There is an old joke in advertising that says, "Half of all advertising money is wasted. The trick is knowing which half." Companies continue to take a hard look at overhead, looking for wasted money. But what is "wasted"? I continue to hear numerous stories about reputable companies competing for LOs against companies that are offering "aggressive" comp structures & great street pricing. A mortgage company's bottom line improves through increasing revenue or decreasing expenses, and any company cutting expenses by cutting compliance measures has a short-sighted view of the world. And as a reminder, there's always the CFPB's anonymous "whistle blower" site for, among other things, reporting non-compliant comp plans.
QM in 32 business days, but for changing some forms, a year and a half? The form with clarified tolerances and existing automated data points is given a 20 month phase in...the form that is executed around a table as borrowers mindlessly sign everything placed in front of them while a closing attorney or escrow officer drones on like an adult in a Charlie Brown cartoon...as if that will change... Seriously, it is believed that the CFPB knew this was also a huge implementation, and wanted to let all the QM dust settle over the next year. (And there are certainly folks who believe that there will be plenty of changes to QM next year.)
But the new simpler forms involve over 2,000 pages of documents (this one alone is 1,888). Let me repeat that: the CFPB's supporting documentation for the new, easier-to-understand forms is nearly two thousand pages. Our Declaration of Independence is 1,137 words. The Declaration of War against Japan on December 8, 1941 was 165 words. At a bedtime reading pace of 20 pages per night, it would take 100 nights to polish it off. What is wrong with this picture?
What's "right" about this picture is that the 12 months' implementation was statutory for Title XIV rules. Also, although settlement service industry can get a jump on things, lenders are busy with QM and other current rules, which they've actually known about for months. Looking at the calendar shows that August 1, 2015, is 18 months from the Feb. 1, 2014 post-January Title XIV mortgage rules effective date. Here's another tidbit: effective August 2015 a home BUYER will now have a MANDATORY 3 day waiting period before the loan can fund (like a refinance now).
Now, more than perhaps ever, lenders are dealing with the future or our business and at the same time dealing with the past. Buybacks are an issue within our industry with a lot of momentum and no sign of slowing down anytime soon. It's been reported that as of June 2013 there is $265.6 million in pending and disputed buyback requests for loans securitized in 2012 and 2013, versus $134.3 securitized in 2010 and 2011. So there is more risk on the horizon for most lenders. Every lender out there knows that there it has to dedicate staff, or have staff take time away from other activities, to deal with researching and defending against buybacks.
But an innovative approach being taken by a national title/settlement company is actually reducing risks for lenders. Rhode Island based Equity National has been providing their Comprehensive Settlement Protection (CSP) to their customers as part of their title & settlement services since the second quarter. Created with The Prieston Group and underwritten by Lloyds of London, it is a $5 million insurance policy, designed to protect lenders where closing protection letters (CPLs) leave them vulnerable. Equity National's President Jim O'Donnell, who is also an attorney, identified numerous gaps in coverage in a year-long study, and collaborated with TPG in creating a policy that closes those gaps and even helps their lenders avoid buybacks. Inspired by losses he saw his customers experiencing, O'Donnell, a 22 year title industry executive found himself surprised at the limitations in CPL's and other protections relied upon by lenders. There is a compelling story behind the creation of CSP and fascinating examples of the gaps it is designed to close, which he loves to share when explaining its benefits. (Contact Jim O'Donnell at firstname.lastname@example.org for more information).
Turning briefly to a little state news, Texas recently amended its rules regarding application procedures, and has adopted rules regarding alternate charges for consumer loans. The Finance Commission of Texas adopted new amendments concerning residential mortgage loan originators applying for licensure with the Office of Consumer Credit Commissioner (OCCC) under the Secure and Fair Enforcement for Mortgage Licensing Act. Also, the commission has adopted an amendment regarding Maximum Term and Maximum Installment Account Handling Charges for regulated lenders. The new provisions go into effect as of November 7, 2013.
And north in Oklahoma, legislators have recently updated certain provisions in their Secure and Fair Enforcement for Mortgage Licensing Act (that would be "SAFE Act" for anyone good with word scrambles). The changes arrive via Enrolled House Bill No. 1828. The Bill has several additions as well as numbering and formatting changes, along with the unique identifier of a mortgage lender must be clearly shown on all residential mortgage loan application forms or advertisements. A mortgage lender as defined in the Bill must also adhere to the mortgage licensing requirements.
For a smidgeon of good news, Zillow recently released its Q3 Real Estate Market Reports; nothing too earth shattering in the way of findings, however, there are a few important indicators to take note. Home values increased 1.2 percent from the second quarter of 2013 to the third quarter of 2013. The quarterly pace of appreciation was roughly half that experienced in the second quarter. Zillow's own Home Value Index (ZHVI) rose 6.4 percent from September 2012 levels. According to the Zillow Home Value Forecast (ZHVF), analysts expect national home values to increase 3.8 percent in the coming year. The rate of homes foreclosed continued to decline towards the end of Q3, with 5.12 out of every 10,000 homes in the country being liquidated through foreclosure. As for foreclosure resales, they continue to decline, making up 8.32 percent of all sales in September, down 2.7 percentage points from the third quarter of 2012.
Let's take a look at some recent personnel, lender, and vendor changes. (I can't of course, publish every new branch, branch manager or regional manager - these are a little higher up.)
Jim Macleod, President and COO of CoastalStates Bank announced that Thomas Neary, a 28 year veteran of the mortgage industry, is assuming the position of President and CEO of Homeowners Mortgage Enterprises, Inc. Neary will also serve as an EVP of CoastalStates Bank. Neary's background includes senior executive positions at Wells Fargo, NationsBank/ Bank of America, GMAC/ Rescap and BankBoston Mortgage. (Homeowners Mortgage Enterprises is a wholly owned subsidiary of CoastalStates Bank on Hilton Head Island, SC.)
And at Citi, congrats to Tony Tenore who has assumed the role of Head of Correspondent Sales. "Correspondent lending continues to be a vital part of our business and is a major contributor to our CRA strategy and goals. We are committed to this business, and combined with retail, brings balance to our mortgage franchise in a complex industry with dynamic cycles.
Tony comes to this position from his previous role as National Sales Director for the Citibank Direct to Consumer business channel. In this role, he successfully led our sales teams in St. Louis, Ann Arbor and Dallas. Tony has 25 years of business experience and more than 13 years in the mortgage industry."
Recently Total Mortgage Services, LLC, launched "Total Mortgage Processing," an end-to-end mortgage processing platform for mortgage lenders, community banks, credit unions and third party originators, to originate more mortgage loans, scale capacity to market demands, increase profitability, enhance service levels, remain fully compliant and maintain the customer relationship. "Total Mortgage Processing can efficiently support retail or wholesale channel originators through either an existing network of preferred service providers or a network recommended by Total Mortgage. The on-demand processing platform is 100% customizable and includes multiple features and benefits."
Wholesale is certainly not dead. In the West, Commerce Mortgage announced it has entered the wholesale lending market. The Company has operated a successful retail lending division during the last twenty years. "Commerce Mortgage will initially market wholesale jumbo loans in California and Colorado. Its primary niche will be the jumbo loan amounts from $417,001 up to $2,500,000 for both owner-occupied and second homes featuring a 25 day close, 30 year fixed, 5/1 ARMS and refinancing after an all-cash purchase. Sometimes also referred to as 'delayed purchase' refinancing, this program provides a borrower with the ability to write an all cash purchase offer in today's competitive real estate market, and then recoup cash after close of escrow.
For banking M&A, Rockville Bank ($2.2B, CT) will merge with United Bank ($2.5B, MA) in a merger of equals deal. United shareholders will own 51% of the company which will be named United Bank. The banks expect to save about 15% of combined expenses with the deal. And Essa Bank & Trust ($1.4B, PA) will acquire Franklin Security Bank ($213mm, PA) for $15.7mm in cash.
MGIC is reducing "our borrower-paid monthly premiums by 5 basis points for all LTVs, credit scores and coverage segments. We are reducing most rates for non-refundable borrower-paid and lender-paid single premiums as well!" New rates are available on line at www.mgic.com.
Rates aren't doing much, although we did have some news yesterday that caused some volatility. The Producer Price Index fell 0.2% in October following a 0.1% decline in Sept., Core prices, excluding food and energy, increased 0.2% as the cost of cars jumped by the most in four years. Producer prices were up only 0.3% from a year ago - much less than the FOMC's target rate of 2% inflation. (Taper?) But Jobless Claims dropped by 21,000 to 323,000, the fewest in almost two months, from a revised 344,000 the previous week. So initially the fixed-income markets took their cue from this Jobless Claims number, and Treasury 10-year note yields rose to 2.83%, the highest level in two months.
(Read More: MBS MID-DAY: Back Into Positive Territory After Philly Fed Data)
But then headlines crossed around midday that the Senate passed a rule change that effectively prevents Republicans from being able to block confirmation on President Obama's nominees. As Thomson Reuters reported, "This hit higher coupons, especially 4.5s and 5s, on worries that Democrats again would try to get Rep. Mel Watt confirmed for FHFA Director. Investors (certainly not LOs) are worried that Watt would move back the HARP eligibility date to pre-May 2010 from 2009 and initiate other programs such as principal forgiveness to help underwater borrowers refinance." We also saw that the Senate Banking Committee voted favorably on Janet Yellen's nomination for Fed Chairperson - it now proceeds to the full Senate with a vote expected after the Thanksgiving break.
Rate-wise today, we're a little better than Thursday's closing levels. In the early going the 10-yr. which closed at 2.78%, is at 2.77%, and agency MBS prices are better by .125.