Dec. 13, 2012: Mortgage jobs; is Triad history? Wells snags a new SVP; what would happen if the Fed stopped buying MBS?
Rob Chrisman
The
average person is curious about what their neighbor, or
co-worker, earns. And in this age of transparency, where
nothing is private and there is a camera monitoring most
traffic intersections, compensation at Freddie and Fannie
is "an open kimono." Not only that, but the industry is
abuzz about how the FHFA’s Ed DeMarco's days are numbered - who can concentrate in
that kind of environment? Here is a report on what
various EVP, SVP, and director positions earn in the agencies:
http://origin.www.fhfaoig.gov/Content/Files/EVL-2013-001.pdf.
(Given an uncertain future or the recent high turnover, no
jokes, please, about “LTI” comp – long term incentives.)
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One
person that won’t be applying will be Bob Ryan, who served as
a top housing adviser in the Obama administration and is now
heading to a senior mortgage-banking position at Wells Fargo.
Mr. Ryan is currently a senior advisor to Shaun Donovan, the
secretary for Housing and Urban Development. He joined HUD in
2009 as the first ever chief risk officer at the Federal
Housing Administration and served briefly last year as the
agency’s acting FHA commissioner. He previously spent 26 years
at Freddie Mac. He will become a senior vice president within
the capital markets group at Wells Fargo Home Mortgage, where
he will coordinate strategy with industry trade groups and
consult with policy makers on a range of housing-finance
issues: http://blogs.wsj.com/developments/2012/12/10/obama-housing-official-to-join-wells-fargo/.
Switching
to underwriting, "Rob, someone told me that VA loans may
exceed the published county maximum provided that the sum of
the down payment/equity entitlement is at least 25% of the
sales price or appraised value. Is that true?" Well, I'd ask
your underwriter, or the VA, but I believe that the down
payment requirement is 25% of the DIFFERENCE between the VA
county loan limits and the sales price - not 25% of the
Sales Price or AV. This makes down payment requirement
much less than conventional loan."
Yesterday
the commentary had a link to a news story on reverse
mortgages, pointing out five flaws in the program. It
was meant to show what the public sees and reads. I did
receive, however, several notes commenting on the
one-sidedness of the article, one coming from Neil S. who
wrote, “I enjoy your commentary a great deal and was
disappointed to see that you sent a link to possibly one of
the worst and most incomplete articles on reverse mortgages
ever written giving many industry professionals the wrong idea
about a program that has helped thousands of seniors remain in
their homes for many years beyond what would have been
possible without this option. I would encourage you to read
what a Wharton emeritus finance professor had to say in
response to a recent NY Times article slam piece and follow up
with a link to your readers: http://knowledgetoday.wharton.upenn.edu/2012/10/whats-right-with-reverse-mortgages/.”
Neil
goes on, “In the article you referenced, the writer claims:
1. Fees are often high. Not true, many low cost options
available in today's market. In some cases fees are lower
than on comparable forward mortgages, even true no cost
options are available. 2. High Interest Rate - Higher than
what? Our Libor product is today 2.5% fully indexed rate and
provides a guaranteed line of credit that grows over time
which cannot be cancelled. Fixed rates are in the mid 4s.
Would you consider this is high for a loan with no specified
term, no income or credit qualifications and no monthly
payment? 3. Heirs Might Not get the house - reverse is
non-recourse, your heirs are not responsible to pay off the
debt beyond what the house would sell for. Zero money comes
out of the estate regardless of how large it is. If you have a
conventional loan and you die that loan also must be paid back
before the heirs get any net proceeds. You can be upside down
with any kind of loan can't you? 4. You have to repay the loan
when you move out - not exactly true, you don't have to ‘start
repaying’ the loan is the author indicates when you move out.
In most cases when the borrower moves out the house is sold.
This is normally the case anyway... How long do people
normally hold on to vacant houses? If you end up in a nursing
home, they will require that the house be sold as well... in
this case the heirs also may not get the house. 5. You are
still responsible for home costs - Being responsible to upkeep
your home is a reason not to take a loan? Are there loans
available where the lender pays for upkeep? Who pays for
upkeep if the house is free and clear and is that a reason not
to own a house?” thanks Neil!
Here’s
a
note on Reg. B and disparate treatment/impact
- with all the uncertainty out there about exams and
violations, it is always good to see what others are
experiencing. “I am writing now to pass on a recent experience
my bank and my department had from our FDIC Compliance Exam,
with special regard to the Reg. B. violations &
disparate/treatment impact. All in all it was a good exam, but
we were cited for violations of: '1002.4(a) of Regulation B
prohibits a creditor from discriminating against an applicant
in any aspect of a credit transaction on the basis of marital
status.' [330106]. the issue relates to joint applications
that involves unmarried individuals. A creditor cannot charge
the unmarried applicants for any additional cost if 2
individual credit reports are ordered versus what the cost of
a joint credit report. The difference is about $14.00 with the
credit vendor my department uses. The FDIC doesn’t care one
way or the other if individual credit reports are ordered by
the creditor as long as the creditor doesn’t pass along a
higher cost to the applicants. Neither I nor the bank’s
compliance officer had ever heard of this interpretation. I
have mentioned this to others in the mortgage industry and its
news to them as well. After I did a scrub on applications for
the last 3+ years, I found a handful of impacted files. I am
mailing out refund checks this afternoon."
The
Fed caught the market’s attention yesterday, although much of
what it announced was expected – and we are reminded that one
branch of the government is issuing securities while another
branch is buying them. What’s wrong with this picture?
The Federal Reserve said it will buy $45 billion a month of
Treasury securities starting in January, expanding its
asset-purchase program, and it linked the outlook for its main
interest rate to unemployment and inflation. “The committee
remains concerned that, without sufficient policy
accommodation, economic growth might not be strong enough to
generate sustained improvement in labor-market conditions,”
the Federal Open Market Committee said today at the conclusion
of a two-day meeting in Washington. The Fed said interest
rates will stay low “at least as long” as the unemployment
rate remains above 6.5 percent and if inflation “between one
and two years ahead” is projected to be no more than 2.5
percent. The buying announced today will be in addition to
$40 billion a month of mortgage-debt purchases (don’t forget
that the $40 billion is over and above prepay
reinvestments). The latest move will follow the
expiration at the end of this year of Operation Twist, in
which the central bank each month has swapped about $45
billion in short-term Treasuries for an equal amount of
long-term debt. That program kept the total size of the
balance sheet unchanged, while the new purchases will expand
the Fed’s holdings.
"Success
consists of going from failure to failure without loss of
enthusiasm." And say what you want about government
intervention in the mortgage business, the Fed's purchasing
twice the average daily production of agency product is
helping keep agency rates low, and therefore a success. But
many cannot not pay
attention to the man behind the curtain: "In many areas
housing is mostly improving based on the Fed purchasing
Freddie and Fannie (and some Ginnie) MBS. What happens
when it stops?” And the Fed threw out a question to the
banks recently asking why mortgage rates haven't fallen as
fast as The Fed has forced them down.
Those
are two separate questions. When the Fed stops buying
securities, the laws of supply and demand dictate that prices
will drop and rates will go up – plain and simple.
Experts think that Freddie and Fannie rates would go up at
least as high as jumbo loans – probably more since many
believe that the risk on agency product is higher than some of
the creampuff jumbo loans being securitized. And rate
sheet rates have not fallen as fast as MBS rates because
lenders are padding the prices, pushing margins higher,
because they don’t have to lower rates to be swamped with
business, because they need to cover the higher costs of
originating a loan, because investors and agencies have
higher net worth requirements, and they are putting aside
money for future liabilities. One never knows when the
next class action lawsuit will come your way! Agency MBS
prices didn’t like the news much, and a good portion of rate
sheets yesterday worsened. Don’t ask me why – the Fed is still
buying about $4 billion a day!
The numbers are in for today, although we still have a 30-yr
auction later. The Producer Price Index for November was -.8%,
November Retail Sales were +.3%, and Initial Jobless Claims
came in at 343k, a big drop from the revised 372k. The result
of these decent numbers was to nudge rates higher: the
10-yr is up to 1.71%, and MBS prices are worse .125-.250,
depending on coupon.
A couple was Christmas shopping at the mall on Christmas Eve
and the mall was packed. As the wife walked through the mall
she was surprised to look up and see her husband was nowhere
around. She was quite upset because they had a lot to do.
Because she was so worried, she called him on her mobile phone
to ask him where he was.
In a calm voice, the husband said, "Honey, you remember the
jewelry store we went into about 5 years ago where you fell in
love with that diamond necklace that we could not afford and I
told you that I would get it for you one day?"
The wife choked up and started to cry and said, "Yes, I
remember that jewelry store."
He said, "Well, I'm in the bar right next to it."
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.
