Hey, it's November 1st! Just think: any 60 day rate lock (pretty common place these days) expires in 2013! All those LO's with hefty incomes in 2012, thanks in large part to the U.S. government's programs, will be happy to shift income into 2013 for tax reasons. (And thus it looks like the first quarter of 2013, at least, should be decent.) But what about LO's or branches on the other end of the spectrum: branches losing money, or LO's only funding a loan a month in this environment?

Jeff Babcock from STRATMOR writes, "For all but a few STRATMOR clients, improving Loan Officer productivity has persisted as a significant management challenge, even during this four year period of unprecedented stability and prosperity for the mortgage banking business.  To put this issue in perspective, the MBA/STRATMOR peer group average for Loan Officers at independent mortgage banks has been only about 3.5 closed loans monthly; this compares with about 5 closed loans monthly at mid-size bank-owned lenders that tend to enjoy better productivity during refinance-heavy markets.  At these relatively low levels of productivity (this benchmark averaged about 10 closed loans monthly in 2002-2003), most lenders hang on to a lengthy list of low producers closing only 1-2 loans monthly and who collectively account for a small percentage of total production.  In view of minimum wage requirements for Loan Officers classified as "inside sales people," this practice is not likely to be economic.  And those poor producers tend to consume a disproportionate share of management resources.  At STRATMOR, we encourage our clients to implement a threshold (~3 loans on a rolling average) for Loan Officers to remain employed.  This same discipline should be applied to those small branch offices which are unprofitable.  During the extraordinarily favorable origination market of 2012, this strikes us as the ideal opportunity address low LO productivity and rid your organization of that dead wood which will only become more burdensome when market conditions normalize." (If you want to get a hold of Jeff, write to him at jeff.babcock@stratmorgroup .com.)

And production vet Steve Majerus writes, "Given the data from the STRATMOR Group that tells us the average LO does about $8.8 million in production per year, I will say I have observed a willingness and preference that higher producing loan officers, in fact, desire more leadership from their company, these days, in a couple of keys areas. First, understand and embrace the new professionalism required by more regulation, change of business practices and morphing lending rules to live by- offer tangible ways that build confidence in the way they practice their craft. And second, create true alignments of purpose throughout the organization- define professionalism in your company's terms and ensure leaders do not dilute the clear stated direction of the company. A company's leadership team should take full advantage of their most professional sales force members and allow them to integrate into a consistent communication stream from sales leaders to best hold each other accountable and ensure the company culture, its business practices and vision continues to build." (And if you'd like to get a hold of Steve, write to him at smajerus22@gmail .com.)

Lastly, and in more direct terms, this from the CEO of a very profitable large ($3-5 billion a year) independent retail mortgage bank:  "Rob, I love it when we let go an underperforming branch or LO, and then hear they've gone to a competitor. It is a double win for us. Any manager will tell you that the bottom 20% of your production staff absorbs an inordinate amount of your operations, compliance, processing, underwriting, and management resources. I didn't grow this company to this size and profitability catering to the lowest common denominator. I don't need my staff's morale to drop by keeping underachievers on the payroll. I have better things to do than to lie awake at night, worried about some branch that is failing to make money - like figuring out how to make a profitable branch even more profitable or a solid LO get to the next level. If they can't make loans or money in this environment, we're all better off if they do something else, and at my prompting rather than them just sitting there withering."

Switching topics, here is a note on the lack of subprime's role in the credit crisis - a view that is shared by many. "When in the course of history has there ever been total economic equality?  There have always been those that have more, or less, than others. There were always lenders that provided financing for the lesser on the economic ladder. I remember Beneficial Financial, Aames, and HFC. I am sure there were many others. Those "subprime" loans did not cause a crisis. Those loans did provide an avenue for lower income, or lower credit worthy, borrowers to find financing.  The original Option Arm provided by World Savings back in 1992 did not cause the crisis. The big difference came when the Big Banks decided to get into the subprime game in a HUGE way.  That does not mean there is no place in the world of finance for subprime loans. It just means you don't make those loans to everyone that is breathing and then lie to the investors that buy the loans." So wrote an originator from the Reno area - thanks!

(Speaking of companies of yesteryear, how about Impac making some coin? Here you go.)

And while we're talking earnings and what the industry is seeing, growth in mortgage banking revenue contributed to Tulsa-based BOK Financial Corp.'s strong third-quarter results. The bank had a "very solid" quarter as it experienced strong growth in loans, deposits and mortgage banking, said Steven Nell, chief financial officer. BOK's mortgage company continued to do well in the low-interest-rate environment, originating more than $1 billion in loans in the third quarter - the highest level for any quarter on record, Nell said. About 61% of the activity was in refinancing, while 39% involved home purchases. During the quarter, BOK Financial acquired Milestone Group, a Denver-based wealth management firm that specializes in working with high net worth individuals. Also during the third quarter, BOK Financial's Bank of Kansas City broke ground on a banking center in Lee's Summit, Mo., which is expected to open next year. BOK's net interest revenue for the third quarter totaled $176.0 million compared to $175.4 million a year ago. Total fees and commissions grew to $166.3 million for the quarter, up from $154.5 million in the second quarter and $146.0 million a year ago at the same time. Mortgage banking revenue largely drove that growth, rising to $50.3 million for the quarter from $39.5 million in the second quarter, BOK reported.

But it seems that many companies are seeing a drop in locks - the refi market could be growing a little weary. One informal survey trading desk survey indicated that the majority of lenders noted a slight slowdown in lock volume of about 15%. Origination volume remains extremely sensitive to rates as originator rates have been driven by capacity.  Originators with capacity were offering rates with tighter margins, i.e. lower rates, and noted their origination volumes as flat week-over-week.

Turning to recent investor news, let's start with a highly-placed comment: "Rob - great stuff yesterday on the moves by Nationstar, Redwood Trust, and others. But your readers might be interested in knowing that Chase was the winning bidder for MetLife's platform in Texas. And the companies that lost out on the bidding may just be turning their attention to Ally Bank's plans of unloading its $122 billion of its own mortgage servicing rights."

Not everyone shut down lending in the Northeast due to Sandy (a hurricane or a "super-storm" depending on the insurance company!), as indicated by this bulletin. "As Hurricane Sandy made landfall Monday in the Northeastern U.S., Guaranteed Home Mortgage Company, Inc. (based in White Plains, NY) implemented its natural disaster plan. In spite of power loss and flooding, Guaranteed has systems in place to remain operational from multiple remote locations. "While business has slowed down significantly, it will not come to a halt," said David Wind, CEO and President of Guaranteed. "We have thousands of clients that we want to assure: your loan will continue moving forward as much as is humanly possible." In the aftermath of the storm, Guaranteed clients whose loans are in process will be contacted to schedule a state "natural disaster re-inspection" by a local appraiser.

Chase clients are dealing with JPM's announcement of another round of price cap increases for best efforts locks only.

Fannie and Freddie announced they had reached delegation agreements with all of their mortgage insurer counterparties so that servicers can complete short sales and deeds-in-lieu of foreclosure without seeking approval from the insurer.

Flagstar has updated its Undisclosed Debt Acknowledgment form and is requiring that it be used for all loans whose applications are dated February 1, 2012 or after.  This must be signed both at origination and at closing.  Starting on November 5th, all files will be subject to review to ensure that the form or a comparable document has been included in the underwriting and post-closing documentation.

GMAC has updated the October underwriting overlay matrix, which is accessible via the GMAC website.

Franklin American has revised its guidelines on the maximum insurable mortgage amount for FHA Streamline loans to state that, in addition to existing guidelines, the new base loan amount may not exceed the original principal balance.  FHA Streamline documentation requirements have also been updated; where funds are required for closing, they must be documented as per the manual underwriting guidelines and verified with the last two months' bank statements, VOD and one month's most recent bank statement, or a quarterly asset statement.  The Streamline MIP chart has been revised to include percentages for LTVs of 78% or less.

Effective for all loans purchased on or after January 21, 2013, FAMC will be increasing is Prior-Approval conventional underwriting fee from $325 to $425.  This doesn't change the standard funding fees and only impacts loans underwritten by FAMC underwriters for non-delegated accounts. FAMC has rolled out a new loan-level servicing option for correspondent lenders.  The online pricing page now offers the option for a loan to be retained by FAMC for servicing, which ensures the loan's retention upon being locked.  This protection is subject to a pricing adjustment, and not all loan types are eligible. And loans on properties in Hawaii are now eligible for sale to FAMC.  Companies licensed to originate loans in Hawaii should contact their Regional Account Manager or Sales Associate for more information.

Wells Fargo's economic group reminds us, "One of the most common refrains heard after a natural disaster is that the rebuilding efforts will boost economic activity. Measured GDP does benefit from rebuilding efforts, but the effect takes time and does not necessarily boost economic well-being. Economist Frédéric Bastiat referred to this paradox as the Broken Window Fallacy, which asserts that if someone breaks your window and you pay someone to fix it, that adds to GDP, but you personally are not better off for the experience. Adding insurance to the process lessens the sting somewhat, but still results in the loss of national wealth and quite possibly higher future insurance premiums."

After being closed Tuesday, the fixed-income markets improved nicely with the 10-yr yield dropping to 1.69% from 1.75% and current coupon MBS prices improving by about .125. There is a lot of news ahead that could serve to nudge rates higher or lower. (We'll have the important unemployment data tomorrow, expected +125k.) We've had the ADP numbers (158k under the new methodology), Initial Jobless Claims, and preliminary Q3 Productivity & Unit Labor Costs. At 7AM PST we'll see Construction Spending (expected to increase), ISM Manufacturing (predicted slightly lower), and Consumer Confidence (expected higher). Rates have moved slightly higher with the 10-yr now at 1.71% and MBS prices worse a few ticks.

(Before today's joke, two days ago the commentary had a list "Libertarian Top Ten - Only in America." I received an usually large number of responses about it, both pro and con. For those of you who felt it beyond the scope of the commentary, or thought it was in poor judgment, my apologies.)

A wife says to her husband, "What would you do if I won the Lottery?"
He says, "I'd take half, then leave you."
"Excellent," she replies. "I won 12 bucks, here's $6, now get the 'heck' out."