Retail Banks or Independent Lenders: Who Writes Better Mortgages?; Compensation Reform's Impact on Lock Desk Policies; Lots of Investor Bulletins

My computer is back up and operational. It turns out that running two virus security systems simultaneously pretty much shuts down your computer - I incorrectly thought it would make it twice as safe! I went ahead and extracted & rebuilt the hard drives, reconfigured the back-up retrieval system, re-mapped the memory and broadband, and at this point I realize that I have no idea what I'm talking about. I will put out a special Saturday edition to make up for yesterday. On with the show -)

Who writes better mortgages, banks or mortgage banks? The Chicago Fed published a paper that focuses on how competition among lenders affects mortgage loan characteristics. According to its study, and please don't complain to me, banks issue safer mortgages than independent mortgage banks. Further, mortgages from banks with a branch in the local market where the property is tend to be safer than mortgages from banks without a local branch. Interestingly, changes in market shares among lender types (local bank, nonlocal bank, or independent mortgage bank) that lead to higher loan risk also are associated with better borrower quality. ChicagoFedPaper

Compass Analytics released some thoughts on how compensation changes impacts secondary marketing managers, and the production of rate sheets. "...The concern that Secondary Marketing Managers (SMM's) wouldn't be able to charge different margins or loan level price adjusters based on a loans attributes and a borrower's credit and occupancy information under the new regulations.  Although the law states that originator compensation cannot vary based on a loans terms and rates, Mortgage Banks and their Secondary Marketing departments don't fall under the definition of "originator", but are rather considered "creditors" under the new legislation.  The generally accepted definition of "creditor" typically allows for the inclusion of Mortgage Banks funding loans through a warehouse line of credit as well.  Because loan level price adjustments are charged by Investors and are then passed down to the borrower, these should not have any impact on originator compensation.  Additionally, falling under the definition of "creditor" allows SMM's to vary their level of base/corporate margin across different loan program, rates and terms in ways in which Loan Officers and Brokers cannot." In addition, rate sheets will become more complex. "Under the new regulations, originators choosing a borrower paid compensation structure will indicate their desired level of margin and Secondary Marketing will produce a finished product for borrowers, which includes the appropriate originator margin adjustment...the need to centralize locking through a single lock desk has increased greatly." And keep an eye on pullthrough and extensions - pullthrough may actually increase since originators are no longer able to be compensated by the originator and the borrower under the new rules, and a certain percentage of renegotiations in the past involved helping the loan originator.

For "lender-paid" transactions, Provident Funding has released an update to its website that allows some broker clients to "set the Lender Paid Broker Compensation Level by state for your account." "The Lender Paid Broker Compensation Level is based on a percentage of the loan amount (0.000% to 2.000%, in increments of 0.005%) and must be saved for each state in which you will originate loans. Lender Paid Broker Compensation shall be limited to a minimum of $1,500 and a maximum of $12,500. Setting the percentage level at 0.000% will make your compensation the minimum $1,500 on each transaction regardless of loan amount. No other broker fees may be charged or collected on any transaction in which your compensation will be paid by the lender. Therefore, you must consider all administrative, processing, and operational costs when setting your Lender Paid Broker Compensation Level. Percentage levels can be adjusted quarterly. However, if you fund at least five lender-paid loans in one month in the same state, the percentage level can be adjusted for the next month. This adjustment must be made prior to the first day of the following month."

Those zany loan agents - they're putting the branch ID instead of the company's ID in the 1003. Apparently some originators thing they are supposed to use the branch ID instead of the main company ID on the 1003.  It might work for the SAFE Act, but if they wish to deliver the loan into the secondary market, and be paid, one probably wants to use the company's ID - but check with Ops to make absolutely sure of this.

Along those lines, Fannie Mae recently sent out requirements delineating what 1003 information must be provided to the agency during loan delivery, including the loan origination company's (not the branch, or state-level) unique NMLSR identifier: FannieNMLSR

Ally Financial/GMAC/RFCannounced that the U.S. Treasury will be repaid $2.7 billion from the sale of all the Trust Preferred Securities that Treasury holds in Ally.  "This represents the full value of Treasury's investment in these securities." Besides this, Ally has paid approximately $2.2 billion in dividends on the Treasury investment to date.

Here is an interesting partnership. United Guaranty, the MI company, has formed a strategic alliance with LoanSifter, best known for web-based mortgage product eligibility and pricing engines. Starting at the end of the month, "LoanSifter will provide community banks, credit unions, and mortgage bankers with seamless access to United Guaranty's pricing engine, Performance Premium. Through LoanSifter, United Guaranty will automatically deliver a mortgage insurance (MI) quote for originators who have a master policy, and an MI premium estimate to lenders who have not established a relationship with United Guaranty."

Comp news keeps coming. Freedom Mortgage, the wholesaler out of New Jersey, sent out a webinar training schedule for its broker clients, along with a list of frequently asked questions FAQ Freedom also sent out a fine breakdown of the plans: Plans

There are indeed positive signs out there for brokers. After a pilot program in the Northeast, GMAC has rolled out its wholesale channel pretty much nationwide. According to GMAC reps that I have spoken to, brokers are eager to speak to them - no surprise there. And remember Impac? Known better for its Alt-A lending which pretty much dried up in the summer of 2007, Impac (IMPAC?) has rolled out a wholesale plan:  https://www.impacwholesale.com/ - as one veteran loan agent wrote, "Are stated 80/20's with a 580 FICO far behind?"
 
Wells Fargo told its brokers that "going forward, Non-conforming rates will fluctuate with the market. As you do with other product types, you'll need to work with your borrowers to determine when to lock loans."

Investors continue to bail on temporary buydown loans - yet another example of "unintended consequences" from regulations running amuck (definition: "mad with murderous frenzy") GMAC recently, due to problems displaying the interest rate and payment summary table in the TIL Disclosure, temporarily suspended the product, as did Franklin American, and practically all other investors.

M&T has posted an update to its rate sheet which applies to its FHA 203k Rehabilitation product line(s). Included in this bulletin are requirements for 2010 IRS Transcripts, which will be requested upon receipt of an executed #4506-T by borrowers.

Mountain West Financial spread the word to brokers that for most loans underwritten before June 15, 2011, if the borrower has filed their 2010 tax returns, and the tax transcripts are not yet available, the tax transcript request will be returned from the IRS and reflect "No Record Found", the following must be provided: 2010 Tax Transcript showing "No record or return filed"; and a copy of the 2010 Tax Return, and (for salaried borrowers) a 2008 and 2009 tax transcript, current paystub and 2010 W-2.

Wells Fargo's wholesale group recently rolled out a Financial Reform Helpline (it is not a suicide hotline!) for brokers. (877) 442-0740 will give you information on compensation levels, consumer- and lender-paid models, LO compensation, GFE submission, etc., but will not be able to "provide specific answers on broker owner compensation policies or labor laws."

US Bank National Wholesale Sales Division updated its clients on the verification of funds and aging for refinances, reflecting those of Freddie Mac's. After mid-March, USBHMWD will require "Verification of Funds on Conventional Refinances: Verification of funds will be required for all conventional refinance mortgages. Seasoning of No-Cash-Out Refinances: When a loan being refinanced was a purchase money mortgage, the mortgage being refinanced must have a Note Date at least 120 days prior to the Note Date of the new no-cash-out refinance mortgage transaction." Also reflecting agency guideline changes, U.S. Bank Home Mortgage will require all open revolving accounts to be included in the DTI ratio regardless of the number of payments remaining.  "Our policy on installment debt remains unchanged. USBHM will not allow paying off revolving debt to qualify on any FHA, VA or conventional loan that we offer (regardless of the source of funds)."

PHH alerted its clients to several policy changes for FHA and VA loans. Flood insurance, property flipping, refinanced mortgage status, seasoning for Streamline Refinances, subordinate liens, appraisals, and "total obligations to income ratio" are all covered, reflecting recent government loan underwriting changes. As always, check the actual announcement for details too lengthy to reproduce here.

On to something simple - like the markets. Rates have been volatile for the last few days. On Wednesday the 10-yr worsened by about .375 and closed with a yield of 3.46%. We've had the Fed's Beige Book (moderate expansion, sluggish housing not helping), the ADP numbers (now made moot by unemployment figures this morning), Jobless Claims, Productivity numbers, the announcement of next week's 3, 10, and 30-yr auctions (Another one? Didn't we just have one?), etc. MBS prices worsened Wednesday and again yesterday (losing roughly .5 in price).

The markets are focused on the same things that are garnering headline news: higher oil prices, the ongoing turmoil in the Middle East and Africa, and comparisons between Charlie Sheen's and Moammar Gadhafi's rants. The favorable economic news helped stocks yesterday, and after yesterday's closing 10-yr yield of 3.57%, one might expect a little bounce with the unemployment data but with oil still moving up, and now over $103 per barrel, things are dicey.

Today we learned that Nonfarm Payrolls for February were up 192,000, about as expected, and there were back-month revisions of over 50,000. Private payrolls were up 222,000, and the headline unemployment rate dropped to 8.9%. FULL RECAP

A very elderly gentleman, (mid-nineties) very well dressed, hair well groomed, great looking suit, flower in his lapel smelling slightly of a good after shave, presenting a well looked after image, walks into an upscale cocktail lounge.

Seated at the bar is an elderly looking lady, (mid-eighties).

The gentleman walks over, sits alongside of her, orders a drink, takes a sip, turns to her and says: "So tell me, do I come here often?"