No one said mortgage servicing (or lending) would be any fun. The Las Vegas City Council, on the 15th, will consider a proposal that would make lenders responsible for the maintenance of vacant properties in default or foreclosure, or else face possible fines or jail time. It would force a mortgagee to inspect properties in pending or actual default and, if vacant, register them with the city for $200. The mortgagee would have to then designate a manager to keep up the vacant property. The problem is not trivial: one in every 110 housing units in Las Vegas received a foreclosure filing in September, according to data firm RealtyTrac. Critics say, "Does this mean, when a borrower stops making payments, suddenly they receive free gardening & maid service?" The details can be found here.

I find myself in Texas for the TMBA's Educational Seminar early next week, and just in time to read this story on Texas' FirstPlus Financial. It reads like sequel to "The Godfather". "Nicodemo S. Scarfo, Salvatore Pelullo and others seized control of FirstPlus in June 2007 "by threatening its existing management," federal prosecutors charged in an Oct. 26 indictment unsealed yesterday in Camden, New Jersey. Scarfo is the son of "Little Nicky" Scarfo, the imprisoned boss of the Philadelphia-area mob..."

Ally Financial (GMAC)'s correspondent reps must have swallowed hard, as did their clients, when the CEO said, "The combination of MSR volatility in the quarter, reduced margins due to regulatory costs and the impending impact of Basel III has caused us to begin significantly scaling back originations in the mortgage correspondent segment." Ally reported a net loss of $210 million for the third quarter of 2011. The decline in third quarter income was largely driven by a $471 million pre-tax loss related to the negative impact of the mortgage servicing rights (MSR) valuation, net of hedge, resulting from a decline in interest rates and market volatility. Ally will maintain correspondent relationships with its key customers and will continue to participate in the consumer and broker lending channels, which are higher margin businesses. The correspondent channel represents approximately 84 percent of the company's mortgage originations year-to-date.  As a result, Ally's exposure to MSR asset volatility will decrease over time, and the company will be better positioned to comply with Basel III requirements.

I am not an expert in mortgage channel cost structures - more on that in a moment. GMAC is clear in its announcement that it is about capital, and Basel III. "I just bought servicing for 2 points, but just had to write it down to 1.5 points because of future capital calculations; I don't have the capital to book servicing at those levels." The industry is indeed seeing servicing values drop, for a variety of reasons, this being one of them. And any smaller lender starting a servicing operation because the servicing is worth more to it than it is to a large servicer had better make sure that the calculations and assumptions are correct.

And looking at cost structures, the old general idea was that a good month for a retail LO is they'd do $1 million and make $10,000, a wholesale rep would do $10 million and make $10,000, and a correspondent rep would do $100 million and make $10,000. (Please, don't send an e-mail finding fault with these, saying it depends on the state, LO comp, profit margins, etc., it is a generalization!) So an investor would pay a correspondent rep $10,000 and add a good chunk of servicing - IF it wanted servicing. AND the correspondent counterparties assume the risk through more comprehensive reps & warrants!

In addition, with the loss of BofA, and now with GMAC "scaling back," where does that leave the remaining big correspondent investors? And do they really want all this servicing? Just like with MI companies exiting, exposing the remaining MI companies to more volumes, and possibly more risk, do the remaining correspondent lenders want the volume? Do their operations staffs really need the work on Saturday and Sundays? Certainly smaller lenders don't need fewer investor options when pricing & selling loans in the secondary market. The release can be found here.

Many originators are hopeful that HARP 2.0 will help, with details coming out by 11/15. Others are not convinced, and are still confused on the differences between Freddie & Fannie. I took the opportunity to do a little write-up on this issue at:

An owner of a mortgage bank wrote to me, "I'm really becoming more and more confused with HARP. It seems that if people couldn't refinance using the HARP program in the past, then not too many more will be able to take advantage of it now.  Maybe this will allow your 80/20, 80/15/5 or 80/10/10 people to take advantage of the program or even those who put down 20% and are in IO loans, but I don't think the majority of the people are in these loans.  Moving the date (not prolonging the term) that Fannie or Freddie purchased the property from 5/31/2009 to 5/31/2010, or even to the date the law goes into effect, would definitely give more people the opportunity to refinance. Moving the mortgage late from 12 months to 6 months, really, are you kidding me?  A recent mortgage late will kill an individual's credit score so he/she won't be able to get the best possible rate and a .25 or a .50 difference might deter an applicant from doing the loan at all."

The industry's four largest mortgage servicers all say they will be taking part in the revamped HARP: Bank of America, Chase, Citigroup, and Wells Fargo have each expressed their support of the program.

The Community Mortgage Lenders of America "has been leading the charge in Congress" on reversing the expiration of the maximum loan limits by extending the provision for another two years until the end of 2013. The Senate approved the amendment, which is now up before the Republican-controlled House. "This Amendment is critical for those borrowers on both coasts in the so called high cost states", said Kevin M. Cuff, Executive Director of the CMLA.  "The roll back can both help to stabilize a rocky real estate and finance market today as well as to assist a borrower who might otherwise be required to bring tens of thousands of dollars of down payment to the transaction". For more information on what the CMLA is doing, shoot an e-mail to Kevin Cuff at

In the Carolinas, "MBAC and other state Mortgage Banker/Lenders Associations were asked to participate in a conference call with MBA on the request for comment from the FHFA on changes to the servicing fee structure.  The FHFA discussion paper can be found here. The call is next week, and if you have comments contact Rhonda Marcum, Executive Director of MBAC, at

Speaking of servicing, the HarmonyLoan continues to makes waves. Apparently it caters to servicers, and gives the lender "greater stability and value in their mortgage investment.  For many portfolio lenders, as mortgage rates continue to rise and fall, their business strategy is left to suffer the consequences of a "traditional" refinance process that exposes them to runoff, high retention costs including high fee-based loan officer compensation, and a time-consuming conversion process leading to strained back office channels. But the HarmonyLoan reverses this by setting up a streamlined retention process which minimizes costs and significantly reduces the process timeline. The HarmonyLoan can convert any size/type existing mortgage in little more than one hour and at a premium return for the lender.  Additionally, loss mitigation efforts for modifications, short sales and foreclosures are advantaged by homeowners' ability to get interest rate relief without the limitation of underwriting or appraisal." If you want more information write to Jay Patel at

Taking a quick look at the markets, as if there isn't enough other things to occupy us, yesterday the Treasury announced it will be selling $32 billion 3-year notes, $24 billion 10-yr notes, and $16 billion 30-yr bonds next week - the same as in August. (All told the auction will raise $42.6 billion of new cash.) The drama in Europe remained front and center, although the FOMC's statement made a tiny stir - but did little positive to the markets. It noted some strengthening in the economy, but that housing is still depressed, and did not mention any additional MBS purchases which caused a slight worsening in MBS's. In his press conference, Chairman Bernanke indicated the possibility for further MBS purchases if conditions are appropriate for such an action. By the end of Wednesday MBS prices were nearly unchanged from Tuesday's close, and the 10-yr settled near 2.00%.

Tomorrow is the release of the important Nonfarm Payroll numbers, but today we've had weekly Jobless Claims (a drop of 9k to 397k) and the preliminary 3rd quarter reading for Productivity (+3.1%) and Unit Labor Costs. Later we have Factory Orders and the ISM Non-Manufacturing Index for October. After the news we find rates slightly higher with the 10-yr at 2.05% and MBS prices worse by .125-.250.

(Someone forwarded this letter along. I will let you decide if it is factual or not.)
The following letter was sent today by Bank of America to all of its debit card customers:
Dear Valued Customer:
As most of you probably know by now, last month we instituted a $5 monthly fee for all of our debit card users.  To say that what followed this decision was a nightmare would be a massive understatement.
Considering that just three years earlier taxpayers had bailed us out with billions of their hard-earned dollars, it's understandable that Bank of America was compared to a person who, as he is pulled from a burning building, turns and kicks the fireman in the crotch.
That's why we are writing to you today with a simple message: "Our bad."  And to tell you that we are refunding the $5 to you, effective immediately.  All you have to do is pay a simple, one-time $10 refund fee.
You can receive your refund online, or pick it up at your nearest Bank of America branch, where a teller will hand the money directly to you for a simple, one-time $15 handling fee.
If you do visit your branch, feel free to use any of our services, including our state of the art ballpoint pens and deposit slips.  (Prices on request.)
Again, accept our apologies for instituting the debit card fee.  We have learned our lesson, and we make this solemn promise: next time we squeeze money from you, we'll do it in a way you won't notice.
Sincerely, Bank of America

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog takes a look at the impact of HARP 2.0 and the differences in the agency's programs. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.