I really like July, since the Tour de France is so much more fun to watch than CNBC in the early morning. Besides, I freely admit that I make up 99% of the items in the commentary every day - I have a good imagination, and what's happening to residential lending can't be for real, right? Anyway, I may have met my match with this company that any HR Director should be aware of this. Apparently the company can create your entire background if you need a job - sounds like the makings for a Harrison Ford movie.

Refis have dropped in the last few months. For those curious about refi statistics, Freddie Mac has released data from its activities from January 2012 to March 2013 and reports that 434,000 borrowers qualified for and took advantage of HARP over the course of 2012.  An additional 113,000 refinanced under the program during the first three months of 2013.  In total, 687,000 borrowers refinanced through Freddie in 2012, and another 197,000 refinanced in Q1 of 2013.  Over the entire 15-month period, 91,000 borrowers modified their payments through HAMP and the Standard modification, and 57,000 borrowers retained their homes through forbearance, reinstatement, and repayment plans, and 67,000 borrowers exited their underwater mortgages through the Standard Short Sale and Standard Deed-in-Lieu of Foreclosure programs.

The industry and individuals in general, don't like uncertainty. So here's a little less: the Senate voted yesterday to confirm Richard Cordray as CFPB Director by a vote of 66-34.

But there is still plenty of uncertainty left for us to wallow in, not the least of which is, a) who is going to win the Tour de France, and b) what the CFPB is going to tell the industry about loan officer compensation. Want some input on LO compensation and a slew of other items? Don't wait - the comment period is due up on July 22.  More...

On to something many LOs and operations people are wondering about: the 3% cap. Thomas Black, managing partner of Black, Mann & Graham, LLP writes, "Here is the formula page from my speech on QM's.  Lender-paid fees are excluded because the cost is recovered through interest rate which is excluded from the points and fees. Seller-paid fees are excluded except where expressly included (e.g. upfront MI that exceeds 1.75%).

Formula: Total Loan amount x Percentage >=

a.    + Non-interest Finance Charges under 1026.4(a).

b.    + 1026.4(c) charges where lender, broker, or affiliate retains a portion of the fee.

c.    - a bona fide third party charges not retained by creditor (unless expressly included)

d.    + any excess discount points

e.    + all compensation paid to a loan originator other than the employee of a creditor that can be attributed to the transaction.

f.     + prepayment penalty.

(The legal passage above refers to this)

Mr. Black's formula, put another way for those with quirky computer screens is: TOTAL Loan Amount x Percentage >= +Non interest Finance Charges under 1026.4(a) +1026.4(c) charges where lender, broker or affiliate retains a portion of the fee - any bona fide third party changes not retained by creditor (unless expressly included) + any excess discount points +all compensation paid to a loan originator other than the employee of a creditor that can be attributed to the transaction +prepayment penalty.

Ken S. also points out that the Realtors have tried to help define the QM rule here.

Hopefully those two things help, as many lenders are struggling with determining what is included in the 3% cap on points and fees as it pertains to the definition of a qualified mortgage. An oversimplified but generally useful way of understanding what is included in the 3% cap, is that it is the same as the old definition of "finance charge," with a few important additions. The first addition is that to the extent settlement related fees or charges are required by the lender, amounts retained by a creditor, originator, or affiliate of either, are now included in the finance charge. In short, this means fees escrowed or incurred in connection with a real estate settlement, such as for appraisals, homeowners insurance, etc., are typically going to be added to the 3% if and to the extent that the creditor/originator/affiliate retains monies associated with such costs.

Second, with respect to mortgage insurance, the only addition to points and fees is the amount charged up front, and only to the extent it is private mortgage insurance charging in excess of government-backed mortgage insurance. Third, compensation to third party originators will have to be included in calculating the 3% cap on points and fees. (This is obviously a huge problem for brokers, come January.) Fourth, loan level price adjustments charged as bona fide discount points (up to 2%) and/or included in the rate will not count toward the 3% cap, but other LLPAs charged upfront will count toward the 3% cap.

Attorney Ari Karen notes, "What this all means (again, speaking very generally), is that these changes will most affect lenders with affiliates and/or lenders that engage in third-party origination. Loans impacted most are those involving up-front loan level price adjustments but not as bona fide discount points; and/or loans with private mortgage insurance exceeding the cost of government backed mortgages."

Regarding this, one veteran broker wrote me, "Sorry, I still don't get it.  There is a fee.  Everyone has to get paid.  No matter how it is charged, collected, or covered with rate and/or YSP for the rate, the piper is paid. The bureaucrats must understand only a company can be paid. I cannot get paid for a loan. I am an agent. My broker (the corporation) gets paid, and then he pays me. Just like Wells gets paid, and Wells pays its employees. I suppose most of the problem is the small loans. I charge the same for a $60k loan as a $300K loan. Since I don't have any wholesale lenders that will do loans below $60k, it is not discriminatory for me to tell someone, 'Please call Wells Fargo.  I do not have an outlet for you.' I am bothered that there will NEVER be a level playing field.  Banks and mortgage bankers will always be able to hide the YSP and charge more while many in the press say that brokers cheat people. Everyone should have the same disclosures and same rules."

And another from the East Coast observes, "Sadly, the ill-informed Rule writers have made little to no effort to understand the industry. They have merely injected their beliefs. What hurts the most is the perpetual use of the phrase 'a level playing field' phrase by CFPB, straight out of the RFA hand book. I fail to honestly believe that CFPB understands that the un-level playing field is grossly tilted in favor of the big five. SAFE and MLO Comp are excellent examples of the disparity created and fostered by the Agency. I wish I had a prophetic statement but our industry stands at a cross roads. Where is Robert Frost?"

Lastly, let's not forget a bill that many in the industry stand behind: H.R. 1077. It is my understanding that at this time lender-paid is included in the 3%, and thus the reason for HR1077. Here is a link to the bill's verbiage.

And regarding the ARM resets, and possible payment shock down the road, something needs to be clarified. The question is specific to a 5-year ARM with 5/2/5 caps versus what most of the industry has seen for decades: a 5-yr ARM with 2/2/5 caps. There is a big difference in the potential payment shock at the first adjustment date, and folks are wondering if whether the 5-yr with 5/2/5 caps will have legs with all the focus on ability to repay. Keith L. reminded me that many lenders are moving their 5/2/5 ARMS (5% first adjustment cap, 2 yearly cap, 5 total cap) to 2/2/5 - I bet it's to avoid payment shock on ARMs. Chase changed on June 17^th, 5 3 changed back in February, and Wells Fargo will change on August 19^th.

Many lenders and government offices offer ARM explanations. Last week the commentary had a link to a brochure from the Federal Reserve and the CFPB. Here is another from GreenlightLoans.com. Hey, the more references, the better, right?

The market: up a little, down a little. Rates could be here six months from now, but we will see some volatility as QE3 is priced in and out of the market. Yesterday we had the first day of testimony by Fed Chief Ben Bernanke, and the Fed's apparent control over the economy certainly seems more than the President or Congress can muster. Marcus Lam with Opes Advisors writes, "Bernanke and friends have made a conscious effort not to backpedal, exactly, but to put investors at ease, and this announcement was an apt reflection of that.  The Chairman stressed that although the Fed will start scaling back its asset purchases and has a preset timeline for doing so, the tapering will be dependent on the economic and financial developments of the coming months.  This stance isn't particularly definitive, and investors didn't hear anything that they didn't already know, but by publically announcing it, Bernanke managed to offer something for everyone.  Uncanny."

Wednesday morning bonds prices rallied and rates dropped, although that reversed itself in the afternoon. We ended the day better off than Tuesday afternoon, but not as good as where many lenders priced and so we saw a few price changes late in the day. Once again, Bernanke didn't say anything we didn't already know! Asset purchases, like buying MBS, "are by no means on a preset course" that also emphasized that the pace of purchases could be adjusted up or down depending on economic and financial developments. He reiterated that if incoming data is consistent with the Committee's projections, they expected to moderate the pace of large scale asset purchases beginning "later this year" and to end them "around midyear" 2014. In addition, he mentioned that when purchases ended, the Fed would be holding them off the market and reinvesting the proceeds from maturing securities. So we once again come to supply and demand - and mortgage banker supply is down, and demand is steady. So agency MBS prices improved, and the 10-yr closed at 2.49%.

Today we have more Bernanketestimony at 10:30AM EDT before the Senate Banking Committee with its Q&A (today from Elizabeth Warren). We already have seen the weekly Initial Jobless Claims (345k expected from +360k previously, it was -24k to 334k from a revised 358k), and later Leading Economic Indicators (Jun), and the Philly Fed (Jul). The 10-yr's yield is sitting around 2.48%, and MBS prices are roughly unchanged.

I've been told I'm not ambitious enough.

Are you kidding?!

If only there was an Olympic sport for being a lazy "son of a gun"...That bronze medal would be mine.