There were a lot of happy lenders yesterday when they learned that the FHFA's new director, Mel Watt, announced that he intends to delay guarantee fee changes that were announced last month by his predecessor, Ed DeMarco. The FHFA plans to conduct an evaluation of the proposed changes and will give not less than 120 days' notice after completing the evaluation before implementing changes. The press release from FHFA noted that the implications for mortgage credit availability and how these changes might interact with the new qualified mortgage standards could be significant. The FHFA wants to fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing.

(Read More: Many Borrowers Saving 0.375% as FHFA Officially Delays Fee Hikes)



Huh? Didn't our brethren at the FHFA do their homework and fully understand the implications of any adjustments to g-fee pricing when they announced the increase a while back? What am I missing here? It is good news, and the industry will take it, but... Regardless, we'll take it! (The 0.25% adverse market fee that was planned to be eliminated, however, will remain in effect during the examination period.) Many think that the FHFA's focus on the way fee increases interact with the new QM rule indicates that the FHFA will be very focused on affordability.

While the GSEs are currently exempt from QM (LP & DU DTI approval levels have not been tinkered with, for example), this will phase out once the GSEs are out of conservatorship or after 7 years. The increase in loan level price adjustments (LLPAs) could result in some loans exceeding the upfront 3% points and fees cap which would make them non-QM. But hey, if Mr. Watt wants to focus on affordability for homebuyers, then it will be a positive for credit availability, which should help the mortgage sector as a whole and specifically help the mortgage insurers.



In response to Elizabeth Warren's comments, J.S. writes regarding QM helping buyers, "This does not help borrowers. More small banks are exiting the business completely. One of the main beefs that Dodd-Frank tries to address is the role that the mega servicers played in the foreclosure crisis and their poor practices (see 'robo-signing'). I am not arguing for less regulation - we all know where that got us. Due to the high cost of complying with this and other regulations, community lenders will no longer play in this space. Just this week, Bay Cities Bank in Tampa announced the elimination of its 9 person Home Lending department. I know we will see more of this very shortly."



Hey, tomorrow is QM! There is still confusion, not the least of which involves wholesalers asking, "Many lenders are excluding the affiliate title company fee for a broker as their position is that it is not an affiliate of the 'lender'. What is the rule?" I have not seen a "rule" and different companies are taking different approaches. Mortgage attorneys love this kind of ambiguity. Lenders and investors are spending millions for compliance and legal, and some really do not believe anyone has a clear idea about what CFPB is doing. They liken it to the CFPB's staff redesigning the internal combustion engine and they want it to have no pistons.

I am sure it will all be sorted out, and of course much of it is needed - but really, the borrower will be absorbing the cost either through increased lender compliance overhead or in lack of competition from lenders exiting the business or scaling back dramatically. The FDIC's Quarterly Banking Profile showed that out of 6,891 banks, 2,117, or 31%, are under $100 million in size - how can they all possibly keep abreast of all the new regulations? We can expect more M&A in the banking arena.



How is the current market downturn impacting the M&A marketplace? STRATMOR's Jeff Babcock and Jim Cameron write, "After the euphoria of 2012 and early 2013, a sort of hardscrabble reality has definitely set in, pushed along by the many markets that are experiencing the grips of seasonality (which was basically masked during the refi boom.) STRATMOR has been in communication with numerous lenders who closed $1 billion or more in 2012, and the vast majority of these CEO's are now expressing concern about their financial and competitive viability under a market outlook which is characterized by declining origination volume, profit margin compression and enhanced compliance expense. Lenders who felt invincible during the balmy days of 2012 are now increasingly receptive to exploratory discussions with prospective buyers.  And we can report that many of these conversations are productive and encouraging for the players.


"So who comprises the buy-side of this marketplace equation? While there are certainly fewer 'committed investors' than we encountered say during the 3rd Quarter of 2013, there are still a handful of qualified  investors who are strategically motivated to expand during 2014 via selected acquisitions. It's a diverse group of buyers, but there are a few common descriptors: well-capitalized larger independents who were above average performers in 2013 and mid-size bank-owned lenders seeking to leverage their competitive advantages (e.g., compliance expertise, low cost of funds, licensing exemption and updated technology platforms). These buyers have a stated preference to acquire origination platforms which are regionally concentrated (rather than a geographically dispersed network of smaller branches), limited number of DBA's and 'for profit' branches, highly compliant LO compensation programs, demonstrated ability to originate over 70% purchase business and imbedded Government lending experience.



"The common ground of this marketplace is a shared belief that an affiliated franchise (merging of seller and buyer) will bring economic staying power, pricing and product advantages and sufficient production scale to better weather the challenges of 2014's comparatively dismal outlook. You may be asking, 'At this stage how mortgage companies will be valued under these market conditions?' That is a relatively complex topic which doesn't lend itself to easy rule-of-thumb parameters." If you wish to discuss mortgage company valuation methodology and parameters, feel free to reach out to the STRATMOR Group for a private, confidential conversation: or



Finally, an important correction to some investor news noted yesterday, and I apologize to Green Tree and its clients for the confusion. The Green Tree Correspondent Funding Announcement removed these overlays: "...its guidelines to state that it will not purchase loans to principal owners or majority shareholders (25% or greater ownership) of Business Lending clients.  Additional revisions stipulate that investment property borrowers have a two-year history of rental property management within the last three years, that the LTV/CLTV/HCLTV be based on the lesser of the sales price or current appraisal value, that a Lender Full Review be provided for all primary residence existing Florida condo projects, that seller contributions to high balance primary residence and second home transactions are subject to a 3% maximum, that all foreign assets used for down payment and closing costs be deposited into a US bank account prior to closing..." Clients of Green Tree should consult recent bulletins for details.



With all this going on, who has time to worry about rates? Rates did, however, give back some of their movement from Monday and Tuesday - in some part due to a stronger-than-expected ADP Employment.

(Read More: Mortgage Rates Back up to Monday's Levels)

There was little reaction to the Minutes from the December 18 Fed Meeting, at which Fed officials decided to taper. The Minutes revealed widespread confidence in sustained labor market improvement which called for a reduction in bond purchases. Agency MBS prices worsened about .250. The yammering about tomorrow's unemployment data is less than in recent months, but the predictions continue, and the consensus on Nonfarm Payrolls is +196k with the unemployment rate steady at 7 percent.



Today we've learned that Greece has taken over the EU's rotating presidency. (Prime Minister Antonis Samaras says he will press for establishment of a banking union for Europe.) Economic releases include Initial Claims (+335k expected) and the conclusion of the Treasury's auctions with $13 billion 30-year bonds. Wednesday the benchmark 10-yr T-note closed at a yield of 2.99%, which is where we are this morning, and MBS prices are also roughly unchanged.