Happy 1st birthday to the CFPB - it opened for business on July 21, 2011.

Perhaps coincidentally, perhaps not, the CFPB issued the first enforcement action in its history. It ordered Capital One Bank to refund $140 million to customers, pay a $35 million fine to the OCC and pay a $25 million penalty to the CFPB for deceptive call center practices that were designed to sell additional products to credit card customers. Here you go.

Think you're too small to be on the CFPB's radar screen? The CFPB issued its Final Rule on July 16 defining what constitutes a "larger participant" in the consumer reporting market. Beginning on September 30, 2012, larger participants will be subject to supervisory examination by the Bureau for compliance with federal consumer financial laws. (Here is the 98 page document.) Although the Bureau published the proposed larger participant rules for both the consumer reporting and the debt collection markets on February 17, 2012, only the consumer reporting market larger participant final rule was issued on July 16. The Bureau indicated that the final rule defining larger participants in the debt collection market will be issued later this year. Not much changed in the Final Rule from the proposed rule. Larger participants in the consumer reporting market are still defined as participants that have more than $7 million in annual receipts resulting from applicable consumer reporting activities.

Law firm Ballard Spahr reports that "companies are not engaged in consumer reporting where a company provides information to another company in which the information solely relates to transactions or experiences between a consumer and the company that is providing the information. For example, a bank providing deposit account balances to a mortgage lender does not constitute credit reporting. Second, companies are not engaged in consumer reporting where they authorize or approve a specific credit extension by the issuer of the card. For example, payment system activities related to processing credit card transactions are not credit reporting activities."

Remember, though, that under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Bureau has authority to supervise nonbank providers (regardless of size) of residential mortgage loans and certain related services, payday loans, and private education loans. The Dodd-Frank Act also gave the Bureau supervisory authority over other nonbank providers considered to be "a larger participant of [the relevant] market."

The Bureau will exercise broad discretion in deciding which larger participants to examine, looking to such factors as company size and transaction volume, the risks posed to consumers from the company's products or services, and the extent of state consumer protection oversight. The Bureau will examine the "entire [company] for compliance with all Federal consumer financial laws [and] assess enterprise-wide compliance systems and procedures." In addition to examining their compliance with laws such as the Fair Credit Reporting Act, companies should also expect scrutiny of their practices under the new "unfair, deceptive or abusive" standard contained in Dodd-Frank. (Lawyers in Ballard Spahr's Consumer Financial Services Group are currently assisting many clients in preparing for their expected Bureau examinations, and many other groups are providing similar services.)

"Rob, is it my imagination, or has the job of the loan officer, the processor, the underwriter, and so on, become more streamlined in the last year or two, or more manual? From my perspective, the mortgage process has almost gone back in time." That is true. Unlike servicing, where economies of scale are critical and beneficial, a mortgage bank has become hard to scale up smartly. For example, when the price of oil increases, the profit oil companies earn goes up - it doesn't cost more to drill a well, to explore, and so on. As a quick example, underwriters are now auditing files at 2-3 per day, so for every 2-3 loans per day of added production, a company must add an underwriter - and they ain't cheap.

"Rob, recently BofA, Wells, Chase, and Citi announced earnings. They are also the largest residential loan servicers - why do we not read about major servicing value write downs for these companies? Several years back I worked for a mid-sized regional lender that was also a servicer.  Our prepayment speed assumptions seemed to get us somewhere to an average expected life of 4 to 8 years.  It certainly varied by loan type, geography, loan amount, and so on, but it seems to me that if these Mega servicers have been booking servicing values over the past 4  years or so at anything approaching a 4 - 8 year expected life on the books, they'd need to do some serious writing down on the value of their MSR assets." A great question. Few companies advertise servicing hedging now, although it still exists. With these companies, and certainly large and small servicers/originators doing HARP loans, the production flooding their companies is a natural hedge against servicing run off. And with servicing values so low, if a loan pays off early, the hit is not as bad as it used to be. In some cases I have heard of originators actually paying another company to take the servicing off their hands - does the servicer actually book a gain when it pays off?

"Rob, I have heard rumors of the Department of Justice carrying out nearly twenty investigations against banks and non-depository lenders. What is the rumor mill saying about them?" It is rumored that the DOJ believes if Fannie Mae and Freddie Mac offer a program, and a lender puts overlays on, it's a violation of the Fair Housing Law. Of course we've seen a big outcry from consumer groups and non-profit organizations when the government announces a program, and then none of the aggregators follow along since their capital is at risk, and they know the performance of their servicing portfolio better than anyone. If that rumor is true, it will be an interesting "government telling free enterprise what to do" situation.

A seasoned industry observer noted, "Hi Rob, you probably know better than me but I understand that BAC is out of the broker channel as well, which means they are only doing retail.  With Wells and BAC out of the broker channel, and BAC also out of correspondent, it would not surprise me to see a repeat of the late 1980's / early 1990's when venture capital came into the industry to ramp up private companies and then take them public, or to see private equity inject capital into some of the larger private companies (Guild, Prospect, Provident, others) who could expand their businesses now that the big banks are retreating to retail.  With GAAP servicing values declining perhaps below their true economic value, it might be a very good time for some smart and well capitalized companies to take advantage of the market disruptions caused by the financial crisis and the new bank capital rules. Public companies that will likely benefit include Nationstar, Penny Mac and Redwood."

And finally this note about mortgage bank profitability and margins from Larry Charbonneau, Managing Director of Charbonneau & Associates, Inc. "I have reviewed dozens of mortgage banking firms this year. The average retail firm usually makes 30 to 50 bps. There are still many in that range. It is however not unusual this year to see pre-tax gains of 75 to 150 bps. Typically these are the shops selling directly to the agencies, thus showing the unbelievable value of agency approvals."

How about something simple like somewhat recent agency/investor/M&A/training/agency updates, providing a flavor for the environment - they keep coming. As always, it is best to read the actual bulletin.

The boys over at the FDIC were busy showing up in black cars and SUV's Friday afternoon. As a quick note, "is now part of" is actually a complicated process usually involving the state banking regulator and the FDIC, but to save space... In Georgia First Cherokee State Bank is now part of Community & Southern Bank of Atlanta, as is Georgia Trust Bank, up in Buford, which lost everyone's trust. Down in Florida, the Royal Palm Bank of Florida wasn't so royal and is now part of First National Bank of the Gulf Coast. Out in the heartland, uh, Heartland Bank of Leawood, Kansas, is now part of Metcalf Bank of Missouri, and up in Illinois Second Federal Savings and Loan Association didn't even come in second and is now part of Hinsdale Bank & Trust Company.

GMAC issued guidance stating that mortgages on properties encumbered by Federal Register-prohibited private transfer fee covenants are not eligible if the covenants were created on or after February 8, 2011.  This includes fees that do not directly benefit the property and fees for which the creation date of the covenant is unknown.  Private transfer fees paid to an HOA, condominium fees, or tax-exempt organizations exempt the property from this guidance.

The Confidentiality and Privacy of Consumer Financial Information sections of the GMAC Client Guide have been updated and can be accessed from the GMAC website. And reserve requirements for Jumbo Cash Out transactions have been updated such that borrowers will need a minimum of 12 months' PITIA reserves on the subject property, not including cash out funds and/or business assets.  A minimum of six months' liquid reserves are required, while there is a limit of six months' non-liquid reserves.

US Bank has issued clarification regarding the FHA's recent Streamline Refinance changes and will no longer be accepting any FHA to FHA Streamline Refinance transactions after July 10th.  FHA refinances currently locked with US Bank aren't affected.

Provident Funding revised its guidelines on employed income with regards to borrowers "re-entering the workforce" and on purchase contracts, for which electronic signatures will be accepted when an "e-sign certificate" is supplied by the service provider.  Guidance has also been updated to state that transactions involving parties with particular affiliations are ineligible.

M&T Bank amended the maximum acceptable LTV, CLTV, and HCLTV for fixed rate loans originated under the LP Open Access and DU Refi Plus programs to 125%.  The CLTV and HCLTV limit for ARMs has been increased to 125%, while the maximum LTV remains at 105%.  For such transactions on primary residences, borrowers must have a FICO score over 620.  Second homes and investment properties require a score of 680.

As for M&T's USDA Program products, guidance has been updated such that condos must be FHA-approved and include a signed and dated certification from the lender verifying compliance with FHA Minimum Project Standards.   Condos eligible under Fannie and Freddie are no longer allowed for this program.  The minimum FICO score for USDA borrowers has increased from 620 to 640, and loans where the appraisal has been transferred are not permitted.  Flip transactions and properties with oil or gas leases are not permitted, and loans should include borrower acknowledgement that all appraisal reports were received at least three days before closing.  Finally, loans must be disclosed in dollar amounts, no cents.

M&T has issued guidance that, for FHA Streamline Refinances, borrowers may opt either to remain at their current unexpired terms or choose a longer term up to the maximum, which is 30 years or the unexpired term plus 12 months, whichever is less. Shortening the term would require the transaction to be processed as a Rate & Term refinance. An updated FHA Streamline FAQ has been updated as well and is accessible from the M&T website.

A Mafia Godfather finds out that his bookkeeper, Guido, has cheated him out of $10,000,000.

His bookkeeper is deaf. That was the reason he got the job in the first place. It was assumed that Guido would hear nothing so he would not have to testify in court.

When the Godfather goes to confront Guido about his missing $10 million, he takes along his lawyer who knows sign language.

The Godfather tells the lawyer, "Ask him where the money is!"

The lawyer, using sign language, asks Guido, "Where's the money?"

Guido signs back, "I don't know what you are talking about."

The lawyer tells the Godfather, "He says he doesn't know what you are talking about".

The Godfather pulls out a pistol, puts it to Guido's head and says, "Ask him again and tell him if he doesn't answer I'll kill him!"

The lawyer signs to Guido, "He'll kill you if you don't tell him."

Guido trembles and signs back, "OK! You win! The money is in a brown briefcase, buried behind the shed at my cousin Bruno's house."

The Godfather asks the lawyer, "What did he say?"

The lawyer replies, "He says you don't have the guts to pull the trigger."