The Latest on MBA and LO Wage Lawsuit; FDIC Institutions Making Some Coin; Basic QC Manual
"Rob, I am on the board of directors of a bank. Is there a guide
or manual that would help me understand what the QC gal is talking about during
presentations?" Sexist comments aside, sure there is. But first, a
message the industry needs to keep in mind. Counterparty risk is becoming more
and more important. Opinions about "pointing fingers" and "Big
Brother" aside, quality control is the name of the game at your shop, as
well as others. If you have a big
exposure to a company that doesn't have adequate safeguards in place, or a
written, viable, comprehensive QC plan, you're putting your company at risk.
Fannie's folks put out a decent guide last year that is still relevant and that probably makes sense for you to take
a look at, and it can be found here.
The mortgage banking industry lost a veteran Friday morning with the
passing of Todd Hempstead due to cancer. I had the privilege of
moderating a panel in July which included Todd on current trends in agency
business. Todd had an extensive background in product development, investor
channel development, and MBS asset acquisition strategies both in the public
and private sectors, and served as SVP for Fannie Mae where he was employed for
25 years and then CMG Financial. A good friend of his wrote me, "He had an
incredible sense of humor, a dry wit, keen intellect, great insights into
complex issues, was great karaoke singer (really) and lots of other
wonderful things...Todd was heroic until the end, never drawing attention to
himself." He will be missed by his family and the industry. If you wish,
donations in Todd's name may be made to the Jimmy V Cancer Foundation at www.jimmyv.org. Nancy's email address is nanhempstead@aol .com if you would
like to drop her a note - a friend said the family has received many thoughtful
and kind notes.
why does a 1003 include the education of the borrower?" Darned if I
know exactly, although one theory holds that a lengthy time in school may help
younger borrowers show stability since they don't have the employment track
record. But Kathy B. with FNB discovered, "Loan officers are expected to
submit a complete and accurate application. Even omissions as simple as
education level, or dependent information, can affect an underwriter's ability
to establish an accurate borrower profile. Does the income make sense?
Salaries are often commiserate with experience, skill level, job
responsibilities and education."
Speaking of income commiserate with education, there still seems to be
a contingent of LO's out the quietly waiting for stated income loans to come
roaring back. In my dubious opinion, in terms of mainstream lending, don't
hold your breath. They could come back a) if they're not against Dodd Frank's
rules and regulations, including the ability to repay considerations, b)
investors are willing to match up the risk and return profile (like 5% above
current coupon), and c) lenders actually need the volume to support their
overhead (thanks to the government rates and refi programs, there is currently
enough business without venturing down the documentation or credit curves too far).
Banks did their fair share of stated income loans, and are paying the
price. But last week the commentary discussed how well banks are mortgage
companies are doing, and as a follow up I received this note taken from the FDIC
press release: "Commercial banks and savings institutions insured by the
Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of
$37.6 billion in the third quarter of 2012, a $2.3 billion (6.6%) improvement
from the $35.2 billion in profits the industry reported in the third quarter of
2011. This is the 13th consecutive quarter that earnings have registered a
year-over-year increase. Increased noninterest income and lower provisions
for loan losses accounted for most of the year-over-year improvement in
earnings. Also noteworthy was a decline in the number of banks on the FDIC's
"Problem List" from 732 to 694. This marked the sixth consecutive
quarter that the number of "problem" banks has fallen, and the
first time in three years that there have been fewer than 700 banks on the
list. Total assets of "problem" institutions declined from $282
billion to $262 billion. 'This was another quarter of gradual but steady
recovery for FDIC-insured institutions,' said FDIC Chairman Martin J.
Gruenberg. 'Signs of further progress were evident in a number of indicators,
such as loan growth, asset quality and profitability.'" Over 57% of all
institutions reported improvements in their quarterly net income from a year
ago. Also, the share of institutions reporting net losses for the quarter fell
to 10.5 percent from 14.6 percent a year earlier. The average return on assets
(ROA), a basic yardstick of profitability, rose to 1.06 percent from 1.03
percent a year ago.
Continuing with the turnaround theme, for the first time in about 18
months Freddie Mac has come close to recording positive growth thanks to
increased purchase and issuance volume. Freddie's portfolio did
shrink by 0.8% in October, totaling about $1.97 trillion, but there's a big
difference between 0.8% and the 6% average decrease it experienced over the
past year and a half. The last time positive growth was recorded was back
in February 2011, and even that was a quaint 0.1%. Freddie reported just over
$50 billion in purchases and issuances in October, up $11 billion from
September and up $17 billion from October 2011. Of that $50 billion,
$45.2 billion is attributed to single-family refinance loan purchases and
The Mortgage Bankers Association this week filed a brief in federal court in
its appeal from a District Court decision in its case against the Department of
Labor. MBA's case urges that DOL did not follow rulemaking procedures in
withdrawing its interpretation that loan officers could be exempt employees under
the Fair Labor Standards Act. The brief filed Wednesday in the U.S. Court
of Appeals for the District of Columbia in MBA v. Hilda Solis centers on MBA's
contention that the DOL's withdrawal of a 2006 interpretation on the
applicability of FLSA to loan officers should not have occurred without notice
and an opportunity for public comment. Under FLSA, covered employers must pay
overtime wages to an employee who works more than 40 hours per week, unless the
employee is exempted from overtime requirements. FLSA expressly exempts from
its overtime pay requirements "any employee employed in a bona fide executive,
administrative, or professional capacity[,]...or in the capacity of outside
salesman," as those terms are "defined and delimited from time to time by regulations
of the Secretary [of Labor], subject to the provisions of [the Administrative
Procedures Act." DOL is charged with administering and enforcing FLSA and its
regulations. Read all about it.
Last week the commentary discussed some of the differences between state
and federal mortgage laws, and my cat Gusto and I received this note:
"Creating a uniform foreclosure code sounds like handing the problem to
the Federal government to fix. Based upon how they 'fix' other industries, no
thanks. It is one thing for states to work together to create an improved
business environment, it is another to give the Feds control. By the way,
have you noted how 'messed up' California is? Maybe I am the last one to read
about the 'Homeowners Bill of Rights' that takes effect of 1/1/13, but the rest
of the nation hopes it doesn't spread."
We're seeing an interesting dynamic in the market, something we haven't seen since
before BofA exited the market over a year ago in October 2011. Correspondent
investors are suing the term "excess capacity" again (namely Wells and
Chase) and wanting to buy more volume to feed their machines. As a
result, both Chase and Wells have improved their correspondent AOT pricing over
the last couple weeks. This is also a sign that margins may be
compressing the industry - things often flow from the top down.
The markets are still ruminating on Friday's unemployment data - it was a
"head-scratcher" once again. The Bureau of Labor Statistics
(BLS) reported that employers added 146,000 new jobs in November, well above
the 90,000 that was expected, while the Unemployment Rate hit 7.7%, the lowest
since December of 2008. The Bond markets plunged after the data, but
thanks to QE3 soon came back. Hourly earnings grew by 0.2% while the Average
work week was unchanged at 34.4. The fall in the Unemployment Rate was
due in part to 350,000 people dropping out of the workforce. And that big
drop is the reason why the "Labor Force Participation Rate" fell by 0.2% to
63.6%, the lowest reading in over 31 years. So as we dig into the numbers, yes,
the headline number was solid, but there is still some trouble in the labor
markets. And lock desks and astute LO's will tell you that home loan rates
ended the week about where the closed the Friday before.
But during the week the rally in treasuries (pushing the 10-yr yield into
the high 1.50% range) seemed to be fueled by expectations of a possible Fed announcement
of a new bond purchase program at this week's meeting. The thought is
that when "operation twist" concludes, the next round of Quantitative Easing
(QE) will be buying intermediate and longer dated securities without selling
the front end like they have been doing during "operation twist".
It's a new week, and since the press can't drone on about the election
they will focus on the fiscal cliff and its impact on us. Globally, news to
watch will be the fiscal cliff, the two day FOMC meeting (expectations for the
Fed to announce they will be purchasing Treasuries once "op-twist"
ends later this month), Treasury supply (3s, 10s, 30s), Europe (two day summit
Thursday and Friday), and five Fed operations buying agency MBS. As I
mentioned, last week, when all was said and done, mortgage rates ended about
where they started. But this is a new week, with a new set of wonderful,
exciting economic nuggets. Actually there isn't much scheduled to really move
rates: today is zip, tomorrow is the Trade Balance, Wednesday is Import &
Export prices along with the FOMC rate decision (my bet is that overnight rates
remain near unchanged), Thursday is Jobless Claims and Retail Sales, and then
Friday is the Consumer Price Index and the Industrial Production and Capacity
Utilization duo.) The 10-yr closed Friday at 1.63%, but this morning is back
down to 1.60% and we can look for a slight improvement in rate sheets.
We're entering the college football bowl season, so how about part 1 of 2 of
gridiron humor? (Suitable for changing to any school - don't send me "you
insulted my mama's alma matter" e-mails please.)
Ohio State's Urban Meyer on one of his players: "He doesn't know the
meaning of the word fear. In fact, I just saw his grades and he doesn't know
the meaning of a lot of words."
Why do Tennessee fans wear orange? So they can dress that way for the game on
Saturday, go hunting on Sunday, and pick up trash on Monday.
What does the average Alabama player get on his SATs? Drool.
How many Texas A&M freshmen football players does it take to change a light
bulb? None. That's a sophomore course.
How did the Georgia football player die from drinking milk? The cow fell on
Two West Virginia football players were walking in the woods. One of them said,
"Look, a dead bird." The other looked up in the sky and said,
A University of Cincinnati football player was almost killed yesterday in a
tragic horseback-riding accident. He fell from a horse and was nearly trampled
to death. Luckily, the manager of the Wal-Mart came out and unplugged the
What do you say to a University of Miami Hurricane football player dressed in a
three-piece suit? "Will the defendant please rise."
(Part 2 tomorrow.)