Halloween: CFPB’s servicing report; MI & VA loans; Freddie & manufactured housing; will the election really matter?

Ahead of most states changing their clocks Sunday morning, we have Halloween. Halloween has been celebrated for thousands of years, or at least since anyone reading this was a kid, as part of Celtic rituals, where initially it was associated with images of witches, ghosts and vampires. Of course Halloween has turned into a holiday where people young and old dress up, trick or treat, carve pumpkins and explore haunted houses. Halloween is also an excuse for college girls to dress in “risqué” costumes although the estimated number of potential trick-or-treaters (children aged 5-13) is about 41 million. When I was that age, Halloween was an innocent time when parents were far more relaxed and clueless about what their kids were up to. “You kids have fun, and be home by Thanksgiving!” our parents yelled as I took off with eggs and shaving cream. For those of you that haven’t finalized plans for Halloween yet, here are few suggestions of places you may want to visit tonight: Tombstone, AZ, Sleepy Hollow, NY, Kill Devil Hill, NC, Slaughter Beach, DE, Casper, WY and Truth or Consequences, NM.


Now, however, notices like this (and I took this verbatim from someone with a child in school) go out regarding the costume policy. “Costumes are allowed but remember the dress code and discipline code remain fully in effect. Costumes may not cover your face, show too much of your bare body or have a sexual, alcohol, drug, or violent theme. No simulated weapons of any type are allowed. Also the costume may not reflect badly on any ethnic, racial, gender, or sexual orientation or religious group. Students who are not dressed appropriately will be required to change their clothing.”


Lastly, before actually moving to mortgage news, I wanted to discuss the hot McDonalds coffee lawsuit from the 1990s. I was reminded by many readers that the case assumed urban legend against the woman who was burned, and that it was not frivolous. Not only had the judge reduced the monetary damages significantly, but I received this note from someone who had met one of the lead attorneys on that McDonald’s case, on the side of McDonalds. “He shared that the real story is that the burned woman, who the entire country made such a joke of, was actually 100% in the right. He said the burn damage was unbelievable, and multiple cases had happened inside McDonalds where their own employees were getting terribly burned by the coffee since they weren’t regulating temperatures properly…I always remembered him telling me this story – as it serves to remind me that all things are not as they appear in the court of popular belief or public opinion!” If anyone would like to see a short documentary on the case and aftermath, here it is.


Gaps of all kinds are widening out, and they are impacting business. In a story about “New Homes’ Problem: Price”  the gap between the more expensive median price of newly built homes and that of resales has exceeded $70,000 for most of the economic recovery, the widest spread since the Commerce Department and the National Association of Realtors started tracking the figures in 1968.


Let’s not forget that Tuesday is an election. While a Republican Congress may make more noise about reforming/dismantling Fannie/Freddie, this is more of an economic issue than a political one. “Housing” is a bipartisan issue and neither party wants to disrupt it – given that the GSEs are playing such an enormous role at present there won’t be much appetite to rush through legislation passing the companies fully back into private hands. Yes, we may see a potential Senate change. Congress has been gone since mid-September trying to protect their jobs. And gosh… there is no need for them to be in session and drag down their approval ratings further, right? Right now the Senate is split 55-45 Democrat-Republican but the odds are considered high that the GOP captures 6 net seats to get them to 51 and control of the Senate. How much would Washington change under a Republican-controlled Congress? Probably not that much. If the majority is slim (only 1-2 seats) the gridlock won’t go away (the Senate may pass more bills but that may just mean Obama is forced to wield his veto powers more frequently). Keep in mind that once these elections are over the focus will immediately shift to 2016. But in reality Congress in 2015 may not function much different from how it does now.


Anyone owning Ellie Mae stock is laughing all the way to the bank. This year its stock is up 44% “as home lenders embrace e-signatures. “As stiffer regulations make mortgage compliance more complicated, lenders who still depend on fax machines are turning to technology firms.”


Can your firm afford a team of people to audit and monitor counterparties? If it can’t, you may want to reconsider any decisions to service loans. The CFPB issued a report that highlights issues that surfaced during exams around mortgage servicing. The report indicates examiners have found insufficiencies or weaknesses in policies, problems with procedures and information sharing with vendors that service loans. Experts recommend community bankers and lenders active in mortgage lending activities double-check this area and consider ramping up internal audit resources to avoid issues in the future.


Apparently many in the industry wondered why Freddie Mac entered the manufactured housing market. Multifamily VP Kelly Brady put an end to the queries by publishing a piece titled “Behind the Scenes: The Making of The Godfather”. Uh, sorry, looking at my Netflix queue. It is titled, “Behind the Scenes: Manufactured Housing Communities.” “We needed to prove to the MHC industry that we could be a reliable capital source in this particular market segment. We needed to prove that lenders and borrowers would experience the same high quality level of service and certainty of execution that they currently receive from us on conventional multifamily loans…Next, we needed to build expertise. So we hand-picked a core team for MHCs, with the time and desire to develop relationships and with a deep knowledge of the intricacies of this business. Then, we were tenacious in pursuing business. We reached out to community owners. This was the key to our success in purchasing our first MHC loan…With our announcement to enter this space, lenders and borrowers have told us that they have seen the availability of funding go up and the cost of capital go down. And, while it’s still early, we are bringing mortgage funds to locations we have not been active in before, bringing much needed capital to rural areas where traditional multifamily apartments are scarce…”


While we’re talking about Freddie Mac, “The Community Mortgage Lenders of America (CMLA) continued its push for expanding mortgage credit for moderate income, minority, single parent and first time buyers in separate meetings with White House and Interagency staff and with Freddie Mac executives. A CMLA delegation, led by new Chair, Paulina McGrath, President of Republic State Mortgage Co., called for changes in the GSE loan review process to reduce rote repurchase demands for non-serious loan flaws. In an October 15, 2014 White House/Interagency meeting, McGrath stressed, ‘the impact of current GSE policy is, unfortunately, less credit to worthy borrowers. Lenders should be given an opportunity to correct minor flaws in performing loans. If these flaws cannot be corrected, indemnification should be the preferred option, rather than repurchase.’ Specifically, the CMLA is seeking a number of changes in how the GSEs review loan quality that include: Eliminating rote demands that lenders buy back or repurchase performing loans with minor defects, creating specific standards of materiality for errors in loans that clearly distinguish between fatal and minor flaws, working with the lending industry to boost lender guarantees against loan defaults or indemnifications, with a goal of significantly reducing repurchase demands within the next 3 years In a similar discussion with Freddie Mac Executives on October 24, CMLA lenders cited examples of slight loan defects that have prompted repurchase demands. This practice, they said, results in lenders extending credit only to the safest credit quality borrowers.


And the mortgage insurance business has been in the news. Isaac Boltansky with Compass Point writes, “On October 28, Bloomberg ran an article focusing on HUD’s push to evaluate the merits of private mortgage insurers (PMIs) providing supplemental insurance on VA loans. As a reminder, only 25% of a VA loan is federally guaranteed which reportedly limits some lender participation. To that point, at the MBA conference last week HUD Secretary Castro stated that the 25% limitation ‘leaves a lot of small lenders awfully exposed and reluctant to offer veterans credit under this initiative.’ While it is far too early to assess the potential impact of supplementary coverage on VA loans, this policy conversation reinforces our longer-term belief that the forthcoming finalization of the PMIERs will soften the ground for the PMI industry’s efforts to increase and diversify the risks it insures.” Mr. Boltansky notes it is too early to estimate the potential impact on the PMI industry but that, “The conversation surrounding supplementary insurance on VA loans reinforces our longer-term belief that governmental entities will become increasingly willing to allow PMIs to take additional and varying forms of risk given their improved capital position in the wake of the Private Mortgage Insurance Eligibility Requirements (PMIERs). We believe that the PMIERs will place the PMIs on sound financial footing which should soften the ground for industry efforts to increase and diversify the forms of risk they insure. These efforts could take the form of supplementary insurance on VA loans or deeper up-front risk sharing for PMIs (see MBA proposal). We continue to expect the FHFA to finalize the PMIERs by the end of 2015 or early Q1 2015 which should remove a meaningful policy overhang for the group and allow for the PMI conversation in D.C. to evolve.


The MBA reminded us that “…last week regulators issued the final Risk Retention rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final rule aligns QRM with QM and removes onerous provisions such as down payment and maximum debt-to-income ratios that would have restricted access to credit. Please click here for a summary of these and other provisions that will impact the single-family market.”


Yesterday the Treasury market finished about where it ended Wednesday afternoon. The 10yr closed at 2.30%. But agency MBS finished the day “in line to 5’s & 3+ ticks tighter to 10’s with under $1BB in origination.” What does that mean to the shoeshine guy down the street? It means that MBS prices did better than Treasury prices due to supply dropping relative to the demand for mortgages.


The economic calendar closes out the week beginning at 2:30AM Hawaii time with September Personal Income, seen unchanged to lower (expenditures). Also out at that timeslot is Q314 Employment Costs, also seen unchanged to lower. About an hour later we’ll have the October Chicago Purchasing Manager’s Index and then the October (final) University of Michigan survey which printed 84.6 previously. In the early going we’re at 2.34% on the 10-yr and agency MBS prices are worse about .125.



(Rated R, bordering on X: grade-school humor, not for the easily offended.)

Police work can be entertaining as well as dangerous.

A female sheriff’s deputy arrested Patrick Lawrence, a 22 year old white male, who was fornicating with a pumpkin in the middle of a field at night.

The next day, at the Gwinnett County (GA) courthouse, Lawrence was charged with lewd and lascivious behavior, public indecency and public intoxication. The suspect explained that he was passing a pumpkin patch on his way home from a drinking session when he decided to stop. “You know how a pumpkin is soft and squishy inside, and there was no one around for miles, or at least I thought there was no one around” he stated. Lawrence went on to say that he pulled over to the side of the road, picked out a pumpkin that he felt was appropriate to his purpose, cut a hole in it, and proceeded to satisfy his pressing need.

“Guess I was really into it, y’know?” he commented with evident embarrassment.

In the process of doing the deed, Lawrence failed to notice an approaching sheriff’s car and was unaware of his audience until Deputy Brenda Taylor approached him.

“It was an unusual situation, that’s for sure,” said Deputy Taylor. “I walked up to Lawrence and he’s just humping away at this pumpkin.”

Deputy Taylor went on to describe what happened when she approached Lawrence. “I said, ‘Excuse me sir, but do you realize that you’re having sex with a pumpkin?’ He froze and was clearly very surprised that I was there, and then he looked me straight in the face and said, ‘A pumpkin? No way…is it midnight already?”

The court (and the judge) could not contain their laughter. Lawrence was found guilty only of public intoxication, fined $10 and sent on his way.





(Copyright 2014 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