Sometimes it is hard to tell if things are legit or not, especially when it comes to legislation. In 2014 Congress has reminded us of how it is nearly impossible for the current batch of politicians to actually pass meaningful legislation, but that won't stop it from introducing headline-garnering proposals on housing reform. I would wager my cat Myrtle that Congress does nothing this year on GSE reform - too much vacation and election time coming up - but this and other proposals show us where Congress' heads are.

PHH seems to have a lot going on, and most recently announced that it has completed the sale of its fleet business for net proceeds of approximately $821 million. What does one do that those kind of dubloons? PHH says it intends to use up to $450 million to repurchase shares over the next year and retire $170 million in debt in 3Q14. Some would say that is a drop in the bucket given that financials show, including the net proceeds, PHH would have had $1.74 billion of cash as of March 31. PHH also announced several strategic initiatives. The company will deploy up to $200 million to re-engineer operations and support infrastructure, focusing on restructuring its Private Label business, reducing expenses, increasing efficiencies, and investing in technology. The company also intends to spend $150 million on growth initiatives to expand its target market for the Private Label business and to grow its origination volume through outsourcing opportunities. The company will also evaluate inorganic growth opportunities. (Hey, maybe buy a daily commentary service?)

Wells and Chase - does the comparison revolve around a domestic focus versus foreign interests, or mortgage banking performance? Wells' market value has come to dwarf that of Chase ($275 billion versus $210 billion based on price/book value). Chase, who normally leads off or at least ties for announcing quarterly big bank earnings, reports tomorrow. (In the first quarter Chase reported mortgage banking net income fell to $114 million in the quarter, a drop of $559 million from the year-earlier period, with mortgage originations falling 68% to $17 billion from a year earlier, and were down 27% from the fourth quarter.) But Wells' came out Friday, and it reported a 39% drop in mortgage revenue for the second quarter as lending volume dropped. Actually, mortgage originations increased for Q2, but they have been steadily declining since Q3 of 2012, and are certainly down year-over-year.

But compared to what analysts were expecting, WFC's mortgage banking results were good. Both mortgage volumes and applications were up materially, with origination volume up 30.6% to $47 billion from $36 billion, and apps up 20% over last quarter. WFC's gain-on-sale margin declined 20 bps to 1.41% from 1.61%. In fact, compared to some of the trends reported by the MBA's application index and industry estimates, the numbers were pretty strong. On the servicing side of things, WFC's MSR capitalization rate decreased 5 bps to 80 bps from 85 bps last quarter and the estimated multiple of the servicing fee decreased to 3.08x from 3.27x. of course, this is very interesting given that bulk and flow deals are trading at north of a point for solid counterparties selling servicing.

The gain on sale margin of 1.41% (verus 1.61% in the first quarter) was slightly weaker than expected. The primary-secondary spread was slightly wider in 2Q than 1Q, although the percent or retail versus correspondent production dropped (53% of mortgages originated through the retail channel versus 56% last quarter). Although the amount of loans from purchase transactions has grown dramatically, the overall size of the mortgage market thus far has been disappointing, and could set a subdued tone for the mortgage business through the rest of the year not only for Wells but other banks as well.

CitiGroup was also in the news, this time by resolving the huge majority of its outstanding residential mortgage issues with the government. CitiGroup/CitiBank/CitiMortgage and the Department of Justice announced that Citi will pay $7 billion in fines, including a civil penalty of $4 billion.

In Romeo and Juliet, Act II, Scene II, we find the quote, "What's in a name? That which we call a rose by any other name would smell as sweet." Does "mortgage broker" smell as sweet as "mini-correspondent?" As this commentary has mentioned several times last year and earlier this year, any business model designed to "get around" something is not a long term recipe for success. The CFPB has published guidance regarding mortgage brokers transitioning to a "mini-correspondent" lender model as it is concerned that some mortgage brokers may be shifting to the mini-correspondent model under the belief that identifying themselves as such would automatically exempt them from important consumer protection rules affecting loan officer (LO) compensation. The guidance that came out Friday sets out how the CFPB evaluates mortgage transactions involving mini-correspondent lenders and confirms who must comply with the broker compensation rules regardless of how they may describe their business structure.

"Before the financial crisis, consumers seeking mortgages were steered toward high-cost and risky loans that were not in the consumer's interest," said CFPB Director Richard Cordray. "The CFPB's rules on mortgage broker compensation are intended to protect consumers from this type of abuse. Today, we are putting companies on notice that they cannot avoid those rules by calling themselves by a different name."

Mortgage brokers connect borrowers with lenders who underwrite and fund loans. In contrast, a correspondent lender, as generally understood in the mortgage industry, processes applications, provides legally required disclosures, frequently underwrites the loans, makes the final credit approval decision, funds the loans, and sells them to investors.

"The CFPB is concerned that some mortgage brokers may be setting up arrangements with investors in which the broker claims to be a 'mini-correspondent lender,' when in fact the broker is still essentially just facilitating a transaction between a borrower and a lender. While some brokers may be setting up such arrangements because they intend to grow into full correspondent lenders, the CFPB is concerned that other brokers may simply be attempting to evade consumer protection rules. This guidance confirms that mortgage brokers who merely choose to describe themselves as mini-correspondent lenders are not automatically exempt from applicable consumer protection requirements.

"The guidance sets out some of the questions the CFPB may consider in evaluating mortgage transactions involving mini-correspondent lenders in order to understand their true nature. This evaluation involves examining how the mini-correspondent lender is structured and operating, for example: whether it is continuing to broker loans; its sources of funding; whether it funds its loans through a bona fide warehouse line of credit; its relationship with its investors; and its involvement in mortgage origination activities such as loan processing, underwriting, and making the final credit approval decision.

"The CFPB Director set a stern tone when he let the mortgage industry know the Bureau is taking official action on the increase of mortgage originating 'mini-correspondents' in recent years," said John H.P. Hudson, VP of regulatory affairs at Premier Nationwide Lending. "It would appear there is a push towards a 'you are either a mortage broker or a mortgage banker' environment."

Yes, we just had yet another proposal on Fannie and Freddie, and recently the House of Representatives overwhelmingly passed The Mortgage Choice Act (H.R. 3211), which makes important changes to the way "points and fees" are calculated under the Qualified Mortgage (QM) definition in the Dodd-Frank Act and ensures that consumers have greater access to mortgage credit and also more choices in credit providers. The MBA free grassroots lobbying effort, Mortgage Action Alliance, writes, "Now it is the Senate's turn to weigh in on this bipartisan legislation (which is referred to as S. 1577 in the Senate). Your support is needed to get this legislation passed. We need to you to contact your Senators to urge them to support this important legislation by asking the Senate Majority Leader to schedule a vote on it as soon as possible. This is an easy assignment. You can do it in two steps, both of which take no more than five minutes: step 1: Join the Mortgage Action Alliance (MAA), step 2, visit the MAA homepage and TAKE ACTION."

Rates continue to be up a little, down a little. We all know what the Fed is going to do every day in terms of QE and security purchases. And I don't see any big reason for huge lock days from lenders. So we're back to looking at scheduled economic news here in the United States, and we have quite a bit of it. I will just list it off - too busy preparing for the Western Secondary in SF to be clever. Tomorrow is Retail Sales, Empire Manufacturing, and Import Prices. Wednesday is the MBA's applications numbers - the announcement doesn't move rates, but instead provides information about the health of lending. We also have the Producer Price Index, Industrial Production and Capacity Utilization, some NAHB Housing Market Index number, and the Beige book. Thursday is Jobless Claims, Housing Starts & Building Permits, and then on Friday is the University of Michigan Consumer Confidence number and Leading Economic Indicators.

Some of that may tend to shift rates, but it is highly doubtful we'll be moving out of the range we've been in since the Spring. For actual numbers, we closed the 10-yr Friday at 2.52%. All is quiet this morning, rate-wise, with the 10-yr and agency MBS prices roughly unchanged.


In the private sector, lots of companies are trying to bring new talent on board - some would say it is almost a recruiting war out there. The EMAC Group has announced the release of its EMAC Recruiting Academy 60 Day Mortgage Recruiting Boot Camp. "Learn how to attract your local talent. Join us for a special on-going training series '60 Day Mortgage Recruiting Boot Camp' starting Wednesday, July 16th at 3PM EST! The buzz is in the air and mortgage professionals at all levels are exploring their career options, and the question is, 'Are there prospects in your talent funnel?'"

Venta Financial Group, based in Las Vegas, NV, is searching for a Controller. "We are a unique and growing mortgage firm. If you're an exceptional Controller who is looking for a meaningful role in a great culture of peers who play like champions, we can offer a compelling opportunity. If you have very sharp intellect, coupled with experience and are ready to move to the next level in your career we are prepared to offer an excellent package including an annual salary ranging from $90,000 to $110,000+ a year. The position involves preparing profit and loss reports and analysis, implementing monitoring & enforcing policies and procedures, monitoring budgets by establishing schedules; collecting, analyzing, and consolidating financial data, monitoring and confirming financial condition by reconciliations and daily cash reports, and providing information to external auditors. The ideal candidate should have a minimum of 3 years relevant experience, strong financial acumen, and excellent management & leaderships skills. Confidential resumes and inquiries should be sent to Christina Reyes, Human Resources Coordinator.

On the new product side, CastleLine has created a Certified Loan Insurance Program. "In an effort to protect themselves from losses associated with Representation & Warranty violations, lenders, aggregators and other loan purchasers are participating in the Certified Loan Insurance Program provided by CastleLine and its affiliates.  Under the program, CastleLine offers up to 100% coverage for defects (including, errors, omissions and fraud) that occur during the loan manufacturing process. All types of loans, including Non-QM loans, are eligible for coverage. The program provides meaningful protection to all participants and should provide a catalyst in attracting private capital into the secondary market.  Contact Justin Vedder, Executive Vice President of CastleLine Risk and Insurance Services, LLC to learn more.

And PHH Mortgage will be expanding its outsourcing product offering to serve the needs of regional community banks and credit unions. This will afford financial institutions the flexibility of multiple executions through direct marketing programs, private label, a financial wholesale option, and correspondent. "We look forward to the opportunity to bring value to our financial clients. It will complement our current correspondent partners in an evolving mortgage market of cost increases and regulatory changes", said Len Patton, Senior Vice President, Correspondent Lending. PHH Mortgage will post job opportunities for Regional Sales Directors and Internal Account Executives during the month of August for positions across the country.