Regina Lowrie from RML Advisors answers the question, "How should we handle the title insurance companies, escrow companies and closing attorneys in our vender management program where the borrower has the right to designate the closing agent?" She points out that all closing agents are considered vendors, and some may be seen as high risk vendors due to their exposure to confidential client information such as social security numbers and banking information. Since this personal information has to be protected, lenders should ensure that the closing agent's data/security systems are secure and protect the clients' nonpublic personal information. Lenders should inform the borrower and the buyer's and seller's representatives to the transaction about their vendor requirements and timeline expectations.

Bankrate released a survey of closing costs based on state. Along those lines, the cost of servicing has increased due to the aftermath of the mortgage crisis. MBA's Chart of the Week for July 31st highlights components of direct servicing costs per loan suggesting that direct servicing costs in 2014 are now at $171 per loan among large prime servicers, which is significantly higher than the $89 per loan file in 2009. The largest attributor to servicing costs was for the servicing of defaulted loans which accounted for 43 percent of the total, equivalent to $73 per loan or $1,310 per defaulted loan. Some of the costs associated with a loan default include personnel, operating costs for collections, loss mitigation, foreclosure, bankruptcy and claims recovery. The remaining 57 percent includes servicing technology, customer service, executive management and various processing functions.

People in the industry who think that non-QM lending has "taken off like a rocket" are in the minority. Certainly dividing residential loans into QM and non-QM has had an impact on borrowers, lenders, and investors, and our government, through the efforts of the Government Accountability Office (GAO) found that these QM and QRM regulations would have "limited initial effects" because recent loans already largely conformed with criteria set forth by the QM rule. The report is titled "Mortgage Reforms: Actions Needed to Help Assess Effects of New Regulations" and was conducted by the GAO at the request of Congress amid concerns that risky mortgage products and poor underwriting standards were contributing factors to the housing crisis of 2008. Any lender could have told them that, right?

The report reminded us that the QRM rule is scheduled to go into effect this December. QM regulations, which went into effect in January 2014, address lenders' responsibilities to determine a borrower's ability to repay a loan and include prohibitions on risky loan features, such as interest only or balloon payment, and limits on points and fees, according to GAO. QRMs are securities that are collateralized exclusively by residential mortgages, and they are exempt from risk retention requirements. According to GAO, securities collateralized solely by QM loans are also exempt from risk retention requirements, and that we've seen limited effects of QM on the availability of mortgages for most borrowers.

While we're on lending off the beaten path, now that the dust has settled somewhat on the Sharia-compliant lending for Muslims proposed by the Seattle mayor, the best write-up I've seen came from MBA president Dave Stevens. "In the link you can get a quick overview of the roots of the religious rule and the efforts domestically to date (Richmond Fed). Sharia law related to not paying interest stems back in time when religious leaders became frustrated with usury rates being charged to members of the faith. It has expanded in some sects to establish rules against paying any interest at all. The Muslim population domestically is large and globally it is enormous. Sharia compliant rules pose a challenge for those that would like to meet the demand for homeownership amongst those who also must comply with their religious obligation."

Dave's note went on. "There are decades of attempts to produce programs to deal with this issue...There are lenders in California and the Midwest that have developed programs to address this as well. The most common approach is to replace 'interest' with a 'lease to own' product where the lessee essentially takes on all of the same obligations that an actual buyer would including down payment, maintenance, taxes, insurance, qualification, etc. - but instead or paying 'interest' on a mortgage pays a 'lease payment' for the term until such payments satisfy the outstanding balance plus seller costs and investor obligations. It essentially accomplishes the same thing from a payment stream perspective and investor interest. Because the security trades as a story bond it obviously trades well back of TBA, as would almost any non TBA product. The alternative is a co-ownership structure where the non-compliant co-owner makes the interest payments on the mortgage and collects a proportional payment from the Sharia compliant co-owner for such time until some transfer, sale, or other method of separation of ownership occurs."

Speaking of the secondary markets, the markets continue to discuss Ginnie Mae's community bank initiative partnership with the FHLB Chicago. Ginnie Mae issued the first MBS pool with Chicago and Atlanta FHLB, and 100 % of the loans providing collateral for this pool are from community banks. "The Mortgage Partnership Finance (MPF) Program announced that it had issued its first security guaranteed by the Government National Mortgage Association (Ginnie Mae). The $5 million security is backed by mortgages originated by community lenders through the MPF Government MBS product."

FHLB Chicago operates the MPF Program on behalf of nine Federal Home Loan Banks. "Ginnies are among the most liquid financial instruments in the world, and this new product allows us to enable FHLBank members to offer competitive FHA, VA, and Government Guaranteed Native American and Rural Housing mortgages." And Ginnie Mae President Ted Tozer noted, "This agreement is a great example of how the Ginnie Mae MBS program continues to level the playing field by allowing community based financial institutions to effectively compete with mega banks for homebuyers in their communities...Now they can connect directly to the capital markets, improving the home financing options they can offer to their customers without the burden of having to individually obtain and maintain Ginnie Mae approval." And all without increasing the number of counterparties! (Ginnie is no slouch, guaranteeing more than $1.5 trillion of MBS.)

Through the MPF Government MBS product, the MPF Program purchases fixed-rate mortgage loans originated by Federal Home Loan Bank members that are insured or guaranteed by the FHA, VA, USDA RHS Section 502, and HUD 184. MPF Government MBS provides participating community lenders competitive pricing, which they can pass on to their borrowers. The initial securitization is comprised of an encouraging mix with more than 50% in the RHS category. VA loans make up the next largest issuance and FHA rounds out the balance. The MPF Program anticipates incremental growth in all categories as additional FHLBs begin offering the product.

The MPF Program allows participating members of the Federal Home Loan Bank System to sell fixed-rate, conventional loans into the secondary mortgage market. But don't take my word for it: learn more about the MPF Program at

Carrying on with the security market, let's take a look at bonds. Monday we learned that Personal Incomes rose 0.4% in June, beating forecasts, and Personal Spending/Consumption rose 0.2%, in line with estimates. The PCE Deflator (the inflation measure preferred by the Fed) rose 1.3%, still well below their 2% target rate. The ISM July Manufacturing Index fell to 52.7 in July. And Construction Spending rose 0.1% in June. This was much lower than expectations but May was revised upward from 0.8% to 1.8%.

But the focus wasn't so much on the news above but instead on the fall in crude oil prices, and a 20% drop in the Greek stock market after reopening for the first time in five weeks. The stock market fell once again, accelerated with the break in crude futures. Down more than 4.0% at one juncture, West Texas Intermediate crude futures settled the day down 3.9% at $45.25/bbl, and the yield on the 10-year T-note fell to 2.15%.

The only news out today will be June's Factory Orders at 4AM here in Hawai'i (10AM EDT). Ahead of that the 10-year is still around 2.16% and agency MBS prices are roughly unchanged.

Jobs and Announcements

Yes, plenty of changes in the biz, and companies continue to look for talent. "Radian is currently searching for Mortgage Underwriters in the following office locations: Philadelphia, PA; Denver, CO; Plano, TX; Atlanta, GA; and Worthington, OH. These are full-time, benefits eligible positions. If you are an experienced mortgage underwriter looking to join a growing team with a strong culture and healthy work/life balance, this could be the perfect opportunity! Must have 3-5 years of recent customer-facing, frontline underwriting experience. Current knowledge of FNMA/FHLMC guidelines, standards, and practices. Advanced skills required in mortgage loan appraisal review and tax return analysis. For more information, or if interested, please send confidential inquiry or resume to Mike Penrose."

And if you're an underwriter in the San Francisco area, General Mortgage Capital Corporation continues to grow and would like to speak to you.  The ideal candidate is thoroughly versed in automated underwriting systems to include FNMA's Desktop Underwriter and FHLMC's Loan Prospector. In addition they should have extensive knowledge of FNMA/FHLMC/VA/FHA programs and jumbo products, and a thorough knowledge of loan processing function. An FHA DE certification is preferable. "We have four offices: Burlingame, Cupertino, Newark, and SF, our LO numbers have increased 100% in the last 12 months, and our 2015 production has already surpassed all of 2014. We pride ourselves on having a well-designed compliance system to meet all regulatory requirements. Please contact President Charles Zhao for confidential interview (510.396.8889)."

National MI announced the addition of several Sales Advisors to its growing regional sales team. Ernie Grue has joined as an Account Manager to serve the Maryland and Northern Virginia territory, and Justin Putz has been hired as an Account Manager and will cover the Minnesota and North Dakota region.

In other personnel moves, Ethos Lending announced the hiring of Paul Wyner as Director of National Sales. Mr. Wyner will lead and manage Ethos Lending's growth initiatives in the wholesale channel.  Congrats to Rob Smialek who recently joined Wunderlich Securities as Senior Vice President of Fixed Income Capital Markets. In this role, Smialek will help lead growth in mortgage backed security sales (TBA and Specified) and whole loan trading (CRA, Agency Fallout, RPL, and NPL's) focusing on the US residential mortgage banking community, banks, and credit unions.

Effective today Secure Settlements will be known as "Secure Insight." "This name change, which has been over a year in planning, will reflect that our company has grown substantially beyond its original mission: to evaluate, monitor and report on settlement agent risk.  Today, more than three years after our launch, our company offers a suite of tools to assist lenders with the management of third party service provider risk and employee screening."

Speaking of names, have you heard of Finance of America Mortgage? Yup - another Blackstone Company. "Our parent company, The Blackstone Group, provides us with the resources to expand our product offering and develop new services for our customers and partners." Eerily reminiscent of the old Residential Finance in Columbus that was sold to PMAC about 18 months ago... and not to be confused with FAMC (Franklin American). And J.G. Wentworth wrapped up its acquisition of Virginia's WestStar Mortgage, licensed to operate in 40 states with 300 employees. WestStar will now operate as J.G. Wentworth Home Lending.

On the flip side, remember Trust One Mortgage? In 2007 and 2008 Brady Bunte owned and ran it. It turns out that the name of the company was badly mislabeled as good ol' Brady is guilty of bank fraud. Residential lending: two steps forward and one step back.