MIC Cuts Back Lending due to Dodd-Frank; LO Retirement Contribution; FHA in the Shutdown
Welcome to "National Aging in Place" Week (October 15-21). No, this doesn't mean sitting in that 10-yr old office chair, slouched over your computer while everyone else is being active and videotaping their activities with their obnoxious helmet cams. Reverse mortgage lenders know that it is the annual celebration of the burgeoning movement by aging Americans and their service providers to provide the means for people to age in the comfort of their homes. I love those billboards that say, "The person who is going to live to be 150 has already been born." And then I think...do I really want to be 80 years old for 70 years? Probably not, but I certainly know my share of people in real estate and mortgages that are well into their 70's, and don't want that fixed-income life - because it is pretty ugly. The Department of Labor reported that an individual living on a fixed income over the last 20 years (i.e., from the end of 1992 to the end of 2012) would have suffered a 38% loss of purchasing power over the 2 decades using the CPI as a gauge of his/her inflation. EBRI finds only 17.7% of employers offer retirement benefits vs. 29% in 1997. And the number of Americans at least age 65 is projected to increase 37 percent over the next decade and by 85 percent over the next 25 years.
"Mortgage Investors Corp. laid off nearly 500 workers, including 256 in its St. Petersburg headquarters, and stopped making new home loans in a stunning pullback Monday. Bill Edwards, a well-known local businessman and chairman of MIC, blamed the near-shutdown on federal regulations under the Dodd-Frank Act that are going into effect Wednesday. His company, one of the biggest refinancers of home loans for veterans, doesn't have the technological capacity to comply, he said." Here is the full story.
"Rob, my originators are getting beat up on their jumbo loans by the big banks, especially Wells' retail. What's up with that?" Part of the answer to that can be found in the recent earnings numbers from Wells, and Chase. Remember that banks are having a problem finding commercial loans to make, and some have turned to holding jumbos on their balance sheets. JPM, for example, reported a 7.4% quarter over quarter increase in 1-4 family residential loans on their balance sheet to $85B from $79B. By far, this was the largest driver of loan growth for JPM in the 3rd quarter. Wells also had an increase. Jumbo securitizations, loosely correlated with "non-agency", are receiving competition from the banks holding rather than selling into the market. The big banks are buying whole loans directly from originators through their correspondent channels, and on the retail side, when they want to compete, there is little stopping them. And the big banks, at this point, would rather hold the product and earn the spread & rate of return, than securitize the loans. That, of course, is not great news for the entities that have put together jumbo securities lately (Redwood Trust, CSFB, Nomura, EverBank, PennyMac Mortgage Trust, to name a couple) and anyone hoping for a loan amount reduction (it has been a thinly veiled secret that the FHFA is preparing to lower conforming loan limits, which could increase jumbo securitization volume in 2014) may be disappointed - with the QM changes barreling at the industry, the FHFA may be open to postponing it.
Regarding LO comp for FHA loans, Jude T. observed, "Readers should know that some rules out there are about the folks that are not LOs, and that the LO comp rule has no applicability to them. I believe you should note the following in regards to an Underwriter and HUD's prohibition. 'An underwriter cannot receive overrides or commissions. This is prohibited by HUD under 4060.1 Rev-2, Chp 2-9: Employees and Officers. An approved mortgagee must employ trained personnel that are competent to perform their assigned responsibilities. Employees: Employees are those individuals who are under the direct supervision and control of an FHA approved mortgagee and where the individuals are exclusively employed by the FHA approved mortgagee in the mortgage lending and real estate fields. The mortgagee must demonstrate the essential characteristics of the employer-employee relationship upon inquiry by the Department. [See also paragraphs 2-9(D) and 2-9(G)]. Compensation of employees may be on a salary, salary plus commission, or commission only basis and includes bonuses. All compensation must be reported on Form W-2. Employees who perform underwriting and loan servicing activities may not receive commissions.' Just thought you'd want to distinguish this as a majority of us lenders are HUD approved/endorsed lenders and can lose approval for items like this."
"Rob, is it true that I can put 10% of my LOs compensation into their retirement plans?" Well, kind of. Compensation under a non-deferred profits-based compensation plan is permitted and not a term of a transaction, as long as the compensation is not directly or indirectly based on the terms of that individual loan originator's transactions and either: the compensation, in the aggregate, does not exceed 10% of the individual loan originator's total compensation; or the individual was a loan originator for ten or fewer transactions consummated during the 12-month period preceding the date of the compensation determination. But you, or your attorney, should carefully read page 45 here.
Let's play some long overdue catch up on MI, vendor, agency, and investor news to give you a taste for the trends out there!
The National Association of Hispanic Real Estate Professionals (NAHREP), the nation's largest housing industry trade group for Latinos, has entered into a two-year partnership with Radian Guaranty, the mortgage insurance subsidiary of Radian Group. The partnership, which could be extended beyond 2015 by mutual agreement, will provide training on private mortgage insurance solutions to the association's 20,000 members, according to NAHREP officials who announced the transaction at the group's national convention. "Radian is an excellent partner and the timing for this strategic partnership couldn't be better," said Gary Acosta, NAHREP CEO and co-founder. "As more Latinos buy homes, those families who do not have the requisite 20 percent down payment will need private mortgage insurance. Our members must be able to educate buyers on this product." Under the agreement, Radian will develop a nationwide training program that educates NAHREP member agents and lenders about private mortgage insurance through on-demand training, face-to-face sessions, video and interactive webinars so they can, in turn, better inform Hispanic consumers.
Len Patton, who runs correspondent lending for PHH, broadcast, "As you may know, one of our shareholders included in a filing with the Securities and Exchange Commission recommendations they believe would increase shareholder value at PHH. Since that time, there have been a number of news stories related to these recommendations, including an article published earlier this week by Reuters. Shareholders often present ideas to us when we meet with them. However, when a shareholder goes public with recommendations, it sometimes generates media attention that can fuel market rumors and speculation. I want to reassure you that our primary focus remains on continuing to successfully execute our strategic plan and delivering value for our clients. Nothing has changed about our daily focus. We remain committed to our Correspondent Lending partners and buying quality loans from current and prospective clients. Thank you for your partnership and your business."
The FHA, due to the shutdown, sent out a list of Q&As. "Q: Can I get an FHA case number? A: Yes. Lenders will be able to obtain an FHA case number from the FHA Connection. Q: Will FHA endorse single family loans during a shutdown? A: FHA will be able to endorse single family loans, with the exception of Home Equity Conversion Mortgages (HECM) and Title I loans, during the shutdown. A limited number of FHA staff will be available to endorse new loans. Due to limited staff, the time to endorse the cases may be extended. Q: Will FHA still be able to endorse my loan if I am not able to obtain tax returns verified by the IRS during the shutdown? A: FHA is aware that some lenders obtain tax transcripts directly from the IRS for use in underwriting their FHA-insured loans. These lenders may be unable to actually obtain any returns directly from the IRS for the duration of the Government shutdown."
The bulletin went on. "Lenders may continue originating loans using FHA's existing underwriting requirements, which have not changed as a result of the shutdown. Lenders are required to obtain tax returns from certain borrowers in order to originate FHA-insured loans and lenders must also continue to obtain the borrower's signed authorization (i.e., Forms IRS 4506, IRS 8821, or whatever form or electronic retrieval service is appropriate) for any loan for which the borrower's tax returns are required." The bulletin and questions can be found on the FHA's FAQ site, goes on to address "Why didn't the borrower's name and Social Security Number pass validation with the Social Security Administration?", "Can the Social Security Number validation be run again?", "Can I continue to process the loan without the Social Security Number validation?", and "What happens if I cannot validate the borrower's SSN?".
(Speaking of FHA loans, a while back Ginnie Mae released its numbers for August, during which it guaranteed $35.3 billion in MBS. GNMA II single-family pools clocked in at $29.2 billion for the month, while GNMA I single-family pools totaled $4.16 billion. Ginnie also guaranteed $744 million in Home Equity Conversion MBS as part of its GNMA II single-family issuance, along with $1.91 in multifamily MBS.)
Are rates going up? Not if the government keeps dragging them down, intentionally or otherwise. On October 8, the FDIC issued Financial Institution Letter, which re-emphasizes the importance of prudent interest rate risk oversight and risk management processes to prepare for a period of rising interest rates. The FDIC states that interest rate risk management should be viewed as an ongoing process that requires effective measurement and monitoring, clear communication of modeling results, conformance with policy limits, and appropriate steps to mitigate risk. It believes that for a number of FDIC-supervised institutions, the potential exists for material securities depreciation relative to capital in a rising interest rate environment. FDIC examiners will continue to consider the amount of unrealized losses in the investment portfolio and the degree to which institutions are exposed to the risk of realizing losses from depreciated securities when qualitatively assessing capital adequacy and liquidity and assigning examination ratings.
Looking at the markets, rates are slightly higher this morning. The 10-yr closed Friday at a yield of 2.68%, and this morning it is sitting around 2.71%. Agency MBS prices are worse by about .125.
Four men were bragging about how smart their dogs are. The first man was an engineer, the second man was an Accountant, the third man was a Chemist and the fourth was a Government Worker.
To show off, the Engineer called to his dog, "T-square, do your stuff!"
T-square trotted over to a desk, took out some paper and a pen, and promptly drew a circle, a square, and a triangle.
Everyone agreed that was pretty smart. But the Accountant said his dog could do better. He called his dog and said, "Slide Rule, do your stuff!"
Slide Rule went out into the kitchen and returned with a dozen cookies. He divided them into 4 equal piles of 3 cookies each.
Everyone agreed that was good. But the Chemist said his dog could do better. He called his dog and said, "Measure, do your stuff!"
Measure got up, walked over to the fridge, took out a quart of milk, got a 10 ounce glass from the cupboard and poured exactly 8 ounces without spilling a drop.
Everyone agreed that was good. The three men turned to the Government Worker and said, "What can your dog do?"
The Government Worker called to his dog and said, "Coffee Break, do your stuff!"
Coffee Break jumped to his feet, ate the cookies, drank the milk, dumped on the paper, assaulted the other three dogs, claimed he injured his back while doing so, filed a grievance report for unsafe working conditions, put in for Worker's Compensation and went home on sick leave.