Yes, residential lending is a growth industry, primarily due to government-sponsored refi programs and government-sponsored rates. If you don't believe that we have a tight labor market, just try finding a DE underwriter, servicing manager, or compliance expert! The labor squeeze has even made the mainstream press: http://www.sfgate.com/business/bloomberg/article/Banks-Increase-Hiring-for-Home-Loans-as-U-S-4054098.php.

Perhaps second only to reverse mortgage lender being picketed by the Gray Panthers, no lenders wants to be accused of taking advantage of veterans. But that is Wells Fargo's latest PR quagmire:  http://www.bloomberg.com/news/2012-11-20/wells-fargo-must-face-lawsuit-over-veterans-loans-judge-rules.html.

Regardless of whether you're interested in the primary markets as noted above (dealing directly with borrowers) or the secondary markets, lawsuits are the name of the game in lending and real estate these days, although one major securities case was just settled. "JPMorgan, Credit Suisse settle SEC cases for $417 million" reads the headline, and here is more for anyone who is interested: http://www.latimes.com/business/money/la-fi-mo-jpmorgan-credit-suisse-settle-sec-case-400-million-20121116,0,1601711.story.

What is a “high interest rate loan”? Well, if you lend in Vermont, or even if you don’t – it is somewhat instructional, the Vermont Department of Financial Regulation released a memo clarifying interest rates set for High Rate Loans for the 2013 calendar year.  Vermont law states that any lender granting loans that charge borrowers in excess of four points or interest in excess of three percent over the declared interest rate fall into the "high rate loan" category. This category only applies to loans secured by a first lien on residential real estate. Any lending in this "high rate loan" category requires a lender to issue additional disclosures to the borrower informing them of the high rate nature of the loan, or else face potentially large penalties. The Commissioner of Taxes set these rates at 3.6% for overpayments (down from last year’s 4.8%) and 5.6% for underpayments, so any loan with an interest rate above 6.6% qualifies as a "high rate loan" and must be accompanied by additional disclosures.  The High Rate Loan disclosure must include four items to meet statutory requirements: the disclosure must include the statement, "You may be eligible for a loan with either a lower interest rate, fewer points, or both, from another lender," in at least 14 point bold type, the disclosure must notify the borrower that they are applying for a loan that falls into the "high rate loan" category because the interest rate is either three percentage points above the declared rate or the borrower is charging more than four points, the disclosure must inform the borrower that they may obtain a list of lenders from the Department of Banking, Insurance, Securities and Health Care Administration, and lastly the disclosure must be signed and dated by all borrowers as well as the lender.

Switching gears to the seemingly endless discussion of mortgage brokers and bankers, here is a recent note I received from Steve Kaye: "I’d like to chime in on the “The discussion of "mortgage broker" and "mortgage banker" continues” commentary. If the only difference between a Banker and a Broker was how the loan was funded, I can certainly understand the argument. However, there is – or at least there can be – other significant distinctions. For example, as a Banker with delegated underwriting capabilities, I am able to underwrite ‘in-house” which often allows me the ability to offer better turn times. The same holds true once I have my CTC, as I will almost always be faster with my loan docs and funding times. In addition, I retain greater ability to order an appraisal, which I can do immediately after I have met compliance requirements. When I Broker my loans out I typically have to wait at least 5 business days – and that’s after they disclose (and there is even an additional wait time for that to occur). I gain an additional week of productivity, at least, when I am able to conduct business as a correspondent lender over my ability to act as a Broker. To me, that is a distinct competitive advantage (and I still retain investor flexibility through my choice of investors – with varying guidelines - to submit to). To infer that the only distinction between Banker and Broker is in “title” only is inaccurate. It goes well beyond who funds the loan. It isn’t deceiving to the client as there IS a difference between how the two are able to conduct business."

But I also received this note from a veteran broker. “I am truly tired of being blamed for the "MESS" and also the attitude that brokers somehow don't do as good a job for the client as a mortgage banker or bank, because I don't have in-house opportunity.  I guarantee that any and all of my clients receive better service and pricing from me than they ever would from a mortgage banker or bank. As an example, a very nice, normal, lower mid-class couple called me for assistance with a HARP2 refi - they were referred to me by friends. They had been to six different lenders in the last year; trying to get a HARP2 refinance.  They went to local bank where they have their checking account, they went on line to Quicken and Lending Tree, they went through COSTCO.  Each time, the lender said, ‘Sure, we can do this,’ pulled credit, in one instance actually received an appraisal and my clients paid for it, took 30 days or more time, and then said, ‘Sorry, we cannot do this.’ Not once where they told WHY that lender could not provide the HARP2 loan.  Each successive lender was told they had been to other lenders and they were denied in the end. Still, credit reports were pulled, info provided, and no loan. The worst part NO reason and/or explanation as to WHY no loan. When they called me, I asked if they had a credit report from one of those lenders. No, they did not. So, I had them go on line and pull one for free.  Unfortunately, their scores had been damaged by all the inquiries in the last 6-8 months, but I did see a negative item. It turned out it was not theirs.  It took a couple of weeks for that item to be removed, and I am closing their loan in less than 30 days.  Not one of those ‘bankers’ took 15 minutes to review and discuss with them why they had a problem.  This couple asked me why everyone does not call me for a loan. I told them, I don't want everyone, just good, solid people like them. Now, tell me why the broker channel is somehow less beneficial than the banker channel?”

On to some relatively recent bank M&A and lender updates to give us a sense of where the market is going. For full details read the full bulletin.

In an unusual move (a bank buying a credit union), Nebraska’s First York Bancorp ($1.2 billion in assets) will acquire Glenvil Cooperative Credit Union ($3 million) for an undisclosed sum. And we also have a bank buying an insurance company: Northwest Bancshares ($8B, PA) has signed a definitive agreement to acquire The Bert Insurance Group for an undisclosed sum. Bert offers P&C, group, life, disability and other insurance services.

The Alabama Bankers Association and the Community Bankers Association of Alabama have merged their operations, as the banking associations seek to improve efficiencies and consolidate efforts for member banks. First State Community Bank of Missouri said it will acquire 9 Bank of America branches, with 55 employees, for an undisclosed sum. And in Wisconsin, Landmark Credit Union ($2 billion) will acquire Dodge Central Credit Union ($52 million in assets) for an undisclosed sum.

By the way, if you’re thinking about buying a bank or stock in one, as of Oct 31 about 50% of publicly traded banks were trading below their book value, at a median price to tangible book value of 86.6%. These two data points have held consistent through most of this year.

On a slightly larger stage, Ally Financial has agreed to sell its international operations to General Motors for $4.2 billion as it seeks to raise money to pay back government bailouts. The Treasury currently owns about 74% of Ally, which is likely to be reduced to a large extent with this sale.

By the way, who is opening branches? SNL is reporting that during the third quarter, JPMorgan Chase opened the most branches nationwide (35), while Bank of America closed the most (43). Overall, financial institutions nationwide closed 352 branches during the quarter (versus 700 in the 2nd quarter) and opened 241 (vs. 299 in 2Q).

Nationstar Mortgage Wholesale Lending is scheduled to open an Operations Center (with 125 full time employees) in Irvine, California, early next month. Nationstar apparently has already hired a third of the employees destined for the 27,000 square foot facility. The center will handle the broker business from the (currently) 25 AE’s covering California.

Windows vs. Ford (If only life really worked like this).
For all of us who feel only the deepest love and affection for the way computers have enhanced our lives, read on. At a recent computer expo (COMDEX), Bill Gates reportedly compared the computer industry with the auto industry and stated, "If Ford had kept up with technology like the computer industry has, we would all be driving $25 cars that got 1,000 miles to the gallon."
In response to Bill's comments, Ford issued a press release stating, “If Ford had developed technology like Microsoft, we would all be driving cars with the following characteristics”:
1. For no reason whatsoever, your car would crash.........twice a day.
2. Every time they repainted the lines in the road, you would have to buy a new car.
3. Occasionally your car would die on the freeway for no reason. You would have to pull to the side of the road, close all of the windows, shut off the car, restart it, and reopen the windows before you could continue. For some reason you would simply accept this.
4. Occasionally, executing a maneuver such as a left turn would cause your car to shut down and refuse to restart, in which case you would have to reinstall the engine.
5. Macintosh would make a car that was powered by the sun, was reliable, five times as fast and twice as easy to drive - but would run on only five percent of the roads.
6. The oil, water temperature, and alternator warning lights would all be replaced by a single "This Car Has Performed an Illegal Operation" warning light.
7. The airbag system would ask “Are you sure?" before deploying.
8. Occasionally, for no reason whatsoever, your car would lock you out and refuse to let you in until you simultaneously lifted the door handle, turned the key and grabbed hold of the radio antenna.
9. Every time a new car was introduced car buyers would have to learn how to drive all over again because none of the controls would operate in the same manner as the old car.
10. You'd have to press the "Start" button to turn the engine off.
PS - I'd like to add that when all else fails, you could call "customer service" in some foreign country and be instructed in some foreign language how to fix your car yourself.

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 some of the considerations facing the FHFA regarding Fannie and Freddie. 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 Chrisman LLC.  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.)