If you have some spare change sitting around, a $1.7 billion portfolio of non-performing, federally insured home loans will be offered for sale at auction next month. HUD is going to sell 9,442 discounted loans (on September 12 through SEBA and DebtX) with an average balance of $182k in pools consisting of homes in Chicago, Phoenix, Newark (NJ), and Tampa (FL). The FHA’s bulk sales began in 2010 with a pilot program that offered buyers as much as 65% off unpaid loan balances with the understanding that they would write down debt and modify terms to help borrowers keep their homes. The problem is a big one for HUD: per MBA stats, 9% of FHA-insured mortgages were 90 days late or in foreclosure as of June 30 compared with 7.3% for all home loans. Foreclosure starts on FHA-insured loans increased to 1.53% in the second quarter, up 0.57% from the previous three months - the only type of mortgage with an increase in foreclosure starts during the period. For more information on the sale go to: https://www.debtx.com/Articles/Article.asp?cid74.

Hey, here’s an opportunity a little off the beaten path. Mortgage Success Source (MSS) has an immediate opening for a writer on their Content team to write and edit consumer and referral partner oriented marketing and content pieces for the mortgage industry. (MSS is a “quality-driven B2B information company that relies heavily on the passion, exceptional talent, and commitment of their staff to deliver world-class business information services to the mortgage loan officer market.”) The requirements for interested candidates include a Bachelor’s degree in Marketing, English, Journalism, or related field and 5+ years of business, content, technical, or marketing writing experience.  Interested candidates should send a resume and cover letter along with their salary requirements and a writing sample to humanresources@mssllc.com. Subject Line: Writer. (To learn more about MSS, visit their website at www.MortgageSuccessSource.com or its Maryland-based parent company, UCG, at www.ucg.com.

In San Diego, CA, Synergy 1 Lending is seeking a VP of Secondary Marketing. The position will report directly to the President and will be responsible for all things secondary:  pricing, lock desk, best price execution, allocation, investor relationships, etc.  The candidate must have 5 years minimum experience in Secondary.  Interested individuals should submit their resume in confidence to Brad Nease, the President of Synergy 1 Lending, at bnease@s1lending.com.

Across the continent in New York, Sterling National Bank is seeking experienced underwriters, processors, and closing specialists. Sterling is a federally chartered bank with a “long, successful and consistent history in the mortgage business.” Proven professionals who are looking for a career opportunity will find one in this growing company.  These positions are based in the Residential Mortgage Division Headquarters in Great Neck. Interested individuals should submit their resume to Christine Bentley, Director of Operations at cbentley@snb.com.  For more information on the bank visit www.snb.com.

Saturday the commentary discussed the mortgage banker’s entry into the world of FinCen and SAR’s, and I received this note from a Wall Street vet: "Rob, your BSA comments are very interesting and long overdue in the mortgage banker world. We in retail, commercial and investment banking have embraced these rules for many years now.  The question I would pose is what recourse does a banker have when holding definitive information that a mortgagor has perpetrated bank/tax fraud but, not precisely the BSA kind? There exist a significant number of ‘ABC-like’ agencies to whom one can report institutional violations.  Who to call when a mortgagor is a bad to the core and influencing/instructing other mortgagors?"

Everyone was chatting about how the CFPB is now auditing Weightwatchers – it seems they don’t like all the points they are charging. Seriously, where does one start with the latest out of the CFPB directed at the mortgage industry, this time another set of salvos at LO comp? (Remember the fun leading up to April 2011?) First, know that the public will have 60 days, until October 16, to review and provide comments on the proposed rules prior to the CFPB’s scheduled issuance of final rules in January.  2013. (January is shaping up to be a big month for the mortgage industry, CFPB-wise.) Lenders may be required to make available no-fee, no-point mortgages to make it easier for prospective homeowners to comparison shop, unless consumers were “unlikely” to qualify for such a loan, and offer interest rate reductions when consumers did elect to pay such upfront points or fees.

First, here are the proposed rules http://files.consumerfinance.gov/f/201208_cfpb_tila_mlo_compensation_proposed_rule.pdf and here is the link to the CFPB release: http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-proposes-rules-to-bring-greater-accountability-to-mortgage-market/.

“The CFPB proposed the latest rule(s) in a series of mortgage-related rules mandated by the Dodd-Frank Act. This proposal seeks to amend regulations regarding upfront points and fees and loan originator compensation, and to implement other Dodd-Frank Act provisions regarding mortgage credit. Generally, for closed-end mortgages, the rule would prohibit a creditor or mortgage broker from imposing upfront points or fees unless the creditor or broker first offers the consumer an alternative loan with no such fees (a zero-zero alternative). If the upfront fees are passed on to independent third parties, or if the consumer is unlikely to qualify for the alternative loan, this requirement would not be triggered. The proposal provides separate safe harbors for transactions that involve mortgage brokers and those that do not. The rule also would refine an existing ban on loan originator commissions to allow reductions in compensation to cover certain increases in closing costs and to clarify when a factor used as a basis for compensation is prohibited as a ‘proxy.’ Also with regard to compensation, the rule proposes to revise restrictions on pooled compensation and to amend the general ban on compensation of originators by both parties. Additionally, the CFPB seeks to (i) establish originator qualification requirements, (ii) restrict agreements that require consumer disputes to be resolved through mandatory arbitration, and (iii) prohibit the financing of premiums for credit insurance.”

It appears that the CFPB has backed away from the idea of forcing mortgage lenders to charge a flat fee for making a loan. Remember how, about 5 months ago, the bureau had said it might require mortgage lenders to charge the flat fee? The idea was to keep loan officers from steering borrowers into more costly loans solely to receive greater compensation. But, as the industry pointed out, the flat-fee concept would disproportionately impact lower-income borrowers and could lead to a complex structure of varying fees. Instead, the new proposal would force lenders to reduce interest rates when consumers pay upfront points or fees, and to make a no-point, no-fee loan option available to qualifying borrowers. The bureau said the latter requirement would allow consumers to better compare different offers.

The industry quickly chimed in. "The MBA applauds the Bureau's efforts to protect borrowers by eliminating steering and the proposed rule appears to be a good step in that direction. Consumers benefit from a vibrant and competitive mortgage market with a diversity of players, and this rule, as it relates to loan originator qualification and screening, should ensure a level playing field for originators, regardless of business model.”

Paul Zoukis, with Mortgage Success Source, wrote about industry trends and its clients, "Further regulation is inevitable as the CFPB pursues its goals of eliminating unfair lending practices while enhancing the consumer’s understanding of the lending process. It's becoming clear that every aspect of the sales process from advertising to the most informal presentation will eventually be covered.  Among our clients the demand is for solutions that are flexible enough to both evolve with this changing regulatory landscape and provide unique competitive selling advantage. In a nutshell, managing risk without stepping on the revenue air hose.”

And Daniel Podesto, owner of Central Coast Lending out in San Luis Obispo, California, prior to Friday’s news wrote the following about the current LO comp dilemma: "Regarding LO comp, I agree with the idea of forcing the loan officer to agree to a price for their service and not deviate from that price. Specifically, any improvement in prices throughout the loan process due to market movement (YSP) should be passed on to the consumer.  And once again, the regulators missed the boat by not requiring the same rules for the banks and mortgage bankers. These companies still capture YSP and pay it to their LOs as a “bonus” thanks to a loophole in the law.  I already said an agreed-upon price is good, but I don’t agree with one-size-fits-all price-fixing mentality for every loan.  Loan officers across the board have set their margins higher than pre-LO comp to ensure never making too little, and now use the excuse that ‘the government fixed my compensation’ whenever compensation is called into question. Borrowers are no longer allowed to negotiate the fee for this service.  Also, loan officers are no longer allowed to make less that the fixed percentage, and no longer allowed to credit borrowers for unexpected costs or unexpected increases to costs.  The problem with the mortgage industry was never fee related, as evidenced by the 37% lower fees before government regulation. The regulation was needed with loan programs aggressive use of reduced documentation and loose underwriting guidelines. Most, if not all, of those problems have already been corrected, even overcorrected, and it’s time for the government to step away and allow competitive forces to dictate the acceptable price for the service of arranging a mortgage.  I fear it’s already too late… the longer the current environment continues the more consumers accept the inflated costs as acceptable." (The post, with an overview about the entire government reform problem, can be seen at http://www.centralcoastlending.com/2012/08/mortgage-fees-30-percent-2008-government-regulation-blame/.)

While attending a Lender's One conference last week, also prior to the Friday announcement, one of the guest speakers, an attorney out of DC, that deals extensively with all these CFPB audits and LO Comp contracts, spoke at length about ABA's and also warned that LO's need to realize that if they are paid under an improper LO Comp plan that per Dodd Frank (Section 14.04) that the LO is personally responsible ( as well as his company)  for triple damages of all commission paid to them and legal fees on every client found to have been closed under that improper comp plan as those clients were not given access to equitable rates as the LO could price up to make more with such illegal commissions structures as a point bank.  He said this would be most likely a class action and not just a single client so the damages could be substantial….pretty scary stuff. The attorney’s point was that the MLO themselves would be liable (in addition to the company) if they accept payment on a loan that is a flawed or illegal plan. Interesting about the “whistleblowing” too - human nature being what it is, some folks may allege that company X has an illegal plan, just to try and slow down their competition – perhaps?  Nasty but imaginable."

On to the current market! President Obama met with Treasury Secretary Geithner in the Oval Office last week, and announced that their new plan for an economic stimulus includes Powerball tickets, Starbucks coupons, and selling Girl Scout Cookies year around. Seriously, Friday was a slow day but we still find rates high, perhaps higher than where they should be. And really, nothing has happened on a fundamental basis to any of the current issues to warrant rates shooting up. There has been no resolution to the fiscal cliff (and no signs of any imminent agreement). The Federal Reserve’s interpretation of capital and liquidity rules has been more stringent than most expected for the effect of regulatory changes on bank credit growth. And economic growth has remained mediocre in Europe and Asia. In the US, labor market data and retail sales have improved a little at the start of Q3. But they have definitely not been strong enough to really change anyone’s opinion about our economy. So we find yields back to June levels. I have not received the usual, "When will rates go back down?" e-mails - perhaps LO's know that eventually they will.

Overnight there was some stirring in Greece and Spain, but for the U.S. markets, tomorrow we have the release of the July FOMC meeting minutes, Wednesday is Existing Home Sales, Thursday is Jobless Claims, a housing price index (FHFA's), and New Home Sales. Friday is the volatile Durable Goods. In the early going the 10-yr. T-note, which closed Friday at 1.82%, is now 1.83% and MBS prices are little changed.

Good visual communication means not letting your message get lost in translation. Below are some translated messages that didn't quite hit the mark (part 1 of 2).
Athens hotel - Visitors are expected to complain at the office between the hours of 9 and 11am daily.
Leipzig elevator - Do not enter the lift backwards, and only when lit up.
Tokyo hotel - It is forbidden to steal hotel towels please. If you are not a person to do such a thing is please not read this notice.
Bangkok dry cleaners - Drop your trousers here for best results.
Sarajevo hotel - The flattening of underwear with pleasure is the job of the chambermaid.
Hong Kong tailor shop - Ladies may have a fit upstairs.

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 CFPB’s servicing proposals, for better or worse. 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.

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2012 Rob Chrisman.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)