They say a good writer will grab the reader's attention within the first three sentences, and never let it go. I don't think I'm qualified to judge literature, or authors for that matter, but when I read, "For the fifth year in a row, the Federal Housing Administration (FHA) violated federal law by failing to meet its minimum capital standard of 2 percent-equal to about $22 billion on its $1.1 trillion book of insurance in force. The 2013 Actuarial Study found that the FHA had an economic net worth of -$8 billion, up from -$13.5 billion last year but still $30 billion short of the 2 percent statutory standard, " I was hooked. The quote was taken from Ed Pinto's FHA Watch. As many in the industry know, Mr. Pinto is a perpetual proponent of dismantling the FHA and scattering its ashes into a volcano. In December's issue you can read about several things including the FHA's persistently high delinquency rates (in November, 14.96% of all FHA loans were delinquent). This according to the report is "up from 14.70 percent in October 2013 and down from 16.48 percent in November 2012. The FHA's overall delinquency rate is stubbornly high, notwithstanding the declining unemployment rate, the multiyear addition of what it describes as lower-risk loans to its insurance book, and the sale in 2013 of a substantial number of delinquent notes."

The pools of servicing hitting the market continue. Yesterday Phoenix Capital went to market with $840 million Fannie Mae of mortgage servicing rights. It is similar to other recent offerings, which is similar to the product churned out by lenders in 2013: FNMA A/A, > 99% current, 3.89% weighted average interest rate, $208k average balance, 80% single family, 48% California, etc. Prestwick posted a $1.3 billion package.

And Mortgage Industry Advisory Corporation ("MIAC") is offering a pool. "The portfolio is being offered by a mortgage company that originates loans across a national geographic footprint. The Seller will be providing full representations and warranties for the loans included in this offering." You can see what is important to servicing buyers: 100% retail, 100% full doc, concentrated in California, weighted average loan age of 3 months, 4.34% weighted average interest rate, $269k average loan size...

Chase knows a thing or two about servicing, and it released its fourth quarter earnings this morning. What do the earnings tell us about mortgage banking? "JPMorgan Chase Reports Fourth-Quarter 2013 Net Income of $5.3 Billion, or $1.30 Per Share, on Revenue of $24.1 Billion; Full-Year 2013 Net Income of $17.9 Billion, or $4.35 Per Share, on Revenue of $99.8 Billion." Purchase originations of $13.0 billion were up 6% from the prior year and down 35% from the prior quarter. Mortgage banking net income was $562 million, an increase of $144 million, or 34%, compared with the prior year, driven by lower noninterest expense and provision for credit losses, predominantly offset by lower net revenue. Mortgage originations were $23.3 billion, down 54% from the prior year and 42% from the prior quarter. We heard about the "reduction in the allowance for loan losses due to continued improvement in delinquencies and home prices...Mortgage Production pretax loss was $274 million, a decrease of $1.1 billion from the prior year, reflecting lower volumes, lower margins and higher legal expense, partially offset by lower repurchase losses. Mortgage application volumes were $31.3 billion, down 52% from the prior year and 23% from the prior quarter."

Wells Fargo's earnings came in slightly higher than expectations ($1 per share versus $.98) with revenue of $20.7 billion. (The annual profit represents the fifth straight record year for Wells, which doubled its size with the 2008 purchase of Wachovia Corp. It was the first year since 2009 that profit surpassed New York-based JPMorgan Chase & Co., the biggest U.S. lender by assets, which earned $17.9 billion for all of 2013.) In the fourth quarter, Wells Fargo reported its home lending originations amounted to $50 billion, compared with the $125 billion reported a year earlier and $80 billion in the prior quarter. Mortgage banking non-interest income totaled $1.6 billion, down 49% from a year earlier.

Stonegate Mortgage Corporation reported its 4th quarter numbers as well, showing the opposite. Mortgage loan origination volume increased 1.7 percent to $2.4 billion during the fourth quarter of 2013 compared to $2.3 billion in the third quarter of 2013, and increased 70.2 percent over the fourth quarter of 2012. Purchase transactions represented 72 percent of origination volume; gross locks were $3.0 billion compared to $2.97 billion in the third quarter of 2013, and increased 45 percent over the fourth quarter of 2012. Stonegate Mortgage's servicing portfolio was $11.9 billion (UPB), an increase of 23 percent from third quarter of 2013 ending UPB of $9.7 billion and up 188 percent over the fourth quarter of 2012 ending UPB of $4.1 billion. For the fourth quarter 2013, Stonegate Mortgage's wholly owned operating subsidiary, NattyMac LLC funded $72.7 million in loans for its correspondents. Stonegate Mortgage added approximately 600 new third party originators in the fourth quarter, with approximately 400 of those resulting from the purchase of NationStar Mortgage's wholesale origination assets. And Crossline Capital, a wholly-owned operating subsidiary acquired by Stonegate Mortgage on December 19, 2013, funded $119 million of residential mortgages for the full fourth quarter of 2013.  Additionally, Crossline Capital signed a non-binding letter of intent to acquire Medallion Mortgage Company, a southern California mortgage originator that funded $73.3 million in mortgages in the fourth quarter of 2013.

Yesterday the commentary discussed Home Ownership Counseling, and I received several notes. This daily commentary is not meant to be a compliance manual, but it appears to be a timely subject. Here's one that cut to the chase regarding loans that require Home Ownership Counseling: "While I appreciate the information, you may want to revisit the definition of a federally related mortgage loan for a better understanding of the rule." I like the directness!

From another part of the nation, John Norman, Chief Compliance Officer with Academy Mortgage writes, "RESPA applies to federally related mortgage loans except loans on property of 25 acres or more and business purpose loans.  (See, 12 CRF 1014.5)   Almost all loans made on residential real property (1-4 unit housing) in the U.S. today are federally related mortgage loans.  (See, 12 CFR 1024.2)"

And this is taken from one bank's compliance manual: "Do we have to provide the Housing Counseling List on all Mortgages or just when the loan will be secured by a Primary Residence? The Housing Counseling List must be provided on all loans within 3 days of Application Date, even if the loan is not a HOEPA Loan. The Housing Counseling List and the Homeownership Counseling Acknowledgment will be sent with the initial disclosures."

And, "We know that if the APR exceeds the APOR by 6.5% or more, a first mortgage is considered to be a HOEPA Loan.  What happens if the APR is within the 1.5% tolerance, but the Points & Fees exceed 5%?" It's a HOEPA Loan, which is a loan secured by the Borrower's Principal Dwelling and the APR exceeds the APOR by: 6.5% (First Mortgages) or 8.5% (Second Mortgages) OR the total points & fees will exceed 5% of the Total Loan Amount if $20,000 or more, or 8% of the Total Loan Amount if under $20,000.  If the loan is secured by a Primary Residence and determined to be a HOEPA Loan, the Borrower must be provided with additional disclosures and we must ensure the Borrower receives additional protections, including Homeownership Counseling."

Austin Miller from CMG Financial writes that the home ownership counseling disclosure applies to all "federally related mortgage loans" which is defined as anything HUD-related or the GSEs. From the definitions section of the Reg X text:

Federally related mortgage loan means: (1) Any loan (other than temporary financing, such as a construction loan): (i) That is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property, upon which there is either: (A) Located or, following settlement, will be constructed using proceeds of the loan, a structure or structures designed principally for occupancy of from one to four families (including individual units of condominiums and cooperatives and including any related interests, such as a share in the cooperative or right to occupancy of the unit); or (B) Located or, following settlement, will be placed using proceeds of the loan, a manufactured home; and (ii) For which one of the following paragraphs applies.

The loan: (A) Is made in whole or in part by any lender that is either regulated by or whose deposits or accounts are insured by any agency of the Federal Government; (B) Is made in whole or in part, or is insured, guaranteed, supplemented, or assisted in any way: (1) By the Secretary of the Department of Housing and Urban Development (HUD) or any other officer or agency of the Federal Government; or (2) Under or in connection with a housing or urban development program administered by the Secretary of HUD or a housing or related program administered by any other officer or agency of the Federal Government; (C) Is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation (or its successors), or a financial institution from which the loan is to be purchased by the Federal Home Loan Mortgage Corporation (or its successors)...

I could go on at the risk of losing 99% of the readers, if I haven't already, but do your homework: RESPA Definitions and Counseling Organizations

Turning to the markets, volumes continue to be slow; demand is still good due to the Fed and other buyers. We've had December Retail Sales and December Import Prices, +.2% (versus +.4% in November) and unchanged, respectively. That pretty much sums it up! Monday the 10-yr.'s yield closed at 2.83% and this morning we're sitting around 2.85% and agency MBS prices are worse "a hair."