A man walks into a psychiatrist's office wearing only underwear made of Saran Wrap. The psychiatrist says, 'Well, I can clearly see your nuts." Anyone perpetrating fraud might be considered nuts. Here is an interesting approach: set up a company and tell borrowers who are in trouble to send their monthly payments there, instead of to the mortgage holder. This happened in Nevada, when Joseph Yorkus (now in prison) set up Great Western Business Services, Sundance Consulting, BAC Collections, Learn Your Rights and Fresh Start Consulting to collect monthly payments from struggling borrowers and then pocket the money instead of having them send it to the holder (BofA). With continued stories like this it is no wonder why the public's perception of our industry is still weak...

Production (and margins) is the lifeblood of many mortgage originators. (Although, when hard-pressed, most will admit they'd rather do one loan and make two points than do four loans and make a half a point on each, loan sizes being similar.) Now many mortgage banks are in the position of wondering if the production that has been locked is actually going to come in the door. I received this e-mail: "Management has been sending e-mails and calling our loan agents, emphasizing how critical it is that the locked pipeline fund. Certainly pull through has increased for everyone, but given the commitments that we have with our investors, if we don't deliver - we're on the hook - and our agents need to know that!"

Obviously some renegotiations are bound to occur. Daniel K. from NJ wrote: "The secret to renegotiations is simple. If the LO is serious about saving the client and sharing in the cost of the renegotiation, then all they have to do is switch how they get paid from Lender Paid to Borrower Paid comp.  Under Borrower Paid comp, a LO is allowed to give a credit or reduce their fees, if they wish. For example, a loan is locked in at 4.50% and LO is getting 1.50% under Lender Paid comp plan with the lender. The cost to renegotiate down to say 4.125% is .625 from current pricing and current pricing is better by .375% so cost is .25% to borrower because now the pricing is 1.25%. If the LO wishes, they can switch to Borrower Paid comp, and instead of getting 1.50% from lender, they re-disclose the GFE with a 1.25% broker fee, borrower gets a closing credit of 1.25%, and there you go, it is a wash."

Here's the quiz for the day. What state had more than 82,000 licensed mortgage brokers just four years ago, but now only has 10,600 licensed loan originators? It is also the same state of which the highest elevation is 345 above sea level: YearAroundSunshine.

Here's another quiz: what company will soon become the largest non-prime servicer? The answer is "Ocwen" especially after its purchase of Litton Loan Servicing. And its Home Loan Servicing Solutions (HLSS) spin-off is preparing an initial public offering (IPO) of approximately 18.3 million shares. HLSS, you may recall, has the same management as Ocwen and was formed to acquire mortgage servicing assets. HLSS will use the proceeds from its IPO to purchase the right to receive servicing fees and revenues from Ocwen.

Mergers and acquisitions had been slow until recently, but now continue to dominate the industry whether it is a broker's office becoming part of a larger lender, or an entire branch network joining forces with another. Jeff Babcock from STRATMOR writes, "M&A activity slowed down when prospective sellers  believed their mortgage company should be valued as a multiple of 2009/2010 earnings but buyers insisted on a value that reflected future cash flows. Some companies just don't want to give up their independence, but we are seeing a big upswing in potential buyers either expanding their mortgage operation or newly entering the business. Many acquisitions are more efficient than organic growth alternatives which are seen as slow and risky, and there is a belief that "you can buy better talent than you can hire." STRATMOR believes that the supply of sellers will increase during the remainder of 2011 and into 2012 for a variety of reason including unrelenting regulatory requirements and compliance demands are pushing CEO/Owners to the limits of their tolerance for managing such functions, the LO comp rules have proved too much, rising minimum capital levels are hurting smaller companies, the cost of compliance and systems & technology is proving too high, and so on. (If you're interested in hearing more about what is going on out there, shoot Jeff an e-mail at jeff.babcock@stratmorgroup.com)

First National Bank of Olathe in Kansas is gone - taken over by Enterprise Bank & Trust of Missouri.

Caroline Baum, a noted economic writer for Bloomberg, had some interesting points last week on the Fed meeting. "On the fiscal-policy side, the Obama administration and members of Congress can't agree on whether the U.S. economy's problem is too much debt or too much unemployment. At least they agree on the "too much" part. Central bankers at the Federal Reserve...determined that the problem is the rate structure: Specifically, long-term interest rates are too high. In order to bring them down, some verbal tinkering was in order. The Fed said economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013." This is the first time since the introduction of the "extended period" language in March 2009 that the Fed has assigned a specific time frame to it. The truth is that the Fed doesn't know how long it will need to keep the funds rate at its current setting of zero to 0.25 percent. In early 2010, the central bank was readying an exit strategy from a period of monetary accommodation. With each piece of old news, its growth forecasts have been revised down, and its unemployment forecasts up. This is why I call them 'hindcasts.' From the three options that Fed Chairman Ben S. Bernanke outlined previously should the economy need an additional transfusion -- additional long-term securities purchases, a reduction in the interest rate paid on excess reserves, and verbal gymnastics -- the Fed picked the third, which is also the silliest. And it's right off the shelves of academia, where rational-expectations theory is an obsession."

An analyst wrote, "The Fed's view of the economy at this point is a gloomy one. That, combined with the dual mandate they carry, requires the Fed to seek to foster maximum employment and price stability. That means unless the outlook changes, the FOMC will take further action to try and stimulate the economy. Of those most often discussed in the press, the Fed could start buying bonds again in an effort to drive up the price and push down the yield. They do this to stimulate housing and business loan refinancing activity in order to put more money into the pockets of borrowers that can then be spent on goods and services. The problem with this effort is that it balloons the balance sheet, which is already gigantic, so it is deemed less likely. Another twist on this is to sell short term bonds and buy longer term ones. This pushes up yields with shorter maturity dates and pulls them down on the longer maturities without further expanding the balance sheet. Another potential tool the Fed can use is to cut the excess balance account rate from 0.25%. This would have the effect of forcing banks to put short money to work further out the curve, as the strain on margin simply becomes too much. That in turn would help stimulate the economy if the theory holds. Of all the options listed, this one is probably in the top two, so being prepared is important."

Volatility is not the friend of the mortgage banker - look at last week. But after things settled, there was some economic news that actually showed improvements in the economy that diminish the odds of a recession: Initial Jobless Claims finally broke through the key 400,000 level, and Retail Sales figures for July showed the largest monthly jump in consumer spending since March. In addition, home values in the U.S. had their smallest decline in more than four years in the second quarter, as the share of borrowers with negative equity shrunk, per Zillow. (Hey, we'll take anything, right?) But the volatility in markets is a realization that the days of 3% economic growth are in the past, and the future seems to be one of very slow growth for the United States.

Everyone this week is hoping for less volatility. For scheduled news, today we had the Empire Manufacturing numbers (unexpectedly contracting for the third straight month), and later will have a housing price index. Tomorrow is Housing Starts and Building Permits, some import & export prices, and Industrial Production and Capacity Utilization. Wednesday holds PPI; Thursday CPI, Jobless Claims, Existing Home Sales, the Philly Fed, and Leading Economic Indicators. The 10-yr Note, which closed Friday at 2.24%, is now 2.25%, and MBS prices are roughly unchanged. There is a sigh of relief out there. ECON CALENDAR

Here are some "Universal Laws" to cogitate upon (part 1):

Law of Mechanical Repair - After your hands become coated with grease, your nose will begin to itch and you'll have to piddle.

Law of Gravity - Any tool, nut, bolt, screw, when dropped, will roll to the least accessible corner.

Law of Probability -The probability of being watched is directly proportional to the stupidity of your act

Law of Random Numbers - If you dial a wrong number, you never get a busy signal and someone always answers.

Law of the Alibi - If you tell the boss you were late for work because you had a flat tire, the very next morning you will have a flat tire.

Variation Law - If you change lines (or traffic lanes), the one you were in will always move faster than the one you are in now (works every time).

Law of Close Encounters -The probability of meeting someone you know increases dramatically when you are with someone you don't want to be seen with.