Originator Compensation Feedback; Two New Mortgagee Letters; Flagstar Selling NPLs; Several Investor Updates; More on Buying a Bank

We're now in that lull period leading up to Thanksgiving. Many feel it is a good time to pull pranks on cubicle dwellers: CHECK IT OUT

Yesterday I mentioned well capitalized mortgage companies buying banks. A grizzled industry vet wrote, saying "Buying a bank is a good idea but it is nearly impossible to do if you are not a bank.  I have worked with very well capitalized clients for over a year only to find out that the OTS and OCC will not approve the deals if the business plan is to operate the bank to feed the needs of the mortgage company.  Once you own a bank you can bid on other banks that are closed each week, but without being in the pre-approved category you have no idea who is for sale. People with money who want to buy banks are not allowed to play because they don't own a bank."

Regarding the loan originator compensation issue, a compliance person wrote in saying, "It seems like all the small guys are waiting for the big guys to weigh in, and the big guys don't quite know what to do. So we wait."

A broker wrote, "I have gone to three compensation meetings. I love how they try to say the brokers have an advantage. Frankly, no one has an advantage and only the consumer loses. This is sheer stupidity by government employees with little understanding of the inner workings of the industry. Earlier this year we were told that YSP was gone (under the new 2010 GFE), yet the comp rules and discussions continually reference the YSP. Give us some direction then leave us alone!"

The folks at HUD were busy yesterday sending out two Mortgagee Letters. One dealt with users completing a screen in FHA Connection entitled 'HECM Referral List Update' and the other discussed the PowerSaver pilot program. But hey, don't take my word for it - go to: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

A ways back, as my grandfather would say, Flagstar Bancorp announced the sale of a good-sized chunk of non-performing loans. Yesterday it announced that the sale had closed, and that the $474 million of non-insured non-performing residential first mortgage loans have a new home.

Credit-Based Asset Servicing and Securitization, known by industry vets as C-BASS, filed for Chapter 11 bankruptcy. In the past, C-BASS purchased and serviced subprime and Alt-A mortgage loans. The company is owned through a joint-venture of mortgage insurers MGIC and Radian, and back in 2007 sold Litton Loan Servicing to Goldman Sachs.

Investor changes have been coming fast and furious. Wells Fargo updated its FHA product line (which for the most part now has a minimum FICO of 640). Wells also tweaked its nonconforming line. BB&T made changes to its conforming and nonconforming guidelines as well. U.S. Bank Home Mortgage Wholesale Division decreased the maximum LTV/TLTV, to 95%, on the Home Possible Programs. ING reminded their broker clients that it does not have a price adjustment for loans up to $1,500,000. Caliber Funding told brokers about its updates dealing with Combined Disclosures.

Impac Mortgage Holdings earned about $1 million in the third quarter of 2010. The earnings come from "mortgage and real estate services fees", which in turn come from "monitoring, surveillance and recovery, title and escrow fees, servicing income, and loan modification fees. Although the name of Impac will always to me represent an Alt-A lender, I mention Impac because the company has launched a wholesale division, promising pipeline transparency.

Freedom Mortgage told its brokers that its "minimum representative credit score for standard VA transactions remains at 620, however the VA Jumbo product now has a minimum representative credit score of 640 for any cash-out transaction. The LTV for all transactions is calculated on the total loan amount including any financed funding fee", so the CLTV calculation must include the total loan amount plus any subordinate financing and the maximum LTV/CLTV for cash-out loans with subordinate financing is 90%. Now Freedom's minimum representative credit score for all standard FHA transactions is increasing to 640. In addition, any FHA jumbo cash-out transaction will have a new credit score minimum of 660. As previously announced, the minimum credit score for an FHA streamline transaction is also 640."

Talking about government loans, GMAC raised their fees for government loans with FICO scores under 660. VA loans went to a 1.375% hit, and FHA's went to a 1.00 hit.

I guess that some mortgage banks could be counted as small businesses. Chase announced that it more than doubled its Small Business Administration loan volume in fiscal 2010. That puts Chase in the top position and is now the nation's largest SBA lender.

How much fun is it to lend in multiple states? Flagstar told its wholesale clients that in North Carolina only 1.25% of the FHA MIP, VA Funding Fee, GRH Guarantee Fee and PMI will be used towards the total state point and fees testing due to the total percentage limit for NC state points and fees being lowered to 4% effective 9/1. And in Georgia, the Residential Fee "was originally disclosed in block 8 of the GFE, however after receiving guidance from HUD, we have changed the mapping to disclose the fee in block 7. You will be required to redisclose a GFE within three days of this announcement showing the change." Exciting stuff!

PHH Correspondent Operations (WCL) has seen a spate of instances where multiple loans were submitted to underwriting or auditing for the same borrowers for different properties that evidenced the same DU/DO Case File ID # had been used: recycled case numbers. "Some examples of cases where this cannot occur would be change of subject property and submitting loans for multiple properties. In any of these cases it is necessary to order new DU/DO findings. Once the Case File ID# has been recycled and now applies to a new loan scenario, the 1st loan becomes ineligible for sale. The DU/DO case number must be unique to each scenario/loan submitted."

Icon Residential reminded clients that its minimum credit score requirement on the FHA program, for conforming and high balance loan amounts, is 620 for purchase, refinance and cash-out transactions. (FHA Streamline transactions require a minimum credit score of 640, and high balance cash-out transactions require a minimum credit score of 660.)

Freddie Mac released a bulletin addressed to servicers discussing its "requirements concerning releasing notes, loan modifications, and late charges for forbearance agreements and repayment plans. In addition, the Guide Bulletin provides reminders and additional guidance related to our Home Affordable Modification program (HAMP) requirements." http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1027.pdf

Geez, it seemed like every other e-mail yesterday was a mid-day rate change. The 10-yr slowly worsened, mortgage prices took it on the chin. The general feeling (for the day) among traders and investors was that the evident strength in the economic numbers, along with the criticism of QEII (take your pick: too strong and will cause inflation, or too weak and worthless), is making the market nervous. Ten- and 30-year U.S. Treasury prices each fell a point as traders unwound positions taken in advance of the Federal Reserve's QE2. 10-yr notes dropped almost 1.5 points in price for a yield of 2.95%. 7-yr notes, more of a proxy for mortgage prices, were worse by 1.125.

Generally speaking, we have really seen a case of "buy the rumor, sell the news" in this QE2 Fed issue. The plan was widely anticipated, and traders and investors bought fixed-income securities leading up to the official announcement of buying $600 billion of government debt (not mortgage debt) through June. After all, the Fed buying $1.7 trillion from 2008 through earlier this year worked just fine, right? Demand for Treasuries leads to higher prices and lower yields, and interest rates are linked to yields. Lower rates should encourage people to borrow money for a mortgage or another loan, and companies to borrow for expansion. But now investors are saying that it could make the weak dollar even weaker, lead to trade disputes with other countries who don't want to see their currencies or investments decrease in value, and possibly lead to higher inflation. But now traders and investors are unwinding those positions.

There is no Treasury supply to absorb until next week which ordinarily helps bond prices somewhat. But there is more than enough supply to go around. California has $14 billion in "Revenue Anticipation Notes" to sell between now and Thanksgiving - that may certainly weigh on the market.  Yesterday $3.5 billion in MBS's crossed the tapes, once again almost twice the usual $2 billion or so. On top of these relatively global issues our markets are grappling with some decent economic news. Retail Sales yesterday were stronger than expected. Today we had the Producer Price Index, with estimates near +1%, and Industrial Production & Capacity Utilization. The October PPI was up .4%, and the core rate (less food and energy) was -.6% - what does that tell you? Tomorrow we have the Consumer Price Index to see how much producer price inflation was passed on to us, the consumer. We also have Housing Starts and Building Permits ahead of us this week. The 10-yr Treasury, which closed around 2.95%, is now sitting around 2.89%, and we're seeing a bit of a bounce in mortgage prices - better between .125-.250 depending on investor and coupon.

A man goes to see the Rabbi.  "Rabbi, something terrible is happening and I have to talk to you about it."

The Rabbi asked, "What's wrong?"

The man replied, "My wife is poisoning me."

The Rabbi, very surprised by this, asks, "How can that be?"

The man pleads, "I'm telling you, I'm certain she's poisoning me - what should I do?"

The Rabbi then offers, "Tell you what.  Let me talk to her, I'll see what I can find out and I'll let you know."

A week later the Rabbi calls the man and says, "I spoke to her on the phone for three hours. You want my advice?"

The man said yes and the Rabbi replied, "Take the poison."