The fun just doesn't end. Not only is a CFPB penalty against a lender rumored to be announced soon, but now we have the Rolling Stone doing a story titled, "The $9 Billion Witness: Meet JPMorgan Chase's Worst Nightmare." "Back in 2006, as a deal manager at the gigantic bank, Fleischmann first witnessed, then tried to stop, what she describes as 'massive criminal securities fraud' in the bank's mortgage operations." The public continues to be reminded of, and industry bear the brunt of, mistakes made many years ago.

Many in the lending industry may have not have the highest regard for the CFPB's enforcement tactics, but the general public tends to see a different side of things - like this article over the weekend. "Many homebuyers have lowered their out-of-pocket mortgage costs thanks to new Consumer Finance Protection Bureau's mortgage regulations that took effect earlier this year..." What the public doesn't see, of course, are companies exiting the business due to higher costs, possibly limiting competition, and/or the cost of compliance being passed on to every new borrower.

PrimeLending has its own problems - although they seem too old to be late-breaking news. American Banker reported that, "Hilltop Holdings in Dallas, the parent company of PlainsCapital Bank, parent of PrimeLending, has disclosed that PrimeLending is under federal investigation in connection with underwriting practices for loans backed by the FHA. The $9.1 billion-asset company disclosed in its quarterly filing with the Securities and Exchange Commission that PrimeLending, its mortgage subsidiary, received a subpoena from the inspector general's office at the Department of Housing and Urban Development. The subpoena was part of an industry-wide inquiry over origination practices for FHA-backed loans, the filing said. Hilltop also disclosed that, on Aug. 20, PrimeLending received a 'civil investigative demand inquiry' from the Department of Justice, related to the HUD subpoena. The DOJ is looking into potential violations of the False Claims Act, a law that governs fraud in government programs. 'PrimeLending is cooperating with the investigation and continues to respond to the Civil Investigative Demand,' the filing said, adding that Hilltop expects the inquiry 'will not have a material effect on the company's business.' Hilltop reported lower third-quarter profits, compared to a year earlier, mainly because of higher operating expenses. The comparison includes expenses tied to Hilltop's government-assisted acquisition of the $3 billion-asset First National Bank in Edinburg, Texas. That acquisition closed in September 2013. The company's earnings fell 37% from a year earlier, to $25.1 million. Expenses rose 18%, to $254.7 million. Net interest income rose 19%, to $85.8 million. Fee-based income fell 1%, to $212.1 million, because of lower loan origination fees.

Speaking of earnings, the servicers are getting slammed in recent months, with Ocwen, Nationstar, and Walter leading the way. After Nationstar reported its numbers the stock dropped 22% after hours. Walter Investment received an investigative subpoena from California, and everyone is well aware of Ocwen's issues. All of this may impact servicing values, and thus rate sheet prices for borrowers - especially if state Attorney Generals start forcing certain companies to sell their portfolios.

Nationstar made headlines last week, and it wasn't for a good reason. Probes never are.

The earning announcements in the last week or so feel like drinking out of a firehouse. Let's take a summary look at several to discern trends among lenders (we'll do the MI companies and more lenders tomorrow), and see if they are indicative of the industry in general.

Stonegate Mortgage Corporation...operating Earnings per Share excluded a $6 million negative MSR valuation adjustment and a small amount of stock comp expense. Analysts such as KBW lowered their earnings estimates for upcoming years but believe that origination for 2014 will come in around $13 billion. Origination volume totaled $3.54 billion in 3Q, up from $3.31 billion in 2Q. The company noted that interest rate locks per day averaged $64.9 million in 3Q versus $72.8 million in 2Q14. Gain-on-sale margin of 124 bps, down from 141 bps last quarter, although the company noted this was affected by a negative pipeline adjustment. "We are estimating that the GOS margin will continue to trend up to 159 bps by year-end 2014 and 168 bps in 2015 as the company continues to increase its share of higher-margin retail and wholesale volume."

Redwood Trust beat estimates on better-than-expected mortgage banking income. Analysts in turn raised earnings estimates for upcoming years based on higher jumbo mortgage volumes and higher gain-on-sale margins. Redwood reported income of $17.9 million from mortgage banking activities in 3Q, up from $6.3 million in 2Q; residential loan acquisitions totaled $3.4 billion during the quarter with conforming loan acquisitions of $1.5 billion were up from $868 million in 2Q. The company also originated $1.8 billion of jumbo loans. The company expects to complete one additional securitization in 4Q14. Gain-on-sale margins on jumbo loans came in above the high end of the company's targeted 25-50 bps range. The company also noted that returns on the conforming business turned positive. The company does not expect to hit its earlier goal of $1 billion a month of conforming originations by the end of 2014 mainly because it has increased its focus on profitability through this channel now that sufficient scale has been achieved. The company announced a flow risk-sharing agreement with Fannie Mae (and completed two residential securitizations during the quarter): Redwood will take the first 1% of credit losses on $1.1 billion of new conforming loans that will be sold to Fannie Mae in 4Q14. If performance is good, the company expects the transaction to be accretive to earnings.

Walter reported operating EPS of $0.96 which excludes a negative MSR mark, a legal and regulatory charge, and a number of minor expenses. It had a $37.2 million legal and regulatory charge. Servicing earnings rose to $152.5 million from $127.8 million in 2Q. Higher loan volumes were offset by a lower gain-on-sale margin. Total volumes of $5.6 billion were up from $4.4 billion in 2Q. The gain-on-sale margin declined to 2.28% from 3.29%.

Ocwen had $7.8 million of transition related costs, a $9 million negative MSR mark, and $120 million related to regulatory reserves. It reported GAAP EPS of ($0.58). The company booked $120 million of reserves related to regulatory and legal issues, including $100 million for a potential settlement with NY DFS. The company said that it does not know the ultimate cost of any potential resolution. Servicing UPB totaled $411.3 billion at the end of 3Q14, down from $435.1 billion in 2Q with an average servicing fee of 46 bps, down modestly from 46.5 bps. During the quarter Ocwen completed 21,543 loan modifications, down from 27,468 modifications in 2Q. Prepayments fell to 12.8% from 12.9% in the prior quarter. OCN had $559 million of deferred servicing fees at quarter end ($4.39/share), which are not shown on the balance sheet.

While we're on Ocwen, as a reminder its regulatory woes escalated recently as New York's DFS sent the company a letter stating that the company had backdated letters to borrowers. Ocwen issued an initial response and had to subsequently issue a redaction. The New York Post reported that the backdating had started as far back as 2010. The same article also noted that the company and DFS were engaged in negotiations that could provide consumer relief and shake up the leadership of the company. The letter from the DFS stated that Ocwen had admitted to 6100 letters but 1000 others were found by the monitor. The letter stated that weakness in Ocwen's systems made it impossible to ascertain the extent of the problem.

Everyone take a deep breath. Let's face it: it is becoming harder and harder to argue that the US economy is in the doldrums. Of course we are subject to overseas influence, but things aren't terrible here. Last week continued to show exactly that. Nonfarm payrolls increased by 214,000 in October, with upward revisions to prior months. The unemployment rate dropped to 5.8 percent, while average hours and wages perked up in the month. And the ISM indices point to continued expansion in October, with the manufacturing series accelerating in the month. This may bode well for business investment in Q4. The fly in the ointment from last week was that a wider trade deficit in September points to sizable downward revisions to Q3 GDP, while a reduction in construction spending has not helped. Neither data point overwhelmed the positive news last week. We closed out the week with the 10-yr sitting at 2.31%.

This week: not much going on inside our borders. We have "zip" today and tomorrow. (Tomorrow is Veterans Day, with some companies closed, some taking locks, some not... stocks are open, and bond markets are closed.) Wednesday there isn't much US news to move rates. Thursday, November 13th, Initial Claims will measure the number of individuals who have filed for unemployment insurance for the first time. On Friday the 14th we will have Retail Sales and the University of Michigan Confidence number. For numbers the 10-year has improved to 2.29% and agency MBS prices are better by about .125.


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