I asked my cat Myrtle (is she my mews?) if she knew anything about cybersecurity. She gave me a look that told me she spends as much time worrying about hackers as she thought was necessary. Financial services firms, however, worry about it plenty and are trying to strengthen their cybersecurity. But lo and behold their employees are unintentionally exposing critical information that can make a breach possible. Companies are warning employees about their social media posts and e-mail, banning the use of USB drives and other portable devices, and ramping up spending on cybersecurity. "We spend an ocean of money on cybersecurity, Wells Fargo CEO John Stumpf said before Christmas. "It is the only expense where I ask if it's enough."
Before I forget, Friday's commentary contained a note from a reader asking about VA fees. ("The VA IRRL rule...requires a 36 month recoupment of all fees and charges to the evaluation so it's not just about the lower rate. You MUST show that the client earns back the cost of the refinance within that 36 month period. What we are asking is how most lenders are addressing this?") Many astute readers were helpful and wrote in to tell me that this commentary had actually mentioned the solution to this a while back when the VA announcement took place! (Shows how good my memory is.) The VA came out with direct guidance on what has to be included in the 36 month recoupment in Circular 26-16-03. More information can be found on its FAQ document - look at question #9.
All the legal minds starting cogitating last Wednesday about the latest mega-lender case involving Lehman Brothers. Josh Rosenthal, a partner at Medlin & Hargrave, PC, writes, "...Lehman filed a lawsuit against over 100 loan originators related to the Fannie Mae settlement it entered into in 2014. Lehman had asked the court for an alternative dispute resolution order from the court which was forcing parties who hadn't agreed to mediation to mediate disputes in New York with mediators chosen by Lehman. However, we know that Lehman filed this action in defiance of that order because we have been in the process of setting up mediations with Lehman for some time.
"This action was most likely filed in response to the recent 10th Circuit case that you had posted recently in your commentary. LBHI v. Universal Mortgage Company, LLC. et al. would have the effect of making all of the indemnity claims related to the Fannie Mae settlement outside of the relevant statute of limitation. The 10th Circuit decision is only persuasive authority in a bankruptcy court in NY and the NY bankruptcy court has already denied motions based on the arguments made in the 10th Circuit decision. But, Lehman likely had to do something big or risk every originator refusing to settle with Lehman. This is likely to turn into a very big fight....this lawsuit is related to the Lehman settlement with Fannie Mae and Freddie Mac. We have dealt with many more claims related to the Fannie Mae settlement, likely because the Fannie Mae claim was about 10 times larger than the Freddie Mac claim. Also, it appears that Lehman may not have done its research into the parties it chose to name in this action. We can identify at least 3 defendants who are no longer in business and haven't been for some time."
And James Brody, Senior Managing Member of the American Mortgage Law Group, sent, "The Tenth Circuit Court of Appeals came down last week against Lehman Brothers Holdings Inc., ("LBHI") and affirmed the dismissal of several lawsuits in the U.S. District Court in Colorado in favor of lenders on the issue of the statute of limitations. The Tenth Circuit decision applied New York's borrowing statute, which provides for a three year statute of limitations, to find that LBHI's claims were time barred and thus, were correctly dismissed by the District Court. Such an interpretation is adverse to the position previously taken by the Bankruptcy Court in the Southern District of New York, which is that the statute of limitations runs from LBHI's settlement with Fannie Mae and Freddie Mac in 2014, and not from the earlier date of the sale of the loans to Lehman Brothers Bank. This position taken by the Bankruptcy Court was heavily based on an earlier case that came out of the U.S. District Court in Colorado. The Tenth Circuit's recent opinion, which is clearly in conflict with that of the Bankruptcy Court, puts the Bankruptcy Court's interpretation of the appropriate accrual date for the statute of limitations in jeopardy.
"As a result, likely out of concern that the borrowing statute will be applied against LBHI in their New York cases pending against approximately 3,000 counter parties, LBHI filed a multi-defendant lawsuit against some 140 lenders and brokers in the Bankruptcy Court in the Southern District of New York. In the adversary complaint, LBHI is again attempting to test the statute of limitations in New York as this new complaint seeks declaratory relief on the issue. AMLG represents tens of lenders both in and out of litigation related to the LBHI matters, including the most recent adversary complaint."
Also from NY comes word from the New York attorney general's that HSBC Holdings P.L.C. will pay $470 million to settle parallel U.S. federal and state civil charges alleging the bank's mortgage servicing arm engaged in abusive foreclosure and loan origination practices. "The mortgage settlement resolves claims brought against the London-based bank by the U.S. Justice Department, the Consumer Financial Protection Bureau, the U.S. Department of Housing and Urban Development, and 49 states plus the District of Columbia."
Turning to capital markets and selling loans...
All lenders must now be using the new Loan Delivery application for all loan submissions to Fannie Mae. The "Import" and "Submit" functions are disabled in the old Loan Delivery application, which will remain available for a period of time only for MBS corrections and access to the archive/reports. For information and training to help you get started, visit the Loan Delivery page.
Friday the commentary had observations from a broker noting the difference in loan level price adjustments between fixed rate and adjustable rate loans. I received this note: "The Fannie ARM pricing disparity might have something to do with limitations that FNMA has around how it can sell ARM loans out of its portfolio. It's one of those incomprehensible process or regulatory issues that basically means that FNMA has to keep the risk on all ARM loans on balance sheet rather than being able to sell or risk share them in the secondary mortgage market. So yes, I believe your guy is right and that this little market inefficiency is showing up in the pricing that gets expressed to the secondary mortgage market."
Think long-term rates are heading higher? Why? With manufacturing weak, services weakening, inflation non-existent, credit spreads widening, the long end of the yield curve not rising, and central banks in Europe, Japan and China all actively easing, the Fed will almost certainly not raise rates at its next meeting next month. The "smartest guys in the room" are saying the earliest it will boost the fed funds rate is June. It's not that the fed doesn't want to raise rates - it's that the rest of the planet isn't cooperating.
A quick look back to Friday - when the unemployment data was released - doesn't reveal much. Fixed-income securities ended the day mixed and the yield curve flattened as stocks sold off sharply on a modestly positive January jobs report. Hourly earnings grew by 0.5%, better than expected, but the nonfarm payroll number was worse. It was hard to draw any fancy conclusions from the data, although wage growth has been very sluggish throughout the recovery and today's release could have justified some selling in fixed-income assets.
But it is an exciting new week, with exciting economic news, right?! Not really. There is zip today. Tomorrow isn't anything important either (December Wholesale Inventories, whatever those tell us) although we do have a $24 billion 3-year note auction. Wednesday we'll have the usual MBA apps data but also Fed Chair Yellen's testimony to the House Financial Services Committee and a $23 billion 10-year note auction. Thursday we'll have the usual Initial Jobless Claims, the second, probably uneventful, portion of Janet Yellen's testimony (this time to the Senate Banking Committee since those guys want some TV time), and a $15 billion 30-year T-Bond sale. Friday are January's Export Prices & Import Prices ex-oil, January Retail Sales, December Business Inventories, and the February Michigan Sentiment number which gives all those grad school students something to put together.
Anyone wanting to figure out rate sheets should know that the 10-year T-Note closed Friday at a yield of 1.85% and in the early going it is sitting around 1.82% with agency MBS prices about .125 better.
Jobs and Announcements
Embrace Home Loans continues to expand and is looking to hire Branch Managers and Loan Officers in the Southeast, Northeast and Mid-Atlantic regions. "Embrace is the place retail sales professionals go to grow their business and income and offers a family oriented culture focused on employee support and customer service. Licensed in 47 states plus DC, Embrace ranks in the top 25 private mortgage lenders and top 25 FHA originators in America. For 10 straight years Embrace has achieved a 98% Customer Service Rating and is 7 times recognized by Fortune, as a Top 25 Mid-size Companies to Work for in America. If you are interested in working with a supportive, driven and productive company contact Jeff McGuiness, Chief Sales Officer."
On the wholesale/correspondent side of the ledger, First Community Mortgage, (FCM) is expanding its TPO presence and looking to hire an experienced Account Executive in Florida. The AE will have the ability to maintain wholesale, non-delegated correspondent, and correspondent accounts for maximum flexibility. Key points of this recruitment are compensation, benefits, and a great work/life balance and this position should meet all three. Candidates must have current experience as an AE in FL to be considered for the position. FCM, with its operational headquarters in Murfreesboro, TN, is a full service mortgage banker and has direct approvals with Fannie Mae, Freddie Mac, and Ginnie Mae. The company is a wholly owned subsidiary of First Community Bank. If interested in this positon, please send resume to Tony Zikovich (VP TPO EAST).
In company news WashingtonFirst Bankshares, Inc., parent of WashingtonFirst Bank, announced that 1st Portfolio Lending, the bank's wholly-owned residential mortgage lending subsidiary, is changing its name to WashingtonFirst Mortgage. WashingtonFirst acquired 1st Portfolio Lending earlier this year to significantly expand its mortgage lending business in the metropolitan DC area.
And one of the problems of being a force in the industry is that you're a big target. Quicken Loans found that out after its Super Bowl ad seemed to generate a fair amount of criticism. Yet the ad served its purpose: people are talking about it. Even the CFPB tweeted about it: consumerfinance.gov@CFPB · February 8, 2016, When it comes to #mortgages, take your time, ask questions and #knowbeforeyouowe. https://t.co/UUaGyWDbzk
SoFi's ad didn't garner the negative criticism, so fared better, but per this article the message may not have been clear. But SoFi is definitely getting its name out there.