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1st Alliance Self-Reported Violation; Loans that Become Non-QM; LO Signing Bonuses
Posted to: Pipeline Press
Tuesday, February 25, 2014 7:10 AM

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Connecticut's 1st Alliance Lending, LLC has been fined $83,000 by the CFPB for violating Real Estate Settlement Procedures Act (RESPA) rules. 1st Alliance apparently realized it had illegally split real estate settlement fees and notified CFPB on its own of the infraction. 1st Alliance buys distressed mortgage loans from servicers, and then attempts to refinance those loans into new ones with lower principal balances through federally related mortgage programs (similar to Ocwen). Initially it obtained its funding from a hedge fund and split revenues and fees with the hedge fund's affiliates but ended that in 2011 although continued to split origination and loss-mitigation fees with the affiliates, a violation of RESPA which bans a person from paying or receiving a portion or split of a fee that has not been earned in connection with a real estate settlement. Read all about it, because it's no longer good enough to turn in your competitor...

Zelman & Associates invites readers to join management for an informative conference call to discuss their outlook on the housing market and mortgage environment on Monday, March 3rd at 2PM EST. "Ivy Zelman and her team deliver unique and data-intensive research across housing and have been consistently recognized for their industry-leading analysis. Join Zelman on their upcoming call to gain an insightful view on what is happening in housing and the implications for the mortgage landscape, including a discussion of demographics, the outlook for new construction, home prices and much more, as well as learn how to receive their research free of charge. Notably, with the mortgage market's shift to purchase dominance, Zelman's focus on homebuilding and related sectors provides a valuable perspective for lenders. The conference call can be accessed by dialing 1-877-234-0285 with the passcode 139842. Please note that a link to the call's presentation will be provided on Monday 3/3 before the call through this newsletter so stay tuned.

What happens if a QM loan is found to be a non-QM loan, say through some points and fees miscalculation, by the investor? As best I can tell, these loans currently cannot be cured. But there is certainly a move in the inner ranks of the industry to allow specific violations to be cured, somehow, depending on the reason the loan violated QM. Many in the biz say that, from a high level, QM seems very reasonable and is in everyone's best interest. But the fact of the matter is that if a "QM" loan doesn't fit inside the box (points and fees exceed QM cap, DTI over 43%, cannot obtain a GSE patch on 43% DTI, negative loan feature like IO or prepayment penalty, did not determine the borrower's ability to repay), it is moved from a "credit decision" to a "risk decision" by the investor. Lenders know that loans can be profitably originated and sold within the boundaries of QM. The problem is that it's not as easy as it looks, and the devil's in the details: a processor clicks the wrong box and the technology does not calculate the points and fees correctly, a borrower's employment is terminated a day before the loan funds but after everyone verifies income, an underwriter missed a lender announcement on how to document assets and now the AUS cert is invalidated. I think the industry is protesting because people make mistakes, and some of the old timers don't want to transition to the 21st century.  I would like to see a better originator system of checks and balances for auditing loan quality.

On the other hand, although some people did not take QM seriously many did their homework, and read all of their investor's guidance on QM documentation, and personally audit each one of the files for QM compliance before loans are sold. There will be a learning curve and some expensive mistakes by the industry. And thus we find capital markets staff dusting off the business cards for scratched & dented loan buyers, and girding their loins for 70 cents on the dollar, or asking an under-utilized LO to refinance the customer into a QM compliant loan if that is an option.

Regarding the agencies auditing files, Frank Fiore, president of Matchbox LLC, writes, "Your comment in today's commentary is what scares me about certain lenders out there. Anyone that looks to agency approval for the fact that Fannie does not review their files as hard as Chase does truly does not understand the implications or being agency approved. Selling direct to the agencies requires a stronger set of QC and QA guidelines pre and post-closing. They have to be able to ensure that the loan has been run through a more stringent set of tests so that when that loan come back as a possible repurchase in 3 years from now, it can be defended. I advise all of my clients that before they sell a file to an agency they should be able to mark it complete and be able to support the closing of that file 3 years from now assuming no one that was involved with the file is still with the company to "defend" the decision to close.  Any lender that is looking to the agencies as an easier outlet than aggregators does not truly understand the possible repercussions that will be coming in 6-18 months from now, if not sooner."

It seems that I can't swing a dead cat (sorry Myrtle, it's just a saying) around a group of LOs without hitting someone who has either been solicited, has heard of some extreme signing bonus, or heard of someone solicited with an extreme signing bonus. If it weren't for real, it would be comical. Volumes drop, margins drop, LOs begin to think maybe their company has grown a little stale and have more time on their hands to go to lunch with competitor's recruiting folks. The grass is always greener, right? Newer lenders, perhaps with a recent infusion of venture capital cash, who are trying to gain a foothold in a certain market, seem very willing to give bonuses or guaranteed salaries for a certain period of time to "get through" this time of year. But don't think that the VCs who provided the cash infusion will settle for a single digit return: any management "bet" in the form of an up-front signing bonus or guaranty will be followed by an ROI demand from the VC investor, and that means two things - profit and volume.

As it turns out the grass is not so green, and I am hearing some pretty grim tales out there. LOs, and AEs, lured by signing bonuses and great minimum compensation levels for a certain period of time, are finding that closing loans isn't any easier, and some are trying to go back to their old company. Companies who gave the bonuses are finding that perhaps the LOs compensation is not worth the scant production. Passing this cost along to the borrowers doesn't work in a competitive marketplace, and so they cut them loose (thus not all the LO and AE movement is voluntary). Still other companies refuse to give bonuses at all, wondering about the ethics of paying the new gal a big bonus while other LOs with tenure and loyalty receive no such bump in pay. We've all seen it before. For a while underwriters were the shining stars, then it became compliance folks, and then servicing personnel, now any LO with both decent volume and some purchase concentration business north of 50% is in the spotlight. Maybe commentary writers will be the next stars...

CoreLogic announced the reorganization of its business into two operating segments: Data & Analytics (D&A) and Technology and Processing Solutions (TPS). The company also announced that it plans the divestiture of its default management business (Asset Management and Processing [AMPS]). The main change to the D&A segment is the addition of EQECAT, a global catastrophe modeling firm. (Wouldn't that be cool to say you worked for a global catastrophe modeling firm?) The TPS segment is the old Mortgage Origination Services Segment. In addition, the company's document processing retrieval and loan file review operations will be reported as part of this segment instead of the D&A segment.

The recent servicing conference in Orlando had many relevant topics and was heavily attended similar to recent MBA conferences.  This year's best attended sessions, unlike in previous years, did not focus on lawsuits, settlements, or foreclosure moratoriums. Ben Madick writes, "We saw the most attendees interested in CFPB examinations, operations of servicing and the realization of higher costs to service (or sub-service), and a packed house for vendor management oversight. Servicers, sub-servicers, and vendors were unanimously in agreement that the cost of hosting and performing due diligence is a reality that has set in.  Every lender must perform diligence on their service providers and work WITH them to provide a seamless, safe transaction for each borrower." Ben is with Subsequent QC, a vendor that focuses on servicing QC and works together with sub-servicers and lenders to bridge the gap to meet their oversight objectives. To learn more about Servicing Oversight or selecting a sub-servicer, contact Ben Madick at ben@subsequentqc.com.

Yesterday the commentary stated, "The St. Louis Post-Dispatch announced that Nationstar Mortgage is laying off 115 employees and closing a St. Louis County office that had been open for about a year." Per Nationstar, its St. Louis office is not closing and will keep between 25 and 35 employees, in addition to being the location of the Correspondent Lending Capital Markets group. The St. Louis Post-Dispatch ran a corrected story.

HomeSteps, the real estate sales division of Freddie Mac, announced a special 2014 Winter Sales Promotion that will pay cash incentives to real estate agents who list or sell HomeSteps homes in 23 select states between February 18, and April 15, 2014. The 2014 HomeSteps Winter Sales Promotion also offers homebuyers a choice of incentives, including funds to cover condominium association fees. Selling agents will receive a $1,000 incentive, and listing agents a separate $500 incentive, when they sell HomeSteps homes located in one of the 23 target states. And homebuyers have a choice of $500 incentives they can use towards condominium association dues, flood insurance premiums or the home warranty of their choice.

(Read More: More REO Incentives, This Time $1500 for Realtors)

 

HomeSteps Winter Sales Promotion details. (My guess is that Freddie's lawyers approved all of that.)

(Speaking of Freddie Mac, the Feb. 22 column mentioned a CFPB Guide to lenders for sharing appraisal information with borrowers. In June of 2013 Freddie Mac added HVE valuation information to UCDP, and therefore the SSR. But, on Jan 12, 2014 Freddie suspended providing HVE values in UCDP in response to customer concerns involving ECOA rule changes.)

Turning to the markets, rates didn't do much Monday. Our pal the 10-yr. sat around 2.74% or 2.75% (where it closed) all day. Sure, Fannies moved a little different than Freddies, which moved a little different than Ginnies, and 30-yr moved a little different than 15-yr securities, but overall it was quiet - so I won't waste your time.

I head to Kansas today, and judging by Asia & Europe not much happened overnight. We will have S&P /Case Shiller Index for December (yes, a two month lag) and the FHFA home price indexes (+0.1 last). At 10AM we'll see February's Consumer Confidence, and the Treasury's sale of $32 billion 2-yr notes. In the very early going the agency MBS prices are roughly unchanged, as is the 10-yr yield at 2.74%.




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Mortgage Rates:
  • 30 Yr FRM 4.13%
  • |
  • 15 Yr FRM 3.28%
  • |
  • Jumbo 30 Year Fixed 4.01%
MBS Prices:
  • 30YR FNMA 4.5 107-30 (-0-01)
  • |
  • 30YR FNMA 5.0 110-09 (0-07)
  • |
  • 30YR FNMA 5.5 111-07 (0-01)
Recent Housing Data:
  • Mortgage Apps -2.68%
  • |
  • Refinance Index -3.98%
  • |
  • FHFA Home Price Index 0.67%