Jun. 7, 2013: Genworth job cuts; mo’ flood insurance across the nation; recent disparate impact cases; CFPB employees unionize

Yes, mortgage rates are higher than where they were a month ago. We aren’t in an “ARM market” quite yet although intermediate ARMs are seeing some renewed interest and thus some interest in brushing up on ARM indices. The latest news comes from Europe, where officials are trying to restore some trust in the validity of LIBOR: http://www.reuters.com/article/2013/06/06/eu-libor-idUSL5N0EI0U620130606. But speaking of intermediate ARMs, yesterday’s prepayment report for May showed that fixed-rate loan early pay-offs picked up slightly but that hybrid ARMs saw “meaningful” prepayments. But LOs and investors know that with the recent sharp move higher in mortgage rates speeds on fixed rate product will slow significantly in coming months. Hybrid ARM prepayments continued to rise from February lows across ARM products, with the largest increases coming on post-2009 production. With hybrid ARM advertised rates moving only modestly higher one would expect prepay speeds will tick higher before slowing, as some borrowers look to refi before rates rise more substantially off the bottom.


Besides this ARM chatter we also have some news of the increased requirement for flood insurance, especially in the jumbo channel: http://www.marketwatch.com/story/mortgage-lenders-make-flood-insurance-mandatory-2013-06-06.

Often there are job or company postings in this spot. Today the opposite is true, as the industry learned that Genworth Financial will cut 400 jobs to reduce costs by up to $90 million a year. Percentage-wise this isn’t huge (400 out of 5,800 employees, or 7%) and some of the cuts will be from not replacing exiting employees or not filling existing vacancies. But in general, older MI companies are seeing profits on new insurance policies offsetting legacy losses, and newer companies such as Essent or National MI not having the older book of business act as a tire tied to one’s leg during a race.

And while we’re talking about tires tied to one’s leg, settling lawsuits continues. Any time someone throws out the names Wells Fargo, HUD, Bank of America, settlement, REO, and so on, it makes one take notice. There are two separate stories, both found on HUD’s website: http://portal.hud.gov/hudportal/HUD. Wells Fargo, for example, is working in collaboration with the Department of Housing and Urban Development, the National Fair Housing Alliance, 13 private fair housing organizations and HUD Acting Assistant Secretary Bryan Greene to invest $39 million in housing efforts within minority neighborhoods impacted by the foreclosure crisis. Wells also has committed to the maintenance and marketing of real-estate owned properties after foreclosure. “Additionally, Wells Fargo is trying to increase the chance that an owner-occupant will acquire the home by making it exclusively available for purchase by an owner-occupant or a non-profit organization, HUD explained.”

Wells and the other big banks fall under the jurisdiction of the CFPB, but there are plenty of institutions, mainly banks with assets of less than $10 billion, which believe that they don’t fall under the jurisdiction of the CFPB. While in theory that is correct, given Dodd-Frank, which spawned the CFPB and QM and a myriad of other regulations, the impact of the CFPB will be felt by lenders even if they never go through an actual CFPB exam. And thus it is important to note that the Consumer Financial Protection Bureau (CFPB) released updated procedures for examinations of financial institutions and mortgage lenders, which will begin taking place in January of next year. The new procedures, which will be published in the manuals for the Truth in Lending Act and the Equal Credit Opportunity Act, cover a range of topics, including compensation for loan originators, qualification standards for mortgage professionals, consumer rights, arbitration, appraisals, color of Post It notes on desks, and shade of blue ink for signed legal documents. (Okay, I just threw in those last two.) But as we all know rules prohibit dual compensation for loan originators, which occurs when an originator receives payment from both a consumer and another party in the transaction.

Examiners will also look for ethical standards in loan originators, who will have to “meet character, fitness and financial responsibility requirements; pass criminal background checks; and complete appropriate training,” according to the CFPB. (Which is why I can never be an LO – too many inappropriate jokes.) The CFPB’s new directives also disallow waivers of consumer rights. In other words, originators cannot prevent consumers from filing lawsuits regarding their mortgage loans. Mandatory arbitration is also prohibited. Originators must also provide consumers with copies of all appraisals and valuation documents “developed in connection with certain mortgage loan applications,” according to the CFPB. New rules also contain provisions for what the CFPB terms “higher-priced mortgage loans.” The minimum time limit for escrow accounts for these loans is now five years as opposed to one year. I am sure there will be more changes, but here is the latest: http://www.consumerfinance.gov/pressreleases/the-cfpb-releases-exam-procedures-for-new-mortgage-rules/.

When I think of unions, I think of employees making time and a half for overtime or double time on holidays, or movies like ‘On the Waterfront’ or ‘The Deer Hunter’, rarely do I visualize well-dressed staffers commuting from within the beltway. Well as Nina Simone once sang… “It’s a new dawn; it’s a new day…and the CFPB employees voted recently to join the National Treasury Employees Union (or something to that effect). The NTEU is a federal union that also represents employees at the FDIC, OCC and SEC. According to reports, the move to unionize “was driven in large part by news that many employees in Washington would be forced to give up their private offices while the bureau renovates its headquarters.” It goes on to described CFPB Washington staffers as angry about their current office space, which often involves groups of four or five people sharing a single office…. (no, its gets even better)…..one report quoted an internal source that said [CFPB] “lawyers and economists and senior folks who are used to having their own offices are concerned about the noise level in an open space layout.” Most underwriters and processors I know would be laughing at this right now….if they had to the time to laugh. The union’s president is reported as having said that, in addition to workspace concerns, CFPB employees are concerned about travel policies and benefits, work schedules, reviews, promotions and alternative work schedules. Reports describe CFPB staffers as having “grown frustrated in recent months after putting in grueling hours as they raced to meet statutory deadlines” under Dodd-Frank. But hey, don’t take my word for it: http://www.nteu.org/cfpb/.

I recently received this note asking about RESPA. “Rob, There is a nonprofit organization, Homes for Heroes, which has been around since 2001. The group solicits real estate agents and mortgage lenders to become an affiliate of their organization. The program is to offer a discount to military, police, firefighters, medic, teachers and nurses. The Realtor is expected to give a 25% discount off their commission, and they want the mortgage lender/loan officer to discount the cost of the appraisal and also their fees at the discretion of the LO. If I were to join the organization and offer a Lender Credit to my borrower (purchase or refinance) of $400 on the HUD-1 Settlement Statement, am I violating RESPA in any way? Would this be a gray area and raise red flags to the ‘RESPA police’?” Please know that I’m not giving legal advice – it is just an opinion. I am sure experts out there will weigh in, but my guess is that it is not a RESPA Section 8 problem to give the borrower a discount for being in the professions you mention.  It could be a Fair Lending problem if your regulator determines that these actions have a disparate impact on a protected class, whether it was intentional or non-intentional.  I would be sure to run this past your Compliance Officer before signing up. By the way, here is a good summary of 7 fairly recent disparate impact cases: http://www.propublica.org/article/disparate-impact-and-fair-housing-seven-cases-you-should-know.

In a similar vein, I recently received this note from Dan Harris in Southern California: “I think that it is important for the industry to know that open disclosure to all parties – including the lender and appraiser – of financial and durable goods incentives paid to buyers is a critical factor to be analyzed in residential real estate marketing programs.  I think RE brokers and LOs may forget this even if the incentives come from the seller’s side of the HUD-1 at close. Freddie/Fannie may have their own internal criteria (max seller paids based on LTV), but my lasting impression is that if it’s out in the broad daylight, then it’s more likely to be OK under all relevant codes (State and Federal).”

How about a couple conference & agency updates?

Accounting firm Richey, May & Co. will be hosting its fourth annual Mortgage Banking Roundtable on June 20th in Denver, CO, which will feature Brian Webster of the CFPB as the keynote speaker.  Designed with mortgage company CEOs and presidents in mind, the agenda will be based upon feedback gathered over the next month and will focus primarily on industry-wide regulatory trends and best practices.  To find out more and to register, go to http://richeymay.com/resources/roundtable.

As a reminder, the beginning of June marked a few regulatory changes, the first being the implementation of the revisions to the Truth in Lending Act.  All higher-priced mortgage loan applications dated June 1st and after require the mandatory escrow account to be maintained for five years after origination instead of the one year previously required.  The account must remain in existence even after those five years have passed until the borrower has accrued enough equity to remove the private mortgage insurance.

June 3rd marked the effective date for both the revision of  the required verbiage in HUD’s “Important Notice to Homebuyers” and Informed Consumer Choice Disclosure (full details here http://click.plazahomemortgage-rates.com/cp/redirect.php?u=NDQ2MXwyODc3NjR8cmNocmlzbWFuQHJvYmNocmlzbWFuLmNvbXw3NTI1NzN8MTcwMzQ5MTAzfDEwMjY1NjQ=&id=16704628) and the FHA mortgage insurance modifications, which change the annual MIP factor to 45bps when the LTV is less than 78% and the amortization term under 15 years. The process for assessing annual MIP will also change in that the FHA will begin collecting it for the maximum duration period, which is either the full loan term or 11 years for loans closed with an LTV of 90% or less.  For loans with LTVs over 90%, the FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years, whichever occurs first.  This applies to all single-family programs for which the FHA charges an annual MIP apart from Title I and HELOCs.

In its recently released ML 2013-14 letter (“Mortgage Letter Minimum Cash Investment and Secondary Financing Requirements—Acceptable Documentation for Funds Provided by Federal, State, or Governments, their Agencies or Instrumentalities”), HUD provided details of the documentation that must be provided in order for prove a borrower’s eligibility for FHA mortgage insurance when their minimum cash investment is funded by a government entity.

New MBS loan-level test files for GNMA I and GNMA II pools are now available via the Ginnie Mae Test File Download page (http://www.ginniemae.gov/doing_business_with_ginniemae/investor_resources/mbs_disclosure_data/Pages/test_file_download.aspx), along with a loan-level layout and disclosure glossary.

In the last few days we’ve had quite a bit of market-moving news, but perhaps nothing like the anticipation leading up to today’s jobs numbers. Wednesday the MBA confirmed what lock desks everywhere knew: last week’s applications were down 11.5% week over week with purchases down 1.6% and refis off by 15%. Conventional refis were down almost 15% and FHA/VA off almost 17%. Since the first week of May the refi index is off 40%, and the overall index was down for the 4th straight week.

Yesterday the news focused on initial jobless claims, although this number is not included in today’s Unemployment data. Fewer Americans filed applications for unemployment benefits last week, indicating companies are confident demand will be sustained in the face of federal budget cuts and tax increases. Jobless claims decreased by 11k to 346k in the week ended June 1 from a revised 357k – all about as expected. Nonetheless, the fixed-income (bond) markets had a nice day with the 10-yr improving by .25 in price (closing at 2.08%) and agency MBS prices improving by .250-.375.

But that is all so…yesterday. Today we had the unemployment numbers. May’s nonfarm payrolls were expected to increase by 170k from +165k with the unemployment rate predicted unchanged at 7.5 percent. (Rates were nearly unchanged from Thursday afternoon ahead of the numbers.) Nonfarm payrolls were +175k (there were some back-month revisions downward), the unemployment rate was 7.6%, hourly earnings unchanged. After the number rates have moved higher, with the 10-yr at 2.09% and MBS prices nearly unchanged – maybe the jobs market, and economy, is really gaining a little strength. But this is not enough to cause the immediate end, or even a tapering off, of QE3.

 A man had a Siamese cat that howled all night, every night. The sleepless man concluded that the cat has too much testosterone and took him to the vet to be castrated. To the great surprise of the man and all his neighbors, the cat continued howling.
“Why are you doing it now?” they asked the cat.
“Now I am a consultant.”

 If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “Mortgage Backed Securities: Life after QE3.” 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.


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Rob Chrisman