Feb. 9: Jobs; questions about G-Fees on various levels; concern about Purchase & Sale Agreements; more on Collateral Underwriter

Hey, don’t forget next Monday is a Federal Holiday. When I was a kid we had both Lincoln’s and Washington’s birthdays off, and it serves as a reminder that we got gypped. Many in the industry feel that the consumer was deceived nearly a month ago when the CFPB came out with its site created for the consumer to shop for a mortgage without using an APR. There are, however, other efforts within in the industry to educate the consumer, and the latest is a book by John W. Mallett, the president of MainStreet Mortgage. Perhaps the CFPB should take a page or two out of it.


On the expansion side of things, Guild Mortgage is growing with its recent acquisition of Comstock Mortgage in Northern California. Guild’s new team brings to Guild a new talented regional ops center and management team in Sacramento to support the growth of their new inland region, from Fresno through to the north bay up to the OR border. The new team is looking for talented Area managers in the North Bay and Fresno markets. They are also looking for top producing branches throughout CA. Please contact Craig Sardella to hear more about what Guild has to offer.


And in the South Caliber is growing, looking to beef up its $60 billion servicing platform. “We are now hiring highly skilled Branch Managers and their teams as well as individual LOs in Alabama, Mississippi, Louisiana, Tennessee, Arkansas, North Carolina, South Carolina and Georgia. “If you can imagine a mortgage company where sales are the main focus, marketing is robust and plentiful, servicing is retained and leadership listens… You have just imagined Caliber Home Loans, Inc.  With the recent acquisition of Cobalt Mortgage, Caliber Home Loans is primed and ready for major growth in 2015. Turn your imagination into a reality and contact Senior Recruiter Bobbi Jo Wiggins for a confidential conversation or interview.”


And around the nation NRL Mortgage, a rapidly growing agency direct lender, continues to seek seasoned Branch Managers across the country for its national 2015 expansion. NRL is currently licensed in 25+ states and offers market leading products, superior service, top tier pricing and industry leading compensation. Headquartered in Houston, NRL Mortgage has become one of the fastest growing companies and top mortgage lenders in the nation being recognized as an Inc. 500/5000 company multiple times. Branch Managers and top producing loan officers that have interest in discussing new opportunities and have future growth initiatives, email to joinourteam@nrlmortgage.com to schedule a confidential conversation.


“Rob, we’ve noticed some rather unfavorable new language in Purchase and Sale Agreements from investors that are selling into the securitization markets.  We’ve been told the language results from the SEC’s new rules known as Regulation AB. The language essentially puts sellers on the hook not only for breaches of reps and warranties, but for “Alleged” breaches as well. Reference to the issue is cited on page 363 of the SEC document that spells out the SEC’s Final Rule. “Furthermore, these contractual agreements have frequently been ineffective because, without access to documents relating to each pool asset, it can be difficult for the trustee, which typically notifies the sponsor of an alleged breach, to determine whether a representation or warranty relating to a pool asset has been breached.” We heard that other lenders have had concerns about this language, but the investors are telling us it’s non-negotiable because of Regulation AB. Have you heard of this issue from other lenders?” I have not – but your note will help bring some attention.


Something else that is receiving some attention is agency pricing. “Rob, what are you hearing about the difference in pricing, to the same lender, on Fannie Mae’s Cash ‘implied’ G-Fee versus the actual MBS G-Fee. And are you hearing anything about it creating a Fair Lending issue?” There have been many frustrated comments from secondary marketing VPs that Fannie provides two different tiers of pricing to a single lender – one is the implied G-Fee that FNMA uses for lender sales to the Fannie cash window, and the other is the actual G-Fee that the lender would use to construct its own MBS security, and issue it independent of using FNMA’s Cash Window (thereby bypassing FNMA’s opportunity to make its own profit, purportedly to benefit the tax payer, off of that lender’s loan sale). Recently, “Fair Lending types” have been wondering if this dual pricing structure could also disparately impact a lender’s Fair Lending. They argue that there is zero transparency into the construct of the implied Fannie cash window price, and one wonders what the real motivation that FNMA has to give one lender a higher implied G-Fee over a different lender. So critics suggest that two different borrowers who share the same credit profile could receive different pricing, all because of FNMA’s two tier structure, and ask if the mere existence of two tiers, one with transparent pricing (MBS), and one with opaque pricing (cash), present a Fair Lending issue in the aggregate, at FNMA’s level (not the Lender level) for all of the loans sold to FNMA.


Certainly the whole loan pricing issue has been raised with Fannie and is common conversation among capital markets folks, whether the difference is one basis point for fifty. Fannie, however, argues that the gap in G-fee between window and security pricing is relatively small, and in fact both Freddie and Fannie have been tasked with “leveling the playing field” between big and small lenders. The Agencies argue that operational costs are different for the two executions – Fannie has to do pooling, for example, which is more labor intensive. Secondary marketing folks also know that Freddie’s whole loan price is different than Fannie’s. It seems like the question relates more to the agency pricing transparency issue. Plenty of agency clients have raised the concern, and there is indeed a question about whether or not the agency pricing algorithms incorporate this.


Mixing the fair lending issue into this is a new one for me. If the GSE pricing scheme results in a disparate impact (and that is a big “if”), should the GSEs held to that standard, particularly now that they are officially run by the government. Or do different laws apply to them as wards of the state? And what about the data? Without the data showing disparate impact, those who are upset about the pricing policy will probably want to look for another angle to press for changes in the policy. The price that the borrower sees is impacted by many issues, G-Fee being just one of them. Sophisticated pricing engines and lenders also incorporate their cost to originate a loan, cost of capital, profit margin, and borrower’s credit characteristics. So even if G-Fee was identical, some argue that the price would vary. Fannie’s stance is that it is agnostic when it comes to their client’s execution. Does the seller have the operational capacity and volume and net worth in order to do MBS? Those lenders tend to be more complex, have greater reporting functions, and are prepared for items like servicing advances. The Agencies argue that, generally, if two lenders come to the cash window at the same time with the same loan, they will see pretty much same G-Fee and the same price. Of course different lenders may have counterparty issues, or faster prepays, which result in different prices from the Agencies.


Some may remember the fair lending case that was brought against Long Beach Mortgage years ago where Long Beach was a wholesaler offering the same price to everyone but their brokers were charging different prices. It ended with another settlement/Consent Order so the legal questions were never really resolved. In Long Beach you had a situation where the individual brokers all charged the same rates to their group of customers and Long Beach had the same pricing for all brokers, but when you combined all the brokers into Long Beach’s overall production, brokers serving minorities were charging more than brokers serving white people. So, even though there really was no way to control it as a wholesale lender, the Justice Dept. successfully alleged Long Beach was discriminating by not making sure that all its customers got the same rates.


For a word “from the street”, Dan Cutaia also wondered about whether or not the Agencies’ activities are even within the scope of Fair Lending laws/regs, and suggested that, “In any case, I believe a regulator would simply dump the responsibility for consumer pricing on the lender by saying it’s the lender’s responsibility to adjust its margins to ensure its pricing offered all consumers meets Fair Lending laws & regulations.  And that statement holds true across all of a lender’s secondary execution options, with or without an Agency takeout, with or without an MSR takeout, and so on, not just MBS versus Cash Window.


“I think the real scandal here is the opaque nature of the G-Fee, in general, especially at the Cash Window. Given that the citizens of this country are the conservators of the Agencies and reap their rewards and pay their losses and are exposed to ALL their risks, one would think that as a matter of public record the FHFA would publish a list of each and every company doing business with the Agencies, identified by name, along with their corresponding G-Fee schedule. Any variance in G-Fee, notional or otherwise, between lenders creates unfair advantage and disadvantage in an arguably free market environment. History has shown, time and again, that government bestowed capital favoritism always results in unfair cost and burden to its citizens.”


Speaking of Fannie Mae, there is plenty of chatter about Collateral Underwriter as various lenders embrace the system. A few days ago the commentary carried a quote saying, “CU flags overvaluation only, but I love how they try and smooth it over by saying it considers both under and over-valuation. They know that flagging only overvaluation results in a push to have lenders/underwriters pressure appraisers to lower their values and be more conservative thus violating their own appraiser independence guidelines not to mention federal law.” Lenders should know, however, that Fannie says, “Higher CU risk scores may be due to potential under-valuation, as well as potential over-valuation, or other factors. CU does not take a “lower is better” approach. CU helps lenders in their efforts to ensure appropriate, accurate valuations based on comparable sales.  Every homebuyer, appraiser, broker and lender should want appropriate, accurate valuations. We are confident that CU will help make for a stronger housing market with reduced appraisal risk.”


Turning to the markets, yes, rates certainly moved higher during the week. Housing and jobs drive the economy, and here in the U.S. both seem to be doing pretty well. Nonfarm payrolls grew in January, and back month numbers were revised significantly higher although the unemployment rate climbed to 5.7%, up from December’s 5.6%. (The rate rose because the labor force grew as more Americans searched for jobs.) In fact after the news the 10-year Treasury yield hit a 3-week high and closed at 1.94%. Overall the economic data last week continued to support the case for solid economic activity although there are signs that some sectors of the economy are coming under pressure given the lower oil prices and weak global demand.


We have five more business days ahead of the holiday – five days that the overseas market can overrule anything that happens here in the states. But we do have some scheduled news. Today and tomorrow there is zip. Not much either for Wednesday aside from the MBA data. Thursday things pick up little with Retail Sales and Initial Jobless Claims. Friday the 13th has Import Prices and a series of survey numbers from the University of Michigan. In the early going the 10-yr is better by .5 in price at a yield of 1.90% and agency MBS prices are better roughly .250.



Several men are in the locker room of a golf club. A mobile phone on a bench rings and a man engages the hands-free speaker function and begins to talk. Everyone else in the room stops to listen.

MAN: “Hello?”

WOMAN: “Honey, it’s me. Are you at the club?”

MAN: “Yes.”

WOMAN: “I’m at the mall now and found this beautiful leather coat. It’s only $2,000. Is it OK if I buy it?”

MAN: “Sure, go ahead if you really like it.”

WOMAN: “I also stopped by the Mercedes dealership and saw the new 2015 Models. I saw one I really liked.”

MAN: “How much?”

WOMAN: “$128,000.”

MAN: “OK, but for that price make sure it comes with all the options.”

WOMAN: “Great! Oh, and one more thing, the house I wanted last year is back on the market. They’re asking $950,000.”

MAN: “Well, then go ahead and make an offer of $900,000. They will probably take it. If not, go the extra 50 thousand if you think it’s really a pretty good price.”

WOMAN: “OK. I’ll see you later! I love you so much! You’re so generous!”

MAN: “You’re worth it. Bye!”

The man hangs up. The other men in the locker room are staring at him in astonishment, with mouths agape. The wonderful husband turns and asks: “Anybody know whose phone this is?”





(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman