There’s no question that rent levels in many urban areas are helping lenders. Research by ApartmentList.com finds the most expensive cities, in order for apartment rents, are San Francisco ($4,780 median rent for a 2-bedroom apartment), New York City ($4,450), Jersey City ($3,080), Washington DC ($2,990), and Boston ($2,900). What does the U.S. government think about rent? Government definitions consider renters who spend 30% of their income on housing to be “cost burdened” while those who spend 50% or more are considered “severely burdened.”

As every month goes by I become more and more amazed about how smaller companies can not only keep track but adhere to, and pay for, the constant flood of rules, regulations, proposed amendments, and federal & state statutes that barrage the residential lending industry. Plenty admit that they can't, or increase the cost to consumers so that they can pay vendors to do it for them. But the lender, big or small, is ultimately responsible. "Too small to comply" continues to be a problem for many.

For example, the Consumer Financial Protection Bureau (CFPB) released the long-awaited amendments to the existing mortgage servicing rules - Reg. X and Reg. Z. Yes, the CFPB capped a busy week with amendments to the mortgage servicing rules - at only 900 pages! You're welcome to check out each and every one: CFPB Final Servicing Rule 8.4.2016.

The amendments include providing flexibility for servicers to comply with certain force-placed insurance and periodic statement disclosure requirements. The changes attempt to clarify several requirements regarding early intervention, loss mitigation, information requests, and prompt crediting of payments, as well as the small servicer exemption. The changes exempt servicers from providing periodic statements under certain circumstances when the servicer has charged off the mortgage. Finally, concurrently with the final rule, the CFPB is issuing an interpretive rule under the Fair Debt Collection Practices Act relating to servicers' compliance with certain mortgage servicing provisions as amended by the final rule. When is all of this going to happen? Most of the provisions of the final rule will take effect 12-18 months after publication in the Federal Register.

The CFPB has also moved forward with changes/updates to the CFPB Complaint Database. On Friday, the CFPB published the proposal so that, according to the filing, "Consumers will have the option to provide feedback on the company's response to and handling of their complaint via all channels including online, phone, fax, and mail." So now consumers have formal avenues to disagree after the company's response. The CFPB seems to be trying to address the Complaint Database and gathering data from consumers/lenders...is the CFPB looking to expand both the collection and publication of complaint data without involving (or trusting?) industry to be a partner?

On August 4, 2016 the CFPB published for comment proposed substantive and organizational changes to the Regulation Z Commentary regarding the calculation of the annual exemption threshold amount for the special appraisal requirements for higher-priced mortgage loans under section 129H of the Truth in Lending Act (TILA).

No regulator wants to be thought inferior to, or shown up by, another regulator. The FDIC issued FIL-50-2016 to request comments on the agency's proposed Guidance for Third-Party Lending, which aims to "set forth safety and soundness and consumer compliance measures FDIC-supervised institutions should follow when lending through a business relationship with a third party." Pursuant to the proposed guidance, third-party lending would be defined as "a lending arrangement that relies on a third party to perform a significant aspect of the lending process." Intended to supplement the FDIC's 2008 Guidance for Managing Third-Party Risk, the proposed guidance seeks to establish specific expectations for third-party lending arrangements. 

The "earnings announcement season" continues, definitely with mixed results. If you like lenders who made money in the 2^nd quarter, according to this article Stonegate's was not good.

But Nationstar reported better than expected earnings in the second quarter, although they took a big hit on their servicing portfolio. Originations were up 24% QOQ and consumer direct accounted for 60% of the volume. While others are running from the servicing business, Nationstar is building its business with the addition of Seneca and USAA as clients. (USAA had used Dovenmuehle in the past.)

PennyMac Financial Services checked in as well with its 2^nd quarter numbers. Penny's earnings beat many forecasts due to a higher gain on sale income and higher net servicing income. Critics point to servicing hedge gains/losses in the operating numbers.

There was a $122.4 million negative MSR mark as well as $64.9 million in hedge gains, $17.4 million in excess servicing spread (ESS) liability gains, and $5.1 million of servicing liquidation income (those adjustments are tax-effected and are net of non-controlling interest as well). The servicing portfolio increased to $171.7 billion UPB from $164.9 billion UPB in 1Q. Number crunchers calculated a servicing fee margin of 28.7 bps, up from 28.3 bps in 1Q.

PennyMac's gain on sale revenue rose to $130.2 million (gain on sale margin of 119 basis points, about the same as Q1) from $91.5 million in the first quarter. Total production volume was up to $16.1 billion from $10.9 billion in 1Q, while originations for PFSI's book were $10.9 billion, up from $7.6 billion.

Turning to the Agencies, Freddie Mac's profit declined due to...lower rates? Freddie said its quarterly profit declined, hurt by lower interest rates and losses from derivatives, but it will send a $933 million dividend payment to the Treasury.

Freddie...Fannie...same thing? No one wants to call their twin sister ugly. Fannie Mae's profit slid for the same reason: lower rates.  Yet taxpayers are happy: Fannie Mae said it would send a $2.9 billion dividend payment to the U.S. Treasury in September despite a drop in revenue and profit. Fannie certainly made some coin: net income of $2.95 billion for the second quarter, down from $4.64 billion a year prior and up from $1.14 billion in the first quarter. Revenue dropped 12% to $5.46 billion.

What is shifting rates these days? After a weak 2Q real GDP of only 1.2% growth, its nice knowing that the 3Q has gotten off to a good start. Friday we learned that the already strong June employment data was revised up to show a robust gain of 292,000 jobs, followed by 255,000 net new jobs in July. On top of the strong job report from July, hours worked and hourly pay both increased & the unemployment rate was steady at 4.9%.

Real spending forged ahead, growing 0.3 percent. This is big since consumer spending is going to be a driving force for the U.S. economy going forward, obviously linked to jobs and housing. Auto sales rebounded in July to a 17.9-million-unit rate, the strongest sales rate since last November. The smart money seems to be the Federal Reserve holding off any potential rate hike until very late this year although there are those that think it may happen in September.

But U.S. Treasuries and agency MBS prices fell sharply, and rates moved higher, Friday after the July jobs report noted above. Agency MBS prices did a little better Friday: the 10-year worsened .75 in price, the 5-year .5, but mortgage securities "only" .250.

This week's economic calendar is relatively busy and includes the quarterly Refunding from the Treasury. Today's US calendar kicks off with two labor market indicators both at 8AM MT when the June Labor Markets Conditions Index (last -1.9) and the Conference Board's Employment Trends Index (last 128.13) will be released.

Tomorrow we have Q2 Productivity and Unit Labor Costs and June Wholesale Inventories. And we can't forget the Treasury peddling $24 billion of 3-year Treasury notes. Wednesday, after the MBA's application figures we'll have the June JOLTS (job openings) numbers and a $23 billion 10-year Treasury auction.

Thursday turns up with the usual Initial Jobless Claims but also July Export Prices ex-ag. and Import Prices ex-oil, and a $15 billion 30-year Treasury auction. We wrap things up Friday with some inflation figures (July PPI and Core PPI) and spending figures (July Retail Sales and Retail Sales). If you're trying to guess where mortgage rates will be this morning, we closed the 10-year Friday at 1.58% and this morning it is at 1.59% with agency MBS prices roughly unchanged.

Jobs and Announcements

Brokers love loans driven to them by high rents so they can broker those loans to lenders who offer a wholesale channel. Norcom Mortgage is looking for wholesale Account Executives in North Carolina, South Carolina, Georgia, and Florida. "As a FNMA and FHLMC direct seller/servicer and an active GNMA issuer, Norcom is one of the fastest growing independent purchase lenders on the east coast. With a strong focus on government products, Norcom offers highly competitive compensation for AE's. If you are interested in joining a growing team, please contact Tom Pellicone, VP of Wholesale Lending.

Midwest Equity Mortgage (MEM) is in search for a new Compliance Officer. MEM is a growing National Mortgage Lender, licensed in 14 states, which will fund over 1.5 BN in 2016, exclusively through a direct to consumer/retail channel. MEM was recently named to Crain's Fast 50 growing companies and also is an INC. 5000 Company. MEM is headquartered in Oak Brook, Illinois. The Compliance Officer will be responsible for overseeing our established department functioning as an independent and objective body that reviews and evaluates compliance issues/concerns within the organization. The position ensures management and employees are in compliance with the rules and regulations of regulatory agencies, that company policies and procedures are current and followed. Interested candidates should have experience implementing a CMS as required under the CFPB as well as experience in drafting policies and procedures. Please email resumes to Eric Meadow.

An award-winning online bank is seeking a Production and Sales Executive to support the launch of a Charlotte NC based Consumer Direct operation that will focus on cross selling mortgages to millions of existing satisfied customers. This lender has a growing and loyal customer base, a strong mortgage portfolio product, and a full range of mortgage options for this significant cross sell opportunity. Mortgage is a key strategic driver of growth for this leading online bank, and it is well-positioned for success as the industry shifts toward digital interactions and experiences. The Executive will be responsible for the Strategic Sales Leader for mortgage, and responsible for hiring all sales staff, including management and originators, and will contribute to a national site strategy to include two or more sales centers covering multiple time zones (managers, and teams and 50+ MLOs). This is a chance to get in at the start of something big, and help grow the business with a compensation plan that recognizes that potential. Send notes of interest & resumes to me and please specify the opportunity.

Regulators and examiners continue to express the need for mortgage lenders to have an effective Compliance Management System. "Building and maintaining an effective CMS is not a one-size fits all process. Mortgage Quality Management and Research, LLC provides banks and non-banks with a suite of mortgage advisory services tailored to their individual needs. MQMR offers monthly compliance engagements, ongoing internal audit, targeted compliance audits, AML audits and a wide range of other services which assist clients with maintaining an effective CMS.  MQMR's staff is fully versed with the myriad of regulations affecting lenders including, TRID, RESPA, ECOA, HMDA, TILA, HOEPA, FCRA, SAFE, AML as well as fair lending risks and privacy and vendor management requirements. Contact their Executive Director of Compliance, Michael Barone, Esq., their Director of Compliance, Marie O'Brien, Esq. or their National Account Executive, Britt Haven. (MQMR is attending the Lenders One conference, and upcoming Western Servicing, and Regulatory Compliance events, if you would like to meet in person.