Fed's Informal Interpretation of Originator Compensation Regs; Where America is Moving; Free HUD Training;

By: Rob Chrisman •

Did anyone from your county move in 2008? It is not my job to keep track of them - but someone does. Privacy issues aside, Realtors may find this interesting: PopulationMoves. By the way, Detroit is in Wayne County, and Phoenix is in Maricopa County.

Is your company compliant with the new compensation and anti-steering provisions in Section 226.36 of Reg. Z? I hope so. But compliance folks are still talking about how, on St. Patrick's Day, staff members from the Fed's Division of Consumer and Community Affairs provided their informal interpretations of the rule's requirements and restrictions related to a number of common questions they received in recent months. For example, the Fed staff opined on the "point bank" concept, where the general belief was that some form of point bank was permissible under the rule. Some plans would have allowed loan originators to accrue credits in their point banks by charging overages; others would have credited the loan originator's point bank on a closed loan basis. In either scenario, the loan originator would have had the ability to "withdraw" credits from his or her point bank, up to a certain amount on a given transaction, in order to offer pricing concessions to consumers in a competitive situation. According to the Fed staff, neither approach is compliant with the rule because the funding of a point bank in any manner constitutes originator compensation. The practice of funding a point bank based on overages would not work because the point bank (again, compensation) is being funded based on the terms or conditions of a loan.

In the second example, the funding of the point bank is not a violation because the credits are earned on a fixed percentage of the loan amount - a permissible means of compensation - but the use of the credits from the point bank to give a consumer pricing concessions will result in the reduction of originator "compensation" (i.e., the point bank balance) based on loan terms or conditions.

Another item addressed by Fed staff in the webinar was the issue of compensating mortgage broker entities with multiple branches. Many were under the impression that compensation could vary by location based on permissible factors, such as cost of living differences. However, the staff advised that if a broker has an office in Anytown, Ohio, for example, and an office in another area of Ohio, a creditor doing business with the broker must have the same compensation arrangements with both branches. The theory stated by the staff is that while a creditor may have different compensation arrangements with different loan originators who are individuals, the branches are part of the same entity and are not separate loan originators. The theory completely ignores an important distinction between an individual and an entity; an entity can be in multiple places at the same time. Does the staff actually believe that if a broker has branches in 50 states there can be no difference in the compensation arrangements between a creditor and each of the branches? If so, how can a broker compensate its individual loan originators differently based on differences in the cost of living if the broker cannot receive compensation that reflects the differences in the cost of operating branches in various areas?

HERE are slides from the Fed's webinar presentation

Thursday is a big day for many investors and lenders. For example, MetLife Home Loans reminded its clients that all files based on the old compensation rules must be submitted and received by MLHL by the end of business on March 31, 2011. For MetLife's consumer-paid broker compensation, the broker will negotiate its consumer-paid broker compensation with the borrower up to a maximum of 2.500% of the loan amount. The broker will access the company's Pronto! system to view the current consumer-paid pricing which will reflect a range of rates with par, premium and discount pricing. (The borrower's pricing will not include any lender-paid broker compensation.) The GFE is completed. Per its flyer, "MetLife Home Loans will not require copies of your loan originator compensation plans, will not require proof of your anti-steering documentation, will allow changes to your broker compensation level every 60 days, will allow your borrower to pay MLHL bona-fide discount points to lower the interest rate, will allow you to switch between consumer-paid and lender-paid until the loan is locked, and will allow you to have broker compensation up to 2.50%."

Stearns Lending wholesale's group reminded brokers that they will be offering a few different lender compensation plans. Specifically, for conventional loans the comp plan will be in .125% increments between 1.00% and 4.00%. For Stearns' government lender paid comp plans, brokers can have .250% increments up to 1% higher than the broker's conventional plan. Stearns, by the way, is hosting a training Webinar tomorrow from 10AM until 11:30AM PST. Go HERE to register - space is limited.

The nation saw only one FDIC-related bank closure Friday, with Advantage National Bank Group (IL) assuming all the deposits (liabilities) of the Bank of Commerce (IL). Which brings up the question, "Do regulators see trends in problem banks?" Generally speaking, regulators see some key characteristics they frequently find in these institutions, none of which be themselves is usually capable of bringing a bank down, but when combined with others cause concern. These include strong growth, concentrations of credit (particularly CRE and construction & development), out-of-area lending, dominant management, failure of board oversight, heavy reliance on wholesale funding (brokered deposits), minimal balance sheet liquidity, and a lack of knowledge of complex investments. Healthy banks, on the other hand, are urged to focus on sustainable growth, supported by core deposits - easier said than done.

Here is a story from the weekend, with a slightly different take, on the mortgage meltdown:  In Prison for Taking a Liar Loan

Here's one of those FDIC lists you may or may not want to find yourself on: Recent Enforcement Actions

HUD has some free training classes coming up that might be of interest to some. At 1PM EST on the 30th it is presenting a Webinar "Important Changes to HudHome Sales" for HUD registered real estate brokers nationwide. "FHA staff will provide information on recent changes & how they will affect the real estate community." Register HERE. HUD is also doing some loss mitigation training in Hollywood, Florida on April 28th for housing counselors. "Please Note: The completion of NSC's Online EClass Training is a "prerequisite" prior to registering & attending any HUD live classroom training. The NSC EClass training date on your certificate is a required field when registering for live classroom training." Register HERE and additional information regarding EClass requirements can be found in Mortgagee Letter 2009-45.

Friday I mentioned a proposal for paying foreclosed-upon borrowers to help them start anew. "Sheila Bair, FDIC chairman, raised the idea but people involved said it was not an official government proposal and was rejected strongly by some of the banks." I received this note. "Marx, Engels, Lenin, etc. would be proud that their failed ideas on economics live on in Sheila Bair and our benevolent banking/mtg industry 'regulators'. How many more times do we need to listen to our leaders talk about abandoning free market principles in order to save the free market?  'Congress recognizes that the country's debt path is unsustainable. While the economics of the matter are straightforward - cut spending, raise taxes, or both - the politics is not. And if voters cannot insist, or are not going to insist, on fiscal sustainability, and if Congress is not going to control public finances on its own accord, then one must conclude that the fiscal process is lacking a necessary ingredient.' A wise economist once said, 'if something is unsustainable, it will not be sustained.' If our 'leaders' don't get their fiscal house in order, bond vigilantes and our creditors will do it for them. Then Helicopter Ben will start raining more dollars into the economy magic printing press, call it stimulative quantitative easing III, IV, V or whatever, and then we'll be Weimar Germany. My parents came to this country by literally escaping communist Yugoslavia for economic and political freedom, and it scares me to think that, less than 50 years later, I might have to leave the US for the same reasons my parents fled communist Yugoslavia....in search of economic and political freedom."

 

Turning to the markets, the 10-yr closed around 3.44% on Friday, with not much in the way of news aside from GDP from the 4th quarter and a University of Michigan Consumer Sentiment Index survey that showed a drop in sentiment back to November 2009 levels. From the previous Friday's close, however, 10's lost 1.375 in price and its yield shot up 17 basis points. For the week MBS prices lost between .5-.75 points on current coupon rates.  

For economic news this week today we will have Personal Income and Consumption/Spending, along with PCE (Personal Consumption Expenditures) and Pending Home Sales. Tomorrow is the Case-Shiller 20-city Index, which never seems to bring good news, and Consumer Confidence. On Wednesday the 30th we have the Challenger Job Cuts and ADP Employment Change. Thursday is Jobless Claims, Factory Orders, and the Chicago Purchasing Manager's Survey. Friday is all the unemployment data, the ISM index data, and Construction Spending. FULL ECONOMIC CALENDAR

 

 

With the Master's golf tournament coming up... 

At dawn the telephone rings . . .

"Hello, Senor Rod?"   This is Ernesto, the caretaker at your lake house in Bella Vista."

"Ah yes, Ernesto.  What can I do for you?  Is there a problem?"

"Um, I am just calling to advise you, Senor Rod, that your parrot - he is dead."

"My parrot?  Dead?  The one that won the International competition?"

"Si, Senor, that's the one."

"Damn!  That's a pity!  I spent a small fortune on that bird.  What did he die from?"

"From eating the rotten meat, Senor Rod."

"Rotten meat?  Who the heck fed him rotten meat?"

"Nobody, Senor.  He ate the meat of the dead horse."

"Dead horse?  What dead horse?"

"The thoroughbred, Senor Rod."

"My prize thoroughbred is dead?"

"Yes, Senor Rod, he died from all that work pulling the water cart."

"Are you insane??  What water cart?"

"The one we used to put out the fire, Senor."

"Good Lord!!  What fire are you talking about, man??"

"The one that destroyed your house, Senor!  A candle fell and the curtains caught on fire."

"What the devil??  Are you saying that my house is destroyed because of a candle??!!"

"Yes, Senor Rod."

"But there's electricity at the house!!   What was the candle for?"

"For the funeral, Senor Rod."

"WHAT BLOODY FUNERAL??!!"

"Your wife's, Senor Rod.  She showed up very late one night and I thought she was a thief, so I hit her with your new Taylor Made Super Quad 460 golf club."

SILENCE........... LONG SILENCE.........

"Ernesto, if you broke that driver, you're in deep trouble!!"