July 10: Mortgage production jobs; efforts to lower costs continue; Nomura to roll out non-agency security

I received many inquiries about the source of metric definitions (doesn’t that sound high-filutin’!). The accounting definitions that help compare financial results to each other are driven by Fannie, Freddie, and Ginnie’s forms and definitions. Here you go, and obviously feel free to pass along to CFO’s: https://www.fanniemae.com/content/guide_form/form-1002-sample-mortgage-bankers-financial-reporting-form.pdf. Obviously one of the big components of lender costs is compensation, and underwriters are often the most expensive personnel in fulfillment (see Bank of America story a few paragraphs down). Speaking of which, STRATMOR Group recently finished up its annual compensation survey, and partner Nicole Shown Yung observed, “Underwriter compensation was up 15% in 2012 from 2011 yet productivity was down 28% as lenders struggled with increased regulatory pressures and burgeoning pipelines.” (By the way, if you have questions about the survey, or participating in it, contact Nicole at Nicole.Shown@Stratmorgroup.com.)


On the production side of things, Stonegate is expanding its Correspondent Financial Institutions Team in the east and west. In order to meet growing demand in recently licensed states, Stonegate Mortgage is hiring new Sales Directors to build territories in Boston/NYC/ Seattle/San Francisco/Portland/Phoenix/Los Angeles/San Diego.  Please follow the link to read more about the position and about Stonegate Mortgage: http://ch.tbe.taleo.net/CH10/ats/careers/requisition.jsp?org=STONEGATEMTG&cws=1&rid=624. Stonegate Mortgage originates, finances, and services agency and non-agency residential mortgages through its network of retail offices and approved third party originators, along with providing financing through its fully integrated warehouse lending platform, NattyMac. Interested applicants should forward resumes to Doug Miller at dmiller@stonegatemtg.com


And other companies are continuing to expand. I have been retained by a “Top 10” non-depository correspondent lender in the East seeking Inside Account Executives and Regional Account Executives in its Correspondent Lending Division. Various regions are open, and the regional AEs will live within that region and manage their accounts execution to deliver mandatory and both delegated and non-delegated best efforts delivery. If you, or someone you know, are interested, please send a confidential resume to me at rchrisman@robchrisman.com.


We should continue to see existing companies competing for pieces of a shrinking pie. The MBA told us this morning that applications dropped another 4% last week, with purchase apps down 3% and refi apps dropping 4.4%. The refinance share of total mortgage activity slipped to 64% of applications.


And yes, rates have gone up and bond prices are down – which means that any bond sold a month or two ago can now be bought back at a profit. I received this note from a CEO of a residential lender in Michigan: “My secondary guy tells me that, since we’re hedging using financial instruments (not mandatories), all of our profits are in the securities – are in the hedge. So in other words, the company will make its full profit margin (and sometimes even more) whether the loan closes or not. And in fact, we’d rather the locked pipeline went away entirely so we could pair off the securities and book those gains. Is this the case with everyone?” Yes it is. There are huge mark-to-market gains in security hedges out there. But of course, mortgage lenders are in the business to make loans and hedge their position, not to speculate on the bond market.


Recently Bank of America turned some heads by saying that it is going to send U.S. property appraisals to India. (Here’s the URL: http://www.bloomberg.com/news/2013-06-27/bank-of-america-said-to-send-property-reviews-to-india.html.) “Bank of America Corp. opened a unit in India to review home-valuation reports as it seeks to rebuild share in U.S. mortgages at a lower cost…Workers in the new Bangalore office follow checklists to determine if appraisals are complete…The firm also eliminated jobs of licensed U.S. workers in its LandSafe business, the appraisal division of the Charlotte, North Carolina-based company, which made $78.7 billion in loans last year…Lenders around the world have vowed to boost revenue and curb spending to make up for sluggish loan growth and new regulations. Bank of America, which spent more than $45 billion to settle disputes tied to defective mortgages and foreclosures, is among the most aggressive cost-cutters with Chief Executive Officer Brian T. Moynihan planning to save $8 billion a year.”


So we’re seeing, in order to cut costs and increase margins, banks and mortgage lenders continuing to outsource their business processes and loan fulfillment services. As noted above, BofA outsourced its home valuation unit to Bangalore India as it’s strives to regain their lost share in the mortgage market. BofA joins other high profile players such as Citi Bank, Goldman Sachs Group, Inc., and Barclays, Plc., all who have recently leveraged external providers to boost performance since the global downturn. “Most large or medium size banks have taken advantage of offshoring which can free local employees to focus on strategic planning, whether it is for IT, underwriting or Secondary Post Closing functions.” By using an offshore shared services center, the bank gains efficiencies and economies of scale. And companies are helping lenders cut costs – Quattro Mortgage Solutions for example. (To learn more about cutting your bank’s overhead with outsourcing, email Paul Trimakas, Business Development Manager at Quatrro Mortgage Solutions: Paul.T@Quatrro.com.)


I received some input on why loans close at the end of the month. David P. writes, “Effectively, you can still close at the end of the month (disbursing to the current servicer before the last day of the month) and still skip the payment for that month and the following month. Normally, you see and hear a lot of loans funding on the last day of the month requiring 1 day of prepaid interest. What is most important is for the current servicer to receive the payoff on or before the last day of the month so the borrower doesn’t go delinquent. Otherwise, you got an insurable and un-saleable loan with you. Later in the month you fund, the borrower saves on the prepaid interest but if he/she wishes, he/she doesn’t have to make a payment for that month. This is not an encouraged practice but borrower may choose to plan a payment for that month accordingly.”


And as a reminder, the Truth in Lending Act ban on mandatory arbitration provisions in certain mortgage loans became effective on June 1, 2013. The prohibition was one of the Regulation Z amendments made by the CFPB’s final rule on loan originator compensation issued in January 2013. It bans “terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction” in any agreement for a closed-end loan secured by a dwelling or an open-end loan secured by the consumer’s principal dwelling. The prohibition applies to loans for which an application is received on or after June 1, 2013. It does not apply to loans for which the application was received before then, even if the loan is consummated on or after June 1. Arbitration provisions in existing documents for closed loans are unaffected by the prohibition. Although most lenders will be unaffected by this amendment due in large part to Fannie and Freddie not allowing the inclusion of such provisions in loans they purchase, it is worth taking note. More information is found here: http://www.loeb.com/files/Uploads/2013-01-22-loan_originator.pdf


Nomura plans to sell securities tied to $440.1 million of non-agency residential loans. Bloomberg reports that the transaction is tied to prime jumbo mortgages, all of which were originated by First Republic Bank (FRC), Kroll Bond Rating Agency said today in a pre-sale report. The ratings company plans to assign top grades to most of the debt, with homeowner equity averaging 34.4 percent providing “a substantial margin of safety against potential home price declines.” QRM (“skin in the game”) is still undecided, and neither Nomura nor First Republic, nor any of their affiliates, “intend to retain any interest in the securitization,” Kroll said in the report. “Sales of bonds known as non-agency mortgage securities had been recovering after freezing five years ago amid tumbling home values and soaring defaults, following issuance of $1.2 trillion in each of 2005 and 2006. Deals tied to new loans total about $8 billion this year, up from $3.5 billion in all of 2012, according to data compiled by Bloomberg.”


In training and events news:


On July 11th, Mountain West Financial is holding a webinar entitled “The Life of a Loan” that will walk through “a loan’s journey from submission to funding.”  The session will be led by Syndy Angel Garcia and provides a comprehensive walkthrough of the lending process that benefits mortgage professionals in all sectors of the industry.  To register, go to https://www2.gotomeeting.com/register/954899002.


Ari Karen of law firm Offit Kurman will be leading a “Compliance Risks and Solutions” webinar on July 17th that will discuss how lenders can best navigate the obligations imposed by the CFPB and State Bank Examiners’ supervision.  The program will go over recent enforcement changes, including the new standards for individual liability and the increase in whistleblower claims; minimizing the risk of losing business after having problems with compliance; pinpointing key risk factors; various compliance options and considerations; and finally, “a fixed price, cost-sensitive, attorney-supported compliance alternative.”  See https://www2.gotomeeting.com/register/931617634?utm_source=WhatCounts+Publicaster+Edition&utm_medium=email&utm_campaign=Join+me+for+Compliance+Risk+and+Solutions+7.17.13&utm_content=https%3a%2f%2fwww2.gotomeeting.com%2fregister%2f931617634 for further details and registration links.


The New Mexico Mortgage Lenders Association has announced that Fowler Financial will be conducting an SAFE Comprehensive Continuing Education training session on July 23rd in Albuquerque, NM.  The course is a full-day affair and is designed with loan originators in mind.  To find out more and to register, go to http://nmmla.com/ai1ec_event/20-hour-nm-safe-certification-course/?instance_id=167.


A nice improvement in rates yesterday froze up originators from selling securities backed by residential mortgages. And thus those MBS outperformed Treasury securities again on favorable “technical” (not much supply, continued strong demand by the Fed, hedge funds, and REITs) amidst calm trading conditions with no major data or other events. Prices on FNMA 3s through 4s were higher/better by about .375 while the 10-year Treasury note only improved .125. Nonetheless, the yield on the 10-yr note is higher by 100 basis points from early May.


Today we will have a $21 billion 10-yr note auction, and the release of the FOMC minutes from the fabled June 18-19 meeting at 2PM EDT and a speech by Chairman Bernanke at 4:10 p.m. that will be followed by Q&A. Helping rates somewhat is the International Monetary Fund’s statement that global growth will be 3.1% this year, unchanged from 2012 and lower than the 3.3% they forecast back in April.  The IMF also lowered their projections for 2013 U.S. growth to 1.7% and 2014 to 2.7% down from the 1.9% and 3.0% forecast in April. Treasuries are basically unchanged in the early going (the 10-yr at 2.63%), as are agency MBS prices.



There are plenty of trivia buffs out there, and plenty of WWII buffs. Combining the two results in some interesting tidbits; part 2 of 2 is today.

6. It was a common practice on fighter planes to load every 5th round with a tracer round to aid in aiming. This was a big mistake.  Tracers had different ballistics so (at long range) if your tracers were hitting the target 80% of your rounds were missing.  Worse yet tracers instantly told your enemy he was under fire and from which direction.  Worst of all was the practice of loading a string of tracers at the end of the belt to tell you that you were out of ammo. This was definitely not something you wanted to tell the enemy. Units that stopped using tracers saw their success rate nearly double and their loss rate go down.

7. When allied armies reached the Rhine, the first thing men did was piddle in it.  This was pretty universal from the lowest private to Winston Churchill (who made a big show of it) and Gen. Patton (who had himself photographed in the act).

8. German Me-264 bombers were capable of bombing New York City, but they decided it wasn’t worth the effort.

9. German submarine U-1206 was sunk by a malfunctioning toilet.

10. Among the first ‘Germans’ captured at Normandy were several Koreans.  They had been forced to fight for the Japanese Army until they were captured by the Russians and forced to fight for the Russian Army until they were captured by the Germans and forced to fight for the German Army until they were captured by the US Army.

11. Following a massive naval bombardment, 35,000 United States and Canadian troops stormed ashore at Kiska, in the Aleutian Islands.  21 troops were killed in the assault on the island……. It could have been worse if there had actually been any Japanese on the island.

12. The last marine killed in WW2 was killed by a can of spam.  He was on the ground as a POW in Japan when rescue flights dropping food and supplies came over, the package came apart in the air and a stray can of spam hit him and killed him.




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Rob Chrisman