Dec. 14: Letters on data file accuracy, the 2014 MBS market, and can/should an LO be paid after leaving a company?

Of course you put in your neighbor’s address, not yours, but through the wonders of the internet you can see it snow at your house: Many parts of the nation would rather have a site where they see the sun shining on their house…


About a week ago the commentary mentioned a concern that Ellie Mae’s Encompass users might have over the data fields used when a loan is cancelled or expired. I received this note from Susan Chenoweth Scarth, Ellie’s SVP of Marketing. “When creating custom reports in Encompass, Ellie Mae clients have the ability to pull various fields to analyze their data based on their business needs. With over 1,500 different clients and 92,000 users using our end-to-end solution, these needs are quite diverse. When creating reports, it’s important for clients to choose the appropriate fields that will deliver meaningful and accurate results. The referenced lock cancellation report included a field that is not intended to be used for reporting when a lock cancellation is performed. The data in Field 762 (Lock Expiration) is cleared in order to prevent unnecessary triggers and communications after a lock is cancelled. Encompass, in fact, does retain detailed snapshots of all lock request data (including request date, number of days, expiration date, etc…) and, therefore, the data is always available in the secondary marketing solution.


I hope this helps.  On another note, I wanted to let you know that Ellie Mae is delivering regular monthly webinars on compliance that have been very well received with between 1,500 – 3,700 attendees. Your readers may be interested in attending next week’s complimentary webinar, entitled “Get Ready for ATR/QM”.  The webinar is on Wednesday, December 18th from 11AM-12PM PST. Those interested can register at”


Regarding the data file field issue above, Jonathan Yosha, VP at Matchbox LLC (, writes, “On your note re:  MIAC/Ellie, I was working with MIAC on this and after working on dozens of Secondary Review projects we’ve seen two concerning themes among lenders when it comes to reports. The first is that LOS systems have thousands of inter-connected fields and often reports are developed by an admin, which doesn’t REALLY appreciate the importance of necessary data (e.g. Encompass has at least 2 fields for lock date, and arguable more between buy side requests & confirms and sell side execution.)  Some Secondary managers will create their own reports without understanding all of the field options and functionality.  Either way, many lenders are left with reports that can cause exposure due to user process flow within the LOS and reporting rules/filters. And the second is that rarely do we see lenders/secondary groups running a reliable audit on their pipelines. It is great to have a hedging/risk management firm highlight a concern, but these discussions usually come after the problem has been festering for weeks, months, or longer. It’s very scary to think that lenders may not have a close handle on their own locked pipelines, but if the reports are flawed to begin with, it’s tough to know your pipeline. I have found lenders with 10-30% of their pipeline exposed simply due to inaccurate reporting.”


Here is a quantitative assessment of the recent gfee increase announcement. “Rob, you mentioned that with the 10 bp gfee increase, if a loan exists for 8 years, is akin to 80 bps over the life vs 25 bps up front for the adverse market adjustment. Not really. A 4.5% note rate 30 year amortizes, so, if we multiply the 10 bps by the monthly outstanding balance and sum those receipts – the 10 bps is worth $1,313 on a $200k loan over the 84 months.  $1,313 / $200k = 65.6 bps. Further, since a dollar tomorrow isn’t worth what a dollar today is worth, even if we assume a modest 5% discount rate, the $1,313 is further reduced to $1,110 on a discounted basis. $1,110 / $200k = 55.5 bps. So, apples to apples, it’s better to compare 55.5 bps of extra gfee to the 25 bps of eliminated adverse market fee. Because finance nerds everywhere are now asking, ‘What discount rate reduces the value of the future gfee stream to 25 bps?” The answer is 35%.  At a 35% discount rate, the 10 bps of gfee is worth 25 bps on a present value basis. Translation – the GSE’s are still killin’ it with this change.”

A question is often asked, “With the changes to gfees, and what is happening in the jumbo market, what does 2014 hold for structuring new issue RMBS (residential mortgage-backed securities)?” Jeff Lewis, Senior Portfolio Manager of TIG Advisors (a hedge fund) — $1.8 billion AUM — Securitized Asset Fund (, “There have been a couple of bills attempting to get the process unstuck of figuring out what happens to the mortgage market post-government dominance. The critical component is that we don’t interrupt credit formation for housing in the process of finding that new market structure.  While there is a lot of enmity towards the GSEs, we have to remember that they didn’t form themselves.  They were formed by the US government with an intended purpose and were managed and regulated to carry out that purpose.  They can be changed, and have been changed in the last few years. The positive cash flows being generated by the GSEs are pretty mesmerizing to the government and seem to be working against the urgency some lawmakers express about making changes. The sense one gets though is that eventually Fannie and Freddie either evolve into or are replaced by private insurance companies taking their position. The key for the mortgage market is that the transition is managed carefully enough to keep credit flowing and the TBA markets operating smoothly.”


Tom L. writes, “Rob, You mentioned in one of your articles from about a month ago that Fannie Mae removed the property estimate from their DU Refi Plus Findings when it updated to 9.1.  You mentioned that the industry was still waiting to see if Freddie would do the same for LP.  So far, I haven’t heard any news of Freddie planning on removing this valuation, meaning it will have to be delivered in January when the rule goes final.  Have you heard anything from Freddie, investors or other sources that would suggest they are planning to remove the property valuation before the rule goes final? I have waited as long as I could, hoping that one day it would just stop showing up on the LP Findings.  However, with a month left and no news I feel as though I have to start preparing for how we are supposed to deliver this valuation on all files we run LP.  Management here is hesitant to deliver the findings themselves to the borrower as there is additional information on the AUS they may not understand. We were thinking about developing an email template that would say something like “To qualify you for this loan, we ran a LoanProspector Full Feedback Certificate.  The feedback includes an estimated value of the property which we are required to provide to you per the ECOA Valuation Rule.  LP estimates you property to be $250,000.  This will in no way influence the actual appraised value of your property.” In your opinion, would something like this comply with the rule, or would we have to send them the actual findings with the property estimate?”


As it turns out, this is a timely question with a timely answer. Freddie sent an e-mail to their customers on Dec 10th explaining how lenders can stop receiving HVE feedback on their LP feedback certificates. It’s easy — they fill out the form on this site Sellers can chose to stop HVE feedback on all loans or all loans except Relief Refinance Mortgages (HARPs). Hope this helps.

Regarding some information this week in the commentary about mortgage servicing rights (MSRs), Matt Maurer with Mountainview Servicing writes, “Here are my two cents on MSR values. The value is a negative duration asset that increases in value when rates increase. The increase, however, may not be as large as some MSR holders are expecting.  A large share of MSR holders have portfolios that are weighted heavily with 2011 through 2013 production. This discount rate production is already modeling at 6 to 9 percent expected lifetime speeds, nearing structural prepayment speeds (non-interest rate related expected prepayments such as job loss, job transfer, marriage, kids, death, divorce, etc.).  Expected speeds will still decrease slightly when rates rise but it is important for servicers to understand how much their MSR portfolio will increase given different moves in rates.  And it is critical that servicers understand how their economics change given different moves in rates. About 50 percent of the upside on discount rate servicing is tied to expected increased float earnings on escrow and P&I accounts.  If a MSR holder has negotiated a lower base cost to service in exchange for giving up the right to receive float income with their subservicer, a MSR holder of discount product has a potential increase in value given a 100 bps move up in rates of approximately 9 basis points.”


“I told my boss today I’m terminating my relationship with this company in the NMLS today but would stay on for the next 30 days to get the loans closed if he would pay me.  He said he was fine with that but was not sure he could pay me if I wasn’t licensed with this company at the time of closing. He said a couple of months ago an investor refused to buy a loan from us post-closing because the loan officer resigned 2 days prior to closing and was thus not a licensed LO at the time of closing. I told him I only have to be licensed at the time of origination, not closing. He said that’s what he thought but they wouldn’t buy it. Do you have any experience with this?”


That is a legal issue, and I asked David F. Dulock with Black, Mann & Graham, L.L.P. ( to weigh in. “The issue raised seems to have the following separate components. After the LO terminates his LO relationship with the company is it permissible to pay the LO: (i) for origination work already performed; and (ii) for work to be performed? The first component is a matter of contract law. If the compensation agreement the LO has with his employer specifies certain origination work to be performed before compensation is earned, then that will control whether the LO is entitled to compensation for his loans in the pipeline. If the agreement is silent or ambiguous on that point, then it is a matter of reasonable interpretation using the rules of contract construction applicable for your state. Neither the current LO compensation rule nor the 2013 LO compensation rule to be effective in January 2014 speak to this issue in either the rule or the official staff commentary.”


Mr. Dulock’s note went on. “The second component depends on what work the LO will be performing for the company after terminating his NMLSR registration relationship with the company. If he continues to perform origination work to get the loans closed, that could be a violation of state licensing law or regulation. As Texas licensed attorneys, we can’t speak with any authority on another state’s law. If, however, the work he performs to get the loans closed is not origination work under the current LO compensation rule or under a state’s licensing law or regulation, then we see no reason why he cannot be compensated for that work.


“In either event above, we believe it would not be appropriate for the LO to sign the loan application presented at closing for the following reasons: (1) we are given to understand that some state laws consider signing the loan application an origination activity; and (2) the official staff commentary to the 2013 LO compensation rule to be effective in January 2014  states that ‘the name and NMLSR ID of the individual loan originator with primary responsibility for the transaction at the time the loan document is issued must be included.’” Thank you David!


Lastly, Ken Perry writes, “I am not sure everybody is getting the implementation dates right on the new LO Comp requirements. In September, the CFPB issued the rule amending their final rules. In the TILA portion of these amendments you will find this: “(1) the amendments to § 1026.36(d) (other than the addition of § 1026.36(d)(1)(iii)) and the provisions of § 1026.25(c)(2) will apply to transactions that are consummated and for which the creditor or loan originator organization paid compensation on or after January 1, 2014; and (2) the provisions of § 1026.36(d)(1)(iii) will apply to transactions for which the creditor or loan originator organization paid compensation on or after January 1, 2014, regardless of when the transactions were consummated or their applications were received.” In other words, apps taken now, if consummated and funded after the 1st of the year, will fall under the 2014 compensation rule! So, policies need to be in place immediately and rolled out successfully to employees just as fast as you can! By the way, we at the Knowledge Coop are recommending that the accounting department play a huge role in the creation of comp plans since there are so many documentation requirements in the new rules, especially if a company has bonuses, trips or prizes that fall into the 10% rule! Email for more info or just ask us in the Coop.” 



As traffic everywhere increases, there’s always…the bus: Quite a clever ad!




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Rob Chrisman