Fed Q&A on Originator Compensation; High Quality MBS Investments; BoA Settles One Buyback Suit; Non-Agency Lending Stats

It doesn't take long (within 60 seconds of this video of the Australian flooding) to figure out why insurance is more expensive in a flood zone. DontUnderEstimateWater

Welcome to Women's History Month! National Women's History Month dates back to 1857, when women from New York City factories staged a protest over working conditions. International Women's Day was first observed in 1909, it was made into a week in 1981, and then in 1987 it was made into an entire month. Given that trend it will soon be the entire year. (When is National Man's History Month?) Per the Census Bureau there are 157 million females in the United States, versus 153 million men. (Please don't ask me where Chas/Chastity Bono fits in.) Over the age of 85, there are more than twice as many women as there were men. Census 

These 13 pages should help in answering some of the compensation questions out there: MBAQ&A 

The Q&A document noted above was published by the MBA recently, and was in turn sent out by NYCB Mortgage Company. NYCB cautions "While this MBA document contains informal answers from Federal Reserve staff, it is not binding upon the Federal Reserve or the Mortgage Bankers Association. The information contained in the document is not intended to constitute, and is not a substitute for, legal or other advice."

What do Realtors and title company officers think about the LO compensation changes coming our way? The title on a recent piece sent out by NAMB read, "Realtors Upset After Learning Fed Comp Rule Will Impact Revenue" and focuses on a "staff interpretation" that suggests that loan officer compensation rules would restrict payments between mortgage companies and "affiliated" real estate brokerages and title agencies. "Trade group officials recently learned that the Fed staff believes fees paid to affiliated title or real estate brokerage servicers could run afoul of the rule." There are suggested workarounds, but the letter sends out the word that NAMB has decided that the time has come to seek a temporary restraining order through legal action, NAMB is filing a lawsuit against the Federal Reserve on LO comp.

Some out there believe that as California goes, so goes the nation. CoreLogic released some non-conforming origination statistics for the West Coast in 2010 that are worth a peak. For non-conforming product in California, Wells was #1, followed by Union Bank, Bank of America, CitiMortgage, and First Republic Bank. But if one looks at only non-conforming ARM's, however, since it appears that ARM loans are in everyone's future, Union Bank led the pack. In Oregon and Washington, for non-conforming ARM's, it was ING, followed by US Bank, and Wells.

Are mortgages underwritten in the current environment good investments? You bet they are! Recently the National Information Center released consolidated financial statements for bank holding companies for the 4th quarter. Large banks have been the primary buyers of mortgage-backed securities, and this study looked at the top 50 bank holding companies. In the 3rd quarter they added over $48 billion of agency MBS, and in the 4th quarter added another $38 billion. Most of this was in Fannie/Freddie product; Ginnie Mae pass-through holdings fell by about $1 billion. Most analysts believe that banks should be a leading force in supporting the agency mortgage basis going into 2011. Compare this to banking data released from the FDIC for the fourth quarter, which reported an increase of $42.7 billion in MBS holdings, and $87.4 billion for the year. The demand for agency mortgage-backed securities continues strong, whereas the supply is expected to lessen.

But more recent news (the latest H.8 report) shows that large domestic bank holdings of agency MBS have declined by $15.5bn but agency MBS holdings of small banks have increased by $11.5bn since the beginning of the year. This is a continuation of the trend seen from 2010 - in general, smaller banks are providing a relatively stronger demand for agency MBS recently. For instance, agency MBS holdings of large banks rose by 5.3% while those of small banks rose by 18% since the beginning of 2010.

How about the non-agency paper biz? Redwood Trust posted a fourth quarter net income of $15 million compared to $40 million in the prior year quarter. Redwood also reported an estimated taxable loss of $6 million during the fourth quarter of 2010, compared to a taxable loss of $35 million last year.

One down, and I don't know how many to go. On Friday a federal judge in Los Angeles approved a deal in which Bank of America will pay $600 million to the New York State Common Retirement Fund and several New York City pension funds that sued Countrywide. The class-action lawsuit accused Countrywide of failing to disclose to the pension funds and other investors that its risky mortgage portfolio endangered the company's health. The accusations have been denied, and the issue has been settled rather than spend the money defending it.

If you have a bridge, like the Golden Gate Bridge, there is a toll. Economists are very good about figuring out what happens when one raises the toll from $5 to $10. Revenue does not double, since the increase will cause a drop in commuters, and a large drop in drivers can cause profitability problems for the bridge district. This is a simplistic example, but one that may pertain to a small part of what HUD's FHA is dealing with, in that its mortgage insurance premiums have increased while volumes have fallen. The premiums are expected to help the Mutual Mortgage Insurance Fund to the tune of $3 billion a year, although (due to many factors) HUD estimates that FHA originations will total $218 billion during fiscal 2012. Volume in the current fiscal year is projected to come in at $289 billion, while fiscal-year 2010 ended at $319 billion.

Friday the commentary mentioned the FDIC's meeting this week "to discuss principles for low- and moderate-income (LMI) mortgage lending, and supporting financial education," but also, "There are many people in the business who argue that the government's insistence on lowering lending standards in the past, in order to increase home ownership, especially to those who weren't credit worthy in the past, accounted for a good chunk of the credit issues that we're dealing with now."

I received several comments. "In 1972, I was working as a rookie loan officer for Mason-McDuffie in Las Vegas.  I was the designated chauffeur for an MBA task force appointed to find out why North Las Vegas was the foreclosure capitol of the country for FHA Section 235(i) loans.  These were $100 down-payment and poor credit was OK...the committee's conclusion was that despite all the good intentions of the government, some people just ain't fit to own homes." Another wrote, "The fine line of encouraging home ownership was crossed when lenders called subprime lending 'Affordable Housing.' There is a distinct difference between the two, with the point being that low down payments and higher ratios have nothing to do with willingness to repay debt - unwillingness to repay debt is the undercurrent of subprime lending."

In Virginia a tax issue has arisen for refinances. Namely "On deeds of trust or mortgages, the purpose of which is to refinance or modify the terms of an existing debt with the same lender, which debt is secured by a deed of trust or mortgage on which the tax imposed hereunder has been paid, the tax shall be paid only on that portion of the amount of the bond or other obligation secured thereby which is in addition to the amount of the original debt secured by a deed of trust or mortgage on which the tax has been paid. The instrument shall certify the amount of original debt." Fairfax County, it is rumored, is now rejecting "same-lender" refinances for many instances so that if the MERS MIN number on the payoff loan shows Fannie or Freddie, the county will require the full recordation fee. If the new GFE shows minimal recording charges due to the previous policy, it runs the risk of being rejected at the courthouse. The reader suggested, "All preliminary HUDs should show full recordation taxes unless one can show otherwise."

When the vice chairman of the FOMC, who is also the Federal Reserve Bank of New York President, speaks, people listen. William Dudley said the "considerably brighter" economic outlook isn't yet reason for the central bank to withdraw its record monetary stimulus. "We provided additional monetary policy stimulus via the asset purchase program in order to help ensure the recovery did regain momentum." He doesn't see any reason to change things.

The markets were pretty quiet yesterday, with MBS trading volumes running at about average and prices closing roughly unchanged as did the 10-yr (3.41%). The highlight today will be Chairman Bernanke's semiannual Monetary Policy Report before the Senate Banking Committee beginning at 10AM EST. In addition, Treasury Secretary Geithner testifies before the House Financial Services Committee on "Mortgage Finance Reform: An Examination of the Obama Administration's Report to Congress" - also starting at 10:00, and Construction Spending. Early indications point to a decent stock market, mortgage prices worse by about .250, and a 10-yr yield sitting around 3.48%.

A group of Alabama friends went deer hunting and paired off in twos for the day. That night, one of the hunters returned alone, staggering under the weight of an eight-point buck.

"Where's Henry?" the others asked.

"Henry had a stroke of some kind.  He's a couple of miles back up the trail," the successful hunter replied.

"You left Henry laying out there and carried the deer back?" they inquired.

"A tough call," nodded the hunter. "But I figured no one is going to steal Henry!"