On July 4th in 1776, the Declaration of Independence was approved by the Continental Congress, setting the 13 colonies on the road to freedom as a sovereign nation. (This year it has turned tomorrow into somewhat of a "get away" day for many.) As always, parades, fireworks and backyard barbecues await. It is estimated by the Census that there were 2.5 million people living in the nation at that point, and now there are 314 million.

Check this out, for some non-mortgage news: Reuters reports that Chinese auto stocks fell steeply after Guangzhou became the country's 4th major city to place a cap on annual auto sales. Guangzhou is looking to ease traffic congestion. Supply and demand suggest that prices will go up, or a black market will spring up.

The MBA puts out some pretty good statistics, and this last set showed that independent mortgage banks and mortgage subsidiaries of chartered banks made an average profit of $1,654 on each loan they originated in the first quarter, up from $1,093 per loan in the fourth quarter. The MBA Quarterly Mortgage Bankers Performance Report said while per-loan production expenses increased, secondary marketing gains improved as primary-secondary spreads widened. Secondary marketing income rose from $4,355 per loan in the fourth quarter to $5,011 per loan in the first quarter. "For independent mortgage bankers, average production volume and the purchase share of that volume remained relatively constant in the first quarter, compared to the previous quarter," said MBA Associate Vice President of Industry Analysis Marina Walsh. "Independent mortgage bankers remained focused on purchase production while many larger banking institutions were handling significantly more refinancing activity." To buy the report.

My crack team of research analysts (Myrtle the cat and Sweetie the dog) sometimes doesn't get around to all the news. But this one caught their eye - a story in the Wall Street Journal: "Bank of America Corp. thought it had a bargain four years ago when it paid $2.5 billion for tottering mortgage lender Countrywide Financial Corp. But the ill-fated decision has already cost BofA more than $40 billion in real-estate losses, legal expenses and settlements with state and federal agencies, according to people close to the bank. 'It is the worst deal in the history of American finance,' said Tony Plath, a banking and finance professor at the University of North Carolina at Charlotte. 'Hands down.'"

Sales of homes that were in some stage of foreclosure, real estate-owned (REO), or bank-owned accounted for 26% of all U.S. residential sales during the first quarter-up from 22% of all sales in the fourth quarter and up from 25% of all sales in the first quarter of 2011. Foreclosure-related sales picked up in the first quarter, particularly pre-foreclosure sales where a distressed homeowner is selling to avoid foreclosure-typically via short sale. Those pre-foreclosure sales hit a three-year high in the first quarter even as the average pre-foreclosure sales price dropped to a record low as lenders are approving more aggressively priced short sales. California foreclosure-related sales accounted for 47% of the state's total residential property sales in the first quarter, the second-highest percentage among the states. Foreclosure sales accounted for 46 percent of all residential sales in Georgia during the first quarter, the third highest percentage of any state.

Not that I want to be the sounding board for various underwriting scenarios or guideline suggestions, but here's an interesting note that I received. "I am located in Texas. We are in the middle of a state that can produce a lot of borrowers with oil & gas income on their tax returns. In most cases this is the only source of income and has been for years. Fannie Mae guidelines as well as most lenders' guidelines state that in order to use this income for qualification the borrower must show "proof of continuance for 3 years". Anyone that truly understands the oil & gas business sees this statement as ludicrous at best. The proof most often requested from processors and underwriters is 'a copy of the oil & gas lease showing at least 3 years remaining'. I have one borrower I had to turn down who has over 7,000 fractional interests in minerals and royalties generating over $500K a year and has been for years but has no lease nor an engineer's study (way too expensive to produce) to prove continuance due to reserves. Fannie Mae and all lenders need to put on their thinking caps and figure this out. This is becoming a major problem in our neck of the woods."

K&L Gates reports that a federal district judge in Washington, D.C. has upheld an "Administrator's Interpretation" issued in 2010 by the U.S. Department of Labor ("DOL") that loan officers in the mortgage banking industry typically do not qualify as exempt employees under the administrative exemption of the federal Fair Labor Standards Act ("FLSA"). The Mortgage Bankers Association ("MBA") had challenged the March 24, 2010 Administrator's Interpretation ("Interpretation") issued by the Acting Administrator of DOL's Wage and Hour Division because the Interpretation had reversed and rescinded a contrary DOL Opinion Letter issued in 2006 that had concluded mortgage loan officers were generally exempt under the administrative exemption. However, a judge ruled that the 2010 Interpretation was not inconsistent with the FLSA regulations and was not arbitrary, capricious, or otherwise unlawful. [1] The court thus let stand the DOL's Interpretation that employees performing the typical duties of a mortgage loan officer do not qualify for the administrative exemption and are therefore entitled to receive minimum wages and overtime compensation under the protections of the FLSA. [2] The MBA has the right to appeal this decision to the D.C. Circuit.  Link

Counterparty risk is certainly increasing in scope. The Financial Stability Board (FSB) recently released its Principles for Sound Residential Mortgage Underwriting Practices.  FSB, an international body established after the 2009 G-20 Summit to oversee and recommend on the global financial system includes representatives of all G-20 economies. The recommendations the board most recently issued are meant to address problems arising from poorly underwritten residential mortgages. The board stressed how weak underwriting practices in only one country can contribute significantly to the global financial crisis, and the importance of having sound underwriting practices at the point at which a mortgage loan is originally made. The principles cover several areas which proved to be particularly weak during the global financial crisis. Among them are effective verification of income and other financial information, reasonable debt service coverage, appropriate loan-to-value ratios, effective collateral management, and prudent use of mortgage insurance.

Here are some somewhat recent investor/M&A/agency/MERS updates, providing a flavor for the environment. They just don't stop. As always, it is best to read the actual bulletin.

Fannie Mae Updated its Data Breach Policy, Compensatory Fees, and Allowable Foreclosure Timeframes. On June 13, Fannie Mae published Announcement SVC-2012-10, which updates its notice of data breach and incident response policy to require servicers to provide written notice to Fannie Mae of a data breach in addition to any reporting to consumers or state authorities required under applicable state law. A servicer also must request permission to use Fannie Mae's name if it intends to refer to Fannie Mae in any notices sent to affected borrowers or regulatory agencies. On the same day, Fannie Mae also published Announcement SVC-2012-11, which updates and clarifies for all mortgages with a foreclosure sale date on or after January 1, 2012, (i) the maximum allowable foreclosure time frames for twelve jurisdictions, (ii) compensatory fee assessments and appeals, and (iii) the preferred method of foreclosure in Montana and Nebraska. Here are the announcements: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1210.pdf and https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2012/svc1211.pdf.

Freddie Mac has clarified that, with regards to non-REO expense reimbursements, taxes incurred and paid to a taxing authority may be reimbursed up to 12 months before the last paid installment through the payoff date.  Wire transfers are now allowed for REO-related remittances.  A time frame for sending completed modification agreements to document custodians has also been formalized. Homeowners impacted by the automatic stay under bankruptcy law are to be excluded from quality right party contact performance measurements in Servicer Success Scorecards due to the fact that the law impedes communication with these borrowers.

As of July 1, 2012, MERS will require all loans closed in Mississippi to include a "physical business mailing address" on documents such as MOM security instruments, satisfactions, assignments, modifications, and subordinations.

The Maryland Mortgage Bankers Association has penned and distributed a letter to the CFPB regarding the definition of a qualified mortgage as it pertains to the pending ability to repay rule.  Stating that the definition of a QM should be "structure...as a strong legal safe harbor and not as a rebuttable presumption," the letter implores the CFPB to consider protecting borrowers from poorly underwritten mortgages and giving credit-worthy borrowers to decent mortgages equally.  Those interested in circulating the letter can find out more by visiting http://www.mortgagebankers.org/Advocacy/MortgageActionAlliance.

Grandpoint Capital, Inc. and NCAL Bancorp have agreed to a merger whereby the former will acquire NCAL Bancorp and the National Bank of California, whose assets total $340.9 million, will become a wholly owned subsidiary. All outstanding preferred NCAL Bancorp shares issued to the Department of the Treasury will be redeemed for $10.5 million as well as current accrued but unpaid dividends of $605,000 and any dividends accrued through closing.  Keefe, Bruyette & Woods acted as Grandpoint Capital's financial advisor for the transaction.

As part of its initiative to expand into being a full-service lender, Real Estate Mortgage Network is launching its new correspondent division and enlisting the services of Bela Donine as Managing Director of Correspondent Lending and Melissa Sherman as Managing Director of West Coast Operations.
Wells Fargo has saved itself $1.5 million by installing 7,000 LED signs across the country, which has cut down electricity bills. (Go Green!) It's also requiring Flood Disclosures for all applications received on and after April 9, 2012, including properties that have maximum coverage and are not presently in a flood zone. This is due to the fact that the consumer would be able to decrease their coverage to an unacceptably low level at a later date and the fact that flood zones can change, respectively. The Notice of Special Flood Hazards is required one day before signing at the minimum.  All sellers must comply with Wells' flood protocol regardless of any federal requirements as dictated by their licensing or regulator.

On Friday our 10-yr t-note closed at 1.66%, roughly where it resided much of last week. After a downward/worsening move occurred early after the news hit of some stability in Europe, the markets tended to improve during the day. But that was then - what about today? We're nearly unchanged, but that doesn't mean we don't have a lot of potential volatility this week, including the mid-week holiday which could make Thursday and Friday a little iffy. One trader noted, "This week promises to be somewhat illiquid and as a result will likely create decent trading opportunities for those that wait for the right levels to initiate trades. 1.59% remains resistance on 10s, while 1.70% represents support."

For scheduled, non-European news we have the ISM Index and Construction Spending today. Tomorrow is Factory Orders. Thursday is Challenger Job Cuts, the ADP employment numbers, Initial Jobless Claims, and ISM Services. Friday is the whole spate of unemployment data. With all that we find the 10-yr at 1.56% and agency MBS prices up considerably.

Very punny, part 1 of 2:

Ratio of an igloo's circumference to its diameter = Eskimo Pi
2000 pounds of Chinese soup = Won ton
1 millionth of a mouthwash = 1 microscope
Time between slipping on a peel and smacking the pavement =1 bananosecond
Weight an evangelist carries with God = 1 billigram
Time it takes to sail 220 yards at 1 nautical mile per hour = Knotfurlong
16.5 feet in the Twilight Zone = 1 Rod Serling
Half of a large intestine = 1 semicolon
1,000,000 aches = 1 megahurtz
Basic unit of laryngitis = 1 hoarsepower
Shortest distance between two jokes = A straight line
453.6 graham crackers = 1 pound cake
1 million-million microphones = 1 megaphone
2 million bicycles = 2 megacycles
365.25 days = 1 unicycle
2000 mockingbirds = 2 kilomockingbirds