Middle Class America Not Ready for Retirement; CALPERS Loan Program Done; More Opinions on Loan Officer Pay; Gain on Sale Up in 3Q

"Dear Santa, "Please send me a baby brother." Santa wrote back: "Send me your mother..."

I sure could use Santa's help with my 401(k). I checked my retirement plan last night. My $20,000 in savings made me feel very... average. Apparently I am in good company. A survey recently completed by Wells Fargo indicates that many Americans express worry about their retirement prospects. Respondents predict they will need a nest egg of $300,000, but have saved just $20,000 of that amount for retirement (figures throughout are medians, the midpoint of responses). The survey found that 72% of middle-class Americans between the ages of 25 and 69 expect to work through their retirement years. (I wonder if this includes all the Fannie, Freddie, WAMU, Lehman, Countrywide, etc., folks who either sank their retirement money into company stock or into deferred compensation.)

Using retirement money for housing comes up occasionally. CalPERS, which ended its housing program, had its "Secure Personal Loan Program," in which members were allowed to borrow some $18,000 against their retirement contributions for a down payment. Unfortunately there have been increasing delinquencies and defaults, CalPERS says. But we digress - the California Public Employees Retirement System, or CalPERS, is no longer offering mortgage loans to members - the program which was overseen by CitiGroup. The public pension fund said that due to "limited member usage" as well as increasing costs, its board of directors approved a suspension of its mortgage loan program, with current locks having three months to fund. The Member Home Program has been around almost 30 years, but in the last six has only done 1,000-4,500 loans per year which isn't much considering there are 1.6 million members and retirees.

An "enforcement action" is basically a regulatory tool that the OCC uses to correct problems or effect change in a national bank. The Federal Reserve Board announced the execution of the following enforcement action: Weststar Financial Services of Asheville, NC. (Please note this bank is part of The Bank of Ashville, and not associated with Weststar Mortgage with its headquarters in Virginia). 

The FHA withdrew its approval of Cambridge Home Capital due to "numerous and egregious violations of FHA requirements." HUD and other authorities investigated CHC's practices and found many areas of FHA noncompliance: CHC failed to maintain and implement a required quality-control plan; failed to document the stability and/or source of borrowers' income, approving loans with grossly excessive DTI ratios without compensating factors to justify approval, etc.

Figures out of the MBA showed that independent mortgage banks and subsidiaries made an average profit of $1,423 on each loan they originated in the third quarter of 2010, up from $917 per loan in the second quarter. "The increase was driven by higher secondary marketing gains that increased from $3,455 per loan in the second quarter 2010 to $4,069 per loan in the third quarter 2010.  The secondary marketing gains offset further increases in the cost to originate a loan." 

I have had a few more comments about comp, the plight of brokers, and the current state of affairs. "Compensation should be derived on a value provided basis. Entering a few key strokes to sell a bundle of mortgages may not constitute enough value to earn as much as someone who has built a business to locate, and assist consumers through the purchase of a home. Historically, and I believe currently, brokers are the least expensive means to deliver mortgages to market. Brokers can and do offer lower cost mortgages than the banks every day.  If delivering mortgages at lower cost to the consumer is 'old and outdated' I shudder to think about any thoughts for a 'new model'."

"With all that I've read by now on LO comp, there's one big question that I still haven't seen addressed/answered: 'If I charge the borrower an origination fee of (let's say) 1.5% of the loan amount, can that fee (along with all other broker and lender fees, title charges, and prepaids) be paid, in whole or in part, with a YSP provided by the lender based on the interest rate?' If this is allowable, then nothing has changed for brokers who have been required to disclose all of their comp forever." So ventured Michael Hillman of One Fee Home Loans.

"My fear is that with the approaching Financial Regulation, will it destroy the competition and create an effective monopoly of sorts in the mortgage industry? What if there is no product choice and we end up with 2-3 large retail sources offering mortgages (or just one the Federal government)? If we get down to a government strict mandated 30 year fixed at 35% DTI to 1040s and a XXX credit score required, there is no real choice for product, and a simple computer could approve every loan. How would the mortgage lenders differentiate themselves?"

"I disagree strongly with the premise the originator gets too much of the compensation side. This is still a mostly free market capitalistic system. Do something different if you don't like the compensation to the originator (individual or company). Every segment or channel earns exactly what they're worth to the system. Competition won't allow it any other way. If the company doesn't want to pay 70% commission splits on the revenue to the loan officer, than fire that loan officer that in essence just "brings in the business to the company" and spend money in advertising to bring in the business to a bunch of in-house order-taking clerks if the company feels that is a way to retain a higher percentage of the revenue generated retail and more revenue of course. Same goes for the wholesaler: If retail is so easy, do it yourself and keep the windfall. The high producers who bring in the lion's share of the revenue will receive the lion's share."

Every originator is doing their darndest to make sure locked loans fund on time, especially given the approaching holidays. Companies are taking a look at their extension policies, maybe adding in a little margin. Investors are warning sellers about the approaching holidays - even though Christmas in on a Saturday this year doesn't mean investors are not going to take a day off. For example, Fifth Third Bank got the word out to its correspondents that, "Loans that are clear to close and received in Closing by noon on December 22 will close and fund for the month; however, note that due to the holidays, it may be necessary to accelerate the timeframe based on capacity. Any loans received after noon on December 22 will be undertaken as capacity allows; we will put forth our best efforts but cannot guarantee the loan will close and fund in December."

Wells clarified for their brokers the issue of timing of re-disclosing the GFE for traditional loans (used for brokers if they disclose a GFE after Wells Fargo has accepted the loan), reminded brokers about the data elements required for NMLS (after Jan. 3, the Company Originator ID associated with the broker's name and the Loan Originator ID needs to match to the information in the NMLS Consumer Access website),  and told clients about the principal curtailment on rate/term refinances being allowed.

The Federal Open Market Committee met, and left overnight rates unchanged at a range of 0-.25%. We are all learning, however, that there is little correlation between overnight rates and mortgage rates. The actual announcement had some choice, albeit expected, tidbits. "The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. The Committee decided today to continue expanding its holdings of securities as announced in November. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month...continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."

After this was released, once again it seemed that half the e-mails on everyone's computers were from investors making prices worse due to the bond market selling off - even though there was really nothing new in the language. The yield on the 10-yr Treasury note reached 3.48%, May levels.

By the time you read my parental discretion warning about this joke, it will be too late. I think it is quick & funny, and some would say true. I can't tell if discretion is advised or not - you be the judge.

A 3-year-old boy examined his testicles while taking a bath.

"Mom", he asked, "Are these my brains?"

"Not yet," she replied.