Basel III Comment Period Extended; CFPB Servicing Guideline Proposals; LO Realtor Thoughts
"Wanna tell you a story, about the house-man blues.
I come home one Friday, had to tell the landlady I'd-a lost my job.
She said that don't confront me, long as I get my money next Friday.
Now next Friday come I didn't get the rent, and out the door I went!"
CitiGroup is hoping it never hears that refrain written by Delaware's
George Thorogood. The bank rolled out a program where eligible delinquent
homeowners can rent back their home if they agree to keep rent current and sign
over the deed in lieu of foreclosure proceedings. "Citigroup's program
would extend to as many as 500 families who owe more on their mortgages than
their home is worth, are more than 120 days past due but can afford rent at
current market rates." (Critics say it sounds like a drop in the bucket -
10 in each state - and more of a PR move, but what do they know?) Here are a
few more details: http://www.insidermonkey.com/blog/citigroup-inc-nysec-starts-program-to-help-distressed-homeowners-16280/.
Jersey Shore fraud with the names of Citi and Wells mixed up in it? Who can
make this stuff up? Not me: http://www.businessweek.com/news/2012-08-09/10-charged-with-40-million-jerset-shore-mortgage-fraud.
I see the Aussies aren't doing very well in the Olympics. But then, if
they could run, they wouldn't have been Australians in the first place... The
U.S. Post Office isn't doing very well either, but I don't hear anyone calling
for it to be abolished. Maybe F&F should hire the USPS's PR firm. The
U.S. Postal Service lost $5.2 billion in its third quarter ended June 30,
in large part, the agency said, because of a 2006 law requiring it to prefund
future retirees' health benefits, amounting to a $5 billion payment each year
for 10 years. The New York Times reports that the agency so far has lost $11.6
billion in this fiscal year, which ends Sept. 30.
When it comes to Basel III, which many in our industry view as having
a worse impact than QM or even QRM, nothing is simple. Its regulations were
approved by the Federal Reserve in June, with a public comment period opened. This
week the FDIC extended the comment period until October 22 on three notices of
proposed rulemaking (NPRs) that would revise and replace the agencies' current
capital rules. The proposals have been available on the Federal Deposit
Insurance Corporation's website since June 12 (http://www.fdic.gov/).
The Basel accord, which is to be phased in from 2013 through 2019, will
require banks to maintain top-quality capital equivalent to 7 percent of their
risk-bearing assets, about three times what they are required to hold under
existing rules. And mortgage servicing rights that can't exceed 10% of Tier 1
capital, impacting every depository lender that owns, and originates,
servicing. On top of that, however, 28 global "systemic" banks may
have to hold up to an additional 2.5 percent buffer. It is up to each country
to write rules to implement the Basel agreement for its banks. U.S. banks
have pushed regulators to allow them to count more heavily mortgage servicing
rights and the unrealized gains and losses of certain securities toward their
capital requirements than allowed by Basel III, but the Fed's draft rule
closely follows the international agreement.
Breaking it down, one NPR, the Basel III regulatory capital reforms,
would strengthen minimum requirements for the level and quality of financial
institutions' capital. On the surface, this is a fine goal - but the impact on
banks would be to tie up more capital when they want to hold mortgages in their
investment portfolios - and how does this jive with the government wanting
banks to loan out more money? The second NPR proposes changes to the agencies'
Advanced Approaches capital regulation to reflect other aspects of Basel III
and would apply the agencies' Market Risk capital regulations to thrift
institutions and thrift holding companies. A third NPR, the Standardized
Approach, proposes changes to the calculation of risk-weighted assets that
address issues identified in the financial crisis, and removes reliance on
credit ratings consistent with the Dodd-Frank Wall Street Reform and Consumer
Protection Act. And here is one person's views on Basel III which echo many in
the industry's: http://camfine.wordpress.com/2012/07/24/by-god-that-is-enough-it-is-time-to-stop-the-madness/.
This extension of the comment period for Basel III is important. Maybe
reason will prevail? The proposals in Basel III, and approved by the Federal
Reserve, largely reject pleas by the U.S. banking industry to soften parts of
the new standards. They would force banks to rely more on equity than debt to
fund themselves so that they are able to better withstand significant losses. The
announcement came a day after a group of state banking organizations asked the
Fed and the other U.S. banking regulatory agencies for an extension. But a
bipartisan pair of senators has called on the Fed to impose even tougher
standards on the largest banks. "The surcharge on the mega banks should be
high enough that it will either incent them to become smaller or help to ensure
they can weather the next crisis without another taxpayer bailout,"
Democrat Sherrod Brown and Republican David Vitter wrote in a letter to Fed
Chairman Ben Bernanke. And they have some public support, given the news this
year on Chase's multibillion dollar hedge loss, and the apparent manipulation
of the London Interbank Offered Rate (LIBOR).
While we're talking about banks, the OCC released an update to its Bank
Accounting Advisory series that includes clarification on accounting for
acquired loans, OREO, TDRs, nonaccruals, ALLL, insurance claims and other hot
topics. The Advisory, and others, can be found here: http://www.occ.gov/news-issuances/index-news-issuances.html.
CFPB announced another public comment period, this time for proposals directed
at servicers "...aimed at protecting homeowners from unexpected
costs and shoddy service by companies that collect their monthly mortgage
payments. Mortgage servicing companies would be required to provide clear
monthly billing statements, warn borrowers before interest rate hikes and
actively help them avoid foreclosure under the proposal by the Consumer
Financial Protection Bureau. The rules also require companies to credit people's
payments promptly, swiftly correct errors and keep better internal records."
Once again, who can disagree with the publicly stated mission? But the
devil is in the details. Here is a more in-depth write up of the recent
And to comment on this or any other CFPB proposal, visit http://www.consumerfinance.gov/notice-and-comment/.
of comments, earlier this week, the commentary noted the money spent by NAR,
leading to some comments by a Realtor noted yesterday. I don't relish being in
the middle of a water balloon fight, especially between two groups that need
each other like lenders and Realtors, but a few originators wrote back. "Realtors
don't take on any buy back risk from Broker/Correspondent agreements where the
risk lasts for years, Early Pay Off fees that take more than you made on a file
(both that vary risk costs with the size of the loan file), knowing you'll work
3-5 times harder on some loans than others due to structure and program, employee/staff
payroll costs that have increased dramatically the last five years to stay in
compliance with new regulations, hours of answering emails and calls of
scenarios while the borrowers second guess everything you tell them these days
after you first do hours of research on minute technical guidelines at 2-3
levels of overlays that could trip up the file at close if you miss it. Solving
problems for hours with more research as the file adjusts with appraisals
and/or changes from the Realtors after a home inspection. I pay for all of my
personal marketing expenses that have run well into five figures annually to
get leads and many lunches for Realtors I drive to. I agree with Linda J
from Florida, but any LO could come up with a very similar list about why every
loan is unique, probably longer than mine, and it made no difference to the
Feds in 04/01/11 and may not now to CFPB coming in January. Realtors would
do better to join the mortgage industry in trying to stop this Federal
overreach rather than in saying their job is harder/different so should be
exempt from regulation on costs to consumers. It didn't work for us."
And, "For originators, every item of personal time and money Linda itemized
is replicated on mortgage side of the transaction and then expanded for 60+
days - its business. What isn't reflected is the 11PM calls from frantic
borrowers who were told by the realtor they could close in 30-45 days and
terminated the rent, the borrower who was "advised" to waive the mortgage
contingency because "this town is hot right now", or the Realtor who tell you
she/he scheduled the closing for the day after tomorrow and you're still
tracking asset documents. This is business. The entire 19% of GDP that the real
estate sector covers is under attack. In the past 2 months I have given talks about
regulatory issues and their effects on the industry to 4 groups of about 350 Realtors
total. I would estimate less than 10 had ever heard of half the items I
presented such as the Flat Fee proposal nor the proposals requiring the
inclusion of Realtors fees in the Flat Fee. In the past year I have received
only 1 item from NAR about regulatory issues. Unfortunately the regulators
and borrowers only see the commission checks paid to broker and Realtors and
not the massive work load, regulatory expenses and human stress behind the
check. What the Regulators seem to miss is intellectual property rights of
the MLO. Yes, you should get what you pay for."
Turning to the markets, on Thursday the 10-yr closed at 1.69%. Rates certainly
wouldn't have improved given the results of the 30-yr Treasury bond auction -
they were poor. However, at least the auctions are over, and the 10-yr, which
hit a high of 1.73%, improved somewhat, and seems to be doing so again in the
early going today. Over on the agency MBS screens, current coupon prices were
worse about .250 at one point but then buyers stepped in and voila! Prices improved,
and MBS rallied back - there didn't seem to be enough market moves to warrant
price changes by the majority of investors.
Today's calendar is relatively sparse again, as it has been several times
this week, with just Import Prices for July (predicted slightly higher). This
is not a market-moving number, and given the waning days of summer vacation for
many, folks heading for the doors early may represent the majority of movement
later in the day. In the very early going the 10-yr yield is down to 1.64%
and MBS prices are better .125-.250.
Things we know because of TV! (Part 2 of 3.)
- When paying for a taxi, never look at your money. Just pull out a bill or two
and hand it over. It will always be the exact fare.
- If a killer is lurking in your house, it's easy to find him. Just relax and
run a bath even if it's the middle of the afternoon.
- All single women have a cat.
- Even when driving down a perfectly straight road, it is necessary to turn the
steering wheel vigorously from left to right every few moments.
- It does not matter if you are heavily outnumbered in a martial arts fight.
Your enemies will wait patiently to attack you one by one.
- When you turn out the light to go to bed, everything in your room will still
be clearly visible, just slightly bluish.
- Dogs always know who is bad and will naturally bark at them.