Whenever I mention changes in LO compensation versus changes in lender profit margins, my cat Myrtle seems entirely disinterested. (Come to think of it, aside from salmon leftovers and near-sighted plump lizards, Myrtle spends much of every day being disinterested.) Loan Officer compensation, and comp in general, is very, very important to many and is typically the lion’s share of any lender’s expenses. And LO comp has been the topic of most mortgage industry discussions over the last 6-9 months. But nobody appeared ready to pull the trigger to reduce commission rates. Some leaders are looking hard to sales management layers with a view to eliminating Regional Managers who are not contributing. But LOs or AEs pulling their weight continue to be in high demand.

Ginnie Mae (FHA and VA) Commotion

The key to borrower rates in the primary market is demand for mortgage products in the secondary market. If anything spooks investor’s demand, then borrowers feel it. The President of the United States signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act. The Act prohibits Ginnie Mae from guaranteeing securities issued on or after May 24, 2018, if such securities are backed by a refinance loan that is guaranteed under the United States Department of Veteran Affairs benefit program and that does not meet the condition provided in the Act.

Ginnie Mae issued an All Participants Memorandum (APM) APM 18-04 announcing implementation of changes to pooling eligibility requirements for Department of Veteran's Affairs (VA) insured or guaranteed mortgages pursuant to the "Loan Seasoning for Ginnie Mae Mortgage-Backed Securities" provision in the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155 / P.L. 115-174). These changes affect security issuances on or after June 1, 2018, but do not otherwise affect the guaranty or composition of MBS issued before that date. Under the APM, a refinance loan insured or guaranteed by the VA is eligible for Ginnie Mae securities only if it meets the following condition: The note date of the refinance loan must be on or after the later of: a) The date is 210 days after the date on which the first monthly payment was made on the mortgage being refinanced; b) Or the date on which six full monthly payments have been made on the mortgage being refinanced. Refinances that do not meet the condition defined in the APM are ineligible for inclusion in any new pool or loan package in the Ginnie Mae I or Ginnie Mae II MBS Program, including refinances that closed prior to the date of this announcement.

Ginnie Mae is engaging with issuers to implement a cure for pools that have been submitted with non-compliant loans. Ginnie Mae expects that the law will be effective in helping curb abuses that have been identified in connection with certain refinance programs utilized by veterans.

Sounds great, but astute lenders and Wall Street folks were immediately concerned about it because it may prevent securitization of closed loans. GNMA’s rule shortens the time for seasoning a VA or FHA loan for refi - an attempt to curtail "churning." The problem is it appears to be effective immediately meaning pipelines and even closed loans will not be eligible for securitization.  

First word came out from Wall Street that, “Given the recent GNMA announcements (ongoing negotiations), there may be some disruption to CMO GNMA issuance. This would be a result of Dealers not willing to take the risk of verification and indemnification of ‘churned’ loans within REMIC structures going forward.”

But then GNMA informed Wall Street traders that it will be issuing a revised interpretation of the anti-churning law to clarify that the representations apply only at the pooling stage, not at the REMIC or Platinum stage. “This will remove the need for dealer to represent that no churned loans are present and should allow deals to close today and as normal going forward.”

The Mortgage Bankers Association weighed in. “The implementation process and interpretations of the effective dates of various provisions of S. 2155 have created some market disruptions that MBA and other trade associations are trying to address. The effective date interpretation threatened to block issuance of REMICs that included earlier-issued Ginnie MBS.  This afternoon, Ginnie Mae issued the attached bulletin which we believe addresses the REMIC problem for now. There remain problems, however, with the delivery of certain loans into Ginnie pools scheduled for June issuance.

“For VA refinance loans with application dates before May 25, where the prior loan does not meet the seasoning requirement, these loans are eligible for a VA guarantee. But Ginnie Mae currently believes these loans are not eligible for pooling. While the impacted population of loans is likely a relatively small part of the overall VA market, it may be large for some lenders.

The MBA went on to say that, “…lenders should also be exploring alternative executions for those VA-guaranteed refinance loans that cannot be issued in Ginnie MBS.”

Plaza Home Mortgage told clients, “To qualify for inclusion in a Ginnie Mae guaranteed MBS, the Act requires VA refinance loans to have a note date that is on or after, the later of: 1) the date that is 210 days after the date on which the first monthly payment is made on the mortgage being refinanced, or 2. the date on which six (6) full monthly payments have been made on the mortgage being refinanced. Effective immediately, VA refinance transactions must meet the revised seasoning requirements to be eligible for funding/purchase. Plaza's VA Program Guidelines have been updated to align with Ginnie Mae requirements. Additionally, for applications taken on or after May 25, 2018 VA IRRRLs must provide a net tangible benefit as described in VA Circular 26-18-13 and all fees and incurred costs referenced in the circular, shall be recouped by the veteran within 36 months after the loan closes. The recoupment calculation is the result of lower monthly payments of the refinanced loan.

Ditech approved Correspondent Clients: please note that based on VA Circular 26-18-1, loans that close on or after April 1,2018 will require an additional Veteran Rate Reduction Cert and Comparison Statement to be signed and dated as part of the application package along with the final statement signed at closing for all VA IRRRL transactions.

Ginnie Mae has added a new bulletin: REMIC Data Search: Final Transition to Single Search.

Switching gears somewhat, Scott Olson with the CHLA weighed in on current FHA & Brian Montgomery news. “…Brian Montgomery was confirmed by the Senate last week, and he is now on the job. CHLA supported his nomination - his prior experience as Commissioner and expertise is what is needed so that FHA can continue to serve the market, while continuing its strong financial performance. CHLA sent a letter to FHA Commissioner Mr. Montgomery congratulating him on his confirmation and suggesting priorities that he should follow.  

“Because FHA borrowers are being overcharged and FHA's financial metrics continue to be strong, CHLA is renewing its call to reduce annual premiums and end Life of Loan.  The letter also lays out strong arguments pushing back against calls by some to arbitrarily reduce the footprint of FHA - pointing out that underserved borrowers would suffer and suggesting instead focusing on other ways to bring in more private capital to mortgage markets.”

Capital Markets

Rates closed relatively flat yesterday, but not for lack of intraday volatility due to tariff news. The Trump administration imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from Europe, Canada and Mexico. All three announced that they would retaliate. Commerce Secretary Wilbur Ross called it a “blip on the radar screen.” Elsewhere internationally, Italy's Movimento 5 Stelle and Lega have again cobbled together a government that is acceptable to both sides, but the group still needs the approval from President Sergio Mattarella.

It is worth noting that the new plan calls for “euro-skeptic” Paolo Savona to become the minister for European affairs while Giovanni Tria, who has also argued for the ability to print a parallel currency, would be named finance minister. Italy wasn't the only EU news though as the Spanish confidence vote on Prime Minister Rajoy’s government, shall it go forward, looked headed for a no after the Basque party expressed as much.

Put succinctly, Spain is getting a new prime minister, Italy was able to form a government (which means the country will avoid elections), and the whole world (along with much of corporate America and a large majority of Congressional Republicans) is complaining about Trump’s trade actions.

Here in the U.S. the May payrolls report came out. Payrolls, expected to rebound to 210k in both headline and private payrolls versus 164k and 168k previously, were +223k. The unemployment rate, expected to tick higher to 4.0% versus 3.9%, came in at 3.8%. Hourly earnings were +.3%. We’ll also have the Markit Manufacturing PMI for May, ISM PMI for May, April construction spending, May auto sales, and two Fed speakers (Minneapolis' Kashkari and Dallas’ Kaplan). With all of this going on, rates are higher versus Thursday’s close: the 10-year is chopping around at 2.91% and agency MBS prices are worse .125-.250 depending on coupon and maturity.

Business Opportunities and Personnel Moves

AnnieMac Home Mortgage is pleased to announce the hiring of Jason Burnett as National Business Development Manager. Jason will bring his experience and consultative business solution approach to bolster AnnieMac’s 2018-2019 growth initiative by focusing on new branch acquisition in key markets while supporting the development of production growth for AnnieMac’ s veteran branches. “The recruiter became the recruit in this journey,” said Jason. After vetting out the growth track record of MLOs and branch teams who use the AnnieMac-Worx Realtor Productivity Platform, this “became a no brainer” for Jason. “If I’m going to make a change, I want to make sure it’s to a place that met my pre-requisites; one being a forward-thinking group ready for all of the challenges that come with margin compression and prepared for the new normal. AnnieMac Home Mortgage provided an opportunity for me that was simply too enticing to decline.”

If you’re a company looking to enter the Reverse Mortgage market, consider the advantage of acquiring an existing Reverse Mortgage company and scaling it, rather than spend years starting from scratch. An exciting opportunity exists for the right buyer, because a successful and productive Reverse Mortgage company is on the market. The company has a team of 6 reverse mortgage loan officers, and a fully operational inbound/outbound call center. The company has a complete Reverse Mortgage training program and corporate sales trainer, as well as a proprietary loan origination software tool that allows for rapid integration and scaling of a sales force into the Reverse Mortgage product. The best fit would be a medium to large sized, full eagle FHA lender, looking to acquire a world class brand name and begin to compete immediately. 

Jim Boghos, President at Boghos Search Group has joined forces with Jeff Jackson, President of Jackson Search. The new company name is Verity Search. Boghos and Jackson are rejoining after building one of the largest volume search firms in Mortgage Banking from 1997 to 2011. “I am thrilled to be working with Jeff again. Someone I consider to be a great partner. We share the same values. He genuinely cares about developing people and brings energy and enthusiasm to our company every single day” said Boghos. Verity Search has now grown its staff significantly. “I appreciate the opportunity to work with Jim again as we share the same passion for delivering results to our clients. What excites me most about joining Verity is the timing and opportunity to grow our clients market share significantly utilizing our search capacity as leverage. We can be in 70 markets at the same time.” For more information contact Verity Search at 407-725-7085 or email info@veritysearch.com

MSource Training & Consulting, a mortgage industry audit, training & consulting firm, announced that Denise Kowalski has joined the company as VP of Audit & Compliance. Congratulations!