with more research as the file
adjusts with appraisals and/or changes from the Realtors after
a home inspection. I pay for all of my personal marketing
expenses that have run well into five figures annually to get
leads and many lunches for Realtors I drive to. I agree with
Linda J from Florida, but any LO could come up with a very
similar list about why every loan is unique, probably longer
than mine, and it made no difference to the Feds in 04/01/11
and may not now to CFPB coming in January. Realtors would
do better to join the mortgage industry in trying to stop
this Federal overreach rather than in saying their job is
harder/different so should be exempt from regulation on
costs to consumers. It didn’t work for us."
And, "For originators, every item of personal time and money
Linda itemized is replicated on mortgage side of the
transaction and then expanded for 60+ days - its business.
What isn’t reflected is the 11PM calls from frantic borrowers
who were told by the realtor they could close in 30-45 days
and terminated the rent, the borrower who was “advised” to
waive the mortgage contingency because “this town is hot right
now”, or the Realtor who tell you she/he scheduled the closing
for the day after tomorrow and you’re still tracking asset
documents. This is business. The entire 19% of GDP that the
real estate sector covers is under attack. In the past 2
months I have given talks about regulatory issues and their
effects on the industry to 4 groups of about 350 Realtors
total. I would estimate less than 10 had ever heard of half
the items I presented such as the Flat Fee proposal nor the
proposals requiring the inclusion of Realtors fees in the Flat
Fee. In the past year I have received only 1 item from NAR
about regulatory issues. Unfortunately the regulators and
borrowers only see the commission checks paid to broker and
Realtors and not the massive work load, regulatory expenses
and human stress behind the check. What the Regulators
seem to miss is intellectual property rights of the MLO. Yes,
you should get what you pay for."
Turning to the markets, on Thursday the 10-yr closed at 1.69%.
Rates certainly wouldn’t have improved given the results of
the 30-yr Treasury bond auction – they were poor. However, at
least the auctions are over, and the 10-yr, which hit a high
of 1.73%, improved somewhat, and seems to be doing so again in
the early going today. Over on the agency MBS screens, current
coupon prices were worse about .250 at one point but then
buyers stepped in and voila! Prices improved, and MBS rallied
back – there didn’t seem to be enough market moves to warrant
price changes by the majority of investors.
Today’s
calendar is relatively sparse again, as it has been several
times this week, with just Import Prices for July (predicted
slightly higher). This is not a market-moving number, and
given the waning days of summer vacation for many, folks
heading for the doors early may represent the majority of
movement later in the day. In the very early going the
10-yr yield is down to 1.64% and MBS prices are better
.125-.250.
Things we know because of TV! (Part 2 of 3.)
- When paying for a taxi, never look at your money. Just pull
out a bill or two and hand it over. It will always be the
exact fare.
- If a killer is lurking in your house, it's easy to find him.
Just relax and run a bath even if it's the middle of the
afternoon.
- All single women have a cat.
- Even when driving down a perfectly straight road, it is
necessary to turn the steering wheel vigorously from left to
right every few moments.
- It does not matter if you are heavily outnumbered in a
martial arts fight. Your enemies will wait patiently to attack
you one by one.
- When you turn out the light to go to bed, everything in your
room will still be clearly visible, just slightly bluish.
- Dogs always know who is bad and will naturally bark at them.
If
you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at www.stratmorgroup.com.
The current blog discusses the FinCen, SAR’s, and the impact
on mortgage lenders. 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.
