Jan. 8, 2013: More on the multi-billion dollar settlement; thoughts on LO's W-2 versus 1099
Rob Chrisman
There
are so many statistics out there it makes one's head spin. For
example, for the nation’s 115 million occupied homes:
The median year these homes were built was 1974, with
owner-occupied units being slightly newer (1976 compared with
1972 for renter-occupied). The median size of
single-family detached and mobile home units is 1,800 square
feet, with owner-occupied units being larger (1,800
square feet) than renter-occupied ones (1,300 square feet).
Newly constructed units are also usually larger, with a median
size of 2,200 square feet. Most homes have three or more
bedrooms (64%). New homes (those built in the last four years)
generally have more bedrooms, with 74% of them having three or
more. About half the homes have two or more bathrooms. Again,
new units have more bathrooms, with 83% of them having two or
more. More than eight in 10 units have a washing machine and
clothes dryer. Here the source of these and thousands more
stats about our housing market: http://factfinder2.census.gov/faces/nav/jsf/pages/wc_ahs.xhtml.
Did you know that the word,
"hippopotomonstrosesquipedaliophobia" means "the fear of long
words"? I wonder if there is a word that means, "the fear of
big numbers"? $26 billion here, $8.5 billion there, $11.6
billion somewhere, and pretty soon you're talking real money.
Honestly, I lose track of all the settlements and lawsuits out
there, but yesterday’s multi-billion dollar settlement is
noteworthy: http://www.nbcnews.com/business/economywatch/banks-reach-8-5b-settlement-mortgage-abuse-1B7863650.
The BofA settlement certainly wipes out most, if not all, of
BofA's earnings for a second consecutive quarter, but
hopefully allows it to “get on with things.” Here’s a nice
summation from Bloomberg:
For
those of you playing along at home, US banks agreed to pay out
a total of $20 billion yesterday in two separate settlements.
In a separate settlement, 10 mortgage lenders, including BofA,
Wells Fargo, JPMorgan Chase and Citigroup, agreed to pay more
than $8.5 billion to settle regulators’ allegations that they
were guilty of widespread abuse of the foreclosure system that
allowed banks to seize homes from defaulting borrowers. As the
Financial Times puts it, “The two settlements add to the tens
of billions banks have already paid out in fines and
compensation for loose lending standards in the run-up to the
financial crisis and the lax manner in which they dealt with
home repossessions.” And right or wrong, that is what the
press and the public see. Will every home owner receive a
check for $100k? They shouldn’t hold their breath.
Remember
that, “Under an earlier settlement, foreclosures have been
independently to determine whether the alleged abuses meant
some borrowers were wrongly forced out of their homes. The
reviews, conducted by external consultants, found no
evidence of widespread harm to borrowers but the cost of
examining extensive documentation meant regulators and banks
decided it was better to agree a general financial
settlement and cut the reviews short. The settlement was
smaller than expected, however, after four lenders, including
Ally Financial, refused to sign up to the deal.”
So
we can ruminate on the Federal Housing Finance Agency’s
approval of an agreement between Fannie Mae and Bank of
America to resolve claims on mortgages sold to the GSE between
2000 and 2008. In addition, BofA agreed to sell over $300
billion in servicing rights to Nationstar and Walter
Investment (Greentree). Both firms indicated plans to
provide refi opportunities to the borrowers through HARP
2.0. The agreement also could lead to normalization in
the business relationship between Fannie and BofA which has
been strained for a couple years.
Yesterday
this commentary discussed the VA web site problems,
and potential loss of privacy. I received this note from an
industry insider: "The Houston VARO told me we cannot register
(re-register) at this time. We have to wait until VA contacts
us and says the system is ready!!! The person I spoke with
did not have timeframe for the rebuilding of their system. She
said you could call in to get case numbers for IRRRLs, but
they cannot issue case numbers for purchases at this time."
Thank you!
Yesterday the commentary also mentioned how the GAO
attributed most small bank failures to commercial real
estate problems (http://www.gao.gov/products/GAO-13-71).
The
commercial real estate market doesn’t make the headlines with
the same frequency as the residential market, but the general
consensus is positive: the commercial market has
stabilized; construction and land development concentrations
have declined, exposing lenders to less risk; and analytics
have improved to such a degree that banks should have a much
better idea about what they’re dealing with than they were
before the crisis. There’s been a trend towards looking
beyond mere cash flow and collateral and factoring in the
national and local economies, population, employment, consumer
spending, interest rates, inflation, and sector supply and
demand, which can only serve to better equip lenders to
analyze transactions. That being said, there is some residual
risk associated with the commercial market. At present, the
maturity pipeline is replete with loans on properties that are
still worth 35% less than they were in 2007, which means that
lenders will have their hands full with modifications and
extensions. Loan repayment capacity is by no means airtight,
so it’s worth it to do a thorough analysis of any given
borrower’s situation vis à vis their current industry climate
in order to minimize credit loss.
I
am neither an expert in LO comp or an attorney (I’ll leave
that to firms like Medlin & Hargrave out in Oakland, CA),
but I received this note: "Can a licensed loan originator
be paid as a 1099 independent contractor? In my
research, I've always found that it's impossible, based on
HUD, IRS, Investor, State and Federal, Franchise Tax Board
etc., yet, why do we continue to see people paid this way in
the industry? The majority I see who pay this way are
mortgage brokers but I've seen other small lender shops doing
it for both licensed and unlicensed LO's. It is certainly
tougher to recruit people who are being paid in a way I cannot
compete with, and frankly, I am surprised some of these places
have not been shut down."
I
threw this question out to a few folks. Up in New Jersey Brian
wrote, “This has multiple issues. The first and most
difficult is that many state banking laws have not been
updated to correspond with the Federal Changes in over 5
years. As you noted in your prior email last Sunday, the
SAFE Act was loosely based upon the Florida registry. In that
registry, Broker Loan officers were 1099 independent
contractors and others were salaried. I believe the NY banking
regulations still allow it. DOL is completely against this
practice, in fact the DOL has continually tried to mandate
minimum wage rules on LO's. In my opinion DOL lacks an
understanding of the LO's responsibilities and flexibilities.”
He
goes on. “My
opinion/contention has been that Licensed (not registered)
LO's should be 1099's. Not for the competitive aspect, but
because they would have more to lose. If the SAFE Act
doesn't have a carrot and stick approach it will become
useless. As you noted, unlicensed and unregistered originators
are a problem. An auditor told me they didn't impact the
consumer, I fully disagree. The auditors should look at the
company’s returns and check for any 1099's. It is my
understanding, the SAFE Act and the FRB Rule on compensation
mandate all LO's be paid on W-2's. The FRB Rule and the
proposed CFPB Rules have provisions for the salaried and the
commissioned, but nothing for compensation as independent
contractors. As such, it is my understanding that any
compensation paid in the 1099 manner could result in a TILA
violation and all the penalties associated with TILA. What I
am not clear on, however, is with the CFPB set to merge RESPA
and TILA (expected in the next few days) what the penalties
will be with the proposed rule. Will the Rule have all
penalties default to the TILA penalties, which are much more
extreme than the RESPA penalties? We’ll hopefully find out.”
Thanks Brian!
Jim
Hecht, former Executive Vice President for National Retail and
Builder Production at Nationstar, has joined Stearns Lending
as the Executive Vice President of Strategic Development.
Based in Dallas, Hecht will be leading and developing the
consumer direct, builder, and credit union partner channels
along with the marketing and recruiting teams.
360 Mortgage has launched its new VA IRRRL product,
which requires a minimum FICO of 680 and permits LTVs up to
150%. The product uses the AVM for value but allows brokers
to use appraisals in cases where the AVM doesn’t value
properly. Borrowers must have stable employment, but income
and asset requirements are minimal. Non-credit qualifying FHA
Streamline loans that allow unlimited LTVs are now available
as well for borrowers with credit scores over 680; all prior
servicers are acceptable. For both products, loans are sold
to the Agencies and servicing is retained by 360. See www.360mtg.com
for full details of the offerings.
As part of its 2013 initiative to expand its VA capacity, Allied
Funding has announced that it will pay the $100 VA
sponsor fee for the first 100 brokers to submit applications
for annual approval.
In the wake of the new DU implementation, Clearpoint
Funding is requiring all loans underwritten using DU
Version 8.3 to have closed and funded by January 18th. Loans
underwritten by the old system that don’t meet this deadline
will be required to run under Version 9.0 and will be subject
to the new guidelines, and all loans that close after the 21st
will be required to contain Version 9.0 approval. As a
reminder, the updated version will require two years’ tax
returns for self-employed borrowers, six months’ receipt for
alimony and child support, and a minimum of six months’
reserves for 2-4 unit properties. ARM LTVs and Limited Review
for primary residences and condos will be reduced, and 30-day
accounts will no longer permit employer reimbursement as a
viable option to omit debt.
With the markets dead in the water, volatility-wise, and rates
& prices ending Monday about where they ended Friday, more
of the focus was on the bank settlement news ahead of earnings
releases (over the next few weeks). We also had the large
block of Bank of America servicing being sold – does
management regret it after finding out Basel III’s roll out
has been changed and delayed? As Adam Q. (Thomson Reuters)
noted, “BofA settling repurchase claims – it will pay Fannie
$3.55 billion and buyback $6.75 billion in mortgages for a
total of $10.3 billion in immediate outlays. So much for “Fast
and Easy” eh? And that provides another explanation of why
primary/secondary spreads are so wide. Besides new
regulations, the industry is still accounting for potential
buyback costs.”
Anyway,
by the end of Monday 10-year T-notes (which lost over 1-1/2
points last week) improved about .125 and closed at 1.90%
although mortgages improved about .125-.250, depending on
coupon. Today we have another lack of scheduled economic news,
although we do have the Treasury's auction of $32 billion in
3-year notes at 1:00 p.m. ahead of $24 billion more in 10-year
notes and 30-year bonds over Wednesday and Thursday. So
far the 10-yr is slightly better at 1.88% and MBS prices are
a shade better than Monday’s close.
My inconclusive travel plans for 2013
I have been in many places, but I've never been in Cahoots.
Apparently, you can't go alone. You have to be in Cahoots with
someone.
I've also never been inCognito. I hear no one recognizes you
there.
I have, however, been inSane. They don't have an airport; you
have to be driven there. I have made several trips there,
thanks to my friends, family and work.
I would like to go to Conclusions, but you have to jump, and
I'm not too much on physical activity anymore.
I have also been in Doubt. That is a sad place to go, and I
try not to visit there too often.
I've been inFlexible, but only when it was very important to
stand firm.
Sometimes I'm inCapable, and I go there more often as I'm
getting older.
One of my favorite places to be is in Suspense! It really gets
the adrenalin flowing and pumps up the old heart! At my age I
need all the stimuli I can get!
I may have been inContinent, and I don't remember what country
I was in. It's an age thing.
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 role of the IRS and REMIC’s in
the current credit crisis. 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.
