Originator Compensation FAQs Part IX; Revisting the Loan Buyback Situation; Rent vs. Own; Radian Write-Down
Occasionally I am asked by someone to show them "the life of a loan". Here ya go: Life of a Loan
Let's see... the US government helps out BofA, and is now asking them to buyback
loans? And if BofA settles with them, which they did in part with
Freddie, over certain Countrywide loans, what is the resulting impact on the smaller
originators who originally did the loans - will BofA come back to them for full
amounts? So many questions...but an investor group including PIMCO,
BlackRock, and the Federal Reserve Bank of New York is weighing
whether to sue Bank of America Corp. over about $47 billion in mortgage bonds agreed
to extend talks with the lender for the second time. Bloomberg reports that
the bond owners agreed to renew "their extension of any time periods"
laid out in an Oct. 18 letter, set to expire 1/31. Many investors, and groups
of investors, are demanding that BofA repurchase loans packaged into bonds. BofA
Fifth Third Bancorp fully repaid its $3.4 billion in TARP funding
yesterday, bringing total bank repayments to $243 billion, very close to the
total disbursement figure of $245 billion. Treasury officials now estimate bank
programs within TARP will eventually deliver a profit of $20 billion. Throw
that onto the profit and spreads it's made on buying $1.25 trillion of MBS's,
and now you're talking real money.
For some not so good news, Radian
Group, the second-largest U.S. mortgage insurer, watched as its stock fell
yesterday (over 3% in one day) after reporting a $1.1 billion loss in the 4th
quarter. The firm said "uncertainty" over an eventual return to profit
forced a write-down of tax assets, fueling a fourth-quarter loss, and included
a write-down of $841.5 million on tax assets, based on the possibility of
further losses. For the year Radian's loss widened to $1.8 billion $148 million
in 2009.
If you are wondering what to do on February 16th, why not listen in
on HUD's webinar "HUD-approved Housing Counseling Operation and Funding
Overview." This webinar will provide information on operational
requirements, record keeping & reporting, use of HUD electronic systems,
overview of the new HUD Counseling Handbook, etc. It's free, although
registration is required as are computer & internet access. For more
information visit: HUD Webinar
Recently Trulia compared the median list price with the median rent on two-bedroom apartments, condominiums, townhouses, lofts and co-ops listed on its website, and compared that to ownership costs including mortgage payments, property taxes and insurance. It determined that buying a home is cheaper than renting in 72% of the largest U.S. cities, led by Miami and Las Vegas. People have to live somewhere, right? And if your credit is shot... Trulia's CEO stated, "Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets." RealtyTrac has reported that 2.87 million homes received notices of default, auction or repossession in 2010, while apartment vacancies are at a 2-year low. It is no surprise that the top 10 cities where buying is cheaper are all in Florida, Nevada, Texas, Arizona and California, as, except for Texas, those states were among the five with the highest foreclosure rates in 2010.
MND has already warned to watch out for RENT INFLATION
California is cash-strapped. Investment banks billed California an estimated $1.5 million for dues to trade groups, including a municipal-bond lobbying association, since 2005 and will be required to return the money, per state Treasurer Bill Lockyer. "Lockyer ordered 86 firms in the state's underwriter pool to stop including the dues in their calculation of fees paid out of bond proceeds." CAMoneyBack.
On to Part IX, and last part,
of compensation Q&A - remember that company's individual policies may
differ from these answers some extent. The questions were posed by the MBA to
Federal regulators, and there is still a lot of interpretation that will be
left up to companies, regulators, and the courts. Many company's policies will
vary as long as there is no ability or an originator to steer the consumer into
a less favorable product.
Q30. A broker makes one or more mistakes in a Good Faith Estimate by
improperly excluding certain fees and/or including fees at amounts that are
below the correct amounts, and because of the tolerances under RESPA, the Good
Faith Estimate cannot be revised to add the excluded fees or increase the fees
that were disclosed at amounts lower than the correct amounts. Can the broker
provide a credit to the consumer at closing to cover the excluded fees or
improperly disclosed fees, which is a permissible method under RESPA to cure
what otherwise would be a tolerance violation? (In short, under the RESPA rules
a creditor may not be able to charge the borrower either third party fees omitted from the Good Faith Estimate or an amount
for third party fees that is higher than the amount disclosed in the Good Faith
Estimate. Therefore, under RESPA, at closing the lender and/or broker must pay
the fees to avoid a tolerance violation.)
A. Fed Response - No. A broker may not adjust its compensation in this manner.
The Board regards this as similar to a pricing concession which may not vary
per loan. However, the creditor can consider the error in resetting
compensation to the originator for future loans.
Q31. Under RESPA, any credit provided by the lender is first applied to
the creditor's and broker's origination charges, and then any remainder is
applied to third party charges. If a consumer agrees to pay the mortgage broker
and lender directly, and asks the lender to pay some or all third party
charges, the RESPA documents will reflect the credit from the lender as paying
the lender's and broker's origination charges. Is the RESPA treatment of
charges and
credits disregarded in all respects for purposes of the loan originator
compensation rule?
A. Possible Fed Response - Yes. The treatment of charges and credits for RESPA
purposes has no bearing on the loan originator compensation rule. In this
situation, for purposes of the loan originator compensation rule, the lender
would be considered to have paid the third party charges and the consumer would
be considered to have paid the broker's and creditor's charges..
Q32. Would
the Board consider delaying the effective date of this rule until the
Dodd-Frank originator compensation provisions are implemented?
A. Fed Response - No. As the Board stated in the preamble to this rule, the
Board believes that the Congress was aware of the Board's proposal and that in
enacting TILA Section 129B(c), the Congress sought to codify the Board's
proposed prohibitions while expanding them in some respects and making other
adjustments. The Board further believes that it can best effectuate the
legislative purpose of Dodd-Frank by finalizing its proposal relating to loan
origination compensation and steering at this time. Allowing enactment of TILA
Section 129B(c) to delay final action on the Board's prior regulatory proposal
would have the opposite effect intended by the legislation of allowing the
continuation of practices that the Congress sought to prohibit. Through its
rule and in follow-up guidance the Board will work to assist compliance with
the
provisions of the rule which are to become effective April 1, 2011.
Q33. Does the Board plan to implement the Dodd-Frank loan originator
compensation provisions on an interim or final basis so that they would also be
effective April 1, 2011?
A. Fed Response - The Board will not consider implementation issues.
Economic news pointing to a recovery continued yesterday. (Don't ask me when we move from "recovery" to "expansion" - I guess when jobs and housing grow, and I don't know if the housing market is going to grow with the REO and delinquency issues.) Yesterday, after the daily commentary went out, we learned that Factory Orders rose 0.2% in December, and that the ISM Nonmanufacturing Index rose 2.3 points to 59.4 in January, hitting a new recent high. Federal Reserve Board Chairman Bernanke himself said yesterday that the low inflation rate combined with high unemployment would normally push the Federal Open Market Committee to cut rates, if they weren't already near zero. "Although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain persistently below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate..."
Yesterday a trader reported that he saw, "much better selling early from domestic accounts: money managers selling the basis, hedge funds selling outright and selling the basis via CMM, and a couple smaller blocks of supply from the originators." Treasuries sold off for the fourth straight session. 10-year notes lost .375 in price and closed at 3.54%. MBS prices fell (worsened) between .250-.375 and, overall, MBS volume was above normal according to Tradeweb. But unlike the December selloffs, when higher coupons did better on a relative basis than lower coupons, traders are seeing the opposite, and now lower coupons are doing a little better. Go figure...
The employment numbers arrived this morning. Nonfarm Payrolls for January were projected to increase about 140k with the Unemployment Rate increasing to 9.5% from 9.4%. Nonfarm Payrolls were only up 36,000, with some back month revisions higher, although the Unemployment Rate dropped to 9.0%. (The discrepancy is due to the BLS household survey population versus the government's industry survey. But it still points to the fact that these numbers are viewed as "screwy" - is it at 9% due to people giving up looking for work?) Hourly earnings were up .4%, although the average workweek dropped slightly. READ MORE ABOUT THE DATA
A man had 50 yard line tickets for the Super Bowl.
As he sat down, he noticed that the seat next to him was empty.
He asked the man on the other side of the empty seat whether anyone was sitting there.
"No," the man replied, "The seat is empty."
"This is incredible," said the first man.
"Who in their right mind would have a seat like this for the Super Bowl, the biggest sporting event in the world and not use it?"
The second man replied, "Well, actually, the seat belongs to me. I was supposed to come with my wife, but she passed away.
This will be the first Super bowl we haven't been together since we got married in 1967."
"Oh, I'm sorry to hear that. That's terrible. But couldn't you find someone else -- a friend or relative, or even a neighbor to take the seat?"
The man shook his head. "No, they're all at the funeral."