Oct. 12: Input on MSAs, Reg. Z., gov’t intervention; Tom LaMalfa’s semiannual survey of the mortgage environment

This industry is filled with smart people who have opinions and are able to make up their own minds about subjects, given facts and current events. Although I am sure some rumors (and there are a lot of them, about some pretty major companies) about the long term viability of many some companies will be proven true as the entire industry changes, here is a cross section of actually useful recent notes that I have received recently to give you a flavor of current events.


Ken P. writes, “Hey Rob, the state regulator from Oregon just came and spoke at our compliance policy writing boot camp. She had quite a bit to say, but the biggest thing I took from it was the piece about MSAs. They are asking that they all be itemized so they can do a proper market analysis to determine if each item is worth the amount the mortgage company is paying for it. We have seen quite a few that look solid because desk rent is easy to comp out. Not sure how they will view the part where the mortgage company pays a specific dollar amount for the right to speak at a meeting…. That’s why they want it itemized.”


“If you check the record for the 113th Congress, there are 145 bills that address something about mortgage – reference http://thomas.loc.gov/cgi-bin/query. Am I alone or do you find that staggering to comprehend? How can so many ideas about fixing our mortgage market possibly truly help anything? No doubt there are many in there that are necessary and ‘good’ in nature (like fixing military service coverage). But how can anyone make sense of them? Plus, what are the odds that passage of any of them may conflict with statutes already in play covered by the alphabet soup of current regulation? Fun times right? Not to mention more pressing matters like the government closure and debt ceiling……” So observed Doug Thorpe, Practice Leader, Mortgage Services of Solomon Edwards Group LLC.


A while back Steve K. wrote, “Allow me to chime in on comments by J.P. from Newport Beach who asked, “So why doesn’t Reg Z recognize a consumer benefit and treat it differently?” Let me start by saying that, as an originator, I feel his pain and completely understand where he is coming from. There are probably very few among us who have not had to deal with similar ‘ridiculous’ situations such as this. Here is my understanding as to why this rule affects a net benefit to a borrower; if they allowed an exception to the .125 APR change when it benefits the borrower, many (most?) originators would simply overstate the initial disclosures substantially enough to ensure that when the rate was locked or finalized, there would absolutely be a benefit to the borrower, thus eliminating the need for a waiting period.”


His note continued, “There is an argument to this that LOs would not overstate the initial rate/fees due to competitive reasons. Sharing with the borrower, however, the reasons for the initial rate and fees would cover this, much like having to explain to a buyer why we show both lender and owner title policy fees on the disclosure even though we know that both will not be charged to the client or appear on the final loan docs. What the CFPB was trying to accomplish was responsible lending disclosures from beginning to end, which I do agree with. Now, I don’t like this any more than J.P. or any other responsible loan officer for that matter. To me, a more reasonable ‘last minute’ solution would to allow a Waiver of Right to be signed by the borrower ensuring that the client was aware of the change and accepts it. Yes, an argument could be made that the buyers signs this under duress due to timing issues. Better yet, make the 3-day waiting period mandatory only if the APR change (when a plus for the borrower) is due solely to an improvement in rate or lender fees. This places the accountability on the lender and does not make us the ‘bad guy” when situations like J.P.’s arise.”


J.W writes, “I believe that the FHA volume issues are not limited to, nor driven by, ‘higher interest rates have discouraged borrowers and reduced loan volume for the FHA in recent months’.  As you know, HUD has been enlisting the DoJ to enforce the ‘False Claims Act’ claims and treble damages against some of the largest FHA lenders.  Many large lenders (read ‘easy targets’) are actively stepping away from FHA for fears of an Agency gone wild in their enforcement actions. The clear loser in all of this is the first time homebuyer who will no longer benefit from wide access to FHA programs as they have in the past. HUD has elicited big settlements from big banks, and will continue down this path as long as they have an underfunded insurance fund and banks willing to stay in the mortgage business.”


Back in May, as he does prior to the two major MBA conferences, industry expert Tom LaMalfa (TSL Consulting) surveyed dozens of senior mortgage banking executives at lenders which range in size and business channel. He puts those results together in an interesting report. “The survey is designed to capture and measure the opinions, attitudes, values and expectations of senior mortgage bankers on many of the key issues, topics and concerns being discussed today throughout the industry.”  I thought that it would be interesting to see the forecasting ability, although remember that Mr. LaMalfa’s great report (with its questions designated as “Q”’s) is designed as a snapshot, not necessarily as a predictive tool. So here are some selected questions from the May survey.


In May “Q1 wanted to know how much origination activity folks think 2013 will yield. The average expectation for total volume this year is $1.48 trillion. Individual forecasts ranged from $1.1 trillion to $1.8 trillion. Q2 wondered how long the executives felt that heavy (50% or more of application volume) refi volume would continue. The group average was another 10.7 months, with a range of from three to 24 months. Fifteen executives said the heavy refi volume would continue well into 2014.” “Q4 questioned whether folks expected purchase activity to strengthen significantly this year. Yes, said 19 executives, compared to six who begged to differ. The latter saw some improvement but wouldn’t characterize it as ‘significant.’”


Q6 asked executives if the GSEs would be privatized or eliminated in the next five years. No, said 18 of the 22 respondents. Q7 wondered whether the executives thought that FHA market share would increase, decrease or stay the same in 2013. Fifteen expect a decrease in FHA share compared to nine who expect no change and one who expects an increase.


Q9 sought to learn if the executives’ firms had changed their servicing strategies in recent years. Twelve said they had versus nine who admitted no change in servicing strategy. Q9 also wanted to learn if Basel III was affecting their firm’s mortgage banking strategies. No, said 14 executives, compared to eight who felt Basel III proposals were likely to affect their corporate strategies. Q10 wondered if Basel’s proposed MSR treatment would affect their companies over the next decade were it to be implemented as currently proposed. Scaled 1-10, the average response was a 5.8, with a very wide range of from 0 to 9.


Q12 wondered about house prices, whether they would rise in 2013 and if so, by how much? Twelve of the 25 folks surveyed expect prices to increase this year and by an average of 6.6%. The range of house price gains spanned from 3-15%. Four of the execs surveyed expect double-digit increases. Interestingly, no one expected falling or even flat prices.


“Q13 queried whether the execs saw liquidity in the jumbo market continuing to improve, and whether they would characterize the jumbo market as ‘healthy,’ (however they might define that term). Twenty-three of the 25 answering the question agreed the jumbo market’s liquidity was improving, but only seven of 24 executives viewed the sector as healthy. Q14 asked about mortgage brokers, specifically whether they expected an increase in the number of broker wholesalers and in broker market share prospectively. Seventeen said they didn’t expect growth in outlets or share versus seven who did.


“Q16 asked if the surveyed firms were selling or retaining their servicing. Sixteen firms are retaining servicing, seven are selling it, and two others do both. Eighteen of 23 respondents aren’t buying MSRs, so 7 are. A vast majority of executives now think that non-banks have an advantage over banks in buying and selling servicing – 23 versus a lone dissenter.


“Q18 wondered if the companies entered 2013 with more committed capital than a year earlier. Yes, said 13, but another 11 said no additional capital had been added. Q 20 inquired whether Fannie Mae had placed dollar caps on the amount of business their firms could conduct with the GSE. Only two of 23 had such constraints placed on them. Q21 questioned how many basis points (in yield) the private sector was away from pricing parity with the conforming agency market. The average estimate was that the private sector was 26 bp away from parity. The range was from “we’re there” to “5/8ths away.” Nine of the executives provided estimates that exceeded the group average. Four others estimated that the market was at or within 10 bp of pricing parity on conforming loans.


“Q23 sought to learn if the executives think industry productivity is declining, if so by how much, and were their firms still hiring? Concerning productivity, no doubt about it, it has been waning – by a count of 21 to four. As for how much, the group average was a 5.7 within a range bounded by 1 and 10. Ten of the execs scored it a 6 or above, while five ranked the decline a 4 or less.


“Q24 inquired if buyback demands from Fannie and Freddie had improved over the past year, worsened, or remained the same (as the prior year). The respondents were also asked to scale the extent of the buyback problem and how often their firms were successful in combating repurchase requests. Nine executives indicated that the buyback situation improved in the past 12 months, while five experienced a worsening and 10 saw no change. As for how large a problem, the group collectively ranked it a 7.1 on the 10-point scale. The average firm had an average success rate of 55% in defending against agency buyback demands. Twelve executives scored it an 8 or higher, including one 10.


“Q25 was another first-time question. It asked if the executives felt their dealings with Fannie Mae were skewed, one-sided. (All but two or three respondents immediately understood the question.) The group mean was a 7.4 on the 1-10 scale. The range of answers was from 2 to 10, and included six 10s and three 9s. As for whether Fannie’s customer interactions got more one-sided in the past year, yes said 12, no said seven, and two others replied ‘no change.’


Are all the regulations and compliance getting more difficult and confusing, Q30 sought to answer. All 25 said yes the ground rules had gotten more difficult and confusing. The unanimous response made this the only question in this year’s survey to generate complete and thorough uniformity. Q31 wanted to know how much of their firms’ total expense dollar compliance and regulatory matters consumed. The group average was 21%. The response range ran from 10- 40%. Q35 questioned how much compliance cost has risen since the financial crisis, and by about how much has it increased origination and servicing expenses? The group indicated that since the financial crisis, the cost of compliance has increased on average 250%. As for its spillover effects, it has increased average origination expenses by 21% and average servicing expenses by 22%.


Q33 wondered if after years of working to produce a final rule governing LO compensation, the target has been hit. No, said 23 of the 25 surveyed. LO compensation isn’t yet resolved or final. Has the CFPB’s proposed RESPA/TILA rule simplified the disclosure process, queried Q34? Apparently it has not, with 22 of 23 executives responding that the disclosure process hadn’t been simplified thus far.


Tom’s survey is obviously a huge amount of well thought-out, comprehensive work, and I appreciate him letting me post the results here. Readers can gauge for themselves if things have changed much in the last six months. If you have questions about the work TSL Consulting does, be sure to write him at tom.lamalfa@gmail.com.



Three friends from the local congregation were asked, “When you’re in your casket, and friends and congregation members are mourning over you, what would you like them to say?”

Ken said, “I would like them to say I was a wonderful husband, a fine spiritual leader, and a great family man.”

Leo commented, “I would like them to say I was a wonderful teacher and servant of God who made a huge difference in people’s lives.”

Mike said, “I’d like them to say, ‘Look, he’s moving!'”




Copyright 2013 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