Banks as Landlords; Dodd-Frank Dictates Minority & Women-owned Service Providers; The CFPB and your 401(k)
did your company make on every transaction in the 4th quarter? For lenders, in
basis points, the average production
profit (net production income) was about 58 basis points in the fourth
quarter of 2011, compared to 66 basis points in the third quarter of 2011 per
the MBA. (Read: MBA: Secondary Marketing Income Dragged Down Profits in Q4)
of figuring gains & losses, in Southern California Banc of Manhattan Capital is looking for a Controller in its
Manhattan Beach headquarters. The ideal candidate is a CPA who has mortgage
accounting experience. BOM was formed in March, 2009 by senior sales and
trading executives with substantial experience in mortgage-related assets, and
is an affiliate with publicly-held Manhattan Bancorp. Why is this listing in
the daily commentary? Capital Markets personnel know that BOM focuses on its
core strength: residential mortgages and mortgage-backed securities, and makes
an active market in MBS's - and also has both retail and correspondent mortgage
operations. If you're interested, or know someone who might be, resumes should
be submitted to Hal Hermelee at firstname.lastname@example.org.
Perhaps some Saxon employees should
apply: the mortgage servicing firm owned by Morgan Stanley has been sold for
about $74 million to Ocwen Financial.
Saxon also announced it would close some facilities and lay off about 680
employees in May.
Federal Reserve finally gave the nod to banks wanting to rent out their OREO
(when did REO become OREO?) as long as it is part of their disposition strategy.
It is important to remember that banks aren't in the rental business. Banks
have to make good faith efforts to dispose of foreclosed properties at the earliest practicable date, but can rent
out residential OREO as long as proper policies and procedures are followed. In
other words, renting them out is a temporary substitute for selling them.
Here is the actual announcement or (Read: Fed Sets out Bank OREO Rental Guidelines)
know there is a section in Dodd-Frank that requires
financial services companies to use minority and women-owned businesses as
service providers? (A cynic might say, "Women and minorities have all the
luck!" but we know that is not the case.) It has received much less attention
than LO comp changes, but has significantly greater impact. Go to here
and click on Section 342.
The OCC, FDIC, CFPB, NCUA, SEC, Treasury, FHFA and all 12 Federal Reserve banks
have created an office to monitor the inclusion of minorities and women owned
businesses in all aspects of business, including sales. This could be a real
game-changer - how many women or minority-owned credit reporting agencies or
broker-dealers are there? One company - Salataris
- is a minority-owned firm based near Washington DC that has "extensive"
industry expertise and that begun helping firms diversity. (For more
information, contact Jay Patel at email@example.com
- and no, this is not a paid announcement.)
For better or worse, richer and poorer, through sickness and in health, the
CFPB touches many of our lives. Remember last March, when LO comp plans
everywhere were in disarray and confusion? Now the CFPB is fully involved in it
- kind of. Due to Dodd Frank it has rulemaking authority for Reg. Z. The CFPB has issued a clarification on it
rules governing loan originator compensation. The clarification specifically
addresses employer contributions to qualified profit sharing, 401(k) Plans and
employee stock ownership plans (collectively "Qualified Plans"). No
loan originator may receive and no person may pay a loan originator
compensation that is based on any terms or conditions of a mortgage
transaction, with compensation including "salaries, commissions, and
annual or periodic bonuses and that none of these can be tied to the interest
rate, loan to value ratio, or prepayment penalty provided for in a loan nor can
compensation be based on a factor such as a credit score which could be used as
a proxy for a term or condition such as the interest rate." (Read: CFPB Clarifies LO Compensation Rules Related to 401(k) and Profit-Sharing Plans)
But can a financial institution (does that include pawn shops, casinos, and
coin counting machine companies?) contribute to Qualified Plans for employees,
including loan originators, if employer contributions to such plans are derived
from profits generated by mortgage loan originations? Basically, the CFPB
doesn't know yet, but it needs to by 1/21/2013 when it must adopt final
compensation rules or stick with the current thinking. And the current thinking
is that the Compensation Rules permit employers to contribute to Qualified
Plans out of a profit pool derived from loan originations. Questions have also
arisen about how the Compensation Rules should be applied to profit-sharing
arrangements that are not in the nature of Qualified Plans. And any questions
regarding a specific plan will not be addressed: the CFPB deems plan-specific
questions not appropriate for the type of general guidance the Bureau is
putting out today. These plans will be dealt with in greater detail when
the final rules are proposed.
Fraud - in the Great State of Texas?! Perhaps: charges were brought against two
former bank executives for their involvement in a fraudulent scheme to conceal
their bank's deteriorating loan portfolio and inflate its reported earnings
during the financial crisis. Anthony Nocella and J. Russell McCann, CEO and CFO
of Franklin Bank Corporation in Houston,
are accused by the SEC of using three loan modification schemes that classified
a growing list of delinquent and non-performing loans at the bank as performing
and therefore overstate Franklin's third-quarter net income and earnings. The
bank holding company declared bankruptcy in 2008, and the complaint seeks
financial penalties, officer-and-director bars, and permanent injunctive relief
against Nocella and McCann to enjoin them from future violations of the federal
securities laws. (Read: Texas Bankers Charged with Hiding Deteriorating Loans)
of the CMLA's conference in Denver last week was about dealing directly with the agencies, how Fannie and Freddie will
purchase loans quickly, in days, not weeks, with Fannie, Freddie and Ginnie
lenders don't have to grapple with those pesky overlays, capital markets staff
are able to execute sales at true market pricing, without investor bias, and,
if the lender has cash reserves, they can build a servicing portfolio. And this
servicing portfolio, in theory, leads to increasing revenue streams, creating a
revenue hedge if/when volume shifts, growing the brand, and developing a target
audience for marketing strategies. And when rates rise (typically bad for lock
volume), the MSR values increase. Simple, right?
Not so fast! In today's litigious and regulatory-heavy environment, servicing
loans isn't simply a matter of receiving $2,000 every month from a borrower and
forwarding on $1,900 to some insurance company or REIT. Many lenders who want to build a servicing portfolio are hiring
subservicers who are experts. But working with a sub-servicer can have its
own pitfalls, particularly when they represent the brand. (Building internal
policies and protocols to work with and manage the relationships is critical.)
And many owners are finding that net revenues aren't as clear as initially
thought and require a new, more detailed financial model. For example, Ginnie
payments are scheduled/scheduled (you owe the investor the scheduled payment
regardless of whether it was received) and can be extremely cash intense. Data
uploads and exports are critical - a manual process is a recipe for disaster.
More sophisticated expertise in servicing and technology to pool loans,
maximize pricing, and manage payments/loss mitigation efficiently. And at the
end of every quarter, or year, placing a value on the portfolio is nowhere near
saying, "Ok, let's use a 4:1 multiple and say it's worth 1 point." So
lenders are also hiring companies where the focus is in valuing servicing.
mentioned Friday, March's Non-Farm payrolls gained a significantly lower-than-expected
+120K against expected 205K and below the upward revised February gain of
+240k. The print breaks the four month straight gains over 200K; however, the
Unemployment Rate fell from 8.3% to 8.2%, the lowest reading since January 2009.
(Read: Mortgage Rates Convincingly Lower After Weak Jobs Report) Economists are quick to point out that the number does not reverse the
employment gains that have been made in recent months - it just moderates them.
This jives with the views of Chairman Bernanke who has been cautious about the
pace of job growth, and has said that employment growth is unlikely to continue
without gains in consumer spending. The
10-yr T-note closed Thursday at 2.17%, and Friday around 2.05%.
For thrilling and chilling economic news this week we have zip for today and
tomorrow here in the states. (Read: The Week Ahead: Reacting to Friday's Big Move; Auctions, Inflation Data) Which means that the markets will tend to follow
through from Friday's unemployment data, and whatever happens overseas (China's
CPI came in a bit hotter than forecast in March due in large part to food
prices.) Wednesday is Import & Export Prices, and the Fed's Beige Book -
which rarely move the markets. Thursday is Jobless Claims and the Producer
Price Index, and then on Friday we have the Consumer Price Index. With the
economy picking up a little, the press will focus on these inflation numbers a
little more than in the last year or so. We also have another Treasury auction
of 3, 10, and 30-yr maturities to muddle through. In the very early going the U.S. 10-yr is down to 2.03% and
mortgage-backed security prices are better by about .125.
A Jewish couple in London won twenty-million pounds in the lottery. They bought
a magnificent mansion in Knightsbridge and surrounded themselves with all the material
They decided to hire a butler. They found the perfect butler through an agency,
very proper and very British, and brought him back to their home.
The day after his arrival, he was instructed to set up the dining table for
four, as they were inviting the Cohen's to lunch. The couple then left the
house to do some shopping.
When they returned, they found the table set for eight. Perplexed, they asked
the butler why it was set for eight when they had expressly asked him to set it
The butler replied, "The Cohen's telephoned and said they were bringing
the Blintzes and the Knishes"