Originators and borrowers are often faced with the "rent versus own" question, with varying results. Here is an INTERACTIVE CALCULATOR

Homeowner and rental vacancy statistics, from the Current Population Survey via the Census Bureau, provide an interesting set of numbers indicative of the rent versus buy question. There are roughly 131 million housing units in the United States, with about 86% of them being occupied. Of those units, 57% are occupied by owners, 29% by renters, and 14% (about 18 million units!) are vacant. FULL STORY

Will they be filled with buyers? It is highly unlikely that 30-yr fixed rates for conventional loans will drop back to 4%, in spite of short-term improvements like yesterday. But as one top retail branch owner mentioned to me, "We still have agents waiting for the great pumpkin." Other managers had written to me last autumn saying, "If my agents can't produce loans when rates are at 4%, I don't know what makes them think they're going to be doing any more when rates go back to 5 or 5.5%." Well, here we are. We did see a jump in mortgage applications last week, up about 13% on an adjusted basis, with refinancing activity accounting for about 66% of total apps.  SEE CHARTS

This leads to a discussion about overall trends in the mortgage biz. Last quarter Freddie Mac reported that 46% of refinance volume was "cash-in" where the principal mortgage balance is lowered as a result of homeowners paying-in additional money. Many households, like companies, are relatively liquid, and are deciding what to do with the money - and buying down debt during periods of low rates is a good option. (Companies face a slightly different set of options, including paying a dividend, buying another company, expanding existing facilities, etc.)

Compensation has been, and will be, a hot topic out there. Comp discussions are happening around the country. In Northern California, Comstock Mortgage announced two panel discussions "examining the impact the Federal Reserve Loan Originator compensation rules will have on our industry and on loan originators." The discussions are today in Dublin, CA and Friday in Sacramento. For information contact Casey Fleming at cfleming@comstockmortgage.com or to register for the seminar, contact Kathleen Chothia at (925) 484-1466.

Three thousand miles away, in Parsippany, New Jersey, NYLX is putting on a seminar on the same topic tomorrow. HERE is the registration process.  And the Maryland Association of Mortgage Professionals is conducting a 2 hour session on March 3 in Columbia on "Structuring Loan Originator Compensation Plans" - for more information go to www.marylandmortgageprofessionals.com.

Wells Fargo's wholesale channel released a video to its clients focused on rate sheet changes effective with the compensation and anti-steering rules. Access, however, is only for Wells' broker clients through its Broker's First website (by clicking the Broker News Video link under Hot Links in the upper right hand corner).

On Wells' correspondent side, its clients have received some relatively detailed information, not the least of which is a discussion of the possible penalties for non-compliance. (I didn't see any talk of giving up first-born male children, but they can be financially severe.) Well's communication details counterparty policy and procedure review, attestation of compliance, annual recertification, etc. Currently unlike other investors, Wells is requiring a review of comp plans: "Sellers who have not provided the information by March 15, 2011, and successfully passed our screening on or before April 1, 2011, may be ineligible to deliver new business to Wells Fargo Funding." My guess is that other investors will institute similar plans, rather than Wells give up on its review process - just my opinion. The "Attestation of Compliance" will need to be filled out by an authorized officer annually - for specific requirements see the bulletin. Sellers will also be asked to provide a copy of their company's loan originator compensation policies and procedures for retail originations (if applicable), although "Wells Fargo does not wish to receive any documentation indicating specific compensation levels for any of your loan originators, mortgage brokers, or correspondents."

Wells' correspondents will be asked to complete a Seller Compensation Questionnaire online which will include eighteen questions about "Sellers' policies and procedures that support compliance with the new loan originator and mortgage broker compensation regulations." I believe that it is useful for originators to know what investors are focused on, so in a somewhat condensed version, here are the questions sent to clients, with the last several requiring explanations:

  1. Have you created and/or updated your company's policies and procedures regarding loan originator compensation to comply with the loan originator compensation rules set forth in the Truth in Lending Act, Regulation Z and the Official Staff Commentary (referred to collectively as the "TILA Compensation Rules", effective April 1, 2011?
  2. Do your compensation policies and procedures address how your company will pay its retail loan originators and producing branch managers (PBM's)?
  3. Are retail loan originators or PBM's paid based on the loan's interest rate or APR?
  4. Are retail loan originators or PBM's paid based on the loan's LTV?
  5. Are retail loan originators or PBM's paid based on the existence of a prepayment penalty or other loan-specific term?
  6. Are retail loan originators or PBM's paid based on the consumer's credit score?
  7. Are retail loan originators or PBM's paid based on the amount of fees collected?
  8. Are retail loan originators or PBM's paid based on the loan's Community Reinvestment Act eligibility?
  9. Are retail loan originators or PBM's paid based on the existence of mortgage insurance in connection with a loan?
  10. Are retail loan originators or PBM's paid based on an individual loan's profitability?
  11. Are retail loan originators or PBM's paid based on loan type (such as different compensation for first lien loans, second lien loans, FHA/VA/USDA loans, purchase money loans, refinance loans, etc.)?
  12. Can a retail loan originator or PBM receive compensation from multiple sources (such as both the borrower and the lender)? 13. Are retail loan originators or PBM's paid based on a percent of the amount of credit extended? (If 'Yes,' please answer the following questions:
  13. a) Is that percent fixed (constant)?  b) Is that percent subject to a minimum and maximum dollar amount? Yes No (if No, please proceed to number 14) 13c) If yes for 13b, are those minimum and maximum dollar amounts fixed (constant) among all credit transactions?)
  14. What steps have you taken or will you take to ensure that your retail loan originators, and mortgage brokers and correspondents with whom you conduct business, will originate loans in compliance with the loan originator compensation rules set forth in the TILA Compensation Rules?
  15. How will you ensure that for all originations, regardless of source, compensation is paid to loan originators by either the lender or the consumer, but not by both parties?
  16. How will you ensure that on mortgage broker transactions, where the consumer pays the broker compensation, individual loan officers who are employed by the broker owners are only compensated by the broker owners based on wages, salaries and allowable distributions?
  17. How will you ensure that your retail loan originators, and mortgage brokers and correspondents with whom you conduct business, are not steering consumers to products on the basis of increased compensation to the loan originator?
  18. How long does your company maintain records of the loan-level compensation?"

While we're talking about the consequences of Dodd-Frank, last Thursday House Republicans cemented plans to slash the budget for the new Consumer Financial Protection Bureau. But many special interest groups noted that longstanding consumer advocate Raj Date was appointed the head of rule-writing and research of the CFPB. His background is in banking (Deutsche Bank, Capital One) and consulting (McKinsey & Co.), and was a big proponent for a major overhaul of the financial system during the congressional debate, and a proponent for stronger regulation.

The former treasurer of Taylor, Bean & Whitaker won't have to worry about the comp issue, but she has other concerns. Desiree Brown is set to enter a plea agreement to federal criminal charges tomorrow. READ MORE

Toll Brothers had a profit in its first quarter, citing the dollar volume of deliveries and average prices rise. In December, S&P increased the likelihood it would downgrade Toll to junk, so the latest profit figures are welcome: for the quarter ended Jan. 31, Toll Brothers reported a profit of $3.4 million compared with a year-earlier loss of $41 million. Home deliveries were up 2% on a dollar basis but slid 4% on a units basis, and net signed contracts rose 5% on a dollars basis and 7% on a units basis. Cancellations were down, and the average delivery price increased 7% to $586,000.

In more company-level news, PSM Holdings, out of New Mexico, signed a letter of intent to acquire United Community Mortgage, located in New Jersey. UCMC will be merged into PrimeSource Mortgage Inc., the mortgage banking subsidiary of PSMH. And in the unsubstantiated rumor mill, Stern Financial, American National Bank is rumored to have shut down its mortgage division Premier Bank in Kansas City.

Yesterday we learned that the S&P/Case Shiller Home Price Indices, which track home prices throughout the U.S. on a two-month lag, declined 3.9% during the fourth quarter of 2010 on top of a 1.9 percent decline in Q3. Prices were 4.1% lower than one year earlier. "Despite improvements in the overall economy, housing continues to drift lower and weaker," was the quote I saw.

But the focus was on other items, namely a decent 2-yr Treasury auction and the violence and protests in Libya. MBS prices finished the day better by .375-.5 on roughly average volume, and 10-yr T-notes improved by about 1 point and moved down to a yield of 3.46%. This morning we already had the usual MBA weekly Mortgage Application Survey (mentioned above) and later we'll have Existing Home Sales for January along with the second leg of the Treasury's latest auctions with $35 billion 5-year notes going off at 1PM EST. We find the 10-yr up to about 3.44% and MBS prices about unchanged.

(A "joke" to think about...)

Five guys are stranded on an island.

One guy gets the daily firewood, one guy bakes the daily bread, one guy climbs to the top of the mountain to get fresh water, one guy fishes all day to bring home dinner, and one guy does nothing but consume the firewood, the bread, the water, and the fish.

One day the workers ask the fifth guy why he doesn't get the items himself, and he replies, "Without me, none of you would be employed."