“Control the rules, control the outcome.” This old saying will be of particular interest in upcoming political events… or mortgage company lawsuits & settlements.

As noted in Saturday's commentary, lenders continue to be fined hundreds or thousands of millions of dollars for lending practices from several years ago. The latest victim was Freedom Mortgage for $113 million. "...From 2006 through 2008, Quality Control did not share data on early payment defaults - loans that become 60 days past due within the first six months of the loans - with management or production or underwriting staff. Later, as lending levels grew faster than Quality Control staffing, reviews were not always done in a timely fashion. As early payment default rates topped 30 percent between 2008 and 2010, Freedom Mortgage did not report a single improperly originated loan to HUD. Further, it said after identifying "hundreds" of loans that "possibly should have been" reported to HUD, it only reported one, settlement documents say. As a result, FHA had to pay insurance claims to mortgage holders on hundreds of ineligible loans Freedom Mortgage approved.

In response to the recent release from the Department of Justice, Freedom Mortgage provided a statement. "Like many other high volume FHA-approved lenders, Freedom Mortgage Corporation was reviewed by the Department of Justice and HUD for loan origination activities that occurred as long as nine years ago. Without any admission of liability and in order to avoid the extended distractions and expenses associated with protracted litigation, Freedom Mortgage made a business decision to resolve this matter. The settlement in no way affects Freedom's ability to originate FHA-insured loans.  The company continues to focus on our most important mission--that of providing homeownership opportunities to our current and future customers."

Certainly the non-bank lenders are under scrutiny. And industry analysts are following what bank earnings are telling us about the residential lending industry. Wells reported numbers last week with a decrease in profit on loan loss provisions. Mortgage loan origination volume and margins both fell on a quarter-over-quarter and year-over-year basis. Originations fell 6% from Q4 and 10% YOY. Margins fell 15 bps QOQ and 25 bps YOY. Non-conforming mortgage growth was up 8% YOY.

Bank of America also reported weaker-than-expected earnings - but primarily from losses in the energy patch. Its stockholders hope that the big legal fees and settlements are behind them. Citigroup posted better than expected earnings based on cost cutting.

While mortgage volumes at the big banks were generally in line with or better than expectations, gain-on-sale margins were generally weaker. The companies also took meaningful negative MSR marks. As mentioned above Wells' mortgage origination volume of $44 billion was down 6.4% Q/Q from $47 billion, while Bank of America's origination volume (retail only) was down 6.8% to $12.6 billion from $13.5 billion. Chase reported flat volumes Q/Q at $22.4 billion (from $22.5 billion in 4Q15), while PNC's mortgage volume of $1.9 billion was down 17.4% from $2.3 billion Q/Q.

Gain-on-sale (GOS) margins were mixed, with most reporting margins flat to down. Wells reported a decline in its gain-on-sale margin to 1.68% from 1.82% Q/Q with minimal mix shift. KBW calculated that BofA's GOS margin was flat at 1.09% Q/Q. PNC was again an outlier, with the GOS margin improving to 3.21% from 2.91% Q/Q. Interestingly Chase stopped reporting the breakout needed to calculate the company's gain-on-sale margin, but analysts generally expected an increase in gain-on-sale margins for most originators given the sharp increase in mortgage applications during the quarter.

On the servicing side of things, it will be interesting to see the financial results for any company that paid up big time for servicing last year - especially since rates are lower now and refinancing has picked up. For these big banks Wells' MSR capitalization rate declined to 72 bps from 77 bps last quarter and the company took a negative $957 million mark (-7.0% of the prior quarter MSR) related to changes in interest rate assumptions. Bank of America's MSR capitalization rate declined to 58 bps from 71 bps Q/Q. The company took a $414 million negative fair value mark (-13.4% of the prior quarter MSR) related to changes in interest rates. JPM's MSR capitalization rate declined to 87 bps from 98 bps Q/Q, although the company did not break out its interest rate.

Overall, lower net interest margins are hurting the banking business in general. Separately, the US government increased Well's "systemically important" rating, which means they could be subject to higher capital requirements - just like JP Morgan, Citi, Morgan Stanley and Goldman.

Those who dare to forecast the future think that mortgage volumes will be down about 10% for the overall industry during the 1^st quarter. KBW sees these early big bank numbers as slightly negative for the non-bank originators primarily because gain-on-sale margin trends appear slightly weaker than anticipated. Further, unlike the big banks, non-bank originators generally do not meaningfully hedge their MSRs - or at least believe that production numbers are a natural hedge for whatever loans they keep in their servicing portfolios.

The big bank lending volumes appear slightly better than expectations from a volume perspective - "only" down 9%. But gain-on-sale margins have been about flat. The MBA application index, which includes 75% of retail originations, was down about 8% for the period from mid-November to mid-February, which should drive 1^st quarter fundings, suggesting that mortgage volume will be down in 1Q.

What about title insurers and mortgage insurance companies? The increase in purchase volumes should bode well for revenue and earnings growth for title insurers. For private MI companies, however, pricing and competition continue to be the norm although they all seem to get along at conferences and events. While MGIC, Radian, and Essent have recovered somewhat, a look at their stock prices shows they continue to trade at book value and earnings multiples materially below where they traded before competition became even more of an issue.

Warehouse banks note that non-bank lenders' performance continues to be very company-specific. It will be interesting to see where companies like PHH, Redwood Trust, Nationstar, PennyMac, Stonegate, and Walter (Ditech) come in this year - many have posted disappointing results recently, reflected in their depressed trading results. Remember that the MBA reported that independent mortgage bank profitability fell 60% QOQ in 4Q, with higher expenses largely to blame. Production expenses were at their second highest level per loan since late 2008 and total production revenue was 3.6 points - about flat to the prior quarter.

On the good news front, also remember that Ellie Mae reported that the time to close fell to 46 days in February from 50 days in January. Argue all you want, most lenders in the industry appears to be adapting to TRID, which could reduce at least some of the TRID-related expenses going forward. What choice do they have?

Fannie Mae has released its April 2016 Economic & Housing Outlook, which sees little change for 2016, despite a slow first-quarter scenario. That may sound good on the surface, but there remains some additional concern over the key housing component for the economy. The report's tag line is "Economic Growth Outlook Remains Little Changed Despite First-Quarter Stall." As noted above Fannie Mae sees mortgage originations declining by about 9% in 2016.

Are the Agencies' take on mortgages & housing reliable? Looking back to the autumn, sentiment for home purchases declined slightly in September, according to the Fannie Mae Housing Survey. Back then the report noted that overall, sentiment about the real estate market was slowly improving, but it has been a tough slog.

In January Freddie Mac's Multi-Indicator Market Index (MiMi) has indicated that the U.S. housing market is continuing to improve. The MiMi index reached 81.9, and on a YoY basis and the index improved by 6.31 percent over the past year. Since July 2014, the 6.31 annual growth is the most prominent improvement yet. Thirty-two states have MiMi values in a stable range, compared to a year ago where only twenty-one states were in a stable range. And going back to the autumn Freddie Mac's MiMi for October showed continued recovery in the housing market.

Rates: steady as she goes, and "up a little, down a little" was the norm last week, and perhaps this week as well. Friday rates dropped a little based on some weaker-than-expected U.S. economic data releases.

If you liked that last week was devoid of scheduled market-moving economic news, you'll love this week! The focus may very well be on overseas news & oil prices since there isn't much slated for this country. Today we'll have the April NAHB Housing Market Index at 8AM CDT to see what builders have to say. Tomorrow is the March Building Permits and Housing Starts duo. Wednesday are the MBA Mortgage Index and March Existing Home Sales. Thursday includes Initial Jobless Claims, April Philadelphia Fed, February FHFA Housing Price Index, and March Leading Indicators. Zip on Friday.

We closed the 10-year at a yield of 1.75% and this morning it is sitting around 1.76% with agency MBS prices roughly unchanged.

Jobs and Announcements

Founded in 2008, and licensed in 48 states, New Penn Financial, a Shellpoint Partners company, and its reputation has grown substantially under the guidance of a management team with years of experience in the mortgage industry. New Penn Financial has been recognized in the top 20 Third Party Originations Lenders and was recently voted as being a great mortgage lender to work for by sales professionals. New Penn Financial is hiring experienced Account Executives in the southwest region; more specifically Arizona, Los Angeles, CA, Denver, CO, and Santa Fe, New Mexico! For more information, or if interested, please submit confidential resumes directly to Zeenat Zonte (VP, Wholesale Sales).

And Fannie & Freddie seller/servicer American Capital Corp (ACC) is gearing up to increase business in its Wholesale channel. The name has changed from ACBN to ACC Wholesale. ACC is looking for Account Executives for the following areas: Seattle, Texas, San Diego, Pasadena/Santa Barbara. AEs have the ability to bring on Retail and Wholesale clients as well as originate themselves if they are licensed.  Please email ACC@amcap.mortgage if you would like to be considered.

In correspondent news, BB&T is very pleased to announce Kym Wright has joined its Correspondent Lending Team as the California Relationship Sales Manager. Kym will establish correspondent relationships throughout the state and be responsible for managing those partnerships.  BB&T is headquartered in North Carolina and is among the top 10 largest bank holding companies in the U.S.  In business since 1872, BB&T engages in Correspondent Lending in the 48 contiguous states. "Based in the San Diego area, Kym will use her expertise and award-winning background to help her clients grow and create successful partnerships. She pledges to be reliable, responsive, empathetic and competent and earn business with her knowledge, attentiveness and dedication."

And ComplianceEase, the nation's leading provider of automated compliance solutions to the financial services industry, appointed David Kittle, CMB as senior vice president of Government and Industry Relations. Dave will oversee the company's interactions with federal and state regulators, GSEs, capital markets participants, and mortgage industry groups. Additionally, he will develop new business and sales efforts.

And Guild Mortgage Co. has named Theresa Cherry, senior vice president and partner at Guild, new regional manager in the California coastal region. It is no small task: for Guild the region consists of 21 base branches, 24 satellite locations, and its 177 loan originators accounted for nearly $2 billion in loan originations in 2015, up 56% from $1.27 billion in 2014.

A free subscription to National Mortgage Professional? Sure thing. Our friends at National Mortgage Professional Magazine are supporters of the daily news and commentary I share with you each day. For a limited time they're giving our daily readers a free subscription to their monthly print magazine ($59 value). They're known as "The Source for Top Originators." Their exceptional team of industry-seasoned monthly contributors, all with meaningful expertise in their related disciplines, provide the most up-to-date news, insight and advice for today's mortgage professional. It's everything from c-suite insights to on the street tactics. You can follow this link to redeem your free subscription.